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CCTC > SEC Filings for CCTC > Form 10-Q on 13-Aug-2013All Recent SEC Filings

Show all filings for CLEAN COAL TECHNOLOGIES INC.

Form 10-Q for CLEAN COAL TECHNOLOGIES INC.


13-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, statements concerning: our plans, strategies and objectives for future operations; new products or developments; future economic conditions, performance or outlook; the outcome of contingencies; expected cash flows or capital expenditures; our beliefs or expectations; activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future; and assumptions underlying any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as "believes," "expects," "may," "should," "would," "will," "intends," "plans," "estimates," "anticipates," "projects" and similar words or expressions. You should not place undue reliance on these forward-looking statements, which reflect our management's opinions only as of the date of the filing of this Quarterly Report on Form 10-Q and are not guarantees of future performance or actual results

Overview

Clean Coal Technologies, Inc. ("We," "Company" or "Clean Coal") owns a patented technology that we believe will provide cleaner and/or more efficient energy at low cost through the use of the world's most abundant fossil fuel, coal. Our technology is designed to utilize controlled heat to extract and capture pollutants and moisture from low-rank coal, transforming it into a cleaner-burning, more energy-efficient fuel prior to combustion. Our proprietary coal cleaning process is designed to ensure that the carbon in coal maintains its structural integrity during the heating process while the volatile matter (polluting material) within the coal turns into a gaseous state and is removed from the coal. We have trade-marked the name "PRISTINE™" as a means of differentiating our processed product from the negative connotations generally associated with coal, and its traditional use. PRISTINE™ is applicable for a variety of applications, including coal-fired power stations, chemical byproduct extraction, and as a source fuel for coal-to-gas and coal-to-liquid technologies.

In September 2011, we filed a provisional application for a patent on a new technology known as Pristine M. The new technology is a moisture substitution technology that, owing to the superior quality of the product and attractive economics, is expected to be highly successful in the moisture removal business globally.

In June 2013, we filed a provisional patent application for a new process to be called Pristine-SA. The new process is designed to produce a coal product that is devoid of all volatiles and comes together with a solution for ensuring efficient and clean combustion on a level with natural gas. Now that the application on the basic concept has been filed, we expect to continue further research and development to address Pristine-SA's potential application in various fuel and non-fuel product areas.

Current or Pending Projects. We have dedicated maximum effort to develop a global commercial platform around a series of strategic partnerships. We have signed a 25-year Technology License Agreement ("TLA") with Jindal Steel and Power, Ltd. ("Jindal"). Under the TLA, the Company will receive an on-going royalty fee of one dollar ($1.00) per metric ton on all coal processed from Jindal majority-owned mines in the ASEAN region, up to four million tons or four million dollars ($4,000,000) per annum with a waiver of additional royalty fees on further processed coal up to a total of eight million tons per year. If coal processing increases above eight million tons per year, the royalty will be reinstated and the parties have agreed to review the rate.

Jindal will also pay the Company a one-time license fee of seven-hundred and fifty thousand dollars ($750,000). The first installment of the license fee, three-hundred and seventy-five thousand dollars ($375,000), has been paid pursuant to the signing of the pilot plant construction contract. The balance of three-hundred and seventy-five thousand dollars ($375,000) will be due upon the successful testing of the pilot plant which is expected to be completed during the third quarter of fiscal 2013.

For our ASEAN region joint venture initiative, we entered into a joint venture with the Archean Group ("AGPL") to develop deploy and market our Pristine M technology throughout the ASEAN region (including Indonesia, the Philippines, Cambodia, Vietnam, Malaysia, Brunei, Thailand, Laos and Myanmar). On December 18, 2012, we sent a notice of termination, effective immediately, to AGPL. On April 20, 2013, we signed a settlement agreement with AGPL ("Settlement Agreement"). The Settlement Agreement includes provisions for mutual release of all claims related to the agreements, dissolution of the Joint Venture Agreement in Respect of Good Coal, Pte. Ltd ("Good Coal"), effective June 5, 2012, between the Company and AGPL (the "JV Agreement") and the Technology License Agreement, effective May 31, 2012, between the Company and Good Coal (the "TLA").


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On February 5, 2013, we signed a construction and testing contract ("EPC Agreement") with SAIC Constructors, LLC ("SAIC"). We also remitted the first payment of $2 million to SAIC for the construction of the 2-ton/hour, pilot plant in Oklahoma, as per the terms of the new contract. Total cost of the project, including testing to take place at a designated site in Oklahoma, is estimated at $3.6 million. Commissioning of the pilot plant is expected during the third quarter of 2013. As sole counterparty to the EPC contract, we will own the completed pilot plant outright. We entered into the ECP Agreement to ensure that there is little or no disruption in the pilot plant construction schedule.

As of June 30, 2013 all design and engineering work had been completed on the Pilot Plant, all parts have been ordered and a schedule to commence the fabrication at the end of July 2013 is on target. Simultaneously with the fabrication of the Pilot Plant, CCTI has paid Carrier Vibrating Equipment Inc. $17,800 to design and engineer a batch processing plant which will greatly enhance the capabilities and accuracy of the Pilot Plant. The batch process unit and the Pilot Plant will be housed at the same location.

In March 2013, we negotiated an early closing of part of the second tranche of investment with Ventrillion Management Group ("Ventrillion"). Under the amended agreement, Ventrillion purchased 8,000,000 million shares for $400,000.

Other projects

Pending resolution of legalities surrounding the change in ownership of the interests of the Chinese partner in the Inner Mongolia joint venture company, we are seeking to transition the Company's involvement from full joint venture partner to merely a licensor. Although the proposed project has all permits fully approved, there has been no recent activity to move the project forward.

In our continued effort to expand global awareness for our technology and to build a potential pipeline of business for when the pilot plant is successfully commissioned, we have signed an NDA with a company in Australia that has significant coal assets in Southern Australia. We have also signed NDA's with two major Russian coal companies, one with a company in Serbia and another with a major Indian conglomerate. In each case we are in the early stages of exchanging information and determining how best our technology might be deployed.

Factors Affecting Results of Operations

Our operating expenses include the following:
· Consulting expenses, which consist primarily of amounts paid for technology development and design and engineering services;
· General and administrative expenses, which consist primarily of salaries, commissions and related benefits paid to our employees, as well as office and travel expenses;
· Research and development expenses, which consist primarily of equipment and materials used in the development and testing of our technology; and
· Legal and professional expenses, which consist primarily of amounts paid for patent protections, audit, disclosure, and reporting services.

Results of Operations

The following information should be read in conjunction with the financial statements and notes appearing elsewhere in this Report. We have generated limited revenues from inception to date. We anticipate that we may not receive any significant revenues from operations until we begin to receive royalty revenues which we estimate will be approximately 12 to 14 months after the successful testing of the plant anticipated in the third quarter of fiscal 2013 and an EPC contract has been signed to build a commercial scale facility. We are also in preliminary discussions with companies, business groups, consortiums in the USA and Asia to license our technology, which, if successful, could realize limited short-term revenue opportunities from the signing of technology licensing agreements.

For the Three and Six Months Ended June 30, 2013 and June 30, 2012

Revenues

We have generated no revenues for the six months ended June 30, 2013 and the same period in 2012. In the third quarter of fiscal 2012, we received an initial license fee of $375,000 from Jindal paid pursuant to the signing of our pilot plant construction contract. The balance of $375,000 will be due upon the successful testing of the pilot plant, anticipated in the third quarter of fiscal 2013. We do not anticipate additional license revenues until the pilot plant has been successfully tested, and do not expect to receive any royalty fees for approximately 12 to 14 months after an EPC contract has been signed to build a commercial scale facility.


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Operating Expenses

Our operating expenses for the three and six months ended June 30, 2013 totaled $1,552,817 and $2,798,019, respectively compared to $2,811,660 and $4,121,840 respectively for the same periods in the prior year. The primary component of the operating expenses in both periods was for shares issued for services, officers' salaries and consulting fees. The decrease in operating expenses for the 2013 fiscal period is due mainly to less stock-based compensation in 2013.

We recorded stock-based compensation of $1,374,083 for the six months ended June 30, 2013, compared to $2,234,746 for the same period in the prior year.

During three and six months ended June 30, 2013, operating expenses consisted of $326,814 and $715,650, respectively in general and administrative expenses and $1,226,003 and $2,082,369, respectively of legal and consulting fees. In the same periods in 2012, operating expenses consisted of $323,451 and $1,104,437, respectively in general and administrative expenses and $2,488,209 and $3,017,403, respectively of legal and consulting fees.

In March 2013, we entered into a consulting agreement with ProActive Resources Advisory Group, LLC, a strategic advisory, investor relations and public relations firm. The agreement is for a term of six months and a monthly cash fee of $8,000. In connection with the agreement, we issued ProActive 500,000 restricted shares of our common stock and granted an aggregate of 1,000,000 common stock options which have a term of 3 years and the following exercise prices and vesting terms: 400,000 options are exercisable at $0.15 per share and vested on March 22, 2013, 300,000 options are exercisable at $0.25 per share and vested on July 1, 2013 and 300,000 options are exercisable at $0.35 per share and vested on July 1, 2013.

In April 2013, we entered into an agreement with a consultant for media and investor relations services. The term of the agreement is for 6 months. The Company paid the consultant $125,000 in cash and issued to the consultant 7,500,000 shares of our common stock.

In May 2013, we awarded two engineering consultants one million shares each of the Company's common stock for extraordinary work on the pilot plant design. The consultants also each received options for the purchase of one million shares at an exercise price of $.05 per share, vesting December 31, 2013 and exercisable until December 31, 2018.

Employees

As of June 30, 2013, we had two full-time executives, and one full-time administrative employee. President and CEO Robin Eves, and Chief Operations Officer, Ignacio Ponce de Leon have written employment agreements. Our administrative employee is at-will. Messrs. Eves and Ponce de Leon received no compensation for their participation on the Board of Directors. We have an oral consulting agreement with C.J. Douglas, a shareholder who provides services that support our administrative and accounting functions on a month-to-month basis, at $20,000 per month.

Net Income/Loss

For the three and six months ended June 30, 2013, we experienced net losses of $1,620,893 and $2,896,220, respectively, and $4,069,672 and $6,002,922, respectively, for the same periods for the prior year. For the three and six months ended June 30, 2013, we incurred losses from operations of $1,552,817 and $2,798,019, respectively, and $2,811,660 and $4,121,840, respectively, for the three and six months ended June 30, 2012. We incurred interest expense of $68,076 and $98,201 for the three and six months ended June 30, 2013, and $1,856,866 and $2,230,208 for the three and six months ended June 30, 2012.

We anticipate losses from operations will increase during the next twelve months due to costs associated with the pilot plant completion and testing, as well as anticipated increased payroll expenses as we add necessary staff and increases in legal and accounting expenses associated with maintaining a reporting company. We expect that we will continue to have net losses from operations for several years until revenues from operating facilities become sufficient to offset operating expenses, unless we are successful in the sale of licenses for our technology once the pilot plant testing is complete.

Liquidity and Capital Resources

We have generated minimal revenues since inception. We have obtained cash for operating expenses through advances and/or loans from affiliates and stockholders, the sale of common stock, the issuance of loans and convertible debentures subsequently converted to common stock and the receipt of $375,000 in license fees from Jindal as described above.


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Net Cash Used in Operating Activities. Our primary source of operating cash during the six months ended June 30, 2013, was proceeds from the sale of shares to Ventrillion Management Group, LLC in December 2012 plus an additional sale of shares to Ventrillion in March 2013. Our primary uses of funds in operations were the payment of professional and consulting fees and general operating expenses.

Net cash used in operating activities, was $1,087,604 for the six months ended June 30, 2013 compared to net cash used of $1,759,957 for the same period in 2012. Non-cash items in 2013 included shares issued for services valued at $708,550, options expense of $665,533 amortization of debt discounts of $66,281 and depreciation expense of $102. Non-cash items in 2012 included shares issued for services valued at $1,668,471, amortization of debt discounts of $2,039,006, amortization of deferred financing costs of $102,857, derivative liabilities recorded as compensation expense of $566,275 a gain on the change in the fair value of derivative liabilities of $218,487, a gain on the extinguishment of debt of $130,639 and depreciation expense of $102. During the six months ended June 30, 2013, we experienced a decrease in prepaid expenses of $60,697, an increase in accounts payable of $167,209, an increase in related party payables of $12,500 and an increase in accrued liabilities of $127,744.

Net Cash Used In Investing Activities. Net cash used in investing activities for the six months ended June 30, 2013 consisted of $2,016,800 paid for the construction of the pilot plant. We did not engage in investing activities for the six months ended June 30, 2012.

Net Cash Provided by Financing Activities. Net cash provided by financing activities during the six months ended June 30, 2013 totaled $529,405 consisting of $400,000 in cash received for the sale of common stock and $129,405 from borrowings on related party debt. Net cash provided by financing activities during the six months ended June 30, 2012 totaled $1,757,606 consisting of borrowings on debt and convertible debt of $2,960,641, offset by payments on debt and convertible debt of $680,303 and payments on related party debt of $522,732.

Cash Position and Outstanding Indebtedness

Our total indebtedness at June 30, 2013 was $2,018,872, which consists entirely of current liabilities. Current liabilities consist primarily of accounts payable, accounts payable to related parties, short-term debt and accrued liabilities. At June 30, 2013, we had current assets of $88 in cash and $1,832 in prepaid expenses and other current assets. Our working capital deficit at June 30, 2013 was $2,016,952. We had property, plant and equipment (net of accumulated depreciation) of $26 and construction in progress of $2,016,800 at June 30, 2013.

Contractual Obligations and Commitments

The following table summarizes our contractual cash obligations and other
commercial commitments at June 30, 2013.

                                                           Payments due by period
                                           Less than
                             Total          1 year         1 to 3 years        3 to 5 years        After 5 years
Facility lease (1)         $   21,415     $    21,415     $             -     $             -     $              -
Total contractual cash
obligations                $   21,415     $    21,415     $             -     $             -     $              -

(1) Our New York lease is for six months through January 2014, at a monthly rate of $3,090 per month.

SAIC Energy Environment & Infrastructure (SEE&I), our engineering consultant has tentatively estimated construction costs for each one million short ton coal complete cleaning facility of approximately $120 million (excluding land costs) or costs for a similar size Pristine-M-only facility of approximately $45-50 million (excluding land costs). Under the terms of our consulting agreement with SEE&I, we are obligated to pay to SEE&I a fee representing five percent of all gross revenues received by us from the sale of our technology, the operation of franchised plants utilizing the technology, or revenue received on any other basis that is related to the technology. This fee will remain in effect for a period of 15 years, commencing from the date that we receive our initial revenue stream from operations. All intellectual property rights associated with new art developed by SEE&I remain our property, however SEE&I would have a "right to use" the intellectual property provided it is deployed in non-competitive projects.

Construction of the pilot plant in Oklahoma is underway with completion and testing anticipated to be completed in the third quarter of fiscal 2013. We have paid $2,016,800 towards the plant and estimate completion will require an additional $2,250,000.


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Based on our current operational costs and including the capital requirements for our project deployments, we estimate we will need a total of approximately $3,500,000 to fund the Company for the balance of fiscal year 2013 and an additional $5,000,000 to continue for the following fiscal year (2014) or until an initial commercial plant is up and running. At this filing date, we have a commitment from Ventrillion for $10,600,000 in additional funding contingent on implementation of a reverse split of our common stock as approved by our shareholders in May 2013, and completion and successful testing of the pilot plant. Assuming we succeed in testing, we believe we will have sufficient funding to meet both the additional costs of the pilot plant construction and funding for our operations through fiscal 2014, although we may need some interim funding until the pilot plant is operational. We are also actively pursuing technology license and royalty agreements in order to begin construction of other facilities without incurring the capital costs associated with the construction of future plants.

Off-Balance Sheet Arrangements

We have not and do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of establishing off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we do not believe we are exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

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