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Bluforest, Inc. (OTC: BLUF) Investigation

Executive Summary

After thorough research, it is our belief that Bluforest, Inc. (OTN: BLUF) is a fraudulent company with no tangible assets beyond the office equipment used to perpetuate the myth that they are a business. The evidence we present shows BLUF has committed numerous GAAP violations. In the interest of brevity this report focuses on a few key issues. They are:

• The ~$700 million dollar asset on BLUF’s balance sheet is fictitious because they cannot and do not own legal rights to the property asset they claim.

• Global Environmental Investments Ltd (GEIL) is a shell company intended to hide ownership and fraudulent business activities.

• The Fundacion Nelson Velasco Aguirre (NVA) that BLUF alleges had original land ownership rights cannot be proven to exist or have ever existed.

• The property in question is primarily located within a famous national park. There is precedence that Ecuador’s federal government and indigenous tribes are the only entities which can claim controlling rights to national park lands.

• Even if somehow the NVA can be proven to exist and have owned rights to the property, and all the subsequent transactions were legal, BLUF has grossly overstated the value of the property assets it “owns” and egregiously understated the impairment charge required by GAAP.

 

 

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The Ruse

In BLUF’s most recent 10K1 for the fiscal year ended December 31, 2012, the company claims they were able to acquire approximately 105,000 hectares of land in Ecuador via a stock swap with a Belize based firm called GEIL in March 2012. In the filing BLUF claims that GEIL entered into an acquisition agreement with “Fundacion Nelson Velasco Aguirre” referred to as NVA. NVA is purported to have had controlling rights to the 105,000 ha of land. Additionally, according to BLUF 70% of this land is contained within Sangay National Park. Sangay National Park is a National Park and UNESCO World Heritage Site.2

The Facts Fundacion Nelson Velasco Aguirre (NVA) cannot be independently verified as an existing foundation Repeated searches have not turned up any entity with the aforementioned name or combination of names (GEIL, Bluforest, and Fundacion Nelson Velasco Aguirre). Searches included but were not limited to Ecuador UNESCO World Heritage Centre,2 UN-REDD, 3 REDD plus partnership, 4 REDD plus database, 5 Parque Nacional Sangay, 6 NGO Law Monitor, 7 Reuters, 8 a 2008 directory listing of Ecuador’s foundations, 9 and Ecuador’s own news agency La Hora. 10

A foundation which allegedly owns ~40% of a UNESCO World Heritage Site and ~20% of a national park11 is unlisted in any foundation registry, or global/national environmental organization or partnerships. My assertion is that this foundation does not exist.

Global Environmental Investments Ltd (GEIL) is a shell company with no known activities outside of BLUF’s SEC filings

GEIL began its existence in BLUF’s 8K12 filed on 4/11/12. Originally BLUF, then called Greenwood Gold Resources, Inc., was involved in an acquisition agreement with another firm called ORE who claimed to own 80,197 ha of land in Ecuador called “Hacienda Juval”. ORE could not prove ownership so the agreement was terminated on 2/14/2012.

 

 

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Coincidentally and fortunately, on 3/30/2012 BLUF entered into an agreement with GEIL who claimed rights to ~105,000 ha of land in Ecuador. This land is currently referred to as “El Juval” and is the primary asset BLUF values at ~$700m. GEIL via the aforementioned stock swap also owned 75% of BLUF.

GEIL’s ownership and structure are unknown due to strict confidentiality, a key feature of incorporating in Belize. 13 In fact, GEIL’s sole purpose as a private entity was to confer controlling rights to BLUF-Controlling rights acquired via a trust agreement with a foundation that does not exist.

There is precedent that national park land is owned and operated by the government and indigenous people of Ecuador invalidating ownership claims by a private foundation Ecuador’s President Correa had to override local and international media objections to allow for a controversial oil drilling program to continue within Yasuni National Park. 14 The Ecuadorian congress, environmental organizations, and indigenous peoples were and are publicly involved in the decision making process on how to proceed and distribute the economic gains. The activities within Yasuni provide critical precedent and context regarding ownership rights for national park lands.

BLUF has violated FASB 144 (ASC 360) by not appropriately testing their acquired properties for impairment and misrepresenting the fair value of ‘El Juval’ and ‘Ecuador Farms S.A’ at the time of acquisition, and would need to record an impairment charge of ~$511 million FASB 14415 now known as ASC 360 outlines the procedures and guidance to test Long-Lived Assets to be held and used, for impairment. First to decide whether an impairment charge is necessary the firm must estimate the sum of the assets’ future undiscounted cash flows. If this value is less than the book value then an impairment charge must be recorded. BLUF does a very poor job explaining its properties expected value; however, it seems that they must have assessed its value to be less than the book value because they have already accounted for a $75 million impairment charge. 1

 

 

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However the impairment charge recorded is grossly underestimated. FASB 144 requires the charge be equal to the difference between fair value (market value) and the carrying value on the books. Keep this in mind when reading through my conservative fair value estimates.

In the 3/18/13 10K1 BLUF purported to use an independent and third party appraiser to value ‘El Juval’ at a recoverable value of $5000 per hectare, or ~4x the actual observed market value of verified carbon offsets. Ecosystemmarketplace.com16 pegged verified carbon standard (VCS) credits averaging $3.7/tCO2e in 2012. Citing their more in depth “State of the Voluntary Carbon Markets 2013” report, 17 the average volume weighted $/tCO2e was $6.20/t in 2011 and $5.90/t in 2012. Using a blended average price $6.05/tCO2e, and 1 hectare equating to approximately 200 carbon credits, 18 fair value for El Juval is $1210 per hectare or ~$127 million. Extrapolating these figures to include the purported Ecuador Farms acquisition the market value of BLUF’s property assets is ~$512 million less than the reported value!

$/tCO2e $  /  Hectare #  of  Hectares Fair  ValueBLUF  Appraised  Value  "El  Juval" 25.00$         5,000 105,000 525,000,000BLUF  Appraised  Value  Ecuador  Farms  S.A. 25.00$         5,000 30,000 150,000,000Total 675,000,000$          

Actual  Market  Value  "El  Juval" 6.05$             1,210 105,000 127,050,000Actual  Market  Value  Ecuador  Farms  S.A. 6.05$             1,210 30,000 36,300,000Total 163,350,000$          

Market  Value 163,350,000$    Reported  Value -­‐ 675,000,000$    

Impairment  Charge ($511,650,000)

 

 

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BLUF Report Citations & References

1. Bluforest Inc. (2013) SEC Form 10K for the year ended December 31, 2012. Retrieved from < http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001524777-13-000117%2Etxt&FilePath=%5C2013%5C03%5C18%5C&CoName=BLUFOREST+INC%2E&FormType=10-K&RcvdDate=3%2F18%2F2013&pdf= >

2. "Sangay National Park." - UNESCO World Heritage Centre. N.p., n.d. Web. 20 Sept. 2013.

<http://whc.unesco.org/en/list/260>

3. "-- UN-REDD Programme - Home --." -- UN-REDD Programme - Home --. N.p., n.d. Web. 18 Sept. 2013. <http://www.un-redd.org/>

4. "REDD+ Partnership." Home. N.p., n.d. Web. 18 Sept. 2013. <http://reddpluspartnership.org/en/>.

5. "Voluntary REDD Database." Voluntary REDD Database. N.p., n.d. Web. 18 Sept. 2013.

<http://reddplusdatabase.org/>.

6. Parque Nacional Sangay (Ecuador): Portal. N.p., n.d. Web. 18 Sept. 2013. <http://www.sangay.eu/>

7. "NGO Law Monitor: Ecuador." Ecuador. N.p., n.d. Web. 18 Sept. 2013.

<http://www.icnl.org/research/monitor/ecuador.html>

8. http://www.reuters.com/

9. “webs.info.ec: El directorio mas completo del Ecuador.” Web. 18 Sept. 2013 <http://www.webs.info.ec/consulta/enlaces.asp?categoria=9&grupo=55&pag=1>

10. "La Hora Digital." La Hora Digital. N.p., n.d. Web. 18 Sept. 2013. <http://www.lahora.com./>.

11. "Sangay National Park - A Designated UNESCO World Heritage Site." Sangay National Park,

Macas. N.p., n.d. Web. 19 Sept. 2013. <http://www.ecuador.com/protected-areas/sangay-national-park/>.

12. Bluforest Inc. (2012) SEC Form 8K for the period ended March 30, 2012. Retrieved from

<http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001477932-12-001089%2Etxt&FilePath=%5C2012%5C04%5C11%5C&CoName=GREENWOOD+GOLD+RESOURCES%2C+INC%2E&FormType=8-K&RcvdDate=4%2F11%2F2012&pdf= >

13. "Advantages to Incorporate in Belize." Atrium Incorporators. N.p., n.d. Web. 19 Sept. 2013.

<http://www.atrium-incorporators.com/advantages-to-incorporate-in-belize/>.

14. Mallen, Patricia Rey. "Indigenous Population Agree To Oil Drilling In Ecuador's Protected Area Yasuní." International Business Times. N.p., 18 Sept. 2013. Web. 19 Sept. 2013. <http://www.ibtimes.com/indigenous-population-agree-oil-drilling-ecuadors-protected-area-yasuni-1407814>.

15. "FASB, Financial Accounting Standards Board." Summary of Statement No. 144. N.p., n.d. Web.

19 Sept. 2013. <http://www.fasb.org/summary/stsum144.shtml>.

16. Peters-Stanley, Molly. "Ecosystem Marketplace - Carbon Offset Prices Vary Widely By Standard And Project Type: Study." Ecosystem Marketplace. N.p., 08 June 2012. Web. 19 Sept. 2013. <http://www.ecosystemmarketplace.com/pages/dynamic/article.page.php?page_id=9090>.

17. Molly Peters-Stanley, Daphne Yin. “State of the Voluntary Carbon Market.” Forest Trends'

Ecosystem Marketplace. May 2013. <http://www.forest-trends.org/documents/files/sovcm_2013_exec_sum.pdf >

18. "Carbon Credit 2012 - Carbon Credit." Carbon Credit 2012 - Carbon Credit. N.p., n.d. Web. 19

Sept. 2013. <http://www.carboncredit2012.com/site/index.php/carbon-credit>