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 renewable energy, biofuels, and lignin. 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, and the Company filed a process patent application for this technology. Mr. Slager has since further developed the system with laboratory personnel. The CTS patent was awarded in 2021 in the United States (U.S. Patent No. 10,994,255) 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. In addition to this patent, the Company has received one additional patent (for which it has also applied for in all the above mentioned jurisdictions), one continuation patent pending, and provisional patent applications for two additional patents that are currently pending. 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 batch process that the Company previously licensed. The CTS process creates molecular contact between two reactive solid components instead of other systems where the reaction takes place between two liquid or gas components in a batch process. The reactants are (1) the feedstock, 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 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 is different from other commercial processes that are used to convert cellulose into sugar. Other processes use enzymatic batch reactors that take up to weeks to convert cellulose to sugars. CTS can convert any cellulosic material – including grasses and agricultural waste – into sugars in less than a minute of conversion time. The sugars are subsequently processed into biofuels using off-the-shelf technologies. CTS is environmentally friendly in that it recycles the water and catalyst, and it has a near zero carbon footprint: the amount of added atmospheric carbon created by burning the biofuels produced by the CTS system was absorbed by the plant-based feedstock while growing and is merely released back into the atmosphere. No extra CO2 is released into the atmosphere in our system. This is to be distinguished from fossil fuels because new CO2 is released when fossil fuels are burned. The CTS system converts plant-based feedstock into one primary product, soluble sugars, which can be further processed into cellulosic ethanol and other biofuels like jet fuel, and potentially into bio chemicals. CTS has different co-products than other processes. Our primary co-product is pure lignin. Other industries like the paper industry produce lignin that is contaminated by chemicals like sulfur. Other cellulosic ethanol processes do not yield chemically clean high purity lignin because their processes chemically alter 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 can potentially be used in ion exchange resins or specialty chemicals. Lignin can also be burned as a renewable fuel. 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 process is robust, uncomplicated and efficient, and is expected to use low-cost feedstocks and have a potentially high value by-product. We believe a significant difference between CTS ethanol and corn ethanol is the wide range of abundantly available feedstocks that CTS can process compared to just corn as the feedstock. The CTS feedstocks are nonfood and have much lower costs than corn. In addition, while in corn ethanol only the corn kernels are used, CTS uses the whole plant or its waste products, meaning it could obtain much higher yields per acre. Estimated yields for corn are about 400-600 gallons of ethanol per acre per year and for king grass in conjunction with our CTS process it could be up to 3000-3500 gallons per acre per year. The Company also expects to potentially receive a highly valued D3 RIN for each gallon of ethanol it produces. 3 The promise of the then newly developed CTS technology made it worthwhile to financially restructure the Company through Chapter 11 in 2018. Prior management had taken on various “toxic” notes 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. The Company has built several prototypes of the CTS system to further develop the process. The Company finalized its parameter optimization when it was able to convert 99% of the cellulosic material into soluble sugars suitable for further processing into cellulosic ethanol. In 2022, the Company partnered with K.R. Komarek to build its CTS machines going forward. Komarek is an industry leading manufacturing company that builds briquetting machines and compaction/granulation systems with throughput capacities up to 50 tons per hour. The Company has begun successful testing on a Komarek-made machine at a throughput processing rate of 2.5 tons per day. The Company has designed a pilot plant around that machine and is in the process of completing the buildout of the plant. The Company anticipates having the pilot plant completed in Q1, 2023 and anticipates to continue testing it and optimizing parameters and sugar production in the first half of 2023. This pilot plant is designed to show successful volume production and scalability. The Company expects to engage an engineering firm to design a semi-commercial scale pilot plant that integrates a larger CTS system into the pre-processing and post-processing elements of the plant. It is anticipated that the semi-commercial plant will have the capacity to produce sugar at a rate sufficient to make around 500,000 – 1,000,000 gallons of ethanol per year. The goal of the semi-commercial plant is to provide operating cost estimates of a full commercial volume system. Due to its mechanical nature and modularity, we anticipate that one plant would have multiple modular CTS systems, and that the semi-commercial plant would contain one such module. The Company expects to have the semi-commercial system ready in 2024. Commencing commercial production will require project financing. The project financing will either be for bolting on our CTS 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 system, or for setting up a production facility for converting ethanol into jet fuel using the Vertimass Process that the Company has licensed. The Company has licensed the Vertimass Process to convert ethanol (from the CTS process) into sustainable aviation fuel (SAF). 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. The Company aims to start engineering of a first pilot plant to convert up to 500,000 gallons of ethanol into jet fuel and other fuels. 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; and (3) making specialty chemicals from lignin. We believe these, and other markets, could potentially provide for highly profitable products. Management believes that retrofitting existing plants with the CTS technology or delivering cellulosic sugar to existing ethanol plants to enable them to make cellulosic ethanol, 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. 4 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 anticipate that our profitability will 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. 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 current RIN volume targets for cellulosic ethanol include 720 million gallons for 2023, 1.42 billion gallons for 2024, and 2.13 billion gallons for 2025 (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 called 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 $1.95 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 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, three part-time employee and seventeen consultants. The Company plans to hire 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.