BLUE BIOFUELS INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –ORGANIZATION

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.

NOTE 2 –GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern, which assumes the Company will realize its assets and discharge its liabilities in the normal course of business. The Company has not generated any significant revenue since inception and has incurred losses since inception. As of June 30, 2024, the Company has incurred accumulated losses of $57,332,475. The Company expects to incur significant additional losses and liabilities in connection with its start-up and commercialization activities. These factors, among others, raise substantial doubt as to the Company’s ability to continue as a going concern. 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. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments related to the recoverability and classifications of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty. There are no assurances that the Company will continue as a going concern.

Management believes that the Company’s future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities, and obtain additional financing. There is no assurance that the Company will be able to generate sufficient cash from operations, or sell additional shares of stock or borrow additional funds. The Company’s inability to obtain additional cash could have a material adverse effect on its financial position, results of operations, and its ability to continue in existence. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements do not include all disclosures required of annual consolidated financial statements and, accordingly, should be read in conjunction with our consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Operating results for the six months ended June 30, 2024, may not be indicative of full year 2024 results.

In management’s opinion, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair statement of our financial position as of June 30, 2024, and our results of operations, changes in stockholders’ deficit and cash flows for the six months ended June 30, 2024 and 2023.

Stock Based 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”. Share-based payments to consultants, service providers and other non-employees are accounted for in accordance with ASC Topic 718. Forfeitures are recognized as they occur.

Stock-based compensation resulting from the issuance of common stock is calculated by reference to the valuation of the stock on the date of issuance, the expense being recognized as the compensation is earned. Stock-based compensation expenses related to employee options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the stock options or warrants granted is estimated at the grant date, using the Black-Scholes option-pricing model, and the expense is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes option-pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique characteristics of those equity instrument. The fair value of the common stock is determined by the then-prevailing closing market price. Expected volatility was based on the historical volatility of the Company’s closing day market price per share. The expected term of options and warrants was based upon the life of the option, and the risk-free rate used was based on the U.S. Treasury Daily Yield Curve Rate.

Research and Development

The Company expenses all research and development costs as incurred. For the six months ended June 30, 2024, and June 30, 2023, the amounts charged to research and development expenses were $899,025 and $1,447,276, respectively.

Net Income (Loss) per Common Share:

Basic Net income (loss) per share amounts have been calculated using the weighted-average number of common shares outstanding during each reporting period. Diluted loss per share has been calculated using the weighted-average number of common shares plus the potentially dilutive effect of securities such as common stock that potentially could be issued upon the conversion of convertible notes or upon the exercise of outstanding options and warrants. The computation of potential common shares has been performed using the treasury stock method. Due to net losses, all potential dilutive securities are antidilutive for all periods presented. When net loss is reported, diluted and basic net loss per share amounts are the same as the impact of potential common shares is antidilutive.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

NOTE 4 –PROPERTY AND EQUIPMENT

Total depreciation expense was $59,473 and $59,684 for the six months ended June 30, 2024 and June 30, 2023, repectively.

NOTE 5 –PATENTS AND TRADEMARKS

The Company has been granted one patent on its technology and one continuation patent, has filed for three others that are pending, and has also applied for international patents. The Company has capitalized the legal and filing fees of $274,611 and $254,786 as of June 30, 2024 and December 31, 2023, respectively.

NOTE 6 –DEBT

Convertible Notes Payable – Related Parties

During 2023, the Company entered into several convertible note agreements with Chris Kneppers, a director of the Company, that had a combined balance of $460,000 as of December 31, 2023. These notes bore interest at 10% and were convertible into shares of the Company’s comment stock at rates that ranged from $0.13 to $0.25 per share. A portion of the notes were due to be paid or automatically converted in 2024. The remaining were to be paid when the Company completes a capital raise of at least $5.0 million.

During the six months ended June 30, 2024, the Company borrowed an additional $680,000 from Mr. Kneppers. These notes were non-interest bearing and were initially due 13 months after issuance. On June 22, 2024, the terms of all of the convertible notes due to Mr. Kneppers were modified. Under the modification, the notes are now payable on the earliest of the date on which the Company (1) uplists to the Nasdaq or NYSE; (2) receives $5 million in equity financing; or (3) begins generating revenue from its first facility.

Accrued interest on Mr. Kneppers notes was $35,151 at December 31, 2023. An additional $11,500 was recognized during the three months ended March 31, 2024 and the payable balance is $46,651 at June 30, 2024. In connection with modification of the terms of all of Mr. Kneppers notes, interest stopped accruing on March 31, 2024. In lieu of interest, the Company will pay Mr. Kneppers 100% of the outstanding loan balance due him contingent upon the financing of the first plant. All interest and loan amounts automatically come due upon a change of control of the Company or if the Company files for bankruptcy under Chapter 11 or Chapter 7.

On November 11, 2023, and also on July 7, 2023, the Company entered into two long-term convertible notes with board member Edmund Burke, with a total principal balance of $15,000 and $25,000, respectively, that are to be repaid when the Company receives an equity investment of at least $3 million. Otherwise, they accrued warrants, with a strike price of 15 cents and an expiration of 5 years, at the rate of 50,000 and 30,000 respectively every 12 months instead of interest, with a minimum of 80,000 warrants. The notes may convert into common stock at $0.13/share at the option of the holder for a total of 307,692 shares.

In April 2023, the Company entered into a long-term convertible note with board member Edmund Burke, with a principal balance of $150,000, that is to be repaid when the Company receives an equity investment of at least $1.5 million. Otherwise, it accrued warrants, with a strike price of 15 cents and an expiration of 5 years, at the rate of 100,000 every 6 months instead of interest. It may convert into common stock at $0.13/share at the option of the holder for a total of 1,153,846 shares.

Legacy Notes Payable – Related Party

On May 31, 2019, the Company entered into an agreement with Chris and Pamela Jemapete such that its debt of $100,630 shall be repaid by the Company out of future gross revenues, subject to the bankruptcy court’s acceptance of the Company’s plan of reorganization, which was confirmed by the Court on September 18, 2019. The debt bears no interest.

On May 20, 2019, the Company entered into an agreement with Steven Sadaka such that the $100,000 owed to him shall be repaid out of future gross revenues, subject to the bankruptcy court’s acceptance of the Company’s plan of reorganization. The Plan was confirmed on September 18, 2019.

Between November 30, 2018 and December 14, 2018, the Company entered into agreements to renegotiate various debts owed to founders and related parties. These agreements were subject to the bankruptcy Court’s plan confirmation. The Plan, which was confirmed by the Court on September 18, 2019, indicated that the debt to Mark Koch shall be $240,990; the debt to Animated Family Films $579,942; and the debt to Steven Dunkle, CTWC, & Wellington Asset Holdings $1.5 million. All these notes are to be paid from future profits and discharged to the extent unpaid five years after Plan effective date, which was September 18, 2019.

Convertible Notes Payable – Other

During the six-months ended June 30, 2024, the Company issued convertible notes to 4 different individuals totaling $250,000. These notes carry no interest and may be prepaid at anytime, but are convertible, at the option of the lender, into common shares of the Company at 8 cents per share plus a warrant with a strike price of 10 cents per share and a 5-year expiration for a total of 3,125,000 shares and warrants. These are due 13 months after issuance, and automatically convert if not paid.

In December 2023, the Company issued a convertible note to one individual for $50,000. This note carries no interest and may be prepaid at anytime, but are convertible, at the option of the lender, into common shares of the Company at 8 cents per shares plus a warrant with a strike price of 10 cents per share and a 5-year expiration for a total of 625,000 shares and warrants. These are due 13 months after issuance and automatically convert if not paid.

Legacy Notes Payable – Other

On March 19, 2019, the Company entered into an agreement with Lucas Hoppel, such that its combined debt on two notes shall be reduced to $100,000 without interest. The sum shall be repaid by the Company out of 5% of future gross revenues, within 30 days after the end of the first calendar quarter in which the Company has revenue. This agreement was subject to the bankruptcy court’s acceptance of the Company’s plan of reorganization. The Plan was confirmed by the Court on September 18, 2019.

On March 27, 2019, the Company entered into an agreement with another creditor, such that its debt will be reduced from $32,000 to $20,000 payable out of future gross revenues, upon the bankruptcy court’s acceptance of the Company’s plan of reorganization. The Plan was confirmed by the Court on September 18, 2019.

On November 30, 2018, the Company entered into an agreement with a third party such that its debt will be reduced to $96,570 to be paid with no interest out of 50% of the future net profits of the Company. The Company’s Plan of reorganization confirmed by the bankruptcy Court on September 18, 2019, stipulated that this debt is discharged to the extent unpaid five years from the date of Plan confirmation, or on September 18, 2024.

A summary of all debts indicated in the Notes above is as follows:

Of the $4,368,132 payable as of June 30, 2024, none is payable in cash at a specific point in time. $1,330,000 is due only after achieving certain milestones. $320,630 is due out of future revenue with no specific due date. $2,417,502 will be discharged if not paid by September 18, 2024, which is 5 years after the Company exited bankruptcy. And $300,000 of short-term notes due to unrelated parties automatically converts into equity if not repaid within 13 months of issue.

At June 30, 2024, $490,000 in convertible notes that, if converted, would convert into 5,211,538 shares and 3,750,000 warrants.

NOTE 7 – STOCKHOLDERS’ EQUITY

The total number of shares of capital stock, which the Company has authority to issue, is 1,010 million,1 billion of which are designated as common stock at $0.001 par value (the “Common Stock”) and 10 million of which are designated as preferred stock par value $0.001 (the “Preferred Stock”). As of June 30, 2024, the Company had 302,865,508 shares of Common Stock issued and outstanding andno shares of Preferred Stock were issued. Holders of shares of Common stock shall be entitled to cast one vote for each share held at all stockholders’ meetings for all purposes, including the election of directors. The Common Stock does not have cumulative voting rights. No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock of any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend. The Company has yet to designate any rights, preferences and privileges for any of its authorized Preferred Stock.

For the six months ended June 30, 2024 and 2023, the Company issued an aggregate of 114,545 and 174,194 shares, respectively, of its common stock for services valued at $10,094 and $29,300, respectively.

Warrants: At December 31, 2023,24,015,976 warrants were outstanding. During the six-month period ended June 30, 2024 and 2023,127,500 and 314,000 warrants were issued for services and, in the 2024 period,100,000 for interest. Using a Black-Scholes asset pricing model, these warrants had a total value of $15,106 and $42,634, respectively. In addition,1,236,938 warrants expired and 350,000 cancelled in the six-month period ended June 30, 2024. Remaining warrants outstanding are 22,656,538, have a weighted average exercise price of $0.22, and a weighted average remaining term of 3.0 years.

Stock Options: During the six-month period ended June 30, 2024 and 2023, the Company recognized $309,015 and $637,029 of stock based compensation, respectively, in connection with stock options issued in prior periods. A portion of the of the expense recognized during the 2024 period was a result of modifications to outstanding stock options to reduce exercise prices. As of the end of June 30, 2024, the total number of options outstanding and vested is 61,430,000 and 30,980,000 , respectively. The weighted average exercise price of outstanding and vested options is $0.12 and $0.12, respectively. The weighted average remaining life of outstanding and vested options is 6.7 years and 5.9 years, respectively. At June 30, 2024, outstanding options had an intrinsic value of $42,000.

The stock compensation associated with warrants and options issued or modified during the six months ended June 30, 2024, were valued on the date of issuance or modification. The following assumptions were used in calculations of the Black-Scholes option pricing models for warrant- and option-based stock compensation in the six months ended June 30, 2024:

At June 30, 2024, remaining compensation to be recognized future vesting of stock options is approximately $4.0 million of which approximately $0.1 million will vest over the next 0.6 years and approximately $3.9 million will vest upon the probability of achieving performance milestone criteria

NOTE 8 -COMMITMENTS AND CONTINGENCIES

Litigation

The Company is subject, from time to time, to litigation, claims and suits arising in the ordinary course of business. The Company is not in any litigation at this time.

Leases

The Company currently leases office and laboratory space in Palm Beach Gardens, FL, that is classified as operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Company’s consolidated balance sheet.

Rent expense for the six months ending June 30, 2024, and 2023, were $108,168 and $108,893, respectively. At June 30, 2024, future minimum lease payments due under existing leases are $35,346 which will be paid in the remainder of 2024.

NOTE 9 –RELATED PARTY TRANSACTIONS

Related Party Transactions

Related Party transactions with the Company are as follows:

NOTE 10 –SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial statements were issued. Based on this evaluation, the Company has identified the following subsequent events:

From July 1, 2024, to the date of this filing, the Company issued 312,500 shares and 312,500 warrants for the conversion of a $25,000 Note to an unrelated party. The warrants have a 5-year life from the date of investment and a strike price of $0.10 per share.

The Company issued 50,000 warrants for interest to a related party. The warrants have a 5-year life from the date of issuance and a strike price of $0.15 per share. They have a fair value of $3,431.