Clean Energy Technologies, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This filing reports annual results, not standalone fourth-quarter results. The company designs and sells waste-heat-to-power systems, primarily its Clean Cycle generator, and reports HRS, CETY Europe, and legacy electronic assembly segments.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $1,610,008 | $1,331,171 |
| Gross profit / margin | $657,226 / 41% | $520,682 / 39% |
| Operating loss | $(1,454,609) | $(1,523,710) |
| Net loss | $(2,555,983) | $(2,810,017) |
| Interest and financing fees | $1,317,643 | $1,404,955 |
| Cash used in operating activities | $(2,224,168) | $(1,442,899) |
- Revenue increased about 21%. HRS revenue benefited primarily from higher prices on two units shipped, while CETY Europe revenue rose from $10,971 to $83,194. The legacy electronic assembly segment generated $513,919, down from $567,417.
- Operating expenses were $2,111,835, up from $2,044,392. Bad-debt expense increased to $128,463 from $50,000; share-based expense fell to zero from $353,140. Management attributed the narrower net loss chiefly to higher revenue and efficiency and lower financing expense.
- Year-end cash was $7,406. Current assets were $2,143,452 and current liabilities $8,929,141, producing a $6,785,689 working-capital deficit. Total assets were $4,307,223, total liabilities $9,559,701, and stockholders’ deficit $5,252,478.
- Current notes payable, net of discounts, were reported as $3,133,199, plus $1,206,370 of related-party current notes payable. The company also reported a $1,602,549 balance under its receivables financing agreement, secured by company assets and bearing interest at 2.5% per month.
- Financing activities provided $2,233,118, including $2,099,199 from stock issuance; investing activities used $8,000. Interest paid was $543,220.
Material changes, outlook, and risks
- Gross margin improved by two percentage points, while operating loss narrowed by about $69,000 and net loss narrowed by about $254,000. Operating cash use increased by about $781,000.
- The company disclosed substantial doubt about its ability to continue as a going concern. Its auditor issued an unmodified opinion on the financial statements but also emphasized the going-concern uncertainty.
- The company said it was in default on $1.2 million owed under the GE asset purchase agreement, disputed the amount and was negotiating with GE. It also disclosed $972,233 in accrued GE transitional-service fees and $187,285 of overdue principal and interest on notes payable to Cybernaut Zfounder Ventures.
- Management said it would continue to rely on equity sales and other financing; it gave no quantified company-specific financial guidance. It described a lease asset expected to generate approximately $20,000 per month for 120 months after commissioning, but stated collection was not yet considered probable. Commissioning was expected in the third quarter of 2020.
- The company expected COVID-19 to negatively affect results through supply-chain, production, sales, and logistics disruption, but said the financial impact and duration could not then be reasonably estimated.
- Potential dilution is substantial: the filing describes convertible notes, preferred stock, and warrants with significant common-share equivalents. It also reports 753.9 million common shares outstanding at year-end and 762.1 million as of May 2020.
- Disclosure controls and internal control over financial reporting were both deemed ineffective as of December 31, 2019. The company reported no material pending litigation, but disclosed a disputed $291,767 Oberon Securities invoice for which it recorded no liability.
Investor verification priorities
- Confirm the status and resolution of the GE and Cybernaut defaults, accrued GE fees, and the company’s other debt and payment obligations.
- Assess the company’s near-term funding needs, financing availability, and dilution exposure, including convertible securities and warrants.
- Verify the collectability and concentration of receivables: five customers represented about 98% of year-end receivables, and one customer represented 59% of annual revenue.
- Reconcile segment disclosures: the MD&A reports HRS revenue of $998,625 and HRS gross profit of $414,175, while the segment note reports $1,012,895 and $428,445, respectively. The filing text does not provide a clear reconciliation.
- Confirm whether the lease asset was commissioned and began generating payments, and whether COVID-related effects or control weaknesses changed subsequent results.