Clean Energy Technologies, Inc 10-K/A for FY2023
Clean Energy Technologies, Inc. (CETY)
About this 10-K/A
Clean Energy Technologies, Inc filed this 10-K/A on April 19, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $15.11M
- up 467.5% from $2.66M a year earlier
- Net loss
- $5.66M
- compared with net income of $147.4K a year earlier
- Diluted EPS
- $0.14
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Amendment No. 1
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended:
| 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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered pursuant to Section 12(b) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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Yes ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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Yes ☒
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.
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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).
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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 | ☐ |
| ☒ | Smaller reporting company | ||
| 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. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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Yes
The
aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2023 was $
The number of shares of common stock outstanding on April 16, 2024, was shares.
DOCUMENTS INCORPORATED BY REFERENCE
explanatory note
This Amendment No. 1 continues to speak as of the Original Filing date of the Form 10-K, does not reflect events that may have occurred subsequent to the Original Filing date, and does not modify or update in any way disclosures made in the Original Filing other than to include the Audit Report.
CLEAN ENERGY TECHNOLOGIES, INC.
Form 10-K
TABLE OF CONTENTS
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NOTE ABOUT FORWARD-LOOKING STATEMENTS
In this Annual Report on Form 10-K, references to “Clean Energy Technologies,” the “Company,” “we,” “us,” “our” and words of similar import refer to Clean Energy Technologies, Inc., unless the context requires otherwise.
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this report.
Forward-looking statements include, but are not limited to, statements concerning the following:
| ● | our possible or assumed future results of operations; | |
| ● | our business strategies; | |
| ● | our ability to attract and retain customers; | |
| ● | our ability to sell additional products and services to customers; | |
| ● | our cash needs and financing plans; | |
| ● | our competitive position; | |
| ● | our industry environment; | |
| ● | our potential growth opportunities; | |
| ● | expected technological advances by us or by third parties and our ability to leverage them; | |
| ● | Our inability to predict or anticipate the duration or long-term economic and business consequences of the ongoing COVID-19 pandemic; | |
| ● | the effects of future regulation; and | |
| ● | our ability to protect or monetize our intellectual property. |
You should read any other cautionary statements made in this Annual Report as being applicable to all related forward-looking statements wherever they appear in this Annual Report. We cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Annual Report completely. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on these forward-looking statements.
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BUSINESS
General
The Company’s business and operating results are directly affected by changes in overall customer demand, operational costs and performance and leverage of our fixed cost and selling, general and administrative (“SG&A”) infrastructure.
Product 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 demand 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.
Who We Are
We develop renewable energy products and solutions and establish partnerships in renewable energy that make environmental and economic sense. Our mission is to be a segment leader in the Zero Emission Revolution by offering eco-friendly green energy solutions, clean energy fuels and alternative electric power for small and mid-sized projects in North America, Europe, and Asia. We target sustainable energy solutions that are profitable for us, profitable for our customers and represent the future of global energy production.
Our principal businesses
Waste Heat Recovery Solutions – we recycle wasted heat produced in manufacturing, waste to energy and power generation facilities using our patented Clean CycleTM generator to create electricity which can be recycled or sold to the grid.
Waste to Energy Solutions - we convert waste products created in manufacturing, agriculture, wastewater treatment plants and other industries to electricity, renewable natural gas (“RNG”), hydrogen and bio char which are sold or used by our customers.
Engineering, Consulting and Project Management Solutions – We have expanded our legacy electronics and manufacturing business and plan to manufacture component parts for our Waste Heat Recovery and Waste to Energy business and to provide consulting services to municipal and industrial customers and Engineering, Procurement and Construction (EPC) companies so they can identify, design and incorporate clean energy solutions in their projects.
CETY HK
Clean Energy Technologies (H.K.) Limited (“CETY HK”) consists of two business ventures in mainland China:(i) our natural gas (“NG”) trading operations sourcing and suppling NG to industries and municipalities. The NG is principally used for heavy truck refueling stations and urban or industrial users. We purchase large quantities of NG from large wholesale NG depots at fixed prices which are prepaid for in advance at a discount to market. We sell the NG to our customers at prevailing daily spot prices for the duration of the contracts; and (ii) our planned joint venture with a large state-owned gas enterprise in China called Shenzhen Gas (Hong Kong) International Co. Ltd. (“Shenzhen Gas”), acquiring natural gas pipeline operator facilities, primarily located in the southwestern part of China. Our planned joint venture with Shenzhen Gas plans to acquire, with financing from Shenzhen Gas, natural gas pipeline operator facilities with the goal of aggregating and selling the facilities to Shenzhen Gas in the future. According to our Framework Agreement with Shenzhen Gas, we will be required to contribute $8 million to the joint venture which plans to raise in future rounds of financing. The terms of the joint venture are subject to the execution of definitive agreements.
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Our Business Strategy
Our strategy is focused on further developing our existing Waste Heat Recovery business while expanding into the rapidly growing markets for Waste to Energy Solutions and integrated clean energy engineering, and project management services. We are initiating a strategic transition to function increasingly as an independent power producer.
Our strategy focuses on three main elements:
| ● | Expanding our Waste Heat Recovery product line to include waste heat recovery ORC systems producing over 1 MW of power so we can qualify for midsized and large heat recovery projects in the United States, China, Southeast Asian and Pacific Rim countries. | |
| ● | Establishing a Waste to Energy business by selling our ablative thermal processing products based on proprietary HTAP technology and developing small and mid-sized waste to energy power plants producing electricity and RNG for the grid and methane, hydrogen and biochar for resale. | |
| ● | Leveraging our engineering, procurement and manufacturing experience in Waste Heat Recovery and Waste to Energy to assist companies and EPCs incorporate clean energy solutions into energy and industrial construction projects. |
We intend to implement this strategy through:
| ◌ | Adding a new ORC system manufactured by Enertime for Waste Heat Recovery that will enable us to implement projects in the U.S. markets producing between 1 MW and 10 MW of electricity. | |
| ◌ | Taking advantage of Inflation Reduction act of 2022 federal investment tax credits and state incentives that now include waste heat recover as a recognized clean energy source making our Clean Cycle Generator and ORC systems more profitable to install. On August 2022, Congress passed the Inflation Reduction act offering 30% Investment Tax Credit and technology neutral tax credits offering clean electricity production credit and investment credit. CETY’s products directly benefit from these tax credits. | |
| ◌ | Benefiting from higher energy costs which provide higher returns on our Waste Heat Recovery and Waste to Energy products and projects. | |
| ◌ | Improving our balance sheet and capital position to permit us to invest in more products and projects. | |
| ◌ | Establishing HTAP manufacturing facilities in Turkey for our Waste to Energy products and expanding patent protection on the proprietary technology. | |
| ◌ | Leveraging our existing marketing channels to sell HTAP Waste to Energy products to industrial companies and government agencies. | |
| ◌ | Working with clean energy project development and finance companies to establish Waste to Energy power plants producing electricity, RNG, hydrogen, methane and biochar from biomass, municipal waste, timber waste and other biomass and while retaining an equity interest in these facilities to provide re-occurring revenue. | |
| ◌ | Participate in other minority investments in medium to large clean energy projects being developed in ASEAN countries that may be sourced by our majority stockholder in Hong Kong and other capital partners. | |
| ◌ | Leveraging the LNG trading and investment relationships to create opportunities for us to sell our Waste Recovery and Waste to Energy products in China and to provide engineering, consulting and project management services. |
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Business and Segment Information
We design, produce and market clean energy products and integrated solutions focused on energy efficiency and renewable energy. Our aim is to become a leading provider of renewable and energy efficiency products and solutions by helping commercial companies and municipalities reduce energy waste and emissions, lower energy costs and generate incremental revenue by providing electricity, renewable natural gas and biochar to the grid.
Segment Information
Our four segments for accounting purposes are:
Clean Energy HRS & CETY Europe – Our Waste Heat Recovery Solutions, converting thermal energy to zero emission electricity.
CETY Renewables Waste to Energy Solutions – Providing Waste to Energy technologies and solutions.
Engineering and Manufacturing Business – providing customers with comprehensive design, manufacturing, and project management solutions.
CETY HK – The parent company of our NG trading operations in China. Prior to the first quarter of 2022 the Company had three reportable segments but added the CETY HK segment to reflect its recent new businesses in China.
Our Clean Energy Solutions Business
Waste Heat Recovery Solutions
We provide our customers with power plants that capture wasted heat energy and produce electricity using a unique Organic Rankine Cycle (ORC) system containing our Clean CycleTM generator. Our magnetic bearing Integrated Power Modules is at the heart of our Clean CycleTM generator which can fit into a standard cargo container we call our Containerized System Module, producing 140KW per Clean Cycle generator and can be linked together for projects generating up to 1MW of power.
Our recent agreement with Enertime now permits us to install midsized and large ORC systems (between 1 MW and 10 MW) in the United States, allowing us to offer a full range of ORC systems to our customers. We believe this new capacity will enable us to expand our product offerings into larger scale waste recovery products in the United States. Enertime is a leader in producing ORC systems in Europe.
ORC waste heat recycling systems use pressurized working fluids that have a lower boiling point than water which make them ideal to repurpose waste heat into electricity. While most manufacturing processes do not produce enough heat to turn water into steam, there is enough heat to generate pressurized refrigerant in our ORC systems which is used to turn a turbine at high speeds to generate electricity.
We can link up to 10 Clean Cycle Generators together which can generate up to 10 GWh of electricity per year from waste heat which we estimate would reduce up to 5000 metric tons of CO2 production per year in an industrial heat recovery system or the annual equivalent of the CO2 emissions of approximately 2000 cars per year.
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We believe the most important component in any ORC system is the turbine generator because it converts the steam heat into electricity and accounts for approximately 60% of the cost of the system. The more efficiently the turbine generator works, the better the ORC power plant operates. The remaining components consisting of the low boiling point fluid, condensers, which cool the fluids, the feed pumps, which pressurize the fluids to reduce boiling points and the heat exchangers, which extract the heat from the heat sources. These are more commoditized products and tend to perform at similar levels of efficiencies at similar price points.
We believe our Clean CycleTM generator is the most efficient turbine generator in it’s class and size available in the market for ORC systems generating up to 1 MW. We estimate that the Clean CycleTM generator has higher efficiency of approximately 15% than our competitors and its magnetic design eliminates the use of oils and lubricants, significantly reducing down time, repairs and operating costs. Our Integrated Power Module is compact and fit into a standard cargo container that can be delivered on a turnkey basis resulting in lower installation and implementation costs than on-site assembly.
We believe these features and benefits give us an important competitive advantage when building heat recovery power plants for our customers and provide us with the opportunity to compete with and obtain market share from the dominant industrial waste heat to power systems.
Over 121 Clean CycleTM generators have been deployed to date with 88 units used in biomass and waste to energy projects, 4 with diesel electric generators, 3 with turbine electric generators and 26 in industrial electric production applications. We expect to raise additional funds to expand our capacity to install 6-8 units per year which should approximately double our sales on a year-to-year basis.
The patented technology used in Clean CycleTM generator was purchased from General Electric International, together with over 100 installation sites, making us one of the leading provider of small-scale industrial waste heat to power systems. We have an exclusive license from Calnetix to use their magnetic turbine for heat waste recovery applications.
 |
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| Our Integrated Power Module | Our Clean Cycle TM Generator |
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A complete ORC System with Integrated Power Module housed in a Containerized System Module (CSM)
Waste to Energy Solutions
We are adding a new business line in our clean energy solutions segment consisting of Waste to Energy processing equipment, engineering services and Waste to Energy processing power plant joint ventures where we expect to retain an ownership interest in the project.
Waste-to-Energy technologies that process non-renewable waste can reduce environmental and health damages while generating sustainable energy. Waste-to-Energy technologies consist of waste treatment process that creates energy in the form of electricity, heat or fuels from a waste source. These technologies can be applied to several types of waste: from the biomass (e.g. woodchips) to semi-solid (e.g. thickened sludge from effluent treatment plants) to liquid (e.g. domestic sewage) and gaseous (e.g. refinery gases) waste.
Waste to Energy Solutions can be used:
| ● | In any town, city or province with established waste management and collection. | |
| ● | Where there is a consistent supply of solid waste. | |
| ● | Places where treatment costs increase with shortages of space to store waste. | |
| ● | In areas with high energy prices to allow for cost of recovery from waste. |
Waste to Energy Solutions have many benefits:
| ● | Electricity from Waste to Energy plants can be generated from small amounts up to 30 MW providing for a wide range of opportunities to sell it back to the grid. | |
| ● | The synthetic renewable fuel gas produced from waste can be used for various production recyclable energy such as hot water, thermo-oil or steam, renewable natural gas or hydrogen. | |
| ● | Landfill waste is reduced and so is leachate and methane released from decomposing landfills. | |
| ● | Waste is a reliable source of energy and production is typically predictable and low cost whereas fossil fuel prices can fluctuate dramatically. |
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But Traditional Incineration Methods Have Significant Downsides:
| ● | Air pollution can increase because scrubbing technologies are very expensive to install. | |
| ● | Many industrial, agricultural, and mixed municipal solid wastes have high moisture content at source and direct incineration of such waste requires burning fossil fuel. | |
| ● | to maintain thermal conversion process. | |
| ● | Carbon is released into the air which would otherwise be stored in landfill. | |
| ● | Ash and flue gas cleaning residues from incineration can also cause poisonous leachate problems if not properly disposed of which is costly and causes downstream environmental issues. | |
| ● | Generating electricity from incineration releases more CO2, SO2, NOx and mercury than natural gas. |
(Source: https://www.energyforgrowth.org/memo/waste-to-energy-one-solution-for-two-problems/)
The most common form of waste to energy systems are based on incinerators which simply burn waste using air. The Thermal Treatment on Grate is the most widespread technology being used by large waste landfills to generate electricity and heat. These systems produce substantial amounts of ash, heavy metals and carbon dioxide which need to be treated and disposed of to minimize its impact on the environment. They also require substantial amounts of pre-treatments prior to burning.
The Thermal on Grate incineration process, while wide-spread, is too expensive and complex for smaller and mid-sized waste to energy projects creating, what we believe, a significant market opportunity in small and mid-sized waste processing applications to create not only electricity but valuable renewable natural gas, bio diesel oil, hydrogen, methane, and biochar.
Our solution is a patented High Temperature Ablative Pyrolysis (HTAP) Biomass Reactor as viable commercial solution to the costs and environmental problems posed by traditional incarnation methods. We have the exclusive license and right to sell the HTAP10 and HTAP5 and related products manufactured by Enex which has a proven installed commercial base of customers using its waste to energy solutions. We believe this is an ideal solution to process waste for small to mid-sized waste to energy generation applications needed for processing industrial and municipality solid waste, agriculture waste, and forestry waste.
Pyrolysis systems decompose waste without the use of oxygen under varying pressurized conditions and at temperatures ranging from 300 degrees Celsius and 1,300 degrees Celsius. The major advantage of pyrolysis is that it is a cost-effective technology and helps curb environmental pollution. Pyrolysis systems are gradually replacing traditional incineration and gaining momentum in the waste to energy processing market addresses many of the pre-treatment issues and, when using high temperature and high-pressure, substantially reduce or eliminates pollutant. (Source: “Life Cycle Assessment of Waste-to-Bioenergy Processes: a Review” Pooja Ghosh,... Arunaditya Sahay, in Bioreactors, 2020)
Pyrolysis systems can produce hydrogen, renewable natural gas, bio-diesel oil, charcoal, and biochar which are used to power hydrogen, diesel, and natural gas engines or electrical turbines which can be sold and often are eligible for substantial tax and pricing benefits. When compared with the conventional incineration plant that runs in the capacity of kilotons per day, the scale of the pyrolysis plant is more flexible, and the output of pyrolysis can be integrated with other downstream technologies for product upgrading. (Source: Influential Aspects in Waste Management Practices Karthik Rajendran PhD,. Jerry D. Murphy PhD, in Sustainable Resource Recovery and Zero Waste Approaches, 2019) In addition, BioChar stores and reduces atmospheric CO2 and can be used as a soil conditioner, an organic component of animal feeds, construction materials, wastewater treatment and in textiles. (Source: https://www.bioenergyconsult.com/applications-of-biochar/)
The ablative pyrolysis system is a waste to energy process that largely eliminates pre-treatment and the harmful pollutants and storage waste produced when using standard incineration and other pyrolysis technologies. It uses high pressure to generate fast pyrolysis and is designed so that the heat transferred from a hot reactor wall softens the feedstock under pressure and permits larger feedstock particles to be processed without pre-treatment. These systems create high relative motion between the reactor wall and the feedstock. The process avoids the need of inert gas and hence the processing equipment is small and the reaction system is more intense. (Source: http://biofuelsacademy.org/index.html%3Fp=608.html )
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CETY has licensed proprietary patented ablative pyrolysis system for commercial use that has been installed in 7 sites for use in waste to energy creating applications processing including peat, coal, flax waste, sawdust and wood scrap, straw, buckwheat husks, and cardboard, tapes, films and paper machine sludge. The technology has been implemented over 1,500 onsite power generation projects in Russia working with major energy production companies such as Gazprom, Rosneft, Lukoil and Rostelecom as well as completing several projects for customers in the European Union, Middle East and United States. Due to the conflict in the Ukraine, ENEX is redomiciling and relocating key personnel to Turkey where it will complete an existing project and is expected to wind down its operations. CETY will develop additional ablative technology and expects to manufacture units in the United States. Sales and European distribution will be run out of a CETY office that has been established in Turkey.
CETY has global rights (except Russia and CIS countries) to design, build, manufacture, sell and operate renewable energy and waste recovery facilities HTAP10 and HTAP5 systems and other products and technologies we expect to develop in the future.
The patented HTAP technology utilizes a higher temperature that uses a cleaner gas for the heating process and a more efficient biogas turbine. The units can be customized to produce hydrogen, natural gas, diesel oil and bio char in varying quantities which can be sold or used to produce electricity. We believe that the key benefits of the HTAP Biomass Reactor are:
| ● | Flexibility in waste sourcing and mixing. | |
| ● | Customized outputs of hydrogen, synthetic fuels, natural gas, methane, biochar, carbon black, or construction materials. | |
| ● | Better waste sourcing and mixing flexibility, | |
| ● | Near-zero emissions, | |
| ● | Modular design, | |
| ● | Zero liquid discharge, | |
| ● | Zero solid waste residue waste. | |
| ● | Modular, containerize design reducing implementation costs | |
| ● | Proven commercial implementation. |
We are targeting industrial and municipality solid waste, landfill waste, agriculture waste (straw, stems, plant biomass, manure, crop wastage), and forestry waste from tree cuttings and shredded products.
We are in the process of identifying projects domestically and internationally for the HTAP Biomass Reactor. We believe the first project where we expect to implement the HTAP10 technology with Vermont Renewable Gas to develop a biomass renewable energy processing facility. The project is planned for a location in Lyndon, Vermont to convert forest and agriculture biomass waste products to renewably generated electricity and BioChar fertilizer. We expect to annually deliver up to 18,000 MWh of renewable electricity and 1,500 tons of BioChar. The Vermont Renewable Gas project is one of the many renewable energy processing facilities we plan to commission.
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ENEX HTAP 10 Waste to Energy Processing Plant.
We established a wholly owned subsidiary called CETY Capital that we expect will help us finance our customers renewable energy projects producing low carbon energy. CETY Capital, when implemented, should add flexibility to the capacity CETY offers its customers and fund projects utilizing its products and clean energy solutions. The in-house financing arm is expected to support our sales and build new renewable energy facilities. To date we have conducted no material operations in this subsidiary.
Our Clean Energy Initiatives in China
Natural gas is China’s fastest-growing primary fuel with demand quadrupling in the past decade. Developing the natural gas sector is a critical aspect China’s effort to reduce reliance on coal. According to the International Energy Agency, China is the world’s sixth-largest natural gas producer, the third-largest consumer, and the second-largest importer. In 2050, the U.S. Energy Information Administration (EIA) expects China to consume nearly three times as much natural gas as it did in 2018, which was 280.30 b/cm. China’s natural gas consumption accounted for 8.3% of its total energy mix in 2019. China anticipates boosting the share of natural gas as part of total energy consumption to 14% by 2030. Before COVID 19, China was expected to account for a third of global demand growth through 2022, thanks in part to the country’s “Blue Skies” policy and the strong drive to improve air quality. China’s relatively strong economic recovery from the COVID 19 crisis will probably increase that share. Natural gas is imported either through pipelines or as liquefied natural gas (LNG) on ships. According to Reuters, in 2019, the largest sources for Chinese LNG imports were Australia, Qatar, Malaysia, and Indonesia. ( Source: U.S. Department of Commerce, International TradeAdministration.https://www.trade.gov/country-commercial-guides/china energy#:~:text=China%20anticipates%20boosting%20the%20share,drive%20to%20improve%20air%20quality.)
Liquid Natural Gas in the Chinese energy market produces half as much carbon dioxide, less than a third as much nitrogen oxides, and 1 percent as much sulfur oxides at the power plant compared to the average air emissions from coal-fired generation. In addition to reduced air emissions, natural gas has other environmental benefits that make it a smart fuel choice. Natural gas-fired power plants use about 60 percent less water than coal plants and 75 percent less water than nuclear power plants for the same electricity output. (Source: Conoco Phillips)
In 2021, we acquired through our subsidiary, CETY Hong Kong, a liquefied natural gas trading operation called Jiangsu Huanya Jieneng (“JHJ”) which sources LNG from large LNG producers and distributors and sells it to non-state-owned industries and downstream customers in mainland China.
CETY also plans to sell its waste heat recovery and waste to energy products in China as well as provide consulting services relating to the same to projects in China.
The JHJ team has more than 10 years of experience in the natural gas and clean energy industry and has maintained relationships and partners with many natural gas enterprises in China.
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CETY HK
LNG Trading Operations
JHJ’s principal service is to source and supply LNG to industries and municipalities located in the southern part of Sichuan Province and portions of Yunnan Province. The LNG is principally used for heavy truck refueling stations and urban or industrial users in areas that do not have a connection to local LNG pipeline systems. We purchase large quantities of LNG from large wholesale LNG depots at fixed prices which are prepaid for in advance at a discount to market. We sell the LNG to our customers at prevailing daily spot prices for the duration of the contracts.
Either our sources or customers arrange for delivery of the LNG. Our profitability depends on our ability to purchase LNG at volume discounts at the beginning of a season and sell it at a delivered price that is higher than the price we pay.
JHJ traders are experienced LNG traders, familiar with the spot and future markets and have relationships with the major users of LNG in the areas that we serve. Our customers may be local or may be as far as 700km from each depot.
We compete with other LNG trading based on availability and price. We target our discount with our sources to partially hedge against falling spot prices and give us a gross profit targeted at substantially higher rate than our competitors which are approximately 20-30 percent margins compared against what we believe are 1-5 percent margins by our competitors. So long as there are no major fluctuations in the spot market, we can offer more competitive prices due to the discounts we receive from the large volumes purchased and the prepayments for the LNG. JHJ has currently established a supply of approximately 8,000 tons of LNG for distribution.
We are able to purchase LNG at a significant discount from our suppliers because our prepayments offer suppliers more certainty with respect to the sales of their inventory, address their cash flow issues, and allow them to better plan for production. We believe our downstream customers get better prices from us because of our bulk buying power, ease of inventory management and cash flow.
Both our suppliers and customers can reduce costs by using JHJ as a centralized procurement center and establishing professional logistics distribution based on stable supply and downstream demand.
equity interests subject to dilution by additional equity investment into HHNG by third parties. We do not expect the project to require additional investment from us, JHJ or HHNG. The project is currently planning and constructing additional pipelines in the Heze area and is expected to generate cash flow by the first quarter of 2023. We do not expect to make further direct minority investments in other pipeline operators as we expect these acquisitions to take place through our joint venture with Shenzhen Gas.
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Engineering, Consulting and Project Management Services
Engineering. Our global engineering team supports the design, build, 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 provide our customers with a complete end to end solution.
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.
The Market for Our Products.
Waste to Energy.
There are more than 2500 waste-to-energy plants in the world, including almost 500 in Europe. (Source: https://wteinternational.com/news/waste-to-energy-technologies-overview/). The waste-to-energy (WTE) market is expected to register a CAGR of 7.35% during the forecast period of 2021 – 2026, reaching a market size of USD 69.94 billion by 2026, up from USD 43.66 billion in 2019. The COVID-19 pandemic affected the market negatively in the form of supply chain disruptions and delays in project implementation. However, the market is expected to recover from 2021, owing to the increasing efforts to promote waste-to-energy plants by various countries across the world. In addition to this, an increasing amount of waste generation and growing concern for waste management to meet the need for sustainable urban living and increasing focus on non-fossil fuel sources of energy are driving the demand for the waste-to-energy market. Thermal technology is expected to dominate the waste-to-energy market in the coming years, owing to the increasing development in incineration and gasification technologies, as well as the increasing amount of waste generated, especially from the emerging economies of Asia-Pacific. Asia-Pacific has witnessed significant development in the waste-to-energy industry in the past few years. It has dominated the market across the world with increasing efforts taken by the government in adopting better MSW management practices, providing incentives for waste-to-energy projects in the form of capital subsidies and feed-in tariffs, and providing financial support for R&D projects on a cost-sharing basis. Due to economic development and rapid urbanization in China, the generation of municipal solid waste (MSW) has been increasing rapidly. Therefore, the effective disposal of municipal solid waste has become a serious environmental challenge in China. (Source: https://www.reportlinker.com/p06192762/Waste-to-Energy-WtEMarket-Growth-Trends-COVID-19-Impact-and-Forecasts.html?utm_source=GNW
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Increasing government regulations regarding the waste to energy in various countries is one of the major factors driving the growth of global waste to energy market. For instance, according to Federal Power Act 2019, this act gives federal authority over electric utilities in U.S. Also the acts like Public Utility Regulatory Policy Act (PURPA) and Energy Policy Act are applied by the government to increase the waste to energy and decrease the CO2 emission by fossil fuels. In addition, escalating investments in R&D by different countries is also fostering the growth of global waste to energy market. (Source https://www.mynewsdesk.com/brandessence/pressreleases/at-cagr-of-7-dot-6-percent-waste-to-energy-market-is-expected-to-reach-usd-52-dot-92-billion-by-2027-3125591)
Alternative thermal technologies like pyrolysis, gasification and plasma arc gasification are expected to lower carbon emissions and witness the growth in demand. Moreover, a shift in trend towards replacing conventional energy generating from fossil fuels with renewable energy to ensure energy security and reduce carbon emissions are potential factors to drive industry growth. The global waste to energy market size was valued at $35.1 billion in 2019, and is projected to reach $50.1 billion by 2027, growing at a CAGR of 4.6% from 2020 to 2027.
https://www.alliedmarketresearch.com/waste-to-energy-market
Waste Heat Recovery
A study by Market Research Future in October of 2021 forecasted the waste heat recover market would be worth USD 114 billion by 2028 registering a CAGR of 9.2 per year from a baseline of USD 59.44 billion in 2020. The primary economic driver in the waste heat recovery market are “rising energy use, economic development, and rising electricity prices. The use of energy in many sectors to manufacture products is steadily growing. The need for energy has increased in industrialized regions as industrialization has occurred. Companies are developing numerous strategies to transform waste heat into energy as the demand for energy grows. As a result, it is fueling the growth of the Waste Heat Recovery market. The government has taken various initiatives and enacted rules to save energy, which has promoted the usage of Waste Heat Recovery technologies. Due to environmental concerns, the government is taking steps to save energy; as a result, the Waste Heat Recovery sector is booming. Energy-efficient technology has become critical for industries looking to save money.” (Source: https://www.yahoo.com/now/waste-heat-recovery-market-worth-095200052.html)
In 2020 North America constituted the largest share of the market accounting for approximately 33% of the global total but countries in Asia and the Asia Pacific constitute the fasting growing geographic sectors due to rapid industrial expansion.
Waste heat recovery systems in the United States now qualify for beneficial investment tax credits of up to 26% on the investment driving additional companies to install ORC industrial waste heat to power units. Owners of waste energy recovery property can claim a 26% ITC if construction of such property begins during 2021 or 2022, and a 22% ITC if construction begins during 2023, provided in each case that the property is placed in service by the end of 2025. (Source: https://www.lw.com/thoughtLeadership/covid-19-tax-relief-package-extends-renewable-power-and-carbon-capture-tax credits#:~:text=Owners%20of%20waste%20energy%20recovery,by%20the%20end%20of%202025) We also believe the increasing prices for oil and natural gas as a factor that encourages the use of our waste heat recovery systems.
A Renewable Portfolio Standard (RPS) is a state incentive program that requires a certain percentage of electricity sold by utilities in the state to come from renewable resources. It diversifies the energy portfolio of the state while encouraging economic development. By establishing an RPS a state creates a market for Renewable Energy Credits (RECs). Each utility must obtain and retire a certain number of RECs annually. Several states including Colorado, Wisconsin, Illinois and California among others have now list waste heat to power as an eligible resource in their RPS program.
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LNG Trading and Joint Venture
Since 2012, the National Development and Reform Commission has stressed that “natural gas vehicles, including urban buses, taxis, logistics distribution vehicles, trucks and other natural gas-fueled transportation vehicles” are the most important users of natural gas and require a consistent supply chain. As a result, regions and provinces in the PRC have accelerated the construction of a network of LNG refueling stations and encouraged the expansion of fleets of delivery vehicles. Due to China’s “carbon peak, carbon neutral” goal commitment, China’s environmental protection policies are gradually being tightened resulting in increased utilization rates of natural gas as a clean energy alternative is getting higher and higher. (Source China 13th Renewable Energy Development Five Year Plan https://www.iea.org/policies/6277-china-13th-renewable-energy-development-five-year-plan-2016-2020)
By 2027, analysts forecast spot trade in LNG will be $20 billion, more than double its 2020 value. Last year, China’s imports soared by 18% to a record 79 million tons, overtaking Japan as the world’s largest LNG buyer. China’s economic recovery from the COVID-19 pandemic was one factor, but the other was a pipeline reform that allowed more firms to become importers. (Source: Reuters U.S. supplies give China muscle to become major force in global LNG trade https://www.reuters.com/business/energy/us-supplies-give-china-muscle-become-major-force-global-lng-trade-2022-02-11/)
Aligning with many policy goals, natural gas will remain a growth engine for energy supply in the 14th FYP period. The policy direction on air pollution reduction, carbon emission control, and gas supply and midstream infrastructure development indicates continued support for higher penetration of gas in the growing energy mix. On the other hand, the focus on supply security and cost reduction from market reforms indicate an expectation of decelerating gas demand growth in the 14th FYP period compared with that in the previous five years. In the current IHS Markit outlook, China’s gas demand will grow 6% compound annual average during 2021-25—compared with the 11% growth in the previous five year—to reach 429 Bcm in 2025. (Source S& P Global. China’s Five Yar Plan’s Review and Expectation: Batural Gas Tick the Box for Many Policy Goals. https://ihsmarkit.com/research-analysis/chinas-fiveyear-plans-review-and-expectation-natural-gas-ticks.html).
We believe that Southwest China is rich in natural gas resources providing us with a stable source of supply and is an important major natural gas producing area in the country. We estimate that there are 16 LNG production plants with a capacity of more than 300,000 cubic meters per day in Southwest China, with a total design capacity of 11.7 million cubic meters per day. We believe the supply is mainly to satisfy LNG refueling stations and LNG vehicles which are among our primary downstream customers.
We estimate that by the end of 2022, a total of about 240 LNG refueling stations were operating in South Western China, including about 170 in Sichuan, about 30 in Yunnan, and about 40 in Guizhou; the daily consumption of LNG refueling stations that have been put into operation in Yunguichuan is about 7,200 tons per day, which is basically the same as the upstream output, reaching a “balance of production and sales”.
In order to help achieve the goal of “carbon peaking and carbon neutrality”, accelerate the clean and low-carbon transformation of transportation energy, the Sichuan Provincial Development and Reform Commission and Sichuan Provincial Energy Administration issued the “Sichuan Province Natural Gas Vehicle Refueling Station Layout Plan (2021-2025)”, which proposed that by 2025, Sichuan will build 500 new refueling stations (including 141 stations in the expressway service area ), including 15 CNG refueling stations, 401 LNG refueling stations, 8 L-CNG refueling stations, and 76 CNG/LNG joint refueling stations.
Based on the development plan for LNG refueling stations in the southwest region we believe that the downstream demand for LNG by our customers will maintain a steady growth rate over the next five years.
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Sales and Marketing
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. We also have established cross-sale agreements with synergistic technology providers promoting our solutions to our respective customers. We utilize email campaigns to keep the marketplace abreast of the recent developments with our solutions. We work with the municipalities to identify incentive programs that could utilize our solutions.
Our application engineers assist in converting the opportunities into projects. We provide technical support to our Clean Cycle TM generator clients and recently introduced waste to energy plants through providing maintenance and product support.
Our market focus is segmented by the engine heat recovery, waste to energy plants, engineering & procurement, and renewable energy trade, Wastewater treatment plants and boiler applications with excess heat.
Our experienced team of LNG traders identify producers and customers for the LNG trading business as well as originate acquisition opportunities for our Shenzhen Gas joint venture.
Suppliers
Our heat recovery solutions systems are manufactured primarily from components available from multiple suppliers and to a lesser extend from custom fabricated components available from various sources. We purchase our components from suppliers based on price and availability. Our significant suppliers in the Waste Heat Recovery business include Powerhouse, Concise Instrument, and Grainger.
Our waste to energy components are sourced globally including the US with the exception of the core components originally sourced in Russia and being transitioned to Turkey and US. We are in the process of establishing an inhouse center of competence and technology development based out of Turkey to source these components in Europe and US with the ability to deploy the product globally. Although future impacts cannot be predicted the company does not foresee any negative impact from the Russia and Ukraine conflict.
The natural gas in China is obtained from various local production plants in Southeast China based on price and quality. Deliveries of the NG are made through third party trucking companies. We purchase large quantities of NG from large wholesale NG depots at fixed prices which are discounted and prepaid for in advance at a discount to market.
Competition
ORMAT, Exergy, TAS and Turboden are the leaders in ORC system power plants with more than 75% of installed capacity and plants, Exergy and TAS are following with around 13% and 6% of the market respectively while Turboden has recently penetrated the geothermal market with about 2% of the installed capacity.
The Waste to Energy Market is dominated by Hitachi Zosen Inova AG, Suez, Veolia, Ramboll Group A/S, Covanta Holding Corporation, China Everbright International Ltd., Abu Dhabi National Energy Company PJSC, Babcock & Wilcox Enterprises lnc., Whaleboater Technologies lnc., Xcel Energy lnc. (Source: https://www.mynewsdesk.com/brandessence/pressreleases/at-cagr-of-7-dot-6-percent-waste-to-energy-market-is-expected-to-reach-usd-52-dot-92-billion-by-2027-3125591)
We also compete with numerous companies that are smaller than the major companies who are focused on the smaller to medium sized installations in Waste Heat Recovery and Waste to Energy. We believe our waste to energy products are more efficient for use in small and medium sized operations than our competitors and provide us with a competitive advantage on that basis.
In China, our NG trading operations compete with large state-owned LNG producers and importers such as Sinopec and many smaller local energy trading companies in the PRC. We compete based on price and consistency of services.
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Company Information
We were incorporated in 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, Inc.
Our principal executive offices are located at 1340 Reynolds Avenue Unit 120, Irvine, California 92614. Our telephone number is (949) 273-4990. Our common stock is listed on the OTCQB Markets under the symbol “CETY.”
Our internet website address is www.cetyinc.com and our subsidiary’s web site is www.heatrecoverysolutions.com The information contained on our websites are 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.
The Company has four reportable segments: Clean Energy HRS (HRS), CETY Europe, and the legacy electronic manufacturing services (Electronic Assembly) division and CETY Hong Kong
Patents
We currently hold 16 patents in 6 countries and 28 pending applications in 8 countries, which were acquired from General Electric International relating to our magnetic turbine technology.
Intellectual Property
As part of our asset acquisition from General Electric International we acquired an exclusive, irrevocable, sublicensable, limited transferable, royalty free, fully paid, worldwide perpetual license to develop, improve and commercialize Calnetix’s magnetic turbine in any Organic Rankine Cycle based application where heat is sourced from a reciprocating combustion engine of any type, except marine vessels, any gas or steam turbine systems for electrical power generation applications or any type of biomass boiler system.
We have a intellectual property rights purchase and transfer agreement with ENEX for its pyrolysis system.
Facilities
We’re headquartered in Irvine, California. Our Heat Recovery Solutions business unit operates from a 7,000 sq-ft state of the art facility in Irvine, California USA. 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. We also have a 5000 sq-ft sales and service center located in Treviso, Italy. We also have a 2000 sq-ft R&D center in Antalya, Turky. Our Asian headquarters is located in Hong Kong and our 3000 sq-ft Engineering consultancy and Natural Gas Trading company is located in Chengdu.
Employees
We presently have approximately 20 employees, including operational, engineering, accounting and marketing personnel. We utilize extensive number of consultants as well and have never experienced work stoppages and we are not a party to any collective bargaining agreement. We have 7 employees in JSJ in China.
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Government Regulation
Our operations are subject to certain foreign, federal, state and local regulatory requirements relating to environmental, waste management, and health and safety matters. We believe we operate in substantial compliance with all applicable requirements. However, material costs and liabilities may arise from these requirements or from new, modified or more stringent requirements. Material cost may rise due to additional manufacturing cost of raw or made parts with the application of new regulations. Our liabilities may also increase due to additional regulations imposed by foreign, federal, state and local regulatory requirements relating to environmental, waste management, and health and safety matters. In addition, our past, current and future operations and those of businesses we acquire, may give rise to claims of exposure by employees or the public or to other claims or liabilities relating to environmental, waste management or health and safety concerns.
Our markets can be positively or negatively impacted by the effects of governmental and regulatory matters. We are affected not only by energy policy, laws, regulations and incentives of governments in the markets into which we sell, but also by rules, regulations and costs imposed by utilities. Utility companies or governmental entities could place barriers on the installation of our product or the interconnection of the product with the electric grid. Further, utility companies may charge additional fees to customers who install on-site power generation, thereby reducing the electricity they take from the utility, or for having the capacity to use power from the grid for back-up or standby purposes. These types of restrictions, fees or charges could hamper the ability to install or effectively use our products or increase the cost to our potential customers for using our systems in the future. This could make our systems less desirable, thereby adversely affecting our revenue and profitability potential. In addition, utility rate reductions can make our products less competitive which would have a material adverse effect on our future operations. These costs, incentives and rules are not always the same as those faced by technologies with which we compete. However, rules, regulations, laws and incentives could also provide an advantage to our Heat Recovery Solutions as compared with competing technologies if we are able to achieve required compliance at a lower cost when our Clean Cycle TM generators are commercialized. Additionally, reduced emissions and higher fuel efficiency could help our future customers combat the effects of global warming. Accordingly, we may benefit from increased government regulations that impose tighter emission and fuel efficiency standards.
Research and Development
We had no expenses in Research and Development costs during the years ended December 31, 2023 and 2022.
WHERE YOU CAN GET ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.
Item 1a. Risk Factors.
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. We reserve the right not to provide risk factors in our future filings. Our primary risk factors and other considerations include:
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RISKS ABOUT OUR BUSINESS
OUR INDEPENDENT ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION AND IF WE CANNOT OBTAIN ADDITIONAL FINANCING AND/OR REDUCE OUR OPERATING COSTS SUFFICIENTLY, WE MAY HAVE TO CURTAIL OPERATIONS AND MAY ULTIMATELY CEASE TO EXIST.
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 equity of $5,869,198 and a working capital of $1,949,206 and an accumulated deficit of $22,984,163 as of December 31, 2023 and used $4,783,077 in net cash from operating activities for the year ended December 31, 2023. CETY has a clear strategy in place and has the capability to successfully restructure its existing debt and secure additional financing. With its current strategic approach and diversification of its products and solutions, the management has created a favorable environment for the company to transition towards profitability.
For the fiscal year closing on December 31, 2023, our company reported a net loss amounting to $5,659,723, to the net profit of $147,395 we achieved during the equivalent period in 2022. This downturn in profitability for 2023 can largely be attributed to several key factors: our strategic expansion which included the integration of two new business ventures, a rise in employee compensation and general overhead costs, diminished profit margins within our NG operations, significantly increased overhead expenses following our listing on NASDAQ, and a notable uptick in interest expenses and fees related to convertible debts and bridge loans, marking a higher interest expenditure compared to the previous year.
Following the close of the 2022 fiscal year, the company’s equity for the fiscal year ending in 2023 saw a significant increase, rising from 1,878,196 to 5,869,198. This remarkable growth is primarily attributed to the success of the company’s public offering, which generated gross proceeds of $3.9 million, and conversion of some of its convertible notes into Series E preferred shares. Looking ahead, the company is poised for further growth with the anticipated launch of its biomass project in Vermont in 2024, which is expected to contribute to both profitability and growth. Additionally, the company’s ability to secure funding has been greatly enhanced following its listing on the Nasdaq on March 23, 2023. With a focus on optimizing operations and expanding global sales, management is confident in the company’s ability to sustain long-term profitability and maintain a strong capital position.
WE HAVE AN ACCUMULATED DEFICIT AND MAY INCUR ADDITIONAL LOSSES; THEREFORE, WE MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL FINANCING NEEDED FOR WORKING CAPITAL, CAPITAL EXPENDITURES AND TO MEET OUR DEBT SERVICE OBLIGATIONS.
As of December 31, 2023, we had current liabilities of $4,801,523 and total current asset of 6,750,728.
Our debt could limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, or other purposes in the future, as needed; to plan for, or react to, changes in technology and in our business and competition; and to react in the event of an economic downturn.
We may not be able to meet our debt service obligations. If we are unable to generate sufficient cash flow or obtain funds for required payments, or if we fail to comply with covenants in our revolving lines of credit, we will be in default.
WE ARE IN DEFAULT IN OUR OBLIGATIONS TO A MAJOR CREDITORS
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY PUBLIC HEALTH EPIDEMICS, INCLUDING THE CORONAVIRUS OR COVID-19.
Our business, results of operations and financial condition may be adversely affected if a public health epidemic such as coronavirus or COVID-19 interferes with the ability of us, our employees, workers, contractors, suppliers, customers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business. We maintain offices in HaiXi with employees and workers upon whom we rely to, among other things, identify sources of supply in China, conduct factory inspections, place orders for merchandise, perform factory monitoring with respect to production, quality control and other requirements, and arrange shipping. A public health epidemic, including the coronavirus, poses the risk that we or our employees, workers, contractors, suppliers, customers and other business partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. We face similar risks if a public health epidemic, including the coronavirus, affects other geographic areas where our employees, workers, contractors, suppliers, customers and other business partners are located.
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IF DEMAND FOR THE PRODUCTS AND SERVICES THAT THE COMPANY OFFERS SLOWS, OUR BUSINESS WOULD BE MATERIALLY AFFECTED.
Demand for products which it intends to sell depends on many factors, including:
| ● | the economy, and in periods of rapidly declining economic conditions, customers may defer purchases or may choose alternate products; | |
| ● | the cost of oil, gas and solar energy; | |
| ● | the competitive environment in the heat to power sectors may force us to reduce prices below our desired pricing level or increase promotional spending; | |
| ● | our ability to maintain efficient, timely and cost-effective production and delivery of the products and services; and, | |
| ● | All of these factors could result in immediate and longer term declines in the demand for the products and services that we offer, which could adversely affect our sales, cash flows and overall financial condition. |
WE OPERATE IN A HIGHLY COMPETITIVE MARKET. IF WE DO NOT COMPETE EFFECTIVELY, OUR PROSPECTS, OPERATING RESULTS, AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED.
The markets for our products and services are highly competitive, with companies offering a variety of competitive products and services. We expect competition in our markets to intensify in the future as new and existing competitors introduce new or enhanced products and services that are potentially more competitive than our products and services. We believe many of our competitors and potential competitors have significant competitive advantages, including longer operating histories, ability to leverage their sales efforts and marketing expenditures across a broader portfolio of products and services, larger and broader customer bases, more established relationships with a larger number of suppliers, contract manufacturers, and channel partners, greater brand recognition, and greater financial, research and development, marketing, distribution, and other resources than we do and the ability to offer financing for projects. Our competitors and potential competitors may also be able to develop products or services that are equal or superior to ours, achieve greater market acceptance of their products and services, and increase sales by utilizing different distribution channels than we do. Some of our competitors may aggressively discount their products and services in order to gain market share, which could result in pricing pressures, reduced profit margins, lost market share, or a failure to grow market share for us. If we are not able to compete effectively against our current or potential competitors, our prospects, operating results, and financial condition could be adversely affected.
WE MAY LOSE OUT TO LARGER AND BETTER-ESTABLISHED COMPETITORS.
The alternative power industry is intensely competitive. Most of our competitors have significantly greater financial, technical, marketing and distribution resources as well as greater experience in the industry than we have. Our products may not be competitive with other technologies, both existing at the current time and in the future. If this happens, our sales and revenues will decline, or fail to develop at all. In addition, our current and potential competitors may establish cooperative relationships with larger companies to gain access to greater development or marketing resources. Competition may result in price reductions, reduced gross margins and loss of market share.
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OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS, WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
Our international operations are exposed to the following risks, several of which are out of our control:
political and economic instability, international terrorism and anti-American sentiment, particularly in emerging markets;
| ● | preference for locally branded products, and laws and business practices favoring local competition; | |
| ● | unusual or burdensome foreign laws or regulations, and unexpected changes to those laws or regulations; | |
| ● | |import and export license requirements, tariffs, taxes and other barriers; | |
| ● | costs of customizing products for foreign countries; | |
| ● | increased difficulty in managing inventory; | |
| ● | less effective protection of intellectual property; and | |
| ● | difficulties and costs of staffing and managing foreign operations. |
Any or all of these factors could adversely affect our ability to execute any geographic expansion strategies or have a material adverse effect on our business and results of operations.
OUR PRODUCTS MAY BE DISPLACED BY NEWER TECHNOLOGY.
The alternative power industry is undergoing rapid and significant technological change. Third parties may succeed in developing or marketing technologies and products that are more effective than those developed or marketed by us, or that would make our technology obsolete or non-competitive. Accordingly, our success will depend, in part, on our ability to respond quickly to technological changes. We may not have the resources to do this.
WE MUST HIRE QUALIFIED ENGINEERING, DEVELOPMENT AND PROFESSIONAL SERVICES PERSONNEL.
We cannot be certain that we can attract or retain a sufficient number of highly qualified mechanical engineers, industrial technology and manufacturing process developers and professional services personnel. To deploy our products quickly and efficiently, and effectively maintain and enhance them, we will require an increasing number of technology developers. We expect customers that license our technology will typically engage our professional engineering staff to assist with support, training, consulting and implementation. We believe that growth in sales depends on our ability to provide our customers with these services and to attract and educate third-party consultants to provide similar services. As a result, we plan to hire professional services personnel to meet these needs. New technical and professional services personnel will require training and education and it will take time for them to reach full productivity. To meet our needs for engineers and professional services personnel, we also may use costlier third-party contractors and consultants to supplement our own staff. Competition for qualified personnel is intense, particularly because our technology is specialized and only a limited number of individuals have acquired the needed skills. Additionally, we will rely on third-party implementation providers for these services. Our business may be harmed if we are unable to establish and maintain relationships with third-party implementation providers.
WE MAY BE ADVERSELY AFFECTED BY SHORTAGES OF REQUIRED COMPONENTS. IN ADDITION, WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS TO PROCURE OUR PARTS FOR PRODUCTION WHICH IF AVAILABILITY OF PRODUCTS BECOMES COMPROMISED IT COULD ADD TO OUR COST OF GOODS SOLD AND AFFECT OUR REVENUE GROWTH.
At various times, there have been shortages of some of the components that we use, as a result of strong demand for those components or problems experienced by suppliers. These unanticipated component shortages have resulted in curtailed production or delays in production, which prevented us from making scheduled shipments to customers in the past and may do so in the future. Our inability to make scheduled shipments could cause us to experience a reduction in our sales and an increase in our costs and could adversely affect our relationship with existing customers as well as prospective customers. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components.
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OUR PRINCIPAL SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS, IN THE AGGREGATE, BENEFICIALLY OWN MORE THAN 50% OF OUR OUTSTANDING COMMON STOCK AND THESE SHAREHOLDERS, IF ACTING TOGETHER, WILL BE ABLE TO EXERT SUBSTANTIAL INFLUENCE OVER ALL MATTERS REQUIRING APPROVAL OF OUR SHAREHOLDERS.
Our principal shareholders, directors and executive officers in the aggregate, beneficially own more than 50% our outstanding common stock on a fully diluted basis. These shareholders, if acting together, will be able to exert substantial influence over all matters requiring approval of our shareholders, including amendments to our Articles of Incorporation, fundamental corporate transactions such as mergers, acquisitions, the sale of the company, and other matters involving the direction of our business and affairs and specifically the ability to determine the members of our board of directors. (See “Security Ownership of Certain Beneficial Owners and Managements”).
IF WE LOSE KEY SENIOR MANAGEMENT PERSONNEL OUR BUSINESS COULD BE NEGATIVELY AFFECTED. FURTHER, WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL SKILLED MANAGEMENT PERSONNEL AND IF WE ARE NOT ABLE TO DO SO, OUR BUSINESS AND OUR ABILITY TO CONTINUE TO GROW COULD BE HARMED.
Our success depends to a large extent upon the continued services of our executive officers. We could be seriously harmed by the loss of any of our executive officers. In order to manage our growth, we will need to recruit and retain additional skilled management personnel and if we are not able to do so, our business and our ability to continue to grow could be harmed. Although a number of companies in our industry have implemented workforce reductions, there remains substantial competition for highly skilled employees.
WE ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS AND UNEXPECTED COSTS THAT WE MAY INCUR WITH RESPECT TO ENVIRONMENTAL MATTERS MAY RESULT IN ADDITIONAL LOSS CONTINGENCIES, THE QUANTIFICATION OF WHICH CANNOT BE DETERMINED AT THIS TIME.
We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. If more stringent compliance or cleanup standards under environmental laws or regulations are imposed, or the results of future testing and analyses at our current or former operating facilities indicate that we are responsible for the release of hazardous substances, we may be subject to additional remediation liability. Further, additional environmental matters may arise in the future at sites where no problem is currently known or at sites that we may acquire in the future. Currently unexpected costs that we may incur with respect to environmental matters may result in additional loss contingencies, the quantification of which cannot be determined at this time.
OUR SALES AND CONTRACT FULFILLMENT CYCLES CAN BE LONG, UNPREDICTABLE AND VARY SEASONALLY, WHICH CAN CAUSE SIGNIFICANT VARIATION IN REVENUES AND PROFITABILITY IN A PARTICULAR QUARTER.
The timing of our sales and related customer contract fulfillment is difficult to predict. Many of our customers are large enterprises, whose purchasing decisions, budget cycles and constraints and evaluation processes are unpredictable and out of our control. Further, the timing of our sales is difficult to predict. The length of our sales cycle, from initial evaluation to payment for our products and services, can range from several months to well over a year and can vary substantially from customer to customer. Our sales efforts involve significant investment in resources in field sales, marketing and educating our customers about the use, technical capabilities and benefits of our products and services. Customers often undertake a prolonged evaluation process. As a result, it is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. Large individual sales have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. In addition, the fulfillment of our customer contracts is partially dependent on other factors related to our customers’ businesses that are not in our control. as with the sales cycle, this can also cause revenues and earnings to fluctuate from quarter to quarter. If our sales and/or contract fulfillment cycles lengthen or our substantial upfront investments do not result in sufficient revenue to justify our investments, our operating results could be adversely affected.
We have experienced seasonal and end-of-quarter concentration of our transactions and variations in the number and size of transactions that close in a particular quarter, which impacts our ability to grow revenue over the long term and plan and manage cash flows and other aspects of our business and cost structure. Our transactions vary by quarter, with the fourth quarter typically being our largest. If expectations for our business turn out to be inaccurate, our revenue growth may be adversely affected over time and we may not be able to adjust our cost structure on a timely basis and our cash flows may suffer.
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OUR OPERATING MARGINS MAY DECLINE AS A RESULT OF INCREASING PRODUCT COSTS.
Our business is subject to significant pressure on pricing and costs caused by many factors, including competition, the cost of components used in our products, labor costs, constrained sourcing capacity, inflationary pressure, pressure from customers to reduce the prices we charge for our products and services, and changes in consumer demand. Costs for the raw materials used in the manufacture of our products are affected by, among other things, energy prices, consumer demand, fluctuations in commodity prices and currency, and other factors that are generally unpredictable and beyond our control. Increases in the cost of raw materials used to manufacture our products or in the cost of labor and other costs of doing business in the United States and internationally could have an adverse effect on, among other things, the cost of our products, gross margins, operating results, financial condition, and cash flows.
OUR SALES AND PROFITABLITY OF OPERATIONS IN THE UNITED STATES AND IN THE PRC ARE DEPENDANT ON THE PRICE OF OIL AND NATURAL GAS.
Our Waste Heat Recovery products and Waste Recovery products are dependent on the prices of traditional energy sources. Our products reuse wasted heat and create electricity or reusable fuel. As the price of energy increases, the economic justification for our products increases. At the same time, as the price for traditional fuel decreases, there is less incentive for customers to purchase our products and it may impair our ability to sell our products.
IF THE SPOT PRICE OF NG IN CHINA DROPS BELIOW THE PURCHASE PRICE OUR TRADERS NETOTIATE WITH OUR SUPPLIERS, WE MAY NOT BE ABLE TO SELL OUR LNG OR MAY HAVE TO SELL IT AT A LOSS.
Our traders at JHJ purchase NG at a fixed price in large volumes. If the spot prices for NG drop below our purchase price, we may not be able to sell our NG to our customers or may have to sell the NG at a substantial loss. We do not purchase a sufficient volume of LNG to be able to hedge against price declines of this commodity. If we believe that NG prices are too high and we are unable to purchase because we believe that prices will drop, we will not have sufficient supply of NG to conduct trading operations until the market pricing returns to a level at which we can conduct operations.
WE MAY NOT HAVE SUFFICENT FUNDS TO CONDUCT OUR TRADING OPERATIONS IN THE PRC.
We are funding our trading operations through cash flow generated by JHJ and from funds provided by our parent. If we or JHJ does not have sufficient funds, we may not be able to conduct trading operations.
OUR WASTE TO ENERGY PRODUCTS FROM ENEX HAVE NOT BEEN TESTED IN THE UNITED STATES AND DEPEND ON DATA OBTAINED FROM OPERATIONS IN THE UKRAINE AND RUSSIA.
ENEX’s HTAP 5 and 10 have not been installed in the United States. In order to commence sales, our purchasers will need to accept data from Russia or the Ukraine that they may not deem reliable. As a result we may be required to post large bonds or find an EPC that will guarantee performance of the ENEX systems. We cannot give any assurances that we will be able to finance the bonds or find an EPC willing to guaranty performance.
THE IMPLEMENTAION OF OUR WASTE TO ENERGY JOINT VENTURES DEPENDS ON US FINDING FUNDING FO THE PROJECTS.
In order to implement the ENEX system in our waste to energy joint ventures, we will need to finance directly or obtain third party financing for these projects. We cannot give any assurances that we will be able to directly finance these projects or be able to find a third party to provide financing to them. If we are not able to finance the projects we will not be able to implement our business plan in this sector.
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PRC REGULATION OF LOANS TO AND DIRECT INVESTMENT IN PRC ENTITIES BY OFFSHORE HOLDING COMPANIES AND GOVERNMENTAL CONTROL OF CURRENCY CONVERSION MAY DELAY OR PREVENT US FROM MAKING LOANS OR ADDITIONAL CAPITAL CONTRIBUTIONS TO OUR CHINESE SUBSIDIARIES.
We are an offshore holding company conducting a portion of our operations in China. We may make loans to our PRC subsidiaries to the approval, registration, and filing with governmental authorities and limitation of amount, or we may make additional capital contributions to our subsidiaries in China and Hong Kong. Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-invested enterprises under PRC law, are subject to foreign exchange loan registrations
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals or filings on a timely basis, if at all, with respect to future loans by us to our Hong Kong or PRC subsidiaries or with respect to future capital contributions by us to our Hong Kong or PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from this Underwritten Offering and to capitalize or otherwise fund our Chinese operations may be negatively affected.
FLUCTUATIONS IN EXCHANGE RATES COULD HAVE A AN EFFECT ON THE RESULTS OF OPERATIONS OF OUR HONG KONG AND CHINA SUBSIDIARIES.
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China’s foreign exchange policies. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. In the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. This depreciation halted in 2017, and the RMB appreciated approximately 7% against the U.S. dollar during this one-year period. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future which may impact the profitability of our operations in China.
PRC REGULATIONS RELATING TO THE ESTABLISHMENT OF OFFSHORE SPECIAL PURPOSE COMPANIES BY PRC DOMESTIC RESIDENTS MAY SUBJECT OUR PRC RESIDENT BENEFICIAL OWNERS TO PERSONAL LIABILITY, LIMIT OUR ABILITY TO INJECT CAPITAL INTO OUR PRC SUBSIDIARIES, LIMIT OUR SUBSIDIARIES’ ABILITY TO INCREASE THEIR REGISTERED CAPITAL OR DISTRIBUTE PROFITS TO US, OR MAY OTHERWISE ADVERSELY AFFECT US.
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 (the “SAFE Notice”) requires PRC residents to register with local branches of SAFE regarding their direct establishment or indirect control of an offshore entity, for overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle” (the “SPV”). SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. Under the SAFE Notice, failure to comply with the registration procedures set forth above could result in liability under Chinese law for foreign exchange evasion and may result in penalties and legal sanctions, including fines, the imposition of restrictions on a Chinese subsidiary’s foreign exchange activities and its ability to distribute dividends to the SPV, its ability to pay the SPV proceeds from any reduction in capital, share transfer or liquidation in respect of the Chinese subsidiary and the SPV’s ability to contribute additional capital into or provide loans to the Chinese subsidiary. After consultation with China counsel, we do not believe that any of our PRC domestic resident stockholders are subject to the SAFE registration requirement. However, we cannot provide any assurances that all our stockholders who are PRC residents will not be required to make or obtain any applicable registrations or approvals required by these SAFE regulations in the future. The failure or inability of our PRC resident stockholders to comply with the registration procedures set forth therein may subject us to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC subsidiaries’ ability to distribute dividends or obtain foreign-exchange-dominated loans to our company.
As it is uncertain how the SAFE regulations will be interpreted or implemented, we cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our results of operations and financial condition. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the SAFE regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
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WE MAY NEED TO RAISE ADDITIONAL CAPITAL REQUIRED TO GROW OUR BUSINESS, AND WE MAY NOT BE ABLE TO RAISE CAPITAL ON TERMS ACCEPTABLE TO US OR AT ALL.
Growing and operating our business will require significant cash outlays and capital expenditures and commitments. We have utilized cash on hand and cash generated from operations as sources of liquidity. If cash on hand and cash generated from operations are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through equity or debt financing, to fund our growth. Our ability to access the credit and capital markets in the future as a source of liquidity, and the borrowing costs associated with such financing, are dependent upon market conditions.
In addition, any equity securities we issue, including any preferred stock, may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the offering price per share of our Common Stock. The holders of any equity securities we issue, including any preferred stock, may also have rights, preferences or privileges which are senior to those of existing holders of Common Stock. If new sources of financing are required, but are insufficient or unavailable, we will be required to modify our growth and operating plans based on available funding, if any, which would harm our ability to grow our business.
NATURAL DISASTERS AND OTHER CATASTROPHIC EVENTS BEYOND OUR CONTROL COULD ADVERSELY AFFECT OUR BUSINESS OPERATIONS AND FINANCIAL PERFORMANCE.
The occurrence of one or more natural disasters, such as fires, hurricanes, tornados, tsunamis, floods and earthquakes; geo-political events, such as civil unrest in a country in which our suppliers are located or terrorist or military activities disrupting transportation, communication or utility systems; or other highly disruptive events, such as nuclear accidents, pandemics, unusual weather conditions or cyber-attacks, could adversely affect our operations and financial performance. Such events could result, among other things, in operational disruptions, physical damage to or destruction or disruption of one or more of our properties or properties used by third parties in connection with the supply of products or services to us, the lack of an adequate workforce in parts or all of our operations and communications and transportation disruptions. These factors could also cause consumer confidence and spending to decrease or result in increased volatility in the United States and global financial markets and economy. Such occurrences could have a material adverse effect on us and could also have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable damage.
WE HAVE ISSUED A SUBSTANTIAL AMOUNT OF CONVERTIBLE SECURITIES WHICH IF CONVERTED WILL SUBSTANTIALLY DILUTE ALL OF OUR STOCKHOLDERS.
We have issued a substantial number of convertible securities which, if converted, would result in substantial dilution to our stockholders:
| Convertible Notes - and Approximate common share equivalents | 1,293,801 | |||
| Series E preferred shares | 1,857,590 | |||
| Warrants and Common Stock equivalent’s | 70,102 | |||
| Total Convertible Common Stock equivalents | 3,221,493 |
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OUR ISSUANCE OF ADDITIONAL CAPITAL STOCK IN CONNECTION WITH FINANCINGS, ACQUISITIONS, INVESTMENTS, OUR EQUITY INCENTIVE PLANS, OR OTHERWISE WILL DILUTE ALL OTHER STOCKHOLDERS.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors, and consultants under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies, and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline.
WE MAY MAKE ACQUISITIONS THAT ARE DILUTIVE TO EXISTING STOCKHOLDERS. IN ADDITION, OUR LIMITED EXPERIENCE IN ACQUIRING OTHER BUSINESSES, PRODUCT LINES AND TECHNOLOGIES MAY MAKE IT DIFFICULT FOR US TO OVERCOME PROBLEMS ENCOUNTERED IN CONNECTION WITH ANY ACQUISITIONS WE MAY UNDERTAKE.
We intend to evaluate and explore strategic opportunities as they arise, including business combinations, strategic partnerships, and the purchase, licensing or sale of assets. In connection with any such future transaction, we could issue dilutive equity securities, incur substantial debt, reduce our cash reserves or assume contingent liabilities.
Our experience in acquiring other businesses, product lines and technologies is limited. Our inability to overcome problems encountered in connection with any acquisitions could divert the attention of management, utilize scarce corporate resources and otherwise harm our business. Any potential future acquisitions also involve numerous risks, including:
| ● | problems assimilating the purchased operations, technologies or products; | |
| ● | costs associated with the acquisition; | |
| ● | adverse effects on existing business relationships with suppliers and customers; | |
| ● | risks associated with entering markets in which we have no or limited prior experience; | |
| ● | potential loss of key employees of purchased organizations; and | |
| ● | potential litigation arising from the acquired company’s operations before the acquisition. |
Furthermore, acquisitions may require material charges and could result in adverse tax consequences, substantial depreciation, deferred compensation charges, in-process research and development charges, the amortization of amounts related to deferred compensation and identifiable purchased intangible assets or impairment of goodwill, any of which could negatively affect our results of operations.
WE MAY BE SUBJECT TO GOVERNMENT LAWS AND REGULATIONS PARTICULAR TO OUR OPERATIONS WITH WHICH WE MAY BE UNABLE TO COMPLY.
We may not be able to comply with all current and future government regulations which are applicable to our business. Our business operations are subject to all government regulations normally incident to conducting business (e.g., occupational safety and health acts, workmen’s compensation statutes, unemployment insurance legislation, income tax, and social security laws and regulations, environmental laws and regulations, consumer safety laws and regulations, etc.) as well as to governmental laws and regulations applicable to small public companies and their capital formation efforts. Although we will make every effort to comply with applicable laws and regulations, we can provide no assurance of our ability to do so, nor can we predict the effect of those regulations on our proposed business activities. Our failure to comply with material regulatory requirements would likely have an adverse effect on our ability to conduct our business and could result in our cessation of active business operations.
COMPLIANCE WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE WILL RESULT IN ADDITIONAL EXPENSES.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.
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OUR REVENUE GROWTH RATE DEPENDS PRIMARILY ON OUR ABILITY TO EXECUTE OUR BUSINESS PLAN.
We may not be able to identify and maintain the necessary relationships within our industry. Our ability to execute our business plan also depends on other factors, including the ability to:
1. Negotiate and maintain contracts and agreements with acceptable terms;
2. Hire and train qualified personnel;
3. Maintain marketing and development costs at affordable rates; and,
4. Maintain an affordable labor force.
OUR OPERATING RESULTS AND SHARE PRICE MAY BE VOLATILE AND THE MARKET PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY DROP BELOW THE PRICE YOU PAY.
Our quarterly operating results have in the past fluctuated and are likely to do so in the future. As a result, the trading price of the shares of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Offering Circular, these factors include:
| ● | the success of competitive products or technologies; | |
| ● | actual or anticipated changes in our growth rate relative to our competitors; | |
| ● | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments; | |
| ● | regulatory or legal developments in the United States and other countries; |
| ● | the recruitment or departure of key personnel; | |
| ● | the level of expenses; | |
| ● | changes in our backlog in a given period; | |
| ● | actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; | |
| ● | variations in our financial results or those of companies that are perceived to be similar to us; | |
| ● | fluctuations in the valuation of companies perceived by investors to be comparable to us; | |
| ● | inconsistent trading volume levels of our shares; | |
| ● | announcement or expectation of additional financing efforts; | |
| ● | sales of our common stock by us, our insiders or our other stockholders; | |
| ● | market conditions in the clean energy sector; and | |
| ● | general economic, industry and market conditions. |
These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our shares to fluctuate substantially. While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares. In addition, the stock market in general, and companies in our markets in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of these risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of the shares of our common stock.
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WE MAY BE SUBJECT TO SECURITIES LITIGATION, WHICH IS EXPENSIVE AND COULD DIVERT MANAGEMENT ATTENTION.
The market price of the shares of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters was located at 2990 Redhill Unit A, Costa Mesa, CA., which ended in November 2023. On March 10, 2016, the Company signed a lease agreement for a 18,200-square foot CTU Industrial Building. Lease term were seven years and two months beginning July 1, 2017. 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.
We have relocated our corporate offices to 1340 Reynolds Avenue Unit 120, Irvine, CA 92614. On December 1, 2023, the Company signed a lease agreement for a 3000-square foot of office space with Metro Creekside California, LLC. Lease term is thirty-eight months beginning December 1, 2023 and expiring on January 31, 2027. This location is used as CETY’s headquarters and coordination center for all domestic and global business units. On October 16 of 2023 we signed a sublease agreement to relocate the HRS operations from Costa Mesa to Irvine, California for one year and 7 months commencing December 1, 2023 and ending June 30, 2025. This location is used for Heat Recovery Solutions design, manufacturing, testing, and support. We also signed a temporary storage lease and Due to the short termination clause, we are treating this as a month-to-month lease. The lease payments for the years ending December 31, are:
| Year | Lease Payment | |||
| 2023 | 401,293 | |||
Our lease expense for the years ended December 31, 2023, and 2022 was $401,293. and $349, 610, respectively, which also included common area maintenance.
We also maintain an 800 sq-ft R&D office located in Alanya city, within the Antalya region of Turkey. This facility is leased for a duration of two years, with payments made biannually. Our primary activities within this office include conducting marketing research for our CETY renewable business unit, facilitating sales operations, managing sourcing activities, and coordinating support for CETY’s engineering services.
We also operate offices in Chengdu, China, which serve as operational bases for our NG trading business and a gas storage and pumping station in Chengdu, China as well.
Item 3. Legal Proceedings.
From time to time, we may be party to litigation matters occurring in the ordinary course of our business. As of the date of this Annual Report, however, there are no material pending legal or governmental proceedings relating to our Company to which we are a party, and to our knowledge there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.
Item 4. Mine Safety Disclosures
Not Applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Bid and ask quotations for our common shares are routinely submitted by registered broker dealers who are members of the National Association of Securities Dealers on the NASD Over-the-Counter Electronic Bulletin Board. These quotations reflect inner-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The high and low bid information for our shares for each quarter for the last two years, so far as information is reported, through the year ended December 31, 2023, as reported by the OTC Markets, are as follows:
| 2022 FISCAL YEAR | High | Low | ||||||
| First Quarter | $ | 2.39 | $ | 0.89 | ||||
| Second Quarter | $ | 1.59 | $ | 0.81 | ||||
| Third Quarter | $ | 2.16 | $ | 0.81 | ||||
| Fourth Quarter | $ | 3.11 | $ | 0.96 | ||||
| 2023 FISCAL YEAR | High | Low | ||||||
| First Quarter | $ | 3.66 | $ | 3.27 | ||||
| Second Quarter | $ | 1.93 | $ | 1.72 | ||||
| Third Quarter | $ | 1.93 | $ | 1.82 | ||||
| Fourth Quarter | $ | 1.59 | $ | 1.44 | ||||
Record Holders
As of April 15, 2024 there were 42,685,248 shares of the registrant’s $0.001 par value common stock issued and outstanding and were owned by approximately 201 holders of record, based on information provided by our transfer agent.
Dividend Policy
We have never declared a cash dividend on our common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, restrictions contained in our agreements and other factors which our Board of Directors deems relevant.
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Recent Sales of Unregistered Securities
On February 5, 2021 we issued 75,000 shares of our common stock at a price of $3.2 per share, in exchange for the conversion of 1,200 shares of our Series D Preferred Stock.
On February 9, 2021 we issued 56,892 shares of our common stock share, in exchange for the conversion of $182,052 of accrued dividend for the series D Preferred Stock.
On March 12, 2021 we issued 40,625 shares and 51,715 of our common stock at a price of $3.2 per share, in exchange for the conversion of 650 shares of our Series D Preferred Stock and $165,487 of accrued dividend for the series D preferred stock.
On June 28, 2021 MGW I converted $75,000 from the outstanding balance of their convertible note into 625,000 shares of company’s common stock.
On September 2, 2021 the company issued 28,561 as inducement shares. To GHS Investment for the equity line of credit at $1.9 per share.
On September 13, 2021 the company issued 27,516 as issuance correction. To GHS Investment for the equity line of credit at $1.9 per share.
On December 31, 2021 we issued 245,844 shares of our common stock under our Reg A offering at $3.2 per share. These shares are unrestricted and free trading.
On February 21, 2022, we issued 375,875 shares of our common stock under our Reg A offering at $3.2 per share. These shares are unrestricted and free trading.
On September 21, 2022 MGW I converted $1,548,904 from the outstanding balance of their convertible note into 12,907,534 shares of company’s common stock.
On December 28, 2022, we issued 100,446 shares of common stock upon the exercise of the cashless warrant that the Company issued to Mast Hill on May 6, 2022.
On March 1, 2023 First Fire exercised the warrant in full on a cashless basis to purchase 33,114 shares of common stock.
On March 1, 2023 Pacific Pier exercised the warrant in full on a cashless basis to purchase 31,111 shares of common stock.
In the third quarter of 2023, the Company issued 40,000 shares to a consultant at fair value of $72,000.
In the second quarter of 2023, the Company issued 213,188 shares and received cash proceed of $341,101.
In the fourth quarter of 2023, the Company issued 213,188 shares and received cash proceeds of $293,600.
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 6. Selected Financial Data.
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. We reserve the right not to provide the Selected Financial Data in our future filings.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read this section together with our consolidated financial statements and related notes thereto included elsewhere in this report.
FORWARD-LOOKING STATEMENTS
This Management’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.
Company Information
We were incorporated in 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, Inc.
Our principal executive offices are located at 1340 Reynolds Avenue Unit 120, Irvine, California 92614. Our telephone number is (949) 273-4990. Our common stock is listed on the NASDAQ Markets under the symbol “CETY.”
Our internet website address is www.cetyinc.com and our subsidiary’s web site is www.heatrecoverysolutions.com The information contained on our websites are 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.
The Company has four reportable segments: Clean Energy HRS (HRS), CETY Renewables waste to energy solutions, engineering and manufacturing services, and CETY HK natural gas trading business.
We specialize in renewable energy & energy efficiency systems design, manufacturing and project implementation. We were incorporated in 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 provided engineering and manufacturing electronics services to original equipment manufacturers (OEMs) of clean energy, industrial, automotive, semiconductor, medical, communication, military, and high technology products.
With the vision to combat climate change and creating a better, cleaner and environmentally sustainable future, we formed Clean Energy HRS, LLC a wholly owned subsidiary of Clean Energy Technologies, Inc. and acquired the assets of Heat Recovery Solutions from General Electric International on September 11, 2015. In November 2015, we changed our name to Clean Energy Technologies, Inc. Our principal executive offices are located at 1340 Reynolds Avenue Unit 120, Irvine, CA 92614. We have 20 full-time employees. All employees and overhead are shared between Clean Energy Technologies, Inc. (which still provides the contract electronic manufacturing services) and Clean Energy HRS, LLC, waste to energy business unit, and our natural gas trading business.
Clean Energy Technologies, Inc. established a new company, CETY Europe, SRL (CETY Europe) as a wholly owned subsidiary. CETY Europe is a Sales and Service Center in Silea (Treviso), Italy established in 2017. The service center became operational in November 2018. Their offices are located at Alzaia Sul Sile, 26D, 31057 Silea (TV) and the have 1 full time employee.
Clean Energy Technologies, Inc. established a wholly owned subsidiary called CETY Capital, a financing arm of CETY to fund captive renewable energy projects producing low carbon energy. CETY Capital will add flexibility to the capacity CETY offers its customers and fund projects utilizing its products and clean energy solutions.
CETY Capital retains 49% ownership interest in Vermont Renewable Gas LLC established to develop a biomass plant in Vermont utilizing CETY’s High Temperature Ablative Pyrolysis system.
Clean Energy Technologies (H.K.) Limited., a wholly owned subsidiary of Clean Energy Technologies Inc. acquired 100% ownership of Leading Wave Limited a natural gas trading company in China.
The Company has four reportable segments: Clean Energy HRS (HRS) and CETY Europe, CETY Renewables, CETY HK and engineering and manufacturing services division.
Business Overview
General
The Company’s business and operating results are directly affected by changes in overall customer demand, operational costs and performance and leverage of our fixed cost and selling, general and administrative (“SG&A”) infrastructure.
Product 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 demand from customers in many different markets with different levels of cyclicality and seasonality.
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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
Who We Are
We develop renewable energy products and solutions and establish partnerships in renewable energy that make environmental and economic sense. Our mission is to be a segment leader in the Zero Emission Revolution by offering eco-friendly energy solutions, clean energy fuels and alternative electric power for small and mid-sized projects in North America, Europe, and Asia. We target sustainable energy solutions that are profitable for us, profitable for our customers and represent the future of global energy production.
Our principal businesses
Waste Heat Recovery Solutions – we recycle wasted heat produced in manufacturing, waste to energy and power generation facilities using our patented Clean CycleTM generator to create electricity which can be recycled or sold to the grid.
Waste to Energy Solutions - we convert waste products created in manufacturing, agriculture, wastewater treatment plants and other industries to electricity, renewable natural gas (“RNG”), hydrogen and bio char which are sold or used by our customers.
Engineering, Consulting and Project Management Solutions – we bring a wealth of experience in developing clean energy projects for municipal and industrial customers and Engineering, Procurement and Construction (EPC) companies so they can identify, design, and incorporate clean energy solutions in their projects.
CETY HK
Clean Energy Technologies (H.K.) Limited (“CETY HK”) consists of a ventures in mainland China:(i) our natural gas (“NG”) trading operations sourcing and suppling NG to industries and municipalities. The NG is principally used for heavy truck refueling stations and urban or industrial users. We purchase large quantities of NG from large wholesale NG depots at fixed prices which are prepaid for in advance at a discount to market. We sell the NG to our customers at prevailing daily spot prices for the duration of the contracts.
Business and Segment Information
We design, produce and market clean energy products and integrated solutions focused on energy efficiency and renewable energy. Our aim is to become a leading provider of renewable and energy efficiency products and solutions by helping commercial companies and municipalities reduce energy waste and emissions, lower energy costs and generate incremental revenue by providing electricity, renewable natural gas and biochar to the grid.
Segment Information
Our four segments for accounting purposes are:
Clean Energy HRS & CETY Europe – Our Waste Heat Recovery Solutions, converting thermal energy to zero emission electricity.
CETY Renewables Waste to Energy Solutions – Providing Waste to Energy technologies and solutions.
Engineering and Manufacturing Business – Providing customers with comprehensive design, manufacturing, and project management solutions.
CETY HK – The parent company of our NG trading operations in China. Prior to the first quarter of 2022, the Company had three reportable segments but added the CETY HK segment to reflect its recent new businesses in China.
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Summary of Operating Results for the year ended December 31, 2023 Compared to the year ended December 31, 2022
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 equity of $5,869,198 and a working capital deficit of $1,949,205 and an accumulated deficit of $22,984,163 as of December 31, 2023 and used $4,783,077 in net cash from operating activities for the year ended December 31, 2023. CETY has a clear strategy in place and has the capability to successfully restructure its existing debt and secure additional financing. With its current strategic approach and diversification of its products and solutions, the management has created a favorable environment for the company to transition towards profitability.
For the fiscal year closing on December 31, 2023, our company reported a net loss amounting to $5,531,762, to the net profit of $147,395 we achieved during the equivalent period in 2022. This downturn in profitability for 2023 can largely be attributed to several key factors: our strategic expansion which included the integration of two new business ventures, a rise in employee compensation and general overhead costs, diminished profit margins within our NG operations, significantly increased overhead expenses following our listing on NASDAQ, and a notable uptick in interest expenses and fees related to convertible debts and bridge loans, marking a higher interest expenditure compared to the previous year.
Following the close of the 2022 fiscal year, the company’s equity for the fiscal year ending in 2023 saw a significant increase, rising from 1,878,196 to 5,111,982. This remarkable growth is primarily attributed to the success of the company’s public offering, which generated gross proceeds of $3.9 million, and conversion of some of its convertible notes into Series E preferred shares. Looking ahead, the company is poised for further growth with the anticipated launch of its biomass project in Vermont in 2024, which is expected to contribute to both profitability and growth. Additionally, the company’s ability to secure funding has been greatly enhanced following its listing on the Nasdaq on March 23, 2023. With a focus on optimizing operations and expanding global sales, management is confident in the company’s ability to sustain long-term profitability and maintain a strong capital position.
RELATED PARTY TRANSACTIONS
See note 13 to the notes to the financial statements for a discussion on related party transaction
Results for the year ended December 31, 2023, compared to the year ended December 31, 2022.
Net Sales
For the year ended December 31, 2023, our total revenue was $15,113,463 compared to $2,663,212 for the same period in 2022. The Company has four reportable segments: Clean Energy HRS (HRS), CETY Europe and the engineering & manufacturing services division, CETY HK.
Segment breakdown
For the fiscal year ending December 31, 2023, our revenue from Engineering and Manufacturing amounted to $47,091, a decrease from $203,078 for the corresponding period in 2022. This decline can be attributed to the phased closure of our legacy manufacturing operations and a strategic reallocation of resources towards becoming a fully integrated clean energy solution provider, thereby strengthening support for our other technology segments.
For the year ended December 31, 2023, our revenue from HRS was $497,584 compared to $488,453 for the same period in 2022. However, we’re optimistic that the new government incentives will support an increase in revenue from our heat recovery solutions.
For the fiscal year ending December 31, 2023, our revenue from CETY Renewables, our newly launched waste-to-energy business, amounted to $429,999. There was no revenue generated from this segment in the preceding year.
For the fiscal year ending December 31, 2023, our revenue from the NG business reached $14,138,789, a significant rise from $1,890,439 in the corresponding period of 2022. This substantial growth can be attributed to our enhanced capacity to secure additional NG allocations, coupled with the successful consolidation of our newly established joint venture.
Gross Profit
For the year ending December 31, 2023, our gross profit was $1,090,254, compared to $1,174,196 for the same period in 2022. It’s important to note that our gross profit margins can fluctuate due to a variety of factors, such as changes in production and supply chain efficiencies, material costs, logistics, and personnel expenses. The decrease in our gross profit for the year can be primarily attributed to the incorporation of additional revenue from our newly formed entity, CETY HK, which operates at lower margins.
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Segment breakdown.
For the year ended December 31, 2023, our gross profit from HRS was $157,179 compared to $459,362 for the same period in 2022, the decrease was due to lower revenue.
For the year ended December 31, 2023, our gross profit from CETY Renewables was $392,298.
For the year ended December 31,2023, our gross profit from CETY HK was $594,041, compared to $631,082 for the same period in 2022.
Selling, General and Administrative (SG&A) Expenses
For the year ending December 31, 2023, our Selling, General, and Administrative (SG&A) expenses amounted to $684,893, a rise from $400,322 in the corresponding period of 2022. This increase is largely due to enhanced spending across various sectors, notably in Media and Investor Relations, marketing, sales initiatives, the transition to a new facility, the launch of two new businesses, subscription services, and IT-related costs.
Salaries Expense
For the fiscal year concluding on December 31, 2023, our total salaries expense amounted to $1,671,071, marking a significant increase from the previous year’s total of $782,657. The escalation in expenses for 2023 can be largely ascribed to the expansion of our team, including the hiring of a Chief Financial Officer, two directors responsible for operations and technology, four engineers, and additional personnel within our NG trading sector.
Travel Expense
For the year concluding on December 31, 2023, our travel expenditure amounted to $405,334, in contrast to $166,025 for the corresponding timeframe in 2022. This increase in expenses is attributed to our efforts in expanding our business in Asia, specifically concerning the NG trading sector.
Facility Lease Expense
For the fiscal year concluding on December 31, 2023, our Facility Lease expense totaled $401,293, as opposed to $349,610 for the corresponding period in 2022. This rise can be attributed to the addition of a new lease for our operations in China.
Consulting Expense
For the fiscal year ending December 31, 2023, our consulting expense amounted to $199,594, representing a notable increase from $119,896 recorded during the corresponding period in 2022. This rise can be attributed to the engagement of investor relations and marketing sub-contractors.
Bad Debt
For the year ended December 31, 2023, our bad debt expense was $0 compared to $0 for the same period in 2022.
Depreciation and Amortization Expense
For the year ended December 31, 2023, our depreciation and amortization expense was $26,692 compared to $30,076 for the same period in 2022.
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Professional fees legal and accounting
For the fiscal year ending December 31, 2023, our Professional fees expense totaled $356,785, reflecting an uptick from $315,361 recorded during the same period in 2022. This increase in fees was primarily driven by elevated expenses associated with engaging a new auditor.
Net (Loss) from operations
For the fiscal year ending on December 31, 2023, our net loss from operations amounted to $(2,655,408), a notable increase compared to the net loss from operations of $989,751 for the corresponding period in 2022. This rise in loss during 2023 can be attributed primarily to the expansion of our team, our uplisting to NASDAQ, and the expansion of our global business operations, as well as a decrease in margin revenue from our NG business.
Change in Derivative Liability
For the year ended December 31, 2023, we had a loss on derivative liability of $326,539 compared to a gain of $331,495 for the same period in 2022. The gain in derivative liability was from favorable derivative calculations and payoffs from several convertible notes.
Gain on debt settlement and write off
For the year ended December 31, 2023, we had no gain on debt settlement.
Interest and Finance Fees
For the year ended December 31, 2023 interest and finance fees were $2,137,649 compared to $1,125,395 for the same period in 2022. The increase was mainly due to increase in additional convertible notes, bridge financing fees and interest, and additional a loss of 1,255,084 on convertible conversion preferred shares.
Liquidity and Capital Resources
Clean Energy Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
For the years ended December 31,
| 2023 | 2022 | |||||||
| Net Cash provided / (Used) In Operating Activities | $ | (4,783,077 | ) | $ | (2,244,133 | ) | ||
| Cash Flows Used In Investing Activities | (318,602 | ) | (1,437,123 | ) | ||||
| Cash Flows Provided / (used) By Financing Activities | 5,096,483 | 2,798,885 | ||||||
| Net (Decrease) Increase in Cash and Cash Equivalents | $ | 25,580 | $ | (1,043,043 | ) | |||
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Capital Requirements for long-term obligations
None.
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’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.
Revenue Recognition
The Company recognizes revenue under ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASC 606”).
Performance Obligations Satisfied Over Time
FASB ASC 606-10-25-27 through 25-29, 25-36 through 25-37, 55-5 through 55-10
An entity transfers control of a good or service over time and satisfies a performance obligation and recognizes revenue over time if one of the following criteria is met:
a. The customer receives and consumes the benefits provided by the entity’s performance as the entity performs (as described in FASB ASC 606-10-55-5 through 55-6).
b. The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced (as described in FASB ASC 606-10-55-7).
c. The entity’s performance does not create an asset with an alternative use to the entity (see FASB ASC 606-10-25-28), and the entity has an enforceable right to payment for performance completed to date (as described in FASB ASC 606-10-25-29).
The following five steps are applied to achieve that core principle for our business:
| ● | 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 |
Performance Obligations Satisfied at a Point in Time
FASB ASC 606-10-25-30
If a performance obligation is not satisfied over time, the performance obligation is satisfied at a point in time. To determine the point in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation, the entity should consider the guidance on control in FASB ASC 606-10-25-23 through 25-26. In addition, it should consider indicators of the transfer of control, which include, but are not limited to, the following:
a. The entity has a present right to payment for the asset
b. The customer has legal title to the asset
c. The entity has transferred physical possession of the asset
d. The customer has the significant risks and rewards of ownership of the asset
e. The customer has accepted the asset
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. In addition a) the company also does not have an alternative use for the asset if the customer were to cancel the contract, and b) has a fully enforceable right to receive payment for work performed (i.e., customers are required to pay as various milestones and/or timeframes are met)
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The following five steps are applied to achieve that core principle for our HRS and Cety Europe Divisions:
| ● | 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 |
The following steps are applied to our legacy engineering and manufacturing division:
| ● | 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 |
The following step is applied to our CETY HK business unit:
| ● | CETY HK is primarily responsible for fulfilling the contract / promise to provide the specified good or service. |
A principal obtains control over any one of the following (ASC 606-10-55-37A):
| a. | A good or another asset from the other party which the entity then transfers to the customer. Note that momentary control before transfer to the customer may not qualify. | |
| b. | A right to a service to be performed by the other party, which gives the entity the ability to direct that party to provide the service to the customer on the entity’s behalf. | |
| c. | A good or service from the other party that it then combines with other goods or services in providing the specified good or service to the customer. |
If the entity obtains control over one of the above before the good or service is transferred to a customer, the entity could be considered a principal.
During the project development and engineering phase of our CETY Renewable projects such as VRG, we employ the input method of revenue recognition to estimate revenue based on projected costs. This approach involves forecasting future costs and revenues to determine the amount of revenue we recognize in the current period. It’s important to understand, however, that these recognized revenue figures are not final and are subject to adjustments. Changes may occur as we gain more clarity on actual costs compared to our initial projections, affecting the revenue recognized accordingly.
The projected costs of the VRG project is based on estimates and profitability will be impacted depending on actual costs. Using the input method for revenue recognition, the amount of recorded revenue is also affected depending on the estimated total costs. The purchase price allocation for Shuya was also based on estimates and comparable data selected by the Company. The inputs for the valuation of the Series E preferred shares were also based on estimates and comparable data selected by the Company.
Additionally, the above five steps are applied to achieve core principle for our CETY Renewables Division:
Because the CETY Renewables division is presently engaged in the Engineering, Procurement, and Construction (EPC) of biomass power facilities, CETY Renewables has developed a process of executing EPC Agreements with customers for this work. In contracting these engagements, CETY Renewables recognizes revenue according to accounting standards in accordance with ASC 606.
In recognizing this revenue, CETY Renewables first identifies the relevant contract with its customer according to 606-10-25-1.
| ● | The entities, together known as the Parties, approved the contract in writing, through signatures and commitment to the performance of permitting, design, procurement, construction, and commissioning. |
| ● | CETY’s work product includes permits, engineering designs, equipment, and full balance of plant specific to permitting, design, procurement, construction, and commissioning. |
| ● | CETY and customer agree to a total EPC Contract price. |
| ● | The contract has commercial substance. The risk associated with this EPC Agreement is that payment of the EPC contract price. |
| ● | Per the EPC Agreement, CETY expects to collect substantially all of the consideration for its goods and services. |
Secondly, CETY identifies the performance obligations of the Parties in performance of the EPC Agreement in accordance with 606-10-25-14. At contract inception, CETY assesses the goods and services necessary to deliver the facility in accordance with the its agreement with its clients. The agreement specifically laid out all deliverables necessary to achieve the permitting, design, procurement, construction, and commissioning.
CETY also looks at 606-10-25-14(A). A bundle of goods or services is also present, in that CETY is delivering all work products associated with permitting, design, procurement, construction and commissioning of a commercially operable biomass power plant. A biomass power plant is a distinct bundle of goods or services, so the individual goods or services on their own do not lend themselves to a fully integrated or functional system.
CETY in accordance with 606-10-32-1, CETY reviews measurement of the performance obligations. There are no exclusion of any amount of the Contract Price due to constraints associated with 606-10-31-11 through 606-10-32-13.
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In review of 606-10-32-2A, CETY did not exclude measurement from the measurement of the transaction price any taxes assessed by a government authority as no such taxes will be due.
In reviewing 606-10-32-3, CETY evaluated the nature, timing, and amount of consideration promised, and whether it impacts the estimate of the transaction price.
Finally, in identifying a single method of measuring progress for each performance obligation satisfied over time, in accordance with 606-10-25-32, CETY applies the methodology of 606-10-25-36. CETY adopted and implemented the input method for revenue recognition in accordance with ASC 606-10-25-33. The company adopts the input method for implementation. CETY recognizes revenue for performance obligations on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation per 606-10-55-20.
For CETY, the contracts with clients for the construction of biomass power plants are the basis for revenue recognition. In each separate EPC Agreement, the performance obligations include permitting, design, procurement, construction, and commissioning of the plant. All of these work products satisfy Section 606-10-25-27(b) as these work products create or enhance an asset under customer’s control. Upon delivery of the work product, the customer takes control of the work products and has full right and ability to direct the use of and obtain substantially all of the remaining benefits of the assets. We recognize revenue over time, using timeline and milestone methods to measure progress towards complete satisfaction of the performance obligation.
During the complexity and duration of the biomass power plant construction projects, CETY will recognize revenue over time, consistent with the criteria for over-time recognition under ASC 606. This approach reflects the continuous transfer of documents, permits, and the equipment over to the customer, which is characteristic of long-term construction contracts.
We have a list of appropriate measures of progress: This is based on milestones achieved, among other measures.
Given the long-term nature of the projects, CETY regularly reviews and, if necessary, updates its estimates of progress towards completion, transaction price, and the allocation of the transaction price to performance obligations.
Also, from time to time our contracts state that the customer is not obligated to pay a final payment until the units are commissioned, i.e. a final payment of 10%. As of December 31, 2023 and 2022 we had $33,000 and 33,000 of deferred revenue, which is expected to be recognized in the second quarter of year 2024.
Also from time to time we require upfront deposits from our customers based on the contract. As of December 31, 2023 and 2022, we had outstanding customer deposits of $210,310 and $80,475 respectively.
Change from fair value or equity method to consolidation
Chengdu Xiangyueheng Enterprise Management Co., Ltd (the “Xiangyueheng”), which owns a 10% equity interest in Shuya, entered a three-party Concerted Action Agreement (the “CAA”), wherein the parties agreed to vote in unison at the shareholders’ meeting of Shuya to consolidate the controlling position of the three parties in Shuya. The three parties agreed that during the term of the CAA, before any of the three parties intends to propose motions to the shareholders’ meetings or the board of directors, or exercise their voting rights on any matter that shall be presented to and resolved through the shareholders’ meeting in accordance with the laws, regulations, Articles of Association of Shuya or any relevant shareholders’ agreements, the three parties will discuss, negotiate, and coordinate the motion topics for consistency; in the event of disagreement, the opinions of JHJ shall prevail.
As a result of the CAA, the Company re-analyzed and determined that Shuya is the variable interest entity (the “VIE”) of JHJ because 1) the equity investors at risk, as a group, lack the characteristics of a controlling financial interest, and 2) Shuya is structured with disproportionate voting rights, and substantially all the activities are conducted on behalf of an investor with disproportionately few voting rights. Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The Company concluded JHJ is deemed the primary beneficiary of the VIE. Accordingly, the Company consolidates Shuya into its consolidated financial statements effective on January 1, 2023.
Series E Valuation
Additionally, the inputs for the valuation of the Series E preferred shares were also based on estimates and comparable data selected by the Company and fair value measurements, furthermore, the purchase price allocation was based on estimates of fair market values.
Future Financing
We will continue to rely on equity sales of our common shares to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
Off-balance Sheet Arrangement
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.
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.
Item 7a. Quantitative and Qualitative Disclosures 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.
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Item 8. Financial Statements and Supplemental Data.
CLEAN ENERGY TECHNOLOGIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023
FINANCIAL STATEMENT TABLE OF CONTENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders of Clean Energy Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Clean Energy Technologies, Inc. (the Company) as of December 31, 2023, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has an accumulated deficit, a working capital deficit and negative cash flows from operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition for Performance Obligations Satisfied Over Time
Description of the Critical Audit Matter: As discussed in Note 2 to the consolidated financial statements, recognizing revenue from Engineering, Procurement, and Construction (EPC) agreement(s) is based on reasonable measures of progress toward complete satisfaction of the performance obligation.
How the Critical Audit Matter Was Addressed in the Audit: The related audit effort in evaluating management’s judgments in determining revenue recognition for these agreements was extensive and required a high degree of auditor judgment.
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Our audit procedures related to evaluating the Company’s accounting for revenue recognized from these revenue agreements, among others:
| ● | We reviewed the contract terms and evaluated that the agreement has commercial substance, given the related party nature of the transaction, and that all of the considerations have a reasonable probability to be substantially collected based on supporting evidence. |
| ● | We reviewed and verified the performance obligation(s) in the contract to be a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer. |
| ● | We confirmed the transaction price with the related party and evaluated the reasonableness of the gross profit margin and budgeted costs allocated to the completion of the performance obligation. |
| ● | We evaluated whether billing methods were aligned with the satisfaction of performance obligations guidance under revenue recognition accounting principles generally accepted in the United States. |
| ● | We verified whether costs under the input method directly contributed to the completion of the performance obligation based on audit evidence. |
| ● | We tested the accuracy and completeness of management’s calculations based on supporting data and audit evidence. |
Business Combination of Shuya and Change in Equity Method to Consolidation in 2023
Description of the Critical Audit Matter: As described in Note 2, effective January 1, 2023 the Company re-analyzed and determined that Shuya is the variable interest entity of JHJ as a result of Consistent Action Agreements so we begin to consolidate Shuya on January 1, 2023 and change from equity method in 2022 to consolidation in 2023.
How the Critical Audit Matter Was Addressed in the Audit: We identified the Company’s enterprise value and consideration paid as a critical audit matter because of the significant estimates and assumptions management used in the estimate of the acquisition date fair value, including forecasts of future revenues and expenses and the selection of the discount rates. Auditing management’s forecasts of future revenues and expenses as well as the selection of the discount rates involved a high degree of auditor judgment and increased audit effort, including the use of our valuation specialists, as changes in these assumptions could have a significant impact on the value of the purchase consideration.
Our audit procedures consisted of the following, among others:
| ● | We read the Consistent Action Agreements to understand and evaluate the terms of the transaction to determine that the acquisition met the requirements of a business combination and change from equity method to consolidation in 2023. | |
| ● | We evaluated the analysis of the initial allocation of the purchase price accounting as well as the determination of the balance sheet classification of each component of the transaction. | |
| ● | We obtained the Company’s third-party expert valuation report to gain an understanding of the processes and key assumptions for estimating the fair value of inventories and other acquired assets and liabilities and enterprise value. | |
| ● | We utilized our valuation specialists to evaluate the adequacy and appropriateness of the methodologies and assumptions, including the weighted-average cost of capital and the discount rate, used by the Company’s third-party valuation expert in developing the estimated fair value of the inventories and other acquired assets and liabilities and the enterprise value. | |
| ● | We assessed the reasonableness of management’s cash flow forecasts based on historical results, revenue growth assumptions and expected inflation. | |
| ● | We performed independent calculations to test the reasonableness and mathematical accuracy of the fair values concluded by the Company. | |
| ● | We evaluated the qualifications of the Company’s third-party valuation expert based on credentials, reputation and experience. | |
| ● | We assessed the appropriateness of the disclosures in the consolidated financial statements. |
Valuation of Preferred Shares
Description of the Critical Audit Matter: As described further in Notes 12 to the financial statements, the Company determined that the Series E preferred shares issued on November 8, 2023 to distinguished for the outstanding balances and accrued interest of six promissory notes has to be fair value. The Company utilized an equity allocation method to determine the fair value of the Series E preferred shares, which uses certain assumptions related to expected terminal date, expected volatility, implied equity value, risk-free interest rate, etc.
How the Critical Audit Matter was Addressed in the Audit: We determined the assessment of the fair values of the Series E preferred shares as a critical audit matter due to the significant judgements used by the Company in determining the fair value of the Series E preferred shares. Auditing the valuation of the Series E preferred shares involved a high degree of auditor judgement and specialized skills and knowledge were needed.
Our audit procedures consisted of the following, among others:
| ● | We read the debt exchange agreement to understand and evaluate the terms of the transaction to determine that the number of Series E preferred shares issued and the total debt settled and recalculate the loss in extinguishment of debt based on the fair value of Series E preferred shares issued in 2023. |
| ● | We obtained the Company’s third-party expert valuation report to gain an understanding of the processes and key assumptions for estimating the fair value of Series E preferred shares. |
| ● | We utilized our valuation specialists to evaluate the adequacy and appropriateness of the methodologies and assumptions used by the Company’s third-party valuation expert in developing the estimated fair value of Series E preferred shares. |
We have served as the Company’s auditor since 2023.
April 16, 2024
| 41 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Clean Energy Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Clean Energy Technologies, Inc. and Subsidiaries (“the Company”) as of December 31, 2022, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the year ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has an accumulated deficit, a working capital deficit and negative cash flows from operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition
Description of the Critical Audit Matter
As discussed in Note 2 to the consolidated financial statements, revenue from contracts is recognized in the period during which the performance obligations are satisfied, provided that the applicable conditions under the related contracts have been met.
The related audit effort in evaluating management’s judgments in determining revenue recognition for these agreements was extensive and required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to evaluating the Company’s accounting for revenue recognized from these revenue agreements, among others:
| ● | Analyzing the pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation. |
| ● | Reviewing the treatment of contract terms that impact the timing and amount of revenue recognized. |
| ● | Evaluating the transactions prices allocated to each performance obligation. |
| ● | Testing the accuracy and completeness of management’s calculations based on supporting data and audit evidence. |
We served as the Company’s auditor from 2015 to 2023.
Spokane, Washington
April 17, 2023
| 42 |
Clean Energy Technologies, Inc.
Consolidated Balance Sheets
| December 31, 2023 | December 31, 2022 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable - net | ||||||||
| Accounts receivable – related party | ||||||||
| Accounts receivable | ||||||||
| Lease receivable asset | ||||||||
| Advance to Supplier - Prepayment | ||||||||
| Advance to Supplier – related party | ||||||||
| Advance to Supplier | ||||||||
| Deferred Offering Costs | ||||||||
| Investment Heze Hongyuan Natural Gas co. | ||||||||
| Due from related party | ||||||||
| Loan Receivables | ||||||||
| Investment to Guangyuan Shuxin New Energy Co. | ||||||||
| Inventory | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment - Net | ||||||||
| Goodwill | ||||||||
| LWL Intangibles | ||||||||
| Intangible Assets Net Shuya | ||||||||
| Long Term Investment - Shuya | ||||||||
| Long-term financing receivables - net | ||||||||
| License | ||||||||
| Patents | ||||||||
| Right of use asset - long term | ||||||||
| Other Assets | ||||||||
| Total Non Current assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable – related party | ||||||||
| Accounts payable | ||||||||
| Accrued Expenses | ||||||||
| Customer Deposits | ||||||||
| Warranty Liability | ||||||||
| Deferred Revenue | ||||||||
| Derivative Liability | ||||||||
| Facility Lease Liability - current | ||||||||
| Line of Credit | ||||||||
| Convertible Notes Payable (net of discount of $ | ||||||||
| Related Party Notes Payable | ||||||||
| Notes Payable | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Debt: | ||||||||
| Facility Lease Liability - long term | ||||||||
| Accrued Dividend | ||||||||
| Net Long-Term Debt | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of December 31, 2023 and December 31, 2022 respectively | ||||||||
| 15% Series E Convertible preferred stock, $
par value;
shares authorized;
shares issued and outstanding and shares issued and outstanding as of December 31, 2023 and 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated Other Comprehensible Income | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Equity attributable to Clean Energy Technologies, Inc. | ||||||||
| Non-controlling interest | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying footnotes are an integral part of these financial statements
| 43 |
Clean Energy Technologies, Inc.
Consolidated Statements of Operations
for the years ended December 31,
| 2023 | 2022 | |||||||
| Sales | $ | $ | ||||||
| Sales -related party | ||||||||
| Total revenue | ||||||||
| Cost of Goods Sold | ||||||||
| Gross Profit | ||||||||
| General and Administrative | ||||||||
| General and Administrative expense | ||||||||
| Salaries | ||||||||
| Travel | ||||||||
| Professional Fees | ||||||||
| Facility lease and Maintenance | ||||||||
| Consulting | ||||||||
| Bad Debt Expense | ||||||||
| Depreciation and Amortization | ||||||||
| Total Expenses | ||||||||
| Net Loss from Operations | ( | ) | ( | ) | ||||
| Other Income | ||||||||
| Change in derivative liability | ( | ) | ||||||
| Gain / (Loss) on debt settlement and write down | ( | ) | ||||||
| Interest and Financing fees | ( | ) | ( | ) | ||||
| Net Profit / (Loss) Before Income Taxes | ( | ) | ||||||
| Income Tax Expense | ( | ) | ( | ) | ||||
| Net Profit / (Loss) | ( | ) | ||||||
| Net loss attributable to non-controlling interest | ||||||||
| Net Profit / (Loss) attributable to Clean Energy Technologies, Inc. | ( | ) | ||||||
| Accumulative other comprehensive income | ||||||||
| Foreign Currency Translation Loss | $ | ( | ) | ( | ) | |||
| Total Comprehensible Loss | $ | ( | ) | $ | ( | ) | ||
| Per Share Information: | ||||||||
| Basic and diluted weighted average number of common shares outstanding | ||||||||
| Net Profit / (Loss) per common share basic and diluted | $ | ( | ) | $ | ||||
The accompanying footnotes are an integral part of these financial statements
| 44 |
Clean Energy Technologies, Inc.
Consolidated Statements of Stockholders Equity
December 31, 2023 And 2022
| Description | Shares | Amount | Shares | Amount | Amount | Capital | Income | Deficit | Interest | Totals | ||||||||||||||||||||||||||||||
| Common Stock .001 Par | Preferred Stock | Common Stock to be issued | Additional Paid in | Accumulated Comprehensive | Accumulated | Non Controlling | Stock holders’ Deficit | |||||||||||||||||||||||||||||||||
| Description | Shares | Amount | Shares | Amount | Amount | Capital | Income | Deficit | Interest | Totals | ||||||||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
| Shares issued for warrant conversion | - | - | ||||||||||||||||||||||||||||||||||||||
| Shares issued for Reg A offering | - | |||||||||||||||||||||||||||||||||||||||
| Shares issued for MGW note conversion | - | |||||||||||||||||||||||||||||||||||||||
| Shares for Mast conversion | - | ( |
) | |||||||||||||||||||||||||||||||||||||
| Shares issued for S1 | - | |||||||||||||||||||||||||||||||||||||||
| Contribution to capital | - | - | |
|||||||||||||||||||||||||||||||||||||
| Accumulative comprehensive | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Net Loss | - | - | ||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Beginning balance | ( |
) | ( |
) | ) | |||||||||||||||||||||||||||||||||||
| Warrants issued in conjunction for debt | - | |||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | |||||||||||||||||||||||||||||||||||||||
| Shares issued for S-1 Registration | - | |||||||||||||||||||||||||||||||||||||||
| Offering cost | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Shares issued for rounding | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Shares for Pacific Pier and Firstfire conversion | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Shares issued for Debt Conversion | - | |||||||||||||||||||||||||||||||||||||||
| Accumulated Comprehensive | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Fair value of NCI from acquisition of Shuya | ||||||||||||||||||||||||||||||||||||||||
Shares issued for warrant conversion | ||||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities due to note repayment | ||||||||||||||||||||||||||||||||||||||||
| Shares based compensation | ||||||||||||||||||||||||||||||||||||||||
| Shares issued for Series E preferred | ||||||||||||||||||||||||||||||||||||||||
| Series E preferred dividend | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| December 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Ending balance | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
The accompanying footnotes are an integral part of these financial statements
| 45 |
Clean Energy Technologies, Inc.
Consolidated Statements of Cash Flows
for the years ended December 31,
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income / ( Loss ) | $ | ( |
) | $ | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
Stock compensation expense |
||||||||
Loss (gain) on debt settlement |
( |
) | ||||||
| Amortization of debt discount | ||||||||
| Attributable loss per equity method - Shuya | ||||||||
| Financing Fees | ||||||||
| Deferred offering expense | ( |
) | ||||||
| Change in derivative liability | ( |
) | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in right of use asset | ( |
) | ||||||
| (Increase) decrease in lease liability | ( |
) | ||||||
| (Increase) decrease in accounts receivable | ( |
) | ||||||
(Increase) decrease in accounts receivable – related party |
( |
) | ||||||
| (Increase) decrease interest receivable | ( |
) | ||||||
| (Increase) decrease in prepayments | ( |
) | ( |
) | ||||
| (Increase) decrease in other assets | ( |
) | ||||||
| (Increase) decrease in inventory | ( |
) | ||||||
| (Decrease) increase in accounts payable | ( |
) | ||||||
| (Decrease) increase in accrued interest | ||||||||
| Other (Decrease) increase in accrued expenses | ( |
) | ||||||
| Other (Decrease) increase in other payables - related party | ( |
) | ||||||
| Other (Decrease) increase in customer deposits | ||||||||
| Net Cash Used In Operating Activities | ( |
) | ( |
) | ||||
| Cash Flows from Investing Activities | ||||||||
Cash acquired from consolidation Shuya |
||||||||
| Investment to Guangyuan Shuxin New Energy Co. | ( |
) | ||||||
| Purchase of intangible assets | ( |
) | ||||||
| Purchase of fixed assets | ( |
) | ||||||
| Investment in Heze Hongyuan | ( |
) | ||||||
| Loan receivables | ( |
) | ||||||
| Investment in Shuya | ( |
) | ||||||
| Investment | ( |
) | ||||||
| Cash Flows Used In Investing Activities | ( |
( |
) | |||||
| Cash Flows from Financing Activities | ||||||||
| Payment on notes payable - related party | ( |
) | ||||||
| Proceeds from notes payable and lines of credit | ||||||||
Proceeds from warrants exercised |
||||||||
Loan receivables |
||||||||
| Payments on notes payable and line of credit | ( |
) | ( |
) | ||||
| Stock issued for cash | ||||||||
| Cash Flows Provided By Financing Activities | ||||||||
| Foreign Currency Transaction | ( |
) | ||||||
| Net (Decrease) Increase in Cash and Cash Equivalents | ( |
) | ||||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||
| Supplemental Cashflow Information: | ||||||||
| Interest Paid | $ | $ | ||||||
| Taxes Paid | $ | $ | ||||||
| Supplemental Non-Cash Disclosure | ||||||||
| Discount on new notes | $ | $ | ||||||
| Shares issued for warrants | $ | $ | ||||||
| Shares issued for preferred conversions | $ | $ | ||||||
| Shares issued for debt conversions | $ | $ | ||||||
| Warrants issued in conjunction for convertible notes payable | $ | $ | ||||||
| Forgiveness debt | $ | $ |
The accompanying footnotes are an integral part of these financial statements
| 46 |
Clean Energy Technologies, Inc.
Notes to Consolidated Financial Statements
NOTE 1 –GENERAL
Corporate History
We were incorporated in 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, Inc.
Our principal executive offices are located at 1340 Reynolds Avenue Unit 120, Irvine, California 92614. Our telephone number is (949) 273-4990. Our common stock is listed on the OTCQB Markets under the symbol “CETY.”
Our internet website address is www.cetyinc.com. The information contained on our websites are 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.
The Company has four reportable segments: Clean Energy HRS (HRS) and CETY Europe, CETY Renewables waste to energy business unit, the Engineering and Manufacturing services division and CETY Hong Kong.
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 equity of $
Plan of Operation
Our mission is to be a leader in the zero-emission revolution by providing eco-friendly energy solutions, clean energy fuels, and alternative electric power for small to mid-sized projects across North America, Europe, and Asia. The company harnesses the power of heat and biomass to produce electricity with zero emissions and minimal cost. Additionally, the company offers Waste to Energy Solutions, converting waste materials from manufacturing, agriculture, and wastewater treatment plants into electricity and biochar. Clean Energy Technologies also provides engineering, consulting, and project management solutions, leveraging its expertise to develop clean energy projects for both municipal and industrial customers, as well as Engineering, Procurement, and Construction (EPC) companies.
Our principal businesses
Heat Recovery Solutions – Clean Energy Technologies patented frictionless, lubricant and maintenance free magnetic bearing turbine Clean Cycle Generator (CCG) is a heat recovery system that captures waste heat from various sources and converts it into electricity. This system can be integrated into various industrial processes, helping to reduce energy costs and carbon emissions.
Waste to Energy Solutions – Clean Energy Technologies’ waste to energy solutions involve decomposing organic waste materials, such as agricultural waste and food waste at high temperatures into clean energy through its proprietary gasification technology that produce a range of products, including electricity, heat, and biochar.
Engineering, Consulting and Project Management Solutions – Clean Energy Technologies offers engineering and manufacturing services to help clients bring their sustainable energy products to market. This includes design, prototyping, testing, and production services. Clean Energy Technologies’ expertise in engineering and manufacturing enables it to provide customized solutions to meet clients’ specific needs.
| 47 |
CETY HK
Clean
Energy Technologies (H.K.) Limited (“CETY HK”) consists of two business ventures in mainland China:(i) our natural gas (“NG”)
trading operations sourcing and suppling NG to industries and municipalities. NG is principally used for heavy truck refueling stations
and urban or industrial users. We purchase large quantities of NG from large wholesale NG depots at fixed prices which are prepaid for
in advance at a discount to market. We sell the NG to our customers at prevailing daily spot prices for the duration of the contracts;
and (ii) our planned joint venture with a large state-owned gas enterprise in China called Shenzhen Gas (Hong Kong) International Co.
Ltd. (“Shenzhen Gas”),, acquiring natural gas pipeline operator facilities, primarily located in the southwestern part of
Sichuan Province and portions of Yunnan Province. Our planned joint venture with Shenzhen Gas plans to acquire, with financing from Shenzhen
Gas, natural gas pipeline operator facilities with the goal of aggregating and selling the facilities to Shenzhen Gas in the future.
According to our Framework Agreement with Shenzhen Gas, we will be required to contribute $
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of significant accounting policies of Clean Energy Technologies, Inc. (formerly Probe Manufacturing, Inc.) is presented to assist in the understanding of the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who is responsible for their integrity and objectivity.
The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
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 most of our cash accounts at a commercial bank. The total cash balance is insured by the Federal Deposit Insurance Corporation
(“FDIC”) up to $
Accounts Receivable
Our
ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by us. Reserves for
uncollectable 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 December 31, 2023, and December 31, 2022, we had a reserve for potentially
un-collectable accounts receivable of $
Seven
(7) customers accounted for approximately
| 48 |
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 December 31, 2023 we had a reserve of $
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:
SCHEDULE OF ESTIMATED USEFUL LIVES
Furniture
and fixtures
Equipment
Long – Lived Assets
Long-lived assets, which include property, plant and equipment and intangible assets with finite lives, and operating lease right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying
amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment
or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against
the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable,
an impairment charge is measured as the amount by which the carrying amount of the asset group asset group exceeds its fair value based
on discounted cash flow analysis or appraisals. There was
Revenue Recognition
The Company recognizes revenue under ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASC 606”).
Performance Obligations Satisfied Over Time
FASB ASC 606-10-25-27 through 25-29, 25-36 through 25-37, 55-5 through 55-10
An entity transfers control of a good or service over time and satisfies a performance obligation and recognizes revenue over time if one of the following criteria is met:
a. The customer receives and consumes the benefits provided by the entity’s performance as the entity performs (as described in FASB ASC 606-10-55-5 through 55-6).
b. The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced (as described in FASB ASC 606-10-55-7).
c. The entity’s performance does not create an asset with an alternative use to the entity (see FASB ASC 606-10-25-28), and the entity has an enforceable right to payment for performance completed to date (as described in FASB ASC 606-10-25-29).
| 49 |
Performance Obligations Satisfied at a Point in Time
FASB ASC 606-10-25-30
If a performance obligation is not satisfied over time, the performance obligation is satisfied at a point in time. To determine the point in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation, the entity should consider the guidance on control in FASB ASC 606-10-25-23 through 25-26. In addition, it should consider indicators of the transfer of control, which include, but are not limited to, the following:
a. The entity has a present right to payment for the asset
b. The customer has legal title to the asset
c. The entity has transferred physical possession of the asset
d. The customer has the significant risks and rewards of ownership of the asset
e. The customer has accepted the asset
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. In addition, a) the company also does not have an alternative use for the asset if the customer were to cancel the contract, and b) has a fully enforceable right to receive payment for work performed (i.e., customers are required to pay as various milestones and/or timeframes are met)
The following five steps are applied to achieve that core principle for our HRS and Cety Europe Divisions:
| ● | 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 |
The following steps are applied to our legacy engineering and manufacturing division:
| ● | 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 |
The following step is applied to our CETY HK business unit:
| ● | CETY HK is primarily responsible for fulfilling the contract / promise to provide the specified good or service. |
A principal obtains control over any one of the following (ASC 606-10-55-37A):
| a. | A good or another asset from the other party which the entity then transfers to the customer. Note that momentary control before transfer to the customer may not qualify. | |
| b. | A right to a service to be performed by the other party, which gives the entity the ability to direct that party to provide the service to the customer on the entity’s behalf. | |
| c. | A good or service from the other party that it then combines with other goods or services in providing the specified good or service to the customer. |
If the entity obtains control over one of the above before the good or service is transferred to a customer, the entity could be considered a principal.
| 50 |
Additionally, the above five steps are applied to achieve core principle for our CETY Renewables Division:
Because the CETY Renewables division is presently engaged in the Engineering, Procurement, and Construction (EPC) of biomass power facilities, CETY Renewables has developed a process of executing EPC Agreements with customers for this work. In contracting these engagements, CETY Renewables recognizes revenue according to accounting standards in accordance with ASC 606.
In recognizing this revenue, CETY Renewables first identifies the relevant contract with its customer according to 606-10-25-1.
| ● | The entities, together known as the Parties, approved the contract in writing, through signatures and commitment to the performance of permitting, design, procurement, construction, and commissioning. |
| ● | CETY’s work product includes permits, engineering designs, equipment, and full balance of plant specific to permitting, design, procurement, construction, and commissioning. |
| ● | CETY and customer agree to a total EPC Contract price. |
| ● | The contract has commercial substance. The risk associated with this EPC Agreement is that payment of the EPC contract price. |
| ● | Per the EPC Agreement, CETY expects to collect substantially all of the consideration for its goods and services. |
Secondly, CETY identifies the performance obligations of the Parties in performance of the EPC Agreement in accordance with 606-10-25-14. At contract inception, CETY assesses the goods and services necessary to deliver the facility in accordance with its agreement with clients. The agreement specifically laid out all deliverables necessary to achieve the permitting, design, procurement, construction, and commissioning.
CETY also looks at 606-10-25-14(A). A bundle of goods or services is also present, in that CETY is delivering all work products associated with permitting, design, procurement, construction and commissioning of a commercially operable biomass power plant. A biomass power plant is a distinct bundle of goods or services, so the individual goods or services on their own do not lend themselves to a fully integrated or functional system.
CETY in accordance with 606-10-32-1, CETY reviews measurement of the performance obligations. There is no exclusion of any amount of the Contract Price due to constraints associated with 606-10-31-11 through 606-10-32-13.
In review of 606-10-32-2A, CETY did not exclude measurement from the measurement of the transaction price any taxes assessed by a government authority as no such taxes will be due.
In reviewing 606-10-32-3, CETY evaluated the nature, timing, and amount of consideration promised, and whether it impacts the estimate of the transaction price.
Finally, in identifying a single method of measuring progress for each performance obligation satisfied over time, in accordance with 606-10-25-32, CETY applies the methodology of 606-10-25-36. CETY adopted and implemented the input method for revenue recognition in accordance with ASC 606-10-25-33. The company adopts the input method for implementation. CETY recognizes revenue for performance obligations on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation per 606-10-55-20.
For CETY, the contracts with clients for the construction of biomass power plants are the basis for revenue recognition. In each separate EPC Agreement, the performance obligations include permitting, design, procurement, construction, and commissioning of the plant. All of these work products satisfy Section 606-10-25-27(b) as these work products create or enhance an asset under customer’s control. Upon delivery of the work product, the customer takes control of the work products and has full right and ability to direct the use of and obtain substantially all of the remaining benefits of the assets. We recognize revenue over time, using timeline and milestone methods to measure progress towards complete satisfaction of the performance obligation.
During the complexity and duration of the biomass power plant construction projects, CETY will recognize revenue over time, consistent with the criteria for over-time recognition under ASC 606. This approach reflects the continuous transfer of documents, permits, and the equipment over to the customer, which is characteristic of long-term construction contracts.
We have a list of appropriate measures of progress: This is based on milestones achieved, among other measures.
Given the long-term nature of the projects, CETY regularly reviews and, if necessary, updates its estimates of progress towards completion, transaction price, and the allocation of the transaction price to performance obligations.
Also,
from time to time our contracts state that the customer is not obligated to pay a final payment until the units are commissioned, i.e.
a final payment of
Also
from time to time we require upfront deposits from our customers based on the contract. As of December 31, 2023 and 2022, we had outstanding
customer deposits of $
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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” 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. The Company’s derivative liabilities have been valued as Level 3 instruments. We value the derivative liability
using a lattice model, with a volatility of |
The Company’s financial instruments consist of cash, prepaid expenses, inventory, accounts payable, accrued expenses, and convertible notes payable. The estimated fair value of cash, prepaid expenses, investments, accounts payable, accrued expenses and convertible notes payable approximate their carrying amounts due to the short-term nature of these instruments.
Foreign Currency Translation and Comprehensive Income (Loss)
We have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods. The accounts of the Company’s Chinese entities are maintained in RMB. The accounts of the Chinese entities were translated into USD in accordance with FASB ASC Topic 830 “Foreign Currency Matters.” All assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and the statements of operations and cash flows are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income (loss) in accordance with FASB ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from foreign currency transactions are reflected in the statements of operations.
The Company follows FASB ASC Topic 220-10, “Comprehensive Income (loss).” Comprehensive income (loss) comprises net income (loss) and all changes to the statements of changes in stockholders’ equity, except those due to investments by stockholders, changes in additional paid-in capital and distributions to stockholders.
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Change from fair value or equity method to consolidation.
In
July 2022, JHJ, a wholly owned subsidiary of CETY HK and other three shareholders agreed to form and make total capital contribution
of RMB million ($ million) with latest contribution due date in February 2066 into Sichuan Hongzuo Shuya Energy Limited (“Shuya”),
JHK owns
Shuya was set up as the operating entity for pipeline natural gas (PNG) and compressed natural gas (CNG) trading business, while the other two shareholders of Shuya have large supply relationships.
For the year ended December 31, 2022, the Company has determined that Shuya is not a VIE and has evaluated its consolidation analysis under the voting interest model. Because the Company does not own greater than 50% of the outstanding voting shares, either directly or indirectly, it has accounted for its investment in Shuya under the equity method of accounting. Under this method, the investor (“JHJ”) recognizes its share of the profits and losses of the investee (“Shuya”) in the periods when these profits and losses are also reflected in the accounts of the investee. Any profit or loss recognized by the investing entity appears in its income statement. Also, any recognized profit increases the investment recorded by the investing entity, while a recognized loss decreases the investment.
JHJ
made an investment of RMB
Chengdu Xiangyueheng Enterprise Management Co., Ltd (the “Xiangyueheng”), which owns a 10% equity interest in Shuya, entered a three-party Concerted Action Agreement (the “CAA”), wherein the parties agreed to vote in unison at the shareholders’ meeting of Shuya to consolidate the controlling position of the three parties in Shuya. The three parties agreed that during the term of the CAA, before any of the three parties intends to propose motions to the shareholders’ meetings or the board of directors, or exercise their voting rights on any matter that shall be presented to and resolved through the shareholders’ meeting in accordance with the laws, regulations, Articles of Association of Shuya or any relevant shareholders’ agreements, the three parties will discuss, negotiate, and coordinate the motion topics for consistency; in the event of disagreement, the opinions of JHJ shall prevail.
As a result of the CAA, the Company re-analyzed and determined that Shuya is the variable interest entity (the “VIE”) of JHJ because 1) the equity investors at risk, as a group, lack the characteristics of a controlling financial interest, and 2) Shuya is structured with disproportionate voting rights, and substantially all the activities are conducted on behalf of an investor with disproportionately few voting rights. Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The Company concluded JHJ is deemed the primary beneficiary of the VIE. Accordingly, the Company consolidates Shuya into its consolidated financial statements effective on January 1, 2023.
The change of control interest was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification, referred to as ASC, 805, Business Combinations. The management determined that the Company was the acquiror for financial accounting purposes. In identifying the Company as the accounting acquiror, the companies considered the structure of the transaction and other actions contemplated by the Three-Parties Consistent Action Agreement, relative outstanding share ownership and market values, the composition of the combined company’s board of directors, the relative size of Shuya, and the designation of certain senior management positions of the combined company.
| 53 |
In accordance with ASC 805, the Company recorded the acquisition based on the fair value of the consideration transferred and then allocated the purchase price to the identifiable assets acquired and liabilities assumed based on their respective fair values as of the Acquisition Date. The excess of the value of consideration transferred over the aggregate fair value of those net assets was recorded as goodwill. Any identified definite lived intangible assets will be amortized over their estimated useful lives and any identified intangible assets with indefinite useful lives and goodwill will not be amortized but will be tested for impairment at least annually. All intangible assets and goodwill will be tested for impairment when certain indicators are present. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates, and selection of comparable companies. The valuation of purchase considerations was based on preliminary estimates that management believes are reasonable under the circumstances. Based on the preliminary independent valuation, management determined that the difference in the fair value of the consideration paid, and book records was immaterial due to the fact that Shuya has been only in operations for less than a year after effective date of control in became effective. The management determined that the final purchase price allocation shall be re-valuated subject to change pending additional operational results and forecast assumptions.
As
the Consistent Action Agreement did not quantify any considerations to gain the control, the deemed consideration paid is the fair value
of
SCHEDULE OF FAIR VALUE OF ASSETS AND LIABILITIES ACQUIRED
| Fair value of non-controlling interests | $ | |||
| Fair value of previously held equity investment | ||||
| Subtotal | $ | |||
| Recognized value of | ( | ) | ||
| Goodwill Recognized | $ | |||
| Recognized amounts of identifiable assets acquired and liabilities assumed (preliminary): | ||||
| Inventories | $ | |||
| Cash and cash equivalents | ||||
| Trade and other receivables | ||||
| Advanced deposit | ||||
| Net fixed assets | ||||
| Trade and other payables | ( | ) | ||
| Advanced payments | ( | ) | ||
| Salaries and wages payables | ( | ) | ||
| Other receivable | ||||
| Total identifiable net assets | $ |
Under ASC-805-10-50-2, initial consolidation of an investee previously reported using fair value or the equity method should be accounted for prospectively as of the date the entity obtained a controlling financial interest. Therefore, the Company should provide pro forma information as if the consolidation had occurred as of the beginning of each of the current and prior comparative reporting period per
| 54 |
Unaudited Proforma of Consolidated Statement of Operations
| 2023 | 2022 | |||||||
| Sales | ||||||||
| Sales - Related Party | ||||||||
| Total Income | ||||||||
| Cost of Goods Sold | ||||||||
| Gross Profit | ||||||||
| Expense | ||||||||
| General and Administrative Expense | ||||||||
| Salaries | ||||||||
| Travel | ||||||||
| Professional Fees Legal & Accounting | ||||||||
| Facility Lease and Maintenance | ||||||||
| Consulting Engineering | ||||||||
| Stock Compensation | ||||||||
| Depreciation and Amortization | ||||||||
| Total Expense | ||||||||
| Net Profit / (Loss) From Operations | ( | ) | ( | ) | ||||
| Other Income & Expense | ||||||||
| Other Income | ||||||||
| Change in Derivative Liability | ( | ) | ||||||
| Gain / (Loss) on Debt Settlement and Write Down | ( | ) | ||||||
| Interest and Financing fees | ( | ) | ( | ) | ||||
| Net Profit / (Loss) Before Income Taxes | ( | ) | ||||||
| Income Tax Expense | ( | ) | ( | ) | ||||
| Net Profit / (Loss) | ( | ) | ||||||
| Non-controlling interest | ||||||||
| Net Profit / (Loss) attributable to Clean Energy Technologies, Inc. | ( | ) | ||||||
| Other Comprehensive Item | ||||||||
| Foreign Currency Translation Gain | ( | ) | ( | ) | ||||
| Total Comprehensible Income / (Loss) | ( | ) | ( | ) | ||||
| Non- Controlling interest | ||||||||
| Accumulative Other Comprehensive Income | ||||||||
| Total Comprehensive Income | ( | ) | ( | ) | ||||
Basic
profit / (loss) per share is computed based on the weighted average number of common shares outstanding. At December 31, 2023, we
had outstanding common shares of
used in the calculation of basic earnings per share. Basic weighted average common shares and equivalents for the years ended
December 31, 2023 and 2022 were
and ,
respectively. As of December 31, 2023, we had convertible notes, convertible into approximately
of additional common shares, and
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Research and Development
We
had
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 four reportable segments: Manufacturing & Engineering services, Clean Energy HRS (HRS), CETY HK NG Trading, and CETY Renewables Waste to Energy. 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’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.
Selected Financial Data:
SCHEDULE OF FINANCIAL DATA
| 2023 | 2022 | |||||||
| For the years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net Sales | ||||||||
| Manufacturing and Engineering | $ | $ | ||||||
| Heat Recovery Solutions | ||||||||
| LNG Trading | ||||||||
| Waste to Energy | ||||||||
| Total Sales | $ | $ | ||||||
| Segment income and reconciliation before tax | ||||||||
| Manufacturing and Engineering | ( | ) | ||||||
| Heat Recovery Solutions | ||||||||
| LNG Trading | ||||||||
| Waste to Energy | ||||||||
| Total Segment income | ||||||||
| Less: operating expense | (3,745,662 | ) | (2,163,947 | ) | ||||
| Less: other income and expenses | (2,854,181 | ) | 1,155,429 | |||||
| Net profit/ (loss) before income tax | $ | (5,509,589 | ) | $ | 165,678 | |||
| December
31, 2023 | December
31, 2022 | |||||||
| Total Assets | ||||||||
| CETY & Manufacturing and Engineering | $ | $ | ||||||
| Clean Energy HRS | ||||||||
| Waste to Energy | ||||||||
| LNG Trading | ||||||||
| Total Assets | $ | $ | ||||||
| 2023 | 2022 | |||||||
| For the years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| United States | ||||||||
| China | ||||||||
| Other international | ||||||||
| Total Sales | ||||||||
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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. 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 quarterly 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. As of December 31, 2023, we had no further non-vested expense to be recognized.
Leases
On January 2, 2020, the Company adopted ASC Topic 842, Leases, or ASC 842, using the modified retrospective transition method with a cumulative effect adjustment to be accumulated deficit as of January 1, 2019, and accordingly, modified its policy on accounting for leases as stated below. As described under “Recently Adopted Accounting Pronouncements,” below, the primary impact of adopting ASC 842 for the Company was the recognition in the consolidated balance sheet of certain lease-related assets and liabilities for operating leases with terms longer than 12 months.
The Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether an arrangement contains a lease at inception. The Company recognizes a lease liability to make contractual payments under all leases with terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying asset for the lease term. The lease liability is initially measured at the present value of the lease payments over the lease term using the collateralized incremental borrowing rate since the implicit rate is unknown. Options to extend or terminate a lease are included in the lease term when it is reasonably certain that the Company will exercise such an option. The right-of-use asset is initially measured as the contractual lease liability plus any initial direct costs and prepaid lease payments made, less any lease incentives. Lease expense is recognized on a straight-line basis over the lease term.
Leased right-of-use assets are subject to impairment testing as a long-lived asset at the asset-group level. The Company monitors its long-lived assets for indicators of impairment. As the Company’s leased right-of-use assets primarily relate to facility leases, early abandonment of all or part of facility as part of a restructuring plan is typically an indicator of impairment. If impairment indicators are present, the Company tests whether the carrying amount of the leased right-of-use asset is recoverable including consideration of sublease income, and if not recoverable, measures impairment loss for the right-of-use asset or asset group.
Income Taxes
Federal Income taxes are not currently due since we have had losses since inception of Clean Energy Technologies.
| 57 |
Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25 Income 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 December 31, 2023, we had a net operating loss carry-forward of approximately $(
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 $
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 $
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
states of California. Further, the Company currently has no open tax years’ subject to audit prior to
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.
| 58 |
Recently Issued Accounting Standards
The Company’s management reviewed all recently issued ASU’s not yet adopted by the Company and does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on the Company’s consolidated financial condition or the results of its operations.
Deferred Stock Issuance Costs
Deferred
stock issuance costs represent amounts paid for legal, consulting, and other offering expenses in conjunction with the future raising
of additional capital to be performed within one year. These costs are netted against additional paid-in capital as a cost of the stock
issuance upon closing of the respective stock placement. During the year ended December 31, 2023, $
NOTE 3 – ACCOUNTS AND NOTES RECEIVABLE
SCHEDULE OF ACCOUNTS AND NOTES RECEIVABLE
| December 31, 2023 | December 31, 2022 | |||||||
| Accounts Receivable | $ | $ | ||||||
| Accounts Receivable - RP | ||||||||
| Less reserve for uncollectable accounts | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Our Accounts Receivable is pledged to Nations Interbanc, our line of credit.
SCHEDULE OF LEASE RECEIVABLE ASSET
| December 31, 2023 | December 31, 2022 | |||||||
| Long-term receivables | $ | $ | ||||||
| Less reserve for uncollectable accounts | ( |
) | ( |
) | ||||
| Net Long-term receivables | ||||||||
The Company is currently modifying the assets subject to lease to meet the provisions of the agreement, and as of December 31, 2023 any collection on the lease payments was not yet considered probable, resulting in no derecognition of the underlying asset and no net lease investments recognized on the sales-type lease pursuant to ASC 842-30-25-3.
On a contract by contract basis or in response to certain situations or installation difficulties, the Company may elect to allow non-interest bearing repayments in excess of 1 year.
Our long - term financing Receivable are pledged to Nations Interbanc, our line of credit.
| 59 |
NOTE 4 – INVENTORY
Inventories by major classification were comprised of the following at:
SCHEDULE OF INVENTORIES
| December 31, 2023 | December 31, 2022 | |||||||
| Inventory | $ | $ | ||||||
| Less reserve for obsolescence parts | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Our Inventory is pledged to Nations Interbanc, our line of credit.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment were comprised of the following at:
SCHEDULE OF PROPERTY AND EQUIPMENT
| December 31, 2023 | December 31, 2022 | |||||||
| Property and Equipment | $ | $ | ||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Net Fixed Assets | $ | $ | ||||||
Our
Depreciation Expense for the years ended December 31, 2023 and 2022 was $
Our Property Plant and Equipment is pledged to Nations Interbanc, our line of credit.
NOTE 6 – INTANGIBLE ASSETS
Intangible assets were comprised of the following at:
SCHEDULE OF INTANGIBLE ASSETS
| December 31, 2023 | December 31, 2022 | |||||||
| Goodwill | $ | $ | ||||||
| LWL Investment | ||||||||
| Intangible assets - Shuya | 12,914 | - | ||||||
| License | ||||||||
| Patents | ||||||||
| Accumulated Amortization | ( | ) | ( | ) | ||||
| Net Fixed Assets | $ | $ | ||||||
Our
Amortization Expense for the years ended December 31, 2023 and 2022 was $
Based on the foregoing analysis of the facts surrounding the Company’s acquisition of LWL, it is the Company’s position that the Company is the acquirer of LWL, under the acquisition method of accounting.
As such, as of November 8, 2021 (the acquisition date), the Company recognized, separately from goodwill, the identifiable assets acquired and the liabilities assumed in the Business combination.
The following table presents the purchase price allocation:
SCHEDULE OF BUSINESS ACQUISITION PURCHASE PRICE ALLOCATION
| Consideration: | ||||
| Total purchaser consideration – cash paid | $ | |||
| Assets acquired: | ||||
| Cash and cash equivalents | $ | |||
| Prepayment | $ | |||
| Other receivable | $ | |||
| Trading Contracts | $ | |||
| Shenzhen Gas Relationship | $ | |||
| Total assets acquired | $ | |||
| Liabilities assumed: | ||||
| Advance Receipts | $ | ( | ) | |
| Taxes Payable | $ | |||
| Net Assets Acquired: | $ |
| 60 |
NOTE 7 – CONVERTIBLE NOTE RECEIVABLE
Effective
January 10, 2022, JHJ (“note holder”) entered a convertible note agreement with Chengdu Rongjun Enterprise Consulting Co.,
Ltd (“Rongjun” or “the borrower”) with maturity on
NOTE 8 – ACCRUED EXPENSES
SCHEDULE OF ACCRUED EXPENSES
| December 31, 2023 | December 31, 2022 | |||||||
| Accrued Wages | $ | $ | ||||||
| Sales tax payable | 47,661 | |||||||
| Accrued Taxes and other | ||||||||
| Accrued Taxes and other | $ | $ | ||||||
NOTE 9 – NOTES PAYABLE
On
November 11, 2013, we entered into an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). Amounts
outstanding under the agreement bear interest at the rate of
On
April 1, 2021, we entered into an amendment to the purchase order financing agreement with DHN Capital, LLC dba Nations Interbanc. Nations
Interbanc has lowered the accrued fees balance by $
On
September 11, 2015, our CE HRS subsidiary issued a promissory note in the initial principal amount $
Based
on the California Statute of Limitations, the Nevada Statute of Limitations, and the New York Statute of Limitations it is the view
of our legal counsel that the above referenced debt is no longer an enforceable obligation. under California law, Nevada law, and
New York law, as it became past due no later than November 3, 2016, more than Six (6) years ago and last payment made on the debt
was on November 3, 2016, which is more than Six (6) years ago. The total gain recognized from this write off was $
| 61 |
On
March 10, 2022 the company entered into a promissory note in the amount of $
On
June 30, 2022 the company entered into a promissory note in the amount of $
On
July 13, 2022 the company entered into a promissory note in the amount of $
On
October 25, 2022 the company entered into a promissory note in the amount of $
On
December 5,2022 the company entered into a promissory note in the amount of $
On
February 10, 2023 the company entered into a promissory note in the amount of $
On
March 6, 2023 the company entered into a promissory note in the amount of $
On
October 13, 2023 the company entered into a promissory note in the amount of $
| 62 |
On
November 17, 2023 the company entered into a promissory note in the amount of $
On
November 30, 2023 the company entered into a promissory note in the amount of $
On
December 19, 2023 the company entered into a promissory note in the amount of $
Convertible notes
On
May 5, 2017 we entered into a nine-month convertible note payable for $
On
May 24, 2017, we entered into a nine-month convertible note payable for $
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On
May 6, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (“Mast Hill) pursuant to which the Company issued
to Mast Hill a $
On
August 5, 2022, we entered into a Securities Purchase Agreement with Jefferson Street Capital, LLC (Jefferson) pursuant to which the
Company issued to Jefferson a $
On
August 17, 2022, we entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund LLC (“Firstfire”)
pursuant to which the Company issued to Mast Hill a $
On
September 1, 2022, we entered into a Securities Purchase Agreement with Pacific Pier Capital, LLC (Pacific) pursuant to which the Company
issued to Pacific a $
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On
September 16, 2022, we entered into a Securities Purchase Agreement with Mast Hill, pursuant to which the Company
issued to Mast Hill a $
On
November 10, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. pursuant to which the Company
issued to Mast Hill a $
On
November 21, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. pursuant to which the Company
issued to Mast Hill a $
On
December 26, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. pursuant to which the Company
issued to Mast Hill a $
On
January 19, 2023 we entered into a Securities Purchase Agreement with Mast Hill, L.P. pursuant to which the Company
issued to Mast Hill a $
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On
March 8, 2023 we entered into a Securities Purchase Agreement with Mast Hill, L.P. pursuant to which the Company issued
to Mast Hill a $
On
July 20, 2023 Clean Energy Technology, Inc., a Nevada corporation (the “Company”) closed the transactions contemplated by
the Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) dated July 18, 2023 (the “Securities Purchase Agreement”)
pursuant to which the Company issued to Mast Hill a $
The
principal and interest of the Note may be converted in whole or in part at any time on or following the issue date, into common stock
of the Company, par value $ share (“Common Stock”), subject to anti-dilution adjustments and for certain other corporate
actions subject to a beneficial ownership limitation of
Total due to Convertible Notes
SCHEDULE OF CONVERTIBLE NOTES
| December 31, 2023 | December 31, 2022 | |||||||
| Total convertible notes | $ | $ | ||||||
| Accrued Interest | ||||||||
| Debt Discount | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
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NOTE 10 – DERIVATIVE 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 range of
The remaining derivative liabilities were:
SCHEDULE OF FAIR VALUE OF DERIVATIVE LIABILITY
| December 31, 2023 | December 31, 2022 | |||||||
| Derivative Liabilities on Convertible Loans: | ||||||||
| Outstanding Balance | $ | $ | ||||||
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Operating Rental Leases
ASB
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
As
of May 1, 2017, our corporate headquarters were located at 2990 Redhill Unit A, Costa Mesa, CA. On March 10, 2017, the Company signed
a lease agreement for an
We have relocated our corporate office to 1340 Reynolds Avenue Unit 120, Irvine, CA 92614. On December 1, 2023, the Company signed a lease agreement for a 3000-square foot of office space with Metro Creekside California, LLC. Lease term is thirty-eight months beginning December 1, 2023 and expiring on January 31, 2027. On October 16 of 2023, we signed a sublease agreement to relocate the HRS operations from Costa Mesa to Irvine, California for one year and 7 months commencing December 1, 2023 and ending June 30, 2025. We also signed a temporary storage lease and Due to the short termination clause, we are treating this as a month-to-month lease.
The components of lease costs, lease term and discount rate with respect of these two leases with an initial term of more than 12 months are as the following:
Balance sheet information related to the Company’s operating leases:
SCHEDULE OF OPERATING LEASE COST
| As of December 31, 2023 | ||||
| Right-of-used assets | $ | |||
| Lease liabilities – current | $ | |||
| Lease liabilities – non-current | ||||
| Total lease liabilities | $ | |||
The weighted-average remaining lease term and the weighted-average discount rate of the above two leases are as follows:
| Year Ended December 31, 2023 | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | |||||||
The following is a schedule, by year of lease payment for above two leases as of December 31, 2023:
SCHEDULE OF LEASE PAYMENT
| For the 12 months ending | Lease Payment | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total undiscounted cash flows | ||||
| Imputed Interest | ( |
) | ||
| Present value of lease liabilities | $ | |||
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The components of lease costs, lease term and discount rate with respect of Leishen leases with an initial term of more than 12 months are as the following:
Balance sheet information related to the Company’s Leishen operating leases:
SCHEDULE OF OPERATING LEASE COST
| As of December 31, 2023 | ||||
| Right-of-used assets | $ | |||
| Lease liabilities – current | $ | |||
| Lease liabilities – non-current | ||||
| Total lease liabilities | $ | |||
The weighted-average remaining lease term and the weighted-average discount rate of Leishen leases are as follows:
| Year Ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
The following is a schedule, by year of lease payment for Shuya as of December 31, 2023.
| For the 12 months ending | Lease Payment | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total undiscounted cash flows | ||||
| Imputed Interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
Our
lease expense (including both ASC 842 lease and short-term lease) for the years ended December 31, 2023 and 2022 was $
Severance Benefits
Mr. Mahdi will receive a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Mahdi would have been entitled to receive through the remainder or the Employment Period or One (1) year, whichever is greater.
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NOTE 12 – 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 and designated a par value of $ 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 authorized shares.
On June 30, 2017, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to and in the number of our authorized preferred shares to . 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 . The amendment effecting the increase in our authorized capital was filed and effective on August 23, 2018.
On June 10, 2019, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to . The amendment effecting the increase in our authorized capital was effective on September 27, 2019
On
January 6, 2023, our board of directors and majority shareholders approved a reverse stock split. Effective upon the filing of our Certificate
of Amendment of Articles of Incorporation with the Secretary of State of the State of Nevada, the shares of the Corporation’s Common
Stock issued and outstanding immediately prior to the Effective Time of January 6, 2023, will be automatically reclassified as and combined
into
Common Stock Transactions
On
December 27, 2021, we entered into a convertible note payable with Universal Scope Inc. for $
On February 21, 2022, we issued shares of our common stock under our Reg A offering at $ per share. These shares are unrestricted and free trading.
During
the quarter ended March 31, 2022, we issued shares of common stock, under S-1 registration statement with GHS for a total of $
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During
the April of 2022, we issued shares of common stock, under S-1 registration statement with GHS for a total of $
On
May 6, 2022, the Company entered into a Securities Purchase Agreement and a warrant agreement with Mast Hill, L.P. (Mast Hill”)
pursuant to which the Company issued to Mast Hill the Company issued Mast Hill a warrant
to purchase
On
August 17, 2022 we issued
On
September 1, 2022 we issued
On
September 21, 2022 MGW I converted $
On December 28, 2022 Mast Hill exercised their warrant in full on a cashless basis to purchase shares of Common Stock.
On
January 19, 2023, the Company entered into a Securities Purchase Agreement and a warrant agreement with Mast Hill, L.P. (Mast Hill”)
pursuant to which the Company issued to Mast Hill the Company issued Mast Hill a warrant to purchase
On January 27, 2023 we issued shares of our common stock due to rounding post the reverse stock split.
On
March 23, 2023 we sold shares of our common stock in an underwritten offering to R.F. Lafferty & CO and Phillip US. The initial
public offering price per share is $ per share. Net proceeds from this offering was $
In
the second quarter of 2023, the Company issued shares to a consultant at fair value of $
On
March 8, 2023 the Company entered into a Securities Purchase Agreement and a warrant agreement with Mast Hill, L.P. (Mast Hill”)
pursuant to which the Company issued to Mast Hill the Company issued Mast Hill a five-year warrant to purchase
On
April 18, 2023 Mast Hill exercised the right to purchase
On
May 10, 2023 Mast Hill exercised the right to purchase
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On
June 14, 2023 Mast Hill exercised the right to purchase
On
June 23, 2023 Mast Hill exercised the right to purchase
On
September 12, 2023 Mast Hill exercised the right to purchase
On
September 13, 2023 Mast Hill exercised the right to purchase
On
October 27, 2023 Mast Hill exercised the right to purchase
Common Stock
Our Articles of Incorporation authorize us to issue shares of common stock, par value $ per share. As of December 31, 2023 there were 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 shares of preferred stock, par value $ 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 shares of Series A Convertible Preferred Stock, shares of Series B Convertible Preferred Stock, and 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 .
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The
following are primary terms of the Series D Preferred Stock.
On
October 31, 2023, Clean Energy Technologies, Inc. (the “Company”) filed with the Nevada Secretary of State a certificate
of designation designating shares of the undesignated and authorized preferred stock of the Company, par value $ per share,
as the
The
Series E Preferred Stock has a stated value of $
(the “Stated Value”) per share.
On
November 8, 2023, Clean Energy Technologies, Inc. (the “Company”) entered into an exchange agreement (the
“Agreement”) with Mast Hill Fund, L.P., a Delaware limited partnership (the “Holder”), pursuant to which the
Company agreed to issue to the Holder
shares of the newly designated
The
Company has designated the rights of the Holder with respect to its shares of Series E Preferred Stocks pursuant to that certain Certificate
of Designations, Preferences, and Rights of Series E Convertible Preferred Stock (the “Certificate of Designation”). Additionally, $
Warrants
A summary of warrant activity for the periods is as follows:
On
May 6, 2022, we issued
On
August 5, 2022, we issued
On
August 17, 2022, we issued
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On
September 1, 2022, we issued
On
September 16, 2022, we issued
On
November 10, 2022 we issued
On
November 21, 2022 we issued
On
December 26, 2022, we issued
On
January 19, 2023 we issued
On
February 13, 2023 we issued
On
March 8, 2023 we issued
On
October 25, 2023 Mast Hill exercised the right to purchase of the shares of Common Stock (“Warrant Shares”) of Clean
Energy Technologies, Inc., because of the Common Stock Purchase Warrant (the “Warrant”) issued on March 08, 2023. The exercise
price is $
SCHEDULE OF WARRANT ACTIVITY
| Warrants - Common Share Equivalents | Weighted Average Exercise price | Weighted Average Contractual life | Aggregate Intrinsic Value | |||||||||||||
| Outstanding December 31, 2022 | $ | |||||||||||||||
| Expired | - | |||||||||||||||
| Additions | ||||||||||||||||
| Additions | ||||||||||||||||
| Exercised | ||||||||||||||||
| Outstanding December 31, 2023 | ||||||||||||||||
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Stock Options
We currently have no outstanding stock options
NOTE 13 – RELATED PARTY TRANSACTIONS
From
August 2022 through October 2022 Hongzhuo Shuya (Shuya) a
Additionally,
Leishen has relationships with the supply side of the NG business and is able to obtain large amounts of NG. As a result, Shuya also
has a supplier relationship with Leishen. Our Board of Directors has approved the transactions between Leishen and the Company. During
the year ended December 31, 2023 Shuya made a $
Leishen has constructed a CNG refueling station on behalf of Shuya, the loan term is four years. When the CNG refueling station is ready for operation, Shuya will lease the CNG refueling station from Leishen at a price equivalent to the depreciation amount of the station; when the assets are eligible for transfer, Leishen will transfer the assets of CNG refueling station to Shuya at the net asset value.
Effective August 5, 2022, Shuya entered a 48-month lease for a natural gas recycle station from Leishen (the 41% shareholder of Shuya), including the operating rights and use rights of all the assets and equipment in the station. The annual rent is approximately $64,290, to be paid each year in advance, however, it has not been paid since the lease commenced. Effective August 5, 2022, Shuya entered another 48-month lease for leasing sewage treatment land from Leishen to operate the natural gas recycling station. The annual rent is approximately $17,137, to be paid each year in advance, which has not been fully paid since the lease commenced.
On
May 13, 2021 the Company formed CETY Capital LLC a wholly owned subsidiary of CETY. In addition, the company established Vermont Renewable
Gas LLC (“VRG”) with our partner, Synergy Bioproducts Corporation (“SBC”) The purpose of the joint venture is
the development of a pyrolysis plant established to convert wood feedstock into electricity and BioChar by using high temperature ablative
fast pyrolysis reactor for which Clean Energy Technology, Inc. holds the license for. The VRG is in Lyndon, Vermont. Based upon the terms
of the members’ agreement, CETY Capital LLC owns a
On
June 2, 2023 CETY Renewables executed a turnkey agreement for the design, construction, and delivery of organics to energy plant
with Vermont Renewable Gas, LLC. As a result, CETY has invoiced VRG $ in 2023 ($
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. The amount of parts purchases in 2023 was $
NOTE 14 - WARRANTY LIABILITY
For
the year ended December 31, 2023 and 2022 there was
NOTE 15 – NON-CONTROLLING INTEREST
On
June 24, 2021 the Company formed CETY Capital LLC a wholly owned subsidiary of CETY. In addition, the company established CETY Renewables
Ashfield LLC (“CRA”) a wholly owned subsidiary of Ashfield Renewables Ag Development LLC(“ARA”) with our partner,
Ashfield AG (“AG”). The purpose of the joint venture was the development of a pyrolysis plant established to convert woody
feedstock into electricity and BioChar by using high temperature ablative fast pyrolysis reactor for which Clean Energy Technology, Inc.
holds the license for. The CRA was located in Ashfield, Massachusetts. Based upon the terms of the members’ agreement, the CETY
Capital LLC owned
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The
consolidated financial statements have deconsolidated the CRA business unit. The Liabilities of CRA has been transferred to Vermont Renewable
Gas LLC (“VRG”), a newly formed entity. CETY retains
On
April 2, 2023 the Company formed CETY Capital LLC a wholly owned subsidiary of CETY. In addition, the company established Vermont Renewable
Gas LLC (“VRG”) with our partner, Synergy Bioproducts Corporation (“SBC”) The purpose of the joint venture is
the development of a pyrolysis plant established to convert wood feedstock into electricity and BioChar by using high temperature ablative
fast pyrolysis reactor for which Clean Energy Technology, Inc. holds the license for. The VRG is in Lyndon, Vermont. Based upon the terms
of the members’ agreement, CETY Capital LLC owns a
The Company analyzed the transaction under ASC 810 Consolidation, to determine if the joint venture classifies as a Variable Interest Entity (“VIE”). The Company analyzed the transaction under ASC 810 Consolidation, to determine if the joint venture classifies as a Variable Interest Entity (“VIE”). The Joint Venture qualifies as a VIE based on the fact the JV does not have sufficient equity to operate without financial support from both parties. According to ASC 810-25-38, a reporting entity shall consolidate a VIE when that reporting entity has a variable interest (or combination of variable interests) that provides the reporting entity with a controlling financial interest on the basis of the provisions in paragraphs 810-10-25-38A through 25-38J. The reporting entity that consolidates a VIE is called the primary beneficiary of that VIE. According to the JV operating agreement, the ownership interests are 49/51 and the agreement provides for a Management Committee of 3 members. Two of the three members are from Synergy Bioproducts Corporation, and one is from CETY. Both parties do not have substantial capital at risk and CETY does not have voting interest. However, SBC has controlling interest and more board votes therefore SBC is the beneficiary of the VIE and as a result we record it as an equity investment. Accordingly, the Company has elected to account for the joint venture as an equity method investment in accordance with ASC 323 Investments – Equity Method and Joint Ventures. This decision is a result of the company’s evaluation of its involvement with potential variable interest entities and their respective risk and reward scenarios, which collectively affirm that the conditions necessitating the application of the variable interest model are not present.
In
July 2022 JHJ and other three shareholders agreed to form and make total capital contribution of RMB million ($ million) with
latest contribution due date in February 2066 into Sichuan Hongzuo Shuya Energy Limited (“Shuya”), JHJ owns
NOTE 16 – INCOME TAX
CETY Europe
CETY
Europe is one of the Company’s subsidiaries in Italy, and is subject to
Hong Kong
CETY
HK is incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory
financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate for the first HKD
CETY HK did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception.
PRC
Under
the Enterprise Income Tax (“EIT”) Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the
“FIE”) are usually subject to a unified
The current PRC EIT Law imposes a 10% withholding income tax for dividends distributed by foreign invested enterprises to their immediate holding companies outside the PRC. A lower withholding tax rate will be applied if there is a tax treaty arrangement between the PRC and the jurisdiction of the foreign holding company. Distributions to holding companies in Hong Kong that satisfy certain requirements specified by the PRC tax authorities, for example, will be subject to a 5% withholding tax rate.
The provision for income tax consisted of the following:
SCHEDULE OF PROVISION OF INCOME TAX
For the year ended December 31,2023 | ||||
| Current income tax expense | $ | |||
| Deferred income tax expense (benefit) | ||||
| Total income tax expense | $ | |||
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The following table reconciles the statutory tax rate to the Company’s effective tax rate:
SCHEDULE OF RECONCILIATION OF STATUTORY TAX RATE
For the year ended December 31,2023 | ||||
| Federal statutory tax expense (benefit) | ( | )% | ||
| State statutory | ( | )% | ||
| Tax rate difference | % | |||
| Permanent difference | % | |||
| Change in valuation allowance | ( | )% | ||
| Effective tax rate | % | |||
The components of deferred tax assets (liabilities) are as follows:
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| As
of December 31, 2023 | ||||
| Deferred tax: | ||||
| Allowance for doubtful accounts | $ | |||
| Net operating loss (“NOL”) carrying forwards | ||||
| Operating lease liabilities, net of right of use assets | ||||
| Advertising expense | ||||
| Total deferred tax assets, net | ||||
| Less: valuation allowance | ( | ) | ||
| Total deferred tax assets, net | ||||
The
Company evaluates its valuation allowance requirements at end of each reporting period by reviewing all available evidence, both positive
and negative, and considering whether, based on the weight of that evidence, a valuation allowance is needed. When circumstances cause
a change in management’s judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance
is generally reflected in income from operations. The future realization of the tax benefit of an existing deductible temporary difference
ultimately depends on the existence of sufficient taxable income of the appropriate character within the carry forward period available
under applicable tax law. As of December 31, 2023, the Company’s PRC operating entities had $
As of December 31, 2023 and 2022, the Company had no significant uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to significant uncertain income tax positions in other expense if any; however, there were no such interest and penalties as of December 31, 2023 and 2022.
NOTE 17 – THE STATUTORY RESERVES
The Company’s ability to pay dividends primarily depends on it receiving funds from its subsidiaries. PRC laws and regulations permit payments of dividends by the Company’s PRC subsidiaries only out of the subsidiary’s retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with US GAAP differ from those reflected in the statutory financial statements of the Company’s PRC subsidiaries.
In
accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise
(“FIE”) established in the PRC is required to provide statutory reserves, which are appropriated from net profit as reported
in the FIE’s PRC statutory accounts. An FIE is required to allocate at least
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Additionally,
in accordance with the Company Laws of the PRC, a domestic enterprise is required to provide surplus reserve at least 10% of its annual
after-tax profit until such reserve has reached
As
a result of these PRC laws and regulations that require annual appropriations of
In
addition, according to Administrative Measures for the Collection and Utilization of Enterprise Work Safety Funds issued by the PRC Ministry
of Finance and the State Administration of Work Safety, for the companies with dangerous goods production or storage, the company is
required to make a special reserve for the use of enhancing and improving its safe production conditions. Under PRC GAAP, the reserve
is recorded as selling expense; however, under US GAAP, since the expense has not been incurred and the Company will record cost of sales
for safety related expenses when it is actually happened or incurred, this special reserve was recorded as an appropriation of its after-tax
income. The reserve is calculated at a rate of
NOTE 18 – SUBSEQUENT EVENTS
On
January 3, 2024, Clean Energy Technologies, Inc. (the “Company”) entered into a securities purchase agreement (the
“Agreement”) with FirstFire Global Opportunities Fund, LLC, a Delaware limited liability company (the
“Buyer”), pursuant to which the Company agreed to issue and sell to the Buyer the promissory note of the Company in the
principal amount of $
As
a condition to the sale of the Note, the Company issued to the Buyer shares (the “Commitment Shares”) of Common Stock.
On the closing date, the Buyer shall further withhold from the Purchase Price (i) a non-accountable sum of $
On
February 2, 2024, Clean Energy Technologies, Inc. (the “Company”) entered into a securities purchase agreement (the
“Agreement”) with Coventry Enterprises LLC, a Delaware limited liability company (the “Buyer”), pursuant to
which the Company agreed to issue and sell to the Buyer the promissory note of the Company in the principal amount of $
As a condition to the sale of the Note, the Company issued to the Buyer shares (the “Commitment Shares”) of Common Stock.
On
March 4, 2024, Clean Energy Technologies, Inc. (the “Company”) entered into a securities purchase agreement (the
“Agreement”) with FirstFire Global Opportunities Fund, LLC, a Delaware limited liability company (the
“Buyer”), pursuant to which the Company agreed to issue and sell to the Buyer the promissory note of the Company in the
principal amount of $
As
a condition to the sale of the Note, the Company issued to the Buyer shares (the “Commitment Shares”) of Common Stock.
On the closing date, the Buyer shall further withhold from the Purchase Price (i) a non-accountable sum of $
On
March 15, 2024, Clean Energy Technologies, Inc., a Nevada corporation, (the “Company”) and certain individual investors
(“Subscribers”) entered into a subscription agreement pursuant to which the Company agreed to sell up to
units (each a “Unit” and together the “Units”) to the Subscribers for an aggregate purchase price of $
On January 1, 2024 and effective on the same date., JHJ, SSET and Xiangyueheng entered into the Agreement on the Termination of the Concerted Action Agreement (the “Termination Agreement”), pursuant to which the parties release each other from any and all obligations under the CAA. Due to the Termination Agreement, the Company now holds less than 50% of the voting rights in Shuya. The Company has determined that Shuya no longer constitutes a VIE and the Company will not consolidate Shuya into its consolidated financial statements on or after January 1, 2024.
| 77 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9a. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act, of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15(b) of the Exchange Act, an evaluation as of December 31, 2023 was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2023.
(b) Report of Management on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management including our of our chief executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.
Based on our evaluation under the 2013 Internal Control-Integrated Framework, our chief executive officer and chief financial officer concluded that our internal control over financial reporting was not effective as of December 31, 2023.
●a lack of sufficient in-house qualified accounting staff;
●inadequate controls and segregation of duties due to limited resources and number of employees;
●material purchase price allocation of Shuya transactions which are heavily dependent upon the use of estimates and assumptions and require us using consultants.
To mitigate the items identified in the assessment, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals/consultants. As we grow, we expect to increase the number of employees, which would enable us to implement adequate segregation of duties within the internal control framework.
(c) Changes in Internal Control over Financial Reporting
There have been no other changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K for the year ended 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation incidental to the conduct of its business. The Company is presently not involved in any legal proceedings which in the opinion of management are likely to have a material adverse effect on the Company’s consolidated financial position or results of operations.
Item 1A. Risk Factors.
There have been no material changes in the Company’s risk factors from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Our officers and directors are the individuals listed below as of December 31, 2023:
| Name | Age | Position | ||
| Kambiz Mahdi | 58 | President, CEO, Director | ||
| Calvin Pang | 39 | CFO, Director | ||
| Lauren Morrison | 69 | Independent Director | ||
| Mathew Smith | 49 | Independent Director | ||
| Ted Hsu | 65 | Independent Director |
There are no family relationships among any of the directors or the executive officer.
Biographical Information.
Mr. Kambiz Mahdi, served as President and Chief Executive Officer of the Company from 1996 until December of 2005 and again from July 2009 until present. Mr. Mahdi also started Billet Electronics a global supply chain provider of products, services and solutions in the technology sector in 2007. Mr. Mahdi has a BS degree in Electrical Engineering from California State University of Northridge. Mr. Mahdi has not served on any other boards of public companies in the past five years.
Our Board of Directors selected Mr. Mahdi to serve as a director because he is our Chief Executive Officer and has served in various executive roles with our company for 15 years, with a focus on electrical design & manufacturing, sales and operations and his insight into the development, marketing, finance, and operations aspects of our company. He has expansive knowledge of engineering and manufacturing industry and relationships with chief executives and other senior management at technology companies. Our Board of Directors believes that Mr. Mahdi brings a unique and valuable perspective to our Board of Directors.
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Mr. Calvin Pang has served as our Chief Financial Officer since March 9, 2020. Since 2015 Mr. Pang has been the Managing Director of Megawell Capital Limited. From 2007 to 2015, he was a banker at UBS AG managing portfolios of Hong Kong and China based investors. Mr. Pang graduated from the Olin School of Business at Washington University in St. Louis with a bachelor’s degree in business and finance. We believe that Mr. Pang is well qualified to serve as a member of our Board of Directors due to his extensive experience in U.S. and Asian corporate finance and may assist us in developing relationships with financial institutions.
Mr. Ted Hsu has almost 3 decades of experience as a commercial banker. He joined Preferred Bank in 1992 and currently serves as the bank’s Executive Vice President. Preferred Bank is one of the largest independent commercial banks in California. He has extensive experience in servicing clients in various sectors including real estate, construction, commercial and industrial. Recently, Mr. Hsu began to cover companies in the renewable energy sector as it is the growing trend. We believe Mr. Hsu is well qualified to serve as a member of our Board of Directors due to his experience in commercial lending.
Ms. Lauren Morrison is an international business development consultant whose career has had a major focus in the clean energy, smart building, and sustainability sectors. She has worked with companies of all sizes and areas of specialization, from concept to early-stage and maturity, on global growth strategies, branding, and product development. Lauren is interested in the integration and optimization of technologies that measurably increase energy efficiency, and the application of monitoring and data analysis that iteratively improves building processes, practices, and net functionality. As part of a leading-edge model smart city development in Asia, Lauren saw first-hand the critical imperative for global collaboration to address climate challenges as they rapidly eclipse geographic boundaries. She is passionate about expanding the conversation on this topic to include the widest possible audience of stakeholders. Our Board of Directors believes that Ms. Morrison brings a unique and valuable international perspective and clean energy experience to our Board of Directors
Mr. Matthew Graham Smith has over a decade of experience working in a range of overseas and domestic roles with the Australian Department of Foreign Affairs and Trade (DFAT) and has held positions as Product Manager, Major Surface Ships, Department of Defense, Senior Administrative Officer, Consulate-General, Chengdu, Senior Administrative Officer, Consulate-General, Chengdu, Post Opener, Consulate-General Surabaya, Indonesia. Mr. Smith is a Certified Practicing Accountant in Australia and will serve as the Chairman of our Audit Committee upon the listing of our common stock on Nasdaq. Mr. Smith has received a Bachelor of Laws and a Bachelor of Commerce in Finance from Australian National University and was an exchange student at the Olin Business School, Washington University.
Each director holds office until the earlier of his or her death, resignation, removal from office by the stockholders, or his or her respective successor is duly elected and qualified. There are no arrangements or understandings between any of our nominees or directors and any other person pursuant to which any of our nominees or directors have been selected for their respective positions. No nominee or director is related to any executive officer or any other nominee or director.
Board Diversity Matrix (As of April 15, 2024)
| Did Not | ||||||
| Disclose | ||||||
| Female | Male | Gender | ||||
| Gender Identity | ||||||
| Directors | 1 | 4 | 0 | |||
| Demographic Background | ||||||
| Asian | 0 | 2 | 0 | |||
| White | 1 | 2 | 0 |
Corporate Governance
Director Attendance at Meetings of the Board of Directors
Our Board of Directors held 4 meetings during the fiscal year ended December 31, 2023. Each of our incumbent directors attended at least 75.0% of the aggregate total number of meetings of our Board of Directors held during the period for which he served as a director.
Director Attendance at Annual Meetings of the Shareholders
Although we have no policy with regard to attendance by the members of our Board of Directors at our annual meetings, we invite and encourage the members of our Board of Directors to attend our annual meetings to foster communication between Shareholders and our Board of Directors.
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Stockholder Communication with the Board of Directors
Any stockholder who desires to contact members of our Board of Directors, or a specified committee of our Board of Directors, may do so by writing to: Clean Energy Technologies, Inc., Board of Directors, 1340 Reynolds Avenue, Irvine, California 92614, Attention: Secretary. Communications received will be distributed by our Secretary to such member or members of our Board of Directors as deemed appropriate by our Secretary, depending on the facts and circumstances outlined in the communication received.
Director Independence
We had a five-member Board of Directors in 2023 of which three members are independent directors.
Committees of our Board of Directors
Audit Committee. Our audit committee will consist of Lauren Morrison and Ted Hsu. Lauren Morrison is the chairperson of the audit committee. We have determined that Lauren Morrison and Ted Hsu each satisfy the “independence” requirements of Nasdaq Listing Rule 5605(a)(2) and meets the independence standards under Rule 10A-3 under the Exchange Act. We have determined that Ted Hsu qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things: (a) representing and assisting the Board in its oversight responsibilities regarding the Company’s accounting and financial reporting processes, the audits of the Company’s financial statements, including the integrity of the financial statements, and the independent auditors’ qualifications and independence; (b) overseeing the preparation of the report required by SEC rules for inclusion in the Company’s annual proxy statement; (c) retaining and terminating the Company’s independent auditors; (d) approving in advance all audit and permissible non-audit services to be performed by the independent auditors; and (e) approving related person transactions.
Compensation Committee. Our compensation committee consist of Lauren Morrison and Ted Hsu. Ted Hsu is the chairperson of our compensation committee. We have determined that Lauren Morrison and Ted Hsu are “independent,” as such term is defined for directors and compensation committee members in the listing standards of the NASDAQ Stock Market LLC. Additionally, each qualify as “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934 and as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code. The Committee has been established to: (a) assist the Board in seeing that a proper system of long-term and short-term compensation is in place to provide performance oriented incentives to attract and retain management, and that compensation plans are appropriate and competitive and properly reflect the objectives and performance of management and the Company; (b) assist the Board in discharging its responsibilities relating to compensation of the Company’s executive officers; (c) evaluate the Company’s Chief Executive Officer and set his or her remuneration package; and (d) make recommendations to the Board with respect to incentive compensation plans and equity-based plans.
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee will consist of Matthew-Graham Smith, Lauren Morrison and Ted Hsu. Lauren Morrison is the chairperson of our nominating and corporate governance committee. We have determined that each of Matthew-Graham Smith, Lauren Morrison and Ted Hsu qualify as “independent” as that term is defined by Nasdaq Listing Rule 5605(a)(2). The Committee is responsible for: (a) assisting the Board in determining the desired experience, mix of skills and other qualities to provide for appropriate Board composition, taking into account the current Board members and the specific needs of the Company and the Board; (b) identifying qualified individuals meeting those criteria to serve on the Board; (c) proposing to the Board the Company’s slate of director nominees for election by the shareholders at the Annual Meeting of Shareholders and nominees to fill vacancies and newly created directorships; (d) reviewing candidates recommended by shareholders for election to the Board and shareholder proposals submitted for inclusion in the Company’s proxy materials; (e) advising the Board regarding the size and composition of the Board and its committees; (f) proposing to the Board directors to serve as chairpersons and members on committees of the Board; (g) coordinating matters among committees of the Board; (h) proposing to the Board the slate of corporate officers of the Company and reviewing the succession plans for the executive officers; (i) recommending to the Board and monitoring matters with respect to governance of the Company; and (j) overseeing the Company’s compliance program.
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Term of Office
Our directors hold office until the next annual meeting of shareholders of the Company and until their successors have been elected and qualified. Our officers are elected by the board of directors and serve at the discretion of the board of directors.
Family Relationships
There are no other family relationships between any of our directors or executive officers. There are no arrangements or understandings between our directors and directors and any other person pursuant to which they were appointed as an officer and director of the Company.
Involvement in Certain Legal Proceedings
During the past ten years no current director, executive officer, promoter or control person of the Company has been involved in the following:
(1) A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(2) Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
i. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii. Engaging in any type of business practice; or
iii. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
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(4) Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
(5) Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
(6) Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7) Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i. Any Federal or State securities or commodities law or regulation; or
ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(8) Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Shareholder Communications to the Board
Shareholders who are interested in communicating directly with members of the Board, or the Board as a group, may do so by writing directly to the individual Board member c/o Secretary, Clean Energy Technologies, Inc., 1340 Reynolds Avenue, Irvine, CA 92614. The Company’s Secretary will forward communications directly to the appropriate Board members. If the correspondence is not addressed to the particular member, the communication will be forwarded to a Board member to bring to the attention of the Board. The Company’s Secretary will review all communications before forwarding them to the appropriate Board member.
Director Nomination Procedures and Diversity
As outlined above, in selecting a qualified nominee, our Board of Directors considers such factors as it deems appropriate, which may include: the current composition of our Board of Directors; the range of talents of a nominee that would best complement those already represented on our Board of Directors; the extent to which a nominee would diversify our Board of Directors; a nominee’s standards of integrity, commitment and independence of thought and judgment; a nominee’s ability to represent the long-term interests of our shareholders as a whole; a nominee’s relevant expertise and experience upon which to be able to offer advice and guidance to management; a nominee who is accomplished in his or her respective field, with superior credentials and recognition; and the need for specialized expertise. While we do not have a formal diversity policy, we believe that the backgrounds and qualifications of our directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow our Board of Directors to fulfill its responsibilities. Applying these criteria, our Board of Directors considers candidates for membership on our Board of Directors suggested by its members, as well as by our Shareholders. Members of our Board of Directors annually review our Board of Directors’ composition by evaluating whether our Board of Directors has the right mix of skills, experience and backgrounds.
Our Board of Directors may also consider an assessment of its diversity, in its broadest sense, reflecting, but not limited to, age, geography, gender and ethnicity.
Our Board of Directors identifies nominees by first evaluating the current members of our Board of Directors willing to continue in service. Current members of our Board of Directors with skills and experience relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of our Board of Directors does not wish to continue in service or if our Board of Directors decides not to nominate a member for re-election, our Board of Directors will review the desired skills and experience of a new nominee in light of the criteria set forth above.
Our Board of Directors also considers nominees for our Board of Directors recommended by Shareholders. Notice of proposed stockholder nominations for our Board of Directors must be delivered in accordance with the requirements set forth in our bylaws and SEC Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Nominations must include the full name of the proposed nominee, a brief description of the proposed nominee’s business experience for at least the previous five years and a representation that the nominating stockholder is a beneficial or record owner of our common stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. Nominations should be delivered to: Clean Energy Technologies, Inc., Board of Directors, 2990. Redhill Ave, Costa Mesa, California 92626, Attention: Chief Executive Officer.
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Our Board of Directors will recommend the slate of directors to be nominated for election at the annual meeting of shareholders. We have not and do not currently employ or pay a fee to any third party to identify or evaluate, or assist in identifying or evaluating, potential director nominees.
Board of Directors Role in Risk Oversight
Our Board of Directors oversees our shareholders’ interest in the long-term success of our business strategy and our overall financial strength.
Our Board of Directors is actively involved in overseeing risks associated with our business strategies and decisions. It does so, in part, through its approval of all acquisitions and business-related investments and all assumptions of debt, as well as its oversight of our executive officers pursuant to annual reviews. Our Board of Directors is also responsible for overseeing risks related to corporate governance and the selection of nominees to our Board of Directors.
In addition, the Board reviews the potential risks related to our financial reporting. The Board meets with our Chief Financial Officer and communicates with representatives of our independent registered public accounting firm on a quarterly basis to discuss and assess the risks related to our internal controls. Additionally, material violations of our Code of Ethics and related corporate policies are reported to our Board of Directors.
Code of Business Conduct and Ethics
We have adopted our Code of Ethics, which contains general guidelines for conducting our business and is designed to help our directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. Our Code of Ethics applies to our Principal Executive Officer, Principal Financial Officer, and persons performing similar functions and all members of our Board of Directors. Our Code of Ethics covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. Shareholders may request a copy of our Code of Ethics, which will be provided without charge, by writing to: Clean Energy Technologies, Inc., Board of Directors, 1340 Reynolds Avenue, Unit 120, Costa Mesa, California 92614; Attention: Chief Executive Officer.
Compensation of Directors
The key objective of our non-employee directors’ compensation program is to attract and retain highly qualified directors with the necessary skills, experience and character to oversee our management. We currently use equity-based compensation to compensate our directors due to our restricted cash flow position; however, we may in the future provide cash compensation to our directors. The use of equity-based compensation is designed to recognize the time commitment, expertise and potential liability relating to active Board service, while aligning the interests of our Board of Directors with the long-term interests of our shareholders.
In addition to the compensation provided to our non-employee director, which is detailed below, each non-employee director is reimbursed for any reasonable out-of-pocket expenses incurred in connection with attending in-person meetings of the Board of Directors and Board committees, as well for any fees incurred in attending continuing education courses for directors.
Fiscal years 2022 and 2023 Annual Cash Compensation
We currently do not provide cash compensation to our directors and as such did not provide any cash compensation during the years ended December 31, 2022 and 2023.
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Fiscal years 2022 and 2023 Equity Compensation
Yearly Restricted Share Awards
Under the terms of the discretionary restricted share unit grant provisions of our 2006 Incentive Stock Plan and our 2011 Omnibus Incentive Plan, which we refer to as the 2006 Plan and 2011 Plan, respectively, each non-employee director is eligible to receive grants of restricted common stock share awards at the discretion of our Board of Directors. These yearly restricted share unit awards vest in full on the grant date.
For the year ended December 31, 2023, there were no stock options granted.
Discretionary Grants
Under the terms of the discretionary option grant provisions of the 2006 Plan and the 2011 Plan, non-employee directors are eligible to receive stock options or other stock awards granted at the discretion of the Board of Directors. No director received stock awards pursuant to the discretionary grant program during fiscal year 2022 or 2023.
Director Summary Compensation in fiscal years 2022 and 2023
None.
Change of Control and Termination Provisions
None.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended December 31, 2022, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2022, and the representations made by the reporting persons to us, we believe that during the year ended December 31, 2022, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements with the exception of MGWI which filed a late Form 4.
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Item 11. Executive Compensation.
The following table sets forth the fiscal year 2022 and 2023 compensation for:
| ● | Kambiz Mahdi, our Chief Executive Officer |
The executive officers included in the Summary Compensation Table are referred to in this Form 10K as our named executive officers. A detailed description of the plans and programs under which our named executive officers received the following compensation can be found in the section entitled “Compensation Discussion and Analysis.”
Summary Compensation Table
| Name and Principal | Salary | Bonus | Stock Awards | Option Awards | Non-equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||||||||
| Position | Year | ($) | ($)(3) | ($)(4) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||
| Kambiz Mahdi (1) | 2023 | $ | 275,000 | $ | 137,500 | $ | $ | - | $ | - | $ | - | $ | - | $ | 412,500 | |||||||||||||||||||
| Chief Executive Officer | 2022 | $ | 275,000 | $ | 137,500 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 412,500 | ||||||||||||||||||
| Calvin Pang (2) Chief Financial Officer | 2023 | $ | 150,000 | $ | 75,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 191,858 | ||||||||||||||||||
| 1) | On October 18, 2018 we entered into an at will employment agreement with Mr. Mahdi, with an annual salary of $275,000. This agreement may be terminated at any time. | |
| 2) | On March 24, 2023 we entered into an at will employment agreement with Mr. Pang, with an annual salary of $150,000. This agreement may be terminated at any time. | |
| 3) | Mahdi is entitled to 50% of his salary in cash bonus, this bonus was approved by the board of directors for fiscal year 2022, 2023, and 2024. Mr. Pang is entitled to 50% of his salary in cash bonus, this bonus was approved by the board of directors for 2023, and 2024. |
Outstanding Equity Awards at 2023 Fiscal Year-End
There are no outstanding options or stock awards held by our named executive officers as of December 31, 2023.
Executive Employment Agreements
On October 18, 2018 we entered into an at-will employment agreement with Mr. Mahdi, with an annual salary of $275,000. This agreement may be terminated at any time. In addition, as part of the agreement Mr. Mahdi was to be issued 500,000 shares of our common stock, as additional compensation.
On March 24, 2023 we entered into an at will employment agreement with Mr. Pang, with an annual salary of $150,000. This agreement may be terminated at any time.
Potential Payments upon Termination or Change of Control
Severance Benefits
Mr. Mahdi will receive a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Mahdi would have been entitled to receive through the remainder or the Employment Period or One (1) year, whichever is greater.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table shows, as of April 15, 2023 the number of shares of our common stock beneficially owned by (1) any person who is known by us to be the beneficial owner of more than 5.0% of the outstanding shares of our common stock; (2) our directors and former directors; (3) our named executive officers; and (4) all of our directors and executive officers as a group. The percentage of common stock beneficially owned is based on 39,152,455 shares of our common stock outstanding as of December 31, 2023. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes securities over which a person has voting or investment power and securities that a person has the right to acquire within 60 days. Unless otherwise provided, the address of each beneficial owner listed is c/o Clean Energy Technologies, Inc., Board of Directors, 1340 Reynolds Avenue, Unit 120, Irvine, California 92614. We need to footnote how the voting rights are allocated and add them to the number of shares.
| Name of Beneficial Owners (1) | Number of Shares of Common Stock Beneficially Owned | Percentage | ||||||
| 5% Holders | ||||||||
| MGW Investments I Limited (1) | 24,044,101 | 56.38 | ||||||
| Officers and Directors | ||||||||
| Calvin Pang(2) | 24,044,101 | 56.38 | % | |||||
| Kambiz Mahdi – Director and CEO (3) | 2,317,541 | 5.43 | % | |||||
| All directors and officers as a group | 26,361,642 | 61.82 | % | |||||
1) Conversion to shares of Common Stock is calculated based on 0.12 for the price of our common stock.
2) Calvin Pang has voting and investment power over all of our common stock held by MGW Investment I Limited (“MGWI”). MGWI holds 24,044,101
3) The shares of common stock are held directly by the Kambiz and Bahareh Mahdi Living Trust and indirectly by Kambiz Mahdi and Bahareh Mahdi as Trustees.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Director Independence
We have a five-member Board of Directors in 2023 of which three members are independent directors. Due to the size of our company and the difficulty in finding directors that have experience in our industry, 2 of our directors can be deemed an “independent directors.”
While our stock is listed on the NASDAQ Stock Exchange, our independent directors would qualify as independent under the rules of the NASDAQ Stock Exchange.
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Review of Related Person Transactions
Our Code of Business Conduct and Ethics provides guidance for addressing actual or potential conflicts of interests, including those that may arise from transactions and relationships between us and our executive officers or directors, such as:
| ● | Business transaction between the company and any executive are prohibited, unless otherwise approved by the Board; | |
| ● | Activities that may interfere with an executive’s performance in carrying out company responsibilities; | |
| ● | Activities that call for the use of the company’s influence, resources or facilities; and | |
| ● | Activities that may discredit the name or reputation of the company. |
We have various procedures in place to identify potential related person transactions, and the Board of Directors and a separate compliance committee work together in reviewing and considering whether any identified transactions or relationships are covered by the Code of Business Conduct and Ethics.
Transactions with Related Persons
Please see note 10 in the notes to the financial statement for a discussion on transactions with related parties.
Item 14. Principal Accounting Fees and Services.
The aggregate fees billed to us by our principal accountant (Fruci & Associates II, PLLC) for services rendered during the fiscal years ended December 31, 2022 and December 31, 2023 are set forth in the table below:
| Services: | 2023 | 2022 | ||||||
| Audit Fees (1) | $ | 231,815 | $ | 86,844 | ||||
| Audit Related Fees (2) | 22,500 | |||||||
| Tax Fees (3) | - | |||||||
| All Other fees | - | - | ||||||
| Total | $ | 231,815 | $ | 109,344 | ||||
| (1) | Audit fees billed in 2023 and 2022 consisted of fees related to the audit of our annual financial statements, reviews of our quarterly financial statements, and statutory and regulatory audits, consents and other services related to filings with the SEC. |
| (2) | Audit-related fees related to financial accounting and reporting consultations, assurance and related services. |
| (3) | Tax services consist of tax compliance and tax planning and advice. |
The Board of Directors pre-approves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent registered public accounting firm, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(b) of the Exchange Act and the rules and regulations of the SEC. All services rendered by our principal auditor for the years ended December 31, 2021 and 2020 were pre-approved in accordance with the policies and procedures described above.
Auditor Independence
The Board of Directors has considered whether the provision of the above noted services is compatible with maintaining our independent registered public accounting firm’s independence and has concluded that the provision of such services has not adversely affected the independent registered public accounting firm’s independence.
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Board of Directors Audit Report to Shareholders
Since we do have a standing Audit Committee our full Board of Directors oversees our financial reporting process. Our management has the primary responsibility for our financial statements as well as our financial reporting process, principles and internal controls. The independent registered public accounting firm is responsible for performing an audit of our financial statements and expressing an opinion as to the conformity of such financial statements with accounting principles generally accepted in the United States of America.
In this context, the Board of Directors has reviewed and discussed our audited financial statements as of December 31, 2022 and December 31, 2023 with management and the independent registered public accounting firm. The Board of Directors has discussed with the independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, Professional Standards, as amended. In addition, the Board of Directors has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect, and it has discussed their independence with us.
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements:
The consolidated financial statements and the related notes are included in Item 8 herein.
(a)(2) Financial Statement Schedule:
All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
(a)(3) Exhibits:
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this annual report.
(b) Exhibits:
See Item 15(a)(3) above.
(c) Financial Statement Schedule:
All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
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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 15 day of April, 2024.
| REGISTRANT | ||
| CLEAN ENERGY TECHNOLOGIES, INC. | ||
| By: | /s/ Kambiz Mahdi | |
| Kambiz Mahdi | ||
| Chief Executive Officer | ||
| Date:April 16, 2024 | ||
| By: | /s/ Calvin Pang | |
| Calvin Pang | ||
| Chief Financial Officer | ||
| Date: April 16, 2024 | ||
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kambiz Mahdi, and his attorney-in-fact for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
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 | ||
| /s/ Kambiz Mahdi | Chief Executive Officer and Director | ||
| By: | Kambiz Mahdi | (principal executive officer) | |
| Date: | April 16, 2024 | ||
| /s/ Calvin Pang | Chief Financial Officer | ||
| By: | Calvin Pang | ||
| Date: | April 16, 2024 | ||
| /s/ Mr. Ted Hsu | Director | ||
| By: | Ted Hsu | ||
| Date: | April 16, 2024 | ||
| /s/ Ms. Lauren Morrison | Director | ||
| By: | Lauren Morrison | ||
| Date: | April 16, 2024 | ||
| /s/ Mr. Matthew Graham Smith | Director | ||
| By: | Matthew Graham Smith | ||
| Date: | April 16, 2024 | ||
| 90 |
EXHIBIT INDEX
Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the exhibits.
The following exhibits are included, or incorporated by reference; in this Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (and are numbered in accordance with Item 601 of Regulation S-K).
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| 92 |
| 93 |
| 94 |
| 95 |
| 96 |
| 97 |
| 98 |
| 99 |
| 100 |
| 101 |
* Filed herewith
| 102 |
Exhibit 4.13
Description of Securities
We have authorized capital stock consisting of the following. The total number of shares of capital stock which the Corporation shall have authority to issue is: 2,020,000,000. These shares shall be divided into two classes with one billion two hundred million (2,000,000,000) shares designated as common stock at $.001 par value (the “Common Stock”) and twenty million (20,000,000) shares designated as preferred stock at $.001 par value (the “Preferred Stock”).The Preferred Stock of the Corporation shall be issuable by authority of the Board of Director(s) of the Corporation in one or more classes or one or more series within any class and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as the Board of Directors of the Corporation may determine, from time to time.
Common Stock
Our Articles of Incorporation authorize us to issue 2,000,000,000 shares of common stock, par value $0.001 per share. 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 20,000,000 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.
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 commitment fee in exchange for the “stand off” and estoppel agreement and discounted conversion terms to account for the difference in the fair value which we offset to retained earnings.
On February 4, 2020 we issued 2,000,000 shares of our common stock at a price of $.04 per share, in exchange for the conversion of 800 shares of our Series D Preferred Stock.
On July 23, 2020 we issued 3,000,000 shares of our common stock at a price of $.04 per share, in exchange for the conversion of 1,200 shares of our Series D Preferred Stock.
On February 5, 2021 we issued 3,000,000 shares of our common stock at a price of $.08 per share, in exchange for the conversion of 1,200 shares of our Series D Preferred Stock.
On February 9, 2021 we issued 2,275,662 shares of our common stock share, in exchange for the conversion of $182,052 of accrued dividend for the series D Preferred Stock.
On February 9, 2021 we issued 2,000,000 shares of our common stock at a price of $.04 per share, in exchange for the conversion of 800 shares of our Series D Preferred Stock.
On March 12, 2021 we issued 3,693,588 shares of our common stock together with accrued preferred dividend at a price of $.08 per share, in exchange for the conversion of 1300 shares of our Series D Preferred Stock and accrued preferred dividend.
On October 31, 2023, Clean Energy Technologies, Inc. (the “Company”) filed with the Nevada Secretary of State a certificate of designation designating 3,500,000 shares of the undesignated and authorized preferred stock of the Company, par value $0.001 per share, as the 15% Series E Convertible Preferred Stock (the “Series E Preferred Stock”) and setting forth the rights, preferences and limitations of such Series E Preferred Stock.
The Series E Preferred Stock has a stated value of $1.00 (the “Stated Value”) per share. Each holder of the Series E Preferred Stock is entitled to receive dividends payable on the Stated Value of the Series E Preferred Stock at a rate of 15% per annum. The Series E Preferred Stock is convertible at the option of the holder thereof into such number of common stocks of the Company, par value $0.001 per share, as is determined by dividing the Stated Value per share plus accrued and unpaid dividends thereon by the conversion price of $1.00, subject to a 4.99% beneficial ownership limitation. Each holder of Series E Preferred Stock also enjoys certain voting rights and preferences upon liquidation.
Exhibit 10.136
Agreement Number：XGSR-21-040
Shenzhen Gas (Hong Kong) International Co., Limited
and
Leading Wave Limited
Strategic Cooperation Framework Agreement
2021 August 30
Guangdong·Shenzhen
Party A: Shenzhen Gas (Hong Kong) International Co., Limited
Company Registration No.:1640848
Registered Address: Block F, 20/F, Seabright Plaza, 9-23 Shell St., North Point, Hong Kong
Party B: Leading Wave Limited
Company Registration No.: 218629
Registered Address: Sertus Chambers, 2/F, The Quadrant, Manglier Street, Victoria, Mahe, Republic of Seychelles.
After extensive exchanges and in-depth communication, both parties have reached an agreement on the establishment of an in-depth strategic cooperative relationship based on the principles of equality, voluntariness, mutual benefit, and long-term friendly cooperation, and signed this agreement for mutual compliance by both parties.
| 1. | Cooperation Purpose and Objectives |
Create synergistic advantages and win-win situations between both parties through close cooperation on projects, management training, and operational integration.
Complete a portfolio of mergers and acquisitions with an annual net profit of CNY 300-500 million in the next five years, and reach an investment scale of CNY 3-5 billion.
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| 2. | Scope of Cooperation |
Focus on the mergers and acquisitions of urban municipal natural gas companies (including but not limited to individual private company acquisitions, private packaged deal asset acquisitions, packaged acquisitions from local governments etc.) that are in the business of natural gas (NG, pipelines) trade, clean energy development and infrastructure, pipeline investment, construction and operation, regional energy supply, urban smart energy management, energy utilization consulting services, etc. The acquisitions will be centered in the Sichuan Province, but can extend to any province or city that Party B has an edge in.
| 3. | Mode of Cooperation |
The two parties will establish a joint venture company in Hong Kong to realize the cooperation objectives. The two parties will initiate the establishment of the joint venture company when both parties have identified the first target company to be acquired.
| 4. | Cooperation Platform |
1. The two parties will use the joint venture company as the main entity to acquire the natural gas companies. If there are additional considerations, the joint venture company will SPVs to carry out the acquisitions or investments on a deal by deal basis.
2. Party A will own 51% of the joint venture; Party B will own 49% of the joint venture. The terms of the joint venture will be subject to the final shareholders agreement.
3. Both parties agree to carry out business activities including but not limited to share acquisitions, asset reorganizations, etc. through the joint venture company or other SPVs recognized by both parties.
| 5. | Responsibilities |
The overall operation and management of the joint venture company shall comply with the internal regulations and control systems of Shenzhen Gas Group Co., Ltd. (hereinafter referred to as “Shenzhen Gas”), the mother company of Shenzhen Gas (Hong Kong) International Co., Limited. This includes is but not limited to party discipline inspection, financial management, human resource management, investment financing management, etc. Based on a reasonable division of labor, the two parties each appoint corresponding management personnel, and the division of labor is as follows：
| 1. | Party A Responsibilities |
1. Party A is responsible for the overall financing of the joint venture platform, and provides financial support when the registered capital of the joint venture platform cannot meet the capital needs of the acquisitions. Party A will provide the corresponding amount of capital required by the joint venture company according to the scale and progress of the acquisitions. The cost of funds provided by Party A shall not be higher than the comprehensive cost of funds of Shenzhen Gas and Party A。
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2. Party A is responsible for the independent third-party due diligence and other related expenses required by Shenzhen Gas and Party A’s decision-making process for all potential acquisitions on the joint venture platform (In principle, financial due diligence and audit costs and relevant expenses shall be borne by the joint venture, assuming both parties require third-party audits on the potential acquisitions).
3. Shenzhen Gas or Party A has the right of first refusal to acquire the assets under the joint venture company. The specific purchase arrangement is subject to the joint venture agreement signed by both parties.
| 2. | Party B Responsibilities |
1. Party B and its operation team are responsible for collecting information on potential acquisition targets, complete basic data sorting and providing investment summary and recommendations to the joint venture for screening. Each potential acquisition target should meet the following criteria: annual gas sales volume is not less than 10 million cubic meters/year, or net profit is not lower than CNY 5 million annually. Targets that have significant growth potential can also be considered.
2. Party B and its operating team are responsible for assisting the joint venture company to complete the due diligence and to negotiate for best terms on proposed acquisitions or investments in accordance with the project investment management regulations of Shenzhen Gas and the joint venture, as well as maximize
3. Party B and its operating team will manage the operations of acquired targets by the joint venture company by optimizing the upstream gas supply and unlocking the potential of the downstream market to enhance the profitability of the acquired company.
4. As one of the shareholders of the joint venture, Party B and Party A jointly assume the potential risks of the acquisitions of the joint venture company. The joint venture company serves as a vehicle for company acquisition and integration to reduce investment risk exposure for Shenzhen Gas and Party A.
5. In the course of this cooperation, if Party A independently raises funds for the joint venture company, Party B must pledge 49% of its equity in the joint venture company to Party A or a third party designated by Party A; at the same time, Party B agrees to the pledge the equity of the acquired companies held by the joint venture company to Party A or a third party designated by Party A.
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6. Party B and its operating team are responsible for assisting the joint venture company by creating a strategic network of regional companies from the acquisitions through upstream gas source optimization, pipeline gas trading, new regional pipelines and provision of regional energy supply services, etc. The integration of all potential acquisitions requires significant coordination. Party B will also explore potential new value-added businesses based on the pain points of the market in order to increase the profitability of the acquired companies. Party B will strive to create an integrated large-scale operation with regional characteristics through selective acquisitions for Shenzhen Gas in 3-5 years.
| 6. | Confidentiality |
Both parties confirm and agree that, prior to the signing of this agreement and during the duration of this agreement, one party (the “disclosing party”) has disclosed to the other party (the “receiving party”) all information related to project operations, financial status, technology, etc. (regardless of the medium performance ) And the content of this agreement shall be confidential information (hereinafter referred to as “confidential information”). Unless the parties agree otherwise in writing, the party receiving (knowing) the confidential information shall keep the confidential information confidential. The recipient shall not use or disclose confidential information to any third party except for the purpose of disclosing to its shareholders, directors, management, employees, and professional consultants for the purpose of the project or to comply with relevant laws, regulations or applicable listed company rules. This agreement will continue to be effective until the confidential information enters the public domain not due to the recipient’s reasons.
| 7. | Others |
1. This agreement is an agreement of intent to cooperate between the two parties and is non-binding. Before signing the formal joint venture agreement, both parties shall adhere to the terms agreed in this agreement. Both parties need to agree on any changes to this agreement and sign a supplementary agreement. The actual acquisitions carried out by both parties shall be subject to the final joint venture agreement signed.
2. This agreement is signed in Futian District, Shenzhen. The signing, performance and dispute resolution of this agreement are governed by the laws of the People’s Republic of China (for the purpose of this agreement, the laws of Hong Kong, Macau Special Administrative Region and Taiwan are not included). If the two parties have disputes arising from the performance of this agreement, they shall be settled through friendly negotiation. If the negotiation fails, either party may bring a lawsuit to the people’s court with jurisdiction in the place where the contract was signed.
3. This agreement will become effective after being signed by the authorized person of both parties. Unless this agreement is replaced by another agreement/contract signed by both parties or both parties agree to extend its validity period, this agreement will be valid for two years and will be automatically terminated after expiration.
4. This agreement is in four copies, and both parties hold two copies, which have the same legal effect.
（No Text Below）
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（No text on this page. This is the signing page of the Strategic Cooperation Framework Agreement between Shenzhen Gas (Hong Kong) International Co., Limited and Leading Wave Limited）
Party A：Shenzhen Gas (Hong Kong) International Co., Limited
Authorized signatory：
Date:
Party B：Leading Wave Limited
Authorized signatory：
Date:
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Exhibit 10.137
12% CONVERTIBLE PROMISSORY NOTE
| ￥5,000,000.00 | China (Jiangsu) Pilot Free Trade Zone |
MATURITY DATE OF January 10, 2025 THE “MATURITY
DATE”
JANUARY 10, 2022 ‘THE “ISSUANCE DATE”
FOR VALUE RECEIVED, Chengdu Rongjun Enterprise Consulting Co., Ltd., a limited Borrower registered in China, Unified Social Credit Code：91510100091298948U (“Borrower”) hereby promises to pay to Jiangsu Huanya Jieneng New Energy Co., Ltd., a limited Lender registered in China Unified Social Credit Code：91320703MA267AP00F (the “Holder”), the principal amount (the “Principal Amount”) of ￥5,000,000.00 (Five Million Yuan) as evidenced by this Promissory Note (the “Note”), on or before January 10, 2025 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of Twelve Percent (12%) per annum (the “Interest Rate”) commencing on the date hereof (the “Issuance Date”).The Borrower hereby acknowledges receipt of the Principal Amount from Holder.
1. Payments of Principal and Interest.
a. Pre-payment Payment of Principal and Interest. The Borrower may pre-pay principal or interest on this Note at any time prior to the Maturity Date, without penalty.
b. Interest. This Note shall bear interest (“Interest”) at the rate of Twelve Percent (12%) per annum from the Issuance Date until all outstanding interest and principal is paid in full, or otherwise converted in accordance with Section 2 below, and the Holder, may include any accrued but unpaid Interest in the Conversion Amount. Interest shall commence accruing on the Issuance Date, shall be computed on the basis of a 365-day year and the actual number of days elapsed and shall accrue daily. All outstanding interest shall be paid in full beginning January __, 2023 on each yearly anniversary thereafter. Upon an Event of Default, as defined in Section 10 below, the Interest Rate shall increase to Eighteen Percent (18%) per annum for so long as the Event of Default is continuing (“Default Interest”).
c. General Payment Provisions. This Note shall be paid in lawful money of the Peoples Republic of China by check or wire transfer to such account as the Holder may from time to time designate by written notice to the Borrower in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. For purposes of this Note, “Business Day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the Beijing, China are authorized or required by law or executive order to remain closed.
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2. Conversion of Note. This Note shall be convertible directly or indirectly into shares or equity interest of Heze Hongyuan Natural Gas (the “Equity Interests”) equal to 15% of Heze’s outstanding Equity Interest on the date hereof. In the event there are future sales of Equity Interests, the conversion amount shall be adjusted lower on a pro rata basis to all other holders of Equity Interest in Heze. This Note may be converted at any time by the Holder providing written notice to the Borrower.
3. Other Rights of Holder: Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Borrower’s assets to another person or entity or other transaction which is effected in such a way that holders of Equity Interests are entitled to receive (either directly or upon subsequent liquidation) stock, securities, equity interests, cash or other assets with respect to or in exchange for Equity Interests, a written agreement (in form and substance reasonably satisfactory to the Holder) to deliver to Holder in exchange for this Note, a security of the Acquiring Entity evidenced by a written instrument substantially similar inform and substance to this Note reasonably satisfactory to the Holder. Heze shall make appropriate provision (in form and substance reasonably satisfactory to the Holder) to ensure that the Holder will thereafter have the right to acquire and receive, such shares of stock, securities, cash or other assets that would have been Issued or payable in such transaction.
4. Security Interest. The Borrower’s controlling shareholder hereby pledges all of the Borrower’s shares held by it as security for this Note.
5. Voting Rights. The Holder of this Note shall have no voting rights as a note holder.
6. Default and Remedies.
a. Event of Default. For purposes of this Note, an “Event of Default” shall occur upon:
i. the Borrower’s default in the payment of the outstanding principal, Interest or Default Interest of this Note when due, whether at the Maturity Date, acceleration or otherwise, after being given 10 Business Days to cure;
ii. the Borrower’s breach of any material covenants, warranties, or representations made by the Borrower herein or in the Loan Agreement or Security Agreement.
iii. the cessation of operations of the Borrower or Heze or a material subsidiary;
iv. the Borrower or Heze pursuant to or within the meaning of any Bankruptcy Law; (a) commences a voluntary case; (b) consents to the entry of an order for relief against it in an involuntary case; (c) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (d) makes a general assignment for the benefit of its creditors;
v. a court of competent jurisdiction entering an order or decree under any Bankruptcy Law that: (a) is for relief against the Borrower or Heze in an involuntary case; (b) appoints a Custodian of the Borrower or Heze or for all or substantially all of its property; or (c) orders the liquidation of the Borrower or Heze or any subsidiary, and the order or decree remains unstayed and in effect for thirty (30) days;
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b. Remedies. If an Event of Default occurs, the Holder may in its sole discretion determine to request immediate repayment of all or any portion of the Note that remains outstanding; at such time the Borrower will be required to pay the Borrower the Default Amount (defined herein) in cash. For purposes hereof, the “Default Amount” shall mean: the product of (A) the then outstanding principal amount of the Note, plus accrued Interest and Default Interest, divided by (B) the Conversion Price as determined on the Issuance Date. If the Borrower fails to pay the Default Amount within thirty (30) Business Days of written notice that such amount is due and payable, then Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent there are a sufficient number of authorized but unissued shares), to require the Borrower, upon written notice, to issue, in lieu of the Default Amount, the number of Equity Interests of Heze equal to 15% of the Equity Interests in Heze.
7. Amendment of this Note. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder.
8. Payment of Collection, Enforcement and Other Costs. If: (i) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; or (ii) an attorney is retained to represent the Holder of this Note in any bankruptcy, reorganization, receivership or other proceedings affecting creditors’ rights and involving a claim under this Note, then the Borrower shall pay to the Holder all reasonable attorneys’ fees, costs and expenses incurred in connection therewith, in addition to all other amounts due hereunder.
9. Waiver of Notice. To the extent permitted by law, the Borrower hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note.
10. Governing Law. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the laws of People’s Republic of China, without giving effect to provisions thereof regarding conflict of laws. Each party hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts sitting in People’s Republic of China for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by sending, through certified mail or overnight courier, a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLYWAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OFANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANYTRANSACTION CONTEMPLATED HEREBY.
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11. Specific Shall Not Limit General; Construction. No specific provision contained in this Note shall limit or modify anymore general provision contained herein. This Note shall be deemed to be jointly drafted by the Borrower and the Holder and shall not be construed against any person as the drafter hereof.
12. Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude further exercise
13. Notices. All notices and other communications given or made to the Borrower pursuant hereto shall be in writing(including facsimile or similar electronic transmissions) and shall be deemed effectively given: (i) upon personal delivery, (ii) when sent by electronic mail or facsimile, as deemed received by the close of business on the date sent,(iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid or(iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery. All communications shall be sent either by email, or fax, or to the email address or facsimile number set forth on the signature page hereto. The physical address, email address, and phone number provided on the signature page hereto shall be considered valid pursuant to the above stipulations; should the Borrower’s contact information change from that listed on the signature page, it is incumbent on the Borrower to inform the Holder.
14. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the rest of the Agreement shall be enforceable in accordance with its terms.
15. Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Borrower covenants (to the extent that it may lawfully do so) that it will not seek to claim or take advantage of any law that would prohibit or forgive the Borrower from paying all or a portion of the principal, Interest or Default Interest on this Note.
16. Successors and Assigns. This Agreement shall be binding upon all successors and assigns hereto.
[Signature Page follows]
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This Note has been duly authorized and validly executed by the authorized officer of the Borrower, on the Issuance Date
| CHENGDU RONGJUN ENTERPRISE CONSULTING CO., LTD. | ||
| By: | ||
| Name: | ||
| Title: | ||
Registered Address：No. 1416, 14th Floor, Unit
1, Building 1, No. 99, Section 3, Zhonghe Avenue, High-tech Zone, Chengdu
Email:
Phone
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Exhibit 21.1
List of Subsidiaries
Clean Energy HRS LLC
CETY Europe, SRL
CETY CAP LLC
CETY Hong Kong
Hainan Clean Energy Technologies, Inc.
Meishan Clean Energy Technologies, Inc.
Leading Wave Limited (Seychelles)
Element Capital International Limited (H.K.)
Sichuan Hunya Jieneng New Energy Co. LTD
Jiangsu Huanya Jieneng New Energy Co., Ltd.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference of our audit report in the outstanding Registration Statement on Form S-1 (File No. 333-266078) of our audit report dated April 17, 2023, with respect to the consolidated balance sheets of Clean Energy Technologies, Inc. and Subsidiaries, and the related consolidated statements of operations, shareholders equity, and cash flows for each of the years in the two-year period ended December 31, 2023 and 2022. Our report relating to those financial statements includes an emphasis of matter paragraph regarding substantial doubt as to the Company’s ability to continue as a going concern.
Spokane, Washington
April 15, 2024
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kambiz Mahdi, certify that:
1. I have reviewed this Annual Report on Form 10-K/A of Clean Energy Technologies, Inc. for the period ended December 31, 2023;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| CLEAN ENERGY TECHNOLOGIES, INC. | ||
| Date: April 19, 2024 | By: | /s/ KAMBIZ MAHDI |
|
Kambiz Mahdi, Chief Executive Officer | ||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Calvin Pang, certify that:
1. I have reviewed this Annual Report on Form 10-K/A of Clean Energy Technologies, Inc. for the period ended December 31, 2023.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| CLEAN ENERGY TECHNOLOGIES, INC. | ||
| Date April 19, 2024 | By: | /s/ CALVIN PANG |
|
Calvin Pang, Chief Financial Officer | ||
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Clean Energy Technologies, Inc. (the “Company”) hereby certifies, to his knowledge, that:
(i) the accompanying Annual Report on Form 10-K/A of the Company for the year ended December 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| CLEAN ENERGY TECHNOLOGIES, INC. | ||
| Date April 19, 2024 | By: | /s/ Kambiz Mahdi |
|
Kambiz Mahdi Chief Executive Officer | ||
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Clean Energy Technologies, Inc. (the “Company”) hereby certifies, to his knowledge, that:
(i) the accompanying Annual Report on Form 10-K/A of the Company for the year ended December 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| CLEAN ENERGY TECHNOLOGIES, INC. | ||
| Date April 19, 2024 | By: | /s/ Calvin Pang |
|
Calvin Pang Chief Financial Officer | ||