Quarterly Report (10-q)

Date : 11/14/2019 @ 10:31PM
Source : Edgar (US Regulatory)
Stock : Clean Energy Technologies, Inc. (PC) (CETY)
Quote : 0.0196  -0.0014 (-6.67%) @ 9:35PM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] NINE MONTHS ENDED SEPTEMBER 30, 2019 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the nine months ended September 30, 2019
   
or
   
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from _________to__________  

 

Commission File Number: 000-55656

 

CLEAN ENERGY TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   20-2675800
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

2990 Redhill Ave, Costa Mesa, California 92626

(Address of principal executive offices)

 

(949) 273-4990

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [X]   Smaller reporting company [X]
    Emerging Growth Company [  ]

 

If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes [X] No

 

As of November 14, 2019, there were 748,907,656 shares of the Registrant’s $0.001 par value common stock issued and outstanding.

 

 

 

 
 

 

CLEAN ENERGY TECHNOLOGIES, INC.

 

(A Nevada Corporation)

 

TABLE OF CONTENTS

 

  Page

PART I. FINANCIAL INFORMATION

 
   
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS 3
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 27
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 35
     
ITEM 4. CONTROLS AND PROCEDURES 35
   

PART II. OTHER INFORMATION

 
   
ITEM 1. LEGAL PROCEEDINGS 35
     
ITEM 1A. RISK FACTORS 36
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 36
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 36
     
ITEM 4. MINE SAFETY DISCLOSURES 36
     
ITEM 5. OTHER INFORMATION 36
     
ITEM 6. EXHIBITS 37

 

Page 2 of 42

 

 

Part I – Financial Information

 

Item 1. Financial Statements

 

Clean Energy Technologies, Inc.

 

Consolidated Financial Statements

 

(Expressed in US dollars)

 

September 30, 2019 (unaudited)

 

Financial Statement Index  
   
Consolidated Balance Sheets (unaudited) 4
   
Consolidated Statements of Operations (unaudited) 5
   
Consolidated Statements of Stockholders Equity (unaudited) 6
   
Consolidated Statements of Cash Flows (unaudited) 7
   
Notes to the Consolidated Financial Statements (unaudited) 8

 

Page 3 of 42

 

 

Clean Energy Technologies, Inc.

Consolidated Balance Sheet

 

    (Un-audited)     (audited)  
    September 30, 2019     December 31, 2018  
Assets                
Current Assets:                
Cash   $ 179,855     $ 6,456  
Accounts receivable - net     661,425       724,845  
Inventory     790,789       711,894  
Total Current Assets     1,632,069       1,443,195  
Property and Equipment - Net     75,644       96,027  
                 
Goodwill     747,976       747,976  
License     354,322       354,322  
Patents     142,291       151,199  
Right of use Operating asset - long term      872,817       -  
Other Assets     25,400       25,400  
Total Non Current assets     2,142,806       1,278,897  
Total Assets   $ 3,850,519     $ 2,818,119  
                 
Liabilities and Stockholders’ (Deficit)                
Current Liabilities:                
Bank Overdraft   $ -     $ 5,850  
Accounts payable - trade     1,097,429       1,033,375  
Accrued Expenses     1,860,477       1,786,796  
Accrued Expenses Related party     220,667       123,394  
Customer Deposits     309,230       365,815  
Warranty Liability     100,000       100,000  
Deferred Revenue     47,750       33,000  
Derivative Liability     253,781       245,988  
Lease Liability - current     197,055       -  
Notes Payable - Current (net of discount)     3,083,998       2,775,090  
Notes Payable - Current - Related Party     996,173       1,144,505  
Total Current Liabilities     8,166,559       7,613,813  
Long-Term Debt:                
Lease Liability - long term     682,714       -  
Net Long-Term Debt     682,714       -  
Total Liabilities     8,849,273       7,613,813  
                 
Commitments and contingencies   $ -     $ -  
                 
Stockholders’ (Deficit)                
Preferred D stock, stated value $100 per share; 20,000 shares authorized; 7,500 shares and 7,500 shares issued and 6,500 and 7,500 outstanding respectively     650,000       750,000  
Common stock, $.001 par value; 2,000,000,000 shares authorized; 748,657,656 and 555,582,656 shares issued and outstanding respectively     748,659       555,585  
Shares to be issued     5,000       262,000  
Additional paid-in capital     7,484,581       5,236,456  
Accumulated deficit     (13,886,994 )     (11,599,735 )
Total Stockholders’ (Deficit)     (4,998,754 )     (4,795,694 )
Total Liabilities and Stockholders’ Deficit   $ 3,850,519     $ 2,818,119  

 

The accompanying footnotes are an integral part of these consolidated financial statements

 

Page 4 of 42

 

 

Clean Energy Technologies, Inc.

Consolidated Statement of Operations

For the three and nine months ended September 30,

(Un-Audited)

 

    three months ended
September 30,
    nine months ended
September 30,
 
    2019     2018     2019     2018  
Sales   $ 126,546     $ 532,137     $ 455,077     $ 1,243,630  
Cost of Goods Sold     81,361       226,556       292,593       559,514  
Gross Profit     45,185       305,581       162,484       684,116  
                                 
General and Administrative                                
General and Administrative expense     130,940       98,909       330,788       302,349  
Salaries     209,954       192,409       617,821       541,134  
Professional fees     28,186       20,786       98,871       108,844  
Travel     113,492       30,301       199,599       66,969  
Consulting     34,475       18,125       42,800       53,157  
Facility lease     80,863       68,346       243,715       207,671  
Share Based Expense     -       -       -       91,140  
Total Expenses     597,910       428,876       1,533,594       1,371,264  
Net Profit / (Loss) From Operations     (552,725 )     (123,295 )     (1,371,110 )     (687,148 )
                                 
Change in derivative liability     290,741       221,395       185,811       5,058  
Gain / (Loss) on disposition of assets     -       -       -       7,456  
Financing Fees     -       -       -       (378,155 )
Interest Expense     (396,704 )     (253,482 )     (1,041,961 )     (713,994 )
Net Profit / (Loss) Before Income Taxes     (658,688 )     (155,382 )     (2,227,260 )     (1,766,783 )
Income Tax Expense     -       -       -       -  
Net Profit / (Loss)   $ (658,688 )   $ (155,382 )   $ (2,227,260 )   $ (1,766,783 )
                                 
Per Share Information:                                
Basic and diluted weighted average number
of common shares outstanding
    666,391,352       553,354,983       604,602,711       498,909,645  
                                 
Net Profit / (Loss) per common share basic and diluted   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )

 

The accompanying footnotes are an integral part of these consolidated financial statements

 

Page 5 of 42

 

 

Clean Energy Technologies, Inc.

Consolidated Statement of Stockholders Equity

September 30, 2019

(Un-Audited)

 

    Common Stock
.001 Par
    Preferred Stock     Common Stock
to be issued
    Additional Paid in     Accumulated     Stockholders’ Deficit  
Description   Shares     Amount     Shares     Amount     Amount     Capital     Deficit     Totals  
December 31, 2017     210,881,122       210,883       7,500       750,000       58,000       3,657,653       (8,789,717 )     (4,113,180 )
                                                                 
Shares issued for Note conversions     26,054,672       26,055       -       -       (58,000 )     203,580               171,635  
Shares issued for Services     13,800,000       13,800                               59,340               73,140  
Shares issued for cash     302,462,667       302,463                               604,914               907,377  
BCF on 939,500                                             532,383               532,383  
Shares to be issued                                     18,000                       18,000  
Net Loss                                                     (1,313,258 )     (1,313,258 )
March 31, 2018     553,198,461       553,201       7,500       750,000       18,000       5,057,870       (10,102,975 )     (3,723,904 )
                                                                 
BCF on 153K note                                             127,602               127,602  
Net Loss                                                     (298,142 )     (298,142 )
June 30, 2018     553,198,461       553,201       7,500       750,000       18,000       5,185,472       (10,401,117 )     (3,894,444 )
                                                                 
Shares issued for services     1,500,000       1,499                       (18,000 )     16,501       (2 )     (2 )
Net Loss                                                     (155,382 )     (155,382 )
September 30, 2018     554,698,461       554,700       7,500       750,000       -       5,201,973       (10,556,501 )     (4,049,828 )
                                                                 
Shares to be issued for compensation                                     262,000                       262,000  
Shares issued for debt conversion     884,195       884                               34,484               35,368  
Net Loss                                                     (1,043,234 )     (1,043,234 )
December 31, 2018     555,582,656       555,584       7,500       750,000       262,000       5,236,457       (11,599,735 )     (4,795,694 )
                                                                 
Shares to be issued for compensation     20,000,000       20,000                       (262,000 )     242,000               -  
Net Loss                                                     (726,777 )     (726,777 )
March 31, 2019     575,582,656       575,584       7,500       750,000       -       5,478,457       (12,326,512 )     (5,522,471 )
                                                                 
Shares to be issued     -       -       -       -       932,680       1,066,520       -       1,999,200  
Shares returned from admin. hold     75,000       75       -       -       -       (75 )     -       -  
Shares issued for cash     500,000       500       -       -       -       9,500       -       10,000  
Prefered shares reclassed     -       -       (200 )     (20,000 )     -       20,000       -       -  
Shares issued for Preferred stock conversion     4,000,000       4,000       (800 )     (80,000 )     -       136,000       (60,000 )     -  
Net Loss                                                     (841,795 )     (841,795 )
June 30, 2019     580,157,656       580,159       6,500       650,000       932,680       6,710,402       (13,228,307 )     (4,355,066 )
                                                                 
Shares to be issued     168,000,000       168,000                       (932,680 )     764,680               -  
Shares issued for cash     500,000       500                               9,500               10,000  
Subscriptions Received             -                       5,000       -               5,000  
Net Loss                                                     (658,688 )     (658,688 )
September 30, 2019     748,657,656       748,659       6,500       650,000       5,000       7,484,582       (13,886,995 )     (4,998,754 )

 

The accompanying footnotes are an integral part of these consolidated financial statements

 

Page 6 of 42

 

 

Clean Energy Technologies, Inc.

Consolidated Statements of Cash Flows

For the nine months ended September 30,

(Un-Audited)

 

    2019     2018  
Cash Flows from Operating Activities:                
Net Income / ( Loss )   $ (2,227,260 )   $ (1,766,783 )
Adjustments to reconcile net loss to net cash                
used in operating activities:                
Depreciation and amortization     35,291       40,713  
Share based compensation     -       91,140  
Gain on disposal of fixed assets     -       7,456  
Financing fees     -       233,450  
Change in Derivative Liability and Debt discount     260,582       285,078  
Changes in assets and liabilities:                
(Increase) decrease in Right of use asset     (872,817 )     -  
(Increase) decrease in Right of use Liability     879,769       -  
(Increase) decrease in accounts receivable     63,420       (299,326 )
(Increase) decrease in inventory     (78,895 )     64,482  
(Decrease) increase in accounts payable     64,054       34,132  
Other (Decrease) increase in accrued expenses     73,681       62,584  
Other (Decrease) increase in accrued expenses -related party     97,273       -  
Other (Decrease) increase in deferred revenue     14,750       -  
Other (Decrease) increase in customer deposits     (56,585 )     -  
Net Cash Used In Operating Activities     (1,746,737 )     (1,247,074 )
                 
Cash Flows from Investing Activities                
Purchase property plant and equipment     (6,000 )     -  
Cash Flows Used In Investing Activities     (6,000 )     -  
                 
Cash Flows from Financing Activities                
Bank Overdraft / (Repayment)     (5,850 )     (10,863 )
Payments on notes payable     (596,000 )     (198,296 )
Proceeds from notes payable and lines of credit     503,786       569,946  
Stock issued for cash     2,024,200       907,377  
Cash Flows Provided  By Financing Activities     1,926,136       1,268,164  
                 
Net (Decrease) Increase in Cash and Cash Equivalents     173,399       21,090  
Cash and Cash Equivalents at Beginning of Period     6,456       9,418  
Cash and Cash Equivalents at End of Period   $ 179,855     $ 30,508  
                 
Supplemental Cashflow Information:                
Interest Paid   $ 475,966     $ 215,785  
Taxes Paid   $ -     $ -  
                 
Supplemental Non-Cash Disclosure                
Shares issued for Services   $ -     $ 91,140  
Shares issued for preferred conversions   $ 80,000     $ -  
Shares issued for note conversions   $ -     $ 171,635  

 

The accompanying footnotes are an integral part of these Consolidated financial statements

 

Page 7 of 42

 

 

Clean Energy Technologies, Inc.

 

Notes to Consolidated Financial Statements (Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

These unaudited interim consolidated financial statements as of and for the three and nine months ended September 30, 2019, reflect all adjustments which, in the opinion of management, are necessary to fairly state the Company’s financial position and the results of its operations for the periods presented, in accordance with the accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature.

 

These unaudited interim consolidated financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s fiscal year end December 31, 2018, report. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three and nine months ended September 30, 2019, are not necessarily indicative of results for the entire year ending December 31, 2019.

 

The summary of significant accounting policies of Clean Energy Technologies, 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.

 

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 $250,000 per commercial bank. For purposes of the statement of cash flows we consider all cash and highly liquid investments with initial maturities of one year or less to be cash equivalents.

 

Accounts Receivable

 

We grant credit to our customers located within the United States of America; and do not require collateral. 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 September 30, 2019, and December 31, 2018, we had a reserve for potentially un-collectable accounts of $57,000. Five (5) customers accounted for approximately 96% of accounts receivable at September 30, 2019. Our trade accounts primarily represent unsecured receivables. Historically, our bad debt write-offs related to these trade accounts have been insignificant.

 

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 September 30, 2019, and December 31, 2018, we had a reserve for potentially obsolete inventory of $250,000.

 

Page 8 of 42

 

 

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   3 to 7 years
Equipment   7 to 10 years
Leasehold Improvements   7 years

 

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”). 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. The following five steps are applied to achieve that core principle for our HRS and Cety Europe and clean energy revenue:

 

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

 

We also collect deposits with our order. Our customer deposit are recognized as revenue when we have met the contractual obligations. The following is table summarizes the customer deposit activity for the nine months ended September 30, 2019:

 

Customer Deposits as of December 31, 2018   $ 365,815  
Customer Deposits applied     (56,585 )
New customer Deposits     -  
Customer Deposits as of September 30, 2019   $ 309,230  

 

Page 9 of 42

 

 

We Invoice the customer at the time of the contract and only recognize the revenue when the company satisfies a performance obligation. The following is table summarizes the deferred revenue activity for the nine months ended September 30, 2019:

 

Deferred revenue December 31, 2018   $ 33,000  
Deferred revenue recognized in the Nine months ended September 30, 2019     -  
Additional deferred revenue added in the Nine months ended September 30, 2019     14,750  
Deferred revenue September 30, 2019   $ 47,750  

 

The following steps are applied to our contract manufacturing revenue:

 

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

 

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.

 

Page 10 of 42

 

 

The carrying amounts of the Company’s financial instruments as of December 31 2018 and September 30, 2019, reflect:

 

    Level 1     Level 2     Level 3     Total  
                                 
Fair value of convertible notes derivative liability – December 31, 2018   $     $     $ 245,988     $ 245,988  

 

    Level 1     Level 2     Level 3     Total  
                                 
Fair value of convertible notes derivative liability – September 30, 2019   $     $     $ 253,781     $ 253,781  

 

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.

 

Other Comprehensive Income

 

We have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods.

 

Net Profit (Loss) per Common Share

 

Basic profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding. At September 30, 2019, we had outstanding common shares of 748,657,656 used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents at September 30, 2019 and 2018 were 604,602,711 and 498,909,645, respectively. In addition, we had convertible notes and convertible preferred shares, convertible into of additional common shares of approximately 613 million shares. Fully diluted weighted average common shares and equivalents were withheld from the calculation as they were considered anti-dilutive we also had an adjustment to retained earnings of $60,000 due to the inducement on the conversion of preferred shares.

 

Research and Development

 

We had no amounts of research and development expense during the three months ended September 30, 2019 and 2018.

 

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 three reportable segments: Clean Energy Technologies; Heat recovery solutions and our service center CETY Europe, which provides support services to our currently installed units in Europe. The segments are determined based on several factors, including the nature of products and services, the nature of production processes, customer base, delivery channels and similar economic characteristics. Refer to note 1 for a description of the various product categories manufactured under each of these segments. 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.

 

Page 11 of 42

 

 

Selected Financial Data:

 

    Nine months ended September 30  
    2019     2018  
Net Sales                
Electronics Assembly     344,905       484,156  
Clean Energy HRS     46,662       759,474  
Cety Europe     64,035       -  
Total Sales     455,077       1,243,630  
                 
Segment income and reconciliation before tax                
Electronics Assembly     78,314       99,817  
Clean Energy HRS     37,463       584,299  
Cety Europe     46,707       -  
Total Segment income     162,484       684,116  
                 
Reconciling items                
General and Administrative expense     (330,788 )     (302,349 )
Salaries     (617,821 )     (541,134 )
Professional fees     (98,871 )     (108,844 )
Travel     (199,599 )     (66,969 )
Consulting     (42,800 )     (53,157 )
Facility lease     (243,715 )     (207,671 )
Share Based Expense     -       (91,140 )
Change in derivative liability     185,811       5,058  
Gain / (Loss) on disposition of assets     -       7,456  
Financing fees     -       (378,155 )
Interest expense     (1,041,961 )     (713,994 )
Net Loss before income tax     (2,227,260 )     (1,766,783 )
                 

 

    September 30, 2019     September 30, 2018  
Total Assets                
Electronics Assembly     2,116,907       1,064,325  
Clean Energy HRS     1,717,316       1,918,955  
Cety Europe     16,296       -  
      3,850,519       2,983,280  

 

Page 12 of 42

 

 

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; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. 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 nine months ended September 30, 2019ly 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 nine months ended September 30, 2019 and 2018 we had $0 and $91,140 respectively, in share-based expense, due to the issuance of common stock. As of September 30, 2019, 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.

 

On December 22, 2018 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company will compute its income tax expense for the three months ended September 30, 2019 using a Federal Tax Rate of 21%.

 

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 September 30, 2019, we had a net operating loss carry-forward of approximately $(4,646,730) and a deferred tax asset of approximately $975,813 using the statutory rate of 21%. The deferred tax asset may be recognized in future periods, not to exceed 20 years. However, due to the uncertainty of future events we have booked valuation allowance of $(975,813). FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At September 30, 2019, the Company had not taken any tax positions that would require disclosure under FASB ASC 740.

 

Page 13 of 42

 

 

    September 30, 2019     December 31, 2018  
Deferred Tax Asset   $ 975,813     $ 515,944  
Valuation Allowance     (975,813 )     (515,944 )
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 $907,388 in exchange for the issuance of 302,462,667 restricted shares of the Corporation’s common stock, par value $.001 per share (the “Common Stock”).

 

This resulted in a change in control, which limited the net operating loss carryforward to that date forward.

 

We are subject to taxation in the U.S. and the state of California. Further, the Company currently has no open tax years’ subject to audit prior to December 31, 2015. The Company is current on its federal and state tax returns.

 

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.

 

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 deficit of $5,007,979 and an accumulated deficit of $(13,896,219) and a working capital deficit of $6,353,612 and a net loss of $2,236,484 for the nine months ended September 30, 2019. Therefore, there is substantial 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.

 

NOTE 2– RECENT ACCOUNTING PRONOUNCEMENTS

 

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 2019-04—Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
     
  Update 2019-01—Leases (Topic 842): Codification Improvements
     
  Update 2018-17—Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities

 

Page 14 of 42

 

 

  Update 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
     
  Update 2018-08—Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
     
  Update 2018-05—Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
     
  Update 2018-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
     
  Update 2018-03—Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2017 and November 17, 2017 EITF Meetings (SEC Update)
     
  Update 2018-01—Business Combinations (Topic 805): Clarifying the Definition of a Business

 

FASB 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 5% average borrowing rate and the company is utilizing the transition relief and “running off” on current leases.

 

Page 15 of 42

 

 

NOTE 3 – ACCOUNTS AND NOTES RECEIVABLE

 

    September 30, 2019     December 31, 2018  
Accounts Receivable Trade   $ 718,425     $ 781,845  
Less Reserve for uncollectable accounts     (57,000 )     (57,000 )
Accounts receivable - net   $ 661,425     $ 724,845  

 

NOTE 4 – INVENTORY

 

Inventories by major classification were comprised of the following at:

 

    September 30, 2019     December 31, 2018  
Raw Material   $ 947,349     $ 952,214  
Work in Process     93,440       9,680  
Total     1,040,789       961,894  
Less reserve for excess or obsolete inventory     (250,000 )     (250,000 )
Total Inventory   $ 790,789     $ 711,894  

 

NOTE 5 – PROPERTY AND EQUIPMENT

 

Property and equipment were comprised of the following at:

 

    September 30, 2019     December 31, 2018  
Capital Equipment   $ 1,348,794     $ 1,342,794  
Leasehold improvements     75,436       75,436  
Accumulated Depreciation     (1,348,586 )     (1,322,203 )
Property and Equipment - Net   $ 75,644     $ 96,027  

 

For the nine months ended September 30, 2019 we recognized depreciation expense in the amount of $17,586 and for the three months ended September 30, 2018 we recognized depreciation expense in the amount of $8,793

 

For the nine months ended September 30, 2018 we recognized depreciation expense in the amount of $31,085 and for the three months ended September 30, 2018 we recognized depreciation expense in the amount of $9,285

 

NOTE 6 – INTANGIBLE ASSETS

 

Intangible assets were comprised of the following at:

 

    September 30, 2019     December 31, 2018  
Goodwill   $ 747,976     $ 747,976  
License     354,322       354,322  
Patents     190,789       190,789  
Accumulated Amortization     (48,498 )     (39,590 )
Net Intangible Assets   $ 1,244,589     $ 1,253,497  

 

Our Amortization Expense for the three months ended September 30, 2019 and 2018 was $2,969 and 2,969 respectively.

 

Our Amortization Expense for the nine months ended September 30, 2019 and 2018 was $2,969 and 2,969 respectively.

 

Page 16 of 42

 

 

NOTE 7 – ACCRUED EXPENSES

 

    September 30, 2019     December 31, 2018  
             
Accrued Payroll   $ 187,715     $ 224,514  
Accrued Interest     576,905       466,425  
Accrued Interest Related party     220,667       123,394  
Customer Deposit     309,230       365,815  
Accrued Payable to GE - TSA     972,231       972,231  
Accrued Rents and Moving Expenses     123,625       123,626  
    $ 2,390,373     $ 2,276,005  

 

NOTE 8 – NOTES PAYABLE

 

The Company issued a short-term note payable to an individual, secured by the assets of the Company, dated September 6, 2013 in the amount of $50,000 and fixed fee amount of $3,500. As of September 30, 2019 the outstanding balance was $38,500.

 

On November 11, 2013, we entered in to an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). Amounts outstanding under the agreement bear interest at the rate of 2.5% per month. It is secured by the assets of the Company. In addition, it is personally guaranteed by Kambiz Mahdi, our Chief Executive Officer. As of September 30, 2019, the outstanding balance was $1,590,300.

 

On September 11, 2015, our CE HRS subsidiary issued a promissory note in the initial principal amount $1,400,000 and assumed a pension liability of $100,000, for a total liability of $1,500,000, in connection with our acquisition of the heat recovery solutions, or HRS, assets of General Electric International, Inc., a Delaware corporation (“GEII”), including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures. The note bears interest at the rate of 2.66% per annum. The note is payable on the following schedule: (a) $200,000 in principal on December 31, 2015 and (b) thereafter, the remaining principal amount of $1,200,000, together with interest thereon, payable in equal nine months ended September 30, 2019ly installments of principal and interest of $157,609, commencing on December 31, 2016 and continuing until December 31, 2018 at which time the remaining unpaid principal amount of this note and all accrued and unpaid interest thereon shall be due and payable in full

 

We are currently in default on the payment of the purchase price pursuant to our asset purchase agreement with General Electric due to a combination of our inability to raise sufficient capital as expected and our belief that we are entitled to a reduction in purchase price we paid. We are in the process of negotiations with General Electric.

 

On September 15, 2016, Meddy Sahebi, Chairman of our previous Board of Directors, advanced the Company $5,000. There were no specified terms for repayment of this loan other than that it was to be repaid within a reasonable time. As of September 30, 2019, the outstanding balance was $5,000.

 

On September 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $250,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of September 21, 2019. On May 28, 2019 this note was paid in full.

 

On September 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $100,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of September 21, 2019. On May 28, 2019 this note was paid in full.

 

On January 10, 2019 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $25,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of January 10, 2020. On May 28, 2019 this note was paid in full.

 

Page 17 of 42

 

 

On April 15, 2019 we received an advance from an un-related party for $40,000, this advance has no interest rate or repayment terms.

 

Convertible notes

 

On September 6, 2016, we entered into a one-year convertible note payable for $87,500, which accrues interest at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion. On December 16, 2016 we issued 1,200,000 shares of common stock at $.0031 for a partial conversion of this note in the amount of $3,696. January 4, 2018, we issued 2,300,000 shares of common stock at $.002192 for a partial conversion of this note in the amount of $5,042.

 

On November 2, 2016, we effected the repayment of the convertible note dated March 15, 2016 for an aggregate amount of $84,000. Concurrently, we entered into an Escrow Funding Agreement with Red Dot Investment, Inc., a California corporation (“Reddot”), pursuant to which Reddot deposited funds into escrow to fund the repayment and we assigned to Reddot our right to acquire the convertible note and Reddot acquired the convertible note. Concurrently, we and Reddot amended the convertible note (a) to have a fixed conversion price of $.005 per share, subject to potential further adjustment in the event of certain Common Stock issuances, (b) to have a fixed interest rate of ten percent (10%) per annum with respect to both the redemption amount and including a financing fee and any costs, expenses, or other fees relating to the convertible note or its enforcement and collection, and any other expense for or on our account (in each case with a minimum 10% yield in the event of payoff or conversion within the first year), such amounts to constitute additional principal under the convertible note, as amended, and (c) as otherwise provided in the Escrow Funding Agreement. The March 2016 convertible note, as so amended, is referred to as the “Master Note.”

 

On January 9, 2017, we effected the partial repayment of the convertible note dated July 6, 2016. The holder had elected to convert $15,400 ($11,544 in principal and $3,855 in accrued interest) into a total of 7,000,000 shares of Common Stock. The conversion left $66,205 remaining due and payable under the July 2016 convertible note and we paid the note holder a total of $89,401 in repayment. On January 12, 2017, we effected the partial repayment of the convertible note dated September 6, 2016. The holder had elected to retain $26,117 (consisting of $24,228 in principal and $1,899 in interest), leaving $60,941 remaining due and payable under the September 2016 convertible note, which was satisfied and canceled in consideration of the payment to the note holder of $97,506. On January 9, 2017, we effected the repayment in full of the convertible note dated August 12, 2016 through payment to the note holder of a total of $89,401.

 

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.

 

The foregoing summary descriptions of the Escrow Funding Agreement (including amendments to the Master Note), the Settlement Agreement, and the Credit Agreement are not complete and are qualified in their entirety by reference to the full texts thereof, copies of which were included as Exhibits 10.02 to our Current Report on Form 8-K dated October 31, 2016 and to Exhibits 10.01 and 10.02 to our Current Report on Form 8-K dated January 4, 2016. The foregoing summary description of the original Master Note is not complete and is qualified in its entirety by reference to the full text thereof, a copy of which was included as Exhibit 10.03 to our Current Report on Form 8-K dated October 31, 2016.

 

Page 18 of 42

 

 

On May 5, 2017 we entered into a nine-month convertible note payable for $78,000, which accrues interest at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of sixty one percent (61%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. On November 6, 2017 this note was assumed and paid in full at a premium for a total of $116,600 by Cybernaut Zfounder Ventures. An amended term were added to the original note with the interest rate of 14%. This note matured on February 21st of 2018 and is currently in default.

 

On May 24, 2017 we entered into a nine-month convertible note payable for $32,000, which accrues interest at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of fifty-five eight percent (58%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. On November 6, 2017 this note was assumed and paid in full at a premium for a total of $95,685, by Cybernaut Zfounder Ventures. An amended term was added to the original note with the interest rate of 14%. This note matured on February 26th, 2018 and is currently in default.

 

On August 17, 2017 we entered into a convertible note payable for $68,000, with a maturity date of May 30, 2018, which accrues interest at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of fifty-eight percent (58%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. This note was paid in full on February 15, 2018

 

On July 25, 2017 we entered into a convertible note payable for $103,000, with a maturity date of April 25, 2018, which accrues interest at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of sixty percent (60%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion. This note was paid in full on February 15, 2018

 

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 $939,500 with an interest rate of 10% per annum interest rate and a maturity date of February 13, 2020. The CVL Note is convertible into shares of Common Stock at $0.003 per share, as adjusted as provided therein. As a result we recognized a beneficial conversion feature of $532,383, which is amortized over the life of the note. This note was assigned to Mgw Investments and they agreed not to convert the $939,500 note in to shares in excess of the 800,000,000 Authorized limit until we have increased the Authorized shares to the Board approved limit of 2 billion shares.

 

On February 8, 2018 the Corporation entered a Convertible Promissory Note in the principal amount of $153,123, due October 8, 2018, with an interest rate of 12% per annum payable to MGWI (the “MGWI Note”). The MGWI Note is convertible into shares of the Corporation’s common stock at the lower of: (i) a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of a Conversion Notice; or (ii) 0.003. As a result of the closing of the transactions contemplated by the Stock Purchase Agreement and Convertible Note Purchase Agreement, the MGWI Note must be redeemed by the Corporation in an amount that will permit CVL and MGWI and their affiliates to hold 65% of the issued and outstanding Common Stock of the Corporation on a fully diluted basis. The proceeds from the MGWI Note were used to redeem the convertible note of the Corporation to JSJ Investments, Inc. in the principal amount of $103,000 with an interest rate of 12% per annum, due April 25, 2018. At December 31, 2018 the holder of this note beneficially owned 70% of the company and this note is not convertible if the holder holds more than 9.99%, as a result, we did not recognize a derivative liability or a beneficial conversion feature.

 

Page 19 of 42

 

 

On December 13, 2018 we entered into a convertible note payable for $83,000, with a maturity date of December 13, 2019, which accrues interest at the rate of 12% per annum. It is convertible nine months after its issuance and has a conversion rate of fifty-eight percent (65%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. On May 28, 2019 this note was paid in full.

 

February 13, 2019 we entered into a convertible note payable for $138,000, with a maturity date of February 13, 2020, which accrues interest at the rate of 12% per annum. It is convertible nine months after its issuance and has a conversion rate of sixty-five percent (65%) of the average of the two lowest closing prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion.

 

On January 10, 2019 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $25,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of January 10, 2020. On May 28, 2019 this note was paid in full.

 

On April 9, 2019 we entered into a convertible note payable for $53,000, with a maturity date of April 9, 2020, which accrues interest at the rate of 12% per annum. It is convertible nine months after its issuance and has a conversion rate of sixty-five percent (65%) of the average of the two lowest closing prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. Subsequently that note was paid in full on October 10, 2019

 

Note 9 – 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 of 99% and a risk-free interest rate of 1.78% The remaining derivative liabilities were:

 

Derivative Liabilities on Convertible Loans:

 

    September 30, 2019     December 31, 2018  
             
Outstanding Balance   $ 253,781     $ 245,988  

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

The company has received an invoice from Oberon Securities for $291,767 which is in dispute. The company believes it has defenses to the claim for compensation and plans to assert appropriate counterclaims and actions as permitted by law. No liability has been recorded for this claim as the Company believes there is a greater than not probability that our Company will prevail in defending against the claim.

 

Page 20 of 42

 

 

Operating Rental Leases

 

On March 10, 2016, we signed a lease agreement for a 18,200 square-foot CTU Industrial Building at 2990 Redhill Unit A, Costa Mesa, CA. The lease term at the new facility is seven years and two months beginning October 1, 2016. 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 ended December 31, as follows:

 

 

 

Year   Lease Payments  
2019   $ 50,935  
2020   $ 241,884  
2021   $ 249,132  
2022   $ 256,608  
2023   $ 176,208  

Total Lease Payments

  $

974,767

 

Imputed Interest

  $

(94,998

)
Lease Liability   $

879,769

 

 

Our Rent expense including common area maintenance for the three months ended September 30, 2019 and 2018 was $80,863 and $68,346 respectively and for the nine months ended September 30, 2019 and 2018 was $243,715 and $207,671 respectively.

 

Per FASB 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. We have recorded a right of use asset of $872,817 and a corresponding lease liability of $879,769. the Company utilized the modified retrospective approach upon adoption and disclose the total lease asset/liability of 972,123 and 972,123. Also note that the Company has elected to utilize the available practical expedient packages which allows for usage of the historical lease classifications for leases existing at the transition date, and no material transition adjustments were recognized. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the term of the lease. We utilized a 5% discount rate and was calculated using the average of our standard borrowing rate.

 

Severance Benefits

 

Effective at December 31, 2018, Mr. Bennett, was entitled to receive in the event of his termination without cause a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Bennett would have been entitled to receive through the remainder of his employment period or two (2) years, whichever is greater.

 

NOTE 11 – 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 200,000,000 and designated a par value of $.001 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 15,000 authorized shares.

 

On June 30, 2017, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 400,000,000 and in the number of our authorized preferred shares to 10,000,000. 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 800,000,000. The amendment effecting the increase in our authorized capital was filed and effective on August 23, 2018

 

On April 30, 2019, by written consent, in lieu of a meeting of the stockholders; our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 2,000,000,000. The amendment effecting the increase in our authorized capital was filed and effective on July 23, 2019

 

Common Stock Transactions

 

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 $907,377 in exchange for the issuance of 302,462,667 restricted shares of the Corporation’s common stock, par value $.001 per share (the “Common Stock”), as disclosed on form 8K on February 15, 2018.

 

Page 21 of 42

 

 

From January 1 through September 30, 2018 we issued 26,054,672 for partial conversions of our convertible notes. We also issued 13,800,000 shares for additional compensation and 1,500,000 for consulting services.

 

On October 9, 2018 we issued 884,195 shares @ .04 for payment of an accounts payable in the amount of $35,367.

 

On February 13, 2019 we issued 20,000,000 @ $.0131 to Kambiz Mahdi our CEO as additional compensation accrued for in 2018 in the amount of $262,000.

 

In the first quarter of 2019, we signed agreements to issue 4,000,000 shares of common stock valued at $.015 for a total value of $60,000 for the conversion of 800 preferred series D shares , which were subsequently issued. We also recorded a $60,000 inducement fee to account for the difference in the fair value which we offset to retained earnings.

 

On May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a “Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200, or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”) and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock was issued to MGWI on August 15, 2019. The Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

During the quarter ended June 30, 2019 we returned 75,000 from an administrative hold due to the fact that we cannot locate the recipients to the replaced shares.

 

On June 10, 2019 we sold 500,00 units for for cash at $.02 per unit to an accredited investor for an aggregate price of $10,000 in a private sale. Each unit consist of one share of common stock and one warrant to purchase one share of common stock exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

On July 18, 2019 we sold 500,00 units for for cash at $.02 per unit to an accredited investor for an aggregate price of $10,000 in a private sale. Each unit consist of one share of common stock and one warrant to purchase one share of common stock exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

On September 19, 2019 we entered into a stock purchase agreement for 250,00 units for cash at $.02 per unit to an accredited investor for an aggregate price of $5,000 in a private sale. Each unit consist of one share of common stock and one warrant to purchase one share of common stock exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement. The shares were included in the shares to be issued as of September 30, 2019 and were subsequently issued on October 15, 2019.

 

Common Stock

 

Our Articles of Incorporation authorize us to issue 2,000,000,000 shares of common stock, par value $0.001 per share. As of September 30, 2019, there were 748,657,656 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.

 

Page 22 of 42

 

 

Preferred Stock

 

Our Articles of Incorporation authorize us to issue 10,000,000 shares of preferred stock, par value $0.001 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 440 shares of Series A Convertible Preferred Stock, 20,000 shares of Series B Convertible Preferred Stock, and 15,000 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 Board of Directors designated a series of our preferred stock as Series D Preferred Stock, authorizing 15,000 shares. Our Series D Preferred Stock offering terms authorized us to raise up to $1,000,000 with an over-allotment of $500,000 in multiple closings over the course of nine months. We received an aggregate of $750,000 in financing in subscription for Series D Preferred Stock, or 7,500 shares.

 

The following are primary terms of the Series D Preferred Stock. The Series D Preferred holders were initially entitled to be paid a special monthly divided at the rate of 17.5% per annum. Initially, the Series D Preferred Stock was also entitled to be paid special dividends in the event cash dividends were not paid when scheduled. If the Company does not pay the dividend within five (5) business days from the end of the calendar month for which the payment of such dividend to owed, the Company will pay the investor a special dividend of an additional 3.5%. Any unpaid or accrued special dividends will be paid upon a liquidation or redemption. For any other dividends or distributions, the Series D Preferred Stock participates with common stock on an as-converted basis. The Series D Preferred holders may elect to convert the Series D Preferred Stock, in their sole discretion, at any time after a one year (1) year holding period, by sending the Company a notice to convert. The conversion rate is equal to the greater of $0.08 or a 20% discount to the average of the three (3) lowest closing market prices of the common stock during the ten (10) trading day period prior to conversion. The Series D Preferred Stock is redeemable from funds legally available for distribution at the option of the individual holders of the Series D Preferred Stock commencing any time after the one (1) year period from the offering closing at a price equal to the initial purchase price plus all accrued but unpaid dividends, provided, that if the Company gave notice to the investors that it was not in a financial position to redeem the Series D Preferred, the Company and the Series D Preferred holders are obligated to negotiate in good faith for an extension of the redemption period. The Company timely notified the investors that it was not in a financial position to redeem the Series D Preferred and the Company and the investors have engaged in ongoing negotiations to determine an appropriate extension period. The Company may elect to redeem the Series D Preferred Stock any time at a price equal to initial purchase price plus all accrued but unpaid dividends, subject to the investors’ right to convert, by providing written notice about its intent to redeem. Each investor has the right to convert the Series D Preferred Stock at least ten (10) days prior to such redemption by the Company.

 

In connection with the subscriptions for the Series D Preferred, we issued series F warrants to purchase an aggregate of 375,000 shares of our common stock at $.10 per share and series G warrants to purchase an aggregate of 375,000 shares of our common stock at $.20 per share.

 

Page 23 of 42

 

 

On August 21, 2014, a holder holding 5,000 shares of Preferred Series D Preferred agreed to lower the dividend rate to 13% on its Series D Preferred. In September 2015, all holders of Series D Preferred signed and delivered estoppel agreements, whereby the holders agreed, among other things, that the Series D Preferred was not in default and to reduce (effective as of December 31, 2015) the dividend rate on the Series D Preferred Stock to nine percent per annum and to terminate the 3.5% penalty in respect of unpaid dividends accruing on or after such date.

 

In the first quarter of 2019, we signed agreements to issue 4,000,000 shares of common stock valued at $.015 for a total value of $60,000 for the conversion of 800 preferred series D shares, which were subsequently issued. We also recorded a $60,000 inducement fee to account for the difference in the fair value which we offset to retained earnings. We also reclassed 200 preferred valued at $20,000, which were previously recorded as converted preferred dividends.

 

Warrants

 

Warrant Activity

 

On May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a “Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200, or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”) and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock was issued to MGWI on August 15, 2019. The Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

On June 10, 2019 we sold 500,00 units for for cash at $.02 per unit to an accredited investor for an aggregate price of $10,000 in a private sale. Each unit consist of one share of common stock and one warrant to purchase one share of common stock exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

On July 18, 2019 we sold 500,00 units for for cash at $.02 per unit to an accredited investor for an aggregate price of $10,000 in a private sale. Each unit consist of one share of common stock and one warrant to purchase one share of common stock exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

Subsequently on October 15, 2019 we issued 250,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $250,000 in a private sale. We also issued 250,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

    Warrants - Common Share Equivalents     Weighted Average Exercise price     Warrants exercisable - Common Share Equivalents     Weighted Average Exercise price  
Outstanding December 31, 2018   -     $ -     -     $-  
Issued     169,000,000     $ 0.04       169,000,000     $ 0.04  
Exercised     -       -       -          
Expired     -       -       -       -  
Outstanding September 30, 2019     169,000,000     $ 0.04       169,000,000     $ 0.04  

 

Stock Options

 

As of September 30, 2019, and December 31, 2018 there were no outstanding stock options

 

Page 24 of 42

 

 

NOTE 12 – RELATED PARTY TRANSACTIONS

 

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. Our Board of Directors has approved the transactions between Billet Electronics and the Company.

 

On September 15, 2017 Meddy Sahebi Chairman of our Board of Directors advanced the Company $5,000. There were no specified terms for repayment of this loan other than that it was to be repaid within a reasonable time. As of December 31, 2017, the outstanding balance was $5,000. Mr. Sahebi resigned from the board of directors on February 8, 2018 .

 

Pursuant to our 2017 Stock Compensation Program, effective July 1, 2017, we made the following stock option grants to members of our Board of Directors: (a) we issued to each of our non-employee members of our Board of Directors first joining the Board in October 2015 and who had not received any compensation for serving as directors of the Company (five persons) options to purchase 150,000 shares of our common stock with an exercise price of $.03 per share, the last sale price of our common stock on September 29, 2017 and (b) we issued to each of our non-employee members of our Board of Directors currently serving on the Board (nine persons) options to purchase 300,000 shares of our common stock with an exercise price of $.03 per share. On the non-employee board members resigned, as disclosed in our 8K filed on February 15, 2018. As a result, all remaining stock options were cancelled.

 

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 $939,500 with an interest rate of 10% per annum interest rate and a maturity date of February 13, 2020. The CVL Note is convertible into shares of Common Stock at $0.003 per share, as adjusted as provided therein. As a result we recognized a beneficial conversion feature of $532,383, which is amortized over the life of the note. This note was assigned to Mgw Investments and they agreed not to convert the $939,500 note in to shares in excess of the 800,000,000 Authorized limit until we have increased the Authorized shares to the Board approved limit of 2 billion shares.

 

On February 8, 2018 the Corporation entered a Convertible Promissory Note in the principal amount of $153,123, due October 8, 2018, with an interest rate of 12% per annum payable to MGWI (the “MGWI Note”). The MGWI Note is convertible into shares of the Corporation’s common stock at the lower of: (i) a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of a Conversion Notice; or (ii) 0.003. As a result of the closing of the transactions contemplated by the Stock Purchase Agreement and Convertible Note Purchase Agreement, the MGWI Note must be redeemed by the Corporation in an amount that will permit CVL and MGWI and their affiliates to hold 65% of the issued and outstanding Common Stock of the Corporation on a fully diluted basis. The proceeds from the MGWI Note were used to redeem the convertible note of the Corporation to JSJ Investments, Inc. in the principal amount of $103,000 with an interest rate of 12% per annum, due April 25, 2018. At December 31, 2018 the holder of this note beneficially owned 70% of the company and this note is not convertible if the holder holds more than 9.99%, as a result, we did not recognize a derivative liability or a beneficial conversion feature.

 

On September 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $250,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of September 21, 2019. On May 28, 2019 this note was paid in full.

 

On September 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $100,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of September 21, 2019. On May 28, 2019 this note was paid in full.

 

On February 15, 2018 we issued 9,200,000 @ .0053 as additional compensation in the amount of $48,760.

 

Page 25 of 42

 

 

On October 18, 2018 we entered into a 1 year employment agreement with Kambiz Mahdi our CEO, as part of the agreement Mr. Mahdi was to be issued 20,000,000 shares of our common stock, as additional compensation. As a result; for the year ended December 31, 2018 we accrued for and subsequently on February 13, 2019, issued 20,000,000 shares @ $.0131 to Mr. Mahdi in the amount of $262,000.

 

On May 1, 2019 we entered into an employment agreement with Mr. Bennett, with an annual salary of $175,000

 

On January 10, 2019 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $25,000, with an interest rate of Eight Percent (8%) per annum and a maturity date of January 10, 2020. On May 28, 2019 this note was paid in full.

 

On May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a “Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200, or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”) and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock was issued to MGWI on August 15, 2019. The Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

Note 13 - Warranty Liability

 

There was no change in our warranty liability for the three and three months ended September 30, 2019.

 

Our policy is to accrue 2% of revenue for warranty liability, however our experience has been low due to the claim experience that we feel that the current warranty accrual is reasonable.

 

NOTE 14 – SUBSEQUENT EVENTS

 

On October 30, 2019 we entered into a convertible note payable for $103,000, with a maturity date of October 30, 2020, which accrues interest at the rate of 12% per annum. It is convertible nine months after its issuance and has a conversion rate of sixty-five percent (65%) of the average of the two lowest closing prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. We also entered into a stock purchase agreement for the potential conversion into common stock

 

On September 19 , 2019 we entered into a stock purchase agreement for 250,00 units for cash at $.02 per unit to an accredited investor for an aggregate price of $5,000 in a private sale. Each unit consist of one share of common stock and one warrant to purchase one share of common stock exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement. The shares were included in the shares to be issued as of September 30, 2019 and were subsequently issued on October 15, 2019.

 

In accordance with ASC 855, the Company has analyzed its operations subsequent to September 30, 2019 through the date these financial statements were issued, and has determined that it does not have any other material subsequent events to disclose in these financial statements.

 

Page 26 of 42

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION

 

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.

 

Description of the Company

 

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 contract manufacturing electronics services to original equipment manufacturers (OEMs) of 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.

 

The Company has three reportable segments: Clean Energy HRS (HRS), Cety Europe and the legacy electronic contract manufacturing services (Electronic Assembly) 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.

 

Page 27 of 42

 

 

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

 

Clean Energy HRS (HRS)

 

We design, build and deliver power from industrial heating systems and biomass sources to produce environmentally friendly energy at competitive prices using our Clean CycleTM heat generators acquired from General Electric International. Our initial principal product is the Clean CycleTM heat generator, offered through our wholly owned subsidiary Heat Recovery Solutions, (HRS). The Clean CycleTM generator captures waste heat from a variety of sources and turns it into electricity. By using our Clean CycleTM generator commercial and industrial heat generators boost their overall energy efficiency and the savings created provide our customers with a fast return on their investment. The Clean CycleTM saves fuel, reduces pollution and requires very little maintenance. Please see a more detailed discussion of the products and services in the Clean Energy HRS Products and services overview

 

business overview below.

 

Cety Europe

 

CETY Europe Sales and Service Center is the Sales, warranty and service company for CETY’s Clean Cycle™ Heat Recovery Solutions (HRS) and includes a 24/7 Call Center, support Field Service Personnel, including remote access to the Waste Heat Generators and inventory spare parts to support the currently commissioned 65 Clean CycleTM installations in Europe. The service center also provides support services for new European sales. CETY has identified substantial unmet market needs in many European countries including the United Kingdom, Germany, Italy, Ukraine, Croatia, Slovakia, Slovenia, Austria, Belarus and the Czech Republic. Cety Europe will sell and distribute the Clean CycleTM Waste Heat Generators and replacement parts from the Clean Energy HRS line of products. The CETY Europe Sales and Service Center will be well suited to handle any warranty and/or service issues, as well as sell and distribute the Clean energy HRS line of products. Cety Europe has 1 employee.

 

Electronic Assembly

 

The Electronic assembly business was our core legacy business until we acquired the Heat Recovery Solutions technology and business assets from GE. We consolidated the Probe Manufacturing (Electronic Assembly), now named Clean Energy Technologies, Inc with the Clean Energy HRS, LLC. in order to support a few legacy electronics assembly customers and support the electronics manufacturing portion of our newly acquired technology from General Electric by Clean Energy HRS, LLC. Although this is not our core focus nor do we intend to grow this segment, we still derive a revenue stream to help offset a portion of the overhead. This segment provides contract manufacturing services of electronic printed circuit board assemblies to customers in the medical and aerospace industries. The services provided are contract in nature and are built the customers specification. They supply the design and component specifications. We purchase the components and solder the components to the bare printed circuit boards.

 

Page 28 of 42

 

 

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 deficit of $4,998,754 and an accumulated deficit of $(13,886,994) and a working capital deficit of $6,328,712 and a net loss of $2,227,260 for the nine months ended September 30, 2019. Therefore, there is substantial 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.

 

Results of Operations

 

Results for the Three and Nine Months Ended September 30, 2019 Compared to the Three and Nine Months Ended September 30, 2018

 

Working Capital

 

    September 30, 2019     December 31, 2018  
             
Working Capital   $ (654,490 )   $ (6,170,618 )
Total Assets     3,850,519       2,818,119  
Long term Debt     682,714       -  
Stockholder Equity   $ (4,998,754 )   $ (4,795,694 )

 

Page 29 of 42

 

 

Cash Flows

 

Clean Energy Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30,

(unaudited)

 

    2019     2018  
Net Cash provided / (Used) In Operating Activities   $ (1,746,737 )   $ (1,247,074 )
Cash Flows Used In Investing Activities     6,000       -  
Cash Flows Provided / (used) By Financing Activities     1,926,136       1,268,164  
Net (Decrease) Increase in Cash and Cash Equivalents   $ 173,399     $ 21,090  

 

Capital Requirements for long-term Obligations

 

None.

 

Operating Revenues

 

The Company’s revenues were $126,546 for the three months ended September 30, 2019 compared to $532,137 for the same period in 2018. Our revenue decrease was mainly due to the decrease in the sales revenue in our HRS Division.

 

The Company has three reportable segments: Clean Energy HRS (HRS), Cety Europe and the legacy electronic contract manufacturing services division (Electronic Assembly).

 

Segment breakdown

 

For the three months ended September 30, 2019, our revenue from Electronic Assembly was $118,699 compared to $164,757 for the same period in 2018, The decrease was mainly due to a decrease in sales from 3 customers in 2018 to 1 in 2019.

 

For the three months ended September 30, 2019, our revenue from HRS was $0 compared to $367,380 for the same period in 2018. The decrease in revenue from the HRS segment was mainly due to the fact that in 2018 we shipped 1 HRS unit and in 2019 we shipped no HRS units only parts and service.

 

For the three months ended September 30, 2019, our revenue from Cety Europe was $7,847 compared to $0 for the same period in 2017. The increase in revenue was due to the fact that this segment became operational in the 4th quarter of 2018

 

The Company’s revenues were $455,007 for the Nine months ended September 30, 2019 compared to $1,243,630 for the same period in 2018. Our revenue decrease was mainly due to the decrease in the sales revenue in our HRS Division.

 

Segment breakdown

 

For the Nine months ended September 30, 2019, our revenue from Electronic Assembly was $344,905 compared to $484,156 for the same period in 2018, The decrease was mainly due to a decrease in sales to 2 of our customers.

 

Page 30 of 42

 

 

For the Nine months ended September 30, 2019, our revenue from HRS was $46,662 compared to $759,474 for the same period in 2017. The decrease in revenue from the HRS segment was mainly due to the fact that in 2018 we shipped 2 HRS unit and in 2019 we shipped no HRS units only parts and service.

 

For the Nine months ended September 30, 2019, our revenue from Cety Europe was $64,035 compared to $0 for the same period in 2018. The increase in revenue was due to the fact that this segment became operational in the 4th quarter of 2018.

 

Although we had orders due to ship in the second Nine months ended September 30, 2019, our customer reconfigured their requirement

 

Gross Profit

 

For the three months ended September 30, 2019, the Company’s gross profit was $45,185 compared to $305,581 for the same period in 2018. This decrease was mainly due to the decrease in the sales revenue referenced above.

 

Segment breakdown

 

For the three months ended September 30, 2019, our gross profit from Electronic Assembly was $39,594 compared to $51,088 for the same period in 2018. The decrease was mainly due to the decrease in the sales of 2 of our customers 1 of which has historically had higher profit margins.

 

For the three months ended September 30, 2019, our gross profit from HRS was $0 compared to $254,593 for the same period in 2018. The decrease in gross profit from the HRS segment was mainly due to the fact that in 2018 we shipped 1 HRS unit and in 2019 we shipped no HRS units only parts and service.

 

For the three months ended September 30, 2019, our gross profit from Cety Europe was $5,591 compared to $0 for the same period in 2017. The increase in gross profit was due to the fact that this segment became operational in the 4th quarter of 2018

 

For the Nine ended September 30, 2019, the Company’s gross profit was $162,484 compared to $684,116 for the same period in 2018. This decrease was mainly due to the decrease in the sales revenue referenced above.

 

Our gross profits could vary from period to period and is affected by several factors, including product mix, production efficiencies, component availability and costs, pricing, competition, customer requirements and unanticipated restructuring or inventory charges and potential scrap of materials.

 

Segment breakdown

 

For the Nine months ended September 30, 2019, our gross profit from Electronic Assembly was $78,414 compared to $99,817 for the same period in 2018. The decrease was mainly due to the decrease in the sales of 2 of our customers 1 of which has historically had higher profit margins.

 

For the Nine months ended September 30, 2019, our gross profit from HRS was $37,463 compared to $584,299 for the same period in 2018. The decrease in gross profit from the HRS segment was mainly due to the fact that in 2018 we shipped 1 HRS unit and in 2019 we shipped no HRS units only parts and service.

 

For the Nine months ended September 30, 2019, our gross profit from Cety Europe was $46,707 compared to $0 for the same period in 2017. The increase in gross profit was due to the fact that this segment became operational in the 4th quarter of 2018

 

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General and Administrative Expenses

 

For the three months ended September 30, 2019, general and administrative expenses were $130,940 compared to $98,909 for the same period in 2018. This increase was mainly due to and increase in freight and replacement parts needed to commission the Marshal Island project.

 

For the nine months ended September 30, 2019, general and administrative expenses were $330,788 compared to $302,349 for the same period in 2018. This increase was mainly due to and increase in freight and replacement parts needed to commission the Marshal Island project.

 

Salaries Expense

 

For the three months ended September 30, 2019, Salaries expenses were $209,954 Compared to $192,409 for the same period in 2018. This increase was mainly due to the additional salary from the startup of the Cety Europe Division. In addition, we added a person to the procurement department.

 

For the nine months ended September 30, 2019, Salaries expenses were $617,821 Com5ared to $541,134 for the same period in 2018. This increase was mainly due to the additional salary from the startup of the Cety Europe Division. In addition, we added a person to the procurement department.

 

Professional Fees

 

For the three months ended September 30, 2019, professional fees expenses were $28,186 Compared to $20,786 for the same period in 2018. This increase is mainly due to the increase in legal fees in the 3rd quarter.

 

For the nine months ended September 30, 2019, professional fees were $98,871 Compared to $108,844 for the same period in 2018. This decrease was mainly due to the legal fees associated with Megawell transaction in February of 2018.

 

Travel expense

 

For the three months ended September 30, 2019, Travel Expense expenses were $113,492, Compared to $130,301 for the same period in 2018. This increase was mainly due to travel expenses associated with the commissioning of the Marshal Island project and additional travel to Europe and Asia for additional business development.

 

For the nine months ended September 30, 2019, Travel expenses were $199,599 Compared to $66,969 for the same period in 2018. This increase was mainly due to travel expenses associated with the commissioning of the Marshal Island project and additional travel associated with the Cety Europe subsidiary as well as additional travel to Europe and Asia for additional business development.

 

Consulting expense

 

For the three months ended September 30, 2019, Consulting Expense expenses were $34,475, Compared to $18,125 for the same period in 2018. This increase was mainly due to additional use of consultants for business development.

 

For the nine months ended September 30, 2019, Consulting Expense expenses were $42,800, Compared to $53,157 for the same period in 2018. This decrease was mainly due to higher use of consultants in the first half of 2018.

 

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Facility Expense

 

For the three months ended September 30, 2019, Facility expenses were $80,863 compared to $68,346 for the same period in 2018. The increase was mainly due to the increase in the contractual lease payments.

 

For the nine months ended September 30, 2019, Facility expenses were $243,715 compared to $207,671 for the same period in 2018. The increase was mainly due to the increase in the contractual lease payments

 

Share based expense

 

For the three months ended September 30, 2019, share based expenses were $0 compared to $0 for the same period in 2018.

 

For the nine months ended September 30, 2019, share based expenses were $0 compared to $91,140 for the same period in 2018. The main reason for the change was no shares were issued for compensation in the nine months ended September 30, 2019.

 

Change in Derivative Liability

 

For the three months ended September 30, 2019, we had a gain on derivative liability of $290,741 compared to $221,395 for the same period in 2018.

 

For the nine months ended September 30, 2019, we had a gain on derivative liability of $185,811 compared to $5,058 for the same period in 2018.

 

Gain/(Loss) on disposition of assets

 

For the three months ended September 30, 2019, we had a loss on disposition of assets of $0 compared to $0 for the same period in 2018.

 

For the nine months ended September 30, 2019, we had a loss on disposition of assets of $0 compared to $7,456 for the same period in 2018. The main reason for the change is we did not dispose of any assets in the nine months ended September 30, 2019.

 

Financing Fees

 

For the three months ended September 30, 2019, we had a financing fees of $0 compared to $0 for the same period in 2018.

 

For the nine months ended September 30, 2019, we had a financing fees of $0 compared to $378,155 for the same period in 2018. This was mainly due to the discount taken on the conversion of our convertible notes into common stock during the three months of 2018.

 

Interest Expense

 

For the three months ended September 30, 2019, Interest expenses were $396,704 compared to $253,482 for the same period in 2018. This was mainly due to the increase in our notes and lines of credit payable and the amortization of the debt discounts on the convertible notes.

 

For the nine months ended September 30, 2019, Interest expenses were $1,041,961compared to $713,994 for the same period in 2018. This was mainly due to the increase in our notes and lines of credit payable and the amortization of the debt discounts on the convertible notes.

 

Page 33 of 42

 

 

.Net Income (loss)

 

Our net loss for the three months ended September 30, 2019, was $658,688 compared with net loss of $155,382 for the three months ended September 30, 2018. The net loss is influenced by the matters discussed above.

 

Our net loss for the nine months ended September 30, 2019, was $2,227,260 compared with net loss of $1,766,783 for the three months ended September 30, 2018. The net loss is influenced by the matters discussed above.

 

Liquidity and Capital Resources

 

The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by related parties through capital investment and borrowing of funds.

 

At September 30, 2019, the Company had total current assets of $1,837,847 compared to $1,443,195 at December 31, 2018.

 

At September 30, 2019, the Company had total current liabilities of $8,166,559 compared to $7,613,813 at December 31, 2018.

 

We had working capital deficit of $6,328,712 as of September 30, 2019 compared to $6,170,618 as of December 31, 2018,

 

Cashflow from Operating Activities

 

During the nine months ended September 30, 2019, cash provided by (used in) operating activities was $(1,746,737) compared to $(1,247,074) for the three months ended September 30, 2018.

 

Cashflow from Investing Activities

 

During the nine months ended September 30, 2019 cash used in investing activities was $6,000 compared to $0 for the nine months ended September 30, 2018.

 

Cashflow from Financing Activities

 

During the nine months ended September 30, 2019, cash provided by financing activity was $1,926,136 compared to $1,268,164 provided during the nine months ended September 30, 2018.

 

Off-Balance Sheet Arrangements

 

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.

 

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.

 

Page 34 of 42

 

 

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.

 

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 3. Quantitative and Qualitative Disclosure 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.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2019, due to the material weaknesses resulting from the Board of Directors not currently having any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Please refer to our Annual Report on Form 10-K as filed with the SEC on April 15, 2019, for a complete discussion relating to the foregoing evaluation of Disclosures and Procedures.

 

Changes in Internal Control over Financial Reporting

 

Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.

 

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.

 

Page 35 of 42

 

 

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, 2018.

 

Item 2. Unregistered Sales of Equity Securities

 

On February 13, 2018, Clean Energy Technologies, Inc., entered into a Common Stock Purchase Agreement (“Stock Purchase Agreement”) by and between MGW Investment I Limited (“MGWI”) and the Corporation. The Corporation received $907,377 in exchange for the issuance of 302,462,667 restricted shares of the Corporation’s common stock, par value $.001 per share (the “Common Stock”).

 

On May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a “Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200, or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”) and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such time as the Company increases the number of shares of its authorized Common Stock. The Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

On September 10, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000 in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

On July 18, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000 in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

Subsequently on October 15, 2019 we issued 250,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $250,000 in a private sale. We also issued 250,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of Common Stock and expires one year from the date of the Agreement.

 

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

 

Item 3. Defaults upon Senior Securities

 

We are currently in default on the payment of $1,200,000, to the balance of the purchase price pursuant to our asset purchase agreement with General Electric International, due to a combination of our inability to raise sufficient capital as expected and our belief that we are entitled to a reduction in purchase price we paid.

 

We are also in default of $187,285 payments of principal and interest on our notes payable to Cybernaut Zfounder Ventures.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

Page 36 of 42

 

 

Item 6. Exhibits

 

The exhibit listed on the Exhibit Index (following the signatures section of this Nine months ended September 30, 2019 Report on Form 10-Q are included, or incorporated by reference, in this Nine months ended September 30, 2019 Report on Form 10-Q.

 

EXHIBIT NUMBER

  DESCRIPTION  
31.01   Certification of Principal Executive Officer Pursuant to Rule 13a-14 Filed herewith.
31.02   Certification of Principal Financial Officer Pursuant to Rule 13a-14 Filed herewith.
32.01   Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act Filed herewith.
32.02   Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act Filed herewith.
101.INS*   XBRL Instance Document Furnished herewith.
101.SCH*   XBRL Taxonomy Extension Schema Document Furnished herewith.
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document Furnished herewith.
101.LAB*   XBRL Taxonomy Extension Labels Linkbase Document Furnished herewith.
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document Furnished herewith.
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document Furnished herewith.

 

*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

Page 37 of 42

 

 

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 14th day of November, 2019.

 

Clean Energy Technologies, Inc.  
     
REGISTRANT  
     
  /s/ Kambiz Mahdi  
By: Kambiz Mahdi  
  Chief Executive Officer  
     
Date: November 14, 2019  
     
  /s/ John Bennett  
By: John Bennett  
  Chief Financial Officer  
     
Date: November 14, 2019  

 

Page 38 of 42

 

 

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
  (principal executive officer)    
       
By: Kambiz Mahdi    
       
Date: November 14, 2019    

 

Page 39 of 42

 

 

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