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 lignin 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, and the Company filed, and received, two patents for this technology. The CTS process is a continuous mechanical/chemical dry process for converting cellulose material into sugar and lignin. 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. 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. In 2023, the Company completed the build-out of a pilot plant based on a modified Komarek machine and is in the process of further testing and optimizing the plant. The Company believes that it can optimize the pre and post processing elements at this pilot scale plant to finalize design and operational parameters to provide operating cost estimates of a full-scale commercial volume system. Due to its mechanical nature and modularity, we anticipate that one plant would have multiple modular CTS systems. In addition, the Company has licensed the Vertimass Process to convert ethanol into sustainable aviation fuel (SAF) and other renewable biofuels including bio-gasoline. The license agreement with Vertimass is the subject to a confidentiality agreement between the parties. 9 Plan of Operation The total process from cellulosic feedstock to SAF consists basically of three steps: 1) Conversion from feedstock to fermentable cellulosic sugars (CTS) 2) Ferment the cellulosic sugars into cellulosic ethanol. 3) Covert the ethanol into SAF and related products. This third step happens with the Vertimass technology which the Company has licensed. In January 2024, the Company formed a 50-50 joint venture partnership with Vertimass called VertiBlue Fuels, LLC, that has the mission to build an ethanol-to-SAF facility in Florida with the initial goal to produce around 10 million gallons of Sustainable Aviation Fuel (SAF) and related products, and then expand SAF and related product production to approximately 70 million gallon per year. VertiBlue Fuels plans to initially convert sugarcane ethanol, and then, when the Company’s CTS technology is fully commercialized, to build commercial CTS and ethanol facilities on the front-end to produce cellulosic SAF and generate the large D7 RIN and other government credits. Commencing commercial production will require project 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. (D6 is for corn ethanol). The value of the D3 RIN fluctuates, but as of this filing, it is approximately $3.06 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. Section 45Z of the Inflation Reduction Act passed on August 16, 2022, offers a Clean Fuel Production Credit (CFPC) per gallon of transportation fuel produced with a base amount of 20 cents per gallon or up to $1 per gallon for a qualified facility (depending on its carbon index) that was built while paying at least prevailing wages and which met apprenticeship requirements. For sustainable aviation fuel, those figures are 35 cents and $1.75 per gallon respectively. The Company plans to apply for CFPC credits when it begins building its commercial facilities. The CFPC currently does not apply to transportation fuel sold after December 31, 2027. A Low Carbon Fuel Standard Credit (LCFS) is offered by various states (primarily California) for any amount of reduced CO2 in the production lifecycle of transportation fuels as compared to the amount of CO2 emitted in the production lifecycle of fossil fuels. The production lifecycle includes transportation costs to the point of use. California is currently offering around $66 per metric ton of CO2 reduction. When it is closer to commercial production, the Company plans to analyze the cost effectiveness of applying for these LCFS credits to determine in which state it could earn the most credits. At commercial scale, management expects to be able to earn substantial renewable fuel credits and produce sustainable ethanol, sustainable aviation fuel, and other sustainable biofuels more profitably than they could be from existing commercial corn ethanol producers. Cellulosic ethanol comes with a much more valuable D3 RIN credit as compared to the D6 RIN allocated to corn ethanol; cellulosic SAF comes with a very valuable D7 RIN, and cellulosic bio-gasoline comes with a valuable D3 RIN. The Company also expects to receive Clean Fuel Production Credits related to section 45Z of the Inflation Reduction Act, and the Company also plans to pursue Low Carbon Fuel Standard Credits. 10 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 CTS technology or forming joint ventures with foreign domestic partners to build plants. 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, 2023 through the date of filing, 5,950,148 warrants were exercised for proceeds of $97,251. From January 1, 2023 through the date of filing, no options were exercised. From January 1, 2023, through the date of filing, the Company issued 6,684,998 shares at prices ranging from $0.15 to $0.15 per share for proceeds of $1,002,772. From January 1, 2023, through the date of filing, the Company issued 312,500 shares for the conversion of debt for proceeds of $25,000. From January 1, 2023 through the date of filing, the Company issued an aggregate of 226,694 shares of its common stock for services valued at $33,500. From January 1, 2023 through the date of filing, the Company issued an aggregate of 856,500 warrants for services. Using a Black-Scholes asset-pricing model, these warrants were valued at $88,259. Results of Operations Comparison of the year ended December 31, 2023, to December 31, 2022 For the year ended December 31, 2023, the Company recognized $0 in revenue and $0 in 2022. For the year ended December 31, 2023, the Company’s general and administrative expenses decreased by $202,170 to $1,339,789 from $1,541,959 in 2022. This decrease is primarily due to the vesting and expensing of options in 2022 valued at $526,636, as compared to $169,382 non-cash stock compensation in 2023. Interest expense increased in the year ended December 31, 2023 by $68,371 to $97,778 from $29,407 in 2022. For the year ended December 31, 2023, the Company received grants valued at $233,5000 versus $13,000 in 2022. The grant money comes from the Department of Energy SBIR Phase I grant. Research and Development The Company expenses all research and development costs as incurred. For the years ended December 31, 2023, and 2022, the amounts charged to research and development expenses were $1,849,967 and $2,350,218, respectively. The decrease is largely due to the vesting of options in 2022 valued at $1,038,953, versus $467,646 in 2023. 11 Liquidity and Capital Resources Liquidity As of December 31, 2023, the Company had $41,007 in cash and total stockholders’ equity as of December 31, 2023, was negative $3,561,082. As of December 31, 2022 the Company had $211,901 in cash and total stockholders’ equity at December 31, 2022 was negative $2,356,917. Total debt, including advances, accounts payable and other notes payable at December 31, 2023, together with interest payable thereon and contingent liabilities, was $4,591,301, an increase of $1,128,465 from December 31, 2022, where it stood at $3,462,836. This increase is primarily attributable to deferred wages of management and board, and notes to related parties of $350,000. $2,738,132 of the remaining debt has been renegotiated to be payable out of future revenue or future profits and otherwise does not come due. $2,417,502 of the $2,738,132 will be discharged if not paid by September 18, 2024. During the fiscal year ended December 31, 2023, the Company’s operating expenses decreased $974,861 to $2,957,415 from $3,932,276 in 2022. This decrease can primarily be attributed to equity-based compensation of $1,565,589 in 2022 due to the vesting of options. During the fiscal year ended December 31, 2023, the Company’s investing activities used $320,504 in cash. This can be attributed to $287,829 used to purchase machinery and equipment and $32,675 in patent costs. These are to be compared to $205,520 cash used in 2022 with $138,170 used to purchase machinery and equipment, and $67,350 in patent costs. During the fiscal year ended December 31, 2023, the Company generated an aggregate of $1,750,023 through its financing activities, which is an increase of $461,123 from $1,288,900 raised during fiscal year ended December 31, 2022. This increase from the prior year can be attributed to $700,000 net proceeds from issuance of convertible notes as compared to zero in 2022, and $1,002,772 raised in private placements as compared to $1,168,000 in 2022, and $97,251 received from the exercise of warrants as compared to $120,900 in 2022, and a $50,000 debt repayment in 2023 versus $0 in 2022. 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 $25 million to pay for its share of the Vertiblue Fuels joint venture and start commercial production of Sustainable Aviation Fuel. The Company anticipates generating revenue from this joint venture 18-24 months from financing. 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 $100,000 through the issuance of convertible notes in 2024, $1,800,023 through a private placement, the exercise of warrants and the issuance of convertible notes in 2023, $1,288,900 in 2022, through the issuance of common stock and the exercise of warrants and options, in addition to $14,826,952 raised through the end of 2021 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. Going Concern The Company has incurred losses since inception, and it may be unable to raise further capital. At December 31, 2023, the Company had a working capital deficit of $1,426,411 and had incurred accumulated losses of $55,836,780 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. Equity As of December 31, 2023, shareholders’ equity was negative $(3,561,082). There were 302,750,963 shares of common stock issued and outstanding as of December 31, 2023. 12 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. 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. The Company monitors its investment for impairment at least annually and makes appropriate reductions in the carrying value if it determines that an impairment charge is required based on qualitative and quantitative information. 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.