Summary of BLUEFIRE ETHANOL FUELS INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and plan of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report. Various statements have been made in this Quarterly Report on Form 10-Q that may constitute "forward-looking statements". Forward-looking statements may also be made in BlueFire's other reports filed with or furnished to the United States Securities and Exchange Commission (the "SEC") and in other documents. In addition, from time to time, BlueFire through its management may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements. The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely" and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. BlueFire undertakes no obligation to update or revise any forward-looking statements.

PLAN OF OPERATION

Our primary business encompasses development activities culminating in the design, construction, ownership and long-term operation of cellulosic ethanol production biorefineries utilizing the licensed Arkenol Technology in North America. Our secondary business is providing support and operational services to Arkenol Technology based biorefineries worldwide. As such, we are 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.

Our initial planned biorefineries in North America are projected as follows:

? A biorefinery that will process approximately 190 tons of green waste material annually to produce roughly 3.9 million gallons of ethanol annually. On November 9, 2007, we purchased the facility site which is located in Lancaster, California for the BlueFire Ethanol Lancaster project ("Lancaster Biorefinery"). Permit applications were filed on June 24, 2007 to allow for construction of the Lancaster Biorefinery. On or around July 23, 2008, the Los Angeles Planning Commission approved the use permit for construction of the plant. However, a subsequent appeal of the county decision, which BlueFire overcame, combined with the waiting period under the California Environmental Quality Act, pushed the effective date of the now non-appealable permit approval to December 12, 2008. On February 12, 2009 we were issued our Authority to Construct permit by the Antelope Valley Air Quality Management District. We are currently in the detailed engineering and design phase. We estimate the total cost including contingencies to be in the range of approximately $100 million to $120 million for this first plant. We are currently in discussions with potential sources of financing for this facility but no definitive agreements are in place.

? A biorefinery proposed for development and construction in conjunction with the U.S. DOE , previously located in Southern California, and now located in Mississippi, which will process approximately 700 metric dry tons of green waste and wood waste annually currently being disposed of in landfills to produce approximately 16.6 to 18 million gallons of ethanol annually ("DOE Biorefinery"). Preliminary engineering and design is in progress and permitting for the DOE Biorefinery will commence once all required preliminary engineering design is completed. We have received an Award from the U.S. DOE of up to $40 million for our DOE Biorefinery, which will be our second biorefinery in Southern California. On or around October 4, 2007, we finalized the award with the U.S. DOE for preconstruction activities, which we refer to as "Award 1" for a total approved budget of just under $10,000,000. During the second quarter 2008 this approved budget was increased to approximately $16,000,000. This award is a 60%/40% cost share, whereby 40% of approved costs may be reimbursed by the U.S. DOE pursuant to the total $40 million amount awarded in February 2007. From inception,, BlueFire has invoiced approximately $5,167,000 from the Department of Energy under this award. The Company amended its award to include costs previously incurred in connection with the development of the Lancaster site which have a direct attributable benefit to the DOE Biorefinery. In the third quarter the Company invoiced for funds of approximately $3,980,000 attributable to the amended award. In October 2009, the Company received all funds invoiced through September 20, 2009. The remainder of financing for this project is yet to be determined.

? Several other opportunities are being evaluated by us in North America, although no definitive agreements have been reached.

BlueFire's capital requirement strategy for its planned biorefineries are as follows:

? Obtain additional operating capital from joint venture partnerships, Federal or State grants or loan guarantees, debt financing or equity financing to fund our ongoing operations and the development of initial biorefineries in North America. Although the Company is in discussions with potential financial and strategic sources of financing for their planned biorefineries no definitive agreements are in place.

? The Energy Policy Act of 2005 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 ("DOE") could provide loan guarantees up to $250 million per qualified project. BlueFire plans to pursue all available opportunities within the Farm EPAct 2005.

? The Energy Policy Act of 2005 created a biorefinery Demonstration Project Program under which $384 million or another amount appropriated by Congress is available to fund up to three biorefinery demonstration projects. Ultimately the U.S.DOE was appropriated $385 million for the program and granted awards of various sizes to six companies of which we are one. In October, 2007, we signed the contract for Award 1 for pre-construction activities on our DOE Biorefinery (see above) and began to draw down on those funds during the third quarter in 2008.

? As available and as applicable to our business plans, applications for public funding will be submitted to leverage private capital raised by us.

? The 2008 Farm Bill, Title IX (Energy Title) provides grants for demonstration scale Biorefineries, and loan guarantees for commercial scale Biorefineries that produce advanced Biofuels (i.e., any fuel that is not corn-based). Section 9003 includes a Loan Guarantee Program under which the U.S.D.A. could provide loan guarantees up to $250 million to fund development, construction, and retrofitting of commercial-scale refineries. Section 9003 also includes a grant program to assist in paying the costs of the development and construction of demonstration-scale biorefineries to demonstrate the commercial viability which can potentially fund up to 50% of project costs. BlueFire plans to pursue all available opportunities within the Farm Bill.

RECENT DEVELOPMENTS IN BLUEFIRE'S BIOREFINERY ENGINEERING AND DEVELOPMENT

On February 12, 2009, we were issued our Authority to Construct permit by the Antelope Valley Air Quality Management District.

In February 2009, the Company obtained a line of credit in the amount of $570,000 from Arkenol, its technology licensor, to provide additional liquidity to the Company as needed. As of November 16, 2009, there were no amounts outstanding and the line of credit was cancelled as the Company did not anticipate utilizing future funds from the line of credit.

In March 2009, BlueFire signed a Technology Development Services Agreement with Dr. William Farone and his company Applied Power Concepts, Inc. Under the agreement, Dr. Farone will work with BlueFire to continue the advancement of BlueFire's patented Arkenol Technology for the production of cellulosic biofuel. Dr. Farone, along with John Cuzens, is the original author of the patents used in the BlueFire concentrated acid hydrolysis process.

On May 27, 2009 we announced that Solazyme, Inc., a renewable oil production company and leading algal synthetic biology company, is testing sugars, produced through the Company's patented process, for compatibility with its renewable oil process to produce the oil cost effectively and at scale.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

Project Development

For the third quarter in 2009, our project development costs were approximately $304,000, compared to project development costs of $3,334,000 for the same period during 2008. Included in project development costs in the third quarter of 2009 and 2008, was approximately $0 and $374,000 respectively, of non-cash share-based compensation expense, incurred in connection with our 2007 and 2006 Stock Option awards. The decrease in project development costs is due to the decreased activity in the design and engineering development of the biorefineries due substantially to all plant design being completed.

General and Administrative Expenses

General and Administrative Expenses were approximately $702,000 for the third quarter of 2009, compared to $1,107,000 for the same period in 2008. The decrease in general and administrative costs is mainly due the full amortization of share based compensation. Included in general and administrative expenses in the second quarter of 2009 and 2008, was approximately $205,000 and $408,000, respectively of non-cash share-based compensation expense, incurred in connection with our 2007 and 2006 Stock Option award.

Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

Project Development

For the first nine months in 2009, our project development costs were approximately $947,000, compared to project development costs of $8,311,000 for the same period during 2008. Included in project development costs in the nine months ended September 30, 2009 and 2008, was approximately $0 and $1,860,000, respectively, of non-cash share-based compensation expense, incurred in connection with our 2007 and 2006 Stock Option awards. The decrease in project development costs is due to the decreased activity in the design and engineering development of the biorefineries due substantially to all plant design being completed.

General and Administrative Expenses

General and Administrative Expenses were approximately $1,800,000 for the nine months ended September 30, 2009, compared to $3,292,000 for the same period in 2008. Included in general and administrative expenses in the nine months ended September 30, 2009 and 2008, was approximately $222,000 and $ 1,421,000 , respectively, of non-cash share-based compensation expense, incurred in connection with our 2007 and 2006 Stock Option award.

Interest Income

Interest income for the nine months ended September 30, 2009 was approximately $7,400, compared to $204,000 for the same period in 2008, in each case, related to funds invested.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity consist of cash and cash equivalents. Historically, we have funded our operations through financing activities consisting primarily of private placements of debt and equity securities with existing shareholders and outside investors. Our principal use of funds has been for the further development of our Biorefinery projects, for capital expenditures and general corporate expenses. As of September 30, 2009, we had cash and cash equivalents of approximately $103,000; however, as of November 13, 2009, the Company has approximately $3,300,000 in cash as a result of proceeds of approximately $3,980,000 from reimbursements under the Department of Energy contract. Management believes that our Company's cash will be sufficient to meet our working capital requirements for the next twelve month period. If necessary, management has determined that general and administrative expenditures will be reduced with measures such as a reduction of headcount, reducing employee benefits and/or salary deferral, as needed.

We plan to raise additional funds through joint venture partnerships, federal and state grants and/or loan guarantees, both project equity and debt financings or through future sales of our common stock, until such time as our revenues are sufficient to meet our cost structure, and ultimately achieve profitable operations. Our consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. If the Company is not successful in obtaining additional financing for the construction of the Lancaster Biorefinery, and its DOE Biorefinery, by the end of the third quarter 2010, it may be limited in its ability to further their development and/or design until additional proceeds are received by the Company.

In addition, as our biorefinery projects develop to the point of construction, we anticipate significant purchases of long lead time item equipment for construction.

The Company is currently in discussions with potential financial and strategic sources of financing for the Lancaster Biorefinery but no definitive agreements are in place.

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 relate to the fair value of warrant liabilities. 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 2, "Summary of Significant Accounting Policies" in the notes to our reviewed financial statements appearing elsewhere in this quarterly report and our annual audited financial statements appearing on Form 10-K. 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements", which has been codified into Accounting Standards Codification
825 ("ASC 825"). The standard defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 825 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. In February 2008, the FASB deferred the effective date of ASC 825 by one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). On January 1, 2008, we adopted the provisions of ASC 825, except as it applies to those nonfinancial assets and nonfinancial liabilities for which the effective date has been delayed by one year, which we adopted on January 1, 2009. The adoption of ASC 825 did not have a material effect on our financial position or results of operations. The book values of cash, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these instruments. At September 30, 2009, the warrant liability was recorded under a level two assumption; see Note 4 for discussion of the valuation techniques used to measure the fair value of the warrant liability and adoption of ASC 825.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.