Filed pursuant to Rule 424 (b)(4)
Registration No. 333-266078
CLEAN ENERGY TECHNOLOGIES,
INC.
975,000 Shares of
Common Stock
We
are offering to sell up to 975,000 shares of our common stock, $0.001 par value per share (“Common Stock”), in
a firm commitment underwritten offering (the “Underwritten Offering”). The initial public offering price per share is
$4.00 per share. We have received the approval letter from Nasdaq Stock Market LLC (“Nasdaq”) to have our Common Stock listed
on the Nasdaq Capital Market under the symbol “CETY.” Our Common Stock will commence trading on March 23, 2023.
The
selling shareholders identified in this prospectus are offering an aggregate of 3,636,065 shares of our common stock, issuable
upon conversion of convertible promissory notes and exercise of common stock purchase warrants (the “Selling Shareholder Shares”)
held by such selling shareholders (the “Selling Shareholders Offering”). We will not receive any proceeds from the sale of
any shares by the selling shareholders.
INVESTING
IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. BEFORE MAKING ANY INVESTMENT DECISION, YOU SHOULD CAREFULLY REVIEW AND CONSIDER ALL
THE INFORMATION IN THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, INCLUDING THE RISKS AND UNCERTAINTIES DESCRIBED
UNDER “RISK FACTORS” BEGINNING ON PAGE 9.
The
Selling Shareholder Shares may be resold from time to time by the selling shareholders listed in the section titled “Selling Shareholders”
beginning on page 60.
The
selling shareholders, or their respective transferees, pledgees, donees or other successors-in-interest, may sell the Selling Shareholder
Shares through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately
negotiated prices. The selling shareholders may sell any, all or none of the securities offered by this prospectus, and we do not know
when or in what amount the selling shareholders may sell their Selling Shareholder Shares hereunder. We provide more information about how a selling shareholder may sell its Selling Shareholder Shares in the section
titled “Plan of Distribution” on page 64.
The
Underwritten Offering is being underwritten on a firm commitment basis. We have granted the underwriters an option to buy up to an
additional 146,250 shares of common stock to cover over-allotments. The underwriters may exercise this option at any time and from
time to time during the 45-day period from the date of this prospectus.
| |
Per Share | | |
Total | |
Public offering price | |
$ | 4.00 | | |
$ | 3,900,000 | |
Underwriting discounts and commissions(1)(2) | |
$ | 0.28 | | |
$ | 273,000 | |
Proceeds to us, before expenses | |
$ | 3.72 | | |
$ | 3,627,000 | |
(1)
We have agreed to reimburse the underwriter(s) for certain expenses. Underwriting discounts and commissions do not include a non-accountable
expense allowance equal to $100,000 payable to the underwriters at the closing. The underwriters will receive an underwriting discount
equal to 7.0% of the gross proceeds in this Underwritten Offering. In addition, we have agreed to pay up to a maximum of $200,000 of
accountable out-of-pocket expenses of the underwriters in connection with this Underwritten Offering, which includes the fees and expenses
of underwriters’ counsel. See “Underwriting” Section for more information.
(2)
We have also agreed to issue to Craft Capital Management LLC and R.F. Lafferty & Co., Inc. (the “Representatives”) warrants
to purchase up to an aggregate 33,637 of shares of our common stock (assuming the underwriters exercise the over-allotment option
in full). See “Underwriting” beginning on page 73 for additional information regarding these warrants and underwriting compensation
generally.
The
underwriter is obligated to take and pay for all the shares of common stock offered by this prospectus if the Underwritten Offering is
consummated.
We
have granted the underwriter a 45-day option to purchase up to an additional 146,250 shares of common stock from us at the public
offering price, to cover over-allotments, if any (such shares not to exceed, in the aggregate, 15% of the shares offered hereby).
The
underwriter expects to deliver the shares on or about March 27, 2023.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CRAFT
CAPITAL MANAGEMENT | |
R.F.
Lafferty & Co., Inc. LLC |
| |
NINETH ETERNITY CAPITAL
HK LIMITED |
The
date of this prospectus is March 22, 2023.
TABLE
OF CONTENTS
You
should rely only on the information contained in this prospectus. Neither we, the underwriters, nor the selling shareholders have authorized
anyone to provide you with different information. We and the selling shareholders are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock. Our
business, financial condition, operating results and prospects may have changed since that date.
We
have relied on statistics provided by a variety of publicly-available sources. We did not, directly or indirectly, sponsor or participate
in the publication of such materials, and these materials are not incorporated in this registration statement other than to the extent
specifically cited herein. We have sought to provide current information in this registration statement and believe that the statistics
provided in this registration statement remain up-to-date and reliable, and these materials are not incorporated in this registration
statement other than to the extent specifically cited in this registration statement.
No
action is being taken in any jurisdiction outside the United States to permit a public offering of our shares or possession or distribution
of this prospectus in any such jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United
States are required to inform themselves about and to observe any restrictions as to the Underwritten Offering and Selling Shareholders
Offering and the distribution of this prospectus applicable to that jurisdiction.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider
in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including
our financial statements and the related notes and the information set forth under the headings “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in each case included elsewhere in this prospectus.
Unless
the context otherwise requires, references to “we,” “our,” “us,” or the “Company” in
this prospectus mean Clean Energy Technologies, Inc. on a consolidated basis with its wholly-owned subsidiaries.
Overview
We
develop renewable energy products and solutions and establish partnerships in renewable energy that make environmental and economic sense.
Our mission is to be a leader in the “Zero Emission Revolution” by offering recyclable energy solutions, clean energy fuels
and alternative electric power for small and mid-sized projects in North America, Europe, and Asia. We target sustainable energy solutions
that are profitable for us, profitable for our customers and represent the future of global energy production.
Waste
Heat Recovery Solutions – we recycle wasted heat produced in manufacturing, waste to energy and power generation facilities
using our patented Clean CycleTM generator to create electricity which can be recycled or sold to the grid.
Waste
to Energy Solutions - we convert waste products created in manufacturing, agriculture, wastewater treatment plants and other industries
to electricity, renewable natural gas (“RNG”), hydrogen and bio char which are sold or used by our customers.
Engineering,
Consulting and Project Management Solutions – we have expanded our legacy electronics and manufacturing business and plan to
manufacture component parts for our Waste Heat Recovery and Waste to Energy business and to provide consulting services to municipal
and industrial customers and Engineering, Procurement and Construction (EPC) companies so they can identify, design and incorporate clean
energy solutions in their projects.
CETY
HK
Clean Energy Technologies
(H.K.) Limited (“CETY HK”) consists of two business ventures in mainland China:(i) our natural gas (“NG”)
trading operations sourcing and suppling NG to industries and municipalities. The NG is principally used for heavy
truck refueling stations and urban or industrial users. We purchase large quantities of NG from large wholesale NG depots
at fixed prices which are prepaid for in advance at a discount to market. We sell the NG to our customers at prevailing daily
spot prices for the duration of the contracts; and (ii) our planned joint venture with a large state-owned gas enterprise in China called
Shenzhen Gas (Hong Kong) International Co. Ltd. (“Shenzhen Gas”), acquiring natural gas pipeline operator facilities, primarily
located in the southwestern part of China. Our planned joint venture with Shenzhen Gas plans to acquire, with financing
from Shenzhen Gas, natural gas pipeline operator facilities with the goal of aggregating and selling the facilities to Shenzhen Gas in
the future. According to our Framework Agreement with Shenzhen Gas, we will be required to contribute $8
million to the joint venture which plans to raise in future rounds of financing. The terms
of the joint venture are subject to the execution of definitive agreements.
Our
Business Strategy
Our
strategy is focused on further developing our existing Waste Heat Recovery business while expanding into the rapidly growing markets
for Waste to Energy Solutions and clean energy engineering, consulting and project management services.
Our
strategy focuses on three main elements:
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Expanding
our Waste Heat Recovery product line to include waste heat recovery ORC systems producing over 1 MW of power so we can qualify for
midsized and large heat recovery projects in the United States, China, Southeast Asian and other Pacific Rim countries. |
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Establishing
a Waste to Energy business by selling our ablative thermal processing products based on proprietary High Temperature Ablative Pyrolysis
(“HTAP”) technology and developing small and mid-sized waste to energy power plants producing electricity and RNG for
the grid and methane, hydrogen and biochar for resale. |
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Leveraging
our engineering, procurement and manufacturing experience in Waste Heat Recovery and Waste to Energy to assist companies and EPCs
incorporate clean energy solutions into energy and industrial construction projects. |
We
intend to implement this strategy through:
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● |
Adding
a new ORC system manufactured by Enertime for Waste Heat Recovery that will enable us to implement projects in the U.S. markets producing
between 1 MW and 10 MW of electricity. |
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Taking
advantage of federal investment tax credits and state incentives that now include waste heat recover as a recognized clean energy
source making our Clean Cycle Generator and ORC systems more profitable to install. On December 21, 2020, Congress passed the Consolidated
Appropriations Act, 2021 enacted waste energy recovery Sec. 48 Investment Tax Credit, which extended Investment Tax Credit of 26%
including Waste Heat to Power providing a dollar-for-dollar offset against current liability. In addition, Congress passed the
Inflation Reduction Act on August 16, 2022 which increased the investment tax credit to up to 40%. |
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Benefiting
from higher energy costs which provide higher returns on our Waste Heat Recovery and Waste to Energy products and projects. |
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Improving
our balance sheet and capital position to permit us to invest in more products and projects. |
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Establishing
HTAP manufacturing facilities in Turkey for our Waste to Energy products and developing new patent protection on the proprietary
technology. |
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Leveraging
our existing marketing channels to sell HTAP Waste to Energy products to industrial companies and government agencies. |
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Working
with clean energy project development and finance companies to establish Waste to Energy power plants producing electricity, RNG,
hydrogen, methane and biochar from biomass, municipal waste, timber waste and other biomass and while retaining an equity interest
in these facilities to provide re-occurring revenue. |
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Sourcing
NG and selling it to privately owned pipeline companies in China through our newly formed NG Trading company to participate in
the rapidly growing clean energy market. |
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Acquiring
natural gas pipeline operators into our planned joint venture with Shenzhen Gas who will hold 51% of the joint venture and agreed
to finance these acquisitions pursuant to a framework agreement. |
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Participate
in other minority investments in medium to large clean energy projects being developed in China that may be sourced by our majority
stockholder in Hong Kong. |
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● |
Leveraging
the NG trading and investment relationships to create opportunities for us to sell our Waste Recovery and Waste to Energy products
in China and to provide engineering, consulting and project management services. |
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● |
Expanding our NG trading operations in China by acquiring
more customers and developing the planned joint venture with Shenzhen Gas by acquiring natural gas pipeline operators’ facilities. |
Recent
Developments
On
January 18, 2023, the Company received approval from FINRA to conduct reverse stock split of the Company’s issued and outstanding
shares of common stock, par value $0.001 per share (the “Common Stock”), at a ratio of one (1) share of common stock for
every forty (40) shares of common stock (the “Reverse Stock Split”). The Company filed an Amendment to Articles of Incorporation
(the “Amendment”) with the Secretary of State of the State of Nevada to effectuate the Reverse Stock Split on January 9,
2023. On September 26, 2022, the Board of Directors of the Company and approximately 71% of the shareholders of the Company approved
a reverse stock split in the range of 1:10 – 1:125. On January 6, 2023, the reverse split ratio was fixed at 1:40, by the unanimous
vote of the Board of Directors and approval by approximately 71% of the Company’s shareholders. The Reverse Stock Split was effective
as of the opening of trading on January19, 2023 (the “Effective Time”) and the Company’s common stock continued trading
on the OTCQB market on a post-split basis when the market opened on January 19, 2023, under the symbol “CETYD” for approximately
20 days after which time the symbol reverted to “CETY.” Fractional shares were not issued and the final
numbers of shares were rounded up to the next whole share.
Company
History
We
were incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to Nevada in April 2005
under the name Probe Manufacturing, Inc. We manufactured electronics and provided services to original equipment manufacturers (OEMs)
of industrial, automotive, semiconductor, medical, communication, military, and high technology products. On September 11, 2015 Clean
Energy HRS, or “CE HRS”, our wholly owned subsidiary acquired the assets of Heat Recovery Solutions from General Electric
International. In November 2015, we changed our name to Clean Energy Technologies, Inc.
Our
Corporation and Subsidiaries
Listing
on the Nasdaq Capital Market
Our
common stock is currently quoted on the OTCQB under the symbol “CETY.” In connection with this Underwritten Offering, we
have received the approval letter from Nasdaq to have our Common Stock listed on the Nasdaq Capital Market under the symbol “CETY.”
Our Common Stock will commence trading on March 23, 2023.
Risk
Factors Summary
Our
business is subject to a number of risks. You should be aware of these risks before making an investment decision. These risks are discussed
more fully in the section of this registration statement titled “Risk Factors”. These risks include, among others, the following:
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● |
Our
independent accountants have issued a going concern opinion and if we cannot obtain additional financing and/or reduce our operating
costs sufficiently, we may have to curtail operations and may ultimately cease to exist. |
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Our
business, results of operations and financial condition may be adversely affected by public health epidemics, including the ongoing
coronavirus or covid-19. |
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We
have not made a payment under a material contract, which could result in adverse impacts on our operations and financial results. |
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We
operate in a highly competitive market. If we do not compete effectively, our prospects, operating results, and financial condition
could be adversely affected. |
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Our
international operations subject us to risks, which could adversely affect our operating results. |
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Our
sales and contract fulfillment cycles can be long, unpredictable and vary seasonally, which can cause significant variation in revenues
and profitability in a particular quarter. |
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The
implementation of our waste to energy joint ventures depends on us finding funding for the projects, which is not guaranteed. |
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Our
waste to energy products have not been tested in the United States and we will need to establish a highly sponsored program in
order to gain data and acceptance in the market. |
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If
the spot price of NG in China drops below the purchase price our traders negotiate with our suppliers, we may not be able to sell
our NG or may have to sell it at a loss. |
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Our
sales and profitability are dependent on the price of oil, natural gas and electricity, which has been significantly volatile recently. |
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We
have issued a substantial amount of convertible securities which if converted will substantially dilute all of our stockholders. |
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Our
operating results and share price may be volatile and the market price of our common stock after this offering may drop below the
price you pay. |
Corporate
Information
Our
principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626. Our telephone number is (949) 273-4990.
Our
internet website address is www.cetyinc.com and our subsidiary’s web site is www.heatrecoverysolutions.com. Information
on our websites is not incorporated by reference into this registration statement, and you should not consider information on our websites
to be part of this registration statement
THE
UNDERWRITTEN OFFERING AND SELLING SHAREHOLDERS OFFERING
Issuer |
|
Clean
Energy Technologies, Inc. |
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|
|
Common
stock outstanding prior to the Underwritten Offering and Selling Stockholders Offering |
|
37,211,738
shares |
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Common
stock offered by us in the Underwritten Offering |
|
975,000
shares of our common stock (1,121,250 shares if the underwriters exercise their over-allotment option in full). |
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Offering
price for shares sold in the Underwritten Offering |
|
$4.00 per share. |
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Over-allotment
option |
|
The
underwriters have an option for a period of 45 days to purchase up to 146,250 additional shares of our common stock (15% of
the number of shares sold in the Underwritten Offering) to cover over-allotments, if any, at the public offering price, less underwriting
discounts and commissions. |
|
|
|
Common
stock outstanding after completion of the Underwritten Offering (assuming none of the shares offered by the selling shareholders
in the Selling Shareholders Offering have been issued) |
|
38,186,738 shares (38,332,988 shares, if the underwriters
exercise their over-allotment option in full). |
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|
|
Common
stock offered by the selling shareholders in the Selling Shareholders Offering |
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2,905,558
shares, of our common stock issuable upon exercise
of outstanding convertible promissory notes held by certain of the selling shareholders, and 730,507 shares of our common
stock issuable upon exercise of outstanding warrants held by certain of the selling shareholders. |
|
|
|
Common
stock outstanding after the Selling Shareholders Offering (assuming all of the shares offered in the Underwritten Offering and Selling
Shareholders Offering have been issued and sold) |
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41,969,053,
if the underwriters exercise their over-allotment option in full. |
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Common
Stock issuable upon the exercise of Underwriter’s Warrants |
|
The
registration statement of which this prospectus is a part also registers for sale of common stock underlying warrants (the “Underwriter’s
Warrants”) to purchase 29,250 shares issuable to the Representatives), assuming no exercise of the over-allotment option by
the underwriters, which is equal to 3.0% of the number of shares sold in the Underwritten Offering, as a portion of the underwriting
compensation payable to the Representatives in connection with the Underwritten Offering. The Underwriter’s Warrants will be exercisable
at any time, and from time to time, in whole or in part, during the four and one-half year period commencing 180 days following the date
of commencement of sales of the Underwritten Offering at an exercise price of $5.00 per share (125.0% of the offering price per share
in the Underwritten Offering). |
Lock-up
Agreements |
|
We
and our directors, officers and certain principal shareholders have agreed with the Underwriter not to offer for sale, issue, sell,
contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for a period
of 90 days after the date of this prospectus. See “Underwriting – Lock-Up Agreements.” |
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Use
of proceeds |
|
We
intend to use the net proceeds from the Underwritten Offering after deducting the estimated
underwriting discounts and estimated offering expenses for sales and marketing activities,
product development, and capital expenditures, and we may also use a portion of the net proceeds
for the acquisition of, or investment in, technologies, solutions or businesses that complement
our business, and for working capital and general corporate purposes. See “Use of Proceeds”
on page 26 of this prospectus.
We
will not receive any proceeds from the sale of any shares by the selling shareholders in the Selling Shareholders Offering. |
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OTCQB
Symbol |
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CETY |
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Proposed
Nasdaq Symbol |
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CETY |
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Risk
factors |
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Investing
in our securities involves a high degree of risk. See “Risk Factors” beginning on page 9. |
Unless we indicate otherwise,
the number of shares of our common stock that will be outstanding immediately after the Underwritten Offering and the Selling Shareholders
Offering is based on 37,211,738 shares of common stock outstanding as of the date of this prospectus, excluding
|
(i) |
shares of common stock issuable upon the exercise of outstanding
common stock purchase warrants and the conversion of outstanding convertible notes; and |
|
(ii) |
29,250 shares of common stock underlying the warrants
to be issued to the Representatives in connection with this Underwritten Offering (33,637, if the underwriters exercise the
over-allotment option in full). |
Except
as otherwise indicated herein, all information in this prospectus assumes no exercise by the underwriter of its over-allotment option
to purchase additional shares.
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. Before investing in our common stock, you should carefully consider the risks described
below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes. In
addition, we may face additional risks and uncertainties not currently known to us, or which as of the date of this registration statement
we might not consider significant, which may adversely affect our business. If any of the following risks occur, our business, financial
condition and results of operations could be materially adversely affected. In such case the trading price of our common stock could
decline due to any of these risks or uncertainties, and you may lose part or all of your investment.
Risks
Related to Our Business and Industry
OUR
INDEPENDENT ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION AND IF WE CANNOT OBTAIN ADDITIONAL FINANCING AND/OR REDUCE OUR OPERATING
COSTS SUFFICIENTLY, WE MAY HAVE TO CURTAIL OPERATIONS AND MAY ULTIMATELY CEASE TO EXIST.
Our
financial statements for the fiscal years ended December 31, 2020 and 2021 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 $1,702,653 and a working capital deficit of $4,274,383 and an accumulated deficit of $17,423,930 as of
December 31, 2021 and used $2,552,547 in net cash from operating activities for the year ended December 31, 2021. Therefore, there
is doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will achieve its
goals and reach profitable operations and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or
(2) to generate positive cash flow from operations.
For
the year ended December 31, 2021, we had a net profit of $278,492 compared to a net loss of $3,435,764 for the same period in
2020. The increase in the net profit in 2021 was mainly due to the change in derivative liability associated with the convertible debt
and lower interest expense from 2021 to 2020.
WE
HAVE AN ACCUMULATED DEFICIT AND MAY INCUR ADDITIONAL LOSSES; THEREFORE, WE MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL FINANCING NEEDED
FOR WORKING CAPITAL, CAPITAL EXPENDITURES AND TO MEET OUR DEBT SERVICE OBLIGATIONS.
As
of December 31, 2021, we had current liabilities of $6,865,123. The Company has been able to raise additional capital of approximately
$4.78 million and repaid approximately $2.0 million of debt in 2021. Our outstanding debt could limit our ability to obtain additional
financing for working capital, capital expenditures, debt service requirements, or other purposes in the future, as needed; to plan for,
or react to, changes in technology and in our business and competition; and to react in the event of an economic downturn.
In addition,
we may not be able to meet our debt service obligations. The total outstanding balance of indebtedness as of the end of September
30, 2022 was 6,372,817. Some of these outstanding debts bear a high interest rate. For example, the interest rate for debts
due to Nations Interbanc with an outstanding balance of $1,058,127 is 26% per annum as of September 30, 2022. If we are
unable to generate sufficient cash flow or obtain funds for required payments, or if we fail to comply with covenants in our revolving
lines of credit, we will be in default.
WE
ARE IN DEFAULT IN OUR OBLIGATIONS TO A MAJOR CREDITOR
Currently,
we are in default of our notes payable to Cybernaut Zfounder Ventures (“Cybernaut”), which have aggregate outstanding principal
and interest of approximately $317,319 as of September 30, 2022. Cybernaut has agreed to pay the prepayment amounts of certain
convertible promissory notes on behalf of the company, and as a result, Cybernaut acquired the rights of the original note holder under
the notes. The default interest on the notes is 14% per annum. The notes can convert into the common stock of the Company at the variable
discount rate of 35%.
OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY PUBLIC HEALTH EPIDEMICS, INCLUDING THE COVID-19.
A
public health epidemic, including the COVID-19, poses the risk that we or our employees, contractors, suppliers, customers and other
business partners may be prevented from conducting business activities for an indefinite period of time, due to factors such as shutdowns
that may be requested or mandated by governmental authorities. The COVID-19 pandemic continues to rapidly evolve. At this time, there
continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses
to it will impact our business, operations and financial results.
The
extent to which the COVID-19 pandemic may impact our results will depend on future developments, which are highly uncertain and cannot
be predicted as of the date of this prospectus, including the effectiveness of vaccines and other treatments for COVID-19, and other
new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact,
among others. The pandemic and the current financial, economic and capital markets environment, and future developments in the global
supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations
and cash flows.
To
the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many
of the other risks described in this “Risk Factors” section.
WE
HAVE NOT MADE A PAYMENT UNDER A MATERIAL CONTRACT, WHICH COULD RESULT IN ADVERSE IMPACTS ON OUR OPERATIONS AND FINANCIAL RESULTS.
As
of the date of this prospectus, we have not made a payment of the principal of $1,200,000 with the accrued interest of $325,843 which
comprised the balance of the purchase price pursuant to our asset purchase agreement with General Electric International (“GE”),
under which we acquired all assets of Heat Recovery Solutions business unit from General Electric International. In addition, we have
not paid GE an amount of $972,233 in accrued transitional fees. We believe that the outstanding amounts should have been an offset to
purchase price we paid due to a misrepresentation of the values of the disclosed assets as reflected in the principal amount of the outstanding
note and in the transition agreements. CETY stopped making payments and informed GE that it had encountered difficulties because of the
valuations of the assets that were acquired from GE. Given that the values of the assets were different than GE’s internal reports
and as we discussed at the time of the transaction with GE’s management, we proposed a change in the amount the Company owes GE
under the purchase agreement, but GE was non-responsive and GE’s entire distributed power vertical has been divested.
Based
on the California Statute of Limitations, the Nevada Statute of Limitations, and the New York Statute of Limitations it is the view of
our legal counsel that the above referenced debt is no longer an enforceable obligation. under California law, Nevada law, and New York
law, as it became past due no later than November 3, 2016, more than Six (6) years ago and last payment made on the debt was on November
3, 2016, which is more than Six (6) years ago.
IF
DEMAND FOR THE PRODUCTS AND SERVICES THAT THE COMPANY OFFERS SLOWS, OUR BUSINESS WOULD BE MATERIALLY AFFECTED.
Demand
for products which it intends to sell depends on many factors, including:
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the
economy, and in periods of rapidly declining economic conditions, customers may defer purchases or may choose alternate products; |
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the
cost of oil, gas and solar energy; |
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the
competitive environment in the heat to power sectors may force us to reduce prices below our desired pricing level or increase promotional
spending; and |
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our
ability to maintain efficient, timely and cost-effective production and delivery of the products and services. |
All
of these factors could result in immediate and longer term declines in the demand for the products and services that we offer, which
could adversely affect our sales, cash flows and overall financial condition.
WE
OPERATE IN A HIGHLY COMPETITIVE MARKET. IF WE DO NOT COMPETE EFFECTIVELY, OUR PROSPECTS, OPERATING RESULTS, AND FINANCIAL CONDITION COULD
BE ADVERSELY AFFECTED.
The
markets for our products and services are highly competitive, with companies offering a variety of competitive products and services.
We expect competition in our markets to intensify in the future as new and existing competitors introduce new or enhanced products and
services that are potentially more competitive than our products and services. We believe many of our competitors and potential competitors
have significant competitive advantages, including longer operating histories, ability to leverage their sales efforts and marketing
expenditures across a broader portfolio of products and services, larger and broader customer bases, more established relationships with
a larger number of suppliers, contract manufacturers, and channel partners, greater brand recognition, and greater financial, research
and development, marketing, distribution, and other resources than we do and the ability to offer financing for projects. Our competitors
and potential competitors may also be able to develop products or services that are equal or superior to ours, achieve greater market
acceptance of their products and services, and increase sales by utilizing different distribution channels than we do. Some of our competitors
may aggressively discount their products and services in order to gain market share, which could result in pricing pressures, reduced
profit margins, lost market share, or a failure to grow market share for us. If we are not able to compete effectively against our current
or potential competitors, our prospects, operating results, and financial condition could be adversely affected.
WE
MAY LOSE OUT TO LARGER AND BETTER-ESTABLISHED COMPETITORS.
The
alternative power industry is intensely competitive. Most of our competitors have significantly greater financial, technical, marketing
and distribution resources as well as greater experience in the industry than we have. Our products may not be competitive with other
technologies, both existing at the current time and in the future. If this happens, our sales and revenues will decline, or fail to develop
at all. In addition, our current and potential competitors may establish cooperative relationships with larger companies to gain access
to greater development or marketing resources. Competition may result in price reductions, reduced gross margins and loss of market share.
OUR
INTERNATIONAL OPERATIONS SUBJECT US TO RISKS, WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
Our
international operations are exposed to the following risks, several of which are out of our control:
|
● |
political
and economic instability, international terrorism and anti-American sentiment, particularly in emerging markets; |
|
● |
preference
for locally branded products, and laws and business practices favoring local competition; |
|
● |
unusual
or burdensome foreign laws or regulations, and unexpected changes to those laws or regulations; |
|
● |
|import
and export license requirements, tariffs, taxes and other barriers; |
|
● |
costs
of customizing products for foreign countries; |
|
● |
increased
difficulty in managing inventory; |
|
● |
less
effective protection of intellectual property; and |
|
● |
difficulties
and costs of staffing and managing foreign operations. |
Any
or all of these factors could adversely affect our ability to execute any geographic expansion strategies or have a material adverse
effect on our business and results of operations.
OUR
PRODUCTS MAY BE DISPLACED BY NEWER TECHNOLOGY.
The
alternative power industry is undergoing rapid and significant technological change. Third parties may succeed in developing or marketing
technologies and products that are more effective than those developed or marketed by us, or that would make our technology obsolete
or non-competitive. Accordingly, our success will depend, in part, on our ability to respond quickly to technological changes. We may
not have the resources to do this.
WE
MUST HIRE QUALIFIED ENGINEERING, DEVELOPMENT AND PROFESSIONAL SERVICES PERSONNEL.
We
cannot be certain that we can attract or retain a sufficient number of highly qualified mechanical engineers, industrial technology and
manufacturing process developers and professional services personnel. To deploy our products quickly and efficiently, and effectively
maintain and enhance them, we will require an increasing number of technology developers. We expect customers that license our technology
will typically engage our professional engineering staff to assist with support, training, consulting and implementation. We believe
that growth in sales depends on our ability to provide our customers with these services and to attract and educate third-party consultants
to provide similar services. As a result, we plan to hire professional services personnel to meet these needs. New technical and professional
services personnel will require training and education and it will take time for them to reach full productivity. To meet our needs for
engineers and professional services personnel, we also may use costlier third-party contractors and consultants to supplement our own
staff. Competition for qualified personnel is intense, particularly because our technology is specialized and only a limited number of
individuals have acquired the needed skills. Our business may be harmed if we are unable to attract or retain an adequate number of qualified
personnel.
WE
MAY BE ADVERSELY AFFECTED BY SHORTAGES OF REQUIRED COMPONENTS. IN ADDITION, WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS TO PROCURE OUR
PARTS FOR PRODUCTION WHICH IF AVAILABILITY OF PRODUCTS BECOMES COMPROMISED IT COULD ADD TO OUR COST OF GOODS SOLD AND AFFECT OUR REVENUE
GROWTH.
At
various times, there have been shortages of some of the components that we use, as a result of strong demand for those components or
problems experienced by suppliers. These unanticipated component shortages have resulted in curtailed production or delays in production,
which prevented us from making scheduled shipments to customers in the past and may do so in the future. Our inability to make scheduled
shipments could cause us to experience a reduction in our sales and an increase in our costs and could adversely affect our relationship
with existing customers as well as prospective customers. Component shortages may also increase our cost of goods sold because we may
be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components.
OUR
PRINCIPAL SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS, IN THE AGGREGATE, BENEFICIALLY OWN MORE THAN 50% OF OUR OUTSTANDING COMMON
STOCK AND THESE SHAREHOLDERS, IF ACTING TOGETHER, WILL BE ABLE TO EXERT SUBSTANTIAL INFLUENCE OVER ALL MATTERS REQUIRING APPROVAL OF
OUR SHAREHOLDERS.
Our
principal shareholders, directors and executive officers in the aggregate, beneficially own more than 50% our outstanding common stock
on a fully diluted basis. These shareholders, if acting together, will be able to exert substantial influence over all matters requiring
approval of our shareholders, including amendments to our Articles of Incorporation, fundamental corporate transactions such as mergers,
acquisitions, the sale of the company, and other matters involving the direction of our business and affairs and specifically the ability
to determine the members of our board of directors. (See “Security Ownership of Certain Beneficial Owners and Managements”).
IF
WE LOSE KEY SENIOR MANAGEMENT PERSONNEL OUR BUSINESS COULD BE NEGATIVELY AFFECTED. FURTHER, WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL
SKILLED MANAGEMENT PERSONNEL AND IF WE ARE NOT ABLE TO DO SO, OUR BUSINESS AND OUR ABILITY TO CONTINUE TO GROW COULD BE HARMED.
Our
success depends to a large extent upon the continued services of our executive officers. We could be seriously harmed by the loss of
any of our executive officers. In order to manage our growth, we will need to recruit and retain additional skilled management personnel
and if we are not able to do so, our business and our ability to continue to grow could be harmed. Although a number of companies in
our industry have implemented workforce reductions, there remains substantial competition for highly skilled employees.
WE
ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS AND UNEXPECTED COSTS THAT WE MAY INCUR WITH RESPECT TO ENVIRONMENTAL MATTERS MAY RESULT
IN ADDITIONAL LOSS CONTINGENCIES, THE QUANTIFICATION OF WHICH CANNOT BE DETERMINED AT THIS TIME.
We
are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, storage,
discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. If more stringent compliance or cleanup
standards under environmental laws or regulations are imposed, or the results of future testing and analyses at our current or former
operating facilities indicate that we are responsible for the release of hazardous substances, we may be subject to additional remediation
liability. Further, additional environmental matters may arise in the future at sites where no problem is currently known or at sites
that we may acquire in the future. Currently unexpected costs that we may incur with respect to environmental matters may result in additional
loss contingencies, the quantification of which cannot be determined at this time.
OUR
SALES AND CONTRACT FULFILLMENT CYCLES CAN BE LONG, UNPREDICTABLE AND VARY SEASONALLY, WHICH CAN CAUSE SIGNIFICANT VARIATION IN REVENUES
AND PROFITABILITY IN A PARTICULAR QUARTER.
The
timing of our sales and related customer contract fulfillment is difficult to predict. Many of our customers are large enterprises, whose
purchasing decisions, budget cycles and constraints and evaluation processes are unpredictable and out of our control. Further, the timing
of our sales is difficult to predict. The length of our sales cycle, from initial evaluation to payment for our products and services,
can range from several months to well over a year and can vary substantially from customer to customer. Our sales efforts involve significant
investment in resources in field sales, marketing and educating our customers about the use, technical capabilities and benefits of our
products and services. Customers often undertake a prolonged evaluation process. As a result, it is difficult to predict exactly when,
or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. Large individual sales
have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. In addition, the fulfillment
of our customer contracts is partially dependent on other factors related to our customers’ businesses that are not in our control.
as with the sales cycle, this can also cause revenues and earnings to fluctuate from quarter to quarter. If our sales and/or contract
fulfillment cycles lengthen or our substantial upfront investments do not result in sufficient revenue to justify our investments, our
operating results could be adversely affected.
We
have experienced seasonal and end-of-quarter concentration of our transactions and variations in the number and size of transactions
that close in a particular quarter, which impacts our ability to grow revenue over the long term and plan and manage cash flows and other
aspects of our business and cost structure. Our transactions vary by quarter, with the fourth quarter typically being our largest. If
expectations for our business turn out to be inaccurate, our revenue growth may be adversely affected over time and we may not be able
to adjust our cost structure on a timely basis and our cash flows may suffer.
OUR
OPERATING MARGINS MAY DECLINE AS A RESULT OF INCREASING PRODUCT COSTS.
Our
business is subject to significant pressure on pricing and costs caused by many factors, including competition, the cost of components
used in our products, labor costs, constrained sourcing capacity, inflationary pressure, pressure from customers to reduce the prices
we charge for our products and services, and changes in consumer demand. Costs for the raw materials used in the manufacture of our products
are affected by, among other things, energy prices, consumer demand, fluctuations in commodity prices and currency, and other factors
that are generally unpredictable and beyond our control. Increases in the cost of raw materials used to manufacture our products or in
the cost of labor and other costs of doing business in the United States and internationally could have an adverse effect on, among other
things, the cost of our products, gross margins, operating results, financial condition, and cash flows.
OUR
PROPOSED JOINT VENTURE WITH SHENZHEN GAS MAY NOT BE SUCCESSFUL.
Our
proposed joint venture with Shenzhen Gas (as defined below) is subject to risks that we may not be able to control and therefor may not
be successful. CETY Hong Kong has entered into a framework agreement for a future joint venture with the overseas investment arm of Shenzhen
Gas. CETY Hong Kong will hold a 49% interest in the joint venture in accordance with the framework agreement. Once established, the joint
venture will acquire municipal natural gas operators in China with funds provided by Shenzhen Gas. The framework agreement is not binding
upon the parties until definitive agreements are executed, there is no guarantee the joint venture will be established. Further, the
joint venture is dependent on both CETY and Shenzhen Gas contributing funds to the joint venture. Shenzhen Gas will be required to loan
funds to the joint venture once established. If Shenzhen Gas does not provide capital for the acquisitions of the natural gas operators
as planned, we will not be able to execute the business plan and it may result in a loss of our capital investment, if any. The acquisitions
are dependent upon the price of gas, our ability to source acquisition targets for the joint venture, successful price negotiations and
the profitable operations of the acquired companies. There can be no assurances that we will be able to successfully acquire companies
through the joint venture and execute on its business plan.
OUR
WASTE TO ENERGY BUSINESS, INCLUDING OUR BIOMASS PROJECT IN THE U.S., IS IN AT AN EARLY STAGE AND WE DO NOT MAKE ANY ASSURANCES OF ITS
SUCCESS OR ABILITY TO OPERATE PROFITABLY.
We are
entering into the waste to energy business based on new technology. While the HTAP has not been installed and qualified by an
independent engineering study by an engineering, procurement and construction organization for an existing facility in United
States or Europe. As a result, we cannot be assured that the equipment or technology will be accepted or adopted by the firms who
are typically responsible for developing and building locally based waste to energy facilities. In addition, it is more difficult to
obtain standard financing for our projects using HTAP technology until qualified. While we have established our first pilot project for
our proposed biomass facility, there can be no assurances we will be able to obtain sufficient financing to complete the project or that
once established it will operate profitably.
OUR NEW OPERATIONS
FOR HTAP TECHNOLOGY HAVE BEEN RELOCATED TO A NEW OFFICE IN TURKEY FOR SALES AND ENGINEERING AND FOR MANUFACTURING OUTSIDE OF RUSSIA.
WE CAN NOT MAKE ANY ASSURANCES THAT THE OPERATIONS FOR THE SALES AND MANUFACTURING OF THE HTAP TECHNLOGY WILL BE SUCCESSFUL.
As
a result of the recent war between Russia and the Ukraine, we have terminated our agreements with ENEX and have established an office
in Turkey to run the engineering and sales efforts for the HTAP waste to energy products in Europe. The inventor and owner of ENEX has
moved out of Russia, purchased an apartment in Antalya, Turkey, and has applied for permanent citizenship in Turkey. In addition, ENEX
is in the process of redomiciling to Turkey and will run its operations out of Antalya to complete its remaining projects in Kazakhstan
at which time the operations of ENEX are expected to be wound down. Upon the ENEX owner’s receipt of Turkish citizenship, CETY
plans to retain the former owner of ENEX to develop and patent new technology relating the ablative processing of waste material and,
after ENEX redomiciles to Turkey, transfer any requisite intellectual property rights to CETY in order to develop new patents on the
technology. The former operations in Russia primarily consisted of assembling third party components and engineering modifications on
the system required to meet our customer’s needs. We will need to relocate personnel and equipment and obtain an office and manufacturing
facility in Turkey to properly establish new manufacturing operations. In addition, we will need to establish relationships with third
party manufacturers who are not located in Russia in order to obtain components for the HTAP systems. We cannot assure you that the transition
of ENEX from Russia to Turkey will be successful as will require adding new engineers from outside of Russia and developing new material
sources and supply chains.
WE
CAN NOT ASSURE THAT OUR HTAP TECHNOLOGY WILL BE ABLE TO BE MODIFIED TO ACCOMMODATE THE NEEDS OF OUR CUSTOMERS OR TO PRODUCE ALL OF THE
BIOFULES WHICH WE BELIEVE IT IS CAPABLE OF PRODUCING.
Our
HTAP Technology will need to be modified to burn certain types of fuels, depending on our customer’s needs, and to produce certain
types of biofuels that we expect to produce, such as hydrogen. We cannot assure you that we will be able to successfully modify our HTAP
systems to accommodate the needs of our customers or to produce all of the biofuels we believe it is capable of producing. While HTAP
technology has been used in various waste to energy projects using high temperature ablative technology clients have varying needs with
respect to their waste products. For example, some types of sewage waste require pre-treatment and processing before it can be incinerated
at high temperatures under pressurized conditions. Additionally, some customers will want to produce different types of biofuels based
on their needs and the market. While our HTAP technology has produced biogas and biofuel, we cannot assure you that we will be able to
modify and produce equipment that will provide output products that our customers desire. For example, we believe that hydrogen will
be used in the future to power electrical generators feeding the grid. Our HTAP system will need to be modified to produce hydrogen and
we can make no assurances that we will be able to successfully make such modifications.
OUR
HTAP TECHNOLOGY FACES MANY COMPETING NEW AND EXISTING TECHNOLOGIES, AND WE CANNOT ASSURE YOU THAT OUR HIGH TEMPERATURE ABLATIVE PROCESS
WILL BE ADOPTED BY THE MARKET.
Our
HTAP technology is an alternative to existing incineration technology which we believe is more efficient and will produce a wider variety
of biofuels than existing methods at a more cost-effective price. While processes such as thermal on grate are widespread, we believe
that they produce more damaging pollution than our ablative pressurized incineration technology. Systems using thermal on grate have
implemented pollution remediation systems reducing the environmental impact of their byproducts. These remediation technologies may improve
and become more cost effective thereby reducing the competitiveness of our product. There are also many new technologies that will compete
with our HTAP process at a lower cost or with more efficiency that could become the new standard for waste to energy productions. For
example, some technologies produce energy by using enzymes to break down organic wastes. Others will grow biological materials that when
exposed to sunlight create energy. While these and other technologies are at early stages, we cannot assure you that they will not be
developed into commercially viable products that can produce clean energy more efficiently than our product and, in fact, become an industry
standard making our technology less attractive.
IF
WE FAIL TO DEVELOP AND MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL OVER FINANCIAL REPORTING, WE MAY BE UNABLE TO ACCURATELY REPORT
OUR FINANCIAL RESULTS OR PREVENT FRAUD.
As
a public company, we have been subject to the Section 404 of the Sarbanes-Oxley Act, or SOX 404, which requires that we include a report
from management on the effectiveness of our internal control over financial reporting in our annual report on Form 10-K.
Our
reporting obligations as a public company place a significant strain on our management and operational and financial resources and systems.
Effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports
and are important to prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting
may result in the loss of investor confidence in the reliability of our financial statements, which in turn may harm our business and
negatively impact the trading price of our stock. Furthermore, we anticipate that we will continue to incur considerable costs and use
significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley
Act.
In
connection with the auditing of our consolidated financial statements as of and for the years ended December 31, 2020 and 2021, we identified
the following material weaknesses in our internal control over financial reporting:
|
● |
Inadequate
segregation of duties consistent with control objectives due to a small number of employees; |
|
● |
Lack
of formal policies and procedures, but there are integrated systems in place and the procedure are being documented; |
|
● |
Lack
of a functioning audit committee to oversee financial reporting responsibilities, which is being addressed by adding qualified CPA
board members; and |
|
● |
Lack
of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner, currently being implemented
as part of new procedures and policies. |
As
defined in the rules and regulations adopted by the SEC, a “material weakness” is a deficiency, or combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual
or interim financial statements will not be prevented or detected on a timely basis.
Management
has been implementing and will continue to implement measures designed to ensure that control deficiencies contributing to the material
weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned
include:
|
● |
Continue
to search for and evaluate qualified independent outside directors; |
|
● |
Identify
gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company;
and |
|
● |
Continue
to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing
controls and procedures. |
We
have also engaged a third-party financial consulting firm during the year to assist with the preparation of SEC reporting. We are committed
to maintaining a strong internal control environment and believe that these remediation efforts will deliver improvements in our control
environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our
internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing
additional enhancements or improvements, as necessary and as funds allow.
However,
the implementation of these measures may not fully address these weaknesses in our internal control over financial reporting, and we
cannot conclude that they have been fully remedied. Our failure to correct these weakness and deficiencies or our failure to discover
and address any other weakness and deficiencies could result in our inability to accurately report our financial results, prevent or
detect fraud or provide timely and reliable financial and other information pursuant to the reporting obligations we have as a public
company, which could have a material adverse effect on our business, financial condition and results of operations. Further, it could
cause our investors to lose confidence in the information we report, which could adversely affect the price of our shares.
WE
HAVE ENGAGED IN TRANSACTIONS WITH RELATED PARTIES, AND SUCH TRANSACTIONS PRESENT POSSIBLE CONFLICTS OF INTEREST THAT COULD HAVE AN ADVERSE
EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.
We
have entered into certain transactions with our officers, directors and certain shareholders. See “Certain Relationships and
Related Party Transactions.” We believe the terms obtained or consideration that we paid or received, as applicable, in connection
with these transactions were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length
transactions.
We
may in the future enter into additional transactions in which any of our directors, officers or certain shareholders, or any members
of their immediate family, have a direct or indirect material interest. Such transactions present potential for conflicts of interest,
as the interests of these entities and their shareholders may not align with the interests of the Company and our unaffiliated shareholders
with respect to the negotiation of, and certain other matters related to, our purchases from and other transactions with such entities.
Conflicts of interest may also arise in connection with the exercise of contractual remedies under these transactions, such as for events
of default.
Our
Board of Directors intends to authorize the Audit Committee consisting of independent directors upon its formation to review and approve
all material related party transactions. Nevertheless, we may have achieved more favorable terms if such transactions had not been entered
into with related parties. These transactions, individually or in the aggregate, may have an adverse effect on our business and results
of operations or may result in litigation or enforcement actions by the SEC or other agencies.
OUR
CFO AND DIRECTOR, MR. CALVIN PANG, HOLDS A CONTROLLING INTEREST IN US THROUGH AN ENTITY HE CONTROLS WHICH MAY POSE CONFLICTS OF INTERESTS
AS A RELATED PARTY.
Mr.
Calvin Pang is the beneficial owner of 64.7% of our common stock, or 24,044,101 shares, as of the date of this prospectus. While
many of Mr. Pang’s interests are aligned with our business and operations, we cannot assure you that the interests of the Company
and Mr. Pang will always be the same. Under Nevada laws, all directors, including Mr. Pang as a director, owe fiduciary duties to our
corporation. In addition, the Company has taken steps to exclude Mr. Pang from voting as a director on issues that he may be a related
party. Further, our Board of Directors intends to authorize the Audit Committee upon its formation to review and approve all material
related party transactions. Nevertheless, Mr. Pang can exert significant influence on the board and the actions of the Company as being
a majority shareholder and your and other minority shareholders’ ability to influence significant corporate decisions will be limited.
THE
COMPANY DEPENDS ON A LIMITED NUMBER OF CUSTOMERS FOR A LARGE PORTION OF ITS NET SALES.
A
limited number of customers account for a large percentage of the Company’s net sales. The Company’s three largest customers,
Aries Clean Energy, San Giorgio, and Greenverse and its domestic and international affiliated companies, accounted for approximately
75% of the Company’s net sales during fiscal year 2021 and the company’s three largest customers, Ekonams, CEF, and Corycos,
accounted for approximately 96% of the Company’s net sales during fiscal year 2020. The Company expects that a significant portion
of its revenues will continue to be derived from a small number of customers and that these percentages may increase with the growth
of its waste to energy products and services. In addition, the Company’s business is based primarily upon individual sales orders,
and the Company typically does not enter into long-term contracts with its customers. Accordingly, these customers could reduce their
purchasing levels or cease buying products from the Company at any time and for any reason. In addition, since the Company is project
driven, the Company’s sales can be delayed due to the time it takes for its customers with the approval and financing process of
their project which can reduce the sales of the Company’s products and it may have a material adverse effect on the Company’s
business, financial condition and results of operations.
WE
MAY INCUR LIABILITIES THAT ARE NOT COVERED BY INSURANCE.
While
we seek to maintain appropriate levels of insurance, not all claims are insurable and we may experience major incidents of a nature that
are not covered by insurance or not covered adequately by insurance. Furthermore, insurance companies in China currently do not offer
as extensive an array of insurance products for our PRC subsidiaries as insurance companies in more developed economies. In some cases,
we have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially
reasonable terms make it impractical for us to have such insurance. We maintain an amount of insurance protection that we believe is
adequate, but there can be no assurance that such insurance will continue to be available on acceptable terms or that our insurance coverage
will be sufficient or effective under all circumstances and against all liabilities to which we may be subject. If we were to incur substantial
losses or liabilities due to fire, explosions, floods, other natural disasters or accidents or business interruption, our results of
operations could be materially and adversely affected. We could, for example, be subject to substantial claims for damages upon the occurrence
of several events within one calendar year. In addition, our insurance costs may increase over time in response to any negative development
in our claims history or due to material price increases in the insurance market in general.
A
SIGNIFICANT INTERRUPTION IN THE OPERATIONS OF OUR THIRD-PARTY SUPPLIERS COULD POTENTIALLY DISRUPT OUR OPERATIONS.
We
have limited control over the operations of our third-party suppliers and other business partners and any significant interruption in
their operations may have an adverse impact on our operations. For example, a significant interruption in the operations of our supplier’s
manufacturing facilities could cause delay or termination of shipment of the raw materials to our subsidiaries, which may cause delay
or termination of shipment of our products to our customers, thus resulting in penalties or fines due to our breach of contract. If we
could not solve the impact of the interruptions of operations of our third-party suppliers, our business operations and financial results
may be materially and adversely affected.
WE
HAVE A SIGNIFICANT AMOUNT OF ACCOUNTS RECEIVABLE, WHICH COULD BECOME UNCOLLECTIBLE.
As
of December 31, 2021, we had approximately $693,032 in accounts receivable and $684,770 in long term financing receivables. Our accounts
receivable primarily include balance due from customers when our products are sold and delivered to customers. Our customers are required
to make full payment within three to five months from delivery date, although our industry typical payment term is 180 days from delivery.
As a result of the COVID-19 outbreak in January 2020, collection activities from some of our customers affected by the pandemic resulted
in longer payment terms. We impliedly granted extended payment terms until their projects are commissioned and they collect from their
end users. Deteriorating conditions in, bankruptcies, or financial difficulties of a customer or within their industries generally may
impair the financial condition of our customers and hinder their ability to pay us on a timely basis or at all, and accounts receivable
are written off against allowances only after exhaustive collection efforts. The failure or delay in payment by one or more of our customers
could reduce our cash flows and adversely affect our liquidity and results of operations.
OUR
SALES AND PROFITABILITY ARE DEPENDENT ON THE PRICE OF OIL, NATURAL GAS AND ELECTRICITY, WHICH HAS BEEN SIGNIFICANTLY VOLATILE RECENTLY.
Our
Waste Heat Recovery products and Waste to Energy products are dependent on the prices of traditional energy sources. We believe our products
reuse wasted heat and create electricity with zero emission and have potential for receiving clean energy incentives. The process of
converting waste heat to power is referred to as organic Rankine cycle. Our waste to energy products converts organic waste into power
and biochar through a process referred to pyrolysis. As the price of energy increases, the economic justification for our products increases.
At the same time, as the price for traditional fuel decreases, there is less incentive for customers to purchase our products and it
may impair our ability to sell our products.
IF
THE SPOT PRICE OF NG IN CHINA DROPS BELOW THE PURCHASE PRICE OUR TRADERS NEGOTIATE WITH OUR SUPPLIERS, WE MAY NOT BE ABLE TO SELL OUR
NG OR MAY HAVE TO SELL IT AT A LOSS.
Our traders
at JHJ purchase NG at a fixed price in large volumes. If the spot prices for NG in China drop below our purchase price, we may not be
able to sell our NG to our customers or may have to sell the NG at a substantial loss. We do not purchase a sufficient volume of NG to
be able to hedge against price declines of this commodity. If we believe that NG prices are too high and we are unable to purchase because
we believe that prices will drop, we will not have sufficient supply of NG to conduct trading operations until the market pricing returns
to a level at which we can conduct operations.
WE
MAY NOT HAVE SUFFICIENT FUNDS TO CONDUCT OUR TRADING OPERATIONS IN THE PRC.
We
are funding our trading operations through cash flow generated by JHJ and from funds provided by our parent. If we or JHJ does not have
sufficient funds, we may not be able to conduct trading operations.
OUR
WASTE TO ENERGY PRODUCTS FROM ENEX HAVE NOT BEEN TESTED IN THE UNITED STATES.
ENEX’s
HTAP 5 and 10 have not been installed in the United States. In order to commence sales, our purchasers will need to review data
that they may not deem reliable. As a result, we may be required to post large bonds or find an EPC that will guarantee performance of
the ENEX systems. We can not give any assurances that we will be able to finance the bonds or find an EPC willing to guaranty performance.
THE
IMPLEMENTATION OF OUR WASTE TO ENERGY JOINT VENTURES DEPENDS ON US FINDING FUNDING FOR THE PROJECTS.
In
order to implement the ENEX system in our waste to energy joint ventures, we will need to finance directly or obtain third party financing
for these projects. We cannot give any assurances that we will be able to directly finance these projects or be able to find a third
party to provide financing to them. If we are not able to finance the projects we will not be able to implement our business plan in
this sector.
WE
MAY NEED TO RAISE ADDITIONAL CAPITAL REQUIRED TO GROW OUR BUSINESS, AND WE MAY NOT BE ABLE TO RAISE CAPITAL ON TERMS ACCEPTABLE TO US
OR AT ALL.
Growing
and operating our business will require significant cash outlays and capital expenditures and commitments. We have utilized cash on hand
and cash generated from operations as sources of liquidity. If such cash is not sufficient to meet our cash requirements, we will need
to seek additional capital, potentially through equity or debt financing, to fund our growth. Our ability to access the credit and capital
markets in the future as a source of liquidity, and the borrowing costs associated with such financing, are dependent upon market conditions.
In
addition, any equity securities we issue, including any preferred stock, may be on terms that are dilutive or potentially dilutive to
our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the offering price
per share of our Common Stock. The holders of any equity securities we issue, including any preferred stock, may also have rights, preferences
or privileges which are senior to those of existing holders of Common Stock. If new sources of financing are required, but are insufficient
or unavailable, we will be required to modify our growth and operating plans based on available funding, if any, which would harm our
ability to grow our business.
OUR
REVENUE GROWTH RATE DEPENDS PRIMARILY ON OUR ABILITY TO EXECUTE OUR BUSINESS PLAN.
We
may not be able to identify and maintain the necessary relationships with customers and labor within our industry. Our ability to execute
our business plan also depends on other factors, including the ability to:
|
● |
Negotiate
and maintain contracts and agreements with acceptable terms; |
|
● |
Hire
and train qualified personnel; |
|
● |
Maintain
marketing and development costs at affordable rates; and |
|
● |
Maintain
an affordable labor force. |
CHINA’S
ECONOMIC, POLITICAL AND SOCIAL CONDITIONS, AS WELL AS GOVERNMENTAL POLICIES, COULD AFFECT THE BUSINESS ENVIRONMENT IN CHINA AND OUR ABILITY
TO OPERATE OUR BUSINESS.
A
portion of our operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects
may be influenced to a degree by economic, political, legal and social conditions in China. China’s economy differs from the economies
of other countries in many respects, including with respect to the amount of government involvement, level of development, growth rate,
control of foreign exchange and allocation of resources. In recent years, the Chinese government has implemented measures emphasizing
market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance
in business enterprises. However, a significant portion of productive assets in China are still owned by the Chinese government. The
Chinese government continues to play a significant role in regulating industrial development. It also exercises significant control over
China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting
monetary policies, restricting the inflow and outflow of foreign capital and providing preferential treatment to particular industries
or companies. More generally, if the business environment in China deteriorates from the perspective of domestic or international investment,
the portion of our operations in China may also be adversely affected.
As
the Chinese economy has become increasingly linked with the global economy, China is affected in various respects by downturns and recessions
of major economies around the world. The various economic and policy measures enacted by the Chinese government to forestall economic
downturns or bolster China’s economic growth could materially affect our business. Any adverse change in the economic conditions
in China, policies of the Chinese government or laws and regulations in China could have a material adverse effect on the overall economic
growth of China and, in turn, the portion of our business in China.
UNCERTAINTIES
IN THE CHINA LEGAL SYSTEM COULD MATERIALLY AND ADVERSELY AFFECT US.
In
1979, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters in general.
The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of
foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations
may not sufficiently cover all aspects of economic activities in China. In particular, the China legal system is based on written statutes
and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the China legal system
continues to rapidly evolve, the interpretations of many laws, regulations and rules may not be uniform and enforcement of these laws,
regulations and rules involves uncertainties. These uncertainties may affect our judgment on the relevance of legal requirements and
our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited
or frivolous legal actions or threats in attempts to extract payments or benefits from us. Furthermore, the China legal system is based
in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive
effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition,
any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management
attention.
PRC
REGULATION OF LOANS TO AND DIRECT INVESTMENT IN PRC ENTITIES BY OFFSHORE HOLDING COMPANIES AND GOVERNMENTAL CONTROL OF CURRENCY CONVERSION
MAY DELAY OR PREVENT US FROM MAKING LOANS OR ADDITIONAL CAPITAL CONTRIBUTIONS TO OUR CHINESE SUBSIDIARIES.
We
are a U.S. based company conducting a portion of our operations in China. We may make loans to our PRC subsidiaries subject to the approval,
registration, and filing with governmental authorities and limitation of amount, or we may make additional capital contributions to our
subsidiaries in China and Hong Kong. Any loans to our wholly foreign-owned subsidiaries in mainland China, which are treated as foreign-invested
enterprises under PRC law, are subject to foreign exchange loan registrations
In
light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies,
we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals
or filings on a timely basis, if at all, with respect to future loans by us to our Hong Kong or PRC subsidiaries or with respect to future
capital contributions by us to our Hong Kong or PRC subsidiaries. If we fail to complete such registrations or obtain such approvals,
our ability to use the proceeds from this Underwritten Offering and to capitalize or otherwise fund our Chinese operations may be negatively
affected.
FLUCTUATIONS
IN EXCHANGE RATES COULD HAVE AN EFFECT ON THE RESULTS OF OPERATIONS OF OUR HONG KONG AND CHINA SUBSIDIARIES.
The
value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political
and economic conditions in China and by China’s foreign exchange policies. Since June 2010, the Renminbi has fluctuated against
the U.S. dollar, at times significantly and unpredictably. In the fourth quarter of 2016, the Renminbi has depreciated significantly
in the backdrop of a surging U.S. dollar and persistent capital outflows of China. This depreciation halted in 2017, and the RMB appreciated
approximately 7% against the U.S. dollar during this one-year period. With the development of the foreign exchange market and progress
towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes
to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against
the U.S. dollar in the future which may impact the profitability of our operations in China.
WE
MAY BE SUBJECT TO GOVERNMENT LAWS AND REGULATIONS PARTICULAR TO OUR OPERATIONS WITH WHICH WE MAY BE UNABLE TO COMPLY.
We
may not be able to comply with all current and future government regulations which are applicable to our business. Our business operations
are subject to all government regulations normally incident to conducting business (e.g., occupational safety and health acts, workmen’s
compensation statutes, unemployment insurance legislation, income tax, and social security laws and regulations, environmental laws and
regulations, consumer safety laws and regulations, etc.) as well as to governmental laws and regulations applicable to small public companies
and their capital formation efforts. Although we will make every effort to comply with applicable laws and regulations, we can provide
no assurance of our ability to do so, nor can we predict the effect of those regulations on our proposed business activities. Our failure
to comply with material regulatory requirements would likely have an adverse effect on our ability to conduct our business and could
result in our cessation of active business operations.
COMPLIANCE
WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE WILL RESULT IN ADDITIONAL EXPENSES.
Changing
laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and
related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with
accessing the public markets and public reporting. Our management team will need to invest significant management time and financial
resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative
expenses and a diversion of management time and attention from revenue generating activities to compliance activities.
Risks
Related to This Offering and Ownership of Our Common Stock
OUR
OPERATING RESULTS AND SHARE PRICE MAY BE VOLATILE AND THE MARKET PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY DROP BELOW THE PRICE
YOU PAY.
Our
quarterly operating results have in the past fluctuated and are likely to do so in the future. As a result, the trading price of the
shares of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response
to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section
and elsewhere in this prospectus, these factors include:
|
● |
the
success of competitive products or technologies; |
|
● |
actual
or anticipated changes in our growth rate relative to our competitors; |
|
● |
announcements
by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments; |
|
● |
regulatory
or legal developments in the United States and other countries in which we operate; |
|
● |
the
recruitment or departure of key personnel; |
|
● |
the
level of expenses; |
|
● |
changes
in our backlog in a given period; |
|
● |
actual
or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; |
|
● |
variations
in our financial results or those of companies that are perceived to be similar to us; |
|
● |
fluctuations
in the valuation of companies perceived by investors to be comparable to us; |
|
● |
inconsistent
trading volume levels of our shares; |
|
● |
announcement
or expectation of additional financing efforts; |
|
● |
sales
of our common stock by us, our insiders or our other stockholders; |
|
● |
market
conditions in the clean energy sector; and |
|
● |
general
economic, industry and market conditions. |
These
and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our shares
to fluctuate substantially. While we believe that operating results for any particular quarter are not necessarily a meaningful indication
of future results, fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares
and may otherwise negatively affect the market price and liquidity of our shares. In addition, the stock market in general, and companies
in our markets in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common
stock, regardless of our actual operating performance. The realization of any of these risks or any of a broad range of other risks,
including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price
of the shares of our common stock.
WE
HAVE ISSUED A SUBSTANTIAL AMOUNT OF CONVERTIBLE SECURITIES WHICH IF CONVERTED WILL SUBSTANTIALLY DILUTE ALL OF OUR STOCKHOLDERS.
So
far we have issued a substantial number of convertible securities, including warrants, which, if converted or exercised, would result
in substantial dilution to our stockholders. See Note 9 of the Notes to the consolidated financial statements for the three and nine
months ended September 30, 2022 included in this prospectus for further information on our outstanding convertible notes.
Our ability to meet pay interest and repay principal for our substantial level of outstanding convertible notes depends on, among other
things, our operating results and financial market conditions. Our cash flow may not be sufficient to allow us to pay principal and interest
on our outstanding convertible notes and meet our other obligations. Our level of indebtedness could have other important consequences.
In addition, conversion of our convertible notes and exercise of warrants could result in significant dilution to our existing stockholders
and cause the market price of our common stock to decline.
WE
HAVE CONSIDERABLE DISCRETION AS TO THE USE OF THE NET PROCEEDS FROM THIS UNDERWRITTEN OFFERING AND WE MAY USE THESE PROCEEDS IN WAYS
WITH WHICH YOU MAY NOT AGREE.
Our
management will have broad discretion in the way that we use the net proceeds of this Underwritten Offering. Pending the final application
of the net proceeds of this Underwritten Offering, we intend to use the net proceeds of this Underwritten Offering primarily to enhance
and expand our business operations and for general corporate purposes. However, the proceeds may not be invested effectively or in a
manner that yields a favorable or any return, and consequently, this could result in financial losses that could have a material adverse
effect on our business, financial condition and results of operations. There can be no assurance that the Company will utilize the net
proceeds in a manner that enhances value of the Company. If the Company fails to spend the proceeds effectively, the Company’s
business and financial condition could be harmed, and there may be the need to seek additional financing sooner than expected.
WE
ARE A SMALLER REPORTING COMPANY, AND WE CANNOT BE CERTAIN IF THE REDUCED REPORTING REQUIREMENTS APPLICABLE TO US WILL MAKE OUR COMMON
STOCK LESS ATTRACTIVE TO INVESTORS.
We
are a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million
and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting
company after this offering if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our
annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates
is less than $700 million. As a smaller reporting company, we may rely on exemptions from certain disclosure requirements that are available
to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal
years of audited financial statements in our annual report on Form 10-K and we have reduced disclosure obligations regarding executive
compensation. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some
investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our
stock price may be more volatile.
CERTAIN
PROVISIONS OF NEVADA LAW AND IN THE COMPANY’S CHARTER AND BYLAWS MAY HAVE A NEGATIVE EFFECT ON ACQUISITION OF OUR COMPANY.
Certain
provisions of Nevada law and our bylaws, may have the effect of delaying, deferring or discouraging another person from acquiring control
of us. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders
may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over
the market price for our shares. These provisions expected to discourage coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We
believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals
could result in an improvement of their terms.
OUR
ISSUANCE OF ADDITIONAL CAPITAL STOCK IN CONNECTION WITH FINANCINGS, ACQUISITIONS, INVESTMENTS, OUR EQUITY INCENTIVE PLANS, OR OTHERWISE
WILL DILUTE ALL OTHER STOCKHOLDERS.
We
expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity
awards to employees, directors, and consultants under our equity incentive plans. We may also raise capital through equity financings
in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies,
and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders
to experience significant dilution of their ownership interests and the per share value of our common stock to decline.
WE
MAY MAKE ACQUISITIONS THAT ARE DILUTIVE TO EXISTING STOCKHOLDERS. IN ADDITION, OUR LIMITED EXPERIENCE IN ACQUIRING OTHER BUSINESSES,
PRODUCT LINES AND TECHNOLOGIES MAY MAKE IT DIFFICULT FOR US TO OVERCOME PROBLEMS ENCOUNTERED IN CONNECTION WITH ANY ACQUISITIONS WE MAY
UNDERTAKE.
We
intend to evaluate and explore strategic opportunities as they arise, including business combinations, strategic partnerships, and the
purchase, licensing or sale of assets. In connection with any such future transaction, we could issue dilutive equity securities, incur
substantial debt, reduce our cash reserves or assume contingent liabilities.
Our
experience in acquiring other businesses, product lines and technologies is limited. Our inability to overcome problems encountered in
connection with any acquisitions could divert the attention of management, utilize scarce corporate resources and otherwise harm our
business. Any potential future acquisitions also involve numerous risks, including:
|
● |
problems
assimilating the purchased operations, technologies or products; |
|
● |
costs
associated with the acquisition; |
|
● |
adverse
effects on existing business relationships with suppliers and customers; |
|
● |
risks
associated with entering markets in which we have no or limited prior experience; |
|
● |
potential
loss of key employees of purchased organizations; and |
|
● |
potential
litigation arising from the acquired company’s operations before the acquisition. |
Furthermore,
acquisitions may require material charges and could result in adverse tax consequences, substantial depreciation, deferred compensation
charges, in-process research and development charges, the amortization of amounts related to deferred compensation and identifiable purchased
intangible assets or impairment of goodwill, any of which could negatively affect our results of operations.
WE
MAY BE SUBJECT TO SECURITIES LITIGATION, WHICH IS EXPENSIVE AND COULD DIVERT MANAGEMENT ATTENTION.
The
market price of the shares of our common stock may be volatile, and in the past companies that have experienced volatility in the market
price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in
the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other
business concerns, which could seriously harm our business.
IF
YOU PURCHASE SHARES OF COMMON STOCK IN THIS Underwritten OFFERING, YOU WILL INCUR IMMEDIATE
AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF THE SHARES OF OUR COMMON STOCK.
The
proposed public offering price of the shares of our common stock in the Underwritten Offering is substantially higher than the net tangible
book value per share of our common stock after giving effect to the Underwritten Offering. Investors purchasing shares of common stock
in this Underwritten Offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting
our liabilities. As a result, investors purchasing shares of common stock in this Underwritten Offering will incur immediate dilution.
Further,
because we may need to raise additional capital to fund our anticipated level of operations, we may in the future sell substantial amounts
of common stock or securities convertible into or exchangeable for common stock. These future issuances of equity or equity-linked securities,
together with the exercise of outstanding convertible notes and warrants and any additional shares issued in connection with future acquisitions,
if any, may result in further dilution to investors. See “Dilution”.
WE
DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE; THEREFORE, YOU MAY NEVER SEE A RETURN ON YOUR INVESTMENT.
We
do not anticipate the payment of cash dividends on our common stock in the foreseeable future. We anticipate that any profits from our
operations will be devoted to our future operations. Any decision to pay dividends will depend upon our profitability at the time, cash
available and other factors.
General
Risk Factors
NATURAL
DISASTERS AND OTHER CATASTROPHIC EVENTS BEYOND OUR CONTROL COULD ADVERSELY AFFECT OUR BUSINESS OPERATIONS AND FINANCIAL PERFORMANCE.
The
occurrence of one or more natural disasters, such as fires, hurricanes, tornados, tsunamis, floods and earthquakes; geo-political events,
such as civil unrest in a country in which our suppliers are located or terrorist or military activities disrupting transportation, communication
or utility systems; or other highly disruptive events, such as nuclear accidents, pandemics, unusual weather conditions or cyber-attacks,
could adversely affect our operations and financial performance. Such events could result, among other things, in operational disruptions,
physical damage to or destruction or disruption of one or more of our properties or properties used by third parties in connection with
the supply of products or services to us, the lack of an adequate workforce in parts or all of our operations and communications and
transportation disruptions. These factors could also cause consumer confidence and spending to decrease or result in increased volatility
in the United States and global financial markets and economy. Such occurrences could have a material adverse effect on us and could
also have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable
damage.
INCREASES
IN COSTS, DISRUPTION OF SUPPLY OR SHORTAGE OF MATERIALS COULD HARM OUR BUSINESS.
We
may experience increases in the cost or a sustained interruption in the supply or shortage of materials. Any such increase, supply interruption
or shortage could materially and negatively impact our business, prospects, financial condition and operating results. We use various
materials in our business from suppliers.
The
prices for these materials fluctuate, and their available supply may be unstable, depending on market conditions and global demand for
these materials, and could adversely affect our business and operating results.
These
risks include:
|
● |
an
increase in the cost, or decrease in the available supply, of materials used; |
|
|
|
|
● |
disruption
in the supply of materials due to quality issues or recalls by manufacturers; |
|
|
|
|
● |
tariffs
on the materials we source; and |
|
|
|
|
● |
increases
in global shipping costs have gone up due to shipping container shortages and delays at both shipping and receiving ports due to
COVID and lack of appropriate workforce. |
Substantial
increases in the prices for our materials or prices charged to us would increase our operating costs, and could reduce our margins if
we cannot recoup the increased costs through increased prices. Any attempts to increase prices in response to increased material costs
could result in cancellations of orders for our products and services and therefore materially and adversely affect our brand, image,
business, prospects and operating results.
Any
of the above-mentioned factors could affect our business, prospects, financial condition, and operating results. The extent and
duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any
such disruptions may also magnify the impact of other risks described in this registration statement.
WE
MAY EXPERIENCE IN THE FUTURE, DELAYS OR OTHER COMPLICATIONS IN THE MANUFACTURE AND SUPPLY OF PRODUCTS WE USE IN OUR SYSTEMS WHICH COULD
HARM OUR BRAND, BUSINESS, PROSPECTS, FINANCIAL CONDITION AND OPERATING RESULTS.
We
may encounter unanticipated challenges, such as supply chain or logistics constraints, that lead to delays in producing products we use
in our projects. Any significant delay or other complication in the production of such products, including complications associated with
expanding our supply chain or obtaining or maintaining regulatory approvals, and/or coronavirus impacts, could materially damage our
brand, business, prospects, financial condition and operating results.
CHANGES
IN OUR SUPPLY CHAIN MAY RESULT IN INCREASED COST. IF WE ARE UNSUCCESSFUL IN OUR EFFORTS TO CONTROL SUPPLIER COSTS, OUR OPERATING RESULTS
MAY SUFFER.
There
is no assurance that our suppliers will ultimately be able to meet our cost, quality and volume needs, or do so at the times needed.
Furthermore, as the scale of our business increases, we will need to accurately forecast, purchase, warehouse and transport components
at much higher volumes than we have experience with. If we are unable to accurately match the timing and quantities of components purchases
to our actual needs, or successfully implement automation, inventory management and other systems to accommodate the increased complexity
in our supply chain, we may incur unexpected disruption, storage, transportation and write-off costs, which could have a material adverse
effect on our financial condition and operating results.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements
of historical fact, contained in this prospectus, including statements regarding our strategy, future financial position, projected costs,
prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,”
“contemplate,” “could,” “estimate,” “expect,” “intend,” “seek,”
“may,” “might,” “plan,” “potential,” “predict,” “project,” “target,”
“aim,” “should,” ‘will” “would,” or the negative of these words or other similar expressions
are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Forward-looking
statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties.
The
forward-looking statements in this prospectus include, among other things, statements relating to:
|
● |
Our
independent accountants have issued a going concern opinion, |
|
|
|
|
● |
Intense
competition, which may reduce our sales, operating profits, or both, |
|
|
|
|
● |
Our
ability to obtain future financing, |
|
|
|
|
● |
Our
ability to execute our strategic plan, |
|
|
|
|
● |
Dilution
due to exercise of Convertible notes |
|
|
|
|
● |
We
are in default of our agreements with General Electric and Cybernaut Zfounder Ventures, |
|
|
|
|
● |
Our
products may be displaced by newer technology, |
|
|
|
|
● |
Our
expectations related to the use of proceeds from this Underwritten Offering; |
|
|
|
|
● |
The
effects of increased competition in our markets and our ability to successfully compete with companies that are currently in, or
may in the future enter, the markets in which we operate; |
|
|
|
|
● |
Our
ability to maintain, protect, and enhance our brand and intellectual property; |
|
|
|
|
● |
Our
estimated market opportunity; |
|
|
|
|
● |
The
potential impact of the COVID-19 outbreak on our business plans; and |
|
|
|
|
● |
Failure
to maintain effective internal controls, |
We
may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place
undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations
disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this
prospectus, particularly in the “Risk Factor” section, that we believe could cause actual results or events to differ materially
from the forward-statements that we make. Furthermore, we operate in a competitive and rapid changing environment. New risks and uncertainties
emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking
statements contained in this prospectus.
You
should read this prospectus and the documents we reference in this prospectus and have filed as exhibits to the registration statement
of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from
what we expect. The forward-looking statements contained in this prospectus are made as of the date of this prospectus, and we do not
assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except
as required by applicable law.
In
addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These
statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms
a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate
that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are
inherently uncertain and investors are cautioned not to unduly rely upon these statements.
MARKET
AND INDUSTRY DATA
This
prospectus contains estimates, projections and other information concerning our industry, our business and the markets for our products,
including data regarding the estimated size of such markets. We obtained the industry, market and similar data set forth in this prospectus
from our internal estimates and research and from industry research, publications, surveys and studies conducted by third parties. In
some cases, we do not expressly refer to the sources from which this data is derived. Information that is based on estimates, forecasts,
projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ
materially from events and circumstances that are assumed in this information. While we believe our internal research is reliable, such
research has not been verified by any third party. You are cautioned not to give undue weight to any such information, projections and
estimates.
USE OF PROCEEDS
We estimate that we will receive
net proceeds from this Underwritten Offering of approximately $3,296,427 or approximately $3,840,477 if the underwriters
exercise their option to purchase additional shares in full, after deducting underwriting discounts and commissions and the estimated
offering expenses payable by us. These estimates are based upon a public offering price of $4.00 per share, which is the midpoint
of the estimated public offering price range set forth on the cover page of this prospectus.
We
currently plan to use the net proceeds of this Underwritten Offering as follows:
● approximately 64.5%,
or $2,126,195 for expanding our current businesses, such as promoting our sales and marketing activities, strengthening supply
chain and distribution channels, conducting strategic acquisitions or investment in complementary businesses, or
● approximately 10.75%,
or $354,366 for research and development activities; and
● approximately 25.25%,
or $832,348 for working capital and general corporate purposes.
The
foregoing represents our current intentions to use and allocate the net proceeds of this Underwritten Offering based upon our present
plans and business conditions. Our management, however, will have broad discretion in the way that we use the net proceeds of this Underwritten
Offering. Pending the final application of the net proceeds of this Underwritten Offering, we intend to use the net proceeds of this
Underwritten Offering primarily to enhance and expand our business operations and for general corporate purposes. See “Risk Factors—Risks
Related to Our Common Stock—We have considerable discretion as to the use of the net proceeds from this Underwritten Offering and
we may use these proceeds in ways with which you may not agree.”
We
will not receive any proceeds from the sales of shares of our common stock by the selling shareholders in the Selling Shareholders Offering.
DIVIDEND
POLICY
We
have never declared or paid any cash dividends on our common stock. We do not anticipate declaring or paying, in the foreseeable future,
any cash dividends on our capital stock. We intend to retain all available funds and future earnings, if any, to fund the development
and expansion of our business. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion
of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual
restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
We
are obligated to pay dividends to certain holders of our preferred stock which we pay out of legally available funds from time to time
or reach arrangements with our holders of preferred stock to convert limited quantities of preferred stock at favorable conversion prices
in lieu of dividend payments.
See
also “Risk Factors—We Do Not Intend To Pay Dividends In The Foreseeable Future; Therefore, You May Never See A Return On
Your Investment.”
MARKET
PRICE
Market
Information
Our
shares of our common stock are quoted on the OTCQB under the symbol “CETY.” Such quotations reflect inter-dealer prices,
without retail mark-up, mark-down, or commission and do not necessarily represent actual transactions.
The
last reported sales price of our common stock which trades under the symbol “CETY” on the OTCQB on March 17, 2023,
was $4.80.
Holders
As
of the date of this prospectus, there were 116 stockholders of record of our common stock.
CAPITALIZATION
The
following table sets forth our cash and cash equivalents and capitalization as of September 30, 2022:
|
● |
on
an actual basis; |
|
|
|
|
● |
on
an as adjusted basis to give effect to the sale by us of 975,000 shares of our common stock in this Underwritten Offering at a public
offering price of $4.00 per share, after deducting underwriting discounts and estimated offering expenses payable by us (assuming no exercise
of the underwriter’s over-allotment option); |
|
|
|
|
● |
on an pro forma as adjusted basis to give effect to (i)
the sale by of 975,000 shares of our common stock in this Underwritten Offering at a public offering price of $4.00 per share, after deducting
underwriting discounts and estimated offering expenses payable by us (assuming no exercise of the underwriter’s over-allotment
option), and (ii) the debt write-off as of December 31, 2022 as described in more detail below. |
You
should read this information together with our consolidated financial statements and related notes, as well as the information set forth
under the headings “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” appearing elsewhere in this prospectus.
| |
September 30, | | |
| |
| |
2022 | | |
Pro Forma | |
| |
Actual | | |
As Adjusted | | |
As Adjusted | |
Cash and cash equivalents | |
$ | 175,772.00 | | |
$ | 3,472,198.98 | | |
$ | 3,472,198.98 | |
| |
| | | |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | | |
| | |
Common stock, $0.001 par value, 2,000,000,000 shares authorized, 37,074,432(iv) and 23,589,229 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively (presented on a post-split basis). The company effected a 1-for-40 reverse split on Jan 19, 2023. | |
| 37,075 | | |
$ | 41,773.00 | | |
$ | 41,773.00 | |
Additional paid-in capital | |
| 19,136,172 | | |
$ | 22,427,900.98 | | |
$ | 22,427,900.98 | |
| |
| | | |
| | | |
| | |
Accumulated other comprehensive income | |
| -243,135 | | |
$ | (243,135.00 | ) | |
$ | (243,135.00 | ) |
Gain / (Loss) on debt settlement and write down | |
| | | |
| | | |
$ | 2,540,016.00 | |
Accumulated deficit | |
| -18,763,939 | | |
$ | (18,763,939.00 | ) | |
$ | (18,763,939.00 | ) |
Total stockholders’ equity (Deficit) | |
| 166,173 | | |
$ | 3,462,599.98 | | |
$ | 6,002,615.98 | |
Total Liabilities and Stockholders’ Deficit | |
$ | 7,964,334.00 | | |
$ | 11,260,760.98 | | |
$ | 13,800,776.98 | |
*As
of the date of this prospectus, we have not made a payment of the principal of $1,200,000 with the accrued interest of $325,843 which
comprised the balance of the purchase price pursuant to our asset purchase agreement with General Electric International (“GE”),
under which we acquired all assets of Heat Recovery Solutions business unit from General Electric International. In addition, we have
not paid GE an amount of $972,233 in accrued transitional fees. We believe that the outstanding amounts should have been an offset to
purchase price we paid due to a misrepresentation of the values of the disclosed assets as reflected in the principal amount of the outstanding
note and in the transition agreements. CETY stopped making payments and informed GE that it had encountered difficulties because of the
valuations of the assets that were acquired from GE. Given that the values of the assets were different than GE’s internal reports
and as we discussed at the time of the transaction with GE’s management, we proposed a change in the amount the Company owes GE
under the purchase agreement, but GE was non-responsive and GE’s entire distributed power vertical has been divested.
Based
on the California Statute of Limitations, the Nevada Statute of Limitations, and the New York Statute of Limitations it is the view of
our legal counsel that the above referenced debt is no longer an enforceable obligation under California law, Nevada law, and New York
law, as it became past due no later than November 3, 2016, more than Six (6) years ago and last payment made on the debt was on November
3, 2016, which is more than Six (6) years ago. As of December 31, 2022, this debt was written off.
The
table above excludes:
|
(i) |
up
to 3,636,065 shares of common stock issuable upon the exercise of outstanding common stock purchase warrants and the conversion
of outstanding convertible notes offered by the Selling Shareholders; |
|
|
|
|
(ii) |
shares of common stock issuable upon the conversion of
outstanding convertible notes issued to 1800 Diagonal Lending, LLC in the total principal amount of $656,153. |
|
|
|
|
(iii) |
29,250
shares of common stock underlying the warrants
to be issued to the Representatives in connection with this Underwritten Offering (33,637, if the underwriters exercise the
over-allotment option in full). |
|
|
|
|
(iv) |
Excludes 100,446 shares of common stock issued on December
28, 2022 upon the exercise of the warrant that the Company issued to Mast Hill on May 6, 2022, and excludes 33,114 shares of common
stock issued on March 1, 2023 upon the exercise of the warrant that the Company issued to First Fire Global Opportunities Fund, LLC
on August 17, 2022. An additional 56 shares of common stock were issued as a result of rounding up fractional shares in the reverse
stock split effective January 19, 2023. |
DILUTION
If
you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the public offering
price per share you will pay in this Underwritten Offering and the adjusted net tangible book value per share of our common stock after
this Underwritten Offering.
The historical net tangible book
value of our common stock as of September 30, 2022 was approximately $(3,266,351), or ($0.088) per share based upon 37,074,432
shares of common stock outstanding on such date. Historical net tangible book value per share represents the amount of our total tangible
assets reduced by the amount of our total liabilities, divided by the total number of shares of common stock outstanding.
Following the Underwritten Offering,
our adjusted net tangible book value of our common stock will be $0.00 per share. Adjusted net tangible book value per share represents
adjusted net tangible book value divided by the total number of shares outstanding after giving effect to the sale of the shares in this
Underwritten Offering at the public offering price of $4.00 per share, after deducting underwriting discounts and commissions
and other estimated offering expenses payable by us. This represents an immediate increase in as adjusted net tangible book value of
$0.09 per share to existing stockholders and an immediate dilution of $3.91per share to investors purchasing shares of
common stock in the Underwritten Offering at the assumed public offering price.
The
following table illustrates this dilution on a per share basis to new investors:
Public offering price per share | |
$ | 4.00 | |
Net tangible book value per share as of September 30, 2022 | |
$ | (0.09 | ) |
Increase in net tangible book value per share attributable to this Underwritten Offering | |
$ | 0.09 | |
As adjusted net tangible book value per share after giving effect to this Underwritten Offering | |
$ | 0.00 | |
Dilution in net tangible book value per share to purchasers in this Underwritten Offering | |
$ | (3.91 | ) |
If
the underwriters’ over-allotment option is exercised in full, our adjusted net tangible book value following the Underwritten Offering
will be $0.01 per share, and the dilution to investors purchasing shares of common stock in the Underwritten Offering will be
$3.90 per share.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto. The management’s
discussion and analysis contain forward-looking statements, such as statements of our plans, objectives, expectations, and intentions.
Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,”
“plan,” “intend,” “anticipate,” “target,” “estimate,” “expect”
and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,”
etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to
risks and uncertainties, including those under “Risk Factors,” that could cause actual results or events to differ materially
from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially
from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update
forward-looking statements to reflect events or circumstances occurring after the date of this prospectus.
Description
of the Company
We
specialize in renewable energy & energy efficiency systems design, manufacturing and project implementation. We were incorporated
in California in July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to Nevada in April 2005 under the name
Probe Manufacturing, Inc. We provided engineering and manufacturing electronics services to original equipment manufacturers (OEMs) of
clean energy, industrial, automotive, semiconductor, medical, communication, military, and high technology products.
With
the vision to combat climate change and creating a better, cleaner and environmentally sustainable future, we formed Clean Energy HRS,
LLC a wholly owned subsidiary 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. We have 11 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 CETY Europe, SRL (CETY Europe) as a wholly owned subsidiary in 2017. CETY Europe is a sales and
service center located in Silea (Treviso), Italy, which became operational in November 2018. Their offices are located at Alzaia Sul
Sile, 26D, 31057 Silea (TV) and have 1 full time employee.
Clean
Energy Technologies, Inc. established a wholly owned subsidiary called CETY Capital, a financing arm of CETY to fund captive renewable
energy projects producing low carbon energy. CETY Capital will add flexibility to the capacity CETY offers its customers and fund projects
utilizing its products and clean energy solutions.
Clean
Energy Technologies (H.K.) Limited., a wholly owned subsidiary of Clean Energy Technologies Inc. acquired 100% ownership of Leading Wave
Limited a liquid natural gas trading company in China.
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.
Operating
performance is dependent on the Company’s ability to manage changes in input costs for items such as raw materials, labor, and
overhead operating costs. Performance is also affected by manufacturing efficiencies, including items such as on time delivery, quality,
scrap, and productivity. Market factors of supply and demand can impact operating costs
In
December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China and has spread throughout the United States and
the rest of the world. The World Health Organization has declared the outbreak to constitute a “Public Health Emergency of International
Concern.” This contagious disease outbreak, which has not been contained, and is disrupting supply chains and affecting production
and sales across a range of industries in United States and other companies as a result of quarantines, facility closures, and travel
and logistics restrictions in connection with the outbreak, as well as the worldwide adverse effect to workforces, economies and financial
markets, leading to a global economic downturn. Therefore, the Company expects this matter to negatively impact its operating results.
However, the related financial impact and duration cannot be reasonably estimated at this time.
Who
We Are
We
develop renewable energy products and solutions and establish partnerships in renewable energy that make environmental and economic sense.
Our mission is to be a leader in the Zero Emission Revolution by offering recyclable energy solutions, clean energy fuels and alternative
electric power for small and mid-sized projects in North America, Europe, and Asia. We target sustainable energy solutions that are profitable
for us, profitable for our customers and represent the future of global energy production.
Our
principal businesses
Waste
Heat Recovery Solutions – we recycle wasted heat produced in manufacturing, waste to energy and power generation facilities
using our patented Clean CycleTM generator to create electricity which can be recycled or sold to the grid.
Waste
to Energy Solutions - we convert waste products created in manufacturing, agriculture, wastewater treatment plants and other industries
to electricity, renewable natural gas (“RNG”), hydrogen and bio char which are sold or used by our customers.
Engineering,
Consulting and Project Management Solutions – We have expanded our legacy electronics and manufacturing business and plan to
manufacture component parts for our Waste Heat Recovery and Waste to Energy business and to provide consulting services to municipal
and industrial customers and Engineering, Procurement and Construction (EPC) companies so they can identify, design and incorporate clean
energy solutions in their projects.
CETY
HK
CETY HK consists of two business ventures in mainland
China:(i) our NG trading operations sourcing and suppling NG to industries and municipalities. The NG is principally used for heavy truck
refueling stations and urban or industrial users. We purchase large quantities of NG from large wholesale NG depots at fixed prices which
are prepaid for in advance at a discount to market. We sell the NG to our customers at prevailing daily spot prices for the duration
of the contracts; and (ii) our planned joint venture with Shenzhen Gas, acquiring natural gas pipeline operator facilities, primarily
located in the southwestern part of China. Our planned joint venture with Shenzhen Gas plans to acquire, with financing
from Shenzhen Gas, natural gas pipeline operator facilities with the goal of aggregating and selling the facilities to Shenzhen Gas in
the future. According to our Framework Agreement with Shenzhen Gas, we will be required to contribute $8 million to the joint venture
which the Company expects to raise in future financings. The terms of the joint venture are subject to the execution of definitive
agreements.
Segment
Information
We
design, produce and market clean energy products and integrated solutions focused on energy efficiency and renewable energy. Our aim
is to become a leading provider of renewable and energy efficiency products and solutions by helping commercial companies and municipalities
reduce energy waste and emissions, lower energy costs and generate incremental revenue by providing electricity, renewable natural gas
and biochar to the grid.
Our
four segments for accounting purposes are:
Clean
Energy HRS (HRS) – which engages in engineering, manufacturing and installing waste heat recovery solutions incorporating
our Clean Cycle Generator.
CETY
Europe – our subsidiary established in Italy for the purposes of servicing our customers in the EU that we are required
to report as a separate accounting entity.
Engineering
and Manufacturing Business – our legacy electronics manufacturing business that do not contribute significantly to our
revenues or business plan that we are required to report as a separate accounting entity.
CETY HK –
which is the parent company of our NG trading operations in China that source and supply NG and our planned joint venture to acquire NG
distribution systems depots and transmission systems. Prior to the first quarter of 2022, the Company had three reportable segments but
added the CETY HK segment to reflect its recent new businesses in China.
Principal
Factors Affecting Our Financial Performance
Our
business requires significant capital for inventory and equipment associated with manufacturing our waste to energy and waste heat recover
products, As a result, the availability of debt and equity capital to finance the sales of our products at reasonable rates is key determinate
of our financial performance. In addition, the financial stability of our clients who purchase our equipment will impact our sales and
ability to price our products at competitive rates. Our business is strongly dependent on federal and state tax and investment incentive
programs for clean energy. If the U.S. and foreign governments reduce these incentives, it will become difficult for us to price our
product at competitive rates. In addition, the price of traditional energy will determine how profitable it is to install our equipment.
As prices rise, the demand for our equipment increases. As they decline, the financial justification for clean energy technology decreases.
Finally, our business is dependent on the global supply chain for parts. If there are disruptions in the supply of our components or
if the prices increase, our margins decrease and our ability to provide clean energy products at competitive prices decrease. The price
of gas and our ability to forecast the future prices when purchasing natural for our gas trading operation in the PRC impact our margins
and ability to operate profitable.
Results of the Nine Months Ended September
30, 2022 Compared to the Nine Months Ended September 30, 2021
Going
Concern
The financial statements have been prepared on a
going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal
course of business. The Company had a total stockholder’s equity of $166,173 and a working capital deficit of $4,000,686
as of September 30, 2022 The company also had an accumulated deficit of $18,763,939 as of September 30, 2022 and used
$1,016,545 in net cash from operating activities for the three months ended September 30, 2022. 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.
The three months ended September 30, 2022; we
had a net loss of $540,986 compared to a net loss of $277,664 for the same period in 2021. The increase in the net loss in 2022 was mainly
due to the increase in professional fees including legal & accounting due to the expenses associated with the IPO up listing to NASDAQ
and lower sales in the quarter. The three months ended September 30, 2022; our revenue was $44,629 compared to $575,545 for the same
period in 2021. For the three months ended September 30, 2022, our gross margin was 58% compared to 52% for the same period in 2021.
For the three months ended September 30, 2022, our operating expense was $566,899 compared to $578,808 for the same period in 2021.
Net
Sales
The Company has four reportable segments: Clean
Energy HRS (HRS), CETY Europe srl, Engineering and Manufacturing Business and CETY HK.
Segment
breakdown
The nine
months ended September 30, 2022, our revenue from Engineering and Manufacturing was $132,316 compared to $91,262 for the same
period in 2021.
The nine
months ended September 30, 2022, our revenue from HRS was $461,292 compared to $602,207 for the same period in 2021. This decrease
was mainly because of delay with the passing of inflation reduction act and the incentives associated with heat recovery solution.
The nine months ended September 30, 2022, our
revenue from CETY Europe was $48,138 compared to $173,234 for the same period in 2021. This decrease was a result of a sell of an equipment
in 2021 vs. just the service revenue.
The nine months ended September 30, 2022, our
revenue from our wholly owned subsidiary CETY HK was $1,925,950 compared to $0 for the same period in 2021. This is a s a result of the
acquisition of JHJ gas company made in November of 2021. We started to generate revenue from this entity in the 1st quarter
of 2022.
Gross Profit
The nine months ended September 30,
2022; our gross profits were $1,151,903 compared to $519,683 for the same period in 2021. The increase in gross profit was due
to higher revenues.
Segment breakdown
The nine
months ended September 30, 2022, our gross profit from Engineering and Manufacturing was $85,352 compared to $72,853 for the same
period in 2021.
The nine
months ended September 30, 2022, our gross profit from HRS was $427,219 compared to $312,118, for the same period in 2021. The
increase from the HRS segment was mainly due to higher revenue in the first quarter of 2022.
The nine
months ended September 30, 2022, our gross profit from CETY Europe was $40,315 compared to $134,712 for the same period in 2021.
The decrease in gross profit was due to revenue generated from the sale of a clean cycle waste heat recovery system.
The nine
months ended September 30, 2022, our gross profit from our wholly owned subsidiary CETY HK was $631,082 compared to $0 for the
same period in 2021. We had zero revenue from CETY HK in 2021.
Selling, General and Administrative (SG&A)
Expenses
The nine months ended September 30,
2022; our SG&A expense was $284,025 compared to $529,335, for the same period in 2021. The decrease was a result of separating
the subcontractor category from SG&A and lower cost of repair.
Salaries Expense
The nine months ended September 30,
2022; our Salaries expense was $587,928 compared to $661,634 for the same period in 2021. The decrease in the quarter ending in
September 30, 2022 was due to less number of employees.
Travel Expense
The nine months ended September 30,
2022; our travel expense was $126,388 compared to $66,735 for the same period in 2021. The increase in the quarter ending in September
30, 2022 was due to additional site assessment surveys of multiple facilities in Europe and global commissioning.
Professional
fees Expense
The nine months ended September 30,
2022; our Professional fees expense was $359,636 compared to $123,383 for the same period in 2021. The increase in legal fees
was due to higher expenses related to a proposed IPO and up listing to NASDAQ.
Facility
Lease and Maintenance Expense
The nine months ended September 30,
2022; our Facility Lease and maintenance expense was $260,262 compared to $254,708 for the same period in 2021.
Depreciation and Amortization Expense
The nine months ended September 30,
2022, our depreciation and amortization expense was $22,557 compared to $24,219 for the same period in 2021, which remained relatively
unchanged.
Change in Derivative Liability
The nine months ended September 30, 2022; we had
a gain on derivative liability of $12,980, compared to a gain of $1,734,624 for the same period in 2021. The gain in derivative liability
was due to paying off several convertible notes in the six months ended June 30, 2021.
Gain on debt settlement
The nine months ended September 30, 2022, we recognized
a gain on debt settlement in the amount of $2920 compared to $828,666 for the nine months ended September 30, 2021.
Interest and Finance Fees
The nine months ended September 30, 2022 interest
and finance fees were $747,451 compared to $603,240 for the same period in 2021.
Net Income / Loss
The nine months
ended September 30, 2022; our loss was $1,341,920 compared to net profit of $819,719 for the same period in 2021. The higher
profits was primarily due to the gain on derivative liability in 2021.
Liquidity
and Capital Resources
Clean Energy Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2022
(unaudited)
|
|
2022 |
|
|
2021 |
|
Net Cash provided / (Used) In Operating Activities |
|
$ |
(1,929,678 |
) |
|
$ |
(1,964,231 |
) |
Cash Flows Used In Investing Activities |
|
|
(1,388,734 |
) |
|
|
- |
|
Cash Flows Provided / (used) By Financing Activities |
|
|
2,545,003 |
|
|
|
3,104,503 |
|
Net (Decrease) Increase in Cash and Cash Equivalents |
|
$ |
(1,016,545 |
) |
|
$ |
1,140,272 |
|
On
February 21, 2022 the Company completed public and private financing of an aggregate of $1,202,800.
Cash
Flow from Operating Activities
Net
cash used in operating activities was $1,929,678 during the nine months ended September 30, 2022, compared to net cash used in operating
activities of $1,964,231 during the nine months ended September 30, 2021, a slight decrease on cash outflow of $34,553. The decrease
in cash outflow was mainly due to decreased cash outflow on inventory by $101,982, decreased cash outflow on accounts payable by $718,191,
and increased cash inflow on accrued expenses by $29,650, which was partly offset by increased cash outflow on accounts receivable by
$602,342, decreased cash inflow on customer deposits by $135,810, and decreased cash inflow on long-term financing receivable by $67,630.
Cash
Flow from Investing Activities
Net
cash used in investing activities totaled $1,388,734 for the nine months ended September 30, 2022, which consists of short-term loan
to Heze Hongyuan Natural Gas Co of $838,090 and capital contribution to our 49% owned subsidiary Shuya. Net cash used in investing activities
was $0 for the nine months ended September 30, 2021.
Cash
Flow from Financing Activities
Net
cash provided by financing activities was $2,545,003 during the nine months ended September 30, 2022, which was $1,677,300 proceeds from
notes payable, and proceeds from stock issuance of $1,493,945, but partly offset with payment on credit line of $219,656, and payment
on notes payable of $406,586. Net cash provided by financing activities was $3,104,503 during the nine months ended September 30, 2021,
which was $414,200 proceeds from notes payable, and proceeds from stock issuance of $3,584,511, but partly offset with payment on credit
line of $894,208.
Critical
Accounting Policies
Our
financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles
applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods.
We
regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these
policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience,
on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and
circumstances. Actual results could differ from those estimates made by management.
Future
Financing
We
will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional
shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity
securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
Off-Balance Sheet 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.
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.
Results
for the Year Ended December 31, 2021, compared to the Year Ended December 31, 2020
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 $1,702,653 excluding
none controlling interest and a working capital deficit of $4,274,383 and an accumulated deficit of $17,423,930 as of December 31,
2021 and used $2,552,547 in net cash from operating activities for the year ended December 31, 2021. Therefore, there is doubt
about the ability of the Company to continue as a going concern. There can be no assurance that the Company will achieve its goals and
reach profitable operations and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to
generate positive cash flow from operations.
For
the year ended December 31, 2021, we had a net profit of $278,492 compared to a net loss of $3,435,764 for the same period in
2020. The increase in the net profit in 2021 was mainly due to the change in derivative liability associated with the convertible debt
and lower interest expense from 2021 to 2020.
The
following table shows key components of our results of operations during the years ended December 31, 2021 and 2020.
| |
For the Year Ended December 31, 2021 | | |
For the Year Ended December 31, 2020 | |
Sales | |
$ | 1,300,439 | | |
$ | 1,406,005 | |
Cost of Goods Sold | |
| 690,032 | | |
| 654,937 | |
Gross Profit | |
| 610,407 | | |
| 751,068 | |
| |
| | | |
| | |
General and Administrative | |
| | | |
| | |
General and Administrative expense | |
| 488,177 | | |
| 480,812 | |
Salaries | |
| 772,463 | | |
| 495,269 | |
Travel | |
| 145,170 | | |
| 86,292 | |
Professional Fees | |
| 155,241 | | |
| 111,318 | |
Facility lease and Maintenance | |
| 346,454 | | |
| 363,643 | |
Consulting | |
| 243,371 | | |
| 157,149 | |
Bad Debt Expense | |
| - | | |
| 259,289 | |
Depreciation and Amortization | |
| 32,292 | | |
| 32,912 | |
Total Expenses | |
| 2,183,167 | | |
| 1,986,684 | |
Net Profit / (Loss) From Operations | |
| (1,572,760 | ) | |
| (1,235,616 | ) |
| |
| | | |
| | |
Change in derivative liability | |
| 1,752,119 | | |
| (1,270,099 | ) |
Gain / (Loss) on debt settlement and write down | |
| 868,502 | | |
| 399,181 | |
Interest and Financing fees | |
| (769,369 | ) | |
| (1,329,230 | ) |
Net Profit / (Loss) Before Income Taxes | |
| 278,492 | | |
| (3,435,764 | ) |
Income Tax Expense | |
| - | | |
| - | |
Net Profit / (Loss) | |
| 278,492 | | |
| (3,435,764 | ) |
| |
| | | |
| | |
Non-controlling interest | |
| (19,059 | ) | |
| - | |
| |
| | | |
| | |
Net Profit / (Loss) attributable to Clean Energy Technologies, Inc. | |
| 297,551 | | |
| (3,435,764 | ) |
| |
| | | |
| | |
Per Share Information: | |
| | | |
| | |
Basic weighted average number of common shares outstanding and diluted | |
| 22,519,352 | | |
| 19,196,529 | |
| |
| | | |
| | |
Net Profit / (Loss) per common share basic and dilluted | |
$ | 0.00 | | |
$ | (0.00 | ) |
Net
Sales
For
the year ended December 31, 2021, our total revenue was $1,300,439 compared to $1,406,005 for the same period in 2020. For the years
ended December 31, 2021 and 2020, the Company had three reportable segments: Clean Energy HRS (HRS), CETY Europe and the legacy engineering
& manufacturing services division.
Segment
breakdown
For
the year ended December 31, 2021, our revenue from Engineering and Manufacturing was $93,371 compared to $422,630 for the same period
in 2020. The decrease was mainly due to CETY’s transition from the legacy business to the core business of Clean Energy Technologies
and solutions.
For
the year ended December 31, 2021, our revenue from HRS was $1,014,707compared to $930,882 for the same period in 2020.
For
the year ended December 31, 2021, our revenue from CETY Europe was $192,361compared to $52,492 for the same period in 2020. The increase
was mainly due to additional product sales.
Gross
Profit
For
the year ended December 31, 2021, our gross profits decreased to $610,407 from $751,068 for the same period in 2020. Our gross profits
could vary from period to period and is affected by several factors, including, production and supply change efficiencies, material costs,
logistics and increase in personnel.
Segment
breakdown
For
the year ended December 31, 2021, our gross profit from Engineering and Manufacturing was ($90,328) compared to $118,412 for the same
period in 2020. This decrease from the Electronic Assembly Segment was mainly due to increase of $71,104 to the inventory reserve.
For
the year ended December 31, 2021, our gross profit from HRS was $547,812compared to $581,903 for the same period in 2020. The decrease
from the HRS segment was mainly due to higher cost of materials due to the supply China issues caused by the pandemic in 2021.
For
the year ended December 31, 2021, our gross profit from CETY Europe was $152,923 compared to $50,753 for the same period in 2020. The
decrease was due to the decrease in revenue in 2020.
Selling,
General and Administrative (SG&A) Expenses
For
the year ended December 31, 2021, our SG&A expense was $488,177compared to $480,812 for the same period in 2020.
Salaries
Expense
For
the year ended December 31, 2021, our Salaries expense was $772,463 compared to $495,269 for the same period in 2020. This increase was
due to the increase of key personnel.
Travel
Expense
For
the year ended December 31, 2021, our travel expense was $145,170 compared to $86,292 for the same period in 2020. The increase was mainly
due to less travel because of COVID 19 travel restrictions in 2020 and increase in service and commissioning of recent installations
in 2020 and 2021.
Facility
Lease Expense
For
the year ended December 31, 2021, our Facility Lease expense was $346,454 compared to $363,643 for the same period in 2020. This increase
was due to the increase as a result of the original contractual agreement in our Costa Mesa facility Lease.
Consulting
Expense
For
the year ended December 31, 2021, our consulting expense was $243,371 compared to $157,149 for the same period in 2020. This increase
was due to the increase in engineering services.
Bad
Debt
For
the year ended December 31, 2021, our bad debt expense was $0 compared to $259,289 for the same period in 2020. This change from 2020
was due to the long-term impairment of accounts receivable.
Depreciation
and Amortization Expense
For
the year ended December 31, 2021, our depreciation and amortization expense was $32,292 compared to $32,912 for the same period in 2020.
Professional
fees Expense
For
the year ended December 31, 2021, our Professional fees expense was $155,241compared to $111,318 for the same period in 2020. The increase
was mainly due to the increase in legal fees associated with our 1A registration and accounting fees in 2020.
Net
(Loss) from operations
For
the year ended December 31, 2021, our net loss from operations was $1,572,760 compared to net loss from operations of $1,235,616 for
the same period in 2020. The increase in the loss in 2021 was mainly due the additional employees and cost of materials due to the pandemic.
Change
in Derivative Liability
For
the year ended December 31, 2021, we had a gain on derivative liability of $1,752,119 compared to a loss of $1,270,099 for the same period
in 2020.
Gain
on debt settlement and write off
For
the year ended December 31, 2021, we recognized a gain on debt settlement of $868,502 compared to $399,181 for the year ended December
31, 2020 due to several liabilities statute of limitations had expired.
Interest
and Finance Fees
As
of December 31, 2021, we had $769,369 of interest expense and financing fees and $1,329,230 for the year ending December 31, 2020.
Liquidity
& Capital Resources
As
of December 31, 2021, we had cash and equivalents of $1,192,316, other current assets of $1,413,188, current liabilities of $6,865,123,
working capital deficit of $4,259,619, a current ratio of 0.38:1. As of December 31, 2020, we had cash and equivalents of $414,885, other
current assets of $1,041,142, current liabilities of $9,785,809, working capital deficit of $8,329,782, a current ratio of 0.15:1. The
following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2021,
and 2020, respectively.
| |
2021 | | |
2020 | |
Net cash used in operating activities | |
$ | (2,552,547 | ) | |
$ | (1,430,395 | ) |
Net cash used in investing activities | |
$ | (1,500,000 | ) | |
$ | - | |
Net cash provided by financing activities | |
$ | 4,829,978 | | |
$ | 1,837,874 | |
Net
cash used in operating activities
Net
cash used in operating activities was $2,552,547 for the year ended December 31, 2021, compared to $1,430,395 in 2020. The increase of
cash outflow of $1,122,152 from operating activities for the year ended December 31, 2021 was principally attributable to increased cash
outflow on accrued expense by $434,905, increased cash outflow on accounts payable by $275,055, decreased cash inflow on accounts receivable
by $370,324.
Net
cash used in investing activities
Net
cash used in investing activities was $1,500,000 for the year ended December 31, 2021, compared to $0 in 2020. For the year ended December
31, 2021, we have investment in CETY HK of $1,500,000 for acquiring 100% ownership interests in CETY HK.
Net
cash provided by financing activities
Net
cash provided by financing activities was $4,829,978 for the year ended December 31, 2021, compared to $1,837,874 in 2020. The net cash
provided by financing activities in 2021 consisted of proceeds of $4,761,090 from stock issued, proceeds of $975,000 from loans payable
and lines of credit, but partly offset by repayment of notes payable and lines of credit of 906,112. The net cash provided by financing
activities in 2020 mainly consisted of proceeds of $1,171,020 from stock issued for cash, proceeds of $1,150,502 from notes payable and
lines of credit, proceeds of $60,000 form notes payable from related party, but partly offset by repayment of notes payable and line
of credit of $507,168, repayment of notes payable to related party of $35,000 and bank overdraft of $1,480.
Our
current liabilities exceed current assets at December 31, 2021, and we incurred substantial losses and cash outflows from operating activities
in the periods presented. We may have difficulty to meet upcoming cash requirements. As of December 31, 2021, our principal source of
funds was from stock and notes issuance. In addition to our continuous effort to improve our sales and net profits, we have explored
and continue to explore other options to provide additional financing to fund future operations as well as other possible courses of
action. Such actions may include, but are not limited to, securing lines of credit, sales of debt or equity securities (which may result
in dilution to existing shareholders), loans and cash advances from other third parties or banks, and other similar actions. There can
be no assurance that we will be able to obtain additional funding (if needed), on acceptable terms or at all, through a sale of our common
stock, loans from financial institutions, or other third parties, or any of the actions discussed above. If we cannot sustain profitable
operations, and additional capital is unavailable, lack of liquidity could have a material adverse effect on our business viability,
financial position, results of operations and cash flows.
Critical
Accounting Policies
Our
financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles
applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods.
We
regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these
policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience,
on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and
circumstances. Actual results could differ from those estimates made by management.
DESCRIPTION
OF BUSINESS
Who
We Are
We
develop renewable energy products and solutions and establish partnerships in renewable energy that make environmental and economic sense.
Our mission is to be a leader in the Zero Emission Revolution by offering recyclable energy solutions, clean energy fuels and alternative
electric power for small and mid-sized projects in North America, Europe, and Asia. We target sustainable energy solutions that are profitable
for us, profitable for our customers and represent the future of global energy production.
Waste
Heat Recovery Solutions – we recycle wasted heat produced in manufacturing, waste to energy and power generation facilities
using our patented Clean CycleTM generator to create electricity which can be recycled or sold to the grid.
Waste
to Energy Solutions – we convert waste products created in manufacturing, agriculture, wastewater treatment plants and other
industries to electricity, renewable natural gas (“RNG”), hydrogen and bio char which are sold or used by our customers.
Engineering,
Consulting and Project Management Solutions – we have expanded our legacy electronics and manufacturing business and plan to
manufacture component parts for our Waste Heat Recovery and Waste to Energy business and to provide consulting services to municipal
and industrial customers and Engineering, Procurement and Construction (EPC) companies so they can identify, design and incorporate clean
energy solutions in their projects.
CETY HK – CETY HK consists of two business
ventures in mainland China:(i) our NG trading operations sourcing and suppling NG to industries and municipalities. The NG is principally
used for heavy truck refueling stations and urban or industrial users. We purchase large quantities of NG from large wholesale NG depots
at fixed prices which are prepaid for in advance at a discount to market. We sell the NG to our customers at prevailing daily spot prices
for the duration of the contracts; and (ii) our planned joint venture with Shenzhen Gas, acquiring natural gas pipeline operator facilities,
located in the southwestern part of China. Our planned joint venture with Shenzhen Gas plans to acquire, with financing
from Shenzhen Gas, natural gas pipeline operator facilities with the goal of aggregating and selling the facilities to Shenzhen Gas in
the future. According to our Framework Agreement with Shenzhen Gas, we will be required to contribute $8 million to the joint venture
which the Company plans to raise in future fiancings. The terms of the joint venture are subject to the execution of definitive
agreements.
Our
Business Strategy
Our
strategy is focused on further developing our existing Waste Heat Recovery business while expanding into the rapidly growing markets
for Waste to Energy Solutions and clean energy engineering, consulting and project management services.
Our
strategy focuses on three main elements:
|
● |
Expanding
our Clean Energy HRS business’s waste heat recovery product line to include waste heat recovery ORC systems producing over
1 MW of power so we can qualify for midsized and large heat recovery projects in the United States, China, Southeast Asian and Pacific
Rim countries. |
|
|
|
|
● |
Establishing
a Waste to Energy business by selling our ablative thermal processing products based on proprietary HTAP technology and developing
small and mid-sized waste to energy power plants producing electricity and RNG for the grid and methane, hydrogen and biochar for
resale. |
|
|
|
|
●
● |
Leveraging
our engineering, procurement and manufacturing experience in Waste Heat Recovery and Waste
to Energy to assist companies and EPCs incorporate clean energy solutions into energy and
industrial construction projects.
Expanding
our NG trading operations in China by acquiring more customers and developing the planned joint venture with Shenzhen Gas by acquiring
natural gas pipeline operators’ facilities. |
We
intend to implement this strategy through:
|
● |
Adding
a new ORC system manufactured by Enertime for Waste Heat Recovery that will enable us to implement projects in the U.S. markets producing
between 1 MW and 10 MW of electricity. |
|
|
|
|
● |
Taking
advantage of federal investment tax credits and state incentives that now include waste heat recover as a recognized clean energy
source making our Clean Cycle Generator and ORC systems more profitable to install. On December 21, 2020, Congress passed the Consolidated
Appropriations Act, 2021 enacted waste energy recovery Sec. 48 Investment Tax Credit, which extended Investment Tax Credit of 26%
including Waste Heat to Power providing a dollar-for-dollar offset against current liability. |
|
|
|
|
● |
Benefiting
from higher energy costs which provide higher returns on our Waste Heat Recovery and Waste to Energy products and projects. |
|
|
|
|
● |
Improving
our balance sheet and capital position to permit us to invest in more products and projects. |
|
|
|
|
● |
Establishing
HTAP manufacturing facilities in Turkey for our Waste to Energy products and expanding patent protection on the proprietary technology. |
|
|
|
|
● |
Leveraging
our existing marketing channels to sell HTAP Waste to Energy products to industrial companies and government agencies. |
|
● |
Working
with clean energy project development and finance companies to establish Waste to Energy power plants producing electricity, RNG,
hydrogen, methane and biochar from biomass, municipal waste, timber waste and other biomass and while retaining an equity interest
in these facilities to provide re-occurring revenue. |
|
|
|
|
● |
Sourcing
NG and selling it to privately owned pipeline companies in China through our newly formed NG Trading company to participate in
the rapidly growing clean energy market. |
|
|
|
|
● |
Acquiring
natural gas pipeline operators into our planned joint venture with Shenzhen Gas who will hold 51% of the joint venture and agreed
to finance these acquisitions in a framework agreement. |
|
|
|
|
● |
Participate
in other minority investments in medium to large clean energy projects being developed in China that may be sourced by our majority
stockholder in Hong Kong. |
|
|
|
|
● |
Leveraging
the NG trading and investment relationships to create opportunities for us to sell our Waste Recovery and Waste to Energy products
in China and to provide engineering, consulting and project management services. |
|
|
|
|
● |
Expanding our NG trading operations in China by acquiring
more customers and developing the planned joint venture with Shenzhen Gas by acquiring natural gas pipeline operators’ facilities. |
In
2021, we raised $4.78 million in a Regulation A equity offering. The proceeds from this offering were used to expand and enhance our
existing business, improve our balance sheet and to expand into new energy-based businesses in China.
Our
principal businesses
Our
Clean Energy HRS Business
Waste
Heat Recovery Solutions
We
provide our customers with power plants that capture wasted heat energy and produce electricity using a unique Organic Rankine Cycle
(ORC) system containing our Clean CycleTM generator. Our magnetic bearing Integrated Power Modules is at the heart of our
Clean CycleTM generator which can fit into a standard cargo container we call our Containerized System Module, producing 140KW
per Clean Cycle generator and can be linked together for projects generating up to 1MW of power.
Our
recent agreement with Enertime now permits us to sell midsized and large ORC systems (between 1 MW and 10 MW) in the United States, allowing
us to offer a full range of ORC systems to our customers. We believe this new capacity will enable us to expand our product offerings
into larger scale waste recovery products in the United States. Enertime is one of the leaders in producing ORC systems in Europe.
ORC
waste heat recycling systems use pressurized working fluids that have a lower boiling point than water which make them ideal to repurpose
waste heat into electricity. While most manufacturing processes do not produce enough heat to turn water into steam, there is enough
heat to generate pressurized refrigerant in our ORC systems which is used to turn a turbine at high speeds to generate electricity.
Each
Clean Cycle Generator can generate up to 1 GWh of electricity per year for every 1 MW of thermal energy from waste heat which we estimate
would reduce up to 5000 metric tons of CO2 production per year in an industrial heat recovery system or the annual equivalent of the
CO2 emissions of approximately 2000 cars per year.
We
believe the most important component in any ORC system is the turbine generator because it converts the steam heat into electricity and
accounts for approximately 60% of the cost of the system. The more efficiently the turbine generator works, the better the ORC power
plant operates. The remaining components consisting of the low boiling point fluid, condensers, which cool the fluids, the feed pumps,
which pressurize the fluids to reduce boiling points and the heat exchangers, which extract the heat from the heat sources. These are
more commoditized products and tend to perform at similar levels of efficiencies at similar price points.
We
believe our Clean CycleTM generator is the most efficient turbine generator in its class and size available in the market
for ORC systems generating up to 1 MW. We estimate that the Clean CycleTM generator has higher efficiency of approximately
15% than our competitors and its magnetic design eliminates the use of oils and lubricants, which we believe significantly reduces down
time, repairs and operating costs. Our Integrated Power Module is compact and fit into a standard cargo container that can be delivered
on a turnkey basis resulting in what we believe are lower installation and implementation costs than on-site assembly.
We
believe these features and benefits give us an important competitive advantage when building heat recovery power plants for our customers
and provide us with the opportunity to compete with and obtain market share from the dominant industrial waste heat to power systems.
Approximately
121 Clean CycleTM generators have been deployed to date with units being used in biomass and waste to energy projects, diesel
electric generators, turbine electric generators and industrial electric production applications. In 2021, we sold CCII units at 3 sites
generating approximately $1.2 million in revenue. We expect to raise additional funds to expand our capacity to install 6-8 units per
year which should approximately double our sales on a year-to-year basis.
We
have a current backlog of two units representing approximately $800,000 in sales revenues.
The
patented technology used in Clean CycleTM generator was purchased from General Electric International, together with over
100 installation sites, making us one of the leading provider of small-scale industrial waste heat to power systems. We have an exclusive
license from Calnetix to use their magnetic turbine for heat waste recovery applications.
|
|
Our
Integrated Power Module |
Our
Clean Cycle TM Generator |
A
complete ORC System with Integrated Power Module housed in a Containerized System Module (CSM)
Our
Waste to Energy Business
Waste
to Energy Solutions
We
are adding a new business line in our clean energy solutions business consisting of Waste to Energy processing equipment, engineering
services and Waste to Energy processing power plant joint ventures where we expect to retain an ownership interest in the project.
Waste-to-Energy
technologies that process non-renewable waste can reduce environmental and health damages while generating sustainable energy. Waste-to-Energy
technologies consist of waste treatment process that creates energy in the form of electricity, heat or fuels from a waste source. These
technologies can be applied to several types of waste: from the biomass (e.g. woodchips) to semi-solid (e.g. thickened sludge from effluent
treatment plants) to liquid (e.g. domestic sewage) and gaseous (e.g. refinery gases) waste.
Waste
to Energy Solutions can be used:
|
● |
In
any town, city or province with established waste management and collection. |
|
● |
Where
there is a consistent supply of solid waste. |
|
● |
Places
where treatment costs increase with shortages of space to store waste. |
|
● |
In
areas with high energy prices to allow for cost of recovery from waste. |
Waste
to Energy Solutions have many benefits:
|
● |
Electricity
from Waste to Energy plants can be generated from small amounts up to 30 MW providing for a wide range of opportunities to sell it
back to the grid. |
|
● |
The
synthetic renewable fuel gas produced from waste can be used for various production recyclable energy such as hot water, thermo-oil or steam, renewable natural gas or hydrogen. |
|
● |
Landfill
waste is reduced and so is leachate and methane released from decomposing landfills. |
|
● |
Waste
is a reliable source of energy and production is typically predictable and low cost whereas fossil fuel prices can fluctuate dramatically. |
But
Traditional Incineration Methods Have Significant Downsides:
|
● |
Air
pollution can increase because scrubbing technologies are very expensive to install. |
|
● |
Many
industrial, agricultural, and mixed municipal solid wastes have high moisture content at source and direct incineration of such waste
requires burning fossil fuel. |
|
● |
to
maintain thermal conversion process. |
|
● |
Carbon
is released into the air which would otherwise be stored in landfill. |
|
● |
Ash
and flue gas cleaning residues from incineration can also cause toxic leachate problems if not properly disposed of which is costly
and causes downstream environmental issues. |
|
● |
Generating
electricity from incineration releases more CO2, SO2, NOx and mercury than natural gas. |
(Source:
https://www.energyforgrowth.org/memo/waste-to-energy-one-solution-for-two-problems/)
The
most common form of waste to energy systems are based on incinerators which simply burn waste using air. The Thermal Treatment on Grate
is the most widespread technology being used by large waste landfills to generate electricity and heat. These systems produce substantial
amounts of ash, heavy metals and carbon dioxide which need to be treated and disposed of to minimize its impact on the environment. They
also require substantial amounts of pre-treatments prior to burning.
We
believe the Thermal on Grate incineration process, while wide-spread, is too expensive and complex for smaller and mid-sized waste to
energy projects creating, what we believe, is a significant market opportunity in small and mid-sized waste processing applications to
create not only electricity but valuable renewable natural gas, bio diesel oil, hydrogen, methane, and biochar.
Our
solution is a patented High Temperature Ablative Pyrolysis (HTAP) Biomass Reactor which we believe is a viable commercial solution to
the costs and environmental problems posed by traditional incarnation methods. We have the exclusive license and right to sell the HTAP10
and HTAP5 and related products manufactured by Enex which has a proven installed commercial base of customers using its waste to energy
solutions. We believe this is an ideal solution to process waste for small to mid-sized waste to energy generation applications needed
for processing industrial and municipality solid waste, agriculture waste, and forestry waste.
Pyrolysis
systems decompose waste without the use of oxygen under varying pressurized conditions and at temperatures ranging from 300 degrees Celsius
and 1,300 degrees Celsius. The major advantage of pyrolysis is that it is a cost-effective technology and helps curb environmental pollution.
Pyrolysis systems are gradually replacing traditional incineration and gaining momentum in the waste to energy processing market addresses
many of the pre-treatment issues and, when using high temperature and high-pressure, substantially reduce or eliminates pollutant. (Source:
“Life Cycle Assessment of Waste-to-Bioenergy Processes: A Review” Pooja Ghosh, ... Arunaditya Sahay, in Bioreactors,
2020)
Pyrolysis
systems can produce hydrogen, renewable natural gas, bio-diesel oil, charcoal, and biochar which are used to power hydrogen, diesel,
and natural gas engines or electrical turbines which can be sold and often are eligible for substantial tax and pricing benefits. When
compared with the conventional incineration plant that runs in the capacity of kilotons per day, the scale of the pyrolysis plant is
more flexible, and the output of pyrolysis can be integrated with other downstream technologies for product upgrading. (Source: Influential
Aspects in Waste Management Practices Karthik Rajendran PhD, Jerry D. Murphy PhD, in Sustainable Resource Recovery and Zero Waste
Approaches, 2019) In addition, BioChar stores and reduces atmospheric CO2 and can be used as a soil conditioner, an organic component
of animal feeds, construction materials, wastewater treatment and in textiles. (Source: https://www.bioenergyconsult.com/applications-of-biochar/)
The
ablative pyrolysis system is a waste to energy process that uses high pressure to generate fast pyrolysis and is designed so that the
heat transferred from a hot reactor wall softens the feedstock under pressure and permits larger feedstock particles to be processed.
These systems create high relative motion between the reactor wall and the feedstock. The process avoids the need of inert gas and hence
the processing equipment is small and the reaction system is more intense. (Source: http://biofuelsacademy.org/index.html%3Fp=608.html)
CETY has licensed
proprietary patented ablative pyrolysis system for commercial use that has been installed in 7 sites for use in waste to energy creating
applications processing including peat, coal, flax waste, sawdust and wood scrap, straw, buckwheat husks, and cardboard, tapes, films
and paper machine sludge. The technology has been implemented over 1,500 onsite power generation projects in Russia working
with major energy production companies such as Gazprom, Rosneft, Lukoil and Rostelecom as well as completing several projects for customers
in the European Union, Middle East and United States. Due to the conflict in the Ukraine, ENEX is redomiciling and relocating key
personnel to Turkey where it will complete an existing project and is expected to wind down its operations. CETY will develop additional
ablative technology and expects to manufacture units in the United States. Sales and European distribution will be run out of a CETY
office that has been established in Turkey.
CETY has global rights (except
Russia and CIS countries) to design, build, manufacture, sell and operate renewable energy and waste recovery facilities HTAP10 and HTAP5
systems and other products and technologies we expect to develop in the future.
HTAP technology utilizes a high temperature that uses a cleaner gas for the heating process and a more efficient biogas turbine.
The units can be customized to produce hydrogen and bio char in varying quantities which can be sold or used to produce electricity.
We believe that the key benefits of the HTAP Biomass Reactor are:
|
● |
Flexibility
in waste sourcing and mixing. |
|
● |
Customized
outputs of hydrogen, synthetic fuels, natural gas, methane, biochar, carbon black, or construction materials. |
|
● |
Better
waste sourcing and mixing flexibility, |
|
● |
Near-zero
emissions, |
|
● |
Modular
design, |
|
● |
Zero
liquid discharge, |
|
● |
Zero
solid waste residue waste. |
|
● |
Modular,
containerize design reducing implementation costs |
|
● |
Proven
commercial implementation. |
We
are targeting industrial and municipality solid waste, landfill waste, agriculture waste (straw, stems, plant biomass, manure, crop wastage),
and forestry waste from tree cuttings and shredded products.
We
are in the process of identifying projects domestically and internationally for the HTAP Biomass Reactor. We believe the first project
where we expect to implement the HTAP10 technology will be with our planned project to co-develop a biomass renewable energy processing
facility
ENEX
HTAP 10 Waste to Energy Processing Plant.
We
established a wholly owned subsidiary called CETY Capital that we expect will help us finance our customers renewable energy projects
producing low carbon energy. CETY Capital, when implemented, should add flexibility to the capacity CETY offers its customers and fund
projects utilizing its products and clean energy solutions. The in-house financing arm is expected to support our sales and build new
renewable energy facilities. To date we have conducted no material operations in this subsidiary.
Our
CETY HK Business
Our
Clean Energy Initiatives in China
Natural
gas is China’s fastest-growing primary fuel with demand quadrupling in the past decade. Developing the natural gas sector is a
critical aspect China’s effort to reduce reliance on coal. According to the International Energy Agency, China is the world’s
sixth-largest natural gas producer, the third-largest consumer, and the second-largest importer. In 2050, the U.S. Energy Information
Administration (EIA) expects China to consume nearly three times as much natural gas as it did in 2018, which was 280.30 b/cm. China’s
natural gas consumption accounted for 8.3% of its total energy mix in 2019. China anticipates boosting the share of natural gas as part
of total energy consumption to 14% by 2030. Before COVID 19, China was expected to account for a third of global demand growth through
2022, thanks in part to the country’s “Blue Skies” policy and the strong drive to improve air quality. China’s
relatively strong economic recovery from the COVID 19 crisis will probably increase that share. Natural gas is imported either through
pipelines or as liquefied natural gas (NG) on ships. According to Reuters, in 2019, the largest sources for Chinese NG imports were
Australia, Qatar, Malaysia, and Indonesia. (Source: U.S. Department of Commerce, International TradeAdministration.https://www.trade.gov/country-commercial-guides/china
energy#:~:text=China%20anticipates%20boosting%20the%20share,drive%20to%20improve%20air%20quality.)
Liquid
Natural Gas in the Chinese energy market produces half as much carbon dioxide, less than a third as much nitrogen oxides, and 1 percent
as much sulfur oxides at the power plant compared to the average air emissions from coal-fired generation. In addition to reduced air
emissions, natural gas has other environmental benefits that make it a smart fuel choice. Natural gas-fired power plants use about 60
percent less water than coal plants and 75 percent less water than nuclear power plants for the same electricity output. (Source: Conoco
Phillips)
In 2021, we acquired through
our subsidiary, CETY Hong Kong, a natural gas trading operation called Jiangsu Huanya Jieneng (“JHJ”) which sources NG from
large NG producers and distributors and sells it to non-state-owned industries and downstream customers in mainland China. In addition,
CETY Hong Kong established a framework agreement for a future joint venture with the overseas investment arm of a large state-owned
gas enterprise in China called Shenzhen Gas (Hong Kong) International Co. Ltd. (“Shenzhen Gas”). CETY Hong Kong will hold
a 49% interest in the joint venture. The joint venture plans to acquire municipal natural gas operators in China with funds provided
by Shenzhen Gas.
CETY
also plans to sell its waste heat recovery and waste to energy products in China as well as provide consulting services relating to the
same to projects in China.
The
JHJ team has more than 10 years of experience in the natural gas and clean energy industry and has maintained relationships and partners
with many natural gas enterprises in China.
CETY
HK
NG
Trading Operations
JHJ’s principal service
is to source and supply NG to industries and municipalities located in the southwestern part of China. The NG is principally
used for heavy truck refueling stations and urban or industrial users in areas that do not have a connection to local NG pipeline systems.
We purchase large quantities of NG from large wholesale NG depots at fixed prices which are prepaid for in advance at a discount to market.
We sell the NG to our customers at prevailing daily spot prices for the duration of the contracts.
Either our sources or customers
arrange for delivery of the NG. Our profitability depends on our ability to purchase NG at volume discounts at the beginning of a season
and sell it at a delivered price that is higher than the price we pay.
JHJ traders are experienced
NG traders, familiar with the spot and future markets and have relationships with the major users of NG in the areas that we serve. Our
customers may be local or may be as far as 700km from each depot.
We compete with other NG
trading based on availability and price. We target our discount with our sources to partially hedge against falling spot prices and give
us what we believe is a gross profit targeted at substantially higher rate than our competitors. So long as there are no major fluctuations
in the spot market, we believe we can offer more competitive prices due to the discounts we receive from the large volumes purchased
and the prepayments for the NG.
We
are able to purchase NG at what we believe is a significant discount from our suppliers because our prepayments offer suppliers more
certainty with respect to the sales of their inventory, address their cash flow issues, and allow them to better plan for production.
We believe our downstream customers get better prices from us because of our bulk buying power, ease of inventory management and cash
flow.
We
believe that both our suppliers and customers can reduce costs by using JHJ as a centralized procurement center and establishing professional
logistics distribution based on stable supply and downstream demand.
In
addition, at the time of our acquisition of JHJ, JHJ had substantially completed negotiations to enter into an agreement to obtain a
15% equity stake in Heze Hongyuan Natural Gas (HHNG), a local pipeline operator in the Shandong Province, by purchasing a stake through
Chengdu Rongjun Enterprise Consulting Co., Ltd. (CRE) The investment is secured via a share-pledge by the majority shareholder of HHNG,
and in case of a default, JHJ can take over the majority position. JHJ has full transparency to the use of proceeds as well as supervision
of the operations of HHNG. In January 2022, JHJ entered into a convertible promissory note with CRE, at 12% annual interest, in the amount
of Yuan 5,000,000 (approximately USD 787,686), which was funded by, purchases of our stock by PRC investors through an offshore company
under our Regulation A offering at a price of USD .08 per share. The Note is convertible into 15% of HHNG equity interests subject to
dilution by additional equity investment into HHNG by third parties. We do not expect the project to require additional investment from
us, JHJ or HHNG. The project is currently planning and constructing additional pipelines in the Heze area and is expected to generate
cash flow by the first quarter of 2023.
Joint
Venture with Shenzhen Gas
We
are in the process of establishing a joint venture with Shenzhen Gas with plans to acquire natural gas utility companies in China. Shenzhen
Gas is expected to provide a line of credit to the joint venture to fully cover the acquisition costs or otherwise facilitate capital
infusions. We believe our participation in the joint venture will also provide our parent company, CETY and its subsidiaries, with the
opportunity to sell its products and consulting services to the companies acquired by the joint venture.
We
believe that Shenzhen Gas entered into the Joint Venture with us because of the expertise of JHJ in the NG market in southwest China
and their ability to source and complete profitable deals for the joint ventures.
Our
subsidiary, Leading Wave Limited, signed a non-binding “Strategic Cooperation Framework Agreement” with Shenzhen Gas, on
August 30, 2021. According to the agreement, we expect the joint venture will invest up to RMB 3 to 5 billion which will be financed
through a credit line extended by Shenzhen Gas to the joint venture at an interest rate of approximately 5% per annum. JHJ’s team
will be providing the know-how on the joint venture’s acquisition strategy as well as streamlining the operations of the portfolio
companies to increase the overall profitability of the investments.
Engineering,
Consulting and Project Management Services
In
all of our business segments we intend to provide engineering, consulting and project management services.
Engineering.
Our global engineering team supports the design, build, installation, and maintenance of our Clean CycleTM generators,
supports our technology customers and innovative start-ups with a broad range of electrical, mechanical and software engineering services.
CETY has assembled a team of experts from around the globe to assist customers at any point in the design cycle. These services include
design processes from electrical, software, mechanical and Industrial design. Utilization of CETY’s design services will provide
our customers with a complete end to end solution.
Supply
Chain Management. CETY’s supply chain solution provides maximum flexibility and responsiveness through a collaborative
and strategic approach with our customers. CETY can assume supply chain responsibility from component sourcing through delivery of finished
product. CETY’s focus on the supply chain allows us to build internal and external systems and better our relationships with our
customers, which allows us to capitalize on our expertise to align with our partners and customer’s objectives and integrate with
their respective processes.
On
February 3rd, 2023 we entered into a Master Services Agreement by and between RPG Global LLC, an
Indiana limited liability company and Clean energy Technologies, to provide the general terms and conditions upon which CETY will provide
certain energy efficiency and renewable energy consulting, engineering and other services and related products or equipment to RPG Global
LLC in connection with Contractor’s business of providing green energy, energy efficiency and other energy related services and
solutions for its customers, as agreed from time to time by Contractor. This Master Service Agreement with RPG Energy Group is for development
of onsite applications which utilize technologies to create electricity, applicable hydrogen production, and promote decarbonization.
CETY will support RPG Energy’s Fortune 100 customer with locations in Europe, the Middle East, Asia, the U.S., and Mexico. The
initial sites are in Germany, the Czech Republic, Poland, the UK, and the U.S., specifically in the states of Tennessee, Ohio, Iowa,
Kansas, Michigan, and Mississippi. Te project size from each location could range from $500,000 to $10,000,000.
Sales
and Marketing
We
utilize both a direct sales force and global distribution group with expertise in heat recovery solutions and clean energy markets.
CETY
maintains an online presence through our web portal and social media. We also have established cross-sale agreements with synergistic
technology providers promoting our solutions to our respective customers. We utilize email campaigns to keep the marketplace abreast
of the recent developments with our solutions. We work with the municipalities to identify incentive programs that could utilize our
solutions.
Our
application engineers assist in converting the opportunities into projects. We provide technical support to our Clean Cycle TM
generator clients and recently introduced waste to energy plants through providing maintenance and product support.
Our
market focus is segmented by the engine heat recovery, waste to energy plants, engineering & procurement, and renewable energy trade,
Wastewater treatment plants and boiler applications with excess heat.
Our
experienced team of NG traders identify producers and customers for the NG trading business as well as originate acquisition opportunities
for our Shenzhen Gas joint venture.
Suppliers
Our
heat recovery solutions systems are manufactured primarily from components available from multiple suppliers and to a lesser extend from
custom fabricated components available from various sources. We purchase our components from suppliers based on price and availability.
Our significant suppliers in the Waste Heat Recovery business include Powerhouse, Concise Instrument, and Grainger.
Our waste to energy components
are sourced globally. We are in the process of establishing an inhouse center of competence and technology development based out of Turkey
to source these components in Europe and US with the ability to deploy the product globally. Although future impacts cannot be
predicted the company does not foresee any negative impact from the Russa and Ukraine conflict.
The natural gas in China
is obtained from various local production plants in Southeast China based on price and quality. Deliveries of the NG are made through
third party trucking companies. We purchase large quantities of NG from large wholesale NG depots at fixed prices which are discounted
and prepaid for in advance at a discount to market.
Competition
We
believe ORMAT, Exergy, TAS and Turboden are the leaders in ORC system power plants.
The
Waste to Energy Market is dominated by Hitachi Zosen Inova AG, Suez, Veolia, Ramboll Group A/S, Covanta Holding Corporation, China Everbright
International Ltd., Abu Dhabi National Energy Company PJSC, Babcock & Wilcox Enterprises Inc., Whaleboater Technologies Inc., Xcel
Energy Inc. (Source: https://www.mynewsdesk.com/brandessence/pressreleases
/at-cagr-of-7-dot-6-percent-waste-to-energy-market-is-expected-to-reach-usd-52-dot-92-billion-by-2027-3125591)
We
also compete with numerous companies that are smaller than the major companies who are focused on the smaller to medium sized installations
in Waste Heat Recovery and Waste to Energy. We believe our waste to energy products are more efficient for use in small and medium sized
operations than our competitors and provide us with a competitive advantage on that basis.
In
China, our NG trading operations compete with large state-owned NG producers and importers such as Sinopec and many smaller local energy
trading companies in the PRC. We compete based on price and consistency of services. Our planned joint venture with Shenzhen Gas competes
with other large state-owned gas producers and smaller operators that may seek to grow by acquiring additional natural gas operators.
We believe our local relationships maintained by our local trading team and affiliation with Shenzhen Gas, a major supplier in China,
enable us to identify and acquire companies more efficiently than our competitors.
Patents
We currently hold 22
patents in 5 countries and 2 pending applications in 2 countries, which were acquired from General Electric
International relating to our magnetic turbine technology.
Filing Country Code |
|
Application Number |
|
Patent Number |
|
Title |
|
Application Date |
|
Issue Date |
|
Expiration Date |
US |
|
11/735854 |
|
8839622 |
|
FLUID FLOW IN A FLUID EXPANSION SYSTEM |
|
4/16/2007 |
|
9/23/2014 |
|
4/16/2027 |
WO |
|
PCT/US2008/060324 |
|
|
|
Fluid Flow in a Fluid Expansion |
|
4/15/2008 |
|
|
|
|
EP |
|
08745846.9 |
|
2147194 |
|
Fluid Flow in a Fluid Expansion |
|
04/15/2008 |
|
8/5/2015 |
|
4/15/2028 |
IN |
|
2024/MUMNP/2009 |
|
|
|
Fluid Flow in a Fluid Expansion System |
|
10/29/2009 |
|
|
|
4/15/2028 |
DE |
|
08745846.9 |
|
2147194 |
|
Fluid Flow in a Fluid Expansion |
|
04/15/2008 |
|
8/5/2015 |
|
4/15/2028 |
IT |
|
502015000049832 |
|
2147194 |
|
Fluid Flow in a Fluid Expansion |
|
04/15/2008 |
|
8/5/2015 |
|
4/15/2028 |
US |
|
11/735849 |
|
7841306 |
|
RECOVERING HEAT ENERGY |
|
4/16/2007 |
|
11/30/2010 |
|
4/16/2027 |
US |
|
12/859890 |
|
8146360 |
|
RECOVERING HEAT ENERGY |
|
8/20/2010 |
|
4/3/2012 |
|
4/16/2027 |
US |
|
11/735839 |
|
7638892B2 |
|
GENERATING ENERGY FROM FLUID EXPANSION |
|
4/16/2007 |
|
12/29/2009 |
|
4/16/2027 |
US |
|
12/783455 |
|
8400005 |
|
GENERATING ENERGY FROM FLUID EXPANSION |
|
5/19/2010 |
|
3/19/2013 |
|
5/19/2030 |
US |
|
12/790616 |
|
8739538 |
|
|
|
5/28/2010 |
|
6/3/2014 |
|
5/28/2030 |
WO |
|
PCT/US2008/060227 |
|
|
|
GENERATING ENERGY FROM FLUID EXPANSION |
|
4/14/2008 |
|
|
|
|
EP |
|
08745761.0 |
|
2140110 |
|
GENERATING ENERGY FROM FLUID EXPANSION |
|
04/14/2008 |
|
3/5/2014 |
|
4/14/2028 |
IN |
|
6164/DELNP/2009 |
|
327112 |
|
GENERATING ENERGY FROM FLUID EXPANSION |
|
9/25/2009 |
|
|
|
12/11/2019 |
IT |
|
08745761.0 |
|
2140110 |
|
GENERATING ENERGY FROM FLUID EXPANSION |
|
4/14/2008 |
|
3/5/2014 |
|
4/14/2028 |
PL |
|
08745761.0 |
|
2140110 |
|
GENERATING ENERGY FROM FLUID EXPANSION |
|
4/14/2008 |
|
3/5/2014 |
|
4/14/2028 |
DE |
|
08745761.0 |
|
2140110 |
|
GENERATING ENERGY FROM FLUID EXPANSION |
|
4/14/2008 |
|
3/5/2014 |
|
4/14/2028 |
US |
|
13/343466 |
|
8984884 |
|
WASTE HEAT RECOVERY SYSTEMS |
|
1/4/2012 |
|
3/24/2015 |
|
1/4/2032 |
|
|
|
|
|
|
|
|
12/21/2012 |
|
|
|
|
GB |
|
1222997.7 |
|
2498258 |
|
WASTE HEAT RECOVERY SYSTEMS |
|
12/20/2012 |
|
|
|
9/16/20014 |
US |
|
13/343483 |
|
9,018,778 |
|
WASTE HEAT RECOVERY SYSTEM GENERATOR VARNISHING |
|
1/4/2012 |
|
|
|
4/28/2015 |
US |
|
13/343490 |
|
9024460 |
|
WASTE HEAT RECOVERY SYSTEM GENERATOR ENCAPSULATION |
|
1/4/2012 |
|
5/5/2015 |
|
1/4/2032 |
JP | |
2015-116192 | |
| |
SYSTEM AND METHOD FOR THERMAL MANAGEMENT | |
6/9/2015 | |
| |
6/9/2035 |
Intellectual
Property
As
part of our asset acquisition from General Electric International we acquired an exclusive, irrevocable, sublicensable, limited transferable,
royalty free, fully paid, worldwide perpetual license to develop, improve and commercialize Calnetix’s magnetic turbine in any
Organic Rankine Cycle based application where heat is sourced from a reciprocating combustion engine of any type, except marine vessels,
any gas or steam turbine systems for electrical power generation applications or any type of biomass boiler system.
In
August 2020, we entered into a global manufacturing and sales agreement with ENEX to cooperate with each other with respect to designing,
building, and operating renewable energy and waste recovery facilities. ENEX was granted the right to package and resell ORC heat recovery
generators, manufactured by CETY, to customers in Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan,
Turkmenistan, Ukraine, and Uzbekistan (the “CIS Countries”) and CETY was granted the right to package and resell the high
temperature ablative fast pyrolysis reactor, called the ENEX HTAP and manufactured by ENEX, to the customers in the United States and
Asia. Payment terms are handled by each purchase order and contract. Due to the conflict in the Ukraine, we terminated all agreements
with ENEX and plan to absorb key members of their team and acquire key technology after the company and its personnel become citizens
of Turkey.
Facilities
We
operate from a 20,000 sq-ft state of the art facility in Costa Mesa, California USA. We have in-house electro-mechanical assembly and
testing capabilities. Our products are compliant with American Society of Mechanical Engineers and are UL and CE approved. We also have
a 5,000 sq-ft sales and service center located in Treviso, Italy. Our 5,000 sq-ft Engineering consultancy and Natural Gas Trading company
is located in Chengdu, China.
Employees
We
presently have approximately 11 full time employees, including operational, engineering, accounting and marketing personnel. We utilize
extensive number of consultants as well and have never experienced work stoppages and we are not a party to any collective bargaining
agreement.
Government
Regulation
Our
operations are subject to certain foreign, federal, state and local regulatory requirements relating to environmental, waste management,
and health and safety matters. We believe we operate in substantial compliance with all applicable requirements. However, material costs
and liabilities may arise from these requirements or from new, modified or more stringent requirements. Material cost may rise due to
additional manufacturing cost of raw or made parts with the application of new regulations. Our liabilities may also increase due to
additional regulations imposed by foreign, federal, state and local regulatory requirements relating to environmental, waste management,
and health and safety matters. In addition, our past, current and future operations and those of businesses we acquire, may give rise
to claims of exposure by employees or the public or to other claims or liabilities relating to environmental, waste management or health
and safety concerns.
Our
markets can be positively or negatively impacted by the effects of governmental and regulatory matters. We are affected not only by energy
policy, laws, regulations and incentives of governments in the markets into which we sell, but also by rules, regulations and costs imposed
by utilities. Utility companies or governmental entities could place barriers on the installation of our product or the interconnection
of the product with the electric grid. Further, utility companies may charge additional fees to customers who install on-site power generation,
thereby reducing the electricity they take from the utility, or for having the capacity to use power from the grid for back-up or standby
purposes. These types of restrictions, fees or charges could hamper the ability to install or effectively use our products or increase
the cost to our potential customers for using our systems in the future. This could make our systems less desirable, thereby adversely
affecting our revenue and profitability potential. In addition, utility rate reductions can make our products less competitive which
would have a material adverse effect on our future operations. These costs, incentives and rules are not always the same as those faced
by technologies with which we compete. However, rules, regulations, laws and incentives could also provide an advantage to our Heat Recovery
Solutions as compared with competing technologies if we are able to achieve required compliance at a lower cost when our Clean Cycle
TM generators are commercialized. Additionally, reduced emissions and higher fuel efficiency could help our future customers
combat the effects of global warming. Accordingly, we may benefit from increased government regulations that impose tighter emission
and fuel efficiency standards.
Research
and Development
We
had no expenses in Research and Development costs during the years ended December 31, 2021 and 2020.
Seasonality
of Business
There
is no significant seasonality in our business.
Inventory
Inventory
consists of raw materials, work-in-process and finished goods. Because a large percentage of the Company’s orders require products
to be shipped in the same quarter in which the order was received, and because orders in the inventory may be canceled and delivery schedules
may be changed, the Company’s inventory at any particular date is not necessarily indicative of actual sales for any succeeding
period.
Recent
Funding Events.
In
addition to the funding described below in the section titled “Selling Stockholders,” on Dec 5,2022 the company entered into
a promissory note with 1800 Diagonal Lending, LLC (“1800 Diagonal”) in the amount of $191,526 with and interest rate of 10%
per annum and a default interest rate of 22% per annum. This note is due in full on December 5,2023 and has mandatory monthly payments
of $21,067.80 The note had an OID of $19,760.00 and recorded as finance fee expense. In the event of the default, at the option of the
Investor, the note may be converted into shares of common stock of the company. This is note is convertible, but not until a contingent
event of default has taken place, none of which have occurred as of the date of this filing. The balance on this note as of March
17, 2023 was $147,474.60.
On
March 10, 2022 the company entered into a promissory note in the amount of $170,600, with and interest rate of 10% per annum and a
default interest rate of 22% per annum. This note is due in full on March 10, 2023 and has mandatory monthly payments of $18,766.
The note had an OID of $17,060 and recorded as finance fee expense. In the event of the default, at the option of the Investor, the
note may be converted into shares of common stock of the company. This is note is convertible, but not until a contingent event of
default has taken place, none of which have occurred as of the date of this filing. The balance on this note as September 30, 2022
was $75,064. On December 6, 2022, the company
paid off its promissory note with originally named Sixth Street Lending LLC dated March 10, 2022, of $170,600, together with
all interest thereon.
On June 30, 2022 the company entered into a promissory
note in the amount of $252,928.44 with and interest rate of 10% per annum and a default interest rate of 22% per annum. This note is
due in full on June 30, 2023 and has mandatory monthly payments of $27,822.13. The note had an OID of $25,293 and recorded as finance
fee expense. In the event of the default, at the option of the Investor, the note may be converted into shares of common stock of the
company. This is note is convertible, but not until a contingent event of default has taken place, none of which have occurred as of
the date of this filing. The balance on this note as of December 31, 2022 was $139,111.30 On February 3, 2023 the company paid off its
promissory note with 1800 Diagonal, of $252,928.44 together with all interest thereon.
On February 10, 2023 the company entered into a promissory
note with 1800 Diagonal Lending, LLC (“1800 Diagonal”) in the amount of $258,521 with and interest rate of 10% per annum
and a default interest rate of 22% per annum. This note is due in full on February 10,2024 and has mandatory monthly payments of $28,437.30
The note had an OID of $27,698.87 and recorded as finance fee expense. In the event of the default, at the option of the Investor, the
note may be converted into shares of common stock of the company at a conversion price equal to 70% multiplied by the lowest trading
price during the five trading days prior to conversion. This is note is convertible, but not until a contingent event of default has
taken place, none of which have occurred as of the date of this filing. The balance on this note as of March 17, 2023 was $248,373.00.
On
March 6, 2023 the company entered into a promissory note with 1800 Diagonal Lending, LLC (“1800 Diagonal”) in the amount
of $135,005 with and interest rate of 10% per annum and a default interest rate of 22% per annum. This note is due in full on March 06,
2024 and has mandatory monthly payments of $14,850.50 The note had an OID of $14,465.50 and recorded as finance fee expense. In the event
of the default, at the option of the Investor, the note may be converted into shares of common stock of the company at a conversion price
equal to 70% multiplied by the lowest trading price during the five trading days prior to conversion. This is note is convertible, but
not until a contingent event of default has taken place, none of which have occurred as of the date of this filing. The balance on this
note as of March 17, 2023 was $135,005.00.
MANAGEMENT
Directors,
Executive Officers and Corporate Governance
The
following table sets forth information regarding our current directors and executive officers as of the date of this prospectus:
Name |
|
Age |
|
Position |
Kambiz
Mahdi |
|
56 |
|
President,
CEO, Director |
Calvin
Pang |
|
37 |
|
CFO,
Director |
Ted
Hsu |
|
60 |
|
Independent
Director |
Lauren
Morrison |
|
68 |
|
Independent
Director |
Mathew
Graham Smith |
|
48 |
|
Independent
Director |
Biographical
Information
Mr.
Kambiz Mahdi served as President and Chief Executive Officer of the Company from 1996 until December of 2005 and again from July
2009 until present. Mr. Mahdi also started Billet Electronics a global supply chain provider of products, services and solutions in the
technology sector in 2007. Mr. Mahdi has a BS degree in Electrical Engineering from California State University of Northridge. Mr. Mahdi
has not served on any other boards of public companies in the past five years.
Our
Board of Directors selected Mr. Mahdi to serve as a director because he is our Chief Executive Officer and has served in various executive
roles with our company for 14 years, with a focus on electrical design & manufacturing, sales and operations and his insight into
the development, marketing, finance, and operations aspects of our company. He has expansive knowledge of engineering and manufacturing
industry and relationships with chief executives and other senior management at technology companies. Our Board of Directors believes
that Mr. Mahdi brings a unique and valuable perspective to our Board of Directors.
Mr.
Calvin Pang has served as our Chief Financial Officer since March 9, 2020. Since 2015 Mr. Pang has been the Managing Director
of Megawell Capital Limited. From 2007 to 2015, he was a banker at UBS AG managing portfolios of Hong Kong and China based investors.
Mr. Pang graduated from the Olin School of Business at Washington University in St. Louis with a bachelor’s degree in business
and finance. We believe that Mr. Pang is well qualified to serve as a member of our Board of Directors due to his extensive experience
in U.S. and Asian corporate finance and may assist us in developing relationships with financial institutions.
Mr.
Ted Hsu has almost 3 decades of experience as a commercial banker. He joined Preferred Bank in 1992 and currently serves as
the bank’s Executive Vice President. Preferred Bank is one of the largest independent commercial banks in California. He has extensive
experience in servicing clients in various sectors including real estate, construction, commercial and industrial. Recently, Mr. Hsu
began to cover companies in the renewable energy sector as it is the growing trend. We believe Mr. Hsu is well qualified to serve as
a member of our Board of Directors due to his experience in commercial lending.
Ms.
Lauren Morrison is an international business development consultant whose career has had a major focus in the clean energy, smart
building, and sustainability sectors. She has worked with companies of all sizes and areas of specialization, from concept to early-stage
and maturity, on global growth strategies, branding, and product development. Lauren is interested in the integration and optimization
of technologies that measurably increase energy efficiency, and the application of monitoring and data analysis that iteratively improves
building processes, practices, and net functionality. As part of a leading-edge model smart city development in Asia, Lauren saw first-hand
the critical imperative for global collaboration to address climate challenges as they rapidly eclipse geographic boundaries. She is
passionate about expanding the conversation on this topic to include the widest possible audience of stakeholders. Our Board of Directors
believes that Ms. Morrison brings a unique and valuable international perspective and clean energy experience to our Board of Directors
Mr.
Matthew Graham Smith has over a decade of experience working in a range of overseas and domestic roles with the Australian Department
of Foreign Affairs and Trade (DFAT) and has held positions as Product Manager, Major Surface Ships, Department of Defense, Senior
Administrative Officer, Consulate-General, Chengdu, Senior Administrative Officer, Consulate-General, Chengdu, Post Opener, Consulate-General
Surabaya, Indonesia. Mr. Smith is a Certified Practicing Accountant in Australia and will serve as the Chairman of our Audit Committee
upon the listing of our common stock on Nasdaq. Mr. Smith has received a Bachelor of Laws and a Bachelor of Commerce in Finance
from Australian National University and was an exchange student at the Olin Business School, Washington University.
Each
director holds office until the earlier of his or her death, resignation, removal from office by the stockholders, or his or her respective
successor is duly elected and qualified. There are no arrangements or understandings between any of our nominees or directors and any
other person pursuant to which any of our nominees or directors have been selected for their respective positions. No nominee or director
is related to any executive officer or any other nominee or director.
Committees
Our
board has established three committees: an audit
committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for
each of the three committees. Each committee’s members and functions are described below.
Audit
Committee. Our audit committee consists of Matthew-Graham Smith, Lauren Morrison and Ted Hsu. Matthew-Graham Smith
is the chairperson of the audit committee. We have determined that Matthew-Graham Smith, Lauren Morrison and Ted Hsu each satisfy the
“independence” requirements of Nasdaq Listing Rule 5605(a)(2) and meets the independence standards under Rule 10A-3 under
the Exchange Act. We have determined that Matthew-Graham Smith qualifies as an “audit committee financial expert.” The audit
committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit
committee is responsible for, among other things: (a) representing and assisting the Board in its oversight responsibilities regarding
the Company’s accounting and financial reporting processes, the audits of the Company’s financial statements, including the
integrity of the financial statements, and the independent auditors’ qualifications and independence; (b) overseeing the preparation
of the report required by SEC rules for inclusion in the Company’s annual proxy statement; (c) retaining and terminating the Company’s
independent auditors; (d) approving in advance all audit and permissible non-audit services to be performed by the independent auditors;
and (e) approving related person transactions.
Compensation
Committee. Our compensation committee consists of Matthew-Graham Smith, Lauren Morrison and Ted Hsu. Ted Hsu is
the chairperson of our compensation committee. We have determined that Matthew-Graham Smith, Lauren Morrison and Ted Hsu each are “independent,”
as such term is defined for directors and compensation committee members in the listing standards of the NASDAQ Stock Market LLC. Additionally,
each qualify as “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934 and as “outside
directors” for purposes of Section 162(m) of the Internal Revenue Code. The Committee has been established to: (a) assist the Board
in seeing that a proper system of long-term and short-term compensation is in place to provide performance oriented incentives to attract
and retain management, and that compensation plans are appropriate and competitive and properly reflect the objectives and performance
of management and the Company; (b) assist the Board in discharging its responsibilities relating to compensation of the Company’s
executive officers; (c) evaluate the Company’s Chief Executive Officer and set his or her remuneration package; and (d) make recommendations
to the Board with respect to incentive compensation plans and equity-based pla
Clean Energy Technologies (QB) (USOTC:CETY)
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