NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1 – Organization and Business
Alternative Ethanol Technologies, Inc. (the “Company”), was incorporated in Delaware on December 20, 1996. Effective August 2, 2007, the Company changed its name to CleanTech Biofuels, Inc.
On March 27, 2007, the Company acquired SRS Energy, Inc., a Delaware corporation (“SRS Energy”), pursuant to an Agreement and Plan of Merger and Reorganization. In accordance with the merger agreement, SRS Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, merged with and into SRS Energy. The merger was consummated on May 31, 2007 and resulted in SRS Energy becoming a wholly-owned subsidiary of the Company. As a result of the merger, the stockholders of SRS Energy surrendered all of their issued and outstanding common stock and received shares of the Company’s common stock, $.001 par value per share (“Common Stock”). The former parent of SRS Energy, Supercritical Recovery Systems, Inc., immediately prior to the merger, distributed 78.8% of its 96% ownership in SRS Energy to its shareholders on a pro rata basis.
For accounting purposes, because the Company had been a public shell company prior to the merger, the merger was treated as an acquisition of the Company and a recapitalization of SRS Energy.
The Company is a development stage company that has been engaged in technology development and pre-operational activities since its formation.
The Company is currently in the process of raising capital to design and build a commercial biomass recovery plant to provide biomass feedstock for customer evaluation and trial purchases. Initially, the biomass feedstock output will be sold or provided to electric utilities, power and steam producers, and biofuel and chemical research firms for evaluation. In addition to research and development,
the Company is also working towards licensing and/or developing potential commercial projects. These projects plan to focus on cleaning and separating municipal solid waste (also referred to as MSW) into its component parts in order to obtain: (i) a homogenous feedstock of cellulosic biomass for producing energy and other chemical products and (ii) recyclable products (metals, plastics, aluminum).
The
Company has no operating history as a producer of biomass or energy sources and has not constructed any plants to date. We have no revenues and will be required to raise additional capital in order to execute our business plan and commercialize our products. Our current cash is not sufficient to fund our current operations. Our liabilities are substantially greater than our current available funds. Although we continue to seek additional financing through the sale of additional equity, various government funding opportunities and/or possibly through strategic alliances with larger energy or waste management companies, we have not had recent success securing meaningful amounts of financing. The Company will require substantial additional capital to implement its business plan and it may be unable to obtain the capital required to do so. If we are not able to immediately and successfully raise additional capital and/or achieve profitability or positive cash flow, we may not be able to continue operations.
The accompanying unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Articles 8 and 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring items considered necessary for a fair presentation, have been included. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013. For further information, refer to the Company’s audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (“SEC”) on March 26, 2013.
Note 2 – Recent Accounting Pronouncements
In July 2012, the FASB issued updated authoritative guidance to amend previous guidance on the annual and interim testing of indefinite-lived intangible assets for impairment. The guidance provides entities with the option of first assessing qualitative factors (such as changes in management, key personnel, strategy, key technology or customers) to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If it is determined, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more likely than not less than the carrying amount, a quantitative impairment test would still be required. The Company performs annual impairment tests. The authoritative guidance is effective for fiscal 2013 and is not expected to have a significant impact on the Company’s consolidated financial statements.
There were various other accounting standards updates recently issued, most of which represented technical corrections to the accounting literature or were applicable to specific industries, and are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
Note 3 – Mergers/Acquisitions
On September 15, 2008, the Company consummated the acquisition of Biomass North America Licensing, Inc. (“Biomass”) pursuant to a merger between Biomass and a wholly-owned subsidiary of the Company (with Biomass as the surviving subsidiary of the Company) in accordance with an Agreement and Plan of Merger by and between the Company and Biomass. By virtue of the merger, the Company acquired a license agreement pursuant to which the Company holds a license in the United States and Canada to use patented technology licensed from Biomass North America, LLC, the former parent of Biomass (the “Licensor”), to clean and separate municipal solid waste, also known as MSW (the “Biomass Recovery Process”). In July 2010, the United States Patent and Trademark Office issued US patent number 7,745,208 for this process (the “BRP Patent”).
Upon consummation of the merger, the Company paid $20,000 in cash and issued a promissory note in the original principal amount of $80,000 bearing interest at an annual rate of 6% (the “Note”) to a shareholder of the Licensor. This note has been paid in full. Additionally, the Company issued to the four shareholders of the Licensor a total of 1,895,000 shares of Common Stock and deposited an additional 4,000,000 shares of Common Stock into an escrow account (collectively, the “Shares”). The Shares were issued as part of the merger consideration received by the shareholders of the Licensor. The escrowed shares will be released to the Licensor’s shareholders if and when the Company commences a commercial development that utilizes the Biomass Recovery Process. The Company recorded a long-term asset of $1.5 million which it will begin to amortize upon utilizing the license in our operations. If the escrowed shares are released based on the specified future events, an increase to the value of the asset will be recorded at that time. Based on the market value of Common Stock as of June 30, 2013, it would result in an increase of approximately $80,000 to the asset. Any future increase in the value of the asset would depend on the market value of our Common Stock at the time of utilization.
Note 4 – Patent
The Company owns US Patent No. 6,306,248 (the “PSC Patent”), which is the underlying technology upon which the BRP Patent is based. The Company acquired the PSC Patent on October 22, 2008 pursuant to a Patent Purchase Agreement (“Agreement”) with World Waste Technologies, Inc. (“WWT”). As part of the acquisition of the PSC Patent, we also became the licensor of such technology under the existing license agreement between Bio-Products International, Inc, the licensee (“Bio-Products”) and WWT. The Company has paid WWT $600,000 and issued warrants to purchase 1,800,000 shares of Common Stock at $0.10 per share and 500,000 shares of Common Stock at $0.11 per share. WWT assigned all of its rights, title and interest in the note, warrants, security agreement and purchase agreement to Vertex Energy, Inc. (“Vertex”) as a result of a merger in March 2009. The warrants are exercisable at any time until October 22, 2014. The cost of the PSC Patent acquisition of $600,000 is recorded as a long-term asset on the Balance Sheet. The value of the warrants had been recorded as a contra-balance amount with the note and has been fully amortized, as of March 31, 2010, through interest expense.
On September 1, 2010, the Company issued a promissory note to CMS Acquisition, LLC (“CMS”) in the amount of $100,000 and bearing interest at 6.0% per annum. The note is secured with a security interest in the PSC Patent. In connection with the financing, the Company issued a warrant to CMS to purchase 2,000,000 shares of the Company’s Common Stock at a price of $0.05 per share. The warrant is exercisable at any time for five years from the date of issuance or reissuance. The Note was originally to mature on February 28, 2011. The Company and CMS have entered into various amendments extending the due date, the most recent of which was May 8, 2013, which extended the due date to March 8, 2014. As consideration in these amendments, the Company has: (i) paid $25,000 in February 2011 towards accrued interest to date and principal on the Note (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to May 8, 2013 and (iv) issued a new warrant for 150,000 shares of the Company’s Common Stock with an exercise price of $0.05 and exercisable at any time until May 8, 2018.
Note 5 - Technology Licenses
Biomass North America Licensing, Inc.
We own a license in the United States and Canada to use the Biomass Recovery Process (See Note 3 – Mergers/Acquisitions). We recorded a long-term asset of $1.5 million for the value of this license when we acquired the license on September 15, 2008. Amortization of this asset will begin upon commencement of the use of the Biomass Recovery Process. The Company also deposited an additional 4,000,000 shares of the Company’s Common Stock into an escrow account for the benefit of the Licensor. For accounting purposes, the shares remaining in escrow are not considered issued and outstanding as a project has not started using the Biomass Recovery Process. The shares are not deemed issued or vested until that time as described above.
The license requires that the Company pay a royalty in the amount of $1.00 per ton of bone-dry biomass produced using the Biomass Recovery Process. The license agreement is for a term of 21 years or the life of any patent issued for the Biomass Recovery Process. The Company has an exclusive license in the United States and Canada to use the Biomass Recovery Process, except that a principal owner of the Licensor has the right of first offer to manage and operate with respect to any development commenced using the licensed technology within 100 miles of the City of Chicago, Illinois. The license agreement further provides that the Company and the Licensor will work in good faith to complete a commercial development in the City of Chicago using the Biomass Recovery Process.
Bio-Products International, Inc.
As disclosed in Note 4 - Patent, the Company acquired the PSC Patent in 2008 and as a result, became the licensor to Bio-Products for the PSC Patent pursuant to a Master License Agreement dated as of August 18, 2003 (the “PSC License Agreement”). Pursuant to the terms of the PSC License Agreement, Bio-Products (a wholly-owned subsidiary of Clean Earth Solutions, Inc., “CES”) is the exclusive licensee of the PSC Patent and has the right to sublicense the technology that is part of the PSC Patent (but not the BRP Patent) to any party. In addition, we are entitled to be paid 5% of any revenue derived by Bio-Products from the use of the technology and 40% of any sublicensing fees paid to Bio-Products for the use of the technology. The Master License Agreement is for a term of 20 years that commenced on August 18, 2003. On September 22, 2010, the Company sent a Notice of Breach to Bio-Products, which included removing the exclusivity of the license. We received a response from Bio-Products on November 5, 2010 disputing our claims. In February 2011, we became aware that Bio-Products affected a transfer of the license in violation of the PSC License Agreement. As a result, on March 21, 2011, we sent a notice of termination to Bio-Products and the transferee terminating the License Agreement. In June 2011, Steve Vande Vegte, a shareholder in CES, filed a lawsuit against various parties, including the Company. The only Cause of Action against the Company is for Declaratory Relief seeking to void our March 2011 termination of the license to which Mr. Vande Vegte is not a party. On August 5, 2011, the Company filed a demurrer requesting that the court dismiss the case on the grounds that Mr. Vande Vegte lacks standing to pursue a claim concerning the license and that the claim raised in the complaint is not ripe. The court granted our demurrer to dismiss Cleantech from this lawsuit on December 8, 2011. See Note 10 – Commitments and Contingencies for a further update.
All intangible assets are reviewed for impairment whenever events or other changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge is recognized if the carrying amount of an intangible asset exceeds its implied fair value.
Note 6 – Debt
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Convertible Notes Payable (2009 Offering), which are made up of various
|
|
|
|
|
|
|
|
individual notes with an aggregate face value of $254,738 due in
|
|
|
|
|
|
|
|
one year from date of note, interest at 6.0%
|
|
$
|
254,738
|
|
|
$
|
254,738
|
|
|
Convertible Notes Payable (11/10 Offering), which are made up of various
|
|
|
|
|
|
|
|
|
|
individual notes with an aggregate face value of $1,840,661 and
|
|
|
|
|
|
|
|
|
|
$1,831,073 at June 30, 2013 and December 31, 2012, respectively,
|
|
|
|
|
|
|
|
|
|
due in one year from date of note, interest at 6.0%
|
|
|
1,840,661
|
|
|
|
1,831,073
|
|
|
CMS Acquisition, LLC Note Payable, with a face value of $77,696 due on
|
|
|
|
|
|
|
|
|
|
March 8, 2014, interest at 6.0% thru May 15,2011; 10.0% thereafter
|
|
|
77,696
|
|
|
|
77,696
|
|
|
Convertible Notes Payable (5/12 Offering), which is made up of various
|
|
|
|
|
|
|
|
|
|
individual notes with a face value of $483,510 and $383,510 at
|
|
|
|
|
|
|
|
|
|
June 30, 2013 and December 31, 2012, respectively, due in 18 months
|
|
|
|
|
|
|
|
|
|
from the date of note, interest at 6.0%
|
|
|
483,510
|
|
|
|
383,510
|
|
|
Total debt
|
|
|
2,656,605
|
|
|
|
2,547,017
|
|
|
Current maturities
|
|
|
(2,556,605
|
)
|
|
|
(2,313,507
|
)
|
|
Long-term portion, less current maturities
|
|
$
|
100,000
|
|
|
$
|
233,510
|
|
Convertible Notes Payable
Since September 2008, the Company has conducted five offerings of units comprised of a convertible promissory note and a warrant having the terms set forth below:
|
Offering
|
|
|
Note Interest Rate
|
|
|
Note Conversion Price
|
|
|
Warrant Exercise Price
|
|
|
Term
|
|
Closed or Open
|
|
2008 Offering
|
|
|
|
6.0
|
%
|
|
$
|
0.25
|
|
|
$
|
0.45
|
|
|
One-year
|
|
Closed
|
|
2009 Offering
|
|
|
|
6.0
|
%
|
|
$
|
0.08
|
|
|
$
|
0.30
|
|
|
One-year
|
|
Closed
|
|
6/10 Offering
|
|
|
|
12.0
|
%
|
|
$
|
0.08
|
|
|
$
|
0.30
|
|
|
One-year
|
|
Closed
|
|
11/10 Offering
|
|
|
|
6.0
|
%
|
|
$
|
0.06
|
|
|
$
|
0.30
|
|
|
One-year
|
|
Closed
|
|
5/12 Offering
|
|
|
|
6.0
|
%
|
|
$
|
0.10
|
|
|
$
|
0.35
|
|
|
18 months
|
|
Open
|
Each note may be converted, at the note holder’s option, at any time during the term of the note or prior to the closing of any Qualifying Equity Financing (minimum capital received of $5 million), into shares of Common Stock at the conversion price noted above. All notes have been recorded as debt (notes payable) in the financial statements, net of discounts for the conversion and warrant features (except for the 11/10 and 5/12 Offerings which carried no discounts).
2008 Offering
- During September 2008, the Company commenced an offering of units and raised a total of $642,000 of investment proceeds through March 31, 2009. As of March 31, 2010, all of these notes had either been converted to shares of our common stock or exchanged into our 2009 Offering (resulting in new notes with a total face value of $539,829, which included the original principal and interest through the date of exchange).
2009 Offering
- During April 2009, the Company commenced an offering of units and raised a total of $1,198,500 of investment proceeds through August 2010. One note was converted to shares of Common Stock in 2009 and one note was converted to shares of Common Stock in 2010. Beginning in March 2011, certain notes were exchanged into our 11/10 Offering. As a result, as of June 30, 2013, we had $254,738 face value of notes outstanding, which includes the exchanged notes from our 2008 Offering. All of these notes have matured. We are working with the remaining noteholders to either: repay the notes, refinance to our 11/10 Offering or convert the notes to shares of our Common Stock. See Subsequent Events footnote for further disclosure regarding our notes.
6/10 Offering
- During June 2010, the Company commenced an offering of units and raised a total of $75,000 of investment proceeds in one note. Upon maturity in June 2011, this note was exchanged into our 11/10 Offering. As a result, the balance due on this offering is $-0-.
11/10 Offering
- During November 2010, the Company commenced an offering of units and raised a total of $451,713 of investment proceeds. Three notes were converted to shares of Common Stock in 2011 and four notes were converted to shares of Common Stock in 2012. As of June 30, 2013, we had $1,840,661 face value of notes outstanding, which includes the exchanged notes from our 2009 Offering. See Subsequent Events footnote for further disclosure regarding our notes.
5/12 Offering
- During May 2012, the Company commenced an offering of units and, as of June 30, 2013, had raised a total of $483,510 of investment proceeds. See Subsequent Events footnote for further disclosure regarding our notes.
CMS Acquisition, LLC Note Payable
In September 2010, the Company issued a note in the amount of $100,000 (interest at 6.0% per annum through May 15, 2011 and 10.0% thereafter, and secured by a security interest in the PSC Patent) and issued warrants to purchase 2,000,000 shares of Common Stock at a price of $0.05 per share. The note is due the earlier of: (i) March 8, 2014 pursuant to an amendment on May 8, 2013 or (ii) the date on which $500,000 or more in the aggregate is raised by the Company in future offerings. The warrants are exercisable at any time for five years from the date of issuance or reissuance. The value of these warrants has been recorded as a contra-balance amount discount with the note and was fully amortized (interest expense) as of February 28, 2011 (the original due date). As consideration in various amendments, the Company has: (i) paid $25,000 in February 2011 towards accrued interest to date and principal on the Note (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to May 8, 2013 and (iv) issued a new warrant for 150,000 shares of the Company’s Common Stock with an exercise price of $0.05 and exercisable at any time until May 8, 2018.
The following is a summary of warrants issued, at the exercise price and the amount of shares of Common Stock (these warrants have not been exercised or converted to common shares).
|
|
|
Exercise
|
|
|
As of June 30,
|
|
|
As of December 31,
|
|
|
Warrants issued to:
|
|
Price
|
|
|
2013
|
|
|
2012
|
|
|
Noteholders, 11/10 Offering
|
|
$
|
0.30
|
|
|
|
3,171,780
|
|
|
|
6,926,367
|
|
|
Noteholders, 5/12 Offering
|
|
$
|
0.35
|
|
|
|
1,381,456
|
|
|
|
1,095,742
|
|
|
CMS Acquistion LLC
|
|
$
|
0.05
|
|
|
|
2,150,000
|
|
|
|
2,000,000
|
|
|
Vertex Energy, Inc.
|
|
$
|
0.11
|
|
|
|
1,800,000
|
|
|
|
1,800,000
|
|
|
Vertex Energy, Inc.
|
|
$
|
0.10
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
9,003,236
|
|
|
|
12,322,109
|
|
The discounts on all notes payable have been amortized on a straight-line basis over the term of each note. All discounts were fully amortized and expensed as of June 30, 2011.
Note 7 - Stockholders' Equity (Deficit)
In January 2012, the Company issued 83,333 shares of Common Stock ($0.06 per share) to an investor upon the conversion of a Convertible Note.
In April 2012, the Company issued 2,564,055 shares of Common Stock ($0.06 per share) to an investor upon the conversion of Convertible Notes.
In April 2012, the Company issued 78,592 restricted shares of Common Stock ($0.06 per share) in exchange for $4,715.55 related to certain accounts payable.
In June 2012, the Company issued 150,000 restricted shares of our Common Stock ($0.04 per share) to our newly elected non-management director. The director issued a promissory note to the Company in exchange for the stock purchase similar to the restricted share grants to all other newly elected directors.
In August 2012, a note receivable from a former director matured and was not paid. The note was originally issued in August 2007 to purchase shares of our common stock. As a result, 150,000 shares of restricted stock, issued at $0.15 per share were forfeited and cancelled.
Net Loss per share
– The Company calculates basic loss per share (“EPS”) and diluted EPS. EPS is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS would reflect the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities. As of June 30, 2013 and December 31, 2012, the Company had options, warrants and other convertible securities to purchase an aggregate of approximately 67 million and 68 million shares of our common stock, respectively, that were excluded from the calculation of diluted loss per share as their effects would have been anti-dilutive. Therefore, the Company only presents basic loss per share on the statement of operations.
Note 8 - Related Party Transactions
The Company has entered into stock purchase agreements with the executive officers and certain members of the Board of Directors. The executive officers and directors issued notes to the Company in exchange for their stock purchases. These notes and accumulated interest are recorded as notes receivable in Stockholders’ Deficit.
The Company had engaged the law firm of Sauerwein, Simon and Blanchard (“SSB”) related to various issues including our reverse merger, our SB-2 registration statement, litigation matters and general business activity. A member of our board of directors is a partner of SSB. We no longer use SSB as legal counsel. As of June 30, 2013, all amounts have been paid to SSB except for approximately $90,000.
Beginning in 2009, the Company has provided advances to two employees – Ed Hennessey and Mike Kime. Mr. Kime resigned from his positions with the Company effective June 21, 2010. As of June 30, 2013 and December 31, 2012, the aggregate balances of advances totaled approximately $39,000 and $33,000, respectively. The balances are included in Prepaids and Other Current Assets on the Balance Sheet.
Two members of our current Board of Directors, James Russell and David Bransby are parties in investments made in our convertible note offerings. As of June 30, 2013 and December 31, 2012, the aggregate amount of these investments, including interest, is approximately $415,000 and $402,000, respectively.
Note 9 – Share-based Payments
The Company recognizes share-based compensation expense for all share-based payment awards including
stock options and restricted stock issued to employees, directors and consultants and is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. The Company has no awards with market or performance conditions.
In March 2007, the Company adopted the 2007 Stock Option Plan (“Stock Plan”) for its employees, directors and consultants, which includes an equity compensation plan for non-employee directors pursuant to which stock options and shares of restricted stock may be granted. The Company currently has reserved a maximum of 14,000,000 shares of common stock to be issued for stock options or restricted shares awarded under the Stock Plan.
In March 2012, the Company granted options under the Stock Plan to purchase an aggregate of 250,000 shares of Common Stock to consultants in which half vested immediately and half vested in March 2013, with an exercise price of $0.04. In March 2013, the Company granted options under the Stock Plan to purchase an aggregate of 250,000 shares of Common Stock to consultants in which half vested immediately and half vested in March 2014, with an exercise price of $0.02. As of June 30, 2013, none of these options were cancelled or expired and 375,000 shares of these options were vested.
In June 2012, the Company granted options under the Stock Plan to purchase 40,000 shares of Common Stock to our newly elected director in which one half vests annually beginning in June 2013, with an exercise price of $0.04. As of June 30, 2013, none of these options were cancelled or expired and 20,000 shares of these options were vested.
In March 2013, the Company granted options under the Stock Plan to purchase an aggregate of 750,000 shares of Common Stock to an employee in which one-third vested immediately and the remaining options vest ratably in August 2013 and August 2014, with an exercise price of $0.02. As of June 30, 2013, none of these options were cancelled or expired and 250,000 shares of these options were vested.
The following table provides a summary of the Company's share-based expense:
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
Pre-tax compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
2,043
|
|
|
$
|
4,871
|
|
|
$
|
4,063
|
|
|
$
|
9,824
|
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total expense
|
|
|
2,043
|
|
|
|
4,871
|
|
|
|
4,063
|
|
|
|
9,824
|
|
|
Tax benefit, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
After-tax compensation expense
|
|
$
|
2,043
|
|
|
$
|
4,871
|
|
|
$
|
4,063
|
|
|
$
|
9,824
|
|
Related to these grants, the Company will record future compensation expense of approximately $2,500 for the remainder of 2013. The potential tax benefit realizable for the anticipated tax deductions of the exercise of share-based payment arrangements totaled approximately $310,000 and $305,000 at June 30, 2013 and December 31, 2012, respectively. However, due to the uncertainty that the tax benefits will be realized, these potential benefits were not recognized currently. As of June 30, 2013, there was approximately $5,000 of unrecognized compensation cost related to all current share-based payment arrangements, which will be recognized over a remaining period of approximately 1.2 years.
A summary of the Company's stock option activity and related information is set forth in the following table:
|
|
|
Shares Under
Option
|
|
|
Weighted Average Exercise Price
|
|
|
Aggregate
intrinsic value
|
|
|
Options outstanding at December 31, 2012
|
|
|
10,242,000
|
|
|
$
|
0.11
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,000,000
|
|
|
$
|
0.02
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(45,000
|
)
|
|
$
|
0.03
|
|
|
|
|
|
|
Options outstanding at June 30, 2013
|
|
|
11,197,000
|
|
|
$
|
0.10
|
|
|
|
(1
|
)
|
|
Options exercisable at June 30, 2013
|
|
|
8,325,333
|
|
|
$
|
0.12
|
|
|
|
(1
|
)
|
|
Unvested Options at June 30, 2013
|
|
|
2,871,667
|
|
|
$
|
0.04
|
|
|
|
(1
|
)
|
|
(1)
|
The weighted-average exercise price at June 30, 2013 and December 31, 2012 for all outstanding
and exercisable options was greater than the fair value of the Company's common stock on that
date, resulting in an aggregate intrinsic value of $-0-.
|
The following table summarizes information about the Company's issuances of restricted stock:
|
|
|
Restricted
Shares Issued
|
|
|
Weighted Average Exercise Price
|
|
|
Balance as of December 31, 2012
|
|
|
1,470,000
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
Balance as of June 30, 2013
|
|
|
1,470,000
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock vested at June 30, 2013
|
|
|
1,470,000
|
|
|
$
|
0.09
|
|
Note 10 – Commitments and Contingencies
Contingencies
As disclosed previously in Note 5 – Technology Licenses, in June 2011, Steve Vande Vegte, a shareholder in CES, filed a lawsuit against various parties, including the Company. The only Cause of Action against the Company is for Declaratory Relief seeking to avoid our March 2011 termination of the license to which Mr. Vande Vegte is not a party. On August 5, 2011, the Company filed a demurrer requesting that the court dismiss the case on the grounds that Mr. Vande Vegte lacks standing to pursue a claim concerning the license and that the claim raised in the complaint is not ripe. On December 8, 2011, the demurrer to dismiss Cleantech was granted. In October 2011, a Cross-Complaint was filed by Clean Conversion Technologies, Inc. (“CCT”) and Michael Failla v. Cleantech Biofuels, Inc. CCT is asking that the Company’s termination of the license agreement is void. The Company filed a motion to compel arbitration, which was denied. On January 30, 2012, CCT filed an anti-trust lawsuit against the Company and Mr. Vande Vegte alleging monopolistic and anti-competitive acts to conspire to completely eliminate competition in an emerging line of commerce known as PSC conversion, which is a patented process owned by Cleantech (the PSC technology). These cases are ongoing and we intend to vigorously defend our rights. In view of the inherent difficulty of predicting the outcome of litigation and claims, the Company often cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of these matters, or the eventual loss, fines or penalties related to each pending matter. We believe that these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, an adverse outcome could be material to the Company’s results of operations or cash flows for any particular reporting period.
Commitments
Lease –
The Company’s lease to rent approximately 1,800 square feet of office space for use as our corporate office, located at 7386 Pershing Ave. in St. Louis, Missouri has expired. We are currently in the process of extending this lease while occupying the space. Our monthly rent under the lease is $1,800 plus the cost of utilities.
Note 11 – Subsequent Events
Since September 2008, the Company has conducted five offerings of units comprised of a convertible promissory note and a warrant. In connection with our 5/12 Offering, which is the only offering still open, we have raised a total of $583,510 of investment proceeds as of August 6, 2013.
All of the promissory notes in our 2009 Offering and certain notes in our 11/10 Offering are now due. As of August 6, 2013, approximately $2.1 million is currently due, including interest. We are working with each remaining noteholder to exchange, convert or repay these promissory notes.
