Clean Energy Technologies, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The company develops waste-heat recovery equipment and services, is expanding into waste-to-energy, and began LNG trading activities in China. Its common stock trades on the OTCQB under CETY.
Financial results and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $1.300 million | $1.406 million |
| Gross profit | $610,407 | $751,068 |
| Gross margin | 46.9% | 53.4% |
| Operating loss | $(1.573) million | $(1.236) million |
| Net income (loss), consolidated statement | $278,492 | $(3.436) million |
| Cash at year-end | $1.192 million | $414,885 |
| Net cash used in operating activities, audited cash flow statement | $(2.553) million | $(1.430) million |
- Revenue declined 7.5%. Engineering and manufacturing revenue fell to $93,371 from $422,631; Clean Energy HRS revenue rose to $1.015 million from $930,882; CETY Europe revenue increased to $192,361 from $52,492.
- Gross profit decreased as materials and supply-chain costs rose; the legacy segment also recorded a higher inventory reserve. The company remained loss-making at the operating level.
- The reported return to net income was driven chiefly by a $1.752 million gain from remeasurement of convertible-debt derivative liabilities and an $868,502 debt-settlement/write-off gain. Interest and financing fees fell to $769,369 from $1.329 million. These items offset operating losses and are not evidence of positive operating cash flow.
- At year-end, total assets were $6.432 million and total liabilities were $8.154 million. The balance sheet reported current assets of $2.606 million and current liabilities of $6.865 million, alongside a stockholders’ deficit of $1.722 million and accumulated deficit of approximately $17.424 million. Management separately reported a working-capital deficit of $4.274 million.
- Financing activities provided $4.830 million, including $4.761 million from stock issuance. The company said it raised approximately $4.78 million through its Regulation A offering during 2021. It expects to continue relying on equity financing, with resulting dilution.
Business developments, outlook and risks
- HRS sold Clean Cycle units at three sites, which the company said generated approximately $1.2 million in revenue, and reported a backlog of two units worth about $800,000. Management said additional funding could support installation capacity of six to eight units annually; this is an expectation, not assured guidance.
- The company is pursuing HTAP waste-to-energy projects, including a planned Ashfield, Massachusetts facility. The filing describes anticipated output but does not establish that the project is financed, completed, or operating. HTAP systems had not been installed in the United States, and commercial acceptance may depend on performance data from Russia or Ukraine and on financing or performance guarantees.
- In November 2021, the company acquired Leading Wave Limited for $1.5 million in cash, adding LNG trading contracts and a Shenzhen Gas relationship. A contemplated joint venture with Shenzhen Gas was described under a nonbinding framework agreement; the proposed investment scale and financing remain contingent. The filing also describes a prospective pipeline investment and subsequent 2022 financing and stock issuances.
- The auditor issued an unmodified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern. The company depends on additional financing and/or generating positive operating cash flow.
- Material financial and legal exposures include defaulted payments of $297,655 on notes to Cybernaut Zfounder Ventures; a disputed GE asset-purchase balance of $2.498 million, including accrued transition fees and interest; and a disputed $291,767 Oberon Securities invoice for which no liability was recorded. The company says it disputes the GE amounts and believes it has defenses to the Oberon claim.
- Other significant risks include substantial potential dilution from convertible securities, weak liquidity, dependence on energy prices and LNG spot prices, execution and project-financing risks, COVID-related supply-chain disruption, foreign-exchange and PRC regulatory risks, and competition from larger firms. Management reported that disclosure controls and internal control over financial reporting were not effective at year-end 2021.
Most important facts for investors to verify
- Reconcile the filing’s inconsistent cash-flow figures: MD&A cites operating cash use of $2.576 million and a cash increase of $790,924, while the audited cash-flow statement reports $2.553 million of operating cash use and a $777,431 cash increase.
- Reconcile reported net income: the statements show $278,492 consolidated net income and $297,551 attributable to Clean Energy Technologies, while other narrative sections cite $278,429. Confirm which figure is intended.
- Confirm current liabilities and working-capital deficit; the narrative cites current liabilities of $6.880 million, compared with $6.865 million on the balance sheet, and the reported working-capital deficit also does not exactly match the balance-sheet totals.
- Review the status, enforceability, and payment terms of the GE and Cybernaut obligations, and the outcome or accounting treatment of the Oberon dispute.
- Assess the cash needs, financing commitments, project milestones, and actual operating performance of the China LNG business, Shenzhen Gas proposal, Ashfield project, and other planned energy projects.
- Reconcile the filing’s different disclosures of convertible-share equivalents and assess potential dilution against the reported common shares outstanding.