Clean Energy Technologies, Inc. - Form 8-K Summary
Business Context and Reporting Period
Clean Energy Technologies, Inc. (CETY), a Nevada corporation trading on the OTCQB, filed this Current Report on July 6, 2020. The filing details a definitive material agreement entered into on the same date with LGH Investments, LLC to secure financing through a convertible note, warrants, and restricted stock.
Key Financial Metrics and Transaction Details
- Debt Issuance: The Company issued a convertible promissory note with an original principal amount of $164,800.
- Interest and Discount: The note carries an 8% annual interest rate payable at maturity and includes an original issue discount of $4,800.
- Maturity: The note matures 8 months from the issue date.
- Equity Issuance: The Company issued 1,000,000 restricted shares of Common Stock ("Inducement Shares") and a warrant to purchase 1,500,000 shares.
- Conversion Terms: The note is convertible at $0.02 per share, subject to a 4.99% ownership cap (increasing to 9.99% if market cap falls below $2,000,000).
- Warrant Terms: Exercise price of $0.04 per share with a two-year term, exercisable on a cashless basis.
Material Changes and Use of Proceeds
The primary material change is the creation of a new direct financial obligation. The proceeds from the $164,800 note are designated to pay off a prior $103,000 note issued to Power Up Lending Group, Ltd., with the remainder allocated to general working capital. This transaction replaces existing debt with new convertible debt and equity instruments.
Outlook, Risks, and Contingencies
The filing does not provide forward-looking guidance or management commentary regarding future operational performance. Key risks and contingencies inherent in the transaction include:
- Dilution Risk: Significant potential dilution exists due to the conversion of the note and the exercise of warrants, particularly if the stock price declines, triggering the 70% discount provision upon an event of default.
- Default Provisions: In the event of default, the conversion price adjusts to the lesser of $0.02 or 70% of the lowest traded price in the prior 15 trading days.
- Ratchet Provision: If the Company issues convertible notes on more favorable terms in the future, the terms of this note will be revised to match.
Investor Verification Checklist
- Verify the current outstanding share count to assess the immediate dilution impact of the 1,000,000 inducement shares and the potential conversion of the note.
- Confirm the status of the $103,000 debt to Power Up Lending Group, Ltd. to ensure the new proceeds are applied as stated.
- Review the full text of the Securities Purchase Agreement (Exhibit 10.111) for specific definitions of "Event of Default" and adjustment mechanisms.
- Check the Company's current market capitalization to determine if the 9.99% conversion cap applies immediately.