ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS QUARTERLY REPORT.

PLAN OF OPERATION

Management plans to raise additional funds through joint venture partnerships, project debt financings or through future sales of the Company's common stock, until such time as the Company's revenues are sufficient to meet its cost structure, and ultimately achieve profitable operations. There is no assurance that the Company will be successful in raising additional capital or achieving profitable operations. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Company will need financing within 12 months to continue its operations.

The Company has not developed its own proprietary technology but rather is a licensee of the Arkenol Technology and therefore has benefited from Arkenol's research and development efforts and cost expenditures.

The Company's business will encompass development activities culminating in the construction and long-term operation of ethanol production biorefineries, as such, BlueFire is currently in the development-stage of finding suitable locations and deploying project opportunities for converting cellulose fractions of municipal solid waste and other opportunistic feedstock into ethanol fuels.

For the next 12 months, the Company's Plan of Operations is as follows:

o Obtain additional operating capital from joint venture partnerships, debt financing or equity financing to fund ongoing Company operations and the development of initial biorefineries in North America.

o The Energy Policy Act provides for grants and loan guarantee programs to incentivize the growth of the cellulosic ethanol market. These programs include a Cellulosic Biomass Ethanol and Municipal Solid Waste Guarantee Program under which the U.S. Department of Energy could provide loan guarantees up to $250,000,000 per qualified project. The Company has received approval of its pre-application and must now submit a final application for a loan guarantee of up to $200 Million Dollars to support the development of a 55 million gallon per year project in California to be located adjacent to an existing biomass power plant.

o The 2005 Energy Act created a Biorefinery Demonstration Project Program under which $384,000,000 or another amount appropriated by Congress is available to fund up to three (3) biorefinery demonstration projects. Ultimately the Department of Energy was appropriated $385 Million Dollars for the program and granted awards of various size to six (6) companies of which BlueFire is one. In October, 2007 BlueFire signed the contract for the first phase of the grant program referred to by the DOE as "Award 1" for pre-construction activities.

o The California Energy Commission has provided a competitive grant solicitation with the intent of accelerating research, development and demonstration of biofuel energy conversion technologies and refineries using lignocellulosic biomass (such as agricultural and forest residues, and urban waste), food waste, beverages, waste grease, purpose-grown or energy crops. This solicitation will help advance science, technology, and market acceptance of ethanol in California that will help reduce petroleum consumption and help meet the Governor's Executive Order S-06-06, the Bioenergy Action Plan, and AB 32 (Nunez & Pavley 2006). In March 2007, the Company received notice that it has been accepted as a recipient of up to $1 million under this program for equipment testing and preliminary engineering for use in its proposed project under this solicitation. The specifics of this award are to be determined, but Bluefire is planning on finalizing study procedures and contract terms during the third or fourth quarter of 2007.

o As available and as applicable to the business plans of the Company, applications for public funding will be submitted to leverage private capital raised by the Company.

BlueFire's initial planned projects in North America are projected as follows:

o A facility that will process approximately 100 tons of green waste material to produce roughly 3 million gallons of ethanol annually. On November 9th BlueFire purchased the facility site which is located in Lancaster, California. Permit applications were filed on June 24th to allow for construction of the Lancaster facility. BlueFire is currently in preliminary engineering. Although the cost of construction is not readily determinable, the Company estimates the cost to be approximately $30 million for this first plant. The Company is currently in discussions with potential sources of financing for this facility but no definitive agreements are in place.

o A facility proposed for development and construction at the El Sobrante Landfill located in Corona, California. This facility will use approximately 700 metric dry tons of green waste and wood waste currently disposed in the landfill to produce about 16.6 to 18 million gallons of ethanol annually. Preliminary engineering design is in progress and permitting for this facility will commence once all required preliminary engineering design is completed. A definitive agreement is being finalized with Petro-Diamond for the purchase and sale of the ethanol produced from the facility. BlueFire has received an Award from the Department of Energy of up to $40 million for the El Sobrante Facility, although the specifics of the award are yet to be determined. BlueFire is currently finalizing contract terms for the Award. The remainder of financing for this project is yet to be determined.

o Several other opportunities are being evaluated by BlueFire in North America but no definitive plans have been made. Discussions with various landfill owners are underway to duplicate the proposed development at the El Sobrante landfill although no definitive agreements have been reached.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

The methods, estimates, and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined "critical accounting policies" as those accounting policies that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based upon this definition, our most critical estimates are described below under the heading "Revenue Recognition." We also have other key accounting estimates and policies, but we believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For additional information see Note 1, "Summary of Organization and Significant Accounting Policies" in the notes to our audited financial statements appearing elsewhere in this report. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may differ significantly from these estimates.

REVENUE RECOGNITION

The Company is currently a developmental-stage company and has recognized minimal revenues to date. The Company will recognize revenues from 1) consulting services rendered to potential sub licensees for development and construction of cellulose to ethanol projects, 2) sales of ethanol from its production facilities when (a) persuasive evidence that an agreement exists; (b) the products have been delivered; (c) the prices are fixed and determinable and not subject to refund or adjustment; and (d) collection of the amounts due is reasonably assured.

PROJECT DEVELOPMENT

Project development costs are either expensed or capitalized. The costs of materials and equipment that will be acquired or constructed for project development activities, and that have alternative future uses, both in project development, marketing or sales, will be classified as property and equipment and depreciated over their estimated useful lives. To date, project development costs include the research and development expenses related to the Company's future cellulose-to-ethanol production facilities. During the three and nine months ended September 30, 2007, the Company expensed all costs related to the facility development.

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements.