Clean Energy Technologies, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022; unaudited. The company develops and sells renewable-energy and energy-efficiency systems, including waste-heat recovery, waste-to-energy and engineering services. Its segments include HRS, CETY Europe, legacy manufacturing and CETY HK, which includes LNG trading operations in China.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $44,629 | $575,545 | $2,567,596 | $866,703 |
| Gross profit | $25,913 | $301,144 | $1,151,903 | $519,683 |
| Gross margin | 58% | 52% | Approximately 45% | Approximately 60% |
| Operating loss | $540,986 | $277,664 | $572,824 | $1,140,331 |
| Net loss per statements | $861,415 | $17,012 | $1,322,861 | Net income $819,719 |
The statements also report losses attributable to Clean Energy Technologies of $880,474 for Q3 and $1,341,920 for the nine-month period. Interest and financing expense was $331,177 for Q3 and $747,451 for nine months. Basic and diluted loss per share was reported as $(0.00), reflecting rounding.
- Cash and cash flow: Cash was approximately $175,772 at September 30, 2022, down from $1,192,316 at December 31, 2021. Nine-month operating cash outflow was $1,929,678; investing cash outflow was $1,388,734; financing cash inflow was $2,545,003. The filing reports a net cash decrease of $1,016,545.
- Liquidity: Current assets were $3,797,475 and current liabilities were $7,798,161, a working-capital deficit of approximately $4.0 million. Total assets were $7,964,334; total liabilities were $7,798,161; reported stockholders’ equity was $166,173.
- Debt and obligations: Current balances included a $1,058,127 line of credit, $2,540,016 payable to GE, $2,495,158 in convertible notes (net of discount), and $279,517 in related-party notes. The company disclosed defaults involving the GE asset purchase and $187,285 of principal and interest owed to Cybernaut Zfounder Ventures.
- Share count: Common shares outstanding rose from 943.6 million at year-end 2021 to approximately 1.483 billion at September 30, 2022. A September conversion of $1,548,904 of MGW debt resulted in 516,301,343 shares. The filing also identifies approximately 84.0 million potential shares from convertible notes and 23.5 million warrant shares.
Material changes versus prior periods
- Q3 revenue fell sharply year over year, principally due to almost no HRS revenue; the company cited project delays, supply-chain issues and delayed incentives. HRS generated $307 of Q3 revenue versus $513,400 a year earlier.
- Nine-month revenue increased to $2.57 million, primarily because CETY HK contributed $1.93 million following its acquisition. HRS and CETY Europe revenue declined versus 2021.
- Nine-month gross profit increased, but the company moved from prior-year net income to a net loss. The 2021 comparison benefited from a $1.735 million derivative-liability gain and an $828,666 debt-settlement gain; corresponding 2022 gains were much smaller.
- Professional fees rose to $359,636 for nine months from $123,383, which management attributed to a proposed IPO and Nasdaq uplisting. Travel expense also increased; salaries and general and administrative expense declined.
- Convertible borrowing increased, and the company issued substantial equity through note conversion. It reported $437,044 of discount on new notes and $380,000 of financing fees in the nine-month cash flow reconciliation.
Outlook, risks and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing the working-capital deficit, accumulated deficit of $18,763,939 and dependence on additional financing or positive operating cash flow.
- Funding and dilution: Management expects to continue relying on equity sales and debt financing; additional share issuance would dilute existing holders. Several 2022 convertible notes carried 15% interest, original issue discounts and warrants.
- Commitments and execution: A planned China gas-pipeline joint venture with Shenzhen Gas would require an $8 million company contribution; definitive agreements remained outstanding. The company also reported that a lease asset had not begun generating payments because modifications were ongoing and collection was not considered probable.
- Concentration and operations: Four customers represented approximately 98% of accounts receivable, which was unsecured and pledged, along with inventory and other assets, to the line-of-credit lender. Management cited supply-chain disruption, COVID-related uncertainty, customer demand and operating-cost pressures.
- Defaults and controls: The company said it was in default on the GE purchase-price obligation and Cybernaut notes. Disclosure controls were deemed ineffective, with material weaknesses related to board independence, lack of an audit committee financial expert and disclosure controls.
- Management outlook: The filing provides no numerical revenue or earnings guidance. Management’s stated plans depend on financing, project execution and generating positive cash flow; results for the nine-month period are not necessarily indicative of full-year results.
- Other: The filing says there were no legal proceedings expected by management to have a material adverse effect and no material changes to previously disclosed risk factors. Subsequent to quarter-end, the company disclosed additional borrowing, including a $95,000 convertible note issued in November.
Important facts for investors to verify
- Reconcile the inconsistent loss figures: the financial statements report Q3 net loss of $861,415 and nine-month net loss of $1,322,861, while MD&A describes $540,986 as the Q3 “net loss” and gives a different nine-month loss figure. The $540,986 matches the reported Q3 operating loss.
- Confirm the nature, maturity, interest, default status and conversion terms of debt, particularly the GE obligation, Cybernaut balances, line of credit and convertible notes.
- Assess whether cash and available financing can cover near-term obligations, and whether the disclosed going-concern uncertainty has changed.
- Verify the share count, subsequent conversions or issuances, and potential dilution from convertible notes and warrants.
- Monitor collection of receivables, including the concentrated customer exposure, and progress on the lease asset and China joint-venture plans.
- Review remediation of the disclosed material weaknesses and any progress on the proposed Nasdaq uplisting.