Business context and reporting period
Clean Energy Technologies, Inc. (formerly Probe Manufacturing, Inc.) filed this Form 10-K for the fiscal year ended December 31, 2015. The company combined electronics contract manufacturing with its newly acquired Heat Recovery Solutions business, which sells Clean Cycle organic Rankine cycle systems that convert waste heat into electricity. In September 2015, it acquired GE International’s HRS assets; it changed its name in November. The filing reports annual results, not separate fourth-quarter results.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $2,355,012 | $3,533,503 |
| Gross profit / margin | $668,896 / 27% | $792,356 / 21% |
| Operating loss | $1,752,612 | $964,231 |
| Net loss | $2,569,936 | $1,235,194 |
| Net loss per share | $0.04 | $0.05 |
| Cash used in operating activities | $617,553 | $708,337 |
| Cash at year-end | $4,196 | $27,241 |
| Working capital | Deficit of $2,012,417 | Deficit of $599,915 |
| Total assets | $3,248,878 | $1,469,893 |
| Total liabilities | $4,498,721 | $1,529,225 |
| Stockholders’ equity (deficit) | Deficit of $1,249,843 | Deficit of $59,332 |
Current liabilities were $3,698,721, including $1,291,922 of current notes payable; long-term notes payable were $800,000. Interest expense was $353,476. The filing identifies an accounts-receivable financing balance of $786,227 bearing interest at 2.5% per month. It does not provide a clear consolidated debt total reconciled by instrument.
Material changes versus the prior year
- Revenue fell about 33%; management cited a slowdown, customer-base changes, facility relocation downtime, and a shift in strategy after the HRS acquisition.
- Gross margin improved to 27% from 21%, while gross profit declined as sales contracted.
- Net loss more than doubled. Higher salaries and operating costs following the HRS transaction, interest expense, and $420,673 of Trident goodwill impairment were identified as significant factors. The company also recorded an $11,508 inventory impairment and $31,667 in financing fees.
- Operating cash use improved from $708,337 to $617,553, but financing activities provided $594,508 and year-end cash remained very low.
- Common shares outstanding increased from 30.7 million to 139.4 million, largely through the financing/change-of-control transaction. The filing says ETI obtained a 70% interest and describes issuance of 100,910,321 shares to an investor; ownership figures elsewhere in the filing are not fully consistent.
Outlook, risks, and unusual items
- Going concern: The auditor and management cited substantial doubt about the company’s ability to continue as a going concern, given recurring losses, a $4,875,138 accumulated deficit, a working-capital deficit, and limited cash. Continued operations depend on additional financing and/or positive operating cash flow; no assurance is given.
- Management plans: Pursue sales through direct and global distributor channels, island power projects, licensing, cogeneration and OEM opportunities, and further technology or equity opportunities. The filing provides no quantified revenue, earnings, or cash-flow guidance.
- Acquisition and obligations: The HRS asset acquisition was financed in part by a three-year GE note stated at $1.4 million, with an additional $100,000 pension liability assumed. The filing lists GE note payments of $315,218 in 2016, $630,436 in 2017, and $254,346 in 2018. A separate accrued amount payable to GE of $792,868 is also reported.
- Concentration and execution: The five largest customers generated approximately 71% of 2015 sales and accounted for 94% of year-end receivables; one customer represented 55% of receivables. Purchase orders are generally short-term. Inventory turns declined to 1.91 from 4.65, while receivable days rose to 61 from 39.
- Governance and reporting: Management concluded disclosure controls and internal control over financial reporting were not effective at year-end. The auditor did not express an opinion on internal-control effectiveness. The company reported no material pending legal proceedings.
- Other commitments: A seven-year, two-month lease signed in March 2016 carries stated rent of $179,090 for the first 12 months. A $75,000 convertible note was entered into in March 2016. The company also disclosed executive severance provisions and related-party supplier relationships.
Most important facts for investors to verify
- Near-term liquidity, cash runway, financing availability, debt maturities, and the terms and status of the GE obligations and high-cost receivables financing.
- Whether the HRS business is generating orders, revenue, and margins sufficient to support its acquisition and operating costs; the filing provides no segment-level financial results or quantified outlook.
- The control, ownership, and dilution details of the ETI transaction: the filing describes a 70% interest, a large share issuance, and ownership figures that do not fully reconcile.
- Customer and receivable concentration, collectability, inventory quality, and the adequacy of reserves.
- Remediation plans for ineffective financial reporting controls and the effect of the stated going-concern uncertainty.