Clean Energy Technologies, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The company develops clean-energy systems and services and also conducts natural-gas trading through its China operations. Its reporting segments include HRS, CETY Europe, legacy engineering and manufacturing, and CETY HK. Shuya was consolidated as a variable-interest entity beginning January 1, 2023, so comparisons with Q1 2022 are not fully like-for-like.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $2.897 million | $775,266; about 3.7 times Q1 2022 |
| Gross profit and margin | $160,569; approximately 5.5% | $514,192; approximately 66.3% |
| Operating income (loss) | ($602,843) | $15,169 |
| Net loss | ($1.036 million) consolidated; ($1.074 million) attributable to CETY as reported | ($112,588) |
| Basic and diluted loss per share | ($0.03) | ($0.00) |
| Operating cash flow | ($641,092) | ($538,065) |
| Cash at period end | $2.859 million | $149,272 at December 31, 2022 |
| Working capital | $2.377 million | Not stated for Q1 2022 |
| Total assets / liabilities / equity | $12.089 million / $6.088 million / $6.001 million | At December 31, 2022: assets $8.114 million, liabilities $6.236 million, equity $1.878 million |
Revenue growth was driven overwhelmingly by CETY HK natural-gas trading: the segment reported $2.886 million of sales, versus $267,966 in the comparable period. HRS revenue fell to $5,194 from $441,193; Europe revenue was $5,748 versus $33,827; and engineering and manufacturing reported no revenue versus $32,280. Despite higher sales, lower natural-gas margins and reduced HRS and engineering activity sharply reduced gross profit.
Operating expenses were $763,412, up from $499,023. Interest and financing fees increased to $837,391 from $132,470, which management attributed largely to new notes and Nasdaq-up-listing efforts. A $326,539 gain from revaluing derivative liabilities partly offset these costs. Financing activities provided $3.248 million, including $3.145 million from stock issuance; investing activities provided net cash of $39,797. Convertible notes payable, net of discount, were $2.718 million; the line of credit was $776,588; and related-party notes payable were $373,294, all reported as current liabilities.
Material changes, outlook, and risks
- Revenue increased substantially, but reported gross margin contracted to about 5.5%, reflecting the shift toward lower-margin natural-gas trading and reduced HRS and engineering revenue.
- Equity rose to $6.001 million, reflecting the Nasdaq-related offering, debt conversions and other equity changes. The company sold 975,000 shares in a March offering at $4 per share. Shares outstanding were 38,495,453 at quarter-end and 38,553,891 as of May 22, 2023; further equity financing could dilute holders.
- Management said it expects natural-gas trading to scale and anticipates greater contributions from HRS, waste-to-energy and EPC later in 2023. It provided no quantified financial guidance. The planned Shenzhen Gas joint venture could require an $8 million contribution, and definitive agreements remained outstanding.
- The filing states there is substantial doubt about the company’s ability to continue as a going concern. CETY had an accumulated deficit of $18.350 million, used $641,092 of operating cash in the quarter, and depends on further debt or equity financing and/or positive operating cash flow.
- Seven customers represented approximately 98% of accounts receivable. Receivables, inventory, property and equipment, and long-term financing receivables were pledged to the line-of-credit lender. Shuya has significant related-party dealings with Leishen, including purchases, advances, loans and leases.
- Disclosure controls were deemed ineffective at March 31, 2023. The company cited the lack of independent directors and an audit committee financial expert, as well as weaknesses in controls over required financial-statement disclosures. Management reported no significant subsequent changes in internal control over financial reporting.
- Subsequent events included an agreement to settle defaulted convertible notes with Cybernaut for $200,000 against a stated $324,000 balance, and warrant exercises by Mast Hill. The filing also says certain older GE-related debt was written off based on counsel’s view that it was unenforceable; the reported write-off gain was $2.557 million.
Most important facts for investors to verify
- Revenue quality and sustainability: how much of the sharp increase reflects Shuya’s consolidation, and whether natural-gas trading can improve margins.
- Gross-profit reporting: the statements report $160,569, while MD&A cites $160,628 in one passage; segment figures also sum to a slightly different amount.
- Loss attribution: the filing reports consolidated net loss of $1.036 million but a larger $1.074 million loss attributable to CETY; reconcile the presentation and non-controlling-interest allocation.
- Near-term liquidity and financing needs, including debt maturities, note terms, potential conversion dilution and the company’s ability to fund operations without further equity issuance.
- Progress toward the stated later-2023 HRS, waste-to-energy and EPC revenue opportunities, including the Vermont project and the anticipated commissioning of the lease asset.
- Remediation of the disclosed material weaknesses, concentration of receivables, related-party exposures, and the status and funding terms of the proposed Shenzhen Gas venture.