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 economically and stabilizing it using volatile matter released by the feed coal. Construction of our coal testing plant was completed in December 2015 and was successfully tested through April 2016 at AES Coal Power Utility in Oklahoma. Additional tests commenced and were completed in the fourth quarter of 2017. This test facility has been moved from AES to Wyoming where reassembly has commenced and testing of international coal is expected upon completion of the reassembly. Changes identified to the process by the University of Wyoming and our EPC contractors will be included in the reassembly and it is expected to provide a higher quality end product with a lower capital cost for a commercial unit. The reassembly was delayed due to the pandemic but is expected to be completed no later than Q3 2022.
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 process is expected to produce a cleaner 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:
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Reduction of undesired emissions and greenhouse gases through the removal of compounds that are not required for combustion in conventional boilers.
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Cost savings and environmental impact reduction. Our pre-combustion solution is expected to be significantly 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. By beneficiating the coal it requires less coal to be consumed to achieve the same energy output. This will save on transportation and handling costs.
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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, cheaper coal is a potentially lucrative side benefit of our processes. All coal by-products including Rare Earth Minerals extraction will be tested in the second-generation facility.
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Successful testing of the Pristine M process resulted in an increase in BTU of the processed coal and a reduction in moisture content making it less expensive to transport (as moisture has been removed) with the end product being a dust free stabilized enhanced coal which we believe will address the issue of coal dust pollution during transportation.
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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. Extraction of by-products including Rare Earth Minerals is also expected to provide coal derivative product independence.
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Development Status:
Pristine process. Pristine process successfully lab tested on small scale and through advanced computer modeling. As at November, 2020, various aspects of the Pristine process were successfully tested at our test facility at the AES coal Power plant in Oklahoma as part of the overall testing of Pristine M. The second-generation facility in Wyoming is expected to perform a more detailed testing of the Pristine process.. The build out and delivery of the Rotary Kiln will enable the test facility to reach significantly higher temperatures to test with more accuracy the Pristine process.
Pristine-M. Testing of the Pristine M process on Powder River Basin coal at the AES facility in Oklahoma was completed in December 2017. The Pristine M process was successfully tested and the process, engineering and science were independently proven. The test facility was moved from the AES location to Wyoming where reassembly commenced in Q4 2019 and testing of international coal is expected upon completion of reassembly. The reassembly was delayed due to the pandemic but it is expected to be completed in Q3 2022. Over several months in 2018 and early 2019 the University of Wyoming independently validated the Pristine M process in their laboratory. By coating the exterior of the coal during the stabilization period with heavy hydrocarbons the process produces dust free stabilized coal for transportation.
Pristine-SA process. Pristine SA process analysis is at a very early stage. Further research and development is expected using the test facility at its permanent location in Wyoming. The introduction of the Rotary Kiln and the higher temperatures it can achieve will enable a more accurate testing protocol for this process.
Business Outlook
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Wyoming New Power, a related party company, has agreed to sign a two million ton per annum license agreement to use Pristine M at a location in Wyoming. They have paid a non-refundable $100,000 deposit on the license agreement. The definitive license agreement is expected to be signed following the receipt of commercial design which will incorporate the suggested changes proposed by the University of Wyoming and our EPC contractor. Wyoming New Power is a Related Party because it is controlled by a party that also controls the entity, which is the major lender and significant stockholder of the Company.
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Jindal Steel & Power is expected to send though their coal for sampling immediately following the plants re-assembly. The bespoke commercial facility design is expected after the testing. In Q2, 2019 the Company signed a non binding MOU with Universitas Indonesia in a combined effort to assess the impact of our technology on Indonesian Coal both from a coal beneficiation perspective and also coal by-products. The second-generation test facility will have the capability of producing Char. There is local Wyoming demand for this product that the company expects to sell.
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The Company entered into a partnership with the University of Wyoming with the sole focus of using our suite of technologies to increase the use of and value of Wyoming Powder River Basin coal. Primary focus is on utilizing our technology to extract valuable derivative products from coal. Changes to the process have been identified by the University and the company EPC engineers and will be incorporated in the reassembly of the facility in Wyoming. The University confirmed in Q2, 2019 that they had successfully validated the Pristine M process in their laboratory and as a result entered into an agreement with the Company. The agreement between the University and the Company is for the reassembly of the second generation test facility. The University will advance to the EPC contractor on a two to one basis. As of the date of this filing the University has advanced a total of approx. $1,300,000 directly to the manufacturer of the Rotary Kiln. The kiln and all its relevant control panels was delivered to our site at Gillette, Wyoming in June 2020.
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The Company has been engaged with AusTrade (The Australian Trade and Investment Commission) and through that relationship has partnered with three separate universities in Australia. Like the University of Wyoming these Universities have a focus on their local coal both from a beneficiation perspective and also extracting derivative by products from coal using our technology. The Company received full Australian patents in Q2, 2019 so the company plans to move forward with this relationship in Q3, 2022 following the assembly of the second-generation test facility.
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The Company continues in discussions with the Minister for Coal in India and a number of the Energy governmental bodies in India. Coal samples are expected to be sent for testing once the Second Generation Test Facility is assembled which is expected in Q3, 2022 but subject to potential delays due to the current pandemic.
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Meetings occurred in Q2, 2019 with the US DOE, DOD and Wyoming State Representatives to further our technology to benefit US coal. These discussions continue through July 2022 in light of the recent coal mining bankruptcies in Wyoming.
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Employees
As of June 30, 2022, we had two full-time executives. President and CEO Robin Eves, Chief Operations Officer and Aiden Neary, Chief Financial Officer have written employment agreements. Messrs. Eves and Neary received no compensation for their participation on the Board of Directors.
Factors Affecting Results of Operations
Our operating expenses include the following:
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Consulting expenses, which consist primarily of amounts paid for technology development and design and engineering services;
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General and administrative expenses, which consist primarily of salaries, commissions and related benefits paid to our employees, as well as office and travel expenses;
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Research and development expenses, which consist primarily of equipment and materials used in the development and testing of our technology; and
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Legal and professional expenses, which consist primarily of amounts paid for patent protections, audit, disclosure, and reporting services.
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Results of Operations
We had no direct revenues for the six months ended June 30, 2022 or June 30, 2022. In 2017, we received $100,000 as a non-refundable deposit on a two million ton license agreement from Wyoming New Power, a related party. The definitive license agreement is expected to be completed in 2021 following the assembly of the second generation test facility. In the year ended December 31, 2012, we received an initial license fee of $375,000 from Jindal paid pursuant to the signing of our coal testing plant construction contract. The balance of $375,000 will be due upon the successful testing of Jindal coal in our second generation test facility in Wyoming. We do not anticipate any significant royalty fees for approximately 12-18 months thereafter.
For the Three Months Ended June 30, 2022 and June 30, 2021
Revenues
We have generated no revenues for the three months ended June 30, 2022 and 2021.
Operating Expenses
Our operating expenses for the three months ended June 30, 2022 totaled $325,300, compared to $321,772 for the three month period in 2021. The primary component of the operating expenses for the three months ended June 30, 2022 and 2021 was general and administrative expenses, recognizing $322,008, compared to $318,489 for the three months ended June 30, 2021.
Other Income and Expenses
During the three months ended June 30, 2022, we recognized total other expense of $336,582 compared to total other expense of $479,559 for the three months ended June 30, 2021. The $142,977 decrease is mainly due to a $188,077 decrease in interest expense, partially offset by a $42,515 decrease in the fair value of convertible note options and a $2,585 decrease in gain on settlement of convertible debt compared to the 2021 period.
Net Income/Loss
For the three months ended June 30, 2022, we had net loss of $661,882, compared to a net loss of $801,331 for the three months ended June 30, 2021. The $139,449 decrease in net loss is mainly due to the $142,977 decrease in other expense, offset by the $3,528 increase in operating expenses, as discussed above.
For the Six months Ended June 30, 2022 and 2021
Revenues
We have generated no revenues for the six months ended June 30, 2022 and 2021.
Operating Expenses
Our operating expenses for the six months ended June 30, 2022 totaled $624,038 compared to $623,289 for the six month period in 2021. The primary component of the operating expenses for the six months ended June 30, 2022 was general and administrative expenses, recognizing $617,453, compared to $616,697 for the six months ended June 30, 2021. Research and development expenses decreased $7 during the six months ended June 30, 2022 to $6,585, compared to $6,592 during the six months ended June 30 2021.
Other Income and Expenses
During the six months ended June 30, 2022, we recognized total other expense of $816,344, compared to $1,050,306 for the six months ended June 30, 2021. Most of the $233,962 decrease is due to a $411,882 decrease in interest expense during the six months ended June 30, 2022 due to lower amortization of debt discounts on convertible notes payable compared to the six months ended June 30, 2021. The decrease in interest expenses is partially offset by a loss on change in fair value of share settled debt of $73,185 during the six months ended June 30, 2022, compared to a $102,750 gain during the six months ended June 30, 2021. The Company also recognized a $2,585 gain on settlement of convertible notes payable and $600 in debt conversion and extension fees during the six months ended June 30, 2021, there were no such expenses in 2022.
Net Income/Loss
For the six months ended June 30, 2022, we had net loss of $1,440,382, compared to a net loss of $1,673,595 for the six months ended June 30, 2021. The $233,213 decrease in net loss is mainly due to the $233,962 decrease in other expenses, partially offset by a $749 decrease in loss from operations, as discussed above.
We anticipate losses from operations will increase during the next twelve months due to 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.
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
Net Cash Used in Operating Activities. Our primary source of operating cash during the six months ended June 30, 2022 was borrowings on related party debt, third party debt and convertible debt. Our primary uses of funds in operations were the completion of the construction of the test facility including the testing of the plant, the payment of professional and consulting fees and general operating expenses.
Net cash used in operating activities was $333,828 for the six months ended June 30, 2022, compared to $421,737 for the same period in 2021. The $87,909 decrease is mainly a result of a $233,213 decrease in net loss during the six months ended June 30, 2022 compared to the 2021 period. Additionally, there was a $104,840 reduction in the payments of right to use assets, accounts payable and accrued expenses during the six months ended June 30, 2022 compared to the 2021 period. These decrease in net loss and increases in the net changes of operating liabilities are partially offset by a $250,144 decrease in non-cash expense adjustments such as debt discount amortization, lease asset amortization, loan extension fees and changes in fair value of share-settled debt.
Net Cash Used In Investing Activities. There were no investing activities during the six months ended June 30, 2022 or 2021.
Net Cash Provided by Financing Activities. Net cash provided by financing activities during the six months ended June 30, 2022 totaled $332,166, compared to $422,120 during the six months ended June 30, 2021. During the six months ended June 30, 2022 and 2021, we received $332,166 and $403,520 from the issuance of notes payable to a related party, and $0 and $18,600 from the issuance of convertible notes payable to a related party, respectively.
Cash Position and Outstanding Indebtedness
At June 30, 2022, we had $100 in total assets, consisting of $100 in cash and $29,666,867 in liabilities, which consist of $29,596,177 in current liabilities and $70,690 in long-term liabilities. Current liabilities consist primarily of accounts payable, accrued liabilities, short-term convertible and non-convertible debt and related party convertible and non-convertible debt.
At December 31, 2021, we had total cash assets of $1,762 and $28,577,028 in liabilities, which consisted of $28,483,101 in current liabilities and $93,927 in long-term liabilities. Current liabilities consist primarily of accounts payable, accrued liabilities, short-term convertible and non-convertible debt and related party convertible and non-convertible debt.
Our working capital deficit at June 30, 2022 and December 31, 2021 was $29,596,077 and $28,481,339, respectively.
Contractual Obligations and Commitments
We secured a permanent location in Gillette, Wyoming for our test facility. The term of the lease is three years and calls for rent of $36,000, prepaid. In April, 2021 the company signed and executed an extension to the lease for the site at Fort Union, Wyoming for an additional three years to April 30, 2024. The rent of $36,000 was paid in advance by the company in April, 2021.
We lease office space in New York, NY on a month to month basis, at a monthly rate of $200 per month.
Our engineering consultants has tentatively estimated construction costs for each one million short ton coal complete cleaning facility of approximately $250 million (excluding land costs) or costs and for a similar size Pristine-M-only facility of approximately $30-35 million (excluding land costs). All intellectual property rights associated with new art developed by our engineering consultants remain our property.
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.
In November 2015, we entered into a month to month agreement with South of the Rose communication to manage our Investor Relations needs and manage social media requirements.
Construction of the coal testing plant was completed in 2015 and testing commenced in December 2015 at the AES Coal Power Utility in Oklahoma. As of June 30, 2022, we have paid $11,244,224 in development costs. The facility was moved to Wyoming in the first quarter of 2019. We anticipate that there will be an additional cost of approximately $4.5 million to acquire the additional parts for the second generation test facility and for its assembly.
Based on our current operational costs and including the capital requirements for our project deployments, we estimate we will need a total of approximately $5,500,000 to fund the Company for the fiscal year 2023 for plant re-assembly and operating costs and an additional $4,000,000 to continue for the following fiscal year (2022) or until an initial commercial plant is up and running.
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.
