Clean Energy Technologies, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; filed August 16, 2021. The company designs and manufactures waste-heat recovery and other clean-energy systems, alongside legacy electronics manufacturing and European sales and service operations.
Financial results and position
| Metric | Q2 2021 | Six months 2021 | Comparable 2020 |
|---|---|---|---|
| Revenue | $155,884 | $291,158 | $155,997 Q2; $1,014,812 six months |
| Gross profit / margin | $106,528 / 68% | $218,539 / 75% | $62,667 / 40% Q2; $578,205 / 57% six months |
| Operating expenses | $602,261 | $1,081,209 | $491,537 Q2; $967,747 six months |
| Operating loss | $(495,733) | $(862,670) | $(428,870) Q2; $(389,542) six months |
| Net income (loss) | $(231,856) | $836,728 | $(229,502) Q2; $(543,077) six months |
| Operating cash flow | $(1,449,202) for six months, per cash-flow statement | $(414,393) for six months |
The six-month net profit was driven principally by a $1.745 million gain from a reduction in the derivative liability and a $368,098 debt-settlement gain, despite the operating loss. The derivative liability fell to $263,433 from $2.009 million at year-end. Q2 revenue was nearly unchanged year over year, while six-month revenue declined substantially.
At June 30, cash was $2.043 million, current assets $3.287 million, and current liabilities $6.666 million, producing a $3.379 million working-capital deficit. Total liabilities were $8.233 million, versus $11.362 million at December 31, 2020; stockholders’ deficit was $2.395 million. Cash increased by $1.628 million during the six months, with $3.077 million of financing cash inflows and no investing cash flow reported in the statements.
Changes, outlook, and risks
- Six-month segment revenue shifted sharply: HRS fell to $88,807 from $749,034; legacy manufacturing and engineering fell to $41,223 from $250,854; CETY Europe rose to $161,128 from $14,924. Management attributed HRS delays to the pandemic and lower legacy revenue to a shift in focus.
- The company raised $2.57 million through public and private financing and says it plans to use up to $2 million for two proposed China ventures. It reports transferring $1.5 million toward these ventures pending definitive documents; the investments remained pending. Management also described plans to raise an additional $6 million through a Regulation A offering, subject to market conditions. No specific revenue or earnings guidance is provided.
- Management states there is substantial doubt about the company’s ability to continue as a going concern, citing the working-capital and stockholders’ deficits, accumulated deficit of $16.815 million, and dependence on financing or positive operating cash flow.
- The company disclosed defaults on amounts due under its GE asset-purchase agreement and $187,285 of principal and interest on Cybernaut Zfounder Ventures notes. It disputes a $291,767 Oberon Securities invoice and has recorded no liability, believing it has defenses.
- COVID-related order and contract delays, reliance on further equity financing and resulting dilution, and concentration of approximately 98% of accounts receivable among five customers are notable risks. The company reported ineffective disclosure controls due to board independence and financial-reporting control weaknesses.
Investor verification points
- Reconcile cash-flow figures: the financial statements report operating cash use of $1.449 million and financing inflows of $3.077 million, while MD&A gives $1.599 million and $3.227 million, respectively. Both presentations report the same $1.628 million increase in cash.
- Confirm the status, documentation, and recoverability of the $1.5 million transferred for proposed China ventures, including the related-party $500,000 transfer disclosed in the notes.
- Assess the consequences and resolution prospects for the GE and Cybernaut defaults, and the disputed Oberon claim.
- Evaluate near-term liquidity and financing needs alongside potential dilution: 921.65 million common shares were outstanding at June 30, and the filing cites convertible notes potentially convertible into approximately 480.75 million additional shares, plus 8.75 million warrants.
- Track operating performance apart from non-operating gains, particularly revenue recovery in HRS and the company’s ability to fund operations and address its going-concern uncertainty.