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CCTC > SEC Filings for CCTC > Form 10-Q on 20-May-2014All Recent SEC Filings

Show all filings for CLEAN COAL TECHNOLOGIES INC.

Form 10-Q for CLEAN COAL TECHNOLOGIES INC.


20-May-2014

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

Over the past decade, Clean Coal Technologies, Inc. has developed processes that address what we believe are the key technology priorities of the global coal industry. We currently have three processes in our intellectual property portfolio:

The original process, called Pristine, is designed to remove moisture and volatile matter, rendering a high-efficiency, cleaner thermal coal. The process has been tested successfully on bituminous and subbituminous coals, and lignite from various parts of the United States and from numerous countries around the world.

Our second process, called Pristine-M, is a low-cost coal dehydration technology. In tests, this process has succeeded in drying coal cheaply and stabilizing it using volatile matter released by the feed coal. Our pilot plant currently under construction is designed to prove this process on a scale that can be expanded to a commercial facility.

Our third process, called Pristine-SA, is designed to eliminate 100% of the volatile matter in the feed coal and to achieve stable combustion by co-firing it with biomass or natural gas. The idea is to produce a clean a fuel that eliminates the need for emissions scrubbers and the corollary production of toxic coal ash. We anticipate that treated coal that is co-fired with other energy resources will burn as clean as natural gas.

Anticipated Benefits of the Technology:

Reduction of undesired emissions and greenhouse gases through the removal of compounds that are not required for combustion in conventional boilers.

Cost savings and environmental impact reduction. Our pre-combustion solution is anticipated to be much less expensive than post-combustion solutions such as emissions scrubbers. Not only are the latter prohibitively expensive, they produce coal ash containing the "scrubbed" compounds, which is dumped in toxic waste disposal sites where it may pose continuing environmental risk. Coal treated using our processes may eliminate the need for post-combustion emissions scrubbers and the resulting toxic ash.

Potential use of compounds removed from treated coal. Volatile matter captured in the Pristine process is removed in the form of hydrocarbon liquids that we believe will be easily blended with crude oil or used as feedstock for various products. For example, sulfur, which can be removed using the Pristine process, is a basic feedstock for fertilizer. The harvesting of hydrocarbon liquids from abundant, cheap coal is a potentially lucrative side benefit of our processes.

Energy Independence. To the extent that volatile matter is removed from coal, coal's use as an energy resource is greatly improved, enabling the United States and other coal-rich countries to move towards energy independence owing to coal's greater abundance.

Development Status:

Pristine process. Pristine process successfully lab tested on small scale and through advanced computer modeling. Construction of larger scale testing facility depends on receipt of additional funding.


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Pristine-M. Construction of pilot plant in Oklahoma underway with completion and testing currently anticipated in the fourth quarter of fiscal 2014, subject to receipt of adequate funding. We have paid $3,212,944 towards the plant and preparation work for the testing and estimated completion will require an additional $1,400,000. An additional estimated $500,000 is required to transport the test plant to AES and complete independent testing.

Pristine-SA process. Pristine SA process analysis is at a very early stage. Further research and development is expected post completion of the pilot plant.

Business Outlook

Jindal Steel & Power expected to contract first commercial plant in the fourth quarter 2014 if pilot plant testing is positive. Jindal plans to inspect prototype plant once testing is complete.

Several multinational corporations have undertaken due diligence on our processes and have scheduled or are scheduling site visits to the pilot plant in Oklahoma.

Numerous discussions continuing with various domestic and international coal producers, mine operators and power plant operators about our technology and its potential application.

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 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. Royalty revenue is not estimated until approximately 16 -18 months after the successful testing of the plant, currently anticipated in the fourth quarter of fiscal 2014, and an EPC contract has been signed to build a commercial scale facility.

For the Three Months Ended March 31, 2014 and March 31, 2013

Revenues

We have generated no revenues for the three months ended March 31, 2014 and 2013. 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 fourth quarter of fiscal 2014. 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 16 to 18 months after an EPC contract has been signed to build a commercial scale facility.

Operating Expenses

Our operating expenses for the three months ended March 31, 2014 totaled $1,322,019 compared to $1,245,202 for the three month period in 2013. The primary component of the operating expenses in both periods was for shares issued for services, officers' salaries and consulting fees.

We recorded stock-based compensation consisting of options expense and common stock issued for services of $681,589 for the three months ended March 31, 2014, compared to $483,795 for the three months ended March 31, 2013.


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Employees

As of March 31, 2014, we had three full-time executives, and one full-time administrative employee. President and CEO Robin Eves, Chief Operations Officer, Ignacio Ponce de Leon and Chief Financial Officer, Aiden Neary 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 months ended March 31, 2014, we experienced net losses of $1,591,801 compared to $1,275,327 for the three months ended March 31, 2013.

We anticipate losses from operations will increase during the next nine months due to costs associated with the test 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 and the receipt of $375,000 in license fees from Jindal as described above.

Net Cash Used in Operating Activities. Our primary source of operating cash during the three months ended March 31, 2014, was borrowings on related party debt, third party debt and convertible debt. 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 $181,602 for the three months ended March 31, 2014 compared to net cash used of $730,998 for the same period in 2013. Non-cash items for three months ended March 31, 2014 totaled $936,396 and consisted of amortization of debt discounts, stock-based compensation and a gain on the change in the fair value of derivative liabilities.

Net Cash Used In Investing Activities. Net cash used in investing activities for the three months ended March 31, 2014 consisted of $12,471 paid for the construction of the testing plant. This compares to $2,000,000 paid for the construction of the testing plant during the three months ended March 31, 2013.

Net Cash Provided by Financing Activities. Net cash provided by financing activities during the three months ended March 31, 2014 totaled $191,544 consisting of borrowings on debt of $15,527, borrowings on convertible debt $167,000 and borrowings on related party debt $29,017 offset by payments on debt of $20,000. This compares to $400,000 received from the sale of common stock during the three months ended March 31, 2013.

Cash Position and Outstanding Indebtedness

Our total indebtedness at March 31, 2014 was $5,901,905, which consists entirely of current liabilities. Current liabilities consist primarily of accounts payable, accounts payable to related parties, accrued liabilities, short-term debt, convertible debt, related party debt and derivative liabilities. At March 31, 2014, we had current assets of $33,113 in cash. Our working capital deficit at March 31, 2014 was $5,868,792. We had construction in progress of $3,212,944 as of March 31, 2014.

Contractual Obligations and Commitments

The following table summarizes our contractual cash obligations and other
commercial commitments at March 31, 2014.

                                                       Payments due by period
                                       Less than
                         Total          1 year         1 to 3 years        3 to 5 years        After 5 years
Facility lease (1)     $    3,090     $     3,090     $             -     $             -     $              -
Total contractual
cash obligations       $    3,090     $     3,090     $             -     $             -     $              -

(1) Our New York office lease commencing February 1, 2014, is on a month to month basis, at a monthly rate of $3,090 per month.


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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 test plant in Oklahoma is underway with completion and testing anticipated to be completed in the fourth quarter of fiscal 2014. We have paid $3,212,944 towards the plant and initial setup for the testing facility and estimate completion will require an additional $1,400,000. An additional estimated $500,000 is required to transport the test plant to AES and complete independent testing. We are currently awaiting the final funding to complete the test plant

Based on our current operational costs and including the capital requirements for our project deployments, we estimate we will need a total of approximately $5,000,000 to fund the Company for the balance of fiscal year 2014 and an additional $5,000,000 to continue for the following fiscal year (2015) or until an initial commercial plant is up and running. Assuming we succeed in testing our plant, we believe we will have sufficient funding to meet both the additional costs of the test plant construction and funding for our operations through fiscal 2014, although we need some interim funding until the test 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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