Clean Energy Technologies, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed April 15, 2021. The company trades on OTCQB under CETY and reports three segments: Clean Energy HRS, CETY Europe, and legacy electronic assembly. Its main business is waste-heat-to-power equipment and related services.
Financial results and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1.406 million | $1.610 million |
| Gross profit / margin | $751,068 / 53% | $657,226 / 41% |
| Operating expenses | $1.987 million | $2.112 million |
| Operating loss | $1.236 million | $1.455 million |
| Net loss | $3.436 million | $2.556 million |
| Cash used in operating activities | $1.430 million | $2.224 million |
- Revenue declined about 13%, which management attributed mainly to the COVID-19 pandemic. HRS revenue was $930,882, electronic assembly $422,630, and CETY Europe $52,492.
- Gross margin improved, principally from lower material costs and operating efficiencies in HRS. The larger net loss reflected a $1.270 million derivative-liability loss and $1.329 million of interest and financing fees; a $399,181 debt-settlement gain partly offset these items.
- At year-end, cash was $414,885, total assets $4.124 million, total liabilities $11.362 million, and stockholders’ deficit $7.239 million. Current assets were $1.456 million and current liabilities $9.786 million, implying a working-capital deficit of approximately $8.330 million.
- Current debt included a $1.680 million line of credit, $2.442 million owed to GE, $541,426 of convertible notes net of discounts, and $600,075 of related-party notes. Long-term liabilities included $1.093 million of related-party notes, $110,700 of PPL debt, and lease liabilities.
- Financing activities provided $1.838 million in 2020, including $1.171 million from stock issuance. The company reported no investing cash outflow in 2020.
Material changes, outlook, and risks
- Compared with 2019, sales and net earnings worsened, but gross profit and margin improved, operating expenses fell, and operating cash use decreased. Salaries and travel expenses declined; bad-debt expense rose to $259,289, including a reserve against long-term financing receivables.
- The independent auditor issued an unmodified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern. Management says continued operations depend on obtaining debt or equity financing and/or generating positive operating cash flow. No assurance of profitability or financing is provided.
- Management expects COVID-19 to negatively affect operations but says the financial impact and duration cannot be reasonably estimated. Its stated plans include raising capital, expanding clean-energy activities, and developing markets and partnerships, including in China; these are plans, not quantified guidance.
- The company disclosed default on $271,435 of principal and interest owed to Cybernaut Zfounder Ventures. It also reported unpaid GE purchase-price and transition-service balances totaling $2.172 million, which it disputes and believes should be offset. The filing separately describes a disputed $291,767 Oberon Securities invoice for which no liability was recorded.
- Potential dilution is substantial: the filing estimates approximately 497.4 million common-share equivalents from convertible notes, Series D preferred stock, and warrants. It also reports 884.0 million common shares outstanding as of April 14, 2021, versus 821.2 million at year-end 2020. Subsequent financing, repayments, conversions, and share issuances are described, including approximately $3.557 million of capital raised and approximately $700,000 of debt repaid after year-end.
- Disclosure controls and internal control over financial reporting were both deemed ineffective as of December 31, 2020. The auditor identified receivables allowances and revenue recognition as critical audit matters. Other risks include concentrated receivables, competition, component supply, regulatory exposure, and unpredictable sales cycles.
Most important facts for investors to verify
- Reconcile the filing’s working-capital deficit figures: $8.330 million is implied by the audited balance sheet, while MD&A also states $9.422 million.
- Reconcile operating cash use: the cash-flow statement reports $1.430 million, while the going-concern discussion cites $1.393 million.
- Confirm the status and terms of financing after year-end, debt defaults and repayments, GE balances and dispute, and any subsequent share conversions or issuances.
- Assess liquidity, collections, and collateral: accounts receivable and long-term financing receivables are pledged to the line of credit; five customers accounted for approximately 98% of year-end accounts receivable.
- Evaluate dilution against the share count and the filing’s convertible-security estimates; conversion amounts and share counts may change.
- Monitor remediation of ineffective controls and the resolution or accounting treatment of disputed claims, including the Oberon invoice.