UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A10-Q
Amendment No. 1
(Mark One)
[X] |
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For the | |
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[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from _____________ to _____________ | |
Commission File Number:333-125678
CLEAN ENERGY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Nevada | 20-2675800 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
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2990 Redhill Ave, Costa Mesa, California 92626
(Address of principal executive offices)
(949) 273-4990
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)
Large accelerated filer [ ] | Accelerated filer [ ] | ||||
Non-accelerated filer [X] |
| Smaller reporting company [X] | |||
Emerging Growth Company [ ] |
If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ]Yes [X] No
As of May 14,August 16, 2019, there were 579,657,656748,657,656 shares of the Registrant’s $0.001 par value common stock issued and outstanding.
_________________________
EXPLANATORY NOTE
_________________________
This Amendment No. 1 (this "Amendment") to the Quarterly Report on Form 10-Q of Clean Energy Technologies, Inc. (the "Company") for the first quarter ended March 31, 2019, originally filed with the U.S. Securities and Exchange Commission (the "SEC") on May 15, 2019, (the "Original Filing"), is being filed to include exhibits 3.11, 3.12, 3.21, 3.22, 10.98,10.99,10.100 and to correct a typo on the shares outstanding as of May 14, 2014 on the cover page from 575,657,656 to 579,657,656.
Except as described above, this Amendment does not modify or update the disclosures presented in, or exhibits to, the Original Filing in any way. This Amendment speaks as of the date of the Original Filing and does not reflect events occurring after the filing of the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing, as well as any other filings made by the Company with the SEC pursuant to Section 13(a) or 15(d) of Securities Exchange Act of 1934, as amended, subsequent to the filing of the Original Filing.
CLEAN ENERGY TECHNOLOGIES, INC.
(A Nevada Corporation)
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ITEM 1. |
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. |
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ITEM 4. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 3. |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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| Page 2 of 31 |
Special Note Regarding Forward-Looking Statements
Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Clean Energy Technologies, Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
*Please note that throughout this Quarterly Report, and Except as otherwise indicated by the context, references in this report to “Company”, “CETY,” PMFI,” “Probe,” “we,” “us,” and “our” are references to Clean Energy Technologies, Inc., (f/k/a Probe Manufacturing Inc.) All references to “USD” or United States Dollars refer to the legal currency of the United States of America.
Part I – Financial Information
Clean Energy Technologies, Inc.
Consolidated Financial Statements
(Expressed in US dollars)
March 31,June 30, 2019 (unaudited)
| Page 3 of 31 |
Clean Energy Technologies, Inc.
Financial Statement IndexConsolidated Balance Sheet
Consolidated Balance Sheets (unaudited)8
Consolidated Statements of Operations (unaudited)9
Consolidated Statements of Stockholders Equity (unaudited)10
Consolidated Statements of Cash Flows (unaudited)11
Notes to the Consolidated Financial Statements (unaudited)12
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| June 30, 2019 | December 31, 2018 | |||||||
| (Un-audited) | (audited) | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 960,328 | $ | 6,456 | ||||
| Accounts receivable - net | 646,502 | 724,845 | ||||||
| Inventory | 767,530 | 711,894 | ||||||
| Right of use asset - current | 227,851 | - | ||||||
| Total Current Assets | 2,602,211 | 1,443,195 | ||||||
| Property and Equipment - Net | 78,438 | 96,027 | ||||||
| Goodwill | 747,976 | 747,976 | ||||||
| License | 354,322 | 354,322 | ||||||
| Patents | 145,261 | 151,199 | ||||||
| Right of use asset - long term | 689,246 | - | ||||||
| Other Assets | 25,400 | 25,400 | ||||||
| Total Non Current assets | 1,962,205 | 1,278,897 | ||||||
| Total Assets | $ | 4,642,854 | $ | 2,818,119 | ||||
| Liabilities and Stockholders’ (Deficit) | ||||||||
| Current Liabilities: | ||||||||
| Bank Overdraft | $ | - | $ | 5,850 | ||||
| Accounts payable - trade | 1,058,640 | 1,033,375 | ||||||
| Accrued Expenses | 1,854,988 | 1,786,796 | ||||||
| Accrued Expenses Related party | 192,494 | 123,394 | ||||||
| Customer Deposits | 309,230 | 365,815 | ||||||
| Warranty Liability | 100,000 | 100,000 | ||||||
| Deferred Revenue | 47,750 | 33,000 | ||||||
| Derivative Liability | 544,522 | 245,988 | ||||||
| Lease Liability - current | 227,851 | - | ||||||
| Notes Payable - Current (net of discount) | 3,053,265 | 2,775,090 | ||||||
| Notes Payable - Current - Related Party | 919,934 | 1,144,505 | ||||||
| Total Current Liabilities | 8,308,674 | 7,613,813 | ||||||
| Long-Term Debt: | ||||||||
| Lease Liability - long term | 689,246 | - | ||||||
| Net Long-Term Debt | 689,246 | - | ||||||
| Total Liabilities | 8,997,920 | 7,613,813 | ||||||
| Commitments and contingencies | $ | - | $ | - | ||||
| Stockholders’ (Deficit) | ||||||||
| Preferred D stock, stated value $100 per share; 20,000 shares authorized; 7,500 shares and 7,500 shares issued and 6,500 and 7,500 outstanding respectively | 650,000 | 750,000 | ||||||
| Common stock, $.001 par value; 2,000,000,000 shares authorized; 580,157,656 and 555,582,656 shares issued and outstanding respectively | 580,159 | 555,585 | ||||||
| Shares to be issued | 932,680 | 262,000 | ||||||
| Additional paid-in capital | 6,710,402 | 5,236,456 | ||||||
| Accumulated deficit | (13,228,307 | ) | (11,599,735 | ) | ||||
| Total Stockholders’ (Deficit) | (4,355,066 | ) | (4,795,694 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 4,642,854 | $ | 2,818,119 | ||||
The accompanying footnotes are an integral part of these consolidated financial statements
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Clean Energy Technologies, Inc.
Consolidated Statement of Operations
For the three and six months ended June 30,
The accompanying footnotes are an integral part of these consolidated financial statements
Clean Energy Technologies, Inc. | ||||||||
Consolidated Statement of Stockholders Equity | ||||||||
March 31, 2019 | ||||||||
(unaudited) | ||||||||
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| Common Stock | Preferred Stock | Common Stock |
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Description | Shares | Amount | Shares | Amount | Amount | Additional Paid in Capital | Accumulated Deficit | Stock |
December 31, 2017 | 210,881,122 | 210,883 | 7,500 | 750,000 | 58,000 | 3,657,653 | (8,789,717) | (4,113,180) |
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Shares issued for Note conversions | 26,054,672 | 26,055 | - | - | (58,000) | 203,580 |
| 171,635 |
Shares issued for Services | 13,800,000 | 13,800 |
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| 59,340 |
| 73,140 |
Shares issued for cash | 302,462,667 | 302,463 |
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| 604,914 |
| 907,377 |
BCF on 939,500 |
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| 532,383 |
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Shares to be issued |
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| 18,000 |
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Net Loss |
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| (1,313,258) | (1,313,258) |
March 31, 2018 | 553,198,461 | 553,201 | 7,500 | 750,000 | 18,000 | 5,057,870 | (10,102,975) | (3,723,904) |
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BCF on 153K note |
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| 127,602 |
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Net Loss |
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| (298,142) | (298,142) |
June 30, 2018 | 553,198,461 | 553,201 | 7,500 | 750,000 | 18,000 | 5,185,472 | (10,401,117) | (3,894,444) |
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Shares issued for services | 1,500,000 | 1,499 |
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| (18,000) | 16,501 | (2) | (2) |
Net Loss |
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| (155,382) | (155,382) |
September 30, 2018 | 554,698,461 | 554,700 | 7,500 | 750,000 | - | 5,201,973 | (10,556,501) | (4,049,828) |
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Shares to be issued for compensation |
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| 262,000 |
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Shares issued for debt conversion | 884,195 | 884 |
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| 34,484 |
| 35,368 |
Net Loss |
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| (1,043,234) | (1,043,234) |
December 31, 2018 | 555,582,656 | 555,584 | 7,500 | 750,000 | 262,000 | 5,236,457 | (11,599,735) | (4,795,694) |
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Shares to be issued for compensation | 20,000,000 | 20,000 |
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| (262,000) | 242,000 |
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Net Loss |
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| (726,777) | (726,777) |
March 31, 2019 | 575,582,656 | 575,584 | 7,500 | 750,000 | - | 5,478,457 | (12,326,512) | (5,522,471) |
| three months ended June 30, 2019 | six months ended June 30, 2019 | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Sales | $ | 104,168 | $ | 539,102 | $ | 328,531 | $ | 711,493 | ||||||||
| Cost of Goods Sold | 62,055 | 189,244 | 211,232 | 332,958 | ||||||||||||
| Gross Profit | 42,113 | 349,858 | 117,299 | 378,535 | ||||||||||||
| General and Administrative | ||||||||||||||||
| General and Administrative expense | 123,450 | 119,020 | 208,173 | 246,094 | ||||||||||||
| Salaries | 204,564 | 154,663 | 407,867 | 348,725 | ||||||||||||
| Professional fees | 66,669 | 66,765 | 70,685 | 88,058 | ||||||||||||
| Travel | 58,305 | 14,666 | 86,107 | 25,634 | ||||||||||||
| Facility lease | 80,818 | 68,346 | 162,852 | 139,325 | ||||||||||||
| Share Based Expense | - | - | - | 91,140 | ||||||||||||
| Total Expenses | 533,806 | 423,460 | 935,684 | 938,976 | ||||||||||||
| Net Profit / (Loss) From Operations | (491,693 | ) | (73,602 | ) | (818,385 | ) | (560,441 | ) | ||||||||
| Change in derivative liability | 54,803 | 56,841 | (104,930 | ) | (216,337 | ) | ||||||||||
| Gain / (Loss) on disposition of assets | - | 10,662 | - | 4,044 | ||||||||||||
| Financing Fees | - | - | - | (378,155 | ) | |||||||||||
| Interest Expense | (404,905 | ) | (292,043 | ) | (645,257 | ) | (460,511 | ) | ||||||||
| Net Profit / (Loss) Before Income Taxes | (841,795 | ) | (298,142 | ) | (1,568,572 | ) | (1,611,400 | ) | ||||||||
| Income Tax Expense | - | - | - | - | ||||||||||||
| Net Profit / (Loss) | $ | (841,795 | ) | $ | (298,142 | ) | $ | (1,568,572 | ) | $ | (1,611,400 | ) | ||||
| Per Share Information: | ||||||||||||||||
| Basic and diluted weighted average number of common shares outstanding | 573,121,330 | 553,273,461 | 579,698,041 | 471,235,772 | ||||||||||||
| Net Profit / (Loss) per common share basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Per Share Information: | ||||||||||||||||
| Diluted weighted average number of common shares outstanding | 573,121,330 | 553,273,461 | 579,698,041 | 471,235,772 | ||||||||||||
| Net Profit / (Loss) per common share diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
The accompanying footnotes are an integral part of these consolidated financial statements
| Page 5 of 31 |
Clean Energy Technologies, Inc.
Clean Energy Technologies, Inc. | ||
Consolidated Statements of Cash Flows | ||
For the three months ended March 31, | ||
(unaudited) | ||
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| 2019 | 2018 |
Cash Flows from Operating Activities: |
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Net Profit / (Loss) | $(726,777) | $(1,313,258) |
Adjustments to reconcile net loss to net cash |
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used in operating activities: |
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Depreciation and amortization | 11,763 | 11,831 |
Share based compensation | - | 91,140 |
Loss on disposal of fixed assets | - | 6,618 |
Financing fees | - | 378,155 |
Change in Derivative Liability and Debt discount | 253,576 | 161,752 |
Changes in assets and liabilities: |
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(Increase) decrease in accounts receivable | (54,359) | 1,969 |
(Increase) decrease in inventory | (32,010) | 13,805 |
(Increase) decrease in other assets | - | (33,869) |
(Decrease) increase in accounts payable | 89,435 | (26,754) |
Other (Decrease) increase in accrued expenses | 118,195 | 50,555 |
Other (Decrease) increase in deferred revenue | 14,750 | - |
Other (Decrease) increase in customer deposits | (6,585) | - |
Net Cash Used In Operating Activities | (332,012) | (658,056) |
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Cash Flows from Investing Activities |
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Purchase property plant and equipment | - | - |
Cash Flows Used In Investing Activities | - | - |
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Cash Flows from Financing Activities |
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Bank Overdraft / (Repayment) | 373 | (5,034) |
Payments on notes payable | - | (198,295) |
Proceeds from notes payable | 326,215 | 189,806 |
Stock issued for cash | - | 907,377 |
Cash Flows Provided By Financing Activities | 326,588 | 893,854 |
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Net (Decrease) Increase in Cash and Cash Equivalents | (5,424) | 235,798 |
Cash and Cash Equivalents at Beginning of Period | 6,456 | 9,418 |
Cash and Cash Equivalents at End of Period | $1,032 | $245,216 |
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Supplemental Cashflow Information: |
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Interest Paid | $106,368 | $85,893 |
Taxes Paid | $- | $- |
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Supplemental Non-Cash Disclosure |
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Consolidated Statement of Stockholders Equity
June 30, 2019
(un audited)
| Common Stock .001 Par | Preferred Stock | Common Stock to be issued | Additional Paid in | Accumulated | Stock holders’ | |||||||||||||||||||||||||||
| Description | Shares | Amount | Shares | Amount | Amount | Capital | Deficit | Deficit Totals | ||||||||||||||||||||||||
| December 31, 2017 | 210,881,122 | 210,883 | 7,500 | 750,000 | 58,000 | 3,657,653 | (8,789,717 | ) | (4,113,180 | ) | ||||||||||||||||||||||
| Shares issued for Note conversions | 26,054,672 | 26,055 | - | - | (58,000 | ) | 203,580 | 171,635 | ||||||||||||||||||||||||
| Shares issued for Services | 13,800,000 | 13,800 | 59,340 | 73,140 | ||||||||||||||||||||||||||||
| Shares issued for cash | 302,462,667 | 302,463 | 604,914 | 907,377 | ||||||||||||||||||||||||||||
| BCF on 939,500 | 532,383 | 532,383 | ||||||||||||||||||||||||||||||
| Shares to be issued | 18,000 | 18,000 | ||||||||||||||||||||||||||||||
| Net Loss | (1,313,258 | ) | (1,313,258 | ) | ||||||||||||||||||||||||||||
| March 31, 2018 | 553,198,461 | 553,201 | 7,500 | 750,000 | 18,000 | 5,057,870 | (10,102,975 | ) | (3,723,904 | ) | ||||||||||||||||||||||
| BCF on 153K note | 127,602 | 127,602 | ||||||||||||||||||||||||||||||
| Net Loss | (298,142 | ) | (298,142 | ) | ||||||||||||||||||||||||||||
| June 30, 2018 | 553,198,461 | 553,201 | 7,500 | 750,000 | 18,000 | 5,185,472 | (10,401,117 | ) | (3,894,444 | ) | ||||||||||||||||||||||
| Shares issued for services | 1,500,000 | 1,499 | (18,000 | ) | 16,501 | (2 | ) | (2 | ) | |||||||||||||||||||||||
| Net Loss | (155,382 | ) | (155,382 | ) | ||||||||||||||||||||||||||||
| September 30, 2018 | 554,698,461 | 554,700 | 7,500 | 750,000 | - | 5,201,973 | (10,556,501 | ) | (4,049,828 | ) | ||||||||||||||||||||||
| Shares to be issued for compensation | 262,000 | 262,000 | ||||||||||||||||||||||||||||||
| Shares issued for debt conversion | 884,195 | 884 | 34,484 | 35,368 | ||||||||||||||||||||||||||||
| Net Loss | (1,043,234 | ) | (1,043,234 | ) | ||||||||||||||||||||||||||||
| December 31, 2018 | 555,582,656 | 555,584 | 7,500 | 750,000 | 262,000 | 5,236,457 | (11,599,735 | ) | (4,795,694 | ) | ||||||||||||||||||||||
| Shares to be issued for compensation | 20,000,000 | 20,000 | (262,000 | ) | 242,000 | - | ||||||||||||||||||||||||||
| Net Loss | (726,777 | ) | (726,777 | ) | ||||||||||||||||||||||||||||
| March 31, 2019 | 575,582,656 | 575,584 | 7,500 | 750,000 | - | 5,478,457 | (12,326,512 | ) | (5,522,471 | ) | ||||||||||||||||||||||
| Shares to be issued | - | - | - | - | 932,680 | 1,066,520 | - | 1,999,200 | ||||||||||||||||||||||||
| Shares from administrative hold | 75,000 | 75 | - | - | - | (75 | ) | - | - | |||||||||||||||||||||||
| Shares issued for cash | 500,000 | 500 | - | - | - | 9,500 | - | 10,000 | ||||||||||||||||||||||||
| Preferred shares reclassed | - | - | (200 | ) | (20,000 | ) | - | 20,000 | - | - | ||||||||||||||||||||||
| Shares issued for Preferred stock conversion | 4,000,000 | 4,000 | (800 | ) | (80,000 | ) | - | 136,000 | (60,000 | ) | - | |||||||||||||||||||||
| Net Loss | (841,795 | ) | (841,795 | ) | ||||||||||||||||||||||||||||
| June 30, 2019 | 580,157,656 | 580,159 | 6,500 | 650,000 | 932,680 | 6,710,402 | (13,228,307 | ) | (4,355,066 | ) | ||||||||||||||||||||||
The accompanying footnotes are an integral part of these consolidated financial statements
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Clean Energy Technologies, Inc.
Consolidated Statements of Cash Flows
For the six months ended June 30,
(un-audited)
| 2019 | 2018 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income / ( Loss ) | $ | (1,568,572 | ) | $ | (1,611,400 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| used in operating activities: | ||||||||
| Depreciation and amortization | 23,527 | 27,968 | ||||||
| Share based compensation | - | 91,140 | ||||||
| Loss on disposal of fixed assets | - | 7,947 | ||||||
| Financing fees | - | 233,449 | ||||||
| Change in Derivative Liability and Debt discount | 466,066 | 379,960 | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in right of use asset | (917,097 | ) | - | |||||
| (Increase) decrease in lease liability | 917,097 | - | ||||||
| (Increase) decrease in accounts receivable | 78,343 | (6,381 | ) | |||||
| (Increase) decrease in inventory | (55,636 | ) | (19,885 | ) | ||||
| (Increase) decrease in other assets | - | - | ||||||
| (Decrease) increase in accounts payable | 25,265 | 29,334 | ||||||
| Other (Decrease) increase in accrued expenses | 80,707 | 68,369 | ||||||
| Other (Decrease) increase in accrued expenses -related party | (53,830 | ) | (133,260 | ) | ||||
| Other (Decrease) increase in deferred revenue | 14,750 | - | ||||||
| Other (Decrease) increase in customer deposits | (56,585 | ) | - | |||||
| Net Cash Used In Operating Activities | (1,045,965 | ) | (932,759 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase property plant and equipment | - | - | ||||||
| Cash Flows Used In Investing Activities | - | - | ||||||
| Cash Flows from Financing Activities | ||||||||
| Bank Overdraft / (Repayment) | (5,850 | ) | (8,585 | ) | ||||
| Payments on notes payable | (458,000 | ) | (198,296 | ) | ||||
| Proceeds from stock subscription | 1,999,200 | - | ||||||
| Proceeds from notes payable and lines of credit | 454,487 | 418,855 | ||||||
| Stock issued for cash | 10,000 | 907,377 | ||||||
| Cash Flows Provided By Financing Activities | 1,999,837 | 1,119,351 | ||||||
| Net (Decrease) Increase in Cash and Cash Equivalents | 953,872 | 186,592 | ||||||
| Cash and Cash Equivalents at Beginning of Period | 6,456 | 9,418 | ||||||
| Cash and Cash Equivalents at End of Period | $ | 960,328 | $ | 196,010 | ||||
| Supplemental Cashflow Information: | ||||||||
| Interest Paid | $ | 217,878 | $ | 219,080 | ||||
| Taxes Paid | $ | - | $ | - | ||||
| Supplemental Non-Cash Disclosure | ||||||||
| Shares issued for Services | $ | - | $ | 91,140 | ||||
| Shares issued for preferred conversions | $ | 80,000 | $ | - | ||||
| Shares issued for note conversions | $ | - | $ | 237,192 | ||||
The accompanying footnotes are an integral part of these Consolidated financial statements
| Page 7 of 31 |
Clean Energy Technologies, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Notes 1- GENERAL
Corporate History
With the vision to combat climate change and creating a better, cleaner and environmentally sustainable future Clean Energy HRS LLC a wholly owned subsidiary of Clean Energy Technologies, Inc. acquired the assets of Heat Recovery Solutions from General Electric International on September 11, 2015. The GE HRS asset acquisition and related financing transactions resulted in a change of control of the Company according to FASB No. 2014-17 Business Combinations (Topic 805). As a result, the transactions qualify as a business combination. In accordance with Topic 805, the Company elected to apply pushdown accounting, using the valuation date of December 31, 2015. As a result we recognized $747,976 in goodwill.
General Electric acquired the rights and 16 global patents to the magnetic bearing technology from Calnetix in October of 2010 and further developed the next generation of the waste heat generators, which was ultimately acquired by Clean Energy Technologies from GE. We completed our production facility post the acquisition in October of 2016. We consolidated our legacy and HRS operations and began our production in early 2018. In early 2018 we engaged with a large institutional equity partner and closed our first round of funding. We are successfully executing on our business strategy by increasing our market presence and broadening our product portfolio in the heat to power markets. We’re continuing to design, build and ship products to Europe, US, Canada, South East Pacific regions and planned expansion into Asia. We are continuing to build a strong back log and pipeline of opportunities while developing the next disruptive heat to power generators with the support of our new equity partners.
General Business Overview
Headquartered in Costa Mesa, California, Clean Energy Technologies, (CETY) delivers power from heat and biomass with zero emission and low cost. We design, produce and market clean energy products & integrated solutions focused on energy efficiency and environmental sustainability. Our principal product is the Clean CycleTM heat generator, offered through our wholly owned subsidiary Heat Recovery Solutions, (HRS). The Clean CycleTM generator captures waste heat from a variety of sources and turns it into electricity. By using our Clean CycleTM generator commercial and industrial heat generators boost their overall energy efficiency and the savings created provide our customers with a fast return on their investment. In addition CETY offers waste to energy (biomass) power plants using Biomass Power LTD highly developed (Step Grate Gasifier) multi-staged process integrated with CETY’s waste heat generators, delivering clean power that can be generated with low-NOx from a range of refused derived fuels (segregated waste), agricultural residues and energy crops. Our products saves fuel, reduces pollution and requires very little maintenance.
Clean Cycle II Heat Generator
Clean Energy Technologies, Inc. established a new CETY Europe Sales and Service Center in Silea (Treviso), Italy in December 2018. The service center includes a 24/7 Call Center, support Field Service Personnel, including remote access to the Waste Heat Generators and inventory spare parts to support the currently commissioned 65 Clean CycleTM installations in Europe. The service center will also provide support services for new European sales. CETY has identified substantial unmet market needs in many European countries including the United Kingdom, Germany, Italy, Ukraine, Croatia, Slovakia, Slovenia, Austria, Belarus and the Czech Republic.
The CETY Europe Sales and Service Center is the warranty and service hub for CETY’s Clean Cycle™ Heat Recovery Solutions (HRS) Waste Heat Generators. CETY purchased the patented HRS technology from General Electric in September 2015. The HRS System captures waste heat from a variety of sources such as Reciprocating Engines, Turbines, landfills, composting operations, water, or steam processes, and converts it into reliable electricity without requiring additional manpower, fuel or emissions. The CETY Europe Sales and Service Center will be well suited to handle any warranty and/or service issues.
Going Concern
The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a total stockholder’s deficit of $5,522,472 and an accumulated deficit of $(12,326,512) and a working capital deficit of $6,885,631 and a net loss of $726,777 for the three months ended March 31, 2019. Therefore, there is substantial doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will achieve its goals and reach profitable operations and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations.
Plan of Operation
Management is taking the following steps to sustain profitability and growth:
Growth Strategy
Heat is energy and billions of dollars worth of heat is being wasted every year. There’s a huge global waste heat potential that’s untapped. It’s found at industrial facilities, high rise buildings, biomass plants, power generation & microgrid facilities.
Our growth strategy is to target the incentive and high energy cost markets within these segments. We are also leveraging our proven patented magnetic bearing turbine acquired from GE, with its 27 global patents, 100 installations and over 1M fleet operating hours to brand and market CETY worldwide. We are also forming long term partnership and licensing agreement with original equipment manufacturers, distributors and integrators within these markets to broaden the product portfolio, expanded market presence and scalability by offering Integrated Waste-to-Energy (Biomass) plants and Cogeneration engine heat recovery solutions.
Sales and Marketing
Our marketing approach is to position CETY as a worldwide leader in the heat to power & energy efficiency markets by targeting industries that have wasted heat which could potentially turn into electricity.
We are leveraging our proprietary magnetic bearing turbine technology and over 100 installation with 1 million fleet operating to increase our market share in low to medium temperature waste heat recovery markets.
We utilize both a direct sales force and global distribution group with expertise in heat recovery solutions and clean energy markets. We have also established relationships with integrators, consultant and project developers and integrated solution providers.
We plan to leverage our core expertise to identify, acquire and develop leading clean energy and clean technology solutions and products. We will continue to utilize our relationships and expertise to expand in clean and renewable energy sector through new in-house development of disruptive heat to power technologies, acquisitions, cogeneration, and licensing agreements.
CETY maintains an online presence through our web portal and social media. Our application engineers assist in converting the opportunities into projects. We provide technical support to our Clean Cycle TM generator clients through providing maintenance and product support.
The sales of our products are related to the global prices for oil, gas, coal and solar energy. As prices increase our products produce a better return on investment for our customers. They are also dependent on regulatory drivers and financial incentives.
Our Market
The market for waste heat recovery is well defined and, according to a recent report published by the U.S. Department of Energy “Waste Heat recovery: Technology and Opportunities in US Industry” and International Energy Agency report, “World Energy Outlook 2012” , “ 20 to 50% of industrial energy input is lost as waste heat.” and “~3/5 of the primary energy used in power plants becomes waste heat”. The opportunity in the waste heat recovery market is substantial. The report continues, “A valuable alternative approach to improving overall energy efficiency is to capture and reuse the lost or ‘waste heat’ that is intrinsic to all manufacturing processes. During these manufacturing processes, as much as 20% to 50% of the energy consumed is ultimately lost via waste heat contained in streams of hot exhaust gases and liquids, as well as through heat conduction, convection, and radiation from hot equipment surfaces and from heated product streams. In some cases, such as industrial furnaces, waste heat recovery can improve energy efficiency by 10% to as much as 50%.”
The advantage of recapturing and utilizing waste heat is that it typically replaces purchased electric power, much of which does and will continue to require burning fossil fuels, or directly replaces fuels which must be purchased and combusted. Thus it actually can directly reduce emissions and eliminate transmission losses. Projections of market potential are truly enormous, with unrecovered waste heat in industrial processes estimated at half a quintillion (a billion billion) BTUs. The Company believes that if it can capture even a small percentage of this market it would have a strong opportunity to reduce exhaust emissions, assist in lowering energy costs of the manufacturers, while growing the Company and its client base.
Our Products
Organic Rankine Cycle System Using Clean Cycle Generator
The Rankine Cycle is a thermodynamic cycle that converts heat into energy. The organic Rankine cycle is similar. Heat from an industrial waste source is passed through a heat exchanger where it superheats cold fluid that is vaporized. The vapor is passed through an expansion device (turbine or other expander) which creates electricity, and then through a condenser where the vapor is re-condensed to liquid and cooled. The cycle repeats itself generating energy.
We produce an Organic Rankine Cycle system called the Clean CycleTM heat to power generator through our wholly owned subsidiary Heat Recovery Solutions, (HRS). Our Clean Cycle TM generators create additional power from waste heat with no additional emission and come in two models, skids for use inside a plant or containers for outdoor applications. By using the Clean CycleTM generator our customers boost their overall energy efficiency. Our product saves fuel, reduces pollution, requires very little maintenance and provides a fast return on investment.
We produce a turnkey Organic Rankine Cycle system we call the Clean CycleTM generator. Our Clean Cycle TM generators create additional power from waste heat with no additional emission and come in two models, skids for use inside a plant or containers for outdoor applications. Our customers may use their own heat exchangers or condensers, or we provide these products as part of our integrated system through third party suppliers.
We compete based on efficiency, maintenance and our customer’s return on investment. We have an exclusive license from Calnetix to use their magnetic turbine for heat waste recovery applications. We believe that the magnetic turbine technology is more efficient than our competitor’s turbines which allows our systems to generate more electricity at lower heat ranges. Because our generator is magnetic, it requires far less maintenance than our competitors who use oil, gearbox and rubber seals in their turbines. We have the
advantage of selling a system that was originally manufactured and sold by General Electric International so our Clean CycleTM generator has a substantial market base and we believe has a reputation as one of the defacto standards in the market.
Our greatest advantage is that the Clean CycleTM generator is a product that can be delivered on a turnkey basis, not a major project that needs to be designed, manufactured and installed. We believe that this is one of the most distinguishing features of our Clean Cycle™ generator, as it significantly reduces the time our customers spend on installation, improves the speed with which we can deliver our product and reduces startup costs.
Corporate Information
Our principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626. Our telephone number is (949) 273-4990. Our common stock is listed on the OTC Market Group’s Pink Open Market under the symbol “CETY.”
Our internet website address is www.cetyinc.com. and www.heatrecoverysolutions.com. The information contained on our website is not incorporated by reference into this document, and you should not consider any information contained on, or that can be accessed through, our website as part of this document.
NOTE 21 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
These unaudited interim consolidated financial statements as of and for the three months ended March 31,June 30, 2019, reflect all adjustments which, in the opinion of management, are necessary to fairly state the Company’s financial position and the results of its operations for the periods presented, in accordance with the accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature.
These unaudited interim consolidated financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s fiscal year end December 31, 2018, report. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three month periodand six months ended March 31,June 30, 2019, are not necessarily indicative of results for the entire year ending December 31, 2019.
The summary of significant accounting policies of Clean Energy Technologies, Inc. is presented to assist in the understanding of the Company'sCompany’s financial statements. The financial statements and notes are representations of the Company’s management, who is responsible for their integrity and objectivity.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates may be materially different from actual financial results. Significant estimates include the recoverability of long-lived assets, the collection of accounts receivable and valuation of inventory and reserves.
Cash and Cash Equivalents
We maintain the majority of our cash accounts at a commercial bank. The total cash balance is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per commercial bank. For purposes of the statement of cash flows we consider all cash and highly liquid investments with initial maturities of one year or less to be cash equivalents.
| Page 8 of 31 |
Accounts Receivable
We grant credit to our customers located within the United States of America; and do not require collateral. Our ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by us. Reserves for un-collectable amounts are provided, based on past experience and a specific analysis of the accounts. Although we expect to collect amounts due, actual collections may differ from the estimated amounts. As of March 31,June 30, 2019, and December 31, 2018, we had a reserve for potentially un-collectable accounts of $57,000. Five (5) customers accounted for approximately 94%96% of accounts receivable at March 31,June 30, 2019. Our trade accounts primarily represent unsecured receivables. Historically, our bad debt write-offs related to these trade accounts have been insignificant.
Inventory
Inventories are valued at the lower of weighted average cost or market value. Our industry experiences changes in technology, changes in market value and availability of raw materials, as well as changing customer demand. We make provisions for estimated excess and obsolete inventories based on regular audits and cycle counts of our on-hand inventory levels and forecasted customer demands and at times additional provisions are made. Any inventory write offs are charged to the reserve account. As of March 31,June 30, 2019, and December 31, 2018, we had a reserve for potentially obsolete inventory of $250,000.
Property and Equipment
Property and equipment are recorded at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets. The cost of ordinary maintenance and repairs is charged to operations. Depreciation and amortization are computed on the straight-line method over the following estimated useful lives of the related assets:
| Furniture and fixtures | 3 to 7 years |
| Equipment | 7 to 10 years |
| Leasehold Improvements | 7 years |
Furniture and fixtures 3 to 7 years
Equipment 7 to 10 years
Leasehold Improvements 7 years
Long –Lived Assets
Our management assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long livedlong-lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment if any, is measured based on fair value and is charged to operations in the period in which long-lived assets impairment is determined by management. There can be no assurance however, that market conditions will not change or demand for our services will continue, which could result in impairment of long-lived assets in the future.
Revenue Recognition
The Company recognizes revenue under ASU No. 2014-09,“Revenue from Contracts with Customers (Topic 606),” (“ASC 606”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle for our HRS and Cety Europe and clean energy revenue:
| ● | Identify the contract with the customer | |
| ● | Identify the performance obligations in the contract | |
| ● | Determine the transaction price | |
| ● | Allocate the transaction price to the performance obligations in the contract | |
| ● | Recognize revenue when the company satisfies a performance obligation |
·Identify the contract with the customer
·Identify the performance obligations in the contract
·Determine the transaction price
·Allocate the transaction price to the performance obligations in the contract
·Recognize revenue when the company satisfies a performance obligation
| Page 9 of 31 |
We also collect deposits with our order. Our customer deposit are recognized as revenue when we have met the contractual obligations. The following is table summarizes the customer deposit activity for the quarter:six months ended June 30, 2019:
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| Customer Deposits as of December 31, 2018 | $ | 365,815 | ||
| Customer Deposits applied | (56,585 | ) | ||
| New customer Deposits | - | |||
| Customer Deposits as of June 30, 2019 | $ | 309,230 |
We Invoice the customer and the time of the contract and only recognize the revenue when the company satisfies a performance obligation. The following is table summarizes the deferred revenue activity for the quarter:six months ended June 30, 2019:
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| Deferred revenue December 31, 2018 | $ | 33,000 | ||
| Deferred revenue recognized in the Six months ended June 30, 2019 | - | |||
| Additional deferred revenue added in the Six months ended June 30, 2019 | 14,750 | |||
| Deferred revenue June 30, 2019 | $ | 47,750 |
The following steps are applied to our contract manufacturing revenue:
·
| ● | We generate a quotation | |
| ● | We receive Purchase orders from our customers. | |
| ● | We build the product to their specification | |
| ● | We invoice at the time of shipment | |
| ● | The terms are typically Net 30 days |
·We receive Purchase orders from our customers.
·We build the product to their specification
·We invoice at the time of shipment
·The terms are typically Net 30 days
Fair Value of Financial Instruments
The Financial Accounting Standards Board issued ASC (Accounting Standards Codification) 820-10 (SFAS No. 157), “Fair Value Measurements and Disclosures"Disclosures” for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820-10 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
| ● | Level 1: Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. | |
| ● | Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
| Page 10 of 31 |
The carrying amounts of the Company’s financial instruments as of December 31 2018 and March 31,June 30, 2019, reflect:
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Fair value of convertible notes derivative liability – December 31, 2018 |
| $ | – |
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| $ | 245,988 |
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| $ | 245,988 |
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| Fair value of convertible notes derivative liability – December 31, 2018 | $ | – | $ | – | $ | 245,988 | $ | 245,988 | ||||||||
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Fair value of convertible notes derivative liability – March 31, 2019 |
| $ | – |
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| Fair value of convertible notes derivative liability – June 30, 2019 | $ | – | $ | – | $ | 544,522 | $ | 544,522 | ||||||||
The carrying amount of accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of these financial instruments.
Other Comprehensive Income
We have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods.
Net Profit (Loss) per Common Share
Basic profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding. At March 31,June 30, 2019, we had outstanding common shares of 575,657,656580,157,656 used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents at March 31,June 30, 2019 and 2018 were 566,027,100579,698,041 and 388,286,554,471,235,772, respectively. In addition, we had convertible notes and convertible preferred shares, convertible into of additional common shares of approximately 613 million shares. Fully diluted weighted average common shares and equivalents were withheld from the calculation as they were considered anti-dilutive. anti-dilutive we also had an adjustment to retained earnings of $60,000 due to the inducement on the conversion of preferred shares.
Research and Development
We had no amounts of research and development expense during the three months ended March 31,June 30, 2019 and 2018.
Segment Disclosure
FASB Codification Topic 280,Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has three reportable segments: Clean Energy Technologies; Heat recovery solutions and our service center CETY Europe, which provides support services to our currently installed units in Europe. The segments are determined based on several factors, including the nature of products and services, the nature of production processes, customer base, delivery channels and similar economic characteristics. Refer to note 1 for a description of the various product categories manufactured under each of these segments. An operating segment'ssegment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, and segment selling, general and administrative expenses, and does not include amortization of intangibles, stock-based compensation, other charges (income), net and interest and other, net.
| Page 11 of 31 |
Selected Financial Data:
| Six months ended June 30, | ||||||||
| 2019 | 2018 | |||||||
| Net Sales | ||||||||
| Electronics Assembly | $ | 226,206 | $ | 319,399 | ||||
| Clean Energy HRS | 46,137 | 392,094 | ||||||
| Cety Europe | 56,188 | - | ||||||
| Total Sales | 328,531 | 711,493 | ||||||
| Segment income and reconciliation before tax | ||||||||
| Electronics Assembly | 38,720 | 105,259 | ||||||
| Clean Energy HRS | 37,463 | 273,276 | ||||||
| Cety Europe | 41,116 | - | ||||||
| Total Segment income | 117,299 | 378,535 | ||||||
| Reconciling items | ||||||||
| General and Administrative expense | (208,173 | ) | (409,717 | ) | ||||
| Salaries | (407,867 | ) | (348,725 | ) | ||||
| Professional fees | (70,685 | ) | (88,058 | ) | ||||
| Travel | (86,107 | ) | (25,634 | ) | ||||
| Facility lease | (162,852 | ) | (139,325 | ) | ||||
| Share Based Expense | - | (91,140 | ) | |||||
| Change in derivative liability | (104,930 | ) | (216,337 | ) | ||||
| Gain / (Loss) on disposition of assets | - | 4,044 | ||||||
| Financing fees | - | (378,155 | ) | |||||
| Interest expense | (645,257 | ) | (460,511 | ) | ||||
| Net Loss before income tax | $ | (1,568,572 | ) | $ | (1,611,400 | ) | ||
| June 30, 2019 | June 30, 2018 | |||||||
| Total Assets | ||||||||
| Electronics Assembly | $ | 2,728,606 | $ | 1,303,343 | ||||
| Clean Energy HRS | 1,884,847 | 1,649,116 | ||||||
| Cety Europe | 29,401 | - | ||||||
| $ | 4,642,854 | $ | 2,952,459 | |||||
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Share-Based Compensation
Share-Based Compensation
The Company has adopted the use of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS No. 123R) (now contained in FASB Codification Topic 718,Compensation-Stock Compensation), which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance and eliminates the alternative to use Opinion 25’s intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black-Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and
a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the “risk-free interest rate,” we use the Constant Maturity Treasury rate on 90-day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the Company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20-trading-day average. At the time of grant, the share-based compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature of the shares. The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.
We re-evaluate the assumptions used to value our share-based awards on a quarterlysix months ended June 30, 2019 basis and, if changes warrant different assumptions, the share-based compensation expense could vary significantly from the amount expensed in the past. We may be required to adjust any remaining share-based compensation expense, based on any additions, cancellations or adjustments to the share-based awards. The expense is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For the three months ended March 31,June 30, 2019 and 2018 we had $0 and $91,140 respectively, in share-based expense, due to the issuance of common stock. As of March 31,June 30, 2019, we had no further non-vested expense to be recognized.
Income Taxes
Federal Income taxes are not currently due since we have had losses since inception.
On December 22, 2018 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company will compute its income tax expense for the three months ended March 31,June 30, 2019 using a Federal Tax Rate of 21%.
Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25Income Taxes – Recognition.Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard required by ASC 740-10-25-5.
Deferred income tax amounts reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes.
As of March 31,June 30, 2019, we had a net operating loss carry-forward of approximately $(3,183,654)$(3,988,042) and a deferred tax asset of approximately $668,567$837,489 using the statutory rate of 21%. The deferred tax asset may be recognized in future periods, not to exceed 20 years. However, due to the uncertainty of future events we have booked valuation allowance of $(668,567)$(837,489). FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At March 31,June 30, 2019, the Company had not taken any tax positions that would require disclosure under FASB ASC 740.
| March 31, 2019 | December 31, 2018 |
Deferred Tax Asset | $ 668,567 | $ 515,944 |
Valuation Allowance | (668,577) | (515,944 ) |
Deferred Tax Asset (Net) | $ - | $ - |
| Page 13 of 31 |
| June 30, 2019 | December 31, 2018 | |||||||
| Deferred Tax Asset | $ | 837,489 | $ | 515,944 | ||||
| Valuation Allowance | (837,489 | ) | (515,944 | ) | ||||
| Deferred Tax Asset (Net) | $ | - | $ | - | ||||
On February 13, 2018, Clean Energy Technologies, Inc., a Nevada corporation (the “Registrant” or “Corporation”) entered into a Common Stock Purchase Agreement (“Stock Purchase Agreement”) by and between MGW Investment I Limited (“MGWI”) and the Corporation. The Corporation will receivereceived $907,388 in exchange for the issuance of 302,462,667 restricted shares of the Corporation’s common stock, par value $.001 per share (the “Common Stock”).
On February 13, 2018 the Corporation and Confections Ventures Limited. (“CVL”) entered into a Convertible Note Purchase Agreement (the “Convertible Note Purchase Agreement,” together with the Stock Purchase Agreement and the transactions contemplated thereunder, the “Financing”) pursuant to which the Corporation issued to CVL a convertible promissory Note (the “CVL Note”) in the principal amount of $939,500 with an interest rate of 10% per annum interest rate and a maturity date of February 13, 2020. The CVL Note is convertible into shares of Common Stock at $0.003 per share, as adjusted as provided therein.
This resulted in a change in control, which limited the net operating to that date forward.
We are subject to taxation in the U.S. and the state of California. Further, the Company currently has no open tax years’ subject to audit prior to December 31, 2015. The Company is current on its federal and state tax returns.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported income, total assets, or stockholders’ equity as previously reported.
Recently Issued Accounting Standards
Going Concern
The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a total stockholder’s deficit of $4,355,066 and an accumulated deficit of $(13,228,307) and a working capital deficit of $5,706,463 and a net loss of $1,568,572 for the six months ended June 30, 2019. Therefore, there is substantial doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will achieve its goals and reach profitable operations and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
The Company is reviewing the effects of following recent updates. The Company has no expectation that any of these items will have a material effect upon the financial statements.
| ● | Update 2019-04—Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments | |
| ● | Update 2019-01—Leases (Topic 842): Codification Improvements | |
| ● | Update 2018-17—Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities | |
| ● | Update 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement | |
| ● | Update 2018-08—Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities | |
| ● | Update 2018-05—Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets | |
| ● | Update 2018-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment | |
| ● | Update 2018-03—Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2017 and November 17, 2017 EITF Meetings (SEC Update) | |
| ● | Update 2018-01—Business Combinations (Topic 805): Clarifying the Definition of a Business |
FASB ASU 2016-02 “Leases (Topic 842)” –In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but has been updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have adopted the above ASU as of January 1, 2019.
Update 2019-04—Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
Update 2019-01—Leases (Topic 842): Codification Improvements
Update 2018-17—Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
Update 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
Update 2018-08—Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
Update 2018-05—Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
Update 2018-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
Update 2018-03—Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2017 and November 17, 2017 EITF Meetings (SEC Update)
Update 2018-01—Business Combinations (Topic 805): Clarifying the Definition of a Business
FASB ASU 2016-02 “Leases (Topic 842)” – In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but has been updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have adopted the above ASU as of January 1, 2019. The right of use asset and lease liability have been recorded at the present value of the future minimum lease payments, utilizing a 5% average borrowing rate. rateand the company is utilizing the transition relief and “running off” on current leases.
| Page 14 of 31 |
NOTE 3 – ACCOUNTS AND NOTES RECEIVABLE
| March 31, 2019 | December 31, 2018 | June 30, 2019 | December 31, 2018 | ||||||
Accounts Receivable Trade | $ 836,204 | $ 781,845 | $ | 703,502 | $ | 781,845 | ||||
Less Reserve for uncollectable accounts | (57,000) | (57,000 | ) | (57,000 | ) | |||||
Accounts receivable - net | $ 779,204 | $ 724,845 | $ | 646,502 | $ | 724,845 | ||||
NOTE 4 – INVENTORY
Inventories by major classification were comprised of the following at:
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| June 30, 2019 | December 31, 2018 | |||||||
| Raw Material | $ | 946,559 | $ | 952,214 | ||||
| Work in Process | 70,971 | 9,680 | ||||||
| Total | 1,017,530 | 961,894 | ||||||
| Less reserve for excess or obsolete inventory | (250,000 | ) | (250,000 | ) | ||||
| Total Inventory | $ | 767,530 | $ | 711,894 | ||||
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment were comprised of the following at:
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| June 30, 2019 | December 31, 2018 | |||||||
| Capital Equipment | $ | 1,342,794 | $ | 1,342,794 | ||||
| Leasehold improvements | 75,436 | 75,436 | ||||||
| Accumulated Depreciation | (1,339,792 | ) | (1,322,203 | ) | ||||
| Property and Equipment - Net | $ | 78,438 | $ | 96,027 | ||||
For the threesix months ended March 31,June 30, 2019 we recognized depreciation expense in the amount of $8,794$17,586 and for the three months ended March 31,June 30, 2019 we recognized depreciation expense in the amount of $8,862$8,793
NOTE 6 – INTANGIBLE ASSETS
Intangible assets were comprised of the following at:
| March 31, 2019 | December 31, 2018 | June 30, 2019 | December 31, 2018 | ||||||
Goodwill | $ 747,976 | $ | 747,976 | $ | 747,976 | |||||
License | 354,322 | 354,322 | 354,322 | |||||||
Patents | 190,789 | 190,789 | 190,789 | |||||||
Accumulated Amortization | (42,560) | (39,590) | (45,528 | ) | (39,590 | ) | ||||
Net Intangible Assets | $1,250,527 | $ 1,253,497 | $ | 1,247,559 | $ | 1,253,497 | ||||
Our Amortization Expense for the three months ended March 31,June 30, 2019 and 2018 was $2,969 and 2,969 respectively.
| Page 15 of 31 |
NOTE 7 – ACCRUED EXPENSES
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| June 30, 2019 | December 31, 2018 | |||||||
| Accrued Wages | $ | 209,570 | $ | 224,514 | ||||
| Accrued Interest | 549,560 | 466,425 | ||||||
| Accrued Interest Related party | 192,495 | 123,394 | ||||||
| Customer Deposit | 309,230 | 365,815 | ||||||
| Accrued Payable to GE - TSA | 972,231 | 972,231 | ||||||
| Accrued Rents and Moving Expenses | 123,626 | 123,626 | ||||||
| $ | 2,356,712 | $ | 2,276,005 | |||||
NOTE 8 – NOTES PAYABLE
The Company issued a short-term note payable to an individual, secured by the assets of the Company, dated September 6, 2013 in the amount of $50,000 and fixed fee amount of $3,500. As of March 31,June 30, 2019 the outstanding balance was $38,500.$38,500.
On November 11, 2013, we entered in to an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). Amounts outstanding under the agreement bear interest at the rate of 2.5% per month. It is secured by the assets of the Company. In addition, it is personally guaranteed by Kambiz Mahdi, our Chief Executive Officer. As of March 31,June 30, 2019, the outstanding balance was $1,506,425.
On September 11, 2015, our CE HRS subsidiary issued a promissory note in the initial principal amount $1,400,000 and assumed a pension liability of $100,000, for a total liability of $1,500,000, in connection with our acquisition of the heat recovery solutions, or HRS, assets of General Electric International, Inc., a Delaware corporation (“GEII”), including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures. The note bears interest at the rate of 2.66% per annum. The note is payable on the following schedule: (a) $200,000 in principal on December 31, 2015 and (b) thereafter, the remaining principal amount of $1,200,000, together with interest thereon, payable in equal quarterlysix months ended June 30, 2019 installments of principal and interest of $157,609, commencing on December 31, 2016 and continuing until December 31, 2018 at which time the remaining unpaid principal amount of this note and all accrued and unpaid interest thereon shall be due and payable in full
We are currently in default on the payment of the purchase price pursuant to our asset purchase agreement with General Electric due to a combination of our inability to raise sufficient capital as expected and our belief that we are entitled to a reduction in purchase price we paid. We are in the process of negotiations with General Electric.
On September 15, 2016, Meddy Sahebi, Chairman of our previous Board of Directors, advanced the Company $5,000. There were no specified terms for repayment of this loan other than that it was to be repaid within a reasonable time. As of March 31,June 30, 2019 the outstanding balance was $5,000.
On June 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $250,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of June 21, 2019. On May 28, 2019 this note was paid in full.
| Page 16 of 31 |
On September 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $100,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of September 21, 2019. On May 28, 2019 this note was paid in full.
On January 10, 2019 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $25,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of January 10, 2020. On May 28, 2019 this note was paid in full.
On April 15, 2019 we received an advance from an un-related party for $40,000, this advance has no interest rate or repayment terms.
Convertible notes
On September 6, 2016, we entered into a one-year convertible note payable for $87,500, which accrues interest at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion. On December 16, 2016 we issued 1,200,000 shares of common stock at $.0031 for a partial conversion of this note in the amount of $3,696. January 4, 2018, we issued 2,300,000 shares of common stock at $.002192 for a partial conversion of this note in the amount of $5,042.
On November 2, 2016, we effected the repayment of the convertible note dated March 15, 2016 for an aggregate amount of $84,000. Concurrently, we entered into an Escrow Funding Agreement with Red Dot Investment, Inc., a California corporation (“Reddot”), pursuant to which Reddot deposited funds into escrow to fund the repayment and we assigned to Reddot our right to acquire the convertible note and Reddot acquired the convertible note. Concurrently, we and Reddot amended the convertible note (a) to have a fixed conversion price of $.005 per share, subject to potential further adjustment in the event of certain Common Stock issuances, (b) to have a fixed interest rate of ten percent (10%) per annum with respect to both the redemption amount and including a financing fee and any costs, expenses, or other fees relating to the convertible note or its enforcement and collection, and any other expense for or on our account (in each case with a minimum 10% yield in the event of payoff or conversion within the first year), such amounts to constitute additional principal under the convertible note, as amended, and (c) as otherwise provided in the Escrow Funding Agreement. The March 2016 convertible note, as so amended, is referred to as the “Master Note.”
On January 9, 2017, we effected the partial repayment of the convertible note dated July 6, 2016. The holder had elected to convert $15,400 ($11,544 in principal and $3,855 in accrued interest) into a total of 7,000,000 shares of Common Stock. The conversion left $66,205 remaining due and payable under the July 2016 convertible note and we paid the note holder a total of $89,401 in repayment. On January 12, 2017, we effected the partial repayment of the convertible note dated September 6, 2016. The holder had elected to retain $26,117 (consisting of $24,228 in principal and $1,899 in interest), leaving $60,941 remaining due and payable under the September 2016 convertible note, which was satisfied and canceled in consideration of the payment to the note holder of $97,506. On January 9, 2017, we effected the repayment in full of the convertible note dated August 12, 2016 through payment to the note holder of a total of $89,401.
Concurrently with the foregoing note repayments, we entered into a Credit Agreement and Promissory Note (the “Credit Agreement”) with Megawell USA Technology Investment Fund I LLC, a Wyoming limited liability company in formation (“MW I”), pursuant to which MW I deposited funds into escrow to fund the repayment of the convertible notes and we assigned to MW I our right to acquire the convertible notes and otherwise agreed that MW I would be subrogated to the rights of each note holder to the extent a note was repaid with funds advanced by MW I. Concurrently, MW I acquired the Master Note and we agreed that all amounts advanced by MG I to or for our benefit would be governed by the terms of the Master Note, including the payment of a financing fees, interest, minimum interest, and convertibility. Reddot is MW I’s agent for purposes of administration of the Credit Agreement and the Master Note and advances thereunder.
The foregoing summary descriptions of the Escrow Funding Agreement (including amendments to the Master Note), the Settlement Agreement, and the Credit Agreement are not complete and are qualified in their entirety by reference to the full texts thereof, copies of which were included as Exhibits 10.02 to our
Current Report on Form 8-K dated October 31, 2016 and to Exhibits 10.01 and 10.02 to our Current Report on Form 8-K dated January 4, 2016. The foregoing summary description of the original Master Note is not complete and is qualified in its entirety by reference to the full text thereof, a copy of which was included as Exhibit 10.03 to our Current Report on Form 8-K dated October 31, 2016.
| Page 17 of 31 |
On May 5, 2017 we entered into a nine-month convertible note payable for $78,000, which accrues interest at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of ninety one percent (61%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. On November 6, 2017 this note was assumed and paid in full at a premium for a total of $116,600 by Cybernaut Zfounder Ventures. An amended term were added to the original note with the interest rate of 14%. This note matured on February 21st of 2018 and is currently in default.
On May 24, 2017 we entered into a nine-month convertible note payable for $32,000, which accrues interest at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of fifty-five eight percent (58%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. On November 6, 2017 this note was assumed and paid in full at a premium for a total of $95,685, by Cybernaut Zfounder Ventures. An amended term was added to the original note with the interest rate of 14%. This note matured on February 26th, 2018 and is currently in default.
On July 25, 2017 we entered into a convertible note payable for $103,000, with a maturity date of April 25, 2018, which accrues interest at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of ninety percent (60%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion. This note was paid in full on February 15, 2018
On February 8, 2018 the Corporation entered a Convertible Promissory Note in the principal amount of $153,123, due October 8, 2018, with an interest rate of 12% per annum payable to MGWI (the “MGWI Note”). The MGWI Note is convertible into shares of the Corporation’s common stock at the lower of: (i) a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of a Conversion Notice; or (ii) 0.003. As a result of the closing of the transactions contemplated by the Stock Purchase Agreement and Convertible Note Purchase Agreement, the MGWI Note must be redeemed by the Corporation in an amount that will permit CVL and MGWI and their affiliates to hold 65% of the issued and outstanding Common Stock of the Corporation on a fully diluted basis. The proceeds from the MGWI Note were used to redeem the convertible note of the Corporation to JSJ Investments, Inc. in the principal amount
of $103,000 with an interest rate of 12% per annum, due April 25, 2018. At December 31, 2018 the holder of this note beneficially owned 70% of the company and this note is not convertible if the holder holds more than 9.99%, as a result, we did not recognize a derivative liability or a beneficial conversion feature.
| Page 18 of 31 |
On December 13, 2018 we entered into a convertible note payable for $83,000, with a maturity date of December 13, 2019, which accrues interest at the rate of 12% per annum. It is convertible six months after its issuance and has a conversion rate of fifty-eight percent (65%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. On May 28, 2019 this note was paid in full.
February 13, 2019 we entered into a convertible note payable for $138,000, with a maturity date of February 13, 2020, which accrues interest at the rate of 12% per annum. It is convertible six months after its issuance and has a conversion rate of sixty-five percent (65%) of the average of the two lowest closing prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion.
On January 10, 20182019 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $25,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of January 10, 2020. On May 28, 2019 this note was paid in full.
Subsequently on AprilOnApril 9, 2019 we entered into a convertible note payable for $53,000, with a maturity date of April 9, 2020, which accrues interest at the rate of 12% per annum. It is convertible six months after its issuance and has a conversion rate of sixty-five percent (65%) of the average of the two lowest closing prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion.
NOTENote 9 – DERIVATIVE LIABILITIESDerivative Liabilities
As a result of the convertible notes we recognized the embedded derivative liability on the date of note issuance. We also revalued the remaining derivative liability on the outstanding note balance on the date of the balance sheet. We value the derivative liability using a binomial lattice model with an expected volatility of 194%163% and a risk free interest rate of 2.54%2.09% The remaining derivative liabilities were:
Derivative Liabilities on Convertible Loans:
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| June 30, 2019 | December 31, 2018 | |||||||
| Outstanding Balance | $ | 544,522 | $ | 245,988 | ||||
NOTE 10 – COMMITMENTS AND CONTINGENCIES
The company has received an invoice from Oberon Securities for $291,767 which is in dispute. The company believes it has defenses to the claim for compensation and plans to assert appropriate counterclaims and actions as permitted by law. No liability has been recorded for this claim as the Company believes there is a greater than not probability that our Company will prevail in defending against the claim.
Operating Rental Leases
On March 10, 2016, we signed a lease agreement for a 18,200 square-foot CTU Industrial Building at 2990 Redhill Unit A, Costa Mesa, CA. The lease term at the new facility is seven years and two months beginning October 1, 2016. In October of 2018 we signed a sublease agreement with our facility in Italy with an indefinite term that may be terminated by either party with a 60 day notice for 1,000 Euro per month. Due to
the short termination clause, we are treating this as a month to month lease. Future minimum lease payments for the years ended December 31, as follows:
Year |
| Lease Payment | Lease Payment | |||
2019 |
| $152,806 | $ | 101,870 | ||
2020 |
| $241,884 | $ | 241,884 | ||
2021 |
| $249,132 | $ | 249,132 | ||
2022 |
| $256,608 | $ | 256,608 | ||
2023 |
| $44,052 | $ | 44,052 | ||
Our Rent expense including common area maintenance for the Threethree months ended March 31,June 30, 2019 and 2018 was $82,034$80,818 and $70,979$68,346 respectively and for the six months ended June 30, 2019 and 2018 was $162,852 and $139,325 respectively.
Per FASB ASU 2016-02 “Leases (Topic 842)” – In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but has been updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have adopted the above ASU as of January 1, 2019. We have recorded a right of use asset of $917,097 and a corresponding lease liability of $917,097.
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Severance Benefits
Effective at December 31, 2018, Mr. Bennett, was entitled to receive in the event of his termination without cause a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Bennett would have been entitled to receive through the remainder of his employment period or two (2) years, whichever is greater, at an annual salary of $140,000.greater.
NOTE 11 – CAPITAL STOCK TRANSACTIONS
On April 21, 2005, our Board of Directors and shareholders approved the re-domicile of the Company in the State of Nevada, in connection with which we increased the number of our authorized common shares to 200,000,000 and designated a par value of $.001 per share.
On May 25, 2006, our Board of Directors and shareholders approved an amendment to our Articles of Incorporation to authorize a new series of preferred stock, designated as Series C, and consisting of 15,000 authorized shares.
On June 30,, 2017, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 400,000,000 and in the number of our authorized preferred shares to 10,000,000. The amendment effecting the increase in our authorized capital was filed and effective on July 5, 2017.
On August 28, 2018, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 800,000,000. The amendment effecting the increase in our authorized capital was filed and effective on August 23, 2018
On April 30, 2019, by written consent, in lieu of a meeting of the stockholders; our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 2,000,000,000. The amendment effecting the increase in our authorized capital was filed and effective on July 23, 2019
Common Stock Transactions
On February 13, 2018, Clean Energy Technologies, Inc., a Nevada corporation (the “Registrant” or “Corporation”) entered into a Common Stock Purchase Agreement (“Stock Purchase Agreement”) by and between MGW Investment I Limited (“MGWI”) and the Corporation. The Corporation received $907,377 in exchange for the issuance of 302,462,667 restricted shares of the Corporation’s common stock, par value $.001 per share (the “Common Stock”), as disclosed on form 8K on February 15, 2018.
From January 1 through September 30, 2018 we issued 26,054,672 for partial conversions of our convertible notes. We also issued 13,800,000 shares for additional compensation and 1,500,000 for consulting services.
On October 9, 2018 we issued 884,195 shares @ .04 for payment of an accounts payable in the amount of $35,367.
On February 13, 2019 we issued 20,000,000 @ $.0131 to Kambiz Mahdi our CEO as additional compensation accrued for in 2018 in the amount of $262,000.
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In the first quarter of2019, we signed agreements to issue 4,000,000 shares of common stock valued at $.015 for a total value of $60,000 for the conversion of 800 preferred series D shares, which were subsequently issued. We also recorded a $60,000 inducement fee to account for the difference in the fair value which we offset to retained earnings.
On May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a “Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200, or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”) and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such time as the Company increases the number of shares of its authorized Common Stock. The Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.
During the quarter ended June 30, 2019 we returned 75,000 from an administrative hold due to the fact that we cannot locate the recipients to the replaced shares.
On June 10, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000 in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.
Subsequently on July 18, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000 in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.
Common Stock
Our Articles of Incorporation authorize us to issue 800,000,0002,000,000,000 shares of common stock, par value $0.001 per share. As of December 31,June 30, 2018, there were 555,582,656580,157,656 shares of common stock outstanding. All outstanding shares of common stock are, and the common stock to be issued will be, fully paid and non-assessable. Each share of our common stock has identical rights and privileges in every respect. The holders of our common stock are entitled to vote upon all matters submitted to a vote of our shareholders and are entitled to one vote for each share of common stock held. There are no cumulative voting rights.
The holders of our common stock are entitled to share equally in dividends and other distributions that our Board of Directors may declare from time to time out of funds legally available for that purpose, if any, after the satisfaction of any prior rights and preferences of any outstanding preferred stock. If we liquidate, dissolve or wind up, the holders of common stock shares will be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities and our obligations to holders of our outstanding preferred stock.
Preferred Stock
Our Articles of Incorporation authorize us to issue 10,000,000 shares of preferred stock, par value $0.001 per share. Our Board of Directors has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the designation of and number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions of the shares of each such series.
Unless our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the payment of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may have the effect of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock.
We previously authorized 440 shares of Series A Convertible Preferred Stock, 20,000 shares of Series B Convertible Preferred Stock, and 15,000 shares Series C Convertible Preferred Stock. As of August 20, 2006, all series A, B, and C preferred had been converted into common stock.
Effective August 7, 2013, our Board of Directors designated a series of our preferred stock as Series D Preferred Stock, authorizing 15,000 shares. Our Series D Preferred Stock offering terms authorized us to raise up to $1,000,000 with an over-allotment of $500,000 in multiple closings over the course of six months. We received an aggregate of $750,000 in financing in subscription for Series D Preferred Stock, or 7,500 shares.
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The following are primary terms of the Series D Preferred Stock. The Series D Preferred holders were initially entitled to be paid a special monthly divided at the rate of 17.5% per annum. Initially, the Series D Preferred Stock was also entitled to be paid special dividends in the event cash dividends were not paid when scheduled. If the Company does not pay the dividend within five (5) business days from the end of the calendar month for which the payment of such dividend to owed, the Company will pay the investor a special dividend of an additional 3.5%. Any unpaid or accrued special dividends will be paid upon a liquidation or redemption. For any other dividends or distributions, the Series D Preferred Stock participates with common stock on an as-converted basis. The Series D Preferred holders may elect to convert the Series D Preferred Stock, in their sole discretion, at any time after a one year (1) year holding period, by sending the Company a notice to convert. The conversion rate is equal to the greater of $0.08 or a 20% discount to the average of the three (3) lowest closing market prices of the common stock during the ten (10) trading day period prior to conversion. The Series D Preferred Stock is redeemable from funds legally available for distribution at the option of the individual holders of the Series D Preferred Stock commencing any time after the one (1) year period from the offering closing at a price equal to the initial
purchase price plus all accrued but unpaid dividends, provided, that if the Company gave notice to the investors that it was not in a financial position to redeem the Series D Preferred, the Company and the Series D Preferred holders are obligated to negotiate in good faith for an extension of the redemption period. The Company timely notified the investors that it was not in a financial position to redeem the Series D Preferred and the Company and the investors have engaged in ongoing negotiations to determine an appropriate extension period. The Company may elect to redeem the Series D Preferred Stock any time at a price equal to initial purchase price plus all accrued but unpaid dividends, subject to the investors’ right to convert, by providing written notice about its intent to redeem. Each investor has the right to convert the Series D Preferred Stock at least ten (10) days prior to such redemption by the Company.
In connection with the subscriptions for the Series D Preferred, we issued series F warrants to purchase an aggregate of 375,000 shares of our common stock at $.10 per share and series G warrants to purchase an aggregate of 375,000 shares of our common stock at $.20 per share.
On August 21, 2014, a holder holding 5,000 shares of Preferred Series D Preferred agreed to lower the dividend rate to 13% on its Series D Preferred. In September 2015, all holders of Series D Preferred signed and delivered estoppel agreements, whereby the holders agreed, among other things, that the Series D Preferred was not in default and to reduce (effective as of December 31, 2015) the dividend rate on the Series D Preferred Stock to six percent per annum and to terminate the 3.5% penalty in respect of unpaid dividends accruing on or after such date.
In the first quarter of 2019, we signed agreements to issue 4,000,000 shares of common stock valued at $.015 for a total value of $60,000 for the conversion of 800 preferred series D shares, which were subsequently issued. We also recorded a $60,000 inducement fee to account for the difference in the fair value which we offset to retained earnings. We also reclassed 200 preferred valued at $20,000, which were previously recorded as converted preferred dividends.
Warrants
Warrant Activity
On May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a “Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200, or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”) and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such time as the Company increases the number of shares of its authorized Common Stock. The Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement. Of the $1,999,200 purchase price, we valued the warrants portion at 1,066,520 and booked this amount to additional paid in capital.
On June 10, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000 in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.
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Subsequently on July 18, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000 in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.
| Warrants - Common Share Equivalents | Weighted Average Exercise price | Warrants exercisable - Common Share Equivalents | Weighted Average Exercise price | |||||||||||||
| Outstanding December 31, 2018 | - | $ | - | - | $ | - | ||||||||||
| Issued | 168,500,000 | $ | 0.04 | 168,500,000 | $ | 0.04 | ||||||||||
Exercised | - | - | - | |||||||||||||
| Expired | - | - | - | - | ||||||||||||
| Outstanding June 30, 2019 | 168,500,000 | $ | 0.04 | 168,500,000 | $ | 0.04 | ||||||||||
Stock Options
As of March 31, 2019, and December 31, 2018 there were no outstanding warrants
Stock Options
As of March 31,June 30, 2019, and December 31, 2018 there were no outstanding stock options
NOTE 12 – RELATED PARTY TRANSACTIONS
Kambiz Mahdi, our Chief Executive Officer, owns Billet Electronics, which is distributor of electronic components. From time to time, we purchase parts from Billet Electronics. In addition, Billet was a supplier of parts and had dealings with current and former customers of the Company prior to joining the company. Our Board of Directors has approved the transactions between Billet Electronics and the Company.
On June 15, 2017 Meddy Sahebi Chairman of our Board of Directors advanced the Company $5,000. There were no specified terms for repayment of this loan other than that it was to be repaid within a reasonable time. As of December 31, 2017, the outstanding balance was $5,000. Mr. Sahebi resigned from the board of directors on February 8, 2018 .
Pursuant to our 2017 Stock Compensation Program, effective July 1, 2017, we made the following stock option grants to members of our Board of Directors: (a) we issued to each of our non-employee members of our Board of Directors first joining the Board in October 2015 and who had not received any compensation for serving as directors of the Company (five persons) options to purchase 150,000 shares of our common stock with an exercise price of $.03 per share, the last sale price of our common stock on June 29, 2017 and (b) we issued to each of our non-employee members of our Board of Directors currently serving on the Board (six persons) options to purchase 300,000 shares of our common stock with an exercise price of $.03 per share. On the non-employee board members resigned, as disclosed in our 8K filed on February 15, 2018. As a result, all remaining stock options were cancelled.
On February 13, 2018 the Corporation and Confections Ventures Limited. (“CVL”) entered into a Convertible Note Purchase Agreement (the “Convertible Note Purchase Agreement,” together with the Stock Purchase Agreement and the transactions contemplated thereunder, the “Financing”) pursuant to which the Corporation issued to CVL a convertible promissory Note (the “CVL Note”) in the principal amount of $939,500 with an interest rate of 10% per annum interest rate and a maturity date of February 13, 2020. The CVL Note is convertible into shares of Common Stock at $0.003 per share, as adjusted as provided therein. As a result we recognized a beneficial conversion feature of $532,383, which is amortized over the life of the note. This note was assigned to Mgw Investments and they agreed not to convert the $939,500 note in to shares in excess of the 800,000,000 Authorized limit until we have increased the Authorized shares to the Board approved limit of 2 billion shares.
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On February 8, 2018 the Corporation entered a Convertible Promissory Note in the principal amount of $153,123, due October 8, 2018, with an interest rate of 12% per annum payable to MGWI (the “MGWI Note”). The MGWI Note is convertible into shares of the Corporation’s common stock at the lower of: (i) a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of a Conversion Notice; or (ii) 0.003. As a result of the closing of the transactions contemplated by the Stock Purchase Agreement and Convertible Note Purchase Agreement, the MGWI Note must be redeemed by the Corporation in an amount that will permit CVL and MGWI and their affiliates to hold 65% of the issued and outstanding Common Stock of the Corporation on a fully diluted basis. The proceeds from the MGWI Note were used to redeem the convertible note of the Corporation to JSJ Investments, Inc. in the principal amount of $103,000 with an interest rate of 12% per annum, due April 25, 2018. At December 31, 2018 the holder of this note beneficially owned 70% of the company and this note is not convertible if the holder holds more than 9.99%, as a result, we did not recognize a derivative liability or a beneficial conversion feature.
On June 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $250,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of June 21, 2019. On May 28, 2019 this note was paid in full.
On September 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $100,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of September 21, 2019. On May 28, 2019 this note was paid in full.
On February 15, 2018 we issued 9,200,000 @ .0053 as additional compensation in the amount of $48,760.
On January 10, 2019 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $25,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of January 10, 2020. On May 28, 2019 this note was paid in full.
On May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a “Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200, or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”) and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such time as the Company increases the number of shares of its authorized Common Stock. The Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement. Of the $1,999,200 purchase price, we valued the warrants portion at 1,066,520 and booked this amount to additional paid in capital.
NOTENote 13 - WARRANTY LIABILITYWarranty Liability
There was no change in our warranty liability for the three and three months ended March 31,June 30, 2019.
Our policy is to accrue 2% of revenue for warranty liability, however our experience has been low due to the claim experience that we feel that the current warranty accrual is sufficient.reasonable.
NOTE 14 – SUBSEQUENT EVENTS
Subsequently on April 9,On July 19, 2019 we entered intoissued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000 in a convertible note payable for $53,000, with a maturity date of February 13, 2020, which accrues interest at the rate of 12% per annum. It is not convertible six months after its issuance and has a conversion rate of fifty-eight percent (65%)private sale. We also issued 500,000 warrants as part of the averagetransaction. Each Warrant is exercisable at $.04 per share of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately precedingCommon Stock and expires one year from the date of conversion.the Agreement.
On April 30, 2019, by written consent, in lieu of a meeting of the stockholders; our Board of Directors and shareholders approved toan increase in the number of our authorized common shares to 2,000,000,000. The amendment effecting the increase in our authorized capital was filed and effective on July 23, 2019.
On May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a “Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of the Corporation’s$1,999,200, or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”) and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such time as the Company increases the number of shares of its authorized Common Stock. The Warrant is exercisable at $.04 per share of Common Stock and expires one year from 800,000,000the date of the Agreement. Of the $1,999,200 purchase price, we valued the warrants portion at 1,066,520 and booked this amount to 2,000,000,000 shares. Although this has been approved, it is still pending shareholder approval and after filing the 14C it will not be effective until 20 days after that time.additional paid in capital. These shares were issued on August 15, 2019.
In accordance with ASC 855, the Company has analyzed its operations subsequent to March 31,June 30, 2019 through the date these financial statements were issued, and has determined that it does not have any other material subsequent events to disclose in these financial statements.
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ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
General Business OverviewDescription of the Company
HeadquarteredWe were incorporated in Costa Mesa, California in July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to Nevada in April 2005 under the name Probe Manufacturing, Inc. We manufactured electronics and provided services to original equipment manufacturers (OEMs) of industrial, automotive, semiconductor, medical, communication, military, and high technology products. On September 11, 2015 Clean Energy HRS, or “CE HRS”, our wholly owned subsidiary acquired the assets of Heat Recovery Solutions from General Electric International. In November 2015, we changed our name to Clean Energy Technologies, (CETY) deliversInc. Our principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626
We design, build and deliver power from heatindustrial heating systems and biomass with zero emission and low cost. We design,sources to produce and market cleanenvironmentally friendly energy products & integrated solutions focused on energy efficiency and environmental sustainability.at competitive prices using our Clean CycleTM heat generators acquired from General Electric International. Our initial principal product is the Clean CycleTM heat generator, offered through our wholly owned subsidiary Heat Recovery Solutions, (HRS). The Clean CycleTM generator captures waste heat from a variety of sources and turns it into electricity. By using our Clean CycleTM generator commercial and industrial heat generators boost their overall energy efficiency and the savings created provide our customers with a fast return on their investment. In addition CETY offers waste to energy (biomass) power plants using Biomass Power LTD highly developed (Step Grate Gasifier) multi-staged process integrated with CETY’s waste heat generators, delivering clean power that can be generated with low-NOx from a range of refused derived fuels (segregated waste), agricultural residues and energy crops. Our productsThe Clean CycleTM saves fuel, reduces pollution and requires very little maintenance.
Clean Cycle II Heat GeneratorBusiness Overview
Containerized Clean Cycle II Heat Generator
We compete based on efficiency, maintenance and our customer’s return on investment. We have an exclusive license from Calnetix to use their magnetic turbine for heat waste recovery applications. We believe that the magnetic turbine technology is more efficient than our competitor’s turbines which allows our systems to generate more electricity at lower heat ranges. Because our generator is magnetic, it requires far less maintenance than our competitors who use oil, gearbox and rubber seals in their turbines. We have the advantage of selling a system that was originally manufactured and sold by General Electric International so our Clean CycleTM generator has a substantial market base and we believe has a reputation as one of the defacto standards in the market.
Our greatest advantage is that the Clean CycleTM generator is a product that can be delivered on a turnkey basis, not a major project that needs to be designed, manufactured and installed. We believe that this is one of the most distinguishing features of our Clean Cycle™ generator, as it significantly reduces the time our customers spend on installation, improves the speed with which we can deliver our product and reduces startup costs.
Our Products
Our Clean CycleTM generator:
Requires no fuel,
produces no emissions, and
is closed loop, meaning it has feedback control within the system.
Meticulously engineered and improved by General Electric International and
is available in a complete package for indoor, outdoor and remote sites.
The major componentsCompany’s business and operating results are delivered as a complete turnkey packagedirectly affected by changes in overall customer demand, operational costs and include, the Integrated Power Moduleperformance and leverage of our fixed cost and selling, general and administrative (“IPM”SG&A”), our patented the magnetic bearing turbine, the electronics controls with the ancillary mechanical parts, packaged inside a container when used outdoors. The condenser comes as a separate piece which is purchased by either us or our customer through third party manufactures and attaches to the top of the container. Once the condenser is attached to the container all that is left to do is attach the container to the heat source, and it is ready to produce energy.
Due to the low amount of moving parts the IPM is a minimal maintenance solution, that requires no oils, no lubricants, no external rotating seals, and does not require manned operation. The whole package (except condenser) is mounted inside a 20ft shipping container. The Condenser comes as a separate piece and attaches to the top of the container. Once the condenser is attached to the container all that is left to do is attach the container to the heat source, and it is ready to produce energy. infrastructure.
Core technology
Mag lev bearing generator
Lower maintenance: no oils, no lubricants
Efficient at any output: no gearbox
Power electronics – power factorProduct sales fluctuate in response to several factors including many that are beyond the Company’s control, such as general economic conditions, interest rates, government regulations, consumer spending, labor availability, and our customers’ production rates and inventory levels. Product sales consist of 1demand from customers in many different markets with different levels of cyclicality and seasonality.
Operating performance is dependent on the Company’s ability to manage changes in input costs for items such as raw materials, labor, and overhead operating costs. Performance is also affected by manufacturing efficiencies, including items such as on time delivery, quality, scrap, and productivity. Market factors of supply and demand can impact operating costs
PackagingGoing Concern
Single part number (85% OF BOP)
Product, not a project
Same unit used on all heat sources
Re-deployable and movable
Small footprint
Clean CycleTM generator and the Organic Rankine Cycle
The Organic Rankine Cyclefinancial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a total stockholder’s deficit of $4,355,066 and an accumulated deficit of $(13,228,307) and a working capital deficit of $5,706,463 and a net loss of $1,568,572 for the six months ended June 30, 2019. Therefore, there is substantial doubt about the ability of the Company to continue as a thermodynamic process where heatgoing concern. There can be no assurance that the Company will achieve its goals and reach profitable operations and is transferredstill dependent upon its ability (1) to a fluid at a constant pressure. The fluid inside the generator is vaporized and then expanded in a vapor turbine that drives a turbine generator, producing electricity. The spent vapor is condensedobtain sufficient debt and/or equity capital and/or (2) to liquid and recycled back through the cycle.generate positive cash flow from operations.
Its applications include power generation from solar, geothermal and waste heat sources. According to an article in Distributed Energy, a leading industry magazine,
Organic Rankine Cycle systems are most useful for waste heat recovery. Waste heat recovery can be applied to a varietyResults of low to medium temperature heat streams
Patents
We currently hold 16 patents in 6 countries and 28 pending applications in 8 countries, which was acquired from General Electric International.
Operations
We operate from a 20,000 sq-ft state of the art facility in Costa Mesa, California USA. Majority of our materials and components are procured domestically from mechanical and electrical suppliers. We have in-house electro-mechanical assembly and testing capabilities. Our products are compliant with American Society of Mechanical Engineers and are UL and CE approved.
Our Services
Engineering. Our global engineering team supports the installation and maintenance of our Clean CycleTM generators, supports our technology customers and innovative start-ups with a broad range of electrical, mechanical and software engineering services. CETY has assembled a team of experts from around the globe to assist customers at any point in the design cycle. These services include design processes from electrical, software, mechanical and Industrial design. Utilization of CETY’s design services will enable rapid market entry for our customers and potential equity partners. Our design and engineering services provides flexibility to our customers by becoming an extension of their engineering departments and allowing them to focus on their business strategy.
Supply Chain Management. CETY’s supply chain solution provides maximum flexibility and responsiveness through a collaborative and strategic approach with our customers. CETY can assume supply chain responsibility from component sourcing through delivery of finished product. CETY’s focus on the supply chain allows us to build internal and external systems and better our relationships with our customers, which allows us to capitalize on our expertise to align with our partners and customer’s objectives and integrate with their respective processes.
Sales and Marketing
Our marketing approach is to position CETY as a worldwide leader in the energy efficiency market by targeting industries that have waste heat which could potentially turn into electricity. We plan to leverage our core expertise to identify, acquire and develop leading clean energy and clean technology solutions and products. We will continue to utilize our relationships and expertise to expand in clean and renewable energy sector through new in-house development, acquisitions, cogeneration, and licensing agreements.
We utilize both a direct sales force and global distribution group with expertise in heat recovery solutions and clean energy markets.
CETY maintains an online presence through our web portal and social media. Our application engineers assist in converting the opportunities into projects. We provide technical support to our Clean Cycle TM generator clients through providing maintenance and product support.
Program Managers are responsible for managing the global supply chain, reducing material acquisition time and cost. They’re also responsible for the profitability of the programs and ultimately the customer satisfaction index, including on-time delivery, quality, communication and technology.
The sales of our products are related to the global prices for oil, gas, coal and solar energy. As prices increase our products produce a better return on investment for our customers.
Our Market
The world currently faces fundamental problems with its energy supply, which are due primarily to the reliance on fossil fuels. The economic prosperity of the wealthiest nations in the twentieth century was built on a ready supply of inexpensive fossil fuel and developing nations have continued in the twenty-first century to consume fossil fuel reserves at an ever increasing rate. This has led to worldwide reserve depletions, indicating that both oil and gas are likely to be effectively exhausted before the end of this century. Only coal reserves are expected to last into the next century. Yet even if fossil fuel supplies were unconstrained, their continued use poses its own problems. All fossil fuel combustion produces carbon dioxide, which appears to result in the warming of the earth's atmosphere with profound environmental implications across the globe.
These problems have resulted in the realization that the world must both increase the efficiency of its utilization of fossil fuels and decrease its reliance upon them. Environmental issues related to fossil fuel combustion were began to be noticed during the 1980’s with the advent of acid rain, a product of the sulfur and nitrogen emissions from fossil fuel combustion. Power plants were forced by legislation and economic measures to control these emissions. However it is the recognition of global warming that presents the most serious challenge because carbon dioxide exists at much higher levels in the flue gases of power plants and major types of industrial manufacturing facilities than sulfur dioxide and nitrogen oxides.
Although renewable energy capacity offers a hedge against major price rises because most renewable technologies exploit a source of energy that is freely available, many renewable technologies today still rely on government subsidies to make them competitive. Governments may also impose penalties upon companies, such as carbon trading schemes, which discourage the use of fossil fuels or increase its costs by imposing stringent emissions limits.
Given the international concerns regarding global warming and pollution and the need to more efficiently utilize fossil fuels, we believe that there exists substantial worldwide demand and a growing market for our Clean Cycle TM generators that can enable companies to generate greater amounts of energy from the same supply of fossil fuels and that also reduce the amount of harmful emissions that would otherwise be released from the combustion of those fossil fuels. Our technologies, including our Clean Cycle TM generators, could benefit companies by both reducing energy costs and mitigating possible emissions penalties.
Competitors
The competitors with our Clean CycleTM II Generators are Organic Rankine Cycle generator manufacturers such as Turboden, Ormat and some start-ups with fewer installations and some engine competitors aligning with ORC such as Wartsila, Caterpillar, and Cummins. Our product was designed by General Electric International and maintains its history and association with a major brand, however Clean CycleTM II is currently branded under CETY an entrepreneurial company with a proven product and technology. Our product is distinguished from its competitors by its magnetic bearing turbine technology offering lower maintenance and higher efficiency of 12% for under 500kW applications with low to medium temperature requirements. We have more than 1,000,000 fleet operating hours and 8 years of history in the field.
Financial results
Working Capital
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Capital Requirements for long-term Obligations
None.
Results for the Three and Six Months Ended March 31,June 30, 2019 Compared to the Three and Six Months Ended March 31,June 30, 2018
Working Capital
| June 30, 2019 | December 31, 2018 | |||||||
| Working Capital | $ | (5,706,463 | ) | $ | (6,170,618 | ) | ||
| Total Assets | 4,617,062 | 2,818,119 | ||||||
| Long term Debt | 663,454 | - | ||||||
| Stockholder Equity | $ | (4,355,066 | ) | $ | (4,795,694 | ) | ||
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Cash Flows
Clean Energy Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30,
(unaudited)
| 2019 | 2018 | |||||||
| Net Cash provided / (Used) In Operating Activities | $ | (1,045,965 | ) | $ | (932,759 | ) | ||
| Cash Flows Used In Investing Activities | - | - | ||||||
| Cash Flows Provided / (used) By Financing Activities | 1,999,837 | 1,119,351 | ||||||
| Net (Decrease) Increase in Cash and Cash Equivalents | $ | 953,872 | $ | 186,592 | ||||
Capital Requirements for long-term Obligations
None.
Operating Revenues
The Company’s revenues were $224,363$104,168 for the three months ended March 31,June 30, 2019 compared to $174,391$539,102 for the same period in 2018. Our revenue increasedecrease was mainly due to the increasedecrease in the sales revenue in our HRS Division. Although we had orders due to ship in the Cety Europesix months ended June 30, 2019, our customer reconfiguredtheir order and pushed the shipment out.
The Company’s revenues were $328,531 for the six months ended June 30, 2019 compared to $711,493 for the same period in 2018. Our revenue decrease was mainly due to the decrease in the sales revenue in our HRS Division.
Although we had orders due to ship in the second six months ended June 30, 2019, our customer reconfigured their requirement
Gross Profit
For the three months ended March 31,June 30, 2019, the Company’s gross profit was $75,186$42,113 compared to $28,677$349,858 for the same period in 2018. This increasedecrease was mainly due to the increasedecrease in the sales revenue in the Cety Europe Division.referenced above.
For the six ended June 30, 2019, the Company’s gross profit was $117,299 compared to $378,535 for the same period in 2018. This decrease was mainly due to the decrease in the sales revenue referenced above.
Our gross profits could vary from period to period and is affected by a number ofseveral factors, including product mix, production efficiencies, component availability and costs, pricing, competition, customer requirements and unanticipated restructuring or inventory charges and potential scrap of materials.
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General and Administrative Expenses
For the three months ended March 31,June 30, 2019, general and administrative expenses were $116,541$123,450 compared to $159,335$119,020 for the same period in 2018. This remained relatively unchanged.
For the six months ended June 30, 2019, general and administrative expenses were $208,173 compared to $246,094 for the same period in 2018.This decrease was mainly due to a decrease in depreciation and consulting.
Salaries Expense
For the three months ended June 30, 2019, Salaries expenses were $204,564 Compared to $154,663 for the same period in 2018.This increase was mainly due to the additional salary from the start up of the Cety Europe Division. In addition, we added a person to the procurement department.
For the six months ended June 30, 2019, Salaries expenses were $407,867 Com5ared to $348,725 for the same period in 2018. This increase was mainly due to the higheradditional salary from the startup of the Cety Europe Division. In addition, we added a person to the procurement department.
Professional Fees
For the three months ended June 30, 2019, professional fees expenses were $66,669 Compared to $66,765 for the same period in 2018.This remained relatively unchanged.For the six months ended June 30, 2019, professional fees were $70,685 Compared to $88,058 for the same period in 2018. This decrease was mainly due to the decrease in legal fees associated with Megawell transaction in 2018the first six months ended June 30, 2019 of 2018.
Salaries ExpenseTravel expense
For the three months ended March 31June 30, 2019, SalariesTravel Expense expenses were $203,303$58,305, Compared to $194,062$14,666 for the same period in 2018. This increase was mainly due to travel expenses associated with the commissioning of the Marshal Island project.
For the six months ended June 30, 2019, Travel expenses were $86,107 Compared to $25,634 for the same period in 2018. This increase was mainly due to travel expenses associated with the commissioning of the Marshal Island project and additional travel associated with the Cety Europe subsidiary.
Facility Expense
For the three months ended March 31,June 30, 2019, Facility expenses were $82,034$80,818 compared to $70,979$68,346 for the same period in 2018. The increase was mainly due to the increase in the contractual lease payments.
For the six months ended June 30, 2019, Facility expenses were $162,852 compared to $139,325 for the same period in 2018. The increase was mainly due to the increase in the contractual lease payments
Share based expense
For the three months ended March 31,June 30, 2019, share based expenses were $0 compared to $91,140$0 for the same period in 2018.
For the six months ended June 30, 2019, share based expenses were $0 compared to $91,140 for the same period in 2018. The main reason for the change was no shares were issued for compensation in the threesix months ended March 31,June 30, 2019.
Change in Derivative Liability
For the three months ended March 31,June 30, 2019, we had a gain on derivative liability of $54,803 compared to $56,841 for the same period in 2018.
For the six months ended June 30, 2019, we had a loss on derivative liability of $159,733$(104,930) compared to $273,178$(216,337) for the same period in 2018. The main reason for the change were less convertible notes issued in the three months ended March 31, 2019.
Gain/(Loss) on disposition of assets
For the three months ended March 31,June 30, 2019, we had a loss on disposition of assets of $0 compared to $6,618$10,662 for the same period in 2018. The main reason for the change is we did not dispose of any assets in the three months ended March 31,June 30, 2019.
For the six months ended June 30, 2019, we had a loss on disposition of assets of $0 compared to $4,044 for the same period in 2018. The main reason for the change is we did not dispose of any assets in the six months ended June 30, 2019.
Financing Fees
For the three months ended March 31, 2019, June 30, 2018, we had a financing fees of $0 compared to $0 for the same period in 2017.
For the six months ended June 30, 2018,we had a financing fees of $0 compared to $378,155 for the same period in 2018.2017. This was mainly due to the discount taken on the conversion of our convertible notes into common stock. In addition westock during the first six months ended June 30, 2019 of 2018 and paid off other convertible notes at a premium.premium in the same period.
Interest Expense
For the three months ended March 31,June 30, 2019, Interest expenses were $240,352$404,905 compared to $168,468$292,043 for the same period in 2018.This was mainly due to the increase in our notes and lines of credit payable.
For the six months ended June 30, 2019, Interest expenses were $645,257 compared to $460,511 for the same period in 2018.This was mainly due to the increase in our notes and lines of credit payable.
Net Income (loss)
Our net loss for the three months ended March 31,June 30, 2019, was $726,777$841,795 compared with net loss of $1,313,258$298,142 for the three months ended March 31,June 30, 2018. The net loss is influenced by the matters discussed above.
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Liquidity and Capital Resources
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by related parties through capital investment and borrowing of funds.
At March 31,June 30, 2019, the Company had total current assets of $1,751,991$2,602,211 compared to $1,443,195 at December 31, 2018.
At March 31,June 30, 2019, the Company had total current liabilities of $8,637,622$8,308,674 compared to $7,613,813 at December 31, 2018.
We had working capital deficit of $6,885,631$5,706,463 as of March 31,June 30, 2019 compared to $6,170,618 as of December 31, 2018,
Cashflow from Operating Activities
During the threesix months ended March 31,June 30, 2019, cash provided by (used in) operating activities was $(332,012)$(1,045,965) compared to $(658,056)$(932,759) for the three months ended March 31,June 30, 2018. The change was mainly due to the change in derivative liability and Financing fee expense.
Cashflow from Investing Activities
During the threesix months ended March 31,June 30, 2019 cash used in investing activities was $0 compared to $0 for the threesix months ended March 31,June 30, 2018. _
Cashflow from Financing Activities
During the threesix months ended March 31,June 30, 2019, cash provided by financing activity was $326,588$1,999,837 compared to $893,854$1,119,351 provided during the threesix months ended March 31,June 30, 2018.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management'smanagement’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by us as of the specified effective date. Unless
otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial position or results of operations upon adoption.
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Item 3. Quantitative and Qualitative Disclosure about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4.Controls4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC'sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("(“Exchange Act"Act”). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31,June 30, 2019, due to the material weaknesses resulting from the Board of Directors not currently having any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Please refer to our Annual Report on Form 10-K as filed with the SEC on April 15, 2019, for a complete discussion relating to the foregoing evaluation of Disclosures and Procedures.
Changes in Internal Control over Financial Reporting
Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.
PART II--OTHERII—OTHER INFORMATION
We knowFrom time to time, the Company is involved in litigation incidental to the conduct of no material, existing or pendingits business. The Company is presently not involved in any legal proceedings against our company, norwhich in the opinion of management are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or haslikely to have a material interest adverse to our interest.effect on the Company’s consolidated financial position or results of operations.
In addition toThere have been no material changes in the other information set forth in this Report, you should carefully consider theCompany’s risk factors discussed in Part I, Item 1A., “Risk Factors”from those previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The information set forth in these Reports could materially affect the Company’s business, financial position and results of operations. There are no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Annual Report on Forms 10-K for the fiscal three months ended March 31, 2019.
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Item 2. Unregistered Sales of Equity Securities
On February 13, 2018, Clean Energy Technologies, Inc., entered into a Common Stock Purchase Agreement (“Stock Purchase Agreement”) by and between MGW Investment I Limited (“MGWI”) and the Corporation. The Corporation received $907,377 in exchange for the issuance of 302,462,667 restricted shares of the Corporation’s common stock, par value $.001 per share (the “Common Stock”).
On May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a “Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200, or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”) and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such time as the Company increases the number of shares of its authorized Common Stock. The Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.
On June 10, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000 in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.
Subsequently on July 18, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000 in a private sale.We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
Item 3. Defaults upon Senior Securities
None.
We are currently in default on the payment of $1,200,000, to the balance of the purchase price pursuant to our asset purchase agreement with General Electric International, due to a combination of our inability to raise sufficient capital as expected and our belief that we are entitled to a reduction in purchase price we paid.
We are also in default of $187,285 payments of principal and interest on our notes payable to Cybernaut Zfounder Ventures.
Item 4. Mine Safety Disclosures
Not Applicable.
The exhibit listed on the Exhibit Index (following the signatures section of this QuarterlySix months ended June 30, 2019 Report on Form 10-Q are included, or incorporated by reference, in this QuarterlySix months ended June 30, 2019 Report on Form 10-Q.
NUMBERDESCRIPTION
| EXHIBIT NUMBER |
| ||||
| 31.01 | Certification of Principal Executive Officer Pursuant to Rule 13a-14 | Filed herewith. | |||
| Certification of Principal Financial Officer Pursuant to Rule 13a-14 | Filed herewith. | |||
| Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act | Filed herewith. | |||
| Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act | Filed herewith. | |||
|
| ||||
|
| ||||
|
| ||||
| XBRL Instance Document | Furnished herewith. | |||
101.SCH* | XBRL Taxonomy Extension Schema Document | Furnished herewith. | |||
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | Furnished herewith. | |||
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document | Furnished herewith. | |||
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | Furnished herewith. | |||
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | ||||
| |||||
*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Costa Mesa, State of California on the 21th19th day of May,August, 2019.
Clean Energy Technologies, Inc.
______________________________
REGISTRANT
/s/ Kambiz Mahdi
___________________
By: Kambiz Mahdi
Chief Executive Officer
Date: May 23, 2019
/s/ John Bennett
___________________
By: John Bennett
Chief Financial Officer
Date: May 23, 2019
| Clean Energy Technologies, Inc. | ||
| REGISTRANT | ||
| By: | /s/ Kambiz Mahdi | |
| Kambiz Mahdi | ||
| Chief Executive Officer | ||
| Date: | August 19, 2019 | |
| By: | /s/ John Bennett | |
| John Bennett | ||
| Chief Financial Officer | ||
| Date: | August 19, 2019 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title
| Signature | Title | ||
| By: | /s/ Kambiz Mahdi | Chief Executive Officer and Director | |
| Kambiz Mahdi | (principal executive officer) | ||
| Date: | August 19, 2019 | ||
/s/ Kambiz Mahdi Chief Executive Officer and Director
_______________________ (principal executive officer)
By: Kambiz Mahdi
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Date: May 23, 2019