Clean Energy Technologies, Inc. — FY 2018 Form 10-K
Period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone Q4 filing; the supplied text does not provide separate Q4 results. The company designs and sells waste-heat-to-electricity systems, principally its Clean Cycle generator, and also reports electronics assembly and CETY Europe operations.
Financial performance
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $1,331,171 | $957,633 |
| Gross profit / margin | $520,682 / 39% | $412,881 / 43% |
| Operating expenses | $2,044,392 | $1,616,735 |
| Operating loss | $(1,523,710) | $(1,203,854) |
| Net loss | $(2,810,017) | $(2,214,854) |
| Cash used in operating activities | $(1,442,899) | $(1,495,470) |
| Cash at year-end | $6,456 | $9,418 |
- Revenue grew approximately 39%, primarily from the HRS division. HRS revenue was $752,783, compared with $376,442; electronics assembly revenue was $567,417, compared with $581,191. CETY Europe contributed $10,971.
- Cost of goods sold rose to 61% of revenue from 57%, which reduced gross margin by four percentage points; management attributed this mainly to higher material costs.
- Operating expenses increased about 26%, with the sharp increase in share-based expense ($353,140 versus $2,460) a principal factor. Interest expense increased to $862,536 from $444,612.
- Financing activities provided $1,439,937, including $907,377 from a stock issuance and $755,868 in note proceeds, partly offset by debt repayments. Investing cash flow was zero.
Balance sheet, debt and liquidity
- At December 31, 2018, total assets were $2,818,119 and total liabilities were $7,613,813, all classified as current. Working capital deficit was $6,170,618, versus $5,547,652 a year earlier; stockholders’ deficit was $4,795,694.
- Current notes payable, net of discount, were $2,775,090, with another $1,144,505 of current related-party notes payable. The filing also describes an approximately $1.34 million Nations Interbanc receivables-financing balance; accounts receivable, inventory and property are pledged as collateral. Debt balances and classifications warrant review against the detailed notes.
- The company reported defaults on payments owed under the General Electric International asset purchase agreement and on notes payable to Cybernaut Zfounder Ventures; negotiations were ongoing. The GE purchase-price dispute was attributed to insufficient financing and the company’s view that a price reduction was warranted.
- Management and the auditor both cited substantial doubt about the company’s ability to continue as a going concern. The company reported an accumulated deficit of $11,599,735 and stated that continued operations depend on raising debt or equity and/or generating positive operating cash flow.
Changes, outlook and material risks
- In February 2018, the company issued 302,462,667 restricted shares to MGW Investment I Limited for approximately $907,377. The filing says MGW and affiliates beneficially owned about 70% at year-end; ownership and potential conversion dilution should be assessed in light of the filing’s share-count disclosures.
- A $939,500 convertible note issued in 2018 bears 10% interest and was convertible at $0.003 per share, subject to adjustment. The company recognized a $532,383 beneficial conversion feature. Notes and preferred shares were convertible into substantial additional shares; the filing estimates 411,446,077 shares from convertible notes and 12,226,250 from preferred shares as of year-end.
- Management described plans to expand sales and service, including a European service center, and pursue product development, acquisitions, cogeneration and licensing. These are plans, not quantified financial guidance; no revenue, earnings or cash-flow forecast is provided.
- Key business risks include limited cash and financing access, debt defaults, potential dilution, competition, component-supplier concentration, customer and receivable concentration, technology changes, and sensitivity of customer economics to energy prices and regulation. Five customers represented approximately 98% of year-end receivables.
- A $291,767 claim from Oberon Securities was disputed and no liability was recorded; the company stated it believed it had defenses. Environmental liabilities were also identified as a possible contingency, not quantified.
- Disclosure controls and internal control over financial reporting were both deemed ineffective as of December 31, 2018. The auditor gave an unqualified opinion on the financial statements but highlighted substantial doubt about going concern; the auditor did not express an opinion on internal-control effectiveness.
- Subsequent events included issuance in February 2019 of 20 million shares to the CEO, valued at $262,000 for compensation accrued in 2018, and a $138,000 convertible note at 12% interest. The CEO’s related-party electronics supplier and other related-party financing and transactions merit attention.
Most important facts for investors to verify
- Near-term liquidity, cash runway, debt maturities, and the status and terms of the GE and Cybernaut defaults and negotiations.
- The complete debt and collateral schedule, including the Nations Interbanc balance, related-party obligations, and any covenant or default consequences.
- Share counts and control: year-end issued shares, post-year-end issuances, MGW ownership, authorized-share limits, and fully diluted conversion exposure.
- Receivable collectability and customer concentration, including the $57,000 bad-debt reserve and the $250,000 inventory obsolescence reserve.
- Resolution and potential financial impact of the disputed Oberon claim, as well as any unrecorded preferred-stock dividends or other contingencies.
- Remediation plans for ineffective disclosure controls and financial-reporting controls, and whether future filings resolve the going-concern uncertainty.