Our financial statements required by this item are included on the pages immediately following the Index to Financial Statements appearing below.
Notes to Financial Statements
NOTE 1: NATURE OF BUSINESS
Clean Coal Technologies, Inc. (“CCTI”, the “Company”, “Clean Coal”, “we”, “our”), a Nevada corporation, is developing a patented multi-stage process that transforms coal with high levels of impurities, contaminants and other polluting elements into an exceptionally efficient, clean and inexpensive source of high energy, low polluting fuel.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Methods
The Company’s financial statements are prepared using the accrual method in accordance with Generally Accepted Accounting Principles in the United State of America (“GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure on contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company applies the provisions of Accounting Standards Codification (“ASC”) 605
Revenue Recognition
(ASC 605) which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
The Company generated revenue in 2012 related to license fees received for the use of its technology. The license fee revenue requires no continuing performance on the Company’s part and is recognized upon receipt of the licensing fee and grant of the license.
During 2012, the Company granted a 25-year technology license agreement for a one-time license fee of $750,000. The first installment of the license fee $375,000 has been collected pursuant to the signing of a coal testing plant construction contract and the balance of $375,000 will be due upon the successful testing of the coal testing plant, estimated to be in the second quarter of 2016. In addition, under the technology license agreement, the Company will receive an on-going royalty fee of $1 per metric ton on all coal processed using the technology, up to $4,000,000 per annum. No revenue has been earned in 2014 or 2015.
Net Loss per Common Share
Basic net loss per share is computed on the basis of the weighted average number of common shares outstanding during each year. Diluted net loss per share is computed similar to basic net loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
The total number of potential additional dilutive instruments outstanding for all periods presented was none since the Company had net losses for all periods presented and had no additional potential common shares that have an anti-dilutive effect.
Cash and Cash Equivalents
Clean Coal considers all highly liquid investments with an original maturity of three months or less to be cash equivalents for purposes of preparing its Statement of Cash Flows.
Fair Value of Financial Instruments
The fair values of the Company’s financial instruments including cash, accounts payable, accrued expenses and notes payable approximate their carrying amounts because of the short maturities of these instruments.
Federal Income Tax
Clean Coal files income tax returns in the U.S. federal jurisdiction, and the state of Nevada. Clean Coal’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
7,880,283
|
|
|
$
|
6,885,735
|
|
Valuation allowance
|
|
|
(7,880,283
|
)
|
|
|
(6,885,735
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The federal income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate of 35% to pretax income from continuing operations for the years ended December 31, 2015 and 2014 due to the following:
|
|
2015
|
|
|
2014
|
|
Pre-tax book loss
|
|
$
|
(28,116,194
|
)
|
|
$
|
(2,651,262
|
)
|
Meals and entertainment
|
|
|
1,140
|
|
|
|
-
|
|
Common stock, options and warrants issued for services and debt discount
|
|
|
1,063,207
|
|
|
|
230,776
|
|
Debt extinguishment expense
|
|
|
2,114,862
|
|
|
|
-
|
|
Asset impairment expense
|
|
|
2,089,611
|
|
|
|
-
|
|
Debt discount amortization
|
|
|
473,413
|
|
|
|
-
|
|
Loss on derivative liability
|
|
|
21,379,413
|
|
|
|
505,466
|
|
Valuation allowance
|
|
|
994,548
|
|
|
|
1,915,020
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company had net operating losses of approximately $22,500,000 that begin to expire in 2025. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. In accordance with the statute of limitations for federal tax returns, the Company’s federal tax returns for the years 2011 through 2014 are subject to examination.
Property and Equipment
Property and equipment consists of furniture and fixtures and computer equipment, recorded at cost, depreciated upon placement in service over estimated useful lives ranging from three to five years on a straight-line basis. As of December 31, 2015 and 2014, Clean Coal had property and equipment with a net book value of $0 and $0, respectively. Expenditures for normal repairs and maintenance are charged to expense as incurred.
Construction in Process
Construction in progress is stated at cost, which includes the costs of construction and other direct costs attributable to the construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put into use. Interest on the borrowings related to construction is capitalized in accordance with ASC 835-20
Capitalization of Interest
. During the years ended December 31, 2015 and 2014, $172,203 and $0 of interest was capitalized, respectively. The construction in progress asset was fully impaired during 2015 resulting in a loss of $5,970,319.
Impairment of Long Lived Assets
In the event facts and circumstances indicate the carrying value of a long-lived asset, including associated intangibles, may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount to determine if a write-down to market value or discounted cash flow is required.
During the year ended December 31, 2015, the Company recognized a full impairment expense of $5,970,319 on the development of its test facility due to the lack of revenue generation and uncertainty as to future revenue generation.
Research and Development Costs
Research and development expenses include salaries, related employee expenses, research expenses and consulting fees. All costs for research and development activities are expensed as incurred. Clean Coal expenses the costs of licenses of patents and the prosecution of patents until the issuance of such patents and the commercialization of related products is reasonably assured.
Stock-based Compensation
FASB ASC 718 established financial accounting and reporting standards for stock-based employee compensation plans. It defines a fair value based method of accounting for an employee stock option or similar equity instrument. Clean Coal accounts for stock-based compensation to employees in accordance with FASB ASC 718. Clean Coal accounts for share based payments to non-employees in accordance with FASB ASC 505-50.
Fair Value of Financial Instruments
ASC 820,
Fair Value Measurements
(ASC 820) and ASC 825,
Financial Instruments
(ASC 825)
,
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 -
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 -
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
- Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The carrying values of cash, accounts payable, and accrued liabilities approximate fair value. Pursuant to ASC 820 and 825, the fair value of cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table sets forth by level within the fair value hierarchy the Company's financial assets and liabilities that are measured at fair value on a recurring basis at December 31, 2015 and 2014:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
70,004,318
|
|
|
$
|
70,004,318
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,765,695
|
|
|
$
|
1,765,695
|
|
Derivative Instruments
The Company accounts for derivative instruments in accordance with ASC Topic 815,
Derivatives and Hedging
(ASC 815) and all derivative instruments are reflected as either assets or liabilities at fair value in the consolidated balance sheet.
The Company
uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general,
The Company
’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for
The Company
’s liabilities), relying first on observable data from active markets. Additional adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions. Transaction costs are not included in the determination of fair value. When possible,
The Company
seeks to validate the model’s output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.
The Company
categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of December 31, 2015 and 2014, the Company had $70,004,318 and $1,765,695 in derivative liabilities, respectively.
Recently Issued Accounting Pronouncements
The Company does not expect the adoption of any recently issued accounting pronouncements to have a significant impact on its financial position, results of operations or cash flows.
NOTE 3: GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis of accounting which contemplates continuity of operations, realization of assets, liabilities, and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if Clean Coal is unable to continue as a going concern. Clean Coal has a working capital deficit as of December 31, 2015 and has generated recurring net losses since inception. Management believes Clean Coal will need to raise capital in order to operate over the next 12 months. Clean Coal’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. Clean Coal has limited capital with which to pursue its business plan. There can be no assurance that Clean Coal’s future operations will be significant and profitable, or that Clean Coal will have sufficient resources to meet its objectives. These conditions raise substantial doubt as to Clean Coal’s ability to continue as a going concern. Management may pursue either debt or equity financing or a combination of both, in order to raise sufficient capital to meet Clean Coal’s financial requirements over the next twelve months and to fund its business plan. There is no assurance that management will be successful in raising additional funds.
NOTE 4: CONSTRUCTION IN PROGRESS
Construction in progress of $3,212,944 as of December 31, 2014 is related to the construction of a 2-ton/hour test plant in Oklahoma. The total cost of the project, including testing to take place at a designated site in Oklahoma, totaled $5,970,319 which was fully impaired during the year ended December 31, 2015 as discussed above.
NOTE 5: RELATED PARTY TRANSACTIONS
Accounts payable to related parties
Accruals for salary and bonuses to officers and directors are included in accrued liabilities in the balance sheet and totaled $3,037,376 and $1,938,191 as of December 31, 2015 and 2014, respectively. As part of the separation agreement with Mr Ponce de Leon, the Company agreed to pay him all his accrued salary within two years but agreed to pay him $200,000 by November 2015 out of revenues earned. As the Company did not earn revenue in 2015 and as at May 2016 has still not earned revenue. The obligation to Mr Ponce de Leon is currently in default. It is the Company’s intention to pay Mr Ponce de Leon immediately upon receiving revenue.
Debt and convertible debt owed to related parties
During the year ended December 31, 2014, the Company borrowed an aggregate of $29,017 from Officers and Directors and issued 21,429 common shares in connection with the borrowings. The relative fair value of the shares was determined to be $8,319 and was recorded as a discount to the associated note and was fully amortized to interest expense during the year ended December 31, 2014. As of December 31, 2014, the aggregate outstanding balance of note payable to Officers and Directors was $0. The Company made payments totaling $49,322 on related party debt during the year ended December 31, 2014. The notes are were unsecured, bore interest between 0% and 10% per annum and are due on demand. Aggregate amortization of debt discounts on related party debt for the year end December 31, 2014 was $8,426.
During the year ended December 31, 2015, the Company borrowed $50,000 from its Chief Financial Officer. The loan was unsecured, bore no interest and was due on demand. The Company repaid the loan in full during 2015.
Return and cancellation of common stock
During the year ended December 31, 2014, management returned and cancelled a total of 2,270,887 common shares back to the Company.
NOTE 6: DEBT
Convertible Debt
2014
During the year ended December 31, 2014, the Company borrowed an aggregate of $1,249,500, net of original issue discounts of $305,940, under convertible notes payable and issued an aggregate of 9,736,826 common shares for the conversion of $1,498,045 in convertible debt and accrued interest. During the year ended December 31 2014, the company repaid two convertible notes totaling $79,250. As of December 31, 2014, the Company had outstanding convertible notes payable of $1,500,765, net of unamortized discounts of $246,615. The outstanding convertible notes of the Company are unsecured, bear interest between 8% and 12% per annum, mature between October 2014 and March 2015 and are convertible at variable rates between 58% and 75% of the quoted market price of the Company’s common stock. All notes that were convertible during the year ended December 31, 2014 were accounted for as derivative liabilities (see Note 7). Aggregate amortization of the debt discounts on convertible debt for the year ended December 31, 2014 was $2,079,232. In December 2014, the Company entered into standstill agreements with certain of the noteholders preventing conversion for a period of 120 days. In addition, the Company defaulted on certain of its convertible notes during 2014. The standstill agreement and loan defaults resulted in an aggregate increase to the outstanding principal balance on its convertible debt of $273,264. The Company recognized a loss on loan default and standstill expense of $273,264 during 2014.
2015
During the year ended December 31, 2015, the Company borrowed an aggregate of $5,308,680, net of original issue discounts and fees of $493,860, under convertible notes payable and issued an aggregate of 1,270,325 common shares for the conversion of $50,000 in convertible debt and accrued interest. During the year ended December 31 2015, the Company repaid ten convertible notes at a cost of $1,425,397. As of December 31, 2015, the Company had outstanding convertible notes payable of $6,747,528, net of unamortized discounts of $1,142,241. The outstanding convertible notes of the Company are unsecured, bear interest between 8% and 12% per annum, mature between October 2014 and December 2018 and are convertible at variable rates between 58% and 75% of the quoted market price of the Company’s common stock. All notes that were convertible during the year ended December 31, 2015 were accounted for as derivative liabilities (see Note 7). Aggregate amortization of the debt discounts on convertible debt for the year ended December 31, 2015 was $1,408,955 of which $56,347 was capitalized as construction in progress. In 2015, the Company defaulted on and entered into standstill agreements on certain of its convertible notes resulting in an aggregate increase to the outstanding principal balance on its convertible debt of $466,890 which was recognized as loan default and standstill expense during 2015.
In November 2015, the Company signed an umbrella financing agreement with Black Diamond Financial Group for up to an aggregate of $7,591,472 in face value of notes. Financing advanced represents 91% of face value and attracts interest at 12%. A 5% financing fee was also accrued totaling $255,512 and recognized as a discount to the debt. The duration of the notes is three years. There are three separate categories of funding, Series A which can be converted into units consisting of one common share and one warrant (exercisable at $0.10 per share with a term of 3 years) at a fixed price of $0.08 per unit, Series B which can be converted into common shares at $0.12 per share and Series C which can be converted into common shares at $0.15 per share. As part of the financing agreement, previously issued convertible notes to the lender with an aggregate outstanding principal amount of $4,669,430 were converted into the three new series of notes. The Company evaluated the modification under ASC 470-50 and determined that it qualified as an extinguishment of debt. In connection with the modification, the lender received an aggregate of 170,237 shares of common stock valued at $139,594 and 2,093,860 common stock warrants valued at $1,674,821. The warrants are exercisable at rates between $0.10 and $0.15 per share and have a term of 5 years. The aggregate loss on extinguishment of debt recognized in 2015 was $6,042,463.
Nonconvertible Debt
During the year ended December 31, 2014, the Company borrowed an aggregate of $15,527 under notes payable to third parties and made aggregate cash payments of $35,530 on third party notes payable. As of December 31, 2014, the Company had outstanding notes payable to third parties of $413,185. The notes payable of the Company are unsecured, bear no interest and are due on demand. Aggregate amortization of the debt discounts on third party notes payable for the year ended December 31, 2015 and 2014 was $0 and $28,298, respectively.
Outstanding notes payable and convertible notes payable consisted of the following as of December 31, 2015 and 2014:
|
|
December 31,
|
|
Name
|
|
2015
|
|
|
2014
|
|
Convertible Debt:
|
|
|
|
|
|
|
Note 1
|
|
$
|
100,000
|
|
|
$
|
148,986
|
|
Note 2
|
|
|
100,000
|
|
|
|
-
|
|
Note 3
|
|
|
756,873
|
|
|
|
-
|
|
Note 5
|
|
|
100,000
|
|
|
|
46,108
|
|
Note 6
|
|
|
50,000
|
|
|
|
324,495
|
|
Note 7
|
|
|
25,000
|
|
|
|
-
|
|
Note 8
|
|
|
3,741,473
|
|
|
|
8,913
|
|
Note 9
|
|
|
1,366,336
|
|
|
|
16,477
|
|
Note 10
|
|
|
507,846
|
|
|
|
200,000
|
|
Note 11
|
|
|
-
|
|
|
|
100,000
|
|
Note 12
|
|
|
-
|
|
|
|
631,251
|
|
Note 13
|
|
|
-
|
|
|
|
92,400
|
|
Note 14
|
|
|
-
|
|
|
|
78,750
|
|
Note 15
|
|
|
-
|
|
|
|
50,000
|
|
Note 16
|
|
|
-
|
|
|
|
50,000
|
|
Total
|
|
|
6,747,528
|
|
|
|
1,747,380
|
|
Less: current portion
|
|
|
(1,131,873
|
)
|
|
|
(1,747,380
|
)
|
Total long-term debt
|
|
|
5,615,655
|
|
|
|
-
|
|
Less: Unamortized discount
|
|
|
(1,142,241
|
)
|
|
|
(246,615
|
)
|
Net
|
|
$
|
4,473,414
|
|
|
$
|
1,500,765
|
|
|
|
|
|
|
|
|
|
|
Nonconvertible Debt:
|
|
|
|
|
|
|
|
|
Note 17
|
|
$
|
35,000
|
|
|
$
|
35,000
|
|
Note 18
|
|
|
378,185
|
|
|
|
378,185
|
|
Total
|
|
|
413,185
|
|
|
|
413,185
|
|
Unamortized discount
|
|
|
-
|
|
|
|
-
|
|
Net
|
|
$
|
413,185
|
|
|
$
|
413,185
|
|
NOTE 7: DERIVATIVE LIABILITIES
The Company analyzed the conversion options embedded in the convertible debt for derivative accounting consideration under ASC 815 and determined that the instruments embedded in the above referenced convertible promissory notes should be classified as liabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of the conversion options. Additionally, the above referenced convertible promissory notes contain dilutive issuance clauses. Under these clauses, based on future issuances of the Company’s common stock or other convertible instruments, the conversion price of the above referenced convertible promissory notes can be adjusted downward. Because the number of shares to be issued upon settlement of the above referenced convertible promissory notes cannot be determined under this instrument, the Company cannot determine whether it will have sufficient authorized shares at a given date to settle any other future share instruments. The fair values of the instruments were determined using a Black-Scholes option-pricing model.
As a result of the above, an aggregate of 142,857 previously issued nonemployee common stock options became tainted under ASC 815 and were reclassed from equity to derivative liability. On December 31, 2015 and 2014, the fair value of these tainted options was determined to be $10,374 and $427, respectively.
During November 2013, the Company issued 310,863 common stock warrants in connection with a note payable. The common stock warrants are required to be accounted for as derivative liabilities under ASC 815. During year ended December 31, 2014, an additional 38,571 previously issued common stock warrants became tainted under ASC 815. The fair value of these warrants was determined to be $6,026 and was reclassed from equity to derivative liabilities. In addition, during the year ended December 31, 2014, the Company granted 4,180,000 warrants with convertible debt. These warrants are tainted under ASC 815. The fair value of these warrants associated with the notes was determined to be $855,440 of which $400,000 was recorded as a discount to the notes and $455,440 was expensed as a loss on derivative liabilities. On December 31, 2015 and 2014, the fair value of these warrants was determined to be $2,677,717 and $214,565, respectively.
During the year ended December 31, 2014, additional convertible notes with an aggregate principal amount of $2,894,069 became convertible. The fair value of the conversion options associated with these notes was determined to be $2,464,135 of which $1,245,816 was recorded as a discount to the notes and $1,218,319 was expensed as a loss on derivative liabilities. Also during the year ended December 31, 2014, convertible notes with an aggregate principal amount of $1,460,547 and accrued interest of $37,498 were converted into common shares. The fair value of the derivative liabilities associated with these converted notes was determined to be $1,685,616 on the dates of conversion. This amount was reclassified from derivative liabilities to stockholder’s deficit as resolution of derivative liabilities. As of December 31, 2014, the aggregate fair value of the outstanding derivative liabilities associated with convertible notes was $1,550,703. For the year ended December 31, 2014, the net loss on derivative liabilities was $1,444,188.
During the year ended December 31, 2015, additional convertible notes with an aggregate principal amount of $6,149,511 became convertible. The fair value of the conversion options associated with these notes was determined to be $53,119,865, of which $5,479,767 was recorded as a discount to the notes, $45,965,278 was expensed as a loss on derivative liabilities and $1,674,821 was recognized as loss on debt extinguishment. The aggregate fair value of the outstanding derivative liabilities on the conversion option is $67,316,227 As December 31, 2015.
The Company estimated the fair value of the derivative liabilities using the Black-Scholes option pricing model and the following key assumptions during the years ended December 31:
|
|
2015
|
|
|
2014
|
|
Expected dividends
|
|
|
-
|
%
|
|
|
-
|
%
|
Expected term (years)
|
|
|
0.12 – 3.00
|
|
|
|
0.1 – 1.00
|
|
Volatility
|
|
|
155% - 237
|
%
|
|
|
171% - 223
|
%
|
Risk-free rate
|
|
|
0.09% - 1.76
|
%
|
|
|
0.01% - 0.25
|
%
|
The below table presents the change in the fair value of the derivative liabilities during the years ended December 31, 2015 and 2014:
Fair value as of December 31, 2013
|
|
$
|
355,281
|
|
Fair value on the date of issuance
|
|
|
1,645,816
|
|
Fair value on the date of issuance recognized as loss on derivatives
|
|
|
1,673,759
|
|
Fair value on the date of issuance reclassified from equity
|
|
|
6,026
|
|
Resolution of derivatives
|
|
|
(1,685,616
|
)
|
Gain on change in fair value of derivatives
|
|
|
(229,571
|
)
|
Fair value as of December 31, 2014
|
|
|
1,765,695
|
|
Fair value on the date of issuance recorded as debt discounts
|
|
|
5,479,767
|
|
Fair value on the date of issuance recognized as loss on derivatives
|
|
|
45,965,278
|
|
Loss on extinguishment of debt
|
|
|
1,674,820
|
|
Loss on change in fair value of derivatives
|
|
|
15,118,758
|
|
Fair value as of December 31, 2015
|
|
$
|
70,004,318
|
|
NOTE 8: EQUITY TRANSACTIONS
Common Stock
2014
In April 2014, the Company effected a 35 to 1 reverse stock split. The Company also amended its authorized common shares on the same day to be 45,000,000 common shares. All share and per share amounts herein have been retroactively restated to reflect the split.
During the year ended December 31, 2014, the Company issued an aggregate of 9,736,826 common shares for the conversion of convertible debt and accrued interest of $1,498,045.
During the year ended December 31, 2014, the Company issued an aggregate of 1,851,428 common shares for services rendered valued at $639,866.
During the year ended December 31, 2014, the company borrowed an aggregate of $29,017 from Officers and Directors and issued 21,429 common shares in connection with the borrowings. The relative fair value of the shares was determined to be $8,319 and was recorded as a discount to the associated note and was fully amortized to interest expense during the year ended December 31, 2014.
During the year ended December 31, 2014, the Company issued an aggregate of 5,132,753 common shares to accrued liabilities to certain directors and third parties of $1,539,826. The fair value of the shares was determined to be $1,539,826.
During the year ended December 31, 2014, management returned a total of 2,270,887 common shares back to the Company which were cancelled.
On November 1, 2014, Aiden Neary forfeited his right to the 142,857 shares granted to him on November 26, 2013 which were going to vest on November 26, 2014. In connection with the forfeiture, the Company reversed an aggregate of $14,384 that was previously expensed under the award in 2013.
2015
During the year ended December 31, 2015, the Company issued an aggregate of 18,196,153 common shares for services rendered valued at $3,037,735.
In February 2015, the Company issued a total of 1,270,325 shares upon the conversion of convertible debt of $50,000.
In June 2015, the Company issued a total of 550,000 shares to 802 Investments in connection with the issuance of a convertible note of $250,000. The relative fair value of the stock was determined to be $97,375 and was recognized as a discount to the debt.
On November 25, 2015, the Company issued 170,237 shares to Black Diamond Financial Series A note holder in connection with the modification of previously issued convertible notes (see Note 6). The fair value of the shares of $139,594 was recognized as a loss on debt extinguishment.
During 2015, 2,752 common shares were cancelled to correct for a rounding adjustment resulting from the reverse stock split.
Options
There were no common stock options issued during the years ended December 31, 2015 and 2014.
Aggregate options expense was $0 and $19,494 during 2015 and 2014, respectively. As of December 31, 2015 and 2014, there was no unamortized options expense.
The following table presents the stock option activity during the years ended December 31, 2015 and 2014:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
Outstanding - December 31, 2013
|
|
|
942,857
|
|
|
$
|
5.24
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
(228,571
|
)
|
|
|
7.00
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding - December 31, 2014
|
|
|
714,286
|
|
|
$
|
4.68
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding - December 31, 2015
|
|
|
714,286
|
|
|
$
|
4.68
|
|
|
|
|
|
|
|
|
|
|
Exercisable – December 31, 2014
|
|
|
714,286
|
|
|
$
|
4.68
|
|
Exercisable – December 31, 2015
|
|
|
714,286
|
|
|
$
|
4.68
|
|
The weighted average remaining life of the outstanding options as of December 31, 2015 and 2014 was 3.48 and 4.68 years and the intrinsic value of the exercisable options was $0 and $0, respectively.
Warrants
In November 2013, the Company issued a lender an aggregate of 310,863 common stock warrants in connection with a note payable. The warrants are exercisable immediately at $1.75 per share and expire on November 30, 2018. These warrants were accounted for as derivative liabilities under ASC 815 (see Note 7). The fair value of the warrants of $292,148 was recorded as a debt discount which is being amortized to interest expense over the life of the note. The fair value was determined using the Black-Scholes Option Pricing Model. The significant assumptions used in the model include (1) discount rate of 1.34%, (2) expected term of 5.01 years (3) expected volatility of 154% and (4) zero expected dividends.
In December 2013, the Company issued a lender an aggregate of 38,571 common stock warrants in connection with a note payable. The warrants become exercisable on June 4, 2014 at $$1.75 per share and expire on June 4, 2017. The relative fair value of the warrants of $21,181 was recorded as a debt discount which is being amortized to interest expense over the life of the note. The fair value was determined using the Black-Scholes Option Pricing Model. The significant assumptions used in the model include (1) discount rate of 0.64%, (2) expected term of 3.5 years (3) expected volatility of 123% and (4) zero expected dividends.
During the year ended December 31, 2015 and 2014, the Company granted 2,360,457 and 4,180,000 warrants with convertible debt respectively. These warrants are tainted under ASC 815. The fair value of these warrants associated with the notes was determined to be $1,855,368 and $855,440 as of December 2015 and 2014, respectively, of which $0 and $400,000 was recorded as a discount to the notes and $1,855,368 and $455,440 was expensed as a loss on derivative liabilities (see Note 7) during the years ended December 31, 2015 and 2014, respectively..
The following table presents the stock warrant activity during the years ended December 31, 2015 and 2014:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Outstanding - December 31, 2013
|
|
|
349,434
|
|
|
$
|
1.75
|
|
Granted
|
|
|
4,180,000
|
|
|
|
0.50
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding - December 31, 2014
|
|
|
4,529,434
|
|
|
|
0.60
|
|
Granted
|
|
|
2,360,457
|
|
|
|
0.11
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding – December 31, 2015
|
|
|
6,889,891
|
|
|
|
0.43
|
|
|
|
|
|
|
|
|
|
|
Exercisable – December 31, 2014
|
|
|
4,529,434
|
|
|
$
|
0.60
|
|
Exercisable – December 31, 2015
|
|
|
6,889,891
|
|
|
|
0.43
|
|
The weighted average remaining life of the outstanding warrants as of December 31, 2015 and 2014 was 4.05 and 4.85 years, respectively. The intrinsic value of the exercisable warrants as of December 31, 2015 and 2014 was $752,400 and $0, respectively.
NOTE 9: OPERATING LEASES
Clean Coal has one operating lease for its executive offices in Manhattan, New York. Effective February 1, 2014, the lease is month to month, at a monthly rate of $4,171 per month.
NOTE 10: COMMITMENTS AND CONTINGENCIES
Litigation
We were served with a Statement on or about January 23, 2013 in an international arbitration proceeding titled Beijing Deheng Law Firm v. Clean Coal Technologies, Inc., #x20230033, filed with the China International Economic and Trade Arbitration Commission (“CIETAC”). The Beijing Deheng Law Firm (“Deheng”) has filed a claim against the Company for alleged breach of a Settlement Agreement to pay legal fees and costs. As a result of the arbitration, in September 2013, CIETAC awarded the Deheng Law Firm approximately $146,000 representing legal fees, arbitration fees and costs, plus interest of $36,002 giving a total of $176,002 In December 2015, the Company paid Deheng the final installment of this balance and this issue is now closed and the Company has received a release from Deheng.
We were named as a defendant in a lawsuit filed by a shareholder in the 15th Judicial Circuit Court in and for West Palm Beach County, Florida, Case No. 50 2010CA 028706XXXX MB on or about November 24, 2010. The Company has vigorously defended this action that the Company and its litigation counsel regard as absolutely frivolous, baseless and without merit. In August 2013, attorneys for the plaintiff filed a Fourth Amended Complaint. In December 2013, the Court dismissed one count of the amended complaint but plaintiff’s attorneys filed a request to file a fifth amendment. In January 2014, our attorneys filed a memorandum objecting to the motion to amend. We will continue to vigorously defend the action and we do not believe that the action will be materially adverse to the company. Our attorneys have put the plaintiff’s counsel on notice of our intent to seek sanctions against both the plaintiff, and the plaintiff’s counsel pursuant to Florida Statute Sec.57.105. Further, we have moved to dismiss the action on the basis that the Plaintiff has procedurally, factually, and legally failed to state a cause of action up which relief can be granted.
We were named as a defendant in a lawsuit filed on or about October 19, 2009, in the 17th Judicial Circuit in and for Broward County, Florida, Case No. 09-56739 (09). The suit is a dispute for damages arising from a breach of contract involving an unrelated company, but naming Clean Coal. On February 9, 2010, Clean Coal was successful in filing a motion to dismiss the Company and its then- President & CEO, Douglas Hague from this case. The case was re-filed under the same case number in November 2013 but dismissed without prejudice again in January 2014. In March 2015, the Company agreed to settle this outstanding case to avoid additional legal fees. A settlement amount of $40,000 was agreed by both parties. As at December 31, 2015 this balance was paid and this case is now closed. The Company has received a release regarding this matter.
We were named as a defendant in a lawsuit filed by a shareholder in December 2013 in the 17th Judicial Circuit in and for Broward County, Florida, Case No. 12-030351(05). The suit alleges misrepresentations regarding removal of restricted legends on stock certificates and misapplication by the Company of securities regulations and laws regarding legend removal. In July 2015 the seventeenth judicial court in and for Broward County, Florida dismissed this case for lack of prosecution.
NOTE 11: SUBSEQUENT EVENTS
Equity
In January 2016, the Company issued a total of 7,000,000 shares to management for services rendered
In January 2016, the Company issued a total of 1,785,714 common shares for the conversion of $500,000 of accrued management salary into equity
In February 2016, the Company agreed to a part conversion of three separate convertible notes with a total face value of $300,000 into equity. The terms of the conversion was the issuance of 1,538,462 on two notes and 769,231 on the third note. The Company agreed to repay for a cash settlement $300,000 plus accrued interest the notes in full upon receiving adequate finance. These convertible notes are now loans to the Company for a total of $300,000 plus accrued interest.
In February 2016, Mr Ponce de Leon relinquished back to the Company at no cost 228,571 options at a strike price of $7.00. The options were granted in May, 2012 as 8,000,000 shares at an exercise price of $0.20 which post reverse-split equated to 228,571 shares at $7.00. The options vested on July 1 2013 and had an expiry date of midnight July 1, 2020.
The total number of common shares issued in 2016 through to May 2016 was 11,093,407.
Debt
In January 2016, the Company was advanced $75,000 by Black Diamond Financial Group as part of the master funding agreement filed as an 8k in November 2015.
In February 2016, the Company was advanced $285,000 by Black Diamond Financial Group as part of the master funding agreement filed as an 8k in November 2015.
In February 2016, the Company entered into a 12 month 10% convertible note for $330,000. This note had OID of 10% and legal fees of $30,000. Net cash received by the Company was $300,000. The note is convertible into common stock of the Company at a 35% discount to market price based on the lowest closing price over the previous 15 day trading period.
In March 2016, the Company entered into a 12 month 6% convertible note for $500,000. This note had OID of 5% and legal fees of $5,000. Net cash received by the Company was $470,000. The note is convertible into common stock of the Company at a 35% discount to market price based on the lowest closing price over the previous 10 day trading period.
In March 2016, the Company entered into a 24 month 6% convertible note for $210,000. This note had OID of 5%. Net cash received by the Company was $200,000. The note is convertible into common stock of the Company at a 35% discount to market price based on the lowest closing price over the previous 10 day trading period.
In March 2016, the Company was advanced $85,000 by Black Diamond Financial Group as part of the master funding agreement filed as an 8k in November 2015.
In April 2016, the Company was advanced $36,500 by Black Diamond Financial Group as part of the master funding agreement filed as an 8k in November 2015.
In April 2016, the Company entered into a loan for $102,000 repayable in 30 days at 1% interest. Management also provided a personal guarantee on this loan whereby 434,244 common shares would be paid in the event of a default.
In May 2016, the Company borrowed $25,000 as a loan from Mr Neary. The loan has no interest and is payable upon demand.