Clean Energy Technologies, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021. The interim financial statements are unaudited. The company designs and supplies waste-heat-to-power systems and also has engineering and manufacturing, European service, and developing renewable-energy activities.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $575,545 | $215,318 | $866,703 | $1,230,131 |
| Gross profit, as presented in statements | $301,144 | $103,030 | $519,683 | $681,236 |
| Operating expenses | $578,809 | $502,651 | $1,660,015 | $1,470,403 |
| Operating loss | $(277,664) | $(399,621) | $(1,140,331) | $(789,167) |
| Net income (loss), before non-controlling interest | $(17,012) | $(512,889) | $819,719 | $(1,055,970) |
The company reported Q3 gross margin of approximately 52% versus 48%, and nine-month gross margin of 60% versus 55%. Nine-month results included a $1.735 million gain from remeasurement of derivative liabilities and an $829,000 gain on debt settlement; these gains helped produce reported net income despite an operating loss. Net income attributable to Clean Energy Technologies was $2,047 for Q3 and $838,778 for the nine-month period.
Cash flow and liquidity: Cash was $1.555 million at September 30, up from $415,000 at December 31, 2020. Operating activities used $1.964 million in the first nine months, while financing provided $3.105 million; investing cash flow was zero. Current assets were $3.275 million and current liabilities $6.723 million. The filing reports a $3.448 million working-capital deficit and states that substantial doubt exists about the company’s ability to continue as a going concern.
Debt and equity: Total liabilities were $8.077 million, versus $11.362 million at year-end 2020. Significant reported balances include a $1.160 million line of credit, $2.484 million owed to GE, $291,000 in convertible notes, and related-party notes totaling about $1.679 million across current and long-term classifications. Stockholders’ deficit was $2.358 million. Common shares outstanding rose from 821.2 million at year-end to 923.9 million at September 30; the filing reports 929.2 million outstanding on November 15. Convertible notes could convert into approximately 480.8 million additional shares, apart from warrants and other potential issuances.
Material changes versus the prior comparable period
- Q3 revenue increased to $576,000 from $215,000, but nine-month revenue fell to $867,000 from $1.230 million. Management attributed lower nine-month HRS sales partly to pandemic-related order delays and supply-chain disruption; engineering and manufacturing revenue also declined.
- CETY Europe revenue increased to $173,000 from $45,000 for the nine-month period, which management attributed to higher service revenue and equipment sales.
- Nine-month operating expenses rose to $1.660 million from $1.470 million, while the operating loss widened. The reported net-income swing primarily reflects non-operating derivative and debt-settlement gains, not operating profitability.
- Cash increased substantially, supported by $3.585 million of stock proceeds, partly offset by operating cash use and debt payments. The company also issued significant common stock and converted preferred stock and debt into shares.
Outlook, risks, contingencies, and unusual items
- Outlook and financing: No quantified revenue or earnings guidance is provided. Management plans to expand heat-recovery and renewable-energy activities, pursue project financing and China opportunities, and continue relying on equity sales and/or debt financing. It cautions that additional financing is not assured and that equity issuance dilutes existing shareholders.
- Going concern: The company reports accumulated deficit of $16.813 million, stockholders’ deficit, working-capital deficit, operating cash outflow, and dependence on future capital or positive operating cash flow. Management says there can be no assurance it will achieve profitable operations.
- Defaults and claims: The company says it is in default on amounts owed under the GE asset purchase agreement, including a reported $1.2 million purchase-price balance, and is also in default on $187,285 owed to Cybernaut Zfounder Ventures. It disputes an Oberon Securities invoice of $291,767 and has recorded no liability, believing it has defenses.
- Concentration and operations: Five customers represented approximately 98% of accounts receivable. Accounts receivable, inventory, property and equipment, and long-term financing receivables are pledged to the line-of-credit lender. Management warns that COVID-19 and supply-chain delays could adversely affect operations; the impact and duration were not estimable.
- Subsequent events: A GHS equity financing agreement provides for up to $4 million, subject to registration effectiveness; the registration became effective October 14, 2021, and the company reported issuing 5.284 million shares under it through the filing date. On November 8, 2021, a subsidiary acquired 100% of Leading Wave Limited, a China-based LNG trader, for $1.5 million cash plus up to 200 million common shares subject to milestones.
- Controls: Management concluded disclosure controls were ineffective at September 30, citing no independent directors or audit committee financial expert and weaknesses in ensuring required disclosures were addressed in the financial statements.
Important facts for investors to verify
- Reconcile the conflicting nine-month gross-profit disclosures: the statements show $519,683, MD&A states $591,683, and reported sales less reported cost of goods sold does not equal the statements’ gross profit. The filing also gives differing operating-loss figures in its narrative.
- Confirm the availability and restrictions on cash, including the $1.5 million transferred for planned China ventures and described as held in a custodial account, and assess whether the reported cash balance is available for operations.
- Review the terms, status, and consequences of the GE and Cybernaut defaults, the disputed Oberon claim, and the company’s ability to meet near-term obligations.
- Assess expected dilution from the equity financing arrangements, convertible notes, warrants, and the conditional Leading Wave share consideration.
- Verify the Leading Wave acquisition funding, milestone conditions, and expected contribution, along with progress and funding needs for the company’s other planned ventures.
- Check the segment disclosures and reporting-period references: portions of the filing describe different segment counts, and the signature section includes an apparent “November 2020” date despite signatures dated November 16, 2021.