BlueFire Renewables Inc (OTCMKTS:BFRE) Secures a Major Contract, Stock Spikes
Between October 3, 2013 and October 8, 2014, BlueFire Renewables Inc (OTCMKTS:BFRE) issued no press releases whatsoever. Generally speaking, penny stock investors don’t like companies that keep things quiet for so long and, not surprisingly, over the last twelve months, BFRE has been experiencing some major liquidity issues.
Volumes have been virtually non-existent and once it settled deep in the double-zero territory, the ticker refused to move much. The truth is, once you take a look at the latest 10-Q, you’ll see that there wasn’t really anything that could entice people to jump in.
Here’s what BFRE recorded at the end of the second quarter of 2014:
- cash: $41 thousand
- current assets: $241 thousand
- current liabilities: $1.8 million
- quarterly revenues: $452 thousand
- quarterly net income: $87 thousand
As you can see, the company’s financial situation is not perfect. Indeed, BFRE managed to end the quarter with a positive bottom line, but a closer inspection reveals that the profits have dropped by a whopping 65% year over year. Revenues come mainly from reimbursements from the Department of Energy and they too have experienced a decline when compared to the ones recorded during the corresponding period of 2013. The cash reserves are dismal and there’s a huge working capital deficit.
The problem lies with the fact that several years ago, BFRE set themselves an ambitious task – they set out to build a state-of-the-art ethanol refinery. The site was picked, the engineering plans were put together, and operations commenced. The Department of Energy liked the idea and for a couple of years, BFRE was receiving some grants. Unfortunately, the company missed a few deadlines and in December 2013, the DOE stopped the grants. The plant is still not ready and, as you can see, BFRE don’t really have the money to get it done. They might have solved this problem, though.
About an hour before yesterday’s opening bell, BFRE announced that they have signed a major financing agreement with The Export Import Bank of China who, apparently, are willing to provide “up to $270 million” towards the completion of the Fulton Project. The news is so big that even Bloomberg, who normally aren’t that interested in penny stock companies, picked it up.
Predictably, investors were also mightily excited. In a matter of six and a half hours, they traded more than 7.6 million shares and racked up a dollar volume of nearly $230 thousand. BFRE surged in the right direction and added a whopping 307% which means that it’s now sitting above the $0.04 per share mark for the first time since May 2013.
We’ve yet to see details of the deal in an 8-K form issued by the company, but it would appear that investors aren’t too bothered about this fact. They seem pretty convinced that with the Chinese financial backing, BFRE will manage to complete the ethanol plant and that it will start generating some serious revenues and profits. Of course, they have every right to be hopeful, but that doesn’t mean that a potential investment is risk-free.
In fact, once you take a closer look at the SEC filings, you’ll see that the company is burdened with quite a lot of toxic debt and this, in turn, is starting to put pressure on the share structure. If you read through the latest 10-K, you’ll see that between December 2012 and December 2013, the company was forced to issue more than 17 million shares as a conversion of notes at rates ranging from $0.005 to $0.07 per share. That, however, is nothing compared to the exuberant printing after the end of last year. Between November 2013 and August 2014, the O/S count grew from under 67 million to over 181 million. Due to the discounts in the convertible notes’ terms, the conversion rates are getting lower and lower. The subsequent events section of the latest 10-Q, for example, tells us that between June 30 and August 11, the company issued a whopping 24,537,990 shares of common stock at less than $0.002 per share.
If the dilution continues, BFRE will be put under a lot of strain in the future. You need to decide for yourself whether the financing deal is enough to help the stock withstand it.
