Clean Energy Technologies, Inc. — Q1 2024 10-Q
Reporting period: Three months ended March 31, 2024; unaudited consolidated financial statements. CETY develops and sells heat-recovery, waste-to-energy, engineering and manufacturing solutions, and natural-gas trading services. Its four reportable segments are HRS/CETY Europe, waste-to-energy, engineering and manufacturing, and CETY HK natural-gas trading.
Key financial results
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue from continuing operations | $1.513 million | $551,869 |
| Gross profit; gross margin | $253,005; 16.7% | $19,487; 3.5% |
| Operating expenses | $1.074 million | $698,107 |
| Operating loss | $820,921 | $678,620 |
| Net loss attributable to CETY | $1.419 million | $1.074 million |
| Cash used in operating activities | $871,636 | $641,092 |
| Cash and cash equivalents | $289,481 | $89,625 at Dec. 31, 2023 |
| Working capital | $324,893 | Not stated for the comparable period |
| Total assets; total liabilities | $9.029 million; $4.614 million | $10.929 million; $5.059 million at Dec. 31, 2023 |
| Stockholders’ equity | $4.415 million | $5.869 million at Dec. 31, 2023 |
Revenue was led by NG trading ($1.220 million), followed by waste-to-energy ($211,568), HRS ($72,488), and engineering/manufacturing ($9,341). The filing reports $197,989 of related-party revenue from Vermont Renewable Gas. Cash increased during the quarter by $199,856, primarily because $987,871 of financing cash inflows exceeded operating cash use; investing activities provided $83,460.
At March 31, current liabilities were $4.371 million against current assets of $4.696 million. Convertible notes payable, net, were $2.180 million; the line of credit was $635,200. Facility lease liabilities totaled $297,345. The filing also reports a $40,000 related-party note payable.
Changes, outlook and significant matters
- Comparability affected by Shuya deconsolidation: CETY stopped consolidating Shuya on January 1, 2024 after termination of a voting agreement. The 2023 continuing-operations revenue figure excludes Shuya, while the segment disclosure also presents 2023 sales including $2.345 million from discontinued operations. Shuya’s deconsolidation resulted in a reported $303,286 loss in Q1 2024 and a retained investment valued at $399,993.
- Costs and loss: Operating expenses rose 54%, principally reflecting higher salaries, professional fees, and general and administrative expenses. Management attributes the larger net loss to staffing and expansion-related costs and the Shuya deconsolidation loss. Interest and financing fees declined to $295,193 from $837,391.
- Management outlook: No numerical revenue or earnings guidance is provided. Management expects greater contributions later in 2024 from waste-to-energy, HRS, and EPC work, and describes progress on its Vermont pilot plant. It says Vermont project financing is expected to be finalized in Q2 2024, while noting reliance on high-cost financing and continued need for capital.
- Going concern and funding: Management states there is substantial doubt about CETY’s ability to continue as a going concern. The company cites its $24.474 million accumulated deficit, $871,636 quarterly operating cash use, and dependence on additional debt/equity financing or positive operating cash flow. Management expects to continue relying on equity sales, which may dilute holders.
- Debt and dilution: The filing identifies Mast Hill convertible notes with reported balances of $963,459 and $369,041 as in default, though lenders had not issued default notices. Several other short-term notes mature in 2024; certain convertible notes carry a 22% default rate. The company issued 2 million warrants with a $1.60 exercise price in connection with a $900,000 subscription agreement. Common shares outstanding were 42,550,948 at quarter-end and 42,929,748 as of May 20, 2024. Series E preferred stock carries a 15% annual dividend; $117,928 was accrued and unpaid at quarter-end.
- Other risks and controls: Eight customers represented approximately 98% of accounts receivable. Management says collection of lease receivables is not yet considered probable. Disclosure controls were deemed ineffective as of March 31, 2024, due to material weaknesses involving board independence, the lack of an audit committee financial expert, and disclosure controls. The filing reports no legal proceedings expected to have a material adverse effect and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Reconcile the filing’s conflicting comparisons: MD&A describes Q1 2024 revenue as higher than Q1 2023, but segment data including discontinued operations shows total sales of $1.513 million versus $2.897 million. Confirm the appropriate continuing-operations basis and treatment of Shuya.
- Check the gross-profit comparison: the financial statements report Q1 2023 gross profit of $19,487, while MD&A separately cites $160,569. The latter appears to include discontinued operations, but the filing does not clearly reconcile the figures.
- Clarify the Shuya accounting disclosure: the filing says no gain or loss was recognized on deconsolidation, but also reports a $303,286 deconsolidation loss in Q1 2024.
- Assess liquidity, cash burn, financing availability, upcoming note maturities/default exposure, and the potential dilution from convertible securities, preferred stock, and warrants.
- Monitor customer concentration and collectability, Vermont project funding and execution, and whether the expected growth in higher-margin segments materializes.