BLUE BIOFUELS, INC. 10-K

ITEM 7. 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 annual 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 the renewable energy, biofuels, and bioplastics technologies sectors. In early 2018, our 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, and recently received, a patent application for this technology. The CTS 2.0 process is a continuous mechanical/chemical dry process for converting cellulose material into sugar and lignin. 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. The Company expects to have its 5 th generation CTS 2.0 prototype, along with auxiliary equipment, completed in 2022. 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 a commercial volume system. 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 jet-fuel and the like; (2) selling sulfur-free lignin to ion exchange resin producers; (3) making bioplastics from lignin; or, (4) using the sugars and lignin to make biochemicals. We believe that one or more of these co-products could potentially be profitable for the Company. Our goal is to develop our CTS 2.0 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 2.0 technology. The Company is also looking into converting ethanol to jet fuel. To minimize dilution to shareholders, we will seek project-based financing to build (or acquire and retrofit) or joint venture with existing ethanol producers to produce cellulosic ethanol and lignin/bioplastics and other specialty chemicals from our CTS 2.0 system. We believe retrofitting existing plants with the CTS 2.0 technology may achieve more rapid commercialization than building new plants. If 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. 13 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. (D6 is for corn ethanol). 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 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. Capital Formation From January 1, 2021 through the date of filing, 13,455,008 warrants were exercised for proceeds of $1,302,817. From January 1, 2021, through the date of filing, the Company issued 10,543,332 shares at prices ranging from $0.075 to $0.25 per share for proceeds of $2,260,750. From January 1, 2021, through the date of filing, 500,000 options were exercised for proceeds of $20,400. From January 1, 2021 through the date of filing, the Company issued an aggregate of 515,700 shares of its common stock for services valued at $120,152. From January 1, 2021 through the date of filing, the Company issued an aggregate of 1,166,667 warrants for services. Using a Black-Scholes asset-pricing model, these warrants were valued at $72,090. These warrant have all been exercised. From January 1, 2021 through the date of filing, the company issued 7,080,000 shares in exchange for convertible debt of $279,000. Purchases of Equity Securities The Company has never purchased, nor does it own, any equity securities of any other issuer. Going Concern The Company has incurred losses since inception, and although it currently has a working capital surplus, it may be unable to raise further capital. At December 31, 2021 the Company had a working capital surplus of $713,554 and had incurred accumulated losses of $48,821,403 since its inception. The Company expects to incur significant additional losses in connection with its continued start-up activities. As disclosed in Note 2 to the financial statements, there is substantial doubt as to 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 year ended December 31, 2021 to December 31, 2020 For the year ended December 31, 2021, the Company recognized $0 in revenue and also $0 in 2020. For the year ended December 31, 2021, the Company’s general and administrative expenses decreased by $192,826 to $1,034,948 from $1,227,776 in 2020. This decrease is primarily due to non-cash options packages valued at $876,291 in 2020 as compared to $31,104 non-cash stock compensation in 2021, partially offset by increased salaries to $942,522 from $396,394 in 2020. 14 Interest expense decreased in the year ended December 31, 2021 by $156,420 to $33,772 from $190,192 in 2020. This decrease is due to the Company’s decision to accrue interest on the back pay due to management in 2020 followed by the repayment of most back pay in 2021. For the year ended December 31, 2021, the Company received a loan forgiveness of $66,330 versus $0 in 2020. Research and Development The Company expenses all research and development costs as incurred. For the years ended December 31, 2021, and 2020, the amounts charged to research and development expenses were $1,103,436 and $763,159, respectively. The increase is due to the Company hiring additional laboratory personnel after successfully raising additional capital. Liquidity and Capital Resources Liquidity 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. As of December 31, 2020, the Company had $286,579 in cash and total stockholders’ equity at December 31, 2020 was negative $3,336,764. Total debt, including advances, accounts payable and other notes payable at December 31, 2021, together with interest payable thereon and contingent liabilities, was $3,234,293, a decrease of $994,973 from December 31, 2020, where it stood at $4,229,266. This decrease is primarily attributable to paying down back pay and $279,000 of convertible notes having converted. $2,738,132 of the remaining debt was renegotiated to be payable out of future revenue or future profits and otherwise does not come due. During the fiscal year ended December 31, 2021, the Company’s operating expenses increased $180,933 to $2,171,868 from $1,990,935 in 2020. This increase can primarily be attributed to an increase in salaries. During the fiscal year ended December 31, 2021, the Company’s investing activities used $233,132 in cash. This can be attributed to $216,390 used to purchase machinery and equipment, and $16,742 in patent expenses. During the fiscal year ended December 31, 2021, the Company generated an aggregate of $3,576,467 through its financing activities, which is an increase of $2,272,757 from $1,303,710 during the fiscal year ended December 31, 2020. This increase from the prior year can be attributed to $2,260,750 raised in private placements as compared to $887,380 in 2020, and $1,315,717 received from the exercise of warrants as compared to $350,000 in 2020. 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 optimize and scale up its CTS 2.0 system to be commercially ready. The Company anticipates reaching this stage in around 12-18 months. There is no guarantee that we will achieve all of the additional funding that is needed. As of the date of filing, the Company has raised $7,500 through the exercise of warrants in 2022, $3,576,467 in 2021, through the issuance of common stock and the exercise of warrants and options, in addition to $10,692,293 raised through the end of 2020 through its private placement offerings, and 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 re-evaluate and revise its operations. 15 Equity As of December 31, 2021, shareholders’ equity was negative $(1,396,046). There were 274,003,883 shares of common stock issued and outstanding as of December 31, 2021. There were no preferred shares outstanding. The Company has paid no dividends. Critical 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 exercised control, if any, and there are currently none. Principles of Consolidation The Company’s consolidated financial statements include the accounts of the Company and its then-existing 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. The Company’s proportionate share of net income or loss of the entity is recorded in the Consolidated Statements of Earnings. 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. Stock Compensation 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 under in accordance with ASC Topic 718, ASC Topic 505, “Equity Payments to Non-Employees” or other applicable authoritative guidance Seasonality The Company’s operating results are not affected by seasonality. Inflation The Company’s business and operating results are not currently 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. 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. ITEM 7A. 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.