UNITED STATES
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DOCUMENTS INCORPORATED BY REFERENCE
CLEAN ENERGY TECHNOLOGIES, INC.
Form 10-K
TABLE OF CONTENTS
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NOTE ABOUT FORWARD-LOOKING STATEMENTS
In this Annual Report on Form 10-K, references to “Clean Energy Technologies,” the “Company,” “we,” “us,” “our” and words of similar import refer to Clean Energy Technologies, Inc., unless the context requires otherwise.
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this report.
Forward-looking statements include, but are not limited to, statements concerning the following:
| ● | our possible or assumed future results of operations; | |
| ● | our business strategies; | |
| ● | our ability to attract and retain customers; | |
| ● | our ability to sell additional products and services to customers; | |
| ● | our cash needs and financing plans; | |
| ● | our competitive position; | |
| ● | our industry environment; | |
| ● | our potential growth opportunities; | |
| ● | expected technological advances by us or by third parties and our ability to leverage them; | |
| ● | Our inability to predict or anticipate the duration or long-term economic and business consequences of the ongoing COVID-19 pandemic; | |
| ● | the effects of future regulation; and | |
| ● | our ability to protect or monetize our intellectual property. |
You should read any other cautionary statements made in this Annual Report as being applicable to all related forward-looking statements wherever they appear in this Annual Report. We cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Annual Report completely. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on these forward-looking statements.
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BUSINESS
Who We Are
We develop renewable energy products and solutions and establish partnerships in renewable energy that make environmental and economic sense. Our mission is to be a segment leader in the Zero Emission Revolution by offering recyclable energy solutions, clean energy fuels and alternative electric power for small and mid-sized projects in North America, Europe, and Asia. We target sustainable energy solutions that are profitable for us, profitable for our customers and represent the future of global energy production.
Our principal businesses
Waste Heat Recovery Solutions – we recycle wasted heat produced in manufacturing, waste to energy and power generation facilities using our patented Clean CycleTM generator to create electricity which can be recycled or sold to the grid.
Waste to Energy Solutions - we convert waste products created in manufacturing, agriculture, wastewater treatment plants and other industries to electricity, renewable natural gas (“RNG”), hydrogen and bio char which are sold or used by our customers.
Engineering, Consulting and Project Management Solutions – We have expanded our legacy electronics and manufacturing business and plan to manufacture component parts for our Waste Heat Recovery and Waste to Energy business and to provide consulting services to municipal and industrial customers and Engineering, Procurement and Construction (EPC) companies so they can identify, design and incorporate clean energy solutions in their projects.
CETY HK
Clean Energy Technologies (H.K.) Limited (“CETY HK”) consists of two business ventures in mainland China:(i) our natural gas (“NG”) trading operations sourcing and suppling NG to industries and municipalities. The NG is principally used for heavy truck refueling stations and urban or industrial users. We purchase large quantities of NG from large wholesale NG depots at fixed prices which are prepaid for in advance at a discount to market. We sell the NG to our customers at prevailing daily spot prices for the duration of the contracts; and (ii) our planned joint venture with a large state-owned gas enterprise in China called Shenzhen Gas (Hong Kong) International Co. Ltd. (“Shenzhen Gas”), acquiring natural gas pipeline operator facilities, primarily located in the southwestern part of China. Our planned joint venture with Shenzhen Gas plans to acquire, with financing from Shenzhen Gas, natural gas pipeline operator facilities with the goal of aggregating and selling the facilities to Shenzhen Gas in the future. According to our Framework Agreement with Shenzhen Gas, we will be required to contribute $8 million to the joint venture which plans to raise in future rounds of financing. The terms of the joint venture are subject to the execution of definitive agreements.
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Our Business Strategy
Our strategy is focused on further developing our existing Waste Heat Recovery business while expanding into the rapidly growing markets for Waste to Energy Solutions and clean energy engineering, consulting and project management services.
Our strategy focuses on three main elements:
| ● | Expanding our Waste Heat Recovery product line to include waste heat recovery ORC systems producing over 1 MW of power so we can qualify for midsized and large heat recovery projects in the United States, China, Southeast Asian and Pacific Rim countries. | |
| ● | Establishing a Waste to Energy business by selling our ablative thermal processing products based on proprietary HTAP technology and developing small and mid-sized waste to energy power plants producing electricity and RNG for the grid and methane, hydrogen and biochar for resale. | |
| ● | Leveraging our engineering, procurement and manufacturing experience in Waste Heat Recovery and Waste to Energy to assist companies and EPCs incorporate clean energy solutions into energy and industrial construction projects. |
We intend to implement this strategy through:
| ◌ | Adding a new ORC system manufactured by Enertime for Waste Heat Recovery that will enable us to implement projects in the U.S. markets producing between 1 MW and 10 MW of electricity. | |
| ◌ | Taking advantage of Inflation Reduction act of 2022 federal investment tax credits and state incentives that now include waste heat recover as a recognized clean energy source making our Clean Cycle Generator and ORC systems more profitable to install. On August 2022, Congress passed the Inflation Reduction act offering 30% Investment Tax Credit and technology neutral tax credits offering clean electricity production credit and investment credit. CETY’s products directly benefit from these tax credits. | |
| ◌ | Benefiting from higher energy costs which provide higher returns on our Waste Heat Recovery and Waste to Energy products and projects. | |
| ◌ | Improving our balance sheet and capital position to permit us to invest in more products and projects. | |
| ◌ | Establishing HTAP manufacturing facilities in Turkey for our Waste to Energy products and expanding patent protection on the proprietary technology. | |
| ◌ | Leveraging our existing marketing channels to sell HTAP Waste to Energy products to industrial companies and government agencies. | |
| ◌ | Working with clean energy project development and finance companies to establish Waste to Energy power plants producing electricity, RNG, hydrogen, methane and biochar from biomass, municipal waste, timber waste and other biomass and while retaining an equity interest in these facilities to provide re-occurring revenue. | |
| ◌ | Sourcing LNG and selling it to privately owned pipeline companies in China through our newly formed LNG Trading company to participate in the rapidly growing clean energy market. | |
| ◌ | Acquiring natural gas pipeline operators into our joint venture with Shenzen Gas who will hold 51% of the joint venture and agreed to provide either a 100 million dollar credit line or otherwise finance these acquisitions in a framework agreement. |
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| ◌ | Participate in other minority investments in medium to large clean energy projects being developed in China that may be sourced by our majority stockholder in Hong Kong. | |
| ◌ | Leveraging the LNG trading and investment relationships to create opportunities for us to sell our Waste Recovery and Waste to Energy products in China and to provide engineering, consulting and project management services. | |
| ◌ | Expanding our NG trading operations in China by acquiring more customers and developing the planned joint venture with Shenzhen Gas by acquiring natural gas pipeline operators’ facilities. |
Business and Segment Information
We design, produce and market clean energy products and integrated solutions focused on energy efficiency and renewable energy. Our aim is to become a leading provider of renewable and energy efficiency products and solutions by helping commercial companies and municipalities reduce energy waste and emissions, lower energy costs and generate incremental revenue by providing electricity, renewable natural gas and biochar to the grid.
Segment Information
Our four segments for accounting purposes are:
Clean Energy HRS (HRS) – which engages in engineering, manufacturing and installing waste heat recovery solutions incorporating our Clean Cycle Generator.
CETY Europe – our subsidiary established in Italy for the purposes of servicing our customers in the EU that we are required to report as a separate accounting entity.
Engineering and Manufacturing Business – our legacy electronics manufacturing business that do not contribute significantly to our revenues or business plan that we are required to report as a separate accounting entity.
CETY HK – which is the parent company of our NG trading operations in China that source and supply NG and our planned joint venture to acquire NG distribution systems depots and transmission systems. Prior to the first quarter of 2022, the Company had three reportable segments but added the CETY HK segment to reflect its recent new businesses in China.
Our Clean Energy Solutions Business
Waste Heat Recovery Solutions
We provide our customers with power plants that capture wasted heat energy and produce electricity using a unique Organic Rankine Cycle (ORC) system containing our Clean CycleTM generator. Our magnetic bearing Integrated Power Modules is at the heart of our Clean CycleTM generator which can fit into a standard cargo container we call our Containerized System Module, producing 140KW per Clean Cycle generator and can be linked together for projects generating up to 1MW of power.
Our recent agreement with Enertime now permits us to install midsized and large ORC systems (between 1 MW and 10 MW) in the United States, allowing us to offer a full range of ORC systems to our customers. We believe this new capacity will enable us to expand our product offerings into larger scale waste recovery products in the United States. Enertime is a leader in producing ORC systems in Europe.
ORC waste heat recycling systems use pressurized working fluids that have a lower boiling point than water which make them ideal to repurpose waste heat into electricity. While most manufacturing processes do not produce enough heat to turn water into steam, there is enough heat to generate pressurized refrigerant in our ORC systems which is used to turn a turbine at high speeds to generate electricity.
We can link up to 10 Clean Cycle Generators together which can generate up to 10 GWh of electricity per year from waste heat which we estimate would reduce up to 5000 metric tons of CO2 production per year in an industrial heat recovery system or the annual equivalent of the CO2 emissions of approximately 2000 cars per year.
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We believe the most important component in any ORC system is the turbine generator because it converts the steam heat into electricity and accounts for approximately 60% of the cost of the system. The more efficiently the turbine generator works, the better the ORC power plant operates. The remaining components consisting of the low boiling point fluid, condensers, which cool the fluids, the feed pumps, which pressurize the fluids to reduce boiling points and the heat exchangers, which extract the heat from the heat sources. These are more commoditized products and tend to perform at similar levels of efficiencies at similar price points.
We believe our Clean CycleTM generator is the most efficient turbine generator in it’s class and size available in the market for ORC systems generating up to 1 MW. We estimate that the Clean CycleTM generator has higher efficiency of approximately 15% than our competitors and its magnetic design eliminates the use of oils and lubricants, significantly reducing down time, repairs and operating costs. Our Integrated Power Module is compact and fit into a standard cargo container that can be delivered on a turnkey basis resulting in lower installation and implementation costs than on-site assembly.
We believe these features and benefits give us an important competitive advantage when building heat recovery power plants for our customers and provide us with the opportunity to compete with and obtain market share from the dominant industrial waste heat to power systems.
Over 121 Clean CycleTM generators have been deployed to date with 88 units used in biomass and waste to energy projects, 4 with diesel electric generators, 3 with turbine electric generators and 26 in industrial electric production applications. We expect to raise additional funds to expand our capacity to install 6-8 units per year which should approximately double our sales on a year-to-year basis.
We have a current backlog of two units representing approximately $800,000 in sales revenues.
The patented technology used in Clean CycleTM generator was purchased from General Electric International, together with over 100 installation sites, making us one of the leading provider of small-scale industrial waste heat to power systems. We have an exclusive license from Calnetix to use their magnetic turbine for heat waste recovery applications.
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| Our Integrated Power Module | Our Clean Cycle TM Generator |
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A complete ORC System with Integrated Power Module housed in a Containerized System Module (CSM)
Waste to Energy Solutions
We are adding a new business line in our clean energy solutions segment consisting of Waste to Energy processing equipment, engineering services and Waste to Energy processing power plant joint ventures where we expect to retain an ownership interest in the project.
Waste-to-Energy technologies that process non-renewable waste can reduce environmental and health damages while generating sustainable energy. Waste-to-Energy technologies consist of waste treatment process that creates energy in the form of electricity, heat or fuels from a waste source. These technologies can be applied to several types of waste: from the biomass (e.g. woodchips) to semi-solid (e.g. thickened sludge from effluent treatment plants) to liquid (e.g. domestic sewage) and gaseous (e.g. refinery gases) waste.
Waste to Energy Solutions can be used:
| ● | In any town, city or province with established waste management and collection. | |
| ● | Where there is a consistent supply of solid waste. | |
| ● | Places where treatment costs increase with shortages of space to store waste. | |
| ● | In areas with high energy prices to allow for cost of recovery from waste. |
Waste to Energy Solutions have many benefits:
| ● | Electricity from Waste to Energy plants can be generated from small amounts up to 30 MW providing for a wide range of opportunities to sell it back to the grid. | |
| ● | The synthetic renewable fuel gas produced from waste can be used for various production recyclable energy such as hot water, thermo-oil or steam, renewable natural gas or hydrogen. | |
| ● | Landfill waste is reduced and so is leachate and methane released from decomposing landfills. | |
| ● | Waste is a reliable source of energy and production is typically predictable and low cost whereas fossil fuel prices can fluctuate dramatically. |
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But Traditional Incineration Methods Have Significant Downsides:
| ● | Air pollution can increase because scrubbing technologies are very expensive to install. | |
| ● | Many industrial, agricultural, and mixed municipal solid wastes have high moisture content at source and direct incineration of such waste requires burning fossil fuel. | |
| ● | to maintain thermal conversion process. | |
| ● | Carbon is released into the air which would otherwise be stored in landfill. | |
| ● | Ash and flue gas cleaning residues from incineration can also cause poisonous leachate problems if not properly disposed of which is costly and causes downstream environmental issues. | |
| ● | Generating electricity from incineration releases more CO2, SO2, NOx and mercury than natural gas. |
(Source: https://www.energyforgrowth.org/memo/waste-to-energy-one-solution-for-two-problems/)
The most common form of waste to energy systems are based on incinerators which simply burn waste using air. The Thermal Treatment on Grate is the most widespread technology being used by large waste landfills to generate electricity and heat. These systems produce substantial amounts of ash, heavy metals and carbon dioxide which need to be treated and disposed of to minimize its impact on the environment. They also require substantial amounts of pre-treatments prior to burning.
The Thermal on Grate incineration process, while wide-spread, is too expensive and complex for smaller and mid-sized waste to energy projects creating, what we believe, a significant market opportunity in small and mid-sized waste processing applications to create not only electricity but valuable renewable natural gas, bio diesel oil, hydrogen, methane, and biochar.
Our solution is a patented High Temperature Ablative Pyrolysis (HTAP) Biomass Reactor as viable commercial solution to the costs and environmental problems posed by traditional incarnation methods. We have the exclusive license and right to sell the HTAP10 and HTAP5 and related products manufactured by Enex which has a proven installed commercial base of customers using its waste to energy solutions. We believe this is an ideal solution to process waste for small to mid-sized waste to energy generation applications needed for processing industrial and municipality solid waste, agriculture waste, and forestry waste.
Pyrolysis systems decompose waste without the use of oxygen under varying pressurized conditions and at temperatures ranging from 300 degrees Celsius and 1,300 degrees Celsius. The major advantage of pyrolysis is that it is a cost-effective technology and helps curb environmental pollution. Pyrolysis systems are gradually replacing traditional incineration and gaining momentum in the waste to energy processing market addresses many of the pre-treatment issues and, when using high temperature and high-pressure, substantially reduce or eliminates pollutant. (Source: “Life Cycle Assessment of Waste-to-Bioenergy Processes: a Review” Pooja Ghosh, ... Arunaditya Sahay, in Bioreactors, 2020)
Pyrolysis systems can produce hydrogen, renewable natural gas, bio-diesel oil, charcoal, and biochar which are used to power hydrogen, diesel, and natural gas engines or electrical turbines which can be sold and often are eligible for substantial tax and pricing benefits. When compared with the conventional incineration plant that runs in the capacity of kilotons per day, the scale of the pyrolysis plant is more flexible, and the output of pyrolysis can be integrated with other downstream technologies for product upgrading. (Source: Influential Aspects in Waste Management Practices Karthik Rajendran PhD,. Jerry D. Murphy PhD, in Sustainable Resource Recovery and Zero Waste Approaches, 2019) In addition, BioChar stores and reduces atmospheric CO2 and can be used as a soil conditioner, an organic component of animal feeds, construction materials, wastewater treatment and in textiles. (Source: https://www.bioenergyconsult.com/applications-of-biochar/)
The ablative pyrolysis system is a waste to energy process that largely eliminates pre-treatment and the harmful pollutants and storage waste produced when using standard incineration and other pyrolysis technologies. It uses high pressure to generate fast pyrolysis and is designed so that the heat transferred from a hot reactor wall softens the feedstock under pressure and permits larger feedstock particles to be processed without pre-treatment. These systems create high relative motion between the reactor wall and the feedstock. The process avoids the need of inert gas and hence the processing equipment is small and the reaction system is more intense. (Source: http://biofuelsacademy.org/index.html%3Fp=608.html )
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CETY has licensed proprietary patented ablative pyrolysis system for commercial use that has been installed in 7 sites for use in waste to energy creating applications processing including peat, coal, flax waste, sawdust and wood scrap, straw, buckwheat husks, and cardboard, tapes, films and paper machine sludge. The technology has been implemented over 1,500 onsite power generation projects in Russia working with major energy production companies such as Gazprom, Rosneft, Lukoil and Rostelecom as well as completing several projects for customers in the European Union, Middle East and United States. Due to the conflict in the Ukraine, ENEX is redomiciling and relocating key personnel to Turkey where it will complete an existing project and is expected to wind down its operations. CETY will develop additional ablative technology and expects to manufacture units in the United States. Sales and European distribution will be run out of a CETY office that has been established in Turkey.
CETY has global rights (except Russia and CIS countries) to design, build, manufacture, sell and operate renewable energy and waste recovery facilities HTAP10 and HTAP5 systems and other products and technologies we expect to develop in the future.
The patented HTAP technology utilizes a higher temperature that uses a cleaner gas for the heating process and a more efficient biogas turbine. The units can be customized to produce hydrogen, natural gas, diesel oil and bio char in varying quantities which can be sold or used to produce electricity. We believe that the key benefits of the HTAP Biomass Reactor are:
| ● | Flexibility in waste sourcing and mixing. | |
| ● | Customized outputs of hydrogen, synthetic fuels, natural gas, methane, biochar, carbon black, or construction materials. | |
| ● | Better waste sourcing and mixing flexibility, | |
| ● | Near-zero emissions, | |
| ● | Modular design, | |
| ● | Zero liquid discharge, | |
| ● | Zero solid waste residue waste. | |
| ● | Modular, containerize design reducing implementation costs | |
| ● | Proven commercial implementation. |
We are targeting industrial and municipality solid waste, landfill waste, agriculture waste (straw, stems, plant biomass, manure, crop wastage), and forestry waste from tree cuttings and shredded products.
We are in the process of identifying projects domestically and internationally for the HTAP Biomass Reactor. We believe the first project where we expect to implement the HTAP10 technology will be with Ashfield Ag Resources to co-develop a biomass renewable energy processing facility. The project is planned for a location in Massachusetts to convert forest biomass waste products to renewably generated electricity and BioChar fertilizer. We expect to annually deliver up to 14,600 MWh of renewable electricity and 1,500 tons of BioChar. The Ashfield project is one of four renewable energy processing facilities we plan to commission.
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ENEX HTAP 10 Waste to Energy Processing Plant.
We established a wholly owned subsidiary called CETY Capital that we expect will help us finance our customers renewable energy projects producing low carbon energy. CETY Capital, when implemented, should add flexibility to the capacity CETY offers its customers and fund projects utilizing its products and clean energy solutions. The in-house financing arm is expected to support our sales and build new renewable energy facilities. To date we have conducted no material operations in this subsidiary.
Our Clean Energy Initiatives in China
Natural gas is China’s fastest-growing primary fuel with demand quadrupling in the past decade. Developing the natural gas sector is a critical aspect China’s effort to reduce reliance on coal. According to the International Energy Agency, China is the world’s sixth-largest natural gas producer, the third-largest consumer, and the second-largest importer. In 2050, the U.S. Energy Information Administration (EIA) expects China to consume nearly three times as much natural gas as it did in 2018, which was 280.30 b/cm. China’s natural gas consumption accounted for 8.3% of its total energy mix in 2019. China anticipates boosting the share of natural gas as part of total energy consumption to 14% by 2030. Before COVID 19, China was expected to account for a third of global demand growth through 2022, thanks in part to the country’s “Blue Skies” policy and the strong drive to improve air quality. China’s relatively strong economic recovery from the COVID 19 crisis will probably increase that share. Natural gas is imported either through pipelines or as liquefied natural gas (LNG) on ships. According to Reuters, in 2019, the largest sources for Chinese LNG imports were Australia, Qatar, Malaysia, and Indonesia. ( Source: U.S. Department of Commerce, International TradeAdministration.https://www.trade.gov/country-commercial-guides/china energy#:~:text=China%20anticipates%20boosting%20the%20share,drive%20to%20improve%20air%20quality.)
Liquid Natural Gas in the Chinese energy market produces half as much carbon dioxide, less than a third as much nitrogen oxides, and 1 percent as much sulfur oxides at the power plant compared to the average air emissions from coal-fired generation. In addition to reduced air emissions, natural gas has other environmental benefits that make it a smart fuel choice. Natural gas-fired power plants use about 60 percent less water than coal plants and 75 percent less water than nuclear power plants for the same electricity output. (Source: Conoco Phillips)
In 2021, we acquired through our subsidiary, CETY Hong Kong, a liquefied natural gas trading operation called Jiangsu Huanya Jieneng (“JHJ”) which sources LNG from large LNG producers and distributors and sells it to non-state-owned industries and downstream customers in mainland China. In addition, CETY Hong Kong established a frame work agreement for a future joint venture with the overseas investment arm of a large state-owned gas enterprise in China called Shenzhen Gas (Hong Kong) International Co. Ltd. (“Shenzhen Gas”). CETY Hong Kong holds a 49% interest in the joint venture. The joint venture plans to acquire municipal natural gas operators in China with funds provided by Shenzhen Gas.
CETY also plans to sell its waste heat recovery and waste to energy products in China as well as provide consulting services relating to the same to projects in China.
The JHJ team has more than 10 years of experience in the natural gas and clean energy industry and has maintained relationships and partners with many natural gas enterprises in China.
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CETY HK
LNG Trading Operations
JHJ’s principal service is to source and supply LNG to industries and municipalities located in the southern part of Sichuan Province and portions of Yunnan Province. The LNG is principally used for heavy truck refueling stations and urban or industrial users in areas that do not have a connection to local LNG pipeline systems. We purchase large quantities of LNG from large wholesale LNG depots at fixed prices which are prepaid for in advance at a discount to market. We sell the LNG to our customers at prevailing daily spot prices for the duration of the contracts.
Either our sources or customers arrange for delivery of the LNG. Our profitability depends on our ability to purchase LNG at volume discounts at the beginning of a season and sell it at a delivered price that is higher than the price we pay.
JHJ traders are experienced LNG traders, familiar with the spot and future markets and have relationships with the major users of LNG in the areas that we serve. Our customers may be local or may be as far as 700km from each depot.
We compete with other LNG trading based on availability and price. We target our discount with our sources to partially hedge against falling spot prices and give us a gross profit targeted at substantially higher rate than our competitors which are approximately 20-30 percent margins compared against what we believe are 1-5 percent margins by our competitors. So long as there are no major fluctuations in the spot market, we can offer more competitive prices due to the discounts we receive from the large volumes purchased and the prepayments for the LNG. JHJ has currently established a supply of approximately 8,000 tons of LNG for distribution.
We are able to purchase LNG at a significant discount from our suppliers because our prepayments offer suppliers more certainty with respect to the sales of their inventory, address their cash flow issues, and allow them to better plan for production. We believe our downstream customers get better prices from us because of our bulk buying power, ease of inventory management and cash flow.
Both our suppliers and customers can reduce costs by using JHJ as a centralized procurement center and establishing professional logistics distribution based on stable supply and downstream demand.
In addition, at the time of our acquisition of JHJ, JHJ had substantially completed negotiations to enter into an agreement to obtain a 15% equity stake in Heze Hongyuan Natural Gas (HHNG), a local pipeline operator in the Shandong Province, by purchasing a stake through Chengdu Rongjun Enterprise Consulting Co., Ltd. (CRE) The investment is secured via a share-pledge by the majority shareholder of HHNG, and in case of a default, JHJ can take over the majority position. JHJ has full transparency to the use of proceeds as well as supervision of the operations of HHNG. In January 2022, JHJ entered into a convertible promissory note with CRE, at 12% annual interest, in the amount of Yuan 5,000,000 (approximately USD 787,686), which was funded by, purchases of our stock by PRC investors under our Regulation A offering at a price of USD .08 per share. The Note is convertible into 15% of HHNG equity interests subject to dilution by additional equity investment into HHNG by third parties. We do not expect the project to require additional investment from us, JHJ or HHNG. The project is currently planning and constructing additional pipelines in the Heze area and is expected to generate cash flow by the first quarter of 2023. We do not expect to make further direct minority investments in other pipeline operators as we expect these acquisitions to take place through our joint venture with Shenzhen Gas.
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Joint Venture with Shenzhen Gas.
We are in the process of establishing a joint venture with Shenzhen Gas with plans to acquire natural gas utility companies in China. Shenzhen Gas is expected to provide a line of credit to the joint venture to fully cover the acquisition costs or otherwise facilitate capital infusions. We believe our participation in the joint venture will also provide our parent company, CETY and its subsidiaries, with the opportunity to sell its products and consulting services to the companies acquired by the joint venture.
We believe that Shenzhen Gas entered into the Joint Venture with us because of the expertise of JHJ in the LNG market in southwest China and their ability to source and complete profitable deals for the joint ventures.
Our subsidiary, Leading Wave Limited, signed a non-binding “Strategic Cooperation Framework Agreement” with Shenzhen Gas, on August 30, 2021. According to the agreement, we expect the joint venture will invest up to RMB 3 to 5 billion which will be financed through a credit line extended by Shenzhen Gas to the joint venture at an interest rate of approximately 5% per annum. JHJ’s team will be providing the know-how on the joint venture’s acquisition strategy as well as streamlining the operations of the portfolio companies to increase the overall profitability of the investments.
Engineering, Consulting and Project Management Services
Engineering. Our global engineering team supports the design, build, installation, and maintenance of our Clean CycleTM generators, supports our technology customers and innovative start-ups with a broad range of electrical, mechanical and software engineering services. CETY has assembled a team of experts from around the globe to assist customers at any point in the design cycle. These services include design processes from electrical, software, mechanical and Industrial design. Utilization of CETY’s design services will provide our customers with a complete end to end solution.
Supply Chain Management. CETY’s supply chain solution provides maximum flexibility and responsiveness through a collaborative and strategic approach with our customers. CETY can assume supply chain responsibility from component sourcing through delivery of finished product. CETY’s focus on the supply chain allows us to build internal and external systems and better our relationships with our customers, which allows us to capitalize on our expertise to align with our partners and customer’s objectives and integrate with their respective processes.
The Market for Our Products.
Waste to Energy.
There are more than 2500 waste-to-energy plants in the world, including almost 500 in Europe. (Source: https://wteinternational.com/news/waste-to-energy-technologies-overview/). The waste-to-energy (WtE) market is expected to register a CAGR of 7.35% during the forecast period of 2021 – 2026, reaching a market size of USD 69.94 billion by 2026, up from USD 43.66 billion in 2019. The COVID-19 pandemic affected the market negatively in the form of supply chain disruptions and delays in project implementation. However, the market is expected to recover from 2021, owing to the increasing efforts to promote waste-to-energy plants by various countries across the world. In addition to this, an increasing amount of waste generation and growing concern for waste management to meet the need for sustainable urban living and increasing focus on non-fossil fuel sources of energy are driving the demand for the waste-to-energy market. Thermal technology is expected to dominate the waste-to-energy market in the coming years, owing to the increasing development in incineration and gasification technologies, as well as the increasing amount of waste generated, especially from the emerging economies of Asia-Pacific. Asia-Pacific has witnessed significant development in the waste-to-energy industry in the past few years. It has dominated the market across the world with increasing efforts taken by the government in adopting better MSW management practices, providing incentives for waste-to-energy projects in the form of capital subsidies and feed-in tariffs, and providing financial support for R&D projects on a cost-sharing basis. Due to economic development and rapid urbanization in China, the generation of municipal solid waste (MSW) has been increasing rapidly. Therefore, the effective disposal of municipal solid waste has become a serious environmental challenge in China. (Source: https://www.reportlinker.com/p06192762/Waste-to-Energy-WtEMarket-Growth-Trends-COVID-19-Impact-and-Forecasts.html?utm_source=GNW
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Increasing government regulations regarding the waste to energy in various countries is one of the major factors driving the growth of global waste to energy market. For instance, according to Federal Power Act 2019, this act gives federal authority over electric utilities in U.S. Also the acts like Public Utility Regulatory Policy Act (PURPA) and Energy Policy Act are applied by the government to increase the waste to energy and decrease the CO2 emission by fossil fuels. In addition, escalating investments in R&D by different countries is also fostering the growth of global waste to energy market. (Source https://www.mynewsdesk.com/brandessence/pressreleases/at-cagr-of-7-dot-6-percent-waste-to-energy-market-is-expected-to-reach-usd-52-dot-92-billion-by-2027-3125591)
Alternative thermal technologies like pyrolysis, gasification and plasma arc gasification are expected to lower carbon emissions and witness the growth in demand. Moreover, a shift in trend towards replacing conventional energy generating from fossil fuels with renewable energy to ensure energy security and reduce carbon emissions are potential factors to drive industry growth. The global waste to energy market size was valued at $35.1 billion in 2019, and is projected to reach $50.1 billion by 2027, growing at a CAGR of 4.6% from 2020 to 2027.
https://www.alliedmarketresearch.com/waste-to-energy-market
Waste Heat Recovery
A study by Market Research Future in October of 2021 forecasted the waste heat recover market would be worth USD 114 billion by 2028 registering a CAGR of 9.2 per year from a baseline of USD 59.44 billion in 2020. The primary economic driver in the waste heat recovery market are “rising energy use, economic development, and rising electricity prices. The use of energy in many sectors to manufacture products is steadily growing. The need for energy has increased in industrialized regions as industrialization has occurred. Companies are developing numerous strategies to transform waste heat into energy as the demand for energy grows. As a result, it is fueling the growth of the Waste Heat Recovery market. The government has taken various initiatives and enacted rules to save energy, which has promoted the usage of Waste Heat Recovery technologies. Due to environmental concerns, the government is taking steps to save energy; as a result, the Waste Heat Recovery sector is booming. Energy-efficient technology has become critical for industries looking to save money.” (Source: https://www.yahoo.com/now/waste-heat-recovery-market-worth-095200052.html)
In 2020 North America constituted the largest share of the market accounting for approximately 33% of the global total but countries in Asia and the Asia Pacific constitute the fasting growing geographic sectors due to rapid industrial expansion.
Waste heat recovery systems in the United States now qualify for beneficial investment tax credits of up to 26% on the investment driving additional companies to install ORC industrial waste heat to power units. Owners of waste energy recovery property can claim a 26% ITC if construction of such property begins during 2021 or 2022, and a 22% ITC if construction begins during 2023, provided in each case that the property is placed in service by the end of 2025. (Source: https://www.lw.com/thoughtLeadership/covid-19-tax-relief-package-extends-renewable-power-and-carbon-capture-tax credits#:~:text=Owners%20of%20waste%20energy%20recovery,by%20the%20end%20of%202025) We also believe the increasing prices for oil and natural gas as a factor that encourages the use of our waste heat recovery systems.
A Renewable Portfolio Standard (RPS) is a state incentive program that requires a certain percentage of electricity sold by utilities in the state to come from renewable resources. It diversifies the energy portfolio of the state while encouraging economic development. By establishing an RPS a state creates a market for Renewable Energy Credits (RECs). Each utility must obtain and retire a certain number of RECs annually. Several states including Colorado, Wisconsin, Illinois and California among others have now list waste heat to power as an eligible resource in their RPS program.
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LNG Trading and Joint Venture
Since 2012, the National Development and Reform Commission has stressed that “natural gas vehicles, including urban buses, taxis, logistics distribution vehicles, trucks and other natural gas-fueled transportation vehicles” are the most important users of natural gas and require a consistent supply chain. As a result, regions and provinces in the PRC have accelerated the construction of a network of LNG refueling stations and encouraged the expansion of fleets of delivery vehicles. Due to China’s “carbon peak, carbon neutral” goal commitment, China’s environmental protection policies are gradually being tightened resulting in increased utilization rates of natural gas as a clean energy alternative is getting higher and higher. (Source China 13th Renewable Energy Development Five Year Plan https://www.iea.org/policies/6277-china-13th-renewable-energy-development-five-year-plan-2016-2020)
By 2027, analysts forecast spot trade in LNG will be $20 billion, more than double its 2020 value. Last year, China’s imports soared by 18% to a record 79 million tons, overtaking Japan as the world’s largest LNG buyer. China’s economic recovery from the COVID-19 pandemic was one factor, but the other was a pipeline reform that allowed more firms to become importers. (Source: Reuters U.S. supplies give China muscle to become major force in global LNG trade https://www.reuters.com/business/energy/us-supplies-give-china-muscle-become-major-force-global-lng-trade-2022-02-11/)
Aligning with many policy goals, natural gas will remain a growth engine for energy supply in the 14th FYP period. The policy direction on air pollution reduction, carbon emission control, and gas supply and midstream infrastructure development indicates continued support for higher penetration of gas in the growing energy mix. On the other hand, the focus on supply security and cost reduction from market reforms indicate an expectation of decelerating gas demand growth in the 14th FYP period compared with that in the previous five years. In the current IHS Markit outlook, China’s gas demand will grow 6% compound annual average during 2021-25—compared with the 11% growth in the previous five year—to reach 429 Bcm in 2025. (Source S& P Global. China’s Five Yar Plan’s Review and Expectation: Batural Gas Tick the Box for Many Policy Goals. https://ihsmarkit.com/research-analysis/chinas-fiveyear-plans-review-and-expectation-natural-gas-ticks.html).
We believe that Southwest China is rich in natural gas resources providing us with a stable source of supply and is an important major natural gas producing area in the country. We estimate that there are 16 LNG production plants with a capacity of more than 300,000 cubic meters per day in Southwest China, with a total design capacity of 11.7 million cubic meters per day. We believe the supply is mainly to satisfy LNG refueling stations and LNG vehicles which are among our primary downstream customers.
We estimate that by the end of 2022, a total of about 240 LNG refueling stations were operating in South Western China, including about 170 in Sichuan, about 30 in Yunnan, and about 40 in Guizhou; the daily consumption of LNG refueling stations that have been put into operation in Yunguichuan is about 7,200 tons per day, which is basically the same as the upstream output, reaching a “balance of production and sales”.
In order to help achieve the goal of “carbon peaking and carbon neutrality”, accelerate the clean and low-carbon transformation of transportation energy, the Sichuan Provincial Development and Reform Commission and Sichuan Provincial Energy Administration issued the “Sichuan Province Natural Gas Vehicle Refueling Station Layout Plan (2021-2025)”, which proposed that by 2025, Sichuan will build 500 new refueling stations (including 141 stations in the expressway service area ), including 15 CNG refueling stations, 401 LNG refueling stations, 8 L-CNG refueling stations, and 76 CNG/LNG joint refueling stations.
Based on the development plan for LNG refueling stations in the southwest region we believe that the downstream demand for LNG by our customers will maintain a steady growth rate over the next five years.
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Sales and Marketing
We utilize both a direct sales force and global distribution group with expertise in heat recovery solutions and clean energy markets.
CETY maintains an online presence through our web portal and social media. We also have established cross-sale agreements with synergistic technology providers promoting our solutions to our respective customers. We utilize email campaigns to keep the marketplace abreast of the recent developments with our solutions. We work with the municipalities to identify incentive programs that could utilize our solutions.
Our application engineers assist in converting the opportunities into projects. We provide technical support to our Clean Cycle TM generator clients and recently introduced waste to energy plants through providing maintenance and product support.
Our market focus is segmented by the engine heat recovery, waste to energy plants, engineering & procurement, and renewable energy trade, Wastewater treatment plants and boiler applications with excess heat.
Our experienced team of LNG traders identify producers and customers for the LNG trading business as well as originate acquisition opportunities for our Shenzhen Gas joint venture.
Suppliers
Our heat recovery solutions systems are manufactured primarily from components available from multiple suppliers and to a lesser extend from custom fabricated components available from various sources. We purchase our components from suppliers based on price and availability. Our significant suppliers in the Waste Heat Recovery business include Powerhouse, Concise Instrument, and Grainger.
Our waste to energy components are sourced globally including the US with the exception of the core components originally sourced in Russia and being transitioned to Turkey and US. We are in the process of establishing an inhouse center of competence and technology development based out of Turkey to source these components in Europe and US with the ability to deploy the product globally. Although future impacts cannot be predicted the company does not foresee any negative impact from the Russa and Ukraine conflict.
The liquid natural gas in China is obtained from various local production plants in Southeast China based on price and quality. Deliveries of the LNG are made through third party trucking companies. We purchase large quantities of LNG from large wholesale LNG depots at fixed prices which are discounted and prepaid for in advance at a discount to market.
Competition
ORMAT, Exergy, TAS and Turboden are the leaders in ORC system power plants with more than 75% of installed capacity and plants, Exergy and TAS are following with around 13% and 6% of the market respectively while Turboden has recently penetrated the geothermal market with about 2% of the installed capacity.
The Waste to Energy Market is dominated by Hitachi Zosen Inova AG, Suez, Veolia, Ramboll Group A/S, Covanta Holding Corporation, China Everbright International Ltd., Abu Dhabi National Energy Company PJSC, Babcock & Wilcox Enterprises lnc., Whaleboater Technologies lnc., Xcel Energy lnc. (Source: https://www.mynewsdesk.com/brandessence/pressreleases/at-cagr-of-7-dot-6-percent-waste-to-energy-market-is-expected-to-reach-usd-52-dot-92-billion-by-2027-3125591)
We also compete with numerous companies that are smaller than the major companies who are focused on the smaller to medium sized installations in Waste Heat Recovery and Waste to Energy. We believe our waste to energy products are more efficient for use in small and medium si
zed operations than our competitors and provide us with a competitive advantage on that basis.
In China, our LNG trading operations compete with large state-owned LNG producers and importers such as Sinopec and many smaller local energy trading companies in the PRC. We compete based on price and consistency of services. Our joint venture with Shenzhen Gas competes with other large state-owned gas producers and smaller operators that may seek to grow by acquiring additional natural gas operators. We believe our local relationships maintained by our local trading team and affiliation with Shenzhen Gas, a major supplier in China, enable us to identify and acquire companies more efficiently than our competitors.
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Company Information
We were incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to Nevada in April 2005 under the name Probe Manufacturing, Inc. We manufactured electronics and provided services to original equipment manufacturers (OEMs) of industrial, automotive, semiconductor, medical, communication, military, and high technology products. On September 11, 2015 Clean Energy HRS, or “CE HRS”, our wholly owned subsidiary acquired the assets of Heat Recovery Solutions from General Electric International. In November 2015, we changed our name to Clean Energy Technologies, Inc.
Our principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626. Our telephone number is (949) 273-4990. Our common stock is listed on the OTCQB Markets under the symbol “CETY.”
Our internet website address is www.cetyinc.com and our subsidiary’s web site is www.heatrecoverysolutions.com The information contained on our websites are not incorporated by reference into this document, and you should not consider any information contained on, or that can be accessed through, our website as part of this document.
The Company has four reportable segments: Clean Energy HRS (HRS), CETY Europe, and the legacy electronic manufacturing services (Electronic Assembly) division and CETY Hong Kong
Patents
We currently hold 16 patents in 6 countries and 28 pending applications in 8 countries, which were acquired from General Electric International relating to our magnetic turbine technology.
Intellectual Property
As part of our asset acquisition from General Electric International we acquired an exclusive, irrevocable, sublicensable, limited transferable, royalty free, fully paid, worldwide perpetual license to develop, improve and commercialize Calnetix’s magnetic turbine in any Organic Rankine Cycle based application where heat is sourced from a reciprocating combustion engine of any type, except marine vessels, any gas or steam turbine systems for electrical power generation applications or any type of biomass boiler system.
We have a global manufacturing and sales agreement with ENEX for its pyrolysis system.
Facilities
We operate from a 20,000 sq-ft state of the art facility in Costa Mesa, California USA. We have in-house electro-mechanical assembly and testing capabilities. Our products are compliant with American Society of Mechanical Engineers and are UL and CE approved. We also have a 5000 sq-ft sales and service center located in Treviso, Italy. Our Asian headquarters is located in Hong Kong and our 3000 sq-ft Engineering consultancy and Natural Gas Trading company is located in Chengdu.
Employees
We presently have approximately 20 employees, including operational, engineering, accounting and marketing personnel. We utilize extensive number of consultants as well and have never experienced work stoppages and we are not a party to any collective bargaining agreement. We have 7 employees in JSJ in China.
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Government Regulation
Our operations are subject to certain foreign, federal, state and local regulatory requirements relating to environmental, waste management, and health and safety matters. We believe we operate in substantial compliance with all applicable requirements. However, material costs and liabilities may arise from these requirements or from new, modified or more stringent requirements. Material cost may rise due to additional manufacturing cost of raw or made parts with the application of new regulations. Our liabilities may also increase due to additional regulations imposed by foreign, federal, state and local regulatory requirements relating to environmental, waste management, and health and safety matters. In addition, our past, current and future operations and those of businesses we acquire, may give rise to claims of exposure by employees or the public or to other claims or liabilities relating to environmental, waste management or health and safety concerns.
Our markets can be positively or negatively impacted by the effects of governmental and regulatory matters. We are affected not only by energy policy, laws, regulations and incentives of governments in the markets into which we sell, but also by rules, regulations and costs imposed by utilities. Utility companies or governmental entities could place barriers on the installation of our product or the interconnection of the product with the electric grid. Further, utility companies may charge additional fees to customers who install on-site power generation, thereby reducing the electricity they take from the utility, or for having the capacity to use power from the grid for back-up or standby purposes. These types of restrictions, fees or charges could hamper the ability to install or effectively use our products or increase the cost to our potential customers for using our systems in the future. This could make our systems less desirable, thereby adversely affecting our revenue and profitability potential. In addition, utility rate reductions can make our products less competitive which would have a material adverse effect on our future operations. These costs, incentives and rules are not always the same as those faced by technologies with which we compete. However, rules, regulations, laws and incentives could also provide an advantage to our Heat Recovery Solutions as compared with competing technologies if we are able to achieve required compliance at a lower cost when our Clean Cycle TM generators are commercialized. Additionally, reduced emissions and higher fuel efficiency could help our future customers combat the effects of global warming. Accordingly, we may benefit from increased government regulations that impose tighter emission and fuel efficiency standards.
Research and Development
We had no expenses in Research and Development costs during the years ended December 31, 2022 and 2021.
WHERE YOU CAN GET ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.
Item 1a. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. We reserve the right not to provide risk factors in our future filings. Our primary risk factors and other considerations include:
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RISKS ABOUT OUR BUSINESS
OUR INDEPENDENT ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION AND IF WE CANNOT OBTAIN ADDITIONAL FINANCING AND/OR REDUCE OUR OPERATING COSTS SUFFICIENTLY, WE MAY HAVE TO CURTAIL OPERATIONS AND MAY ULTIMATELY CEASE TO EXIST.
Going Concern
The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a total stockholder’s equity of $1,878,196 and a working capital deficit of $2,245,996 and an accumulated deficit of $17,276,536 as of December 31, 2022 and used $2,244,133 in net cash from operating activities for the year ended December 31, 2022. Therefore, there is doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will achieve its goals and reach profitable operations and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations.
For the year ended December 31, 2022, we had a net profit of $147,395 compared to a net profit of $297,551 for the same period in 2021. The decrease in profit in 2022 was mainly due to the change in derivative liability associated with the convertible debt and higher interest expense from 2022 to 2021.
Subsequent to the year end results, the company’s equity position has increased substantially during the first quarter of 2023 evidenced by the subsequent events and company’s recent filings, mainly due to the recent public offering with gross proceeds of $3.9 million, the full conversion of a convertible note valued at $666,250, and gain from a $324,000 convertible note payoff. The company has demonstrated profitability for two consecutive years and is no longer in default to any major creditors. It is the Management’s opinion that the Company has sufficient operating capital and can continue to deliver profitability in its current state. The Company’s ability to access capital has also significantly improved as it listed on Nasdaq on March 23, 2023. Management believes through streamlined operations and scaling global sales, the Company can maintain long-term profitability and sufficient capitalization.
WE HAVE AN ACCUMULATED DEFICIT AND MAY INCUR ADDITIONAL LOSSES; THEREFORE, WE MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL FINANCING NEEDED FOR WORKING CAPITAL, CAPITAL EXPENDITURES AND TO MEET OUR DEBT SERVICE OBLIGATIONS.
As of December 31, 2022, we had current liabilities of $6,236,132. The company has been able to secure bridge financing of approximately $2,180,460 million and repaid approximately $636,494 of debt in 2022.
Our debt could limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, or other purposes in the future, as needed; to plan for, or react to, changes in technology and in our business and competition; and to react in the event of an economic downturn.
We may not be able to meet our debt service obligations. If we are unable to generate sufficient cash flow or obtain funds for required payments, or if we fail to comply with covenants in our revolving lines of credit, we will be in default.
WE ARE IN DEFAULT IN OUR OBLIGATIONS TO A MAJOR CREDITORS
We are in default of $323,875 payments of principal and interest on our notes payable to Cybernaut Zfounder Ventures, this not was settled and paid off subsequently as of March 31, 2023.
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY PUBLIC HEALTH EPIDEMICS, INCLUDING THE CORONAVIRUS OR COVID-19.
Our business, results of operations and financial condition may be adversely affected if a public health epidemic, including the coronavirus or COVID-19 interferes with the ability of us, our employees, workers, contractors, suppliers, customers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business. We maintain offices in HaiXi with employees and workers upon whom we rely to, among other things, identify sources of supply in China, conduct factory inspections, place orders for merchandise, perform factory monitoring with respect to production, quality control and other requirements, and arrange shipping. A public health epidemic, including the coronavirus, poses the risk that we or our employees, workers, contractors, suppliers, customers and other business partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. We face similar risks if a public health epidemic, including the coronavirus, affects other geographic areas where our employees, workers, contractors, suppliers, customers and other business partners are located.
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IF DEMAND FOR THE PRODUCTS AND SERVICES THAT THE COMPANY OFFERS SLOWS, OUR BUSINESS WOULD BE MATERIALLY AFFECTED.
Demand for products which it intends to sell depends on many factors, including:
| ● | the economy, and in periods of rapidly declining economic conditions, customers may defer purchases or may choose alternate products; | |
| ● | the cost of oil, gas and solar energy; | |
| ● | the competitive environment in the heat to power sectors may force us to reduce prices below our desired pricing level or increase promotional spending; | |
| ● | our ability to maintain efficient, timely and cost-effective production and delivery of the products and services; and, | |
| ● | All of these factors could result in immediate and longer term declines in the demand for the products and services that we offer, which could adversely affect our sales, cash flows and overall financial condition. |
WE OPERATE IN A HIGHLY COMPETITIVE MARKET. IF WE DO NOT COMPETE EFFECTIVELY, OUR PROSPECTS, OPERATING RESULTS, AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED.
The markets for our products and services are highly competitive, with companies offering a variety of competitive products and services. We expect competition in our markets to intensify in the future as new and existing competitors introduce new or enhanced products and services that are potentially more competitive than our products and services. We believe many of our competitors and potential competitors have significant competitive advantages, including longer operating histories, ability to leverage their sales efforts and marketing expenditures across a broader portfolio of products and services, larger and broader customer bases, more established relationships with a larger number of suppliers, contract manufacturers, and channel partners, greater brand recognition, and greater financial, research and development, marketing, distribution, and other resources than we do and the ability to offer financing for projects. Our competitors and potential competitors may also be able to develop products or services that are equal or superior to ours, achieve greater market acceptance of their products and services, and increase sales by utilizing different distribution channels than we do. Some of our competitors may aggressively discount their products and services in order to gain market share, which could result in pricing pressures, reduced profit margins, lost market share, or a failure to grow market share for us. If we are not able to compete effectively against our current or potential competitors, our prospects, operating results, and financial condition could be adversely affected.
WE MAY LOSE OUT TO LARGER AND BETTER-ESTABLISHED COMPETITORS.
The alternative power industry is intensely competitive. Most of our competitors have significantly greater financial, technical, marketing and distribution resources as well as greater experience in the industry than we have. Our products may not be competitive with other technologies, both existing at the current time and in the future. If this happens, our sales and revenues will decline, or fail to develop at all. In addition, our current and potential competitors may establish cooperative relationships with larger companies to gain access to greater development or marketing resources. Competition may result in price reductions, reduced gross margins and loss of market share.
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OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS, WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
Our international operations are exposed to the following risks, several of which are out of our control:
political and economic instability, international terrorism and anti-American sentiment, particularly in emerging markets;
| ● | preference for locally branded products, and laws and business practices favoring local competition; | |
| ● | unusual or burdensome foreign laws or regulations, and unexpected changes to those laws or regulations; | |
| ● | |import and export license requirements, tariffs, taxes and other barriers; | |
| ● | costs of customizing products for foreign countries; | |
| ● | increased difficulty in managing inventory; | |
| ● | less effective protection of intellectual property; and | |
| ● | difficulties and costs of staffing and managing foreign operations. |
Any or all of these factors could adversely affect our ability to execute any geographic expansion strategies or have a material adverse effect on our business and results of operations.
OUR PRODUCTS MAY BE DISPLACED BY NEWER TECHNOLOGY.
The alternative power industry is undergoing rapid and significant technological change. Third parties may succeed in developing or marketing technologies and products that are more effective than those developed or marketed by us, or that would make our technology obsolete or non-competitive. Accordingly, our success will depend, in part, on our ability to respond quickly to technological changes. We may not have the resources to do this.
WE MUST HIRE QUALIFIED ENGINEERING, DEVELOPMENT AND PROFESSIONAL SERVICES PERSONNEL.
We cannot be certain that we can attract or retain a sufficient number of highly qualified mechanical engineers, industrial technology and manufacturing process developers and professional services personnel. To deploy our products quickly and efficiently, and effectively maintain and enhance them, we will require an increasing number of technology developers. We expect customers that license our technology will typically engage our professional engineering staff to assist with support, training, consulting and implementation. We believe that growth in sales depends on our ability to provide our customers with these services and to attract and educate third-party consultants to provide similar services. As a result, we plan to hire professional services personnel to meet these needs. New technical and professional services personnel will require training and education and it will take time for them to reach full productivity. To meet our needs for engineers and professional services personnel, we also may use costlier third-party contractors and consultants to supplement our own staff. Competition for qualified personnel is intense, particularly because our technology is specialized and only a limited number of individuals have acquired the needed skills. Additionally, we will rely on third-party implementation providers for these services. Our business may be harmed if we are unable to establish and maintain relationships with third-party implementation providers.
WE MAY BE ADVERSELY AFFECTED BY SHORTAGES OF REQUIRED COMPONENTS. IN ADDITION, WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS TO PROCURE OUR PARTS FOR PRODUCTION WHICH IF AVAILABILITY OF PRODUCTS BECOMES COMPROMISED IT COULD ADD TO OUR COST OF GOODS SOLD AND AFFECT OUR REVENUE GROWTH.
At various times, there have been shortages of some of the components that we use, as a result of strong demand for those components or problems experienced by suppliers. These unanticipated component shortages have resulted in curtailed production or delays in production, which prevented us from making scheduled shipments to customers in the past and may do so in the future. Our inability to make scheduled shipments could cause us to experience a reduction in our sales and an increase in our costs and could adversely affect our relationship with existing customers as well as prospective customers. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components.
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OUR PRINCIPAL SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS, IN THE AGGREGATE, BENEFICIALLY OWN MORE THAN 50% OF OUR OUTSTANDING COMMON STOCK AND THESE SHAREHOLDERS, IF ACTING TOGETHER, WILL BE ABLE TO EXERT SUBSTANTIAL INFLUENCE OVER ALL MATTERS REQUIRING APPROVAL OF OUR SHAREHOLDERS.
Our principal shareholders, directors and executive officers in the aggregate, beneficially own more than 50% our outstanding common stock on a fully diluted basis. These shareholders, if acting together, will be able to exert substantial influence over all matters requiring approval of our shareholders, including amendments to our Articles of Incorporation, fundamental corporate transactions such as mergers, acquisitions, the sale of the company, and other matters involving the direction of our business and affairs and specifically the ability to determine the members of our board of directors. (See “Security Ownership of Certain Beneficial Owners and Managements”).
IF WE LOSE KEY SENIOR MANAGEMENT PERSONNEL OUR BUSINESS COULD BE NEGATIVELY AFFECTED. FURTHER, WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL SKILLED MANAGEMENT PERSONNEL AND IF WE ARE NOT ABLE TO DO SO, OUR BUSINESS AND OUR ABILITY TO CONTINUE TO GROW COULD BE HARMED.
Our success depends to a large extent upon the continued services of our executive officers. We could be seriously harmed by the loss of any of our executive officers. In order to manage our growth, we will need to recruit and retain additional skilled management personnel and if we are not able to do so, our business and our ability to continue to grow could be harmed. Although a number of companies in our industry have implemented workforce reductions, there remains substantial competition for highly skilled employees.
WE ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS AND UNEXPECTED COSTS THAT WE MAY INCUR WITH RESPECT TO ENVIRONMENTAL MATTERS MAY RESULT IN ADDITIONAL LOSS CONTINGENCIES, THE QUANTIFICATION OF WHICH CANNOT BE DETERMINED AT THIS TIME.
We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. If more stringent compliance or cleanup standards under environmental laws or regulations are imposed, or the results of future testing and analyses at our current or former operating facilities indicate that we are responsible for the release of hazardous substances, we may be subject to additional remediation liability. Further, additional environmental matters may arise in the future at sites where no problem is currently known or at sites that we may acquire in the future. Currently unexpected costs that we may incur with respect to environmental matters may result in additional loss contingencies, the quantification of which cannot be determined at this time.
OUR SALES AND CONTRACT FULFILLMENT CYCLES CAN BE LONG, UNPREDICTABLE AND VARY SEASONALLY, WHICH CAN CAUSE SIGNIFICANT VARIATION IN REVENUES AND PROFITABILITY IN A PARTICULAR QUARTER.
The timing of our sales and related customer contract fulfillment is difficult to predict. Many of our customers are large enterprises, whose purchasing decisions, budget cycles and constraints and evaluation processes are unpredictable and out of our control. Further, the timing of our sales is difficult to predict. The length of our sales cycle, from initial evaluation to payment for our products and services, can range from several months to well over a year and can vary substantially from customer to customer. Our sales efforts involve significant investment in resources in field sales, marketing and educating our customers about the use, technical capabilities and benefits of our products and services. Customers often undertake a prolonged evaluation process. As a result, it is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. Large individual sales have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. In addition, the fulfillment of our customer contracts is partially dependent on other factors related to our customers’ businesses that are not in our control. as with the sales cycle, this can also cause revenues and earnings to fluctuate from quarter to quarter. If our sales and/or contract fulfillment cycles lengthen or our substantial upfront investments do not result in sufficient revenue to justify our investments, our operating results could be adversely affected.
We have experienced seasonal and end-of-quarter concentration of our transactions and variations in the number and size of transactions that close in a particular quarter, which impacts our ability to grow revenue over the long term and plan and manage cash flows and other aspects of our business and cost structure. Our transactions vary by quarter, with the fourth quarter typically being our largest. If expectations for our business turn out to be inaccurate, our revenue growth may be adversely affected over time and we may not be able to adjust our cost structure on a timely basis and our cash flows may suffer.
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OUR OPERATING MARGINS MAY DECLINE AS A RESULT OF INCREASING PRODUCT COSTS.
Our business is subject to significant pressure on pricing and costs caused by many factors, including competition, the cost of components used in our products, labor costs, constrained sourcing capacity, inflationary pressure, pressure from customers to reduce the prices we charge for our products and services, and changes in consumer demand. Costs for the raw materials used in the manufacture of our products are affected by, among other things, energy prices, consumer demand, fluctuations in commodity prices and currency, and other factors that are generally unpredictable and beyond our control. Increases in the cost of raw materials used to manufacture our products or in the cost of labor and other costs of doing business in the United States and internationally could have an adverse effect on, among other things, the cost of our products, gross margins, operating results, financial condition, and cash flows.
OUR SALES AND PROFITABLITY OF OPERATIONS IN THE UNITED STATES AND IN THE PRC ARE DEPENDANT ON THE PRICE OF OIL AND NATURAL GAS.
Our Waste Heat Recovery products and Waste Recovery products are dependent on the prices of traditional energy sources. Our products reuse wasted heat and create electricity or reusable fuel. As the price of energy increases, the economic justification for our products increases. At the same time, as the price for traditional fuel decreases, there is less incentive for customers to purchase our products and it may impair our ability to sell our products.
IF THE SPOT PRICE OF LNG IN CHINA DROPS BELIOW THE PURCHASE PRICE OUR TRADERS NETOTIATE WITH OUR SUPPLIERS, WE MAY NOT BE ABLE TO SELL OUR LNG OR MAY HAVE TO SELL IT AT A LOSS.
Our traders at JHJ purchase LNG at a fixed price in large volumes. If the spot prices for LNG drop below our purchase price, we may not be able to sell our LNG to our customers or may have to sell the LNG at a substantial loss. We do not purchase a sufficient volume of LNG to be able to hedge against price declines of this commodity. If we believe that LNG prices are too high and we are unable to purchase because we believe that prices will drop, we will not have sufficient supply of LNG to conduct trading operations until the market pricing returns to a level at which we can conduct operations.
WE MAY NOT HAVE SUFFICENT FUNDS TO CONDUCT OUR TRADING OPERATIONS IN THE PRC.
We are funding our trading operations through cash flow generated by JHJ and from funds provided by our parent. If we or JHJ does not have sufficient funds, we may not be able to conduct trading operations.
OUR WASTE TO ENERGY PRODUCTS FROM ENEX HAVE NOT BEEN TESTED IN THE UNITED STATES AND DEPEND ON DATA OBTAINED FROM OPERATIONS IN THE UKRAINE AND RUSSIA.
ENEX’s HTAP 5 and 10 have not been installed in the United States. In order to commence sales, our purchasers will need to accept data from Russia or the Ukraine that they may not deem reliable. As a result we may be required to post large bonds or find an EPC that will guarantee performance of the ENEX systems. We cannot give any assurances that we will be able to finance the bonds or find an EPC willing to guaranty performance.
THE IMPLEMENTAION OF OUR WASTE TO ENERGY JOINT VENTURES DEPENDS ON US FINDING FUNDING FO THE PROJECTS.
In order to implement the ENEX system in our waste to energy joint ventures, we will need to finance directly or obtain third party financing for these projects. We cannot give any assurances that we will be able to directly finance these projects or be able to find a third party to provide financing to them. If we are not able to finance the projects we will not be able to implement our business plan in this sector.
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PRC REGULATION OF LOANS TO AND DIRECT INVESTMENT IN PRC ENTITIES BY OFFSHORE HOLDING COMPANIES AND GOVERNMENTAL CONTROL OF CURRENCY CONVERSION MAY DELAY OR PREVENT US FROM MAKING LOANS OR ADDITIONAL CAPITAL CONTRIBUTIONS TO OUR CHINESE SUBSIDIARIES.
We are an offshore holding company conducting a portion of our operations in China. We may make loans to our PRC subsidiaries to the approval, registration, and filing with governmental authorities and limitation of amount, or we may make additional capital contributions to our subsidiaries in China and Hong Kong. Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-invested enterprises under PRC law, are subject to foreign exchange loan registrations
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals or filings on a timely basis, if at all, with respect to future loans by us to our Hong Kong or PRC subsidiaries or with respect to future capital contributions by us to our Hong Kong or PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from this Underwritten Offering and to capitalize or otherwise fund our Chinese operations may be negatively affected.
FLUCTUATIONS IN EXCHANGE RATES COULD HAVE A AN EFFECT ON THE RESULTS OF OPERATIONS OF OUR HONG KONG AND CHINA SUBSIDIARIES.
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China’s foreign exchange policies. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. In the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. This depreciation halted in 2017, and the RMB appreciated approximately 7% against the U.S. dollar during this one-year period. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future which may impact the profitability of our operations in China.
PRC REGULATIONS RELATING TO THE ESTABLISHMENT OF OFFSHORE SPECIAL PURPOSE COMPANIES BY PRC DOMESTIC RESIDENTS MAY SUBJECT OUR PRC RESIDENT BENEFICIAL OWNERS TO PERSONAL LIABILITY, LIMIT OUR ABILITY TO INJECT CAPITAL INTO OUR PRC SUBSIDIARIES, LIMIT OUR SUBSIDIARIES’ ABILITY TO INCREASE THEIR REGISTERED CAPITAL OR DISTRIBUTE PROFITS TO US, OR MAY OTHERWISE ADVERSELY AFFECT US.
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 (the “SAFE Notice”) requires PRC residents to register with local branches of SAFE regarding their direct establishment or indirect control of an offshore entity, for overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle” (the “SPV”). SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. Under the SAFE Notice, failure to comply with the registration procedures set forth above could result in liability under Chinese law for foreign exchange evasion and may result in penalties and legal sanctions, including fines, the imposition of restrictions on a Chinese subsidiary’s foreign exchange activities and its ability to distribute dividends to the SPV, its ability to pay the SPV proceeds from any reduction in capital, share transfer or liquidation in respect of the Chinese subsidiary and the SPV’s ability to contribute additional capital into or provide loans to the Chinese subsidiary. After consultation with China counsel, we do not believe that any of our PRC domestic resident stockholders are subject to the SAFE registration requirement. However, we cannot provide any assurances that all our stockholders who are PRC residents will not be required to make or obtain any applicable registrations or approvals required by these SAFE regulations in the future. The failure or inability of our PRC resident stockholders to comply with the registration procedures set forth therein may subject us to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC subsidiaries’ ability to distribute dividends or obtain foreign-exchange-dominated loans to our company.
As it is uncertain how the SAFE regulations will be interpreted or implemented, we cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our results of operations and financial condition. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the SAFE regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
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WE MAY NEED TO RAISE ADDITIONAL CAPITAL REQUIRED TO GROW OUR BUSINESS, AND WE MAY NOT BE ABLE TO RAISE CAPITAL ON TERMS ACCEPTABLE TO US OR AT ALL.
Growing and operating our business will require significant cash outlays and capital expenditures and commitments. We have utilized cash on hand and cash generated from operations as sources of liquidity. If cash on hand and cash generated from operations are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through equity or debt financing, to fund our growth. Our ability to access the credit and capital markets in the future as a source of liquidity, and the borrowing costs associated with such financing, are dependent upon market conditions.
In addition, any equity securities we issue, including any preferred stock, may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the offering price per share of our Common Stock. The holders of any equity securities we issue, including any preferred stock, may also have rights, preferences or privileges which are senior to those of existing holders of Common Stock. If new sources of financing are required, but are insufficient or unavailable, we will be required to modify our growth and operating plans based on available funding, if any, which would harm our ability to grow our business.
NATURAL DISASTERS AND OTHER CATASTROPHIC EVENTS BEYOND OUR CONTROL COULD ADVERSELY AFFECT OUR BUSINESS OPERATIONS AND FINANCIAL PERFORMANCE.
The occurrence of one or more natural disasters, such as fires, hurricanes, tornados, tsunamis, floods and earthquakes; geo-political events, such as civil unrest in a country in which our suppliers are located or terrorist or military activities disrupting transportation, communication or utility systems; or other highly disruptive events, such as nuclear accidents, pandemics, unusual weather conditions or cyber-attacks, could adversely affect our operations and financial performance. Such events could result, among other things, in operational disruptions, physical damage to or destruction or disruption of one or more of our properties or properties used by third parties in connection with the supply of products or services to us, the lack of an adequate workforce in parts or all of our operations and communications and transportation disruptions. These factors could also cause consumer confidence and spending to decrease or result in increased volatility in the United States and global financial markets and economy. Such occurrences could have a material adverse effect on us and could also have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable damage.
WE HAVE ISSUED A SUBSTANTIAL AMOUNT OF CONVERTIBLE SECURITIES WHICH IF CONVERTED WILL SUBSTANTIALLY DILUTE ALL OF OUR STOCKHOLDERS.
We have issued a substantial number of convertible securities which, if converted, would result in substantial dilution to our stockholders:
| Convertible Notes - and Approximate common share equivalents | 3,216,678 | |||
| Warrants and Common Stock equivalent’s | 730,507 | |||
| Total Convertible Common Stock equivalents | 3,947,185 |
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OUR ISSUANCE OF ADDITIONAL CAPITAL STOCK IN CONNECTION WITH FINANCINGS, ACQUISITIONS, INVESTMENTS, OUR EQUITY INCENTIVE PLANS, OR OTHERWISE WILL DILUTE ALL OTHER STOCKHOLDERS.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors, and consultants under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies, and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline.
WE MAY MAKE ACQUISITIONS THAT ARE DILUTIVE TO EXISTING STOCKHOLDERS. IN ADDITION, OUR LIMITED EXPERIENCE IN ACQUIRING OTHER BUSINESSES, PRODUCT LINES AND TECHNOLOGIES MAY MAKE IT DIFFICULT FOR US TO OVERCOME PROBLEMS ENCOUNTERED IN CONNECTION WITH ANY ACQUISITIONS WE MAY UNDERTAKE.
We intend to evaluate and explore strategic opportunities as they arise, including business combinations, strategic partnerships, and the purchase, licensing or sale of assets. In connection with any such future transaction, we could issue dilutive equity securities, incur substantial debt, reduce our cash reserves or assume contingent liabilities.
Our experience in acquiring other businesses, product lines and technologies is limited. Our inability to overcome problems encountered in connection with any acquisitions could divert the attention of management, utilize scarce corporate resources and otherwise harm our business. Any potential future acquisitions also involve numerous risks, including:
| ● | problems assimilating the purchased operations, technologies or products; | |
| ● | costs associated with the acquisition; | |
| ● | adverse effects on existing business relationships with suppliers and customers; | |
| ● | risks associated with entering markets in which we have no or limited prior experience; | |
| ● | potential loss of key employees of purchased organizations; and | |
| ● | potential litigation arising from the acquired company’s operations before the acquisition. |
Furthermore, acquisitions may require material charges and could result in adverse tax consequences, substantial depreciation, deferred compensation charges, in-process research and development charges, the amortization of amounts related to deferred compensation and identifiable purchased intangible assets or impairment of goodwill, any of which could negatively affect our results of operations.
WE MAY BE SUBJECT TO GOVERNMENT LAWS AND REGULATIONS PARTICULAR TO OUR OPERATIONS WITH WHICH WE MAY BE UNABLE TO COMPLY.
We may not be able to comply with all current and future government regulations which are applicable to our business. Our business operations are subject to all government regulations normally incident to conducting business (e.g., occupational safety and health acts, workmen’s compensation statutes, unemployment insurance legislation, income tax, and social security laws and regulations, environmental laws and regulations, consumer safety laws and regulations, etc.) as well as to governmental laws and regulations applicable to small public companies and their capital formation efforts. Although we will make every effort to comply with applicable laws and regulations, we can provide no assurance of our ability to do so, nor can we predict the effect of those regulations on our proposed business activities. Our failure to comply with material regulatory requirements would likely have an adverse effect on our ability to conduct our business and could result in our cessation of active business operations.
COMPLIANCE WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE WILL RESULT IN ADDITIONAL EXPENSES.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.
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OUR REVENUE GROWTH RATE DEPENDS PRIMARILY ON OUR ABILITY TO EXECUTE OUR BUSINESS PLAN.
We may not be able to identify and maintain the necessary relationships within our industry. Our ability to execute our business plan also depends on other factors, including the ability to:
1. Negotiate and maintain contracts and agreements with acceptable terms;
2. Hire and train qualified personnel;
3. Maintain marketing and development costs at affordable rates; and,
4. Maintain an affordable labor force.
OUR OPERATING RESULTS AND SHARE PRICE MAY BE VOLATILE AND THE MARKET PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY DROP BELOW THE PRICE YOU PAY.
Our quarterly operating results have in the past fluctuated and are likely to do so in the future. As a result, the trading price of the shares of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Offering Circular, these factors include:
| ● | the success of competitive products or technologies; | |
| ● | actual or anticipated changes in our growth rate relative to our competitors; | |
| ● | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments; | |
| ● | regulatory or legal developments in the United States and other countries; |
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| ● | the recruitment or departure of key personnel; | |
| ● | the level of expenses; | |
| ● | changes in our backlog in a given period; | |
| ● | actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; | |
| ● | variations in our financial results or those of companies that are perceived to be similar to us; | |
| ● | fluctuations in the valuation of companies perceived by investors to be comparable to us; | |
| ● | inconsistent trading volume levels of our shares; | |
| ● | announcement or expectation of additional financing efforts; | |
| ● | sales of our common stock by us, our insiders or our other stockholders; | |
| ● | market conditions in the clean energy sector; and | |
| ● | general economic, industry and market conditions. |
These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our shares to fluctuate substantially. While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares. In addition, the stock market in general, and companies in our markets in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of these risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of the shares of our common stock.
WE MAY BE SUBJECT TO SECURITIES LITIGATION, WHICH IS EXPENSIVE AND COULD DIVERT MANAGEMENT ATTENTION.
The market price of the shares of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters are located at 2990 Redhill Unit A, Costa Mesa, CA. On March 10, 2016, the Company signed a lease agreement for a 18,200-square foot CTU Industrial Building. Lease term is seven years and two months beginning July 1, 2017. In October of 2018 we signed a sublease agreement with our facility in Italy with an indefinite term that may be terminated by either party with a 60-day notice for 1,000 Euro per month. Due to the short termination clause, we are treating this as a month-to-month lease. Future minimum lease payments for the years ending December 31, are:
| Year | Lease Payment | |||
| 2023 | 191,903 | |||
Our lease expense for the years ended December 31, 2022, and 2021 was $349,610. and $346,454, respectively, which also included common area maintenance.
Item 3. Legal Proceedings.
From time to time, we may be party to litigation matters occurring in the ordinary course of our business. As of the date of this Annual Report, however, there are no material pending legal or governmental proceedings relating to our Company to which we are a party, and to our knowledge there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.
Item 4. Mine Safety Disclosures
Not Applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Bid and ask quotations for our common shares are routinely submitted by registered broker dealers who are members of the National Association of Securities Dealers on the NASD Over-the-Counter Electronic Bulletin Board. These quotations reflect inner-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The high and low bid information for our shares for each quarter for the last two years, so far as information is reported, through the year ended December 31, 2022, as reported by the OTC Markets, are as follows:
| 2021 FISCAL YEAR | High | Low | ||||||
| First Quarter | $ | 6.40 | $ | 1.80 | ||||
| Second Quarter | $ | 3.44 | $ | 2.32 | ||||
| Third Quarter | $ | 2.56 | $ | 1.64 | ||||
| Fourth Quarter | $ | 1.96 | $ | 0.80 | ||||
| 2022 FISCAL YEAR | High | Low | ||||||
| First Quarter | $ | 2.39 | $ | 0.89 | ||||
| Second Quarter | $ | 1.59 | $ | 0.81 | ||||
| Third Quarter | $ | 2.16 | $ | 0.81 | ||||
| Fourth Quarter | $ | 3.11 | $ | 0.96 | ||||
Record Holders
As of April 14, 2023 there were 38,495,453 shares of the registrant’s $0.001 par value common stock issued and outstanding and were owned by approximately 3,000 holders of record, based on information provided by our transfer agent.
Dividend Policy
We have never declared a cash dividend on our common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, restrictions contained in our agreements and other factors which our Board of Directors deems relevant.
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Recent Sales of Unregistered Securities
On February 5, 2021 we issued 75,000 shares of our common stock at a price of $3.2 per share, in exchange for the conversion of 1,200 shares of our Series D Preferred Stock.
On February 9, 2021 we issued 56,892 shares of our common stock share, in exchange for the conversion of $182,052 of accrued dividend for the series D Preferred Stock.
On March 12, 2021 we issued 40,625 shares and 51,715 of our common stock at a price of $3.2 per share, in exchange for the conversion of 650 shares of our Series D Preferred Stock and $165,487 of accrued dividend for the series D preferred stock.
On June 28, 2021 MGW I converted $75,000 from the outstanding balance of their convertible note into 625,000 shares of company’s common stock.
On September 2, 2021 the company issued 28,561 as inducement shares. To GHS Investment for the equity line of credit at $1.9 per share.
On September 13, 2021 the company issued 27,516 as issuance correction. To GHS Investment for the equity line of credit at $1.9 per share.
On December 31, 2021 we issued 245,844 shares of our common stock under our Reg A offering at $3.2 per share. These shares are unrestricted and free trading.
On February 21, 2022, we issued 375,875 shares of our common stock under our Reg A offering at $3.2 per share. These shares are unrestricted and free trading.
On September 21, 2022 MGW I converted $1,548,904 from the outstanding balance of their convertible note into 12,907,534 shares of company’s common stock.
On December 28, 2022, we issued 100,446 shares of common stock upon the exercise of the cashless warrant that the Company issued to Mast Hill on May 6, 2022.
Item 6. Selected Financial Data.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. We reserve the right not to provide the Selected Financial Data in our future filings.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read this section together with our consolidated financial statements and related notes thereto included elsewhere in this report.
FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Company Information
We were incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to Nevada in April 2005 under the name Probe Manufacturing, Inc. We manufactured electronics and provided services to original equipment manufacturers (OEMs) of industrial, automotive, semiconductor, medical, communication, military, and high technology products. On September 11, 2015 Clean Energy HRS, or “CE HRS”, our wholly owned subsidiary acquired the assets of Heat Recovery Solutions from General Electric International. In November 2015, we changed our name to Clean Energy Technologies, Inc.
Our principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626. Our telephone number is (949) 273-4990. Our common stock is listed on the NASDAQ Markets under the symbol “CETY.”
Our internet website address is www.cetyinc.com and our subsidiary’s web site is www.heatrecoverysolutions.com The information contained on our websites are not incorporated by reference into this document, and you should not consider any information contained on, or that can be accessed through, our website as part of this document.
The Company has four reportable segments: Clean Energy HRS (HRS), CETY Europe, and the legacy electronic manufacturing services (Electronic Assembly) division and CETY HK.
We specialize in renewable energy & energy efficiency systems design, manufacturing and project implementation. We were incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to Nevada in April 2005 under the name Probe Manufacturing, Inc. We provided engineering and manufacturing electronics services to original equipment manufacturers (OEMs) of clean energy, industrial, automotive, semiconductor, medical, communication, military, and high technology products.
With the vision to combat climate change and creating a better, cleaner and environmentally sustainable future, we formed Clean Energy HRS, LLC a wholly owned subsidiary of Clean Energy Technologies, Inc. and acquired the assets of Heat Recovery Solutions from General Electric International on September 11, 2015. In November 2015, we changed our name to Clean Energy Technologies, Inc. Our principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626. We have 12 full time employees. All employees and overhead are shared between Clean Energy Technologies, Inc. (which still provides the contract electronic manufacturing services) and Clean Energy HRS, LLC.
Clean Energy Technologies, Inc. established a new company CETY Europe, SRL (CETY Europe) as a wholly owned subsidiary. CETY Europe is a Sales and Service Center in Silea (Treviso), Italy established in 2017. The service center became operational in November 2018. Their offices are located at Alzaia Sul Sile, 26D, 31057 Silea (TV) and the have 1 full time employee.
Clean Energy Technologies, Inc. established a wholly owned subsidiary called CETY Capital, a financing arm of CETY to fund captive renewable energy projects producing low carbon energy. CETY Capital will add flexibility to the capacity CETY offers its customers and fund projects utilizing its products and clean energy solutions.
CETY Capital retains 49% ownership interest in Vermont Renewable Gas LLC established to develop a biomass plant in Vermont utilizing CETY’s High Temperature Ablative Pyrolysis system.
Clean Energy Technologies (H.K.) Limited., a wholly owned subsidiary of Clean Energy Technologies Inc. acquired 100% ownership of Leading Wave Limited a liquid natural gas trading company in China.
The Company has four reportable segments: Clean Energy HRS (HRS) and CETY Europe, CETY Renewables, CETY HK and the legacy engineering and manufacturing services division.
Business Overview
General
The Company’s business and operating results are directly affected by changes in overall customer demand, operational costs and performance and leverage of our fixed cost and selling, general and administrative (“SG&A”) infrastructure.
Product sales fluctuate in response to several factors including many that are beyond the Company’s control, such as general economic conditions, interest rates, government regulations, consumer spending, labor availability, and our customers’ production rates and inventory levels. Product sales consist of demand from customers in many different markets with different levels of cyclicality and seasonality.
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Operating performance is dependent on the Company’s ability to manage changes in input costs for items such as raw materials, labor, and overhead operating costs. Performance is also affected by manufacturing efficiencies, including items such as on time delivery, quality, scrap, and productivity. Market factors of supply and demand can impact operating costs
In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China and has spread throughout the United States and the rest of the world. The World Health Organization has declared the outbreak to constitute a “Public Health Emergency of International Concern.” This contagious disease outbreak, which has not been contained, and is disrupting supply chains and affecting production and sales across a range of industries in United States and other companies as a result of quarantines, facility closures, and travel and logistics restrictions in connection with the outbreak, as well as the worldwide adverse effect to workforces, economies and financial markets, leading to a global economic downturn. Therefore, the Company expects this matter to negatively impact its operating results. However, the related financial impact and duration cannot be reasonably estimated at this time.
Who We Are
We develop renewable energy products and solutions and establish partnerships in renewable energy that make environmental and economic sense. Our mission is to be a segment leader in the Zero Emission Revolution by offering recyclable energy solutions, clean energy fuels and alternative electric power for small and mid-sized projects in North America, Europe, and Asia. We target sustainable energy solutions that are profitable for us, profitable for our customers and represent the future of global energy production.
Our principal businesses
Waste Heat Recovery Solutions – we recycle wasted heat produced in manufacturing, waste to energy and power generation facilities using our patented Clean CycleTM generator to create electricity which can be recycled or sold to the grid.
Waste to Energy Solutions - we convert waste products created in manufacturing, agriculture, wastewater treatment plants and other industries to electricity, renewable natural gas (“RNG”), hydrogen and bio char which are sold or used by our customers.
Engineering, Consulting and Project Management Solutions – we bring a wealth of experience in developing clean energy projects for municipal and industrial customers and Engineering, Procurement and Construction (EPC) companies so they can identify, design and incorporate clean energy solutions in their projects.
CETY HK
Clean Energy Technologies (H.K.) Limited (“CETY HK”) consists of two business ventures in mainland China:(i) our natural gas (“NG”) trading operations sourcing and suppling NG to industries and municipalities. The NG is principally used for heavy truck refueling stations and urban or industrial users. We purchase large quantities of NG from large wholesale NG depots at fixed prices which are prepaid for in advance at a discount to market. We sell the NG to our customers at prevailing daily spot prices for the duration of the contracts; and (ii) our planned joint venture with a large state-owned gas enterprise in China called Shenzhen Gas (Hong Kong) International Co. Ltd. (“Shenzhen Gas”), acquiring natural gas pipeline operator facilities, primarily located in the southwestern part of China. Our planned joint venture with Shenzhen Gas plans to acquire, with financing from Shenzhen Gas, natural gas pipeline operator facilities with the goal of aggregating and selling the facilities to Shenzhen Gas in the future. According to our Framework Agreement with Shenzhen Gas, we will be required to contribute $8 million to the joint venture which plans to raise in future rounds of financing. The terms of the joint venture are subject to the execution of definitive agreements.
Business and Segment Information
We design, produce and market clean energy products and integrated solutions focused on energy efficiency and renewable energy. Our aim is to become a leading provider of renewable and energy efficiency products and solutions by helping commercial companies and municipalities reduce energy waste and emissions, lower energy costs and generate incremental revenue by providing electricity, renewable natural gas and biochar to the grid.
Segment Information
Our four segments for accounting purposes are:
Clean Energy HRS (HRS) – which engages in engineering, manufacturing and installing waste heat recovery solutions incorporating our Clean Cycle Generator.
CETY Europe – our subsidiary established in Italy for the purposes of servicing our customers in the EU that we are required to report as a separate accounting entity.
Engineering and Manufacturing Business – our legacy electronics manufacturing business that do not contribute significantly to our revenues or business plan that we are required to report as a separate accounting entity.
CETY HK – which is the parent company of our NG trading operations in China that source and supply NG and our planned joint venture to acquire NG distribution systems depots and transmission systems. Prior to the first quarter of 2022, the Company had three reportable segments but added the CETY HK segment to reflect its recent new businesses in China.
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Summary of Operating Results for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
Going Concern
The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a total stockholder’s equity of $1,878,196 and a working capital deficit of $2,245,996 and an accumulated deficit of $17,276,536 as of December 31, 2022 and used $2,244,133 in net cash from operating activities for the year ended December 31, 2022. Therefore, there is doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will achieve its goals and reach profitable operations and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations.
For the year ended December 31, 2022, we had a net profit of $147,395 compared to a $297,551 for the same period in 2021. The decrease in the net profit in 2022 was mainly due to the change in change in derivative liability.
See note 2 to the notes to the financial statements for a discussion on critical accounting policies
RELATED PARTY TRANSACTIONS
See note 13 to the notes to the financial statements for a discussion on related party transaction
Results for the Year Ended December 31, 2022, compared to the Year Ended December 31, 2021.
Net Sales
For the year ended December 31, 2022, our total revenue was $2,663,212 compared to $1,300,439 for the same period in 2021. The Company has four reportable segments: Clean Energy HRS (HRS), CETY Europe and the legacy engineering & manufacturing services division, CETY Hong Kong
Segment breakdown
For the year ended December 31, 2022, our revenue from Engineering and Manufacturing was $203,078 compared to $93,371 for the same period in 2021. The increase was mainly due to increase in business from legacy business.
For the year ended December 31, 2022, our revenue from HRS was $488,453 compared to $1,014,707 for the same period in 2021. The decrease in revenue was due to slow down in Supply Chain.
For the year ended December 31, 2022, our revenue from CETY Europe was $81,242.compared to $192,361 for the same period in 2021. The decrease in 2022 was due to lack of revenue from equipment sales.
For the year ended December 31, 2022, our revenue from CETY HK was 1,890,439.
We had no revenue from CETY HK in 2021.
Gross Profit
For the year ended December 31, 2022, our gross profits increased to $1,174,196 from $610,407 for the same period in 2021. Our gross profits could vary from period to period and is affected by several factors, including, production and supply change efficiencies, material costs, logistics and increase in personnel. The increase of our gross profit was due to the additional revenue from our newly formed CETY HK.
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Segment breakdown
For the year ended December 31, 2022, our gross profit from Engineering and Manufacturing was $124,437 compared $(90,328) for the same period in 2021. This increase in 2022 was due to higher revenue from the engineering and manufacturing business.
For the year ended December 31, 2022, our gross profit from HRS was $361,914 compared to $547,812 for the same period in 2021, the decrease was due to lower revenue.
For the year ended December 31, 2022, our gross profit from CETY Europe was $68,399 compared to $152,923 for the same period in 2021, the decrease was due to lower revenue.
For the year ended December 31,2022, our gross profit from CETY HK was $619,446, we had no revenue from CETY HK in 2021.
Selling, General and Administrative (SG&A) Expenses
For the year ended December 31, 2022, our SG&A expense was $380,322 compared to $488,177 for the same period in 2021. The lower SG&A was due to lower repair charges.
Salaries Expense
For the year ended December 31, 2022, our Salaries expense was $782,657 compared to $772,463 for the same period in 2021.
Travel Expense
For the year ended December 31, 2022, our travel expense was $166,025 compared to $145,170 for the same period in 2021. The increase was due to additional site assessment surveys of multiple facilities in Europe and global commissioning.
Facility Lease Expense
For the year ended December 31, 2022, our Facility Lease expense was $349,610 compared to $346,454 for the same period in 2021. This increase was due to the increase as a result of the original contractual agreement in our Costa Mesa facility Lease.
Consulting Expense
For the year ended December 31, 2022, our consulting expense was $119,896 compared to $243,371 for the same period in 2021. This decrease was due to lower engineering services.
Bad Debt
For the year ended December 31, 2022, our bad debt expense was $0 compared to $0 for the same period in 2021..
Depreciation and Amortization Expense
For the year ended December 31, 2022, our depreciation and amortization expense was $30,076 compared to $32,292 for the same period in 2021.
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Professional fees Expense
For the year ended December 31, 2022, our Professional fees expense was $315,361 compared to $155,241 for the same period in 2021. The increase in legal fees was due to higher expenses related to a proposed IPO and up listing to NASDAQ.
Net (Loss) from operations
For the year ended December 31, 2022, our net loss from operations was $989,751 compared to net loss from operations of $1,572,760 for the same period in 2021. The decrease in the loss in 2022 was mainly due to higher revenue as a a result of CETY HK incremental revenue.
Change in Derivative Liability
For the year ended December 31, 2022, we had a loss on derivative liability of $331,495 compared to a gain of $1,752,119 for the same period in 2021. The loss in 2022 was as a result of additional bridge loan financing.
Gain on debt settlement and write off
For the year ended December 31, 2022, we recognized a gain on debt settlement of $2,556,916 from the GE note write off compared to $868,502 for the year ended December 31, 2021 due to several liabilities statute of limitations had expired.
Interest and Finance Fees
For the year ended December 31, 2022 interest and finance fees were $1,125,395 compared to $769,369 for the same period in 2021. The increase was mainly due to increase in additional bridge financing and associated.
Liquidity and Capital Resources
Clean Energy Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
For the years ended December 31,
| 2022 | 2021 | |||||||
| Net Cash provided / (Used) In Operating Activities | $ | (2,244,133 | ) | $ | (2,552,548 | ) | ||
| Cash Flows Used In Investing Activities | (1,437,123 | ) | (1,500,000 | ) | ||||
| Cash Flows Provided / (used) By Financing Activities | 2,798,885 | 4,829,978 | ||||||
| Net (Decrease) Increase in Cash and Cash Equivalents | $ | (1,043,043 | ) | $ | 777,430 | |||
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Capital Requirements for long-term Obligations
None.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Future Financing
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
Off-balance Sheet Arrangement
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial position or results of operations upon adoption.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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Item 8. Financial Statements and Supplemental Data.
CLEAN ENERGY TECHNOLOGIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
FINANCIAL STATEMENT TABLE OF CONTENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Clean Energy Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Clean Energy Technologies, Inc. and Subsidiaries (“the Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has an accumulated deficit, a working capital deficit and negative cash flows from operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition
Description of the Critical Audit Matter As discussed in Note 2 to the consolidated financial statements, revenue from contracts is recognized in the period during which the performance obligations are satisfied, provided that the applicable conditions under the related contracts have been met.
The related audit effort in evaluating management's judgments in determining revenue recognition for these agreements was extensive and required a high degree of auditor judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to evaluating the Company’s accounting for revenue recognized from these revenue agreements, among others:
| · | Analyzing the pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation. | |
| · | Reviewing the treatment of contract terms that impact the timing and amount of revenue recognized. | |
| · | Evaluating the transactions prices allocated to each performance obligation. | |
| ● | Testing the accuracy and completeness of management’s calculations based on supporting data and audit evidence. |
We have served as the Company’s auditor since 2015.
April 17, 2023
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Clean Energy Technologies, Inc.
Consolidated Balance Sheet
| December 31, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable - net | ||||||||
| Lease receivable asset | ||||||||
| Advance to Supplier - Prepayment | ||||||||
| Deferred Offering Costs | ||||||||
| Investment Heze Hongyuan Natural Gas co. | ||||||||
| Loan Receivables | ||||||||
| Inventory | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment - Net | ||||||||
| Goodwill | ||||||||
| LWL Intangibles | ||||||||
| Long Term Investment - Shuya | ||||||||
| Long-term financing receivables - net | ||||||||
| License | ||||||||
| Patents | ||||||||
| Right of use asset - long term | ||||||||
| Other Assets | ||||||||
| Total Non Current assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ (Deficit) | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued Expenses | ||||||||
| Customer Deposits | ||||||||
| Warranty Liability | ||||||||
| Deferred Revenue | ||||||||
| Derivative Liability | ||||||||
| Facility Lease Liability - current | ||||||||
| Line of Credit | ||||||||
| Notes payable - GE | ||||||||
| Convertible Notes Payable (net of discount of $ | ||||||||
| Related Party Notes Payable | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Debt: | ||||||||
| Related Party Notes Payable (net of discount of $ | ||||||||
| Notes payable - PPL | ||||||||
| Facility Lease Liability - long term | ||||||||
| Net Long-Term Debt | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | $ | $ | ||||||
| Stockholders’ (Deficit) | ||||||||
| Preferred D stock, stated value $ per share; shares authorized; shares and shares issued and and outstanding as of December 31, 2021 and December 31, 2022 respectively | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of December 31, 2022 and December 31, 2021 respectively | ||||||||
| Shares to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated Other Comprehensible Income | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( |
|||||
| ( |
||||||||
| Non-controlling interest | ( |
|||||||
| Total Stockholders’ (Deficit) | ( |
|||||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying footnotes are an integral part of these financial statements
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Clean Energy Technologies, Inc.
Consolidated Statement of Operations
for the years ended December 31,
| 2022 | 2021 | |||||||
| Sales | $ | $ | ||||||
| Cost of Goods Sold | ||||||||
| Gross Profit | ||||||||
| General and Administrative | ||||||||
| General and Administrative expense | ||||||||
| Salaries | ||||||||
| Travel | ||||||||
| Professional Fees | ||||||||
| Facility lease and Maintenance | ||||||||
| Consulting | ||||||||
| Bad Debt Expense | ||||||||
| Depreciation and Amortization | ||||||||
| Total Expenses | ||||||||
| Net Profit / (Loss) From Operations | ( | ) | ( | ) | ||||
| Other Income | ||||||||
| Change in derivative liability | ( | ) | ||||||
| Gain / (Loss) on debt settlement and write down | ||||||||
| Interest and Financing fees | ( | ) | ( | ) | ||||
| Net Profit / (Loss) Before Income Taxes | ||||||||
| Income Tax Expense | ( | ) | ||||||
| Net Profit / (Loss) | ||||||||
| Non-controlling interest | ( | ) | ||||||
| Net Profit / (Loss) attributable to Clean Energy Technologies, Inc. | ||||||||
| Other Comprehensive Item | ||||||||
| Foreign Currency Translation Gain | $ | ( | ) | |||||
| Total Comprehensible Income / (Loss) | $ | ( | ) | $ | ||||
| Per Share Information: | ||||||||
| Basic and diluted weighted average number of common shares outstanding | ||||||||
| Net Profit / (Loss) per common share basic and diluted | $ | $ | ||||||
| Per Share Information: | ||||||||
| Basic weighted average number of common shares outstanding and diluted | ||||||||
| Net Profit / (Loss) per common share basic and diluted | $ | $ | ( | ) | ||||
The accompanying footnotes are an integral part of these financial statements
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Clean Energy Technologies, Inc.
Consolidated Statement of Stockholders Equity
December 31, 2022
Common Stock .001 Par | Preferred Stock | Common Stock to be issued | Additional Paid in | Accumulated Comprehensive | Accumulated | Non Controlling | Stock holders’ Deficit | ||||||||||||||||||||||||||||||||
| Description | Shares | Amount | Shares | Amount | Amount | Capital | Income | Deficit | Interest | Totals | |||||||||||||||||||||||||||||
| December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||
| Shares issued for warrant conversion | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Shares issued for acccrued dividend | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred Series D | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Inducement Shares | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Shares issued for correction | ( | ) | |||||||||||||||||||||||||||||||||||||
| Shares for Conversion | |||||||||||||||||||||||||||||||||||||||
| Shares issued for Reg A offering | |||||||||||||||||||||||||||||||||||||||
| Shares issued for S1 | |||||||||||||||||||||||||||||||||||||||
| Shares issued for cash | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Shares issued for Reg A | |||||||||||||||||||||||||||||||||||||||
| - | |||||||||||||||||||||||||||||||||||||||
| Net Loss | ( | ) | |||||||||||||||||||||||||||||||||||||
| December 31, 2021 | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Warrants issued in conjunction for debt | |||||||||||||||||||||||||||||||||||||||
| Shares issued for Reg A Offering | |||||||||||||||||||||||||||||||||||||||
| Shares issued MGW Note Conversion | |||||||||||||||||||||||||||||||||||||||
| Contribution to Capital | |||||||||||||||||||||||||||||||||||||||
| Shares for Mast Conversion | ( | ) | |||||||||||||||||||||||||||||||||||||
| Shares issued for S1 | |||||||||||||||||||||||||||||||||||||||
| Accumulated Comprehensive | ( |
) | ( | ) | |||||||||||||||||||||||||||||||||||
| Net Loss | |||||||||||||||||||||||||||||||||||||||
| December 31,2022 | ( |
) | ( | ) | |||||||||||||||||||||||||||||||||||
The accompanying footnotes are an integral part of these financial statements
| 42 |
Clean Energy Technologies, Inc.
Consolidated Statements of Cash Flows
for the years ended December 31,
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income / ( Loss ) | $ | $ | ||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Attributable loss per equity method Shuya | ||||||||
| Bad debt expense | ||||||||
| Gain on debt settlement | ( | ) | ( | ) | ||||
| Shares issued for commitment fee | ||||||||
| Amortization Debt Discount debt discount | ||||||||
| Financing Fees | ||||||||
| Change in derivative liability | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in right of use asset | ||||||||
| Deferred offering expense | ( | ) | ||||||
| (Increase) decrease in lease liability | ( | ) | ( | ) | ||||
| (Increase) decrease in accounts receivable | ( | ) | ( | ) | ||||
| Accrued Interest | ||||||||
| Interest receivable | ( | ) | ||||||
| Changes in prepayments | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| (Increase) decrease in inventory | $ | ( | ) | |||||
| (Decrease) increase in accounts payable | ( | ) | ||||||
| Other (Decrease) increase in accrued expenses | ( | ) | ( | ) | ||||
| Other (Decrease) increase in accrued expenses related party | ||||||||
| Other (Decrease) increase in deferred revenue | ||||||||
| Other (Decrease) increase in customer deposits | ( | ) | ||||||
| Net Cash Provided by (Used In) Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Investment in CETY HK | ( | ) | ( | ) | ||||
| Investment in Heze Hongyuan | ( | ) | ||||||
| Loan recivables | ( | ) | ||||||
| Purchase Propert Plant | ||||||||
| Investment in Shuya | ( | ) | ||||||
| Cash Flows Used In Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Bank Overdraft / (Repayment) | ||||||||
| Payment on lines of credit | ( | ) | ( | ) | ||||
| Payment on notes payable related party | ( | ) | ||||||
| Proceeds from notes payable and lines of credit | ||||||||
| Proceeds from notes payable | ||||||||
| Payments on notes payable | ( | ) | ||||||
| Stock issued for cash | ||||||||
| Cash Flows Provided By Financing Activities | ||||||||
| Foreign Currency Transaction | ( | ) | ||||||
| Net (Decrease) Increase in Cash and Cash Equivalents | ( | ) | ||||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||
| Supplemental Cashflow Information: | ||||||||
| Interest Paid | $ | $ | ||||||
| Taxes Paid | $ | $ | ||||||
| Supplemental Non-Cash Disclosure | ||||||||
| Discount on derivatives | $ | $ | ||||||
| Shares issued for warrants | ||||||||
| Shares issued for preferred conversions | $ | $ | ||||||
| Shares issued for debt conversion conversions | $ | $ | ||||||
| Forgiveness debt | $ |
The accompanying footnotes are an integral part of these financial statements
| 43 |
Clean Energy Technologies, Inc.
Notes to Consolidated Financial Statements
Notes 1- GENERAL
Corporate History
We were incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to Nevada in April 2005 under the name Probe Manufacturing, Inc. We manufactured electronics and provided services to original equipment manufacturers (OEMs) of industrial, automotive, semiconductor, medical, communication, military, and high technology products. On September 11, 2015 Clean Energy HRS, or “CE HRS”, our wholly owned subsidiary acquired the assets of Heat Recovery Solutions from General Electric International. In November 2015, we changed our name to Clean Energy Technologies, Inc.
Our principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626. Our telephone number is (949) 273-4990. Our common stock is listed on the OTCQB Markets under the symbol “CETY.”
Our internet website address is www.cetyinc.com and our subsidiary’s web site is www.heatrecoverysolutions.com The information contained on our websites are not incorporated by reference into this document, and you should not consider any information contained on, or that can be accessed through, our website as part of this document.
The Company has four reportable segments: Clean Energy HRS (HRS), CETY Europe, and the legacy electronic manufacturing services (Electronic Assembly) division and CETY Hong Kong.
Going Concern
The
financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets
and liquidation of liabilities in the normal course of business. The Company had a total stockholder’s equity of $
Plan of Operation
We develop renewable energy products and solutions and establish partnerships in renewable energy that make environmental and economic sense. Our mission is to be a segment leader in the Zero Emission Revolution by offering recyclable energy solutions, clean energy fuels and alternative electric power for small and mid-sized projects in North America, Europe, and Asia. We target sustainable energy solutions that are profitable for us, profitable for our customers and represent the future of global energy production.
Our principal businesses
Waste Heat Recovery Solutions – we recycle wasted heat produced in manufacturing, waste to energy and power generation facilities using our patented Clean CycleTM generator to create electricity which can be recycled or sold to the grid.
Waste to Energy Solutions - we convert waste products created in manufacturing, agriculture, wastewater treatment plants and other industries to electricity, renewable natural gas (“RNG”), hydrogen and bio char which are sold or used by our customers.
Engineering, Consulting and Project Management Solutions – We have expanded our legacy electronics and manufacturing business and plan to manufacture component parts for our Waste Heat Recovery and Waste to Energy business and to provide consulting services to municipal and industrial customers and Engineering, Procurement and Construction (EPC) companies so they can identify, design and incorporate clean energy solutions in their projects.
| 44 |
CETY HK
CETY
HK consists of two business ventures in mainland China:(i) our LNG trading operations sourcing and suppling LNG to industries and municipalities.
The LNG is principally used for heavy truck refueling stations and urban or industrial users in areas that do not have a connection to
local LNG pipeline systems. We purchase large quantities of LNG from large wholesale LNG depots at fixed prices which are prepaid for
in advance at a discount to market. We sell the LNG to our customers at prevailing daily spot prices for the duration of the contracts;
and (ii) our planned joint venture with Shenzhen Gas, acquiring natural gas pipeline operator facilities, each primarily located in the
southern part of Sichuan Province and portions of Yunnan Province. Our planned joint venture with Shenzhen Gas plans to acquire, with
financing from Shenzhen Gas, natural gas pipeline operator facilities with the goal of aggregating and selling the facilities to Shenzhen
Gas in the future. According to our Framework Agreement with Shenzhen Gas, we will be required to contribute $
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The summary of significant accounting policies of Clean Energy Technologies, Inc. (formerly Probe Manufacturing, Inc.) is presented to assist in the understanding of the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who is responsible for their integrity and objectivity.
The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates may be materially different from actual financial results. Significant estimates include the recoverability of long-lived assets, the collection of accounts receivable and valuation of inventory and reserves.
Cash and Cash Equivalents
We
maintain the majority of our cash accounts at a commercial bank. The total cash balance is insured by the Federal Deposit Insurance Corporation
(“FDIC”) up to $
Accounts Receivable
Our
ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by us. Reserves for
un-collectable amounts are provided, based on past experience and a specific analysis of the accounts. Although we expect to collect
amounts due, actual collections may differ from the estimated amounts. As of December 31, 2022, and December 31, 2021, we had a reserve
for potentially un-collectable accounts receivable of $
Four
(4) customers accounted for approximately
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Lease asset
As
of December 31, 2022, and 2021 we had a lease asset that was purchased from General Electric with a value of $
Inventory
Inventories
are valued at the lower of weighted average cost or market value. Our industry experiences changes in technology, changes in market value
and availability of raw materials, as well as changing customer demand. We make provisions for estimated excess and obsolete inventories
based on regular audits and cycle counts of our on-hand inventory levels and forecasted customer demands and at times additional provisions
are made. Any inventory write offs are charged to the reserve account. As of December 31, 2022 and December 31, 2021, we had a reserve
for potentially obsolete inventory of $
Property and Equipment
Property and equipment are recorded at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets. The cost of ordinary maintenance and repairs is charged to operations. Depreciation and amortization are computed on the straight-line method over the following estimated useful lives of the related assets:
| Furniture and fixtures |
|
| Equipment | |
| Leasehold Improvements |
Long –Lived Assets
Our management assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment if any, is measured based on fair value and is charged to operations in the period in which long-lived assets impairment is determined by management. There can be no assurance however, that market conditions will not change or demand for our services will continue, which could result in impairment of long-lived assets in the future.
Revenue Recognition
The Company recognizes revenue under ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASC 606”).
Performance Obligations Satisfied Over Time
FASB ASC 606-10-25-27 through 25-29, 25-36 through 25-37, 55-5 through 55-10
An entity transfers control of a good or service over time and satisfies a performance obligation and recognizes revenue over time if one of the following criteria is met:
a. The customer receives and consumes the benefits provided by the entity’s performance as the entity performs (as described in FASB ASC 606-10-55-5 through 55-6).
b. The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced (as described in FASB ASC 606-10-55-7).
c. The entity’s performance does not create an asset with an alternative use to the entity (see FASB ASC 606-10-25-28), and the entity has an enforceable right to payment for performance completed to date (as described in FASB ASC 606-10-25-29).
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Performance Obligations Satisfied at a Point in Time
FASB ASC 606-10-25-30
If a performance obligation is not satisfied over time, the performance obligation is satisfied at a point in time. To determine the point in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation, the entity should consider the guidance on control in FASB ASC 606-10-25-23 through 25-26. In addition, it should consider indicators of the transfer of control, which include, but are not limited to, the following:
a. The entity has a present right to payment for the asset
b. The customer has legal title to the asset
c. The entity has transferred physical possession of the asset
d. The customer has the significant risks and rewards of ownership of the asset
e. The customer has accepted the asset
A principal obtains control over any one of the following (ASC 606-10-55-37A):
| a. | A good or another asset from the other party which the entity then transfers to the customer. Note that momentary control before transfer to the customer may not qualify. | |
| b. | A right to a service to be performed by the other party, which gives the entity the ability to direct that party to provide the service to the customer on the entity’s behalf. | |
| c. | A good or service from the other party that it then combines with other goods or services in providing the specified good or service to the customer. |
If the entity obtains control over one of the above before the good or service is transferred to a customer, the entity could be considered a principal.
The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. In addition a) the company also does not have an alternative use for the asset if the customer were to cancel the contract, and b.) has a fully enforceable right to receive payment for work performed (i.e., customers are required to pay as various milestones and/or timeframes are met)
The following five steps are applied to achieve that core principle for our HRS and Cety Europe Divisions:
| ● | Identify the contract with the customer | |
| ● | Identify the performance obligations in the contract | |
| ● | Determine the transaction price | |
| ● | Allocate the transaction price to the performance obligations in the contract | |
| ● | Recognize revenue when the company satisfies a performance obligation |
The following steps are applied to our legacy engineering and manufacturing division:
| ● | We generate a quotation | |
| ● | We receive Purchase orders from our customers. | |
| ● | We build the product to their specification | |
| ● | We invoice at the time of shipment | |
| ● | The terms are typically Net 30 days |
The following step is applied to our CETY HK business unit:
| ● | CETY HK is primarily responsible for fulfilling the contract / promise to provide the specified good or service. |
Also,
from time to time our contracts state that the customer is not obligated to pay a final payment until the units are commissioned, i.e.
a final payment of
Also
from time to time we require upfront deposits from our customers based on the contract. As of December 31, 2022 and 2021, we had outstanding
customer deposits of $
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Fair Value of Financial Instruments
The Financial Accounting Standards Board issued ASC (Accounting Standards Codification) 820-10 (SFAS No. 157), “Fair Value Measurements and Disclosures” for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820-10 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:
| ● | Level 1: Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. | |
| ● | Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities. The Company’s derivative liabilities have been valued as Level 3 instruments. We value the derivative liability
using a lattice model, with a volatility of |
The Company’s financial instruments consist of cash, prepaid expenses, inventory, accounts payable, convertible notes payable, advances from related parties, and derivative liabilities. The estimated fair value of cash, prepaid expenses, investments, accounts payable, convertible notes payable and advances from related parties approximate their carrying amounts due to the short-term nature of these instruments.
The carrying amounts of the Company’s financial instruments as of December 31 2022 and 2021, reflect:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Fair value of convertible notes derivative liability – December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Fair value of convertible notes derivative liability – December 31, 2021 | $ | $ | $ | $ | ||||||||||||
The carrying amount of accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of these financial instruments.
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Foreign Currency Translation and Comprehensive Income (Loss)
We have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods. The accounts of the Company’s Chinese entities are maintained in RMB. The accounts of the Chinese entities were translated into USD in accordance with FASB ASC Topic 830 “Foreign Currency Matters.” All assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and the statements of operations and cash flows are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income (loss) in accordance with FASB ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from foreign currency transactions are reflected in the statements of operations.
The Company follows FASB ASC Topic 220-10, “Comprehensive Income (loss).” Comprehensive income (loss) comprises net income (loss) and all changes to the statements of changes in stockholders’ equity, except those due to investments by stockholders, changes in additional paid-in capital and distributions to stockholders.
Equity Method Investment
In
July 2022, JHJ and other three shareholders agreed to form and make total capital contribution of RMB million ($ million) with
latest contribution due date in February 2066 into Sichuan Hongzuo Shuya Energy Limited (“Shuya”), JHK owns
Shuya was setup as the operating entity for pipeline natural gas (PNG) and compressed natural gas (CNG) trading business, while the other two shareholders of Shuaya have large supply relationships.
The Company has determined that Shuya is not a VIE and has evaluated its consolidation analysis under the voting interest model. Because the Company does not own greater than 50% of the outstanding voting shares, either directly or indirectly, it has accounted for its investment in Shuya under the equity method of accounting. Under this method, the investor (“JHJ”) recognizes its share of the profits and losses of the investee (“Shuya”) in the periods when these profits and losses are also reflected in the accounts of the investee. Any profit or loss recognized by the investing entity appears in its income statement. Also, any recognized profit increases the investment recorded by the investing entity, while a recognized loss decreases the investment.
JHJ
made a invetsment of RMB
Basic profit / (loss) per share is computed based on the weighted average number of common shares outstanding. At December 31, 2022, we had outstanding common shares of used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents at December 31, 2022 and 2021 were and , respectively. As of December 31, 2022, we had convertible notes, convertible into approximately of additional common shares, and common stock warrants. Fully diluted weighted average common shares and equivalents were as of December 31, 2022 and were withheld from the calculation as they were considered anti-dilutive for the year ended December 31, 2022.
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Research and Development
We
had
Segment Disclosure
FASB
Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an
enterprise’s reportable segments. The Company has
An operating segment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, and segment selling, general and administrative expenses, and does not include amortization of intangibles, stock-based compensation, other charges (income), net and interest and other, net.
Selected Financial Data:
| for the years ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Net Sales | ||||||||
| Manufacturing and Engineering | $ | $ | ||||||
| CETY HK | ||||||||
| Clean Energy HRS | ||||||||
| Cety Europe | ||||||||
| Total Sales | $ | $ | ||||||
| Segment income and reconciliation before tax | ||||||||
| Manufacturing and Engineering | ( | ) | ||||||
| CETY HK | ||||||||
| Clean Energy HRS | ||||||||
| Cety Europe | ||||||||
| Total Segment income | ||||||||
| Reconciling items | ||||||||
| General and Administrative expense | ( | ) | ( | ) | ||||
| Salaries | ( | ) | ( | ) | ||||
| Travel | ( | ) | ( | ) | ||||
| Professional Fees | ( | ) | ( | ) | ||||
| Facility lease and Maintenance | ( | ) | ( | ) | ||||
| Consulting | ( | ) | ( | ) | ||||
| Bad Debt Expense | ||||||||
| Depreciation and Amortization | ( | ) | ( | ) | ||||
| Change in derivative liability | ( | ) | ||||||
| Gain / (Loss) on debt settlement and write down | ||||||||
| Interest and Financing fees | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Net Loss before income tax | $ | $ | ||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Total Assets | ||||||||
| Manufacturing and Engineering | $ | $ | ||||||
| Clean Energy HRS | ||||||||
| Cety Europe | ||||||||
| Total Assets | $ | $ | ||||||
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Share-Based Compensation
The Company has adopted the use of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS No. 123R) (now contained in FASB Codification Topic 718, Compensation-Stock Compensation), which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance and eliminates the alternative to use Opinion 25’s intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black-Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility. For the “risk-free interest rate,” we use the Constant Maturity Treasury rate on 90-day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the Company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20-trading-day average. At the time of grant, the share-based compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature of the shares. The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.
We re-evaluate the assumptions used to value our share-based awards on a quarterly basis and, if changes warrant different assumptions, the share-based compensation expense could vary significantly from the amount expensed in the past. We may be required to adjust any remaining share-based compensation expense, based on any additions, cancellations or adjustments to the share-based awards. The expense is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For the year ended December 31, 2022 and 2021 we had $ in share-based expense, due to the issuance of common stock. As of December 31, 2022, we had no further non-vested expense to be recognized.
Income Taxes
Federal Income taxes are not currently due since we have had losses since inception of Clean Energy Technologies.
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Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25 Income Taxes – Recognition. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard required by ASC 740-10-25-5.
Deferred income tax amounts reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes.
As
of December 31, 2022, we had a net operating loss carry-forward of approximately $(
| December 31, 2022 | December 31, 2021 | |||||||
| Deferred Tax Asset | $ | ( | ) | $ | ( | ) | ||
| Valuation Allowance | ( | ) | ( | ) | ||||
| Deferred Tax Asset (Net) | $ | $ | ||||||
On
February 13, 2018, Clean Energy Technologies, Inc., a Nevada corporation (the “Registrant” or “Corporation”)
entered into a Common Stock Purchase Agreement (“Stock Purchase Agreement”) by and between MGW Investment I Limited (“MGWI”)
and the Corporation. The Corporation received $
On
February 13,2018 the Corporation and Confections Ventures Limited. (“CVL”) entered into a Convertible Note Purchase Agreement
(the “Convertible Note Purchase Agreement,” together with the Stock Purchase Agreement and the transactions contemplated
thereunder, the “Financing”) pursuant to which the Corporation issued to CVL a convertible promissory Note (the “CVL
Note”) in the principal amount of $
This
resulted in a change in control, which limited the net operating to that date forward. We are subject to taxation in the U.S. and the
states of California. Further, the Company currently has no open tax years’ subject to audit prior to
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported income, total assets, or stockholders’ equity as previously reported.
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Recently Issued Accounting Standards
The Company is reviewing the effects of following recent updates. The Company has no expectation that any of these items will have a material effect upon the financial statements.
Update 2021-03—Intangibles—Goodwill and Other (Topic 350): Accounting Alternative For Evaluating Triggering Events.
The amendments in this Update are effective on a prospective basis for fiscal years beginning after December 15, 2019. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance as of March 30, 2021.
Update 2021-01—Reference Rate Reform (Topic 848):
An entity may elect to apply the amendments in this Update on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020.
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses [codified as Accounting Standards Codification Topic (ASC) 326]. ASC 326 adds to US generally accepted accounting principles (US GAAP) the current expected credit loss (CECL) model, a measurement model based on expected losses rather than incurred losses. Under this new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. This will become effective in January 2023 and will have minimal impact on the company.
Update 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. We do not expect any material impact on our financials because of the adoption of this update.
Deferred Stock Issuance Costs
Deferred stock issuance
costs represent amounts paid for legal, consulting, and other offering expenses in conjunction with the future raising of additional capital
to be performed within one year. These costs are netted against additional paid-in capital as a cost of the stock issuance upon closing
of the respective stock placement. During the year ended December 31, 2022, $
NOTE 3 – ACCOUNTS AND NOTES RECEIVABLE
| December 31, 2022 | December 31, 2021 | |||||||
| Accounts Receivable | $ | $ | ||||||
| Less reserve for uncollectable accounts | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Our Accounts Receivable is pledged to Nations Interbanc, our line of credit.
| December 31, 2022 | December 31, 2021 | |||||||
| Lease asset | $ | $ | ||||||
The Company is currently modifying the assets subject to lease to meet the provisions of the agreement, and as of December 31, 2022 any collection on the lease payments was not yet considered probable, resulting in no derecognition of the underlying asset and no net lease investments recognized on the sales-type lease pursuant to ASC 842-30-25-3.
| December 31, 2022 | December 31, 2021 | |||||||
| Long-term financing receivables | $ | $ | ||||||
| Less Reserve for uncollectable accounts | ( | ) | ( | ) | ||||
| Long-term financing receivables - net | $ | $ | ||||||
On a contract by contract basis or in response to certain situations or installation difficulties, the Company may elect to allow non-interest bearing repayments in excess of 1 year.
Our long term financing Receivable are pledged to Nations Interbanc, our line of credit.
| 53 |
NOTE 4 – INVENTORY
Inventories by major classification were comprised of the following at:
| December 31, 2022 | December 31, 2021 | |||||||
| Inventory | $ | $ | ||||||
| Less reserve for uncollectable accounts | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Our Inventory is pledged to Nations Interbanc, our line of credit.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment were comprised of the following at:
| December 31, 2022 | December 31, 2021 | |||||||
| Property and Equipment | $ | $ | ||||||
| Leasehold Improvements | ||||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Net Fixed Assets | $ | $ | ||||||
Our
Depreciation Expense for the years ended December 31, 2022 and 2021 was $
Our Property Plant and Equipment is pledged to Nations Interbanc, our line of credit.
NOTE 6 – INTANGIBLE ASSETS
Intangible assets were comprised of the following at:
| December 31, 2022 | December 31, 2021 | |||||||
| Goodwill | $ | $ | ||||||
| LWL Intangibles | ||||||||
| License | ||||||||
| Patents | ||||||||
| Accumulated Amortization | ( | ) | ( | ) | ||||
| Net Fixed Assets | $ | $ | ||||||
Our
Amortization Expense for the years ended December 31, 2022 and 2021 was $
Based on the foregoing analysis of the facts surrounding the Company’s acquisition of LWL, it is the Company’s position that the Company is the acquirer of LWL, under the acquisition method of accounting.
As such, as of November 8, 2021 (the acquisition date), the Company recognized, separately from goodwill, the identifiable assets acquired and the liabilities assumed in the Business combination.
The following table presents the purchase price allocation:
| Consideration: | ||||
| Cash and cash equivalents | $ | |||
| Total purchaser consideration | $ | |||
| Assets acquired: | ||||
| Cash and cash equivalents | $ | |||
| Prepayment | $ | |||
| Other receivable | $ | |||
| Trading Contracts | $ | |||
| Shenzhen Gas Relationship | $ | |||
| Total assets acquired | $ | |||
| Liabilities assumed: | ||||
| Advance Receipts | $ | ( | ) | |
| Taxes Payable | $ | |||
| Net Assets Acquired: | $ | |||
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NOTE 7 – CONVERTIBLE NOTE RECEIVABLE
Effective
January 10, 2022, JHJ (“note holder”) entered a convertible note agreement with Chengdu Rongjun Enterprise Consulting
Co., Ltd (“Rongjun” or “the borrower”) with maturity on
NOTE 8 – ACCRUED EXPENSES
| December 31, 2022 | December 31, 2021 | |||||||
| Accrued Wages | $ | $ | ||||||
| Accrued Interest and other | ||||||||
| Accrued Interest and other | $ | $ | ||||||
NOTE 9 – NOTES PAYABLE
On
November 11, 2013, we entered into an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). Amounts
outstanding under the agreement bear interest at the rate of
On
April 1, 2021, we entered into an amendment to the purchase order financing agreement with DHN Capital, LLC dba Nations Interbanc. Nations
Interbanc has lowered the accrued fees balance by $
On
September 11, 2015, our CE HRS subsidiary issued a promissory note in the initial principal amount $
Total Liability to GE
| December 31, 2022 | December 31, 2021 | |||||||
| Note payable GE | $ | | $ | |||||
| Accrued transition services | ||||||||
| Accrued Interest | ||||||||
| Total | $ | $ | ||||||
Based
on the California Statute of Limitations, the Nevada Statute of Limitations, and the New York Statute of Limitations it is the view of
our legal counsel that the above referenced debt is no longer an enforceable obligation. under California law, Nevada law, and New York
law, as it became past due no later than November 3, 2016, more than Six (6) years ago and last payment made on the debt was on November
3, 2016, which is more than Six (6) years ago. The total gain recognized from this write off was $
On
May 4, 2020 the company entered in to a payroll protection loan, with Comerica bank, guaranteed by the SBA due May 4, 2022
for $
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On
February 4 , 2021 the company entered in to a payroll protection loan, with Comerica bank, guaranteed by the SBA due February 4, 2023
for $
On
September 7, 2021 the company entered into a promissory note in the amount of $
On
September 28, 2021 the company entered into a promissory note in the amount of $
On
March 10, 2022 the company entered into a promissory note in the amount of $
On
June 30, 2022 the company entered into a promissory note in the amount of $
On
July 13, 2022 the company entered into a promissory note in the amount of $
On
October 25, 2022 the company entered into a promissory note in the amount of $
On
Dec 5,2022 the company entered into a promissory note in the amount of $
Convertible notes
On
May 5, 2017 we entered into a nine-month convertible note payable for $
On
May 24, 2017 we entered into a nine-month convertible note payable for $
| 56 |
On
July 6, 2020, Clean Energy Technologies, Inc. (the “Company) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with LGH Investments, LLC (the “Investor”), pursuant to which the Company issued to the Investor
a convertible promissory note (the “Note”) in the original principal amount of $
On
August 17, 2020, Clean Energy Technologies, Inc. (the “Company) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with LGH Investments, LLC (the “Investor”), pursuant to which the Company issued to the Investor
a convertible promissory note (the “Note”) in the original principal amount of $
| 57 |
On
September 10, 2020 we entered into a convertible note payable for $
On
October 14, 2020 Clean Energy Technologies, Inc. (the “Company) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with Firstfire Global Opportunities Fund LLC, (the “Investor”), pursuant to which the Company
issued to the Investor a convertible promissory note (the “Note”) in the original principal amount of $
On
November 10, 2020 we entered into a convertible note payable for $
On
December 18, 2020 we entered into a convertible note payable for $
On
December 27, 2021, we entered into a convertible note payable with Universal Scope Inc. for $
On
May 6, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company issued
to Mast Hill a $
On
August 5, 2022, we entered into a Securities Purchase Agreement with Jefferson Street Capital, LLC (Jefferson) pursuant to which the
Company issued to Jefferson a $
On
August 17, 2022, we entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund LLC (“Firstfire”)
pursuant to which the Company issued to Mast Hill a $
On
September 1, 2022, we entered into a Securities Purchase Agreement with Pacific Pier Capital, LLC (Pacific) pursuant to which the Company
issued to Pacific a $
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On
September 16, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $
On
November 10, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $
On
November 21, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $
On
December 26, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $
Total due to Convertible Notes
| December 31, 2022 | December 31, 2021 | |||||||
| Total convertible notes | $ | $ | ||||||
| Accrued Interest | ||||||||
| Debt Discount | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
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Note 10 – Derivative Liabilities
As
a result of the convertible notes we recognized the embedded derivative liability on the date of note issuance. We also revalued the
remaining derivative liability on the outstanding note balance on the date of the balance sheet. We value the derivative liability using
a binomial lattice model with an expected volatility range of
| December 31, 2022 | December 31, 2021 | |||||||
| Derivative Liabilities on Convertible Loans: | ||||||||
| Outstanding Balance | $ | $ | ||||||
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Operating Rental Leases
As
of May 1, 2017, our corporate headquarters are located at 2990 Redhill Unit A, Costa Mesa, CA. On March 10, 2017, the Company signed
a lease agreement for a
| Year | Lease Payment | |||
| 2023 | ||||
| Imputed Interest | ( | ) | ||
| Net Lease Liability | $ | |||
Our
lease expense for the years ended December 31, 2022 and 2021 was $
ASB
ASU 2016-02 “Leases (Topic 842)” – In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize
almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained
a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely
similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current
model but has been updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have adopted the above ASU
as of January 1, 2019. The right of use asset and lease liability have been recorded at the present value of the future minimum lease
payments, utilizing a
Severance Benefits
Mr. Mahdi will receive a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Mahdi would have been entitled to receive through the remainder or the Employment Period or One (1) year, whichever is greater.
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NOTE 12 – CAPITAL STOCK TRANSACTIONS
On April 21, 2005, our Board of Directors and shareholders approved the re-domicile of the Company in the State of Nevada, in connection with which we increased the number of our authorized common shares to and designated a par value of $ per share.
On May 25, 2006, our Board of Directors and shareholders approved an amendment to our Articles of Incorporation to authorize a new series of preferred stock, designated as Series C, and consisting of authorized shares.
On June 30, 2017, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to and in the number of our authorized preferred shares to . The amendment effecting the increase in our authorized capital was filed and effective on July 5, 2017.
On August 28, 2018, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to . The amendment effecting the increase in our authorized capital was filed and effective on August 23, 2018.
On June 10, 2019, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to . The amendment effecting the increase in our authorized capital was effective on September 27, 2019
On January 6, 2023, our board of directors and majority shareholders approved a reverse stock split. Effective upon the filing of our Certificate of Amendment of Articles of Incorporation with the Secretary of State of the State of Nevada, the shares of the Corporation’s Common Stock issued and outstanding immediately prior to the Effective Time of January 6, 2023, will be automatically reclassified as and combined into shares of Common Stock such that each (40) shares of Old Common Stock shall be reclassified as and combined into one (1) share of New Common Stock. All per share references to common stock have been retroactively represented throughout the financials.
Common Stock Transactions
On
July 6, 2020, Clean Energy Technologies, Inc. (the “Company) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with LGH Investments, LLC (the “Investor”), pursuant to which the Company issued to the Investor
a convertible promissory note (the “Note”) in the original principal amount of $
On
August 17, 2020, Clean Energy Technologies, Inc. (the “Company) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with LGH Investments, LLC (the “Investor”), pursuant to which the Company issued to the Investor
a convertible promissory note (the “Note”) in the original principal amount of $
On
October 14, 2020 Clean Energy Technologies, Inc. (the “Company) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with Firstfire Global Opportunities Fund LLC, (the “Investor”), pursuant to which the Company
issued to the Investor a convertible promissory note (the “Note”) in the original principal amount of $
These shares were issued on February 1, 2021, and shares were issued as a result of exercise of the warrants on May 28, 2021. This note was paid in full as of January 29, 2021.
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On February 5, 2021 we issued shares of our common stock at a price of $ per share, in exchange for the conversion of shares of our Series D Preferred Stock.
On
February 9, 2021 we issued shares of our common stock share, in exchange for the conversion of $
On February 9, 2021 we issued shares of our common stock at a price of $ per share, in exchange for the conversion of shares of our Series D Preferred Stock.
On
February 23, 2021 we issued of common stock at a purchase price of $ per share and
On
March 5, 2021 we issued of common stock at a purchase price of $ per share for an aggregate price of $
On March 10, 2021 we issued units of common stock at a purchase price of $ per share for an aggregate price of $ to an accredited investor in a private sale.
On March 12, 2021 we issued shares and of our common stock at a price of $ per share, in exchange for the conversion of shares of our Series D Preferred Stock and 165,487 of accrued dividend for the series D preferred stock.
On
September 2, 2021, Clean Energy Technology, Inc., a Nevada corporation
On September 13, 2021, we issued shares of common stock for a correction of a previous issuance error.
During
the year ended December 31, 2021, we issued shares of common stock, under S-1 registration statement with GHS for a total of
$
On December 31, 2021 we issued shares of our common stock under our Reg A offering at $ per share. These shares are unrestricted and free trading.
During
the quarter ended March 31, 2022, we issued shares of common stock, under S-1 registration statement with GHS for a total of $
On February 21, 2022, we issued shares of our common stock under our Reg A offering at $ per share. These shares are unrestricted and free trading.
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During
the April of 2022, we issued shares of common stock, under S-1 registration statement with GHS for a total of $
On
September 21, 2022 MGW I converted $
On May 6, 2022, the Company entered into a Securities Purchase Agreement and a warrant agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company issued to Mast Hill the Company issued Mast Hill a five-year warrant to purchase shares of common stock in connections with the transactions.
On December 28, 2022 Mast Hill exercised their warrant in full on a cashless basis to purchase shares of Common Stock .
Common Stock
Our Articles of Incorporation authorize us to issue shares of common stock, par value $ per share. As of April 14, 2022 there were shares of common stock outstanding. All outstanding shares of common stock are, and the common stock to be issued will be, fully paid and non-assessable. Each share of our common stock has identical rights and privileges in every respect. The holders of our common stock are entitled to vote upon all matters submitted to a vote of our shareholders and are entitled to one vote for each share of common stock held. There are no cumulative voting rights.
The holders of our common stock are entitled to share equally in dividends and other distributions that our Board of Directors may declare from time to time out of funds legally available for that purpose, if any, after the satisfaction of any prior rights and preferences of any outstanding preferred stock. If we liquidate, dissolve or wind up, the holders of common stock shares will be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities and our obligations to holders of our outstanding preferred stock.
Preferred Stock
Our Articles of Incorporation authorize us to issue shares of preferred stock, par value $ per share. Our Board of Directors has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the designation of and number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions of the shares of each such series.
Unless our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the payment of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may have the effect of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock.
We previously authorized shares of Series A Convertible Preferred Stock, shares of Series B Convertible Preferred Stock, and shares Series C Convertible Preferred Stock. As of August 20, 2006, all series A, B, and C preferred had been converted into common stock.
Effective August 7, 2013, our
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The
following are primary terms of the Series D Preferred Stock.
In
connection with the subscriptions for the Series D Preferred, we issued series F warrants to purchase an aggregate of
On
August 21, 2014, a holder holding shares of Preferred Series D Preferred agreed to lower the dividend rate to
In
the first quarter of 2019, we signed agreements to issue shares of common stock valued at $ for a total value of $
We
also recorded a $
standoff” and estoppel agreement and discounted conversion terms to account for the difference in the fair value which we offset to retained earnings.
On February 4, 2020 we issued shares of our common stock at a price of $ per share, in exchange for the conversion of shares of our Series D Preferred Stock.
On July 23, 2020 we issued shares of our common stock at a price of $ per share, in exchange for the conversion of shares of our Series D Preferred Stock.
On February 5, 2021 we issued shares of our common stock at a price of $ per share, in exchange for the conversion of shares of our Series D Preferred Stock.
On
February 9, 2021 we issued shares of our common stock share, in exchange for the conversion of $
On February 9, 2021 we issued shares of our common stock at a price of $ per share, in exchange for the conversion of shares of our Series D Preferred Stock.
On March 12, 2021 we issued shares of our series D preferred stock together with accrued preferred dividend at a price of $ per share, in exchange for the conversion of shares of our Series D Preferred Stock and accrued preferred dividend.
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Warrants
A summary of warrant activity for the periods is as follows:
On
July 6, 2020, Clean Energy Technologies, Inc. (the “Company) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with LGH Investments, LLC (the “Investor”), pursuant to which the Company issued to the Investor
a convertible promissory note (the “Note”) in the original principal amount of $
shares of our common stock.
On
August 17, 2020, Clean Energy Technologies, Inc. (the “Company) entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with LGH Investments, LLC (the “Investor”), pursuant to which the Company issued to the Investor
a convertible promissory note (the “Note”) in the original principal amount of $
On
February 23, 2021 we issued of common stock at a purchase price of $ per share and
On
May 6, 2022, we issued
On
August 5, 2022, we issued
On
August 17, 2022, we issued
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On
September 1, 2022, we issued
On
September 16, 2022, we issued
On
November 10, 2022 we issued
On
November 21, 2022 we issued
On
December 26, 2022, we issued
| Warrants - Common Share Equivalents | Weighted Average Exercise price | Warrants exercisable - Common Share Equivalents | Weighted Average Exercise price | |||||||||||||
| Outstanding December 31, 2021 | $ | $ | ||||||||||||||
| Additions | ||||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Outstanding December 31, 2022 | $ | $ | ||||||||||||||
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Stock Options
We currently have no outstanding stock options
NOTE 13 – RELATED PARTY TRANSACTIONS
On
November 2, 2016, we effected the repayment of the convertible note dated March 15, 2016 for an aggregate amount of $
Concurrently with the foregoing note repayments, we entered into a Credit Agreement and Promissory Note (the “Credit Agreement”) with Megawell USA Technology Investment Fund I LLC, a Wyoming limited liability company in formation (“MW I”), pursuant to which MW I deposited funds into escrow to fund the repayment of the convertible notes and we assigned to MW I our right to acquire the convertible notes and otherwise agreed that MW I would be subrogated to the rights of each note holder to the extent a note was repaid with funds advanced by MW I. Concurrently, MW I acquired the Master Note and we agreed that all amounts advanced by MG I to or for our benefit would be governed by the terms of the Master Note, including the payment of a financing fees, interest, minimum interest, and convertibility. Reddot is MW I’s agent for purposes of administration of the Credit Agreement and the Master Note and advances thereunder.
On
February 13, 2018 the Corporation and Confections Ventures Limited. (“CVL”) entered into a Convertible Note Purchase Agreement
(the “Convertible Note Purchase Agreement,” together with the Stock Purchase Agreement and the transactions contemplated
thereunder, the “Financing”) pursuant to which the Corporation issued to CVL a convertible promissory Note (the “CVL
Note”) in the principal amount of $
On
February 8, 2018 the Corporation entered a Convertible Promissory Note in the principal amount of $
Subsequently
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On
May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell units (each a “Unit”
and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $
In
the fourth quarter of 2019 MGW Investment I Limited, advanced $
On
March 24, 2021, the Company transferred $
On
September 21, 2022 MGW I converted $
Kambiz
Mahdi, our Chief Executive Officer, owns Billet Electronics, which is distributor of electronic components. From time to time, we purchase
parts from Billet Electronics. In addition, Billet was a supplier of parts and had dealings with current and former customers of the
Company prior to joining the company. The amount of parts purchases in 2022 was $
Note 14 - Warranty Liability
For
the year ended December 31, 2022 and 2021 there was
NOTE 15 – NON-CONTROLLING INTEREST
On
June 24, 2021 the Company formed CETY Capital LLC a wholly owned subsidiary of CETY. In addition the company established CETY Renewables
Ashfield LLC (“CRA”) a wholly owned subsidiary of Ashfield Renewables Ag Development LLC(“ARA”) with our partner,
Ashfield AG (“AG”). The purpose of the joint venture is the development of a pyrolysis plant established to convert woody
feedstock into electricity and BioChar by using high temperature ablative fast pyrolysis reactor for which Clean Energy Technology, Inc.
holds the license for. The CRA is located in Ashfield, Massachusetts. Based upon the terms of the members’ agreement, the CETY
Capital LLC owns a
The consolidated financial statements have deconsolidated the CRA business unit. The Liabilities of CRA has been transferred to Vermont Renewable Gas LLC (“VRG”), a newly formed entity. CETY retains 49% equity in VRG.
NOTE 16 – THE STATUTORY RESERVES
The Company’s ability to pay dividends primarily depends on it receiving funds from its subsidiaries. PRC laws and regulations permit payments of dividends by the Company’s PRC subsidiaries only out of the subsidiary’s retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with US GAAP differ from those reflected in the statutory financial statements of the Company’s PRC subsidiaries.
In
accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise
(“FIE”) established in the PRC is required to provide statutory reserves, which are appropriated from net profit as reported
in the FIE’s PRC statutory accounts. An FIE is required to allocate at least
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Additionally,
in accordance with the Company Laws of the PRC, a domestic enterprise is required to provide surplus reserve at least
As
a result of these PRC laws and regulations that require annual appropriations of
In
addition, according to Administrative Measures for the Collection and Utilization of Enterprise Work Safety Funds issued by the PRC Ministry
of Finance and the State Administration of Work Safety, for the companies with dangerous goods production or storage, the company is
required to make a special reserve for the use of enhancing and improving its safe production conditions. Under PRC GAAP, the reserve
is recorded as selling expense; however, under US GAAP, since the expense has not been incurred and the Company will record cost of sales
for safety related expenses when it is actually happened or incurred, this special reserve was recorded as an appropriation of its after-tax
income. The reserve is calculated at a rate of
NOTE 17 – SUBSEQUENT EVENTS
On
January 19, 2023, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $
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On
Feb 10, 2023 the company entered into a promissory note in the amount of $
On
March 6, 2023 the company entered into a promissory note in the amount of $
On
March 8, 2023, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $
On February 13, 2023 the company paid off its promissory note with 1800 Diagonal dated June 30, 2022, of $ together with all interest thereon.
On
February 10, 2023 the company entered into a promissory note with 1800 Diagonal Lending, LLC (“1800 Diagonal”) in the
amount of $
On
August 17, 2022, we issued
On
September 1, 2022, we issued
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On March 28, 2023 we have elected three new board members:
Mr. Ted Hsu has almost 3 decades of experience as a commercial banker. He joined Preferred Bank in 1992 and currently serves as the bank’s Executive Vice President. Preferred Bank is one of the largest independent commercial banks in California. He has extensive experience in servicing clients in various sectors including real estate, construction, commercial and industrial. Recently, Mr. Hsu began to cover companies in the renewable energy sector as it is the growing trend. We believe Mr. Hsu is well qualified to serve as a member of our Board of Directors due to his experience in commercial lending.
Ms. Lauren Morrison is an international business development consultant whose career has had a major focus in the clean energy, smart building, and sustainability sectors. She has worked with companies of all sizes and areas of specialization, from concept to early-stage and maturity, on global growth strategies, branding, and product development. Lauren is interested in the integration and optimization of technologies that measurably increase energy efficiency, and the application of monitoring and data analysis that iteratively improves building processes, practices, and net functionality. As part of a leading-edge model smart city development in Asia, Lauren saw first-hand the critical imperative for global collaboration to address climate challenges as they rapidly eclipse geographic boundaries. She is passionate about expanding the conversation on this topic to include the widest possible audience of stakeholders. Our Board of Directors believes that Ms. Morrison brings a unique and valuable international perspective and clean energy experience to our Board of Directors
Mr. Matthew Graham Smith has over a decade of experience working in a range of overseas and domestic roles with the Australian Department of Foreign Affairs and Trade (DFAT) and has held positions as Product Manager, Major Surface Ships, Department of Defense, Senior Administrative Officer, Consulate-General, Chengdu, Senior Administrative Officer, Consulate-General, Chengdu, Post Opener, Consulate-General Surabaya, Indonesia. Mr. Smith is a Certified Practicing Accountant in Australia and will serve as the Chairman of our Audit Committee upon the listing of our common stock on Nasdaq. Mr. Smith has received a Bachelor of Laws and a Bachelor of Commerce in Finance from Australian National University and was an exchange student at the Olin Business School, Washington University.
A registration statement on Form S-1 (File No. 333-266078) relating to the securities being sold in this Offering was declared effective by the Securities and Exchange Commission (the “SEC”) on March 22, 2023. Copies of the registration statement can be accessed through the SEC’s website at www.sec.gov.
The
closing of its public offering of shares of common stock at a price of $per share for a total gross proceeds of $
In addition, the Company has granted the underwriters an option, exercisable within 45 days from the date of the underwriting agreement, to purchase up to an additional shares at the public offering price, less underwriting discounts and commissions. The Offering was closed on March 27, 2023 and was conducted on a firm commitment basis. The shares began trading on March 23, 2023 on NASDAQ Capital Market
Om
March 3/28/2023, Universal Scope Inc. converted in full $
On
March 3, 2023, Clean Energy Technologies, Inc. reached an agreement with Cybernaut Zfounder Ventures, LLC to pay off the outstanding
convertible notes [in amount equal to $
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9a. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act, of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15(b) of the Exchange Act, an evaluation as of December 31, 2022 was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2022.
(b) Report of Management on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management including our of our chief executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.
Based on our evaluation under the 2013 Internal Control-Integrated Framework, our chief executive officer and chief financial officer concluded that our internal control over financial reporting was not effective as of December 31, 2022.
(c) Changes in Internal Control over Financial Reporting
There have been no other changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K for the year ended 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation incidental to the conduct of its business. The Company is presently not involved in any legal proceedings which in the opinion of management are likely to have a material adverse effect on the Company’s consolidated financial position or results of operations.
Item 1A. Risk Factors.
There have been no material changes in the Company’s risk factors from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Our officers and directors are the individuals listed below as of December 31, 2022:
| Name | Age | Position | ||
| Kambiz Mahdi | 57 | President, CEO, Director | ||
| Wang Jun | 56 | Director | ||
| Lyu Yongsheng | 70 | Director | ||
| Calvin Pang | 38 | Director |
There are no family relationships among any of the directors or the executive officer.
Biographical Information.
Mr. Kambiz Mahdi, age 57, served as President and Chief Executive Officer of the Company from 1996 until December of 2005 and again from July 2009 until present. Mr. Mahdi also started Billet Electronics a global supply chain provider of products, services and solutions in the technology sector in 2007. Mr. Mahdi has a BS degree in Electrical Engineering from California State University of Northridge. Mr. Mahdi has not served on any other boards of public companies in the past five years.
Our Board of Directors selected Mr. Mahdi to serve as a director because he is our Chief Executive Officer and has served in various executive roles with our company for 14 years, with a focus on electrical design & manufacturing, sales and operations and his insight into the development, marketing, finance, and operations aspects of our company. He has expansive knowledge of engineering and manufacturing industry and relationships with chief executives and other senior management at technology companies. Our Board of Directors believes that Mr. Mahdi brings a unique and valuable perspective to our Board of Directors.
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Mr. Jun Wang, age: 56. Mr. Wang, is the current Chairman and Chief Executive Officer of Taiyu (Shenyang) Energy Technology Co., Ltd. and has held those positions since 2002. From 2008 -2012 Mr. Wang served as Chief Executive Officer and director of SmartHeat, Inc. Prior to that, he served as an executive at Beijing HTN Pipeline Equipment Co., Ltd. from 2000 to 2002 and Honeywell from 1996 to 1999. Mr. Wang graduated from Tsinghua University and obtained a master’s degree in engineering. We believe that Mr. Wang is well qualified to serve as a member of our Board of Directors due to his extensive experience in the clean energy business in China and his ability to open potential markets to the company in Asia. On August 11, 2022 Mr. Jun Wang resigned from the board of directors of CETY.
Mr. Yongsheng Lyu. age: 70. Mr. Lyu has acted as an independent project consultant for Taiyu (Shenyang) Energy Technology Co., Ltd. since 2009. From 2003 to 2009, he served as the Executive Director of the Mianyang City Civil Aviation Administration Greening Company. From 1996 to 2003, he was the General Manager of Mianyang Township Enterprise Supply and Marketing Corporation. Mr. Lyu graduated from Jilin University with a bachelor’s degree in engineering. We believe that Mr. Lyu is well qualified to serve as a member of our Board of Directors due to his extensive experience in engineering, sales and marketing and his ability to assist the company in expanding its markets into Asia. On August 11, 2022 Mr. Yongsheng Lyu resigned from the board of directors of CETY.
Mr. Calvin Pang. age: 38. Since 2015 Mr. Pang has been the Managing Director of Megawell Capital Limited. From 2007 to 2015, he was a banker at UBS AG managing portfolios of Hong Kong and China based investors. Mr. Pang graduated from the Olin School of Business at Washington University in St. Louis with a bachelor’s degree in business and finance. We believe that Mr. Pang is well qualified to serve as a member of our Board of Directors due to his extensive experience in U.S. and Asian corporate finance and may assist us in developing relationships with financial institutions.
Each director holds office until the earlier of his or her death, resignation, removal from office by the stockholders, or his or her respective successor is duly elected and qualified. There are no arrangements or understandings between any of our nominees or directors and any other person pursuant to which any of our nominees or directors have been selected for their respective positions. No nominee or director is related to any executive officer or any other nominee or director.
Corporate Governance
Director Attendance at Meetings of the Board of Directors
Our Board of Directors held 4 meetings during the fiscal year ended December 31, 2022. Each of our incumbent directors attended at least 75.0% of the aggregate total number of meetings of our Board of Directors held during the period for which he served as a director.
Director Attendance at Annual Meetings of the Shareholders
Although we have no policy with regard to attendance by the members of our Board of Directors at our annual meetings, we invite and encourage the members of our Board of Directors to attend our annual meetings to foster communication between Shareholders and our Board of Directors.
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Stockholder Communication with the Board of Directors
Any stockholder who desires to contact members of our Board of Directors, or a specified committee of our Board of Directors, may do so by writing to: Clean Energy Technologies, Inc., Board of Directors, 2990. Redhill Ave, Costa Mesa, California 92626, Attention: Secretary. Communications received will be distributed by our Secretary to such member or members of our Board of Directors as deemed appropriate by our Secretary, depending on the facts and circumstances outlined in the communication received.
Director Independence
We had a four-member Board of Directors in 2022 of which two members are independent directors.
Committees of our Board of Directors
We have no standing committees of our Board of Directors at the current time, which is due to the size of our operations. From time to time, our Board of Directors may establish committees it deems appropriate to address specific areas in more depth than may be possible at a full Board of Directors meeting. As our Company grows, we plan to establish an audit committee, compensation committee and nominating and corporate governance committee. The functions that these committees will perform are currently being performed by our Board of Directors.
Director Nomination Procedures and Diversity
As outlined above, in selecting a qualified nominee, our Board of Directors considers such factors as it deems appropriate, which may include: the current composition of our Board of Directors; the range of talents of a nominee that would best complement those already represented on our Board of Directors; the extent to which a nominee would diversify our Board of Directors; a nominee’s standards of integrity, commitment and independence of thought and judgment; a nominee’s ability to represent the long-term interests of our shareholders as a whole; a nominee’s relevant expertise and experience upon which to be able to offer advice and guidance to management; a nominee who is accomplished in his or her respective field, with superior credentials and recognition; and the need for specialized expertise. While we do not have a formal diversity policy, we believe that the backgrounds and qualifications of our directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow our Board of Directors to fulfill its responsibilities. Applying these criteria, our Board of Directors considers candidates for membership on our Board of Directors suggested by its members, as well as by our Shareholders. Members of our Board of Directors annually review our Board of Directors’ composition by evaluating whether our Board of Directors has the right mix of skills, experience and backgrounds.
Our Board of Directors may also consider an assessment of its diversity, in its broadest sense, reflecting, but not limited to, age, geography, gender and ethnicity.
Our Board of Directors identifies nominees by first evaluating the current members of our Board of Directors willing to continue in service. Current members of our Board of Directors with skills and experience relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of our Board of Directors does not wish to continue in service or if our Board of Directors decides not to nominate a member for re-election, our Board of Directors will review the desired skills and experience of a new nominee in light of the criteria set forth above.
Our Board of Directors also considers nominees for our Board of Directors recommended by Shareholders. Notice of proposed stockholder nominations for our Board of Directors must be delivered in accordance with the requirements set forth in our bylaws and SEC Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Nominations must include the full name of the proposed nominee, a brief description of the proposed nominee’s business experience for at least the previous five years and a representation that the nominating stockholder is a beneficial or record owner of our common stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. Nominations should be delivered to: Clean Energy Technologies, Inc., Board of Directors, 2990. Redhill Ave, Costa Mesa, California 92626, Attention: Chief Executive Officer.
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Our Board of Directors will recommend the slate of directors to be nominated for election at the annual meeting of shareholders. We have not and do not currently employ or pay a fee to any third party to identify or evaluate, or assist in identifying or evaluating, potential director nominees.
Board of Directors Role in Risk Oversight
Our Board of Directors oversees our shareholders’ interest in the long-term success of our business strategy and our overall financial strength.
Our Board of Directors is actively involved in overseeing risks associated with our business strategies and decisions. It does so, in part, through its approval of all acquisitions and business-related investments and all assumptions of debt, as well as its oversight of our executive officers pursuant to annual reviews. Our Board of Directors is also responsible for overseeing risks related to corporate governance and the selection of nominees to our Board of Directors.
In addition, the Board reviews the potential risks related to our financial reporting. The Board meets with our Chief Financial Officer and communicates with representatives of our independent registered public accounting firm on a quarterly basis to discuss and assess the risks related to our internal controls. Additionally, material violations of our Code of Ethics and related corporate policies are reported to our Board of Directors.
Code of Business Conduct and Ethics
We have adopted our Code of Ethics, which contains general guidelines for conducting our business and is designed to help our directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. Our Code of Ethics applies to our Principal Executive Officer, Principal Financial Officer, and persons performing similar functions and all members of our Board of Directors. Our Code of Ethics covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. Shareholders may request a copy of our Code of Ethics, which will be provided without charge, by writing to: Clean Energy Technologies, Inc., Board of Directors, 2990. Redhill Ave, Costa Mesa, California 92626; Attention: Chief Executive Officer.
Compensation of Directors
The key objective of our non-employee directors’ compensation program is to attract and retain highly qualified directors with the necessary skills, experience and character to oversee our management. We currently use equity-based compensation to compensate our directors due to our restricted cash flow position; however, we may in the future provide cash compensation to our directors. The use of equity-based compensation is designed to recognize the time commitment, expertise and potential liability relating to active Board service, while aligning the interests of our Board of Directors with the long-term interests of our shareholders.
In addition to the compensation provided to our non-employee director, which is detailed below, each non-employee director is reimbursed for any reasonable out-of-pocket expenses incurred in connection with attending in-person meetings of the Board of Directors and Board committees, as well for any fees incurred in attending continuing education courses for directors.
Fiscal Years 2021 and 2022 Annual Cash Compensation
We currently do not provide cash compensation to our directors and as such did not provide any cash compensation during the years ended December 31, 2021 and 2022.
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Fiscal Years 2021 and 2022 Equity Compensation
Yearly Restricted Share Awards
Under the terms of the discretionary restricted share unit grant provisions of our 2006 Incentive Stock Plan and our 2011 Omnibus Incentive Plan, which we refer to as the 2006 Plan and 2011 Plan, respectively, each non-employee director is eligible to receive grants of restricted common stock share awards at the discretion of our Board of Directors. These yearly restricted share unit awards vest in full on the grant date.
For the year ended December 31, 2022, there were no stock options granted.
Discretionary Grants
Under the terms of the discretionary option grant provisions of the 2006 Plan and the 2011 Plan, non-employee directors are eligible to receive stock options or other stock awards granted at the discretion of the Board of Directors. No director received stock awards pursuant to the discretionary grant program during fiscal year 2020 or 2021.
Director Summary Compensation in Fiscal Years 2021 and 2022
The following table sets forth the fiscal years 2021, and 2022 compensation for our non-employee directors.
| Name | Fees Earned or Paid in Cash ($) (1) | Stock Awards ($) (2) | Total ($) | |||||||||
| Calvin Pang 2022 | $ | - | $ | - | $ | - | ||||||
| Calvin Pang 2021 | $ | - | $ | - | $ | - | ||||||
| Jun Wang 2022 | $ | - | $ | - | $ | - | ||||||
| Jun Wang 2021 | $ | - | $ | - | $ | - | ||||||
| Yongsheng Lyu 2022 | $ | - | $ | - | $ | - | ||||||
| Yongsheng Lyu 2021 | $ | - | $ | - | $ | - | ||||||
Change of Control and Termination Provisions
None.
Family Relationship
We currently do not have any officers or directors of our Company who are related to each other.
Involvement in Certain Legal Proceedings
During the past ten years no director, executive officer, promoter or control person of the Company has been involved in the following:
| (1) | A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; | |
| (2) | Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); |
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| (3) | Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities: |
| i. | Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; | |
| ii. | Engaging in any type of business practice; or | |
| iii. | Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws; |
| (4) | Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity; | |
| (5) | Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated; | |
| (6) | Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; | |
| (7) | Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: |
| i. | Any Federal or State securities or commodities law or regulation; or | |
| ii. | Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or | |
| iii. | Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| (8) | Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended December 31, 2021, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2021, and the representations made by the reporting persons to us, we believe that during the year ended December 31, 2021, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements with the exception of MGWI which filed a late Form 4.
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Item 11. Executive Compensation.
The following table sets forth the fiscal year 2021 and 2022 compensation for:
| ● | Kambiz Mahdi, our Chief Executive Officer |
The executive officers included in the Summary Compensation Table are referred to in this Form 10K as our named executive officers. A detailed description of the plans and programs under which our named executive officers received the following compensation can be found in the section entitled “Compensation Discussion and Analysis.”
Summary Compensation Table
| Name and Principal | Salary | Bonus | Stock Awards | Option Awards | Non-equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | ||||||||||||||||||||||||||||||||
| Position | Year | ($) | ($)(3) | ($)(4) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||||||
| Kambiz Mahdi (1) | 2022 | $ | 275,000 | $ | 73,708- | $ | $ | - | $ | - | $ | - | $ | - | $ | 348,708 | ||||||||||||||||||||||||
| Chief Executive Officer | 2021 | $ | 275,000 | $ | 85,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 360,000 | |||||||||||||||||||||||
| 1) | On October 18, 2018 we entered into an at will employment agreement with Mr. Mahdi, with an annual salary of $275,000. This agreement may be terminated at any time. In addition as part of the agreement Mr. Mahdi was to be issued 500,000 sharres of our common stock, as additional compensation. As a result; for the year ended December 31, 2019 we accrued for and subsequently on February 13, 2019, issued 500,000 shares at a purchase price of $.524 per share to Mr. Mahdi in the amount of $262,000. | |
| 2) | There was a bonus of $73,708 paid to Mr. Mahdi for fiscal year 2022, Mr. Mahdi is entitled to 50% of his salary in cash bonus, this bonus was approved by the board of directors. |
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Outstanding Equity Awards at 2022 Fiscal Year-End
There are no outstanding options or stock awards held by our named executive officers as of December 31, 2022.
Executive Employment Agreements
On October 18, 2018 we entered into an at-will employment agreement with Mr. Mahdi, with an annual salary of $275,000. This agreement may be terminated at any time. In addition as part of the agreement Mr. Mahdi was to be issued 500,000 shares of our common stock, as additional compensation.
Potential Payments upon Termination or Change of Control
Severance Benefits
Mr. Mahdi will receive a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Mahdi would have been entitled to receive through the remainder or the Employment Period or One (1) year, whichever is greater.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table shows, as of April 15, 2023 the number of shares of our common stock beneficially owned by (1) any person who is known by us to be the beneficial owner of more than 5.0% of the outstanding shares of our common stock; (2) our directors and former directors; (3) our named executive officers; and (4) all of our directors and executive officers as a group. The percentage of common stock beneficially owned is based on 965,171,292 shares of our common stock outstanding. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes securities over which a person has voting or investment power and securities that a person has the right to acquire within 60 days. Unless otherwise provided, the address of each beneficial owner listed is c/o Clean Energy Technologies, Inc., Board of Directors, 2990. Redhill Ave, Costa Mesa, California 92626. We need to footnote how the voting rights are allocated and add them to the number of shares.
| Name of Beneficial Owners (1) | Number of Shares of Common Stock Beneficially Owned | Percentage | ||||||
| 5% Holders | ||||||||
| MGW Investments I Limited (1) | 24,044,101 | 62.91 | ||||||
| Officers and Directors | ||||||||
| Calvin Pang(2) | 24,044,101 | 62.91 | % | |||||
| Kambiz Mahdi – Director and CEO (3) | 2,317,541 | 6.06 | % | |||||
| All directors and officers as a group | 26,361,642 | 68.97 | % | |||||
1) Conversion to shares of Common Stock is calculated based on 0.12 for the price of our common stock.
2) Calvin Pang has voting and investment power over all of our common stock held by MGW Investment I Limited (“MGWI”). MGWI holds 24,044,101
3) The shares of common stock are held directly by the Kambiz and Bahareh Mahdi Living Trust and indirectly by Kambiz Mahdi and Bahareh Mahdi as Trustees.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Director Independence
We have a four-member Board of Directors. Due to the size of our company and the difficulty in finding directors that have experience in our industry, 2 of our directors can be deemed an “independent directors.”
While our stock is not listed on the New York Stock Exchange, our independent directors would qualify as independent under the rules of the New York Stock Exchange.
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Review of Related Person Transactions
Our Code of Business Conduct and Ethics provides guidance for addressing actual or potential conflicts of interests, including those that may arise from transactions and relationships between us and our executive officers or directors, such as:
| ● | Business transaction between the company and any executive are prohibited, unless otherwise approved by the Board; | |
| ● | Activities that may interfere with an executive’s performance in carrying out company responsibilities; | |
| ● | Activities that call for the use of the company’s influence, resources or facilities; and | |
| ● | Activities that may discredit the name or reputation of the company. |
We have various procedures in place to identify potential related person transactions, and the Board of Directors and a separate compliance committee work together in reviewing and considering whether any identified transactions or relationships are covered by the Code of Business Conduct and Ethics.
Transactions with Related Persons
Please see note 10 in the notes to the financial statement for a discussion on transactions with related parties.
Item 14. Principal Accounting Fees and Services.
The aggregate fees billed to us by our principal accountant (Fruci & Associates II, PLLC) for services rendered during the fiscal years ended December 31, 2021 and December 31, 2022 are set forth in the table below:
| Services: | 2022 | 2021 | ||||||
| Audit Fees (1) | $ | 86,844 | $ | 78,294 | ||||
| Audit Related Fees (2) | 22,500 | - | ||||||
| Tax Fees (3) | 4,920 | |||||||
| All Other fees | - | - | ||||||
| Total | $ | 109,344 | $ | 83,214 | ||||
| (1) | Audit fees billed in 2022 and 2021 consisted of fees related to the audit of our annual financial statements, reviews of our quarterly financial statements, and statutory and regulatory audits, consents and other services related to filings with the SEC. |
| (2) | Audit-related fees related to financial accounting and reporting consultations, assurance and related services. |
| (3) | Tax services consist of tax compliance and tax planning and advice. |
The Board of Directors pre-approves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent registered public accounting firm, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(b) of the Exchange Act and the rules and regulations of the SEC. All services rendered by our principal auditor for the years ended December 31, 2021 and 2020 were pre-approved in accordance with the policies and procedures described above.
Auditor Independence
The Board of Directors has considered whether the provision of the above noted services is compatible with maintaining our independent registered public accounting firm’s independence and has concluded that the provision of such services has not adversely affected the independent registered public accounting firm’s independence.
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Board of Directors Audit Report to Shareholders
Since we do not have a standing Audit Committee our full Board of Directors oversees our financial reporting process. Our management has the primary responsibility for our financial statements as well as our financial reporting process, principles and internal controls. The independent registered public accounting firm is responsible for performing an audit of our financial statements and expressing an opinion as to the conformity of such financial statements with accounting principles generally accepted in the United States of America.
In this context, the Board of Directors has reviewed and discussed our audited financial statements as of December 31, 2021 and December 31, 2022 with management and the independent registered public accounting firm. The Board of Directors has discussed with the independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, Professional Standards, as amended. In addition, the Board of Directors has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect, and it has discussed their independence with us.
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements:
The consolidated financial statements and the related notes are included in Item 8 herein.
(a)(2) Financial Statement Schedule:
All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
(a)(3) Exhibits:
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this annual report.
(b) Exhibits:
See Item 15(a)(3) above.
(c) Financial Statement Schedule:
All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Costa Mesa, State of California on the 17 day of April, 2023.
| REGISTRANT | ||
| CLEAN ENERGY TECHNOLOGIES, INC. | ||
| By: | /s/ Kambiz Mahdi | |
| Kambiz Mahdi | ||
| Chief Executive Officer | ||
| Date:April 17, 2023 | ||
| By: | /s/ Calvin Pang | |
| Calvin Pang | ||
| Chief Financial Officer | ||
| Date: April 17, 2023 | ||
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kambiz Mahdi, and his attorney-in-fact for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| Signature | Title | ||
| /s/ Kambiz Mahdi | Chief Executive Officer and Director | ||
| By: | Kambiz Mahdi | (principal executive officer) | |
| Date: | April 17, 2023 | ||
| /s/ Calvin Pang | Director | ||
| By: | Calvin Pang | ||
| Date: | April 17, 2023 | ||
| /s/ Jun Wang | Director | ||
| By: | Jun Wang | ||
| Date: | April 17, 2023 |
||
| /s/ Yongsheng Lyu | Director | ||
| By: | Yongsheng Lyu | ||
| Date: | April 17, 2023 | ||
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EXHIBIT INDEX
Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the exhibits.
The following exhibits are included, or incorporated by reference; in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (and are numbered in accordance with Item 601 of Regulation S-K).
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* Filed herewith
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