Blue Biofuels, Inc.: Form 10-Q for the period ended Mar 31, 2021

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

Alliance Bioenergy Plus, Inc (the “Company”) is a technology company focused on emerging technologies in the renewable energy, biofuels, and bioplastics technologies sectors.

In January 2018, the Company’s technology experts developed a technology system it calls Cellulose-to-Sugar or CTS 2.0, and a patent application was filed. CTS 2.0 is a mechanical/chemical dry process for converting cellulose material into sugar for use in the biofuels industry. CTS 2.0 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 enzymes or liquid acids. CTS 2.0 has a near zero carbon footprint, recycles the water and catalyst, and uses no enzymes, expensive chemicals, or strong acids. At commercial scale, management expects to be able to produce ethanol at a lower cost than any competitor due to the fact that the CTS 2.0 process is uncomplicated and efficient, and that it uses low cost feedstock as compared to corn.

The new technology made it worthwhile to financially restructure the Company through Chapter 11. 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 and eliminated millions in debts and disputed debts, and the Company exited Chapter 11 on September 18, 2019, while keeping all classes, including shareholders, unimpaired. Having paid all debts that needed to be paid, the bankruptcy case was closed on October 25, 2019. Fresh Start accounting is not being applied because existing voting shares immediately before Plan Confirmation were not less than 50 percent of the voting shares of the emerging entity.

The Company completed its 4th generation CTS 2.0 prototype system in July 2020, upgraded it in early 2021, and is currently testing it to optimize various parameters towards the engineering and scale up to a commercial size reactor.

Plan of Operation

The Company’s goal is to develop this CTS 2.0 technology to a commercial scale and then seek to either joint venture or acquire existing bioenergy and ethanol plants to install the CTS technology. 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/bioplastics from its patented CTS 2.0 system. Retrofitting existing plants with the CTS 2.0 technology may achieve more rapid commercialization than building new plants. Once the first plant is profitable, the Company intends to grow with additional plants both in the United States and internationally.

Currently, the US government gives a D3 RIN to incentivize the production of renewable fuels from cellulosic materials. The value of the D3 RIN fluctuates, but as of this filing, it is around $1.60 per gallon of ethanol on top of the market price of ethanol.

The Company believes that its CTS 2.0 process can produce ethanol profitably at the market price, and with the D3 RIN should generate substantial profits and cash flow in amounts sufficient to cover the Company’s operating expenses and debt service.

The Company has a strategy that includes using its low-cost high-purity lignin co-product to produce biodegradable bioplastics. The Company has also licensed the Vertimass Process to convert ethanol (from the CTS 2.0 process) into bio-jet fuel. That agreement is subject to confidentiality between the parties.

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

On January 5, 2021, the Company closed a financing at 7.5 cents per share having sold 2,143,332 shares and raised $160,750 from the beginning of the year until January 5th.

In January 2021, the company commenced a new offering of shares of its common stock valued at $0.25 per share. Through the date of filing, the Company has sold 7,160,000 shares for aggregate proceeds of $1,790,000.

From January 1, 2021, through the date of filing, the Company issued an aggregate of 223,000 shares of its common stock for services valued at $46,930.

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. They have a 6-month term with exercise prices of 15 cents per share.

From January 1, 2021, through the date of filing, the Company issued options to its managers and employees to purchase 20,530,000 shares of its common stock for a period of ten years at the exercise price of 15 cents per share. Using a Black-Scholes asset-pricing model, these agreements were valued at $2,543,247. Only 10,000 of these options have vested, with a valuation of $1,215.

From January 1, 2021, through the date of filing, 350,000 previously issued options were exercised for proceeds of $12,900. In addition, 250,000 options were exercised on a cashless basis for 177,778 shares.

From January 1, 2021, through the date of filing, warrants were exercised, for the purchase of 13,455,009 shares of common stock, at prices ranging from $0.005 to $0.25 per share for total proceeds of $1,302,817.

From January 1, 2021, through the date of filing, $279,000 of debt issued during Chapter 11 was exchange for 7,080,000 shares of stock.

Going Concern

The Company has incurred losses since inception, has a working capital deficiency, and may be unable to raise further capital. At March 31, 2021, the Company had a working capital surplus of $2,064,480 and had incurred accumulated losses of $47,295,677 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 month period ended March 31, 2021(unaudited) to March 31, 2020

For the three months ended March 31, 2021, the Company recognized $0 in revenue as opposed to $0 in 2020.

For the three months ended March 31, 2021, the Company’s general and administrative expenses increased by $106,243 to $306,277 from $200,034 in 2020. This increase is primarily the result of a $73,259 increase in consultancy fees and $21,223 in promotion related to financings.

Interest expense decreased in the quarter ended March 31, 2021 by $98,455 to $8,749 from $107,204 in 2020. The decrease in 2021 was primarily the result of the Company’s decision in 2020 to pay interest on back pay due, and in 2021 of having paid some of that back pay off.

For the three months ended March 31, 2021 the Company recorded non-cash impairments of assets of $33,484, as compared to zero in 2020. This was the result of disposing of laboratory assets no longer in use.

Research and development (R&D) costs for the three months ended March 31, 2021 were $265,074, an increase of $174,458 from $90,616 in 2020. The increase in R&D expenses is primarily the result of hiring additional personnel to accelerate the process of commercializing the CTS 2.0 system.

Liquidity and Capital Resources

Liquidity

As of March 31, 2021, the Company had $2,440,403 in cash, and total stockholders’ equity at March 31, 2021, was negative $299,646. 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 March 31, 2021, together with interest payable thereon and contingent liabilities, was $3,359,820 a decrease of $869,446 from December 31, 2020, where it stood at $4,229,266. This decrease is attributable to the conversion of convertible notes and the repayment of the majority of deferred wages. $1,820,630 of the remaining debt was renegotiated to be payable out of future revenue and $917,502 out of future profits and otherwise does not come due.

During the fiscal quarter ended March 31, 2021, the Company’s operating activities increased by $314,185 to $604,835 from $290,650. This increase can primarily be attributed to an increase in R&D expenses and expenses related to raising capital as compared to 2020.

During the fiscal quarter ended March 31, 2021, the Company’s investing activities used $45,462 in cash. This can be primarily attributed to capitalizing $4,838 in patent costs and $40,624 used to purchase machinery and equipment. During the fiscal quarter ended March 31, 2020, the Company’s investing activities used $45,914. This is primarily due to the purchase of equipment of $44,814.

During the fiscal quarter ended March 31, 2021, the Company generated an aggregate of $3,251,467 through its financing activities, which is an increase of $2,976,467 from $275,000 during the fiscal quarter ended March 31, 2020. This increase from the prior year can primarily be attributed to $1,935,750 in 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 $10 million to optimize and scale up its CTS 2.0 system to be commercially ready. The Company anticipates reaching this stage around 18 months after financing. There is no guarantee that we will achieve this additional funding.

As of the date of filing, the Company has raised $3,266,467 in 2021, through the issuance of common stock and the exercise of warrants and options, in addition to $10,998,234 through the end of 2020, for a total of $14,254,701, 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 March 31, 2021, shareholders’ equity was negative $299,646.

There were 272,251,066 shares of common stock issued and outstanding as of March 31, 2021.

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.

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.

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.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2021 to a reasonable assurance level because of the material weaknesses described below.

Management’s Annual Report on Internal Controls over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2021 using the criteria established in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of March 31, 2021, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.

1. We have an Audit Committee, but it does not currently contain an independent financial expert member. – While not being legally obligated to have an audit committee, it is management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement. Although we have an Audit Committee, it does not currently include a member that is both a financial expert and considered to be independent of management to provide the necessary oversight over management’s activities.

2. We have inadequate cash controls. Although we have separated cash handling and accounting functions, we do not currently require dual signature on the Company’s bank accounts.

3. The Company has insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

4. Although the Company retains copies of all financial data and material agreements and backs them up in the cloud, the rest of the Company’s material agreements may not be. In the event of theft, misplacement, or loss due to fire or other unmitigated factors, it may not be possible for the Company to retain all of its material financial data and agreements.

Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.

As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We intend to address the material weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and plan to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2020, that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

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.