Notes
to Consolidated Financial Statements (Unaudited)
NOTE
1 – GENERAL
These
unaudited interim consolidated financial statements as of and for the three months ended March 31, 2023, reflect all adjustments which,
in the opinion of management, are necessary to fairly state the Company’s financial position and the results of its operations
for the periods presented, in accordance with the accounting principles generally accepted in the United States of America. All adjustments
are of a normal recurring nature.
These
unaudited interim consolidated financial statements should be read in conjunction with the Company’s financial statements and notes
thereto included in the Company’s fiscal year end December 31, 2022 report. The Company assumes that the users of the interim financial
information herein have read, or have access to, the audited financial statements for the preceding period, and that the adequacy of
additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three months
ended March 31, 2023 are not necessarily indicative of results for the entire year ending December 31, 2023.
The
summary of significant accounting policies of Clean Energy Technologies, Inc. is presented to assist in the understanding of the Company’s
financial statements. The financial statements and notes are representations of the Company’s management, who is responsible for
their integrity and objectivity.
Corporate
History
We
were incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to Nevada in April 2005
under the name Probe Manufacturing, Inc. We manufactured electronics and provided services to original equipment manufacturers (OEMs)
of industrial, automotive, semiconductor, medical, communication, military, and high technology products. On September 11, 2015 Clean
Energy HRS, or “CE HRS”, our wholly owned subsidiary acquired the assets of Heat Recovery Solutions from General Electric
International. In November 2015, we changed our name to Clean Energy Technologies, Inc.
Our
principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626. Our telephone number is (949) 273-4990. Our common
stock is listed on the Nasdaq Markets under the symbol “CETY.”
Our
internet website address is www.cetyinc.com and our subsidiary’s web site is www.heatrecoverysolutions.com The information
contained on our websites are not incorporated by reference into this document, and you should not consider any information contained
on, or that can be accessed through, our website as part of this document.
The
Company has four reportable segments: Clean Energy HRS (HRS), CETY Europe, and the legacy electronic manufacturing services (Electronic
Assembly) division and CETY HK.
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 $6,001,109 and
a working capital of $2,377,048 as of March 31, 2023. The company also had an accumulated deficit of $18,350,395 as of March 31, 2023.
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.
Plan
of Operation
Our
mission is to be a leader in the zero-emission revolution by providing eco-friendly energy solutions, clean energy fuels, and alternative
electric power for small to mid-sized projects across North America, Europe, and Asia. The company harnesses the power of heat and biomass
to produce electricity with zero emissions and minimal cost. Additionally, the company offers Waste to Energy Solutions, converting waste
materials from manufacturing, agriculture, and wastewater treatment plants into electricity and BioChar. Clean Energy Technologies also
provides
Engineering,
Consulting, and Project Management Solutions, leveraging its expertise to develop clean energy projects for both municipal and industrial
customers, as well as Engineering, Procurement, and Construction (EPC) companies.
Our
principal businesses
Heat
Recovery Solutions – Clean Energy Technologies patented Clean Cycle Generator (CCG) is a heat recovery system that captures
waste heat from various sources and converts it into electricity. This system can be integrated into various industrial processes, helping
to reduce energy costs and carbon emissions.
Waste
to Energy Solutions - Clean Energy Technologies’ waste to energy solutions involve converting organic waste materials,
such as agricultural waste and food waste, into clean energy through its proprietary gasification technology that produce a range of
products, including electricity, heat, and biochar.
Engineering,
Consulting and Project Management Solutions – Clean Energy Technologies offers engineering and manufacturing services to help
clients bring their sustainable energy products to market. This includes design, prototyping, testing, and production services. Clean
Energy Technologies’ expertise in engineering and manufacturing enables it to provide customized solutions to meet clients’
specific needs.
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. 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 fixed prices or 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 those funds in future rounds of financing. The terms of the joint venture are subject to the
execution of definitive agreements.
NOTE
2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The
summary of significant accounting policies of Clean Energy Technologies, Inc. (formerly Probe Manufacturing, Inc.) is presented to assist
in the understanding of the Company’s financial statements. The financial statements and notes are representations of the Company’s
management, who is responsible for their integrity and objectivity.
The
consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in
the United States of America (“US GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such
estimates may be materially different from actual financial results. Significant estimates include the recoverability of long-lived assets,
the collection of accounts receivable and valuation of inventory and reserves.
Cash
and Cash Equivalents
We
maintain the majority of our cash accounts at JP Morgan Chase bank. The total cash balance is insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $250,000, (which we may exceed from time to time) per commercial bank. For purposes of the statement
of cash flows we consider all cash and highly liquid investments with initial maturities of one year or less to be cash equivalents.
Accounts
Receivable
Our
ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by us. Reserves for
un-collectable amounts are provided, based on past experience and a specific analysis of the accounts. Although we expect to collect
amounts due, actual collections may differ from the estimated amounts. As of March 31, 2023, and December 31, 2022, we had a reserve
for potentially un-collectable accounts receivable of $95,000. Our policy for reserves for our long-term financing receivables is determined
on a contract-by-contract basis and considers the length of the financing arrangement. As of March 31, 2023, and December 31, 2022, we
had a reserve for potentially un-collectable long-term financing receivables of $247,500 and $247,500 respectively.
Seven
(7) customers accounted for approximately 98% of accounts receivable on March 31, 2023. Our trade accounts primarily represent unsecured
receivables. Historically, our bad debt write-offs related to these trade accounts have been insignificant.
Lease
asset
As
of March 31, 2023, and December 31, 2022 we had a lease asset that was purchased from General Electric with a value of $1,309,527, however
due the purchase price allocation, we recognized a value of $217,584. The lease is due to be commissioned in the third quarter of 2023
and will generate approximately $20,000 per month for 120 months. See note 3 for additional information.
Inventory
Inventories
are valued at the lower of weighted average cost or market value. Our industry experiences changes in technology, changes in market value
and availability of raw materials, as well as changing customer demand. We make provisions for estimated excess and obsolete inventories
based on regular audits and cycle counts of our on-hand inventory levels and forecasted customer demands and at times additional provisions
are made. Any inventory write offs are charged to the reserve account. As of March 31, 2023, and December 31, 2022, we had a reserve
for potentially obsolete inventory of $897,808.
Property
and Equipment
Property
and equipment are recorded at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value
of the minimum lease payments or the fair market value of the related assets. The cost of ordinary maintenance and repairs is charged
to operations. Depreciation and amortization are computed on the straight-line method over the following estimated useful lives of the
related assets:
SCHEDULE OF PROPERTY AND EQUIPMENT ESTIMATED USEFUL LIVES
Furniture and fixtures | |
| 3 to 7 years | |
Equipment | |
| 7 to 10 years | |
Leasehold Improvements | |
| 7 years | |
Long
–Lived Assets
Our
management assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long-lived
assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment
if any, is measured based on fair value and is charged to operations in the period in which long-lived assets impairment is determined
by management. There can be no assurance however, that market conditions will not change or demand for our services will continue, which
could result in impairment of long-lived assets in the future.
Revenue
Recognition
The
Company recognizes revenue under ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASC
606”).
Performance
Obligations Satisfied Over Time
FASB
ASC 606-10-25-27 through 25-29, 25-36 through 25-37, 55-5 through 55-10
An
entity transfers control of a good or service over time and satisfies a performance obligation and recognizes revenue over time if one
of the following criteria is met:
a.
The customer receives and consumes the benefits provided by the entity’s performance as the entity performs (as described in FASB
ASC 606-10-55-5 through 55-6).
b.
The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is
created or enhanced (as described in FASB ASC 606-10-55-7).
c.
The entity’s performance does not create an asset with an alternative use to the entity (see FASB ASC 606-10-25-28), and the entity
has an enforceable right to payment for performance completed to date (as described in FASB ASC 606-10-25-29).
Performance
Obligations Satisfied at a Point in Time
FASB
ASC 606-10-25-30
If
a performance obligation is not satisfied over time, the performance obligation is satisfied at a point in time. To determine the point
in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation, the entity should
consider the guidance on control in FASB ASC 606-10-25-23 through 25-26. In addition, it should consider indicators of the transfer of
control, which include, but are not limited to, the following:
a.
The entity has a present right to payment for the asset
b.
The customer has legal title to the asset
c.
The entity has transferred physical possession of the asset
d.
The customer has the significant risks and rewards of ownership of the asset
e.
The customer has accepted the asset
A
principal obtains control over any one of the following (ASC 606-10-55-37A):
|
a. |
A
good or another asset from the other party which the entity then transfers to the customer. Note that momentary control before transfer
to the customer may not qualify. |
|
b. |
A
right to a service to be performed by the other party, which gives the entity the ability to direct that party to provide the service
to the customer on the entity’s behalf. |
|
c. |
A
good or service from the other party that it then combines with other goods or services in providing the specified good or service
to the customer. |
If
the entity obtains control over one of the above before the good or service is transferred to a customer, the entity could be considered
a principal.
The
core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or
services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration
it is entitled to in exchange for the goods and services transferred to the customer. In addition a) the company also does not have an
alternative use for the asset if the customer were to cancel the contract, and b.) has a fully enforceable right to receive payment for
work performed (i.e., customers are required to pay as various milestones and/or timeframes are met)
The
following five steps are applied to achieve that core principle for our HRS and CETY Europe Divisions:
|
● |
Identify
the contract with the customer |
|
|
|
|
● |
Identify
the performance obligations in the contract |
|
|
|
|
● |
Determine
the transaction price |
|
|
|
|
● |
Allocate
the transaction price to the performance obligations in the contract |
|
|
|
|
● |
Recognize
revenue when the company satisfies a performance obligation |
The
following steps are applied to our legacy engineering and manufacturing division:
|
● |
We
generate a quotation |
|
|
|
|
● |
We
receive purchase orders from our customers. |
|
|
|
|
● |
We
build the product to their specification |
|
|
|
|
● |
We
invoice at the time of shipment |
|
|
|
|
● |
The
terms are typically Net 30 days |
The
following step is applied to our CETY HK business unit:
|
● |
CETY
HK is primarily responsible for fulfilling the contract / promise to provide the specified good or service. |
Also,
from time to time our contracts state that the customer is not obligated to pay a final payment until the units are commissioned, i.e.
a final payment of 10%. As of March 31, 2023 and December 31, 2022 we had $33,000 and 33,000 of deferred revenue, which is expected to
be recognized in the fourth quarter of year 2023.
Also,
from time to time we require upfront deposits from our customers based on the contract. As of March 31, 2023 and December 31, 2022, we
had outstanding customer deposits of $284,112 and $80,475 respectively.
Fair
Value of Financial Instruments
The
Financial Accounting Standards Board issued ASC (Accounting Standards Codification) 820-10 (SFAS No. 157), “Fair Value Measurements
and Disclosures” for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded
disclosures regarding fair value measurements. FASB ASC 820-10 defines fair value as the price that would be received for an asset or
the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between
market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize
the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the
Company uses to measure fair value:
|
● |
Level
1: Quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
● |
Level
2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the related assets or liabilities. |
|
|
|
|
● |
Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities. The Company’s derivative liabilities have been valued as Level 3 instruments. We value the derivative liability
using a lattice model, with a volatility of 91.5% and using a risk free interest rate of 4.5% |
The
Company’s financial instruments consist of cash, prepaid expenses, inventory, accounts payable, convertible notes payable, advances
from related parties, and derivative liabilities. The estimated fair value of cash, prepaid expenses, investments, accounts payable,
convertible notes payable and advances from related parties approximate their carrying amounts due to the short-term nature of these
instruments.
The
carrying amounts of the Company’s financial instruments as of March 31, 2023 and December 31, 2022 reflect:
SCHEDULE OF FAIR VALUE OF CONVERTIBLE NOTES DERIVATIVE LIABILITY
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Fair value of convertible notes derivative liability – March 31, 2023 | |
$ | – | | |
$ | – | | |
$ | 261,639 | | |
$ | 261,639 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Fair value of convertible notes derivative liability – December 31, 2022 | |
$ | – | | |
$ | – | | |
$ | 588,178 | | |
$ | 588,178 | |
Fair value of convertible notes derivative liability | |
$ | – | | |
$ | – | | |
$ | 588,178 | | |
$ | 588,178 | |
The
carrying amount of accounts payable and accrued expenses are considered to be representative of their respective fair values because
of the short-term nature of these financial instruments.
Foreign
Currency Translation and Comprehensive Income (Loss)
We
have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods.
The accounts of the Company’s Chinese entities are maintained in RMB. The accounts of the Chinese entities were translated into
USD in accordance with FASB ASC Topic 830 “Foreign Currency Matters.” All assets and liabilities were translated at the exchange
rate on the balance sheet date; stockholders’ equity is translated at historical rates and the statements of operations and cash
flows are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other
comprehensive income (loss) in accordance with FASB ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from
foreign currency transactions are reflected in the statements of operations.
The
Company follows FASB ASC Topic 220-10, “Comprehensive Income (loss).” Comprehensive income (loss) comprises net income (loss)
and all changes to the statements of changes in stockholders’ equity, except those due to investments by stockholders, changes
in additional paid-in capital and distributions to stockholders.
Change
from fair value or equity method to consolidation
In July
2022, JHJ and other three shareholders agreed to form and make total capital contribution of RMB 20 million ($2.81 million) with latest
contribution due date in February 2066 into Sichuan Hongzuo Shuya Energy Limited (“Shuya”), JHK owns 20% of Shuya. In August
2022, JHJ purchased 100% ownership of Sichuan Shunengwei Energy Technology Limited (“SSET”) for $0, who owns 29% of Shuya;
Shunengwei is a holding company and did not have any operations nor made any capital contribution into Shuya as of the ownership purchase
date by JHJ; right after the ownership purchase of SSET, JHJ ultimately owns 49% of Shuya.
Shuya
was setup as the operating entity for pipeline natural gas (PNG) and compressed natural gas (CNG) trading business, while the other two
shareholders of Shuaya have large supply relationships.
For
the year ended December 31, 2022, the Company has determined that Shuya was not a VIE and has evaluated its consolidation analysis under
the voting interest model. Because the Company does not own greater than 50% of the outstanding voting shares, either directly or indirectly,
it has accounted for its investment in Shuya under the equity method of accounting. Under this method, the investor (“JHJ”)
recognizes its share of the profits and losses of the investee (“Shuya”) in the periods when these profits and losses are
also reflected in the accounts of the investee. Any profit or loss recognized by the investing entity appears in its income statement.
Also, any recognized profit increases the investment recorded by the investing entity, while a recognized loss decreases the investment.
JHJ
made a investment of RMB 3.91 million ($0.55 million) into Shuya during the 12 months ended December 31, 2022 recorded in accordance
with ASC 323. Shuya had a net loss of approximately $10,750 during the year ending December 31, 2022, of which approximately $5,000 was
allocated to the company, reducing the investment by that amount.
However,
effective January 1, 2023, JHJ, SSEN and Chengdu Xiangyueheng Enterprise Management Co., Ltd (“Xiangyueheng), who is the 10% shareholder
of Shuya, entered a Three-Parties Consistent Action Agreement, wherein these three shareholders (or three parties) will guarantee that
the voting rights will be expressed in the same way at the shareholders’ meeting of Shuya to consolidate the controlling position
of the three parties in Shuya. The three parties agree that within the validity period of this agreement, before the party intends to
propose the motions to the shareholders or the board of directors on the major matters related to the voting rights of the shareholders
or the board of directors, the three parties internally will discuss, negotiate and coordinate the motion topics for consistency; in
the event of disagreement, the opinions of JHJ shall prevail.
As
a result of Consistent Action Agreement, the Company re-analyzed and determined that Shuya is the variable interest entity (“VIE”)
of JHJ because 1) the equity investors at risk, as a group, lack the characteristics of a controlling financial interest, and 2) Shuya
is structured with disproportionate voting rights, and substantially all of the activities are conducted on behalf of an investor with
disproportionately few voting rights. Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate
that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most
significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits,
that could potentially be significant to the VIE. The Company concluded JHJ is deemed the primary beneficiary of the VIE. Accordingly,
the Company consolidates Shuya effective on January 1, 2023.
Under
ASC-805-10-50-2, initial consolidation of an investee previously reported using fair value or the equity method should be accounted for
prospectively as of the date the entity obtained a controlling financial interest. And the public business entities should provide pro
forma information as if the consolidation had occurred as of the beginning of each of the current and prior comparative reporting period.
However, Shuya was incorporated in July 2022, and the actual consolidation was effective on January 1, 2023, therefore, no comparative
period adjustments are presented for the three months ended March 31, 2022 as they do not exist.
Net
Profit (Loss) per Common Share
Basic
profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding. At March 31, 2023,
we had outstanding common shares of 38,495,453
used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents for the three months ended
March 31, 2023, and March 31, 2022 were 37,255,674
and 23,807,336
respectively. As of March 31, 2023, we had convertible notes, convertible into approximately 2,149,991
of additional common shares, 617,000
common stock warrants. Fully diluted weighted average common shares and equivalents were withheld from the calculation for the three
months ended March 31, 2023, and March 31, 2022 as they were considered anti-dilutive.
Research
and Development
We
had no amounts of research and development R&D expense during the three & three months ended March 31, 2023, and 2022.
Segment
Disclosure
FASB
Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an
enterprise’s reportable segments. The Company has four reportable segments: Clean Energy HRS (HRS), CETY Europe, CETY HK and engineering & manufacturing services division. The segments are determined based on several factors, including the nature of products and
services, the nature of production processes, customer base, delivery channels and similar economic characteristics. Refer to note 1
for a description of the various product categories manufactured under each of these segments.
An
operating segment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is
defined as net sales less cost of sales, and segment selling, general and administrative expenses, and does not include amortization
of intangibles, stock-based compensation, other charges (income), net and interest and other, net.
Selected
Financial Data:
SCHEDULE OF SEGMENT REPORTING
| |
2023 | | |
2022 | |
| |
for the three months ended March, 31 | |
| |
2023 | | |
2022 | |
Net Sales | |
| | | |
| | |
Manufacturing and Engineering | |
| 0 | | |
| 32,280 | |
Clean Energy HRS | |
| 5,194 | | |
| 441,193 | |
CETY HK | |
| 2,886,065 | | |
| 267,966 | |
CETY Europe | |
| 5,748 | | |
| 33,827 | |
Total Sales | |
| 2,897,007 | | |
| 775,266 | |
| |
| | | |
| | |
Segment income and reconciliation before tax | |
| | | |
| | |
Manufacturing and Engineering | |
| 0 | | |
| 23,986 | |
Clean Energy HRS | |
| 90 | | |
| 400,487 | |
CETY HK | |
| 155,441 | | |
| 60,733 | |
CETY Europe | |
| 5,038 | | |
| 28,986 | |
Total Segment income | |
| 160,569 | | |
| 514,193 | |
| |
| | | |
| | |
Reconciling items | |
| | | |
| | |
General and Administrative expense | |
| 88,891 | | |
| 92,935 | |
Salaries | |
| 218,237 | | |
| 191,217 | |
Travel | |
| 71,662 | | |
| 27,734 | |
Professional Fees | |
| 88,210 | | |
| 64,853 | |
Facility lease and Maintenance | |
| 122,779 | | |
| 88,962 | |
Consulting | |
| 167,683 | | |
| 25,803 | |
Depreciation and Amortization | |
| 5,949 | | |
| 7,519 | |
Change in derivative liability | |
| 326,539 | | |
| 16,014 | |
Other Income | |
| 79,154 | | |
| (9,335 | ) |
Interest and Financing fees | |
| (837,391 | ) | |
| (132,470 | ) |
Share-Based
Compensation
The
Company has adopted the use of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS No. 123R)
(now contained in FASB Codification Topic 718, Compensation-Stock Compensation), which supersedes APB Opinion No. 25, “Accounting
for Stock Issued to Employees,” and its related implementation guidance and eliminates the alternative to use Opinion 25’s
intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement requires an entity to measure
the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and
stock warrants, based on the fair value of the award, measured at the grant date (with limited exceptions). Under this standard, the
fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black-Scholes
option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets
the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider
certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation
is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and
expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility.
For the “risk-free interest rate,” we use the Constant Maturity Treasury rate on 90-day government securities. The term is
equal to the time until the option expires. The dividend yield is not applicable, as the Company has not paid any dividends, nor do we
anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading
common stock, on the grant date calculated using a 20-trading-day average. At the time of grant, the share-based compensation expense
is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates
and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature of the shares. The
expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.
We
re-evaluate the assumptions used to value our share-based awards on a quarterly basis and, if changes warrant different assumptions,
the share-based compensation expense could vary significantly from the amount expensed in the past. We may be required to adjust any
remaining share-based compensation expense, based on any additions, cancellations or adjustments to the share-based awards. The expense
is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service
period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the
requisite service. For the three months ended March 31, 2023, and 2022 we had $0 in share-based expense, due to the issuance of common
stock. As of March 31, 2023, we had no further non-vested expense to be recognized.
Income
Taxes
Federal
Income taxes are not currently due since we have had losses since inception of Clean Energy Technologies.
On
December 22, 2018 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant
changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”)
from 35% to 21% effective January 1, 2018. The Company will compute its income tax expense for the year ended December 31, 2023 using
a Federal Tax Rate of 21% and an estimated state of California rate of 9%.
Income
taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25 Income Taxes – Recognition. Under
this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis
of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred
tax assets if management does not believe the Company has met the “more likely than not” standard required by ASC 740-10-25-5.
Deferred
income tax amounts reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting purposes.
As
of March 31, 2023, we had a net operating loss carry-forward of approximately $(8,275,877) and a deferred tax asset of $2,482,763 using
the statutory rate of 30%. The deferred tax asset may be recognized in future periods, not to exceed 20 years. However, due to the uncertainty
of future events we have booked a valuation allowance of $(2,482,763). FASB ASC 740 prescribes recognition threshold and measurement
attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB
ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition. On March 31, 2023 the Company did not take any tax positions that would require disclosure under FASB ASC 740.
SCHEDULE OF DEFERRED TAX ASSET
| |
| | | |
| | |
| |
March 31, 2023 | | |
December 31, 2022 | |
Deferred Tax Asset | |
$ | (2,482,763 | ) | |
| (2,482,763 | ) |
Valuation Allowance | |
| (2,482,763 | ) | |
| (2,482,763 | ) |
Deferred Tax Asset (Net) | |
$ | - | | |
$ | - | |
On
February 13, 2018, Clean Energy Technologies, Inc., a Nevada corporation (the “Registrant” or “Corporation”)
entered into a Common Stock Purchase Agreement (“Stock Purchase Agreement”) by and between MGW Investment I Limited (“MGWI”)
and the Corporation. The Corporation received $907,388 in exchange for the issuance of 302,462,667 restricted shares of the Corporation’s
common stock, par value $.001 per share (the “Common Stock”).
On
February 13, 2018, the Corporation and Confections Ventures Limited. (“CVL”) entered into a Convertible Note Purchase Agreement
(the “Convertible Note Purchase Agreement,” together with the Stock Purchase Agreement and the transactions contemplated
thereunder, the “Financing”) pursuant to which the Corporation issued to CVL a convertible promissory Note (the “CVL
Note”) in the principal amount of $939,500 with an interest rate of 10% per annum interest rate and a maturity date of February
13, 2020. The CVL Note is convertible into shares of Common Stock at $0.12 per share, as adjusted as provided therein. This note was
assigned to MGW Investments.
This
resulted in a change in control, which limited the net operating to that date forward. We are subject to taxation in the U.S. and the
states of California. Further, the Company currently has no open tax years’ subject to audit prior to December 31, 2015. The Company
is current on its federal and state tax returns.
Reclassification
Certain
amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications
had no effect on reported income, total assets, or stockholders’ equity as previously reported.
Recently
Issued Accounting Standards
The
Company is reviewing the effects of following recent updates. The Company has no expectation that any of these items will have a material
effect upon the financial statements.
Update
2021-03—Intangibles—Goodwill and Other (Topic 350): Accounting Alternative For Evaluating Triggering Events.
The
amendments in this Update are effective on a prospective basis for fiscal years beginning after December 15, 2019. Early adoption is
permitted for both interim and annual financial statements that have not yet been issued or made available for issuance as of March 30,
2021.
Update
2021-01—Reference Rate Reform (Topic 848):
An
entity may elect to apply the amendments in this Update on a full retrospective basis as of any date from the beginning of an interim
period that includes or is subsequent to March 12, 2020.
In
June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit
Losses [codified as Accounting Standards Codification Topic (ASC) 326]. ASC 326 adds to US generally accepted accounting principles (US
GAAP) the current expected credit loss (CECL) model, a measurement model based on expected losses rather than incurred losses. Under
this new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in
more timely recognition of such losses. This will become effective in January 2023 and will have minimal impact on the company.
Update
2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s
Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. We do not expect
any material impact on our financials because of the adoption of this update.
Deferred
Stock Issuance Costs
Deferred
stock issuance costs represent amounts paid for legal, consulting, and other offering expenses in conjunction with the future raising
of additional capital to be performed within one year. These costs are netted against additional paid-in capital as a cost of the stock
issuance upon closing of the respective stock placement. During the quarter ended March 31, 2023, $549,225 of deferred stock issuance
costs were capitalized and will be recognized with the $204,556 of deferred stock issuance costs during the year ended December 31, 2022.
NOTE
3 – ACCOUNTS AND NOTES RECEIVABLE
SCHEDULE OF ACCOUNTS AND NOTES RECEIVABLE
| |
March 31, 2023 | | |
December 31, 2022 | |
Accounts Receivable | |
$ | 1,454,698 | | |
| 1,463,567 | |
Accounts Receivable Related Party | |
| 4,883 | | |
| 0 | |
Less reserve for uncollectable accounts | |
| (95,000 | ) | |
| (95,000 | ) |
Total | |
$ | 1,364,581 | | |
| 1,368,567 | |
Our
Accounts Receivable is pledged to Nations Interbanc, our line of credit.
SCHEDULE OF LEASE RECEIVABLE ASSET
| |
March 31, 2023 | | |
December 31, 2022 | |
Lease asset | |
$ | 217,584 | | |
$ | 217,584 | |
The
Company is currently modifying the assets subject to lease to meet the provisions of the agreement, and as of March 31, 2023 any collection
on the lease payments was not yet considered probable, resulting in no derecognition of the underlying asset and no net lease investments
recognized on the sales-type lease pursuant to ASC 842-30-25-3.
SCHEDULE OF DERECOGNITION OF UNDERLYING ASSETS OF FINANCING RECEIVABLE
| |
March 31, 2023 | | |
December 31, 2022 | |
Long-term financing receivables | |
$ | 932,270 | | |
$ | 932,270 | |
Less Reserve for uncollectable accounts | |
| (247,500 | ) | |
| (247,500 | ) |
Long-term financing receivables - net | |
$ | 684,770 | | |
$ | 684,770 | |
On
a contract-by-contract basis or in response to certain situations or installation difficulties, the Company may elect to allow non-interest
bearing repayments in excess of 1 year.
Our
long-term financing Receivable are pledged to Nations Interbanc, our line of credit.
NOTE
4 – INVENTORY
Inventories
by major classification were comprised of the following at:
SCHEDULE OF INVENTORIES
| |
March 31, 2023 | | |
December 31, 2022 | |
Inventory | |
$ | 1,604,011 | | |
| 1,398,394 | |
Less reserve for uncollectable accounts | |
| (897,808 | ) | |
| (897,808 | ) |
Total | |
$ | 706,203 | | |
| 500,586 | |
Our
Inventory is pledged to Nations Interbanc, our line of credit.
NOTE
5 – PROPERTY AND EQUIPMENT
Property
and equipment were comprised of the following at:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
March 31, 2023 | | |
December 31, 2022 | |
Property and Equipment | |
$ | 1,362,455 | | |
| 1,354,824 | |
Leasehold Improvements | |
| 75,436 | | |
| 75,436 | |
Accumulated Depreciation | |
| (1,418,424 | ) | |
| (1,415,444 | ) |
Net Fixed Assets | |
$ | 19,467 | | |
| 14,816 | |
Our
Depreciation Expense for the three months ended March 31, 2023 and 2022 was $5,949 and $7,519 respectively.
Our
Property Plant and Equipment is pledged to Nations Interbanc, our line of credit.
NOTE
6 – INTANGIBLE ASSETS
Intangible
assets were comprised of the following at:
SCHEDULE OF INTANGIBLE ASSETS
| |
March 31, 2023 | | |
December 31, 2022 | |
Goodwill | |
$ | 747,976 | | |
| 747,976 | |
LWL Intangibles | |
$ | 1,483,179 | | |
| 1,468,709 | |
License | |
| 354,322 | | |
| 354,322 | |
Patents | |
| 190,789 | | |
| 190,789 | |
Accumulated Amortization | |
| (90,064 | ) | |
| (87,096 | ) |
Net Fixed Assets | |
$ | 2,596,137 | | |
| 2,674,700 | |
Our
Amortization Expense for the three months ended March 31, 2023 and 2022 was $2,969 and 2,969 respectively.
Based
on the foregoing analysis of the facts surrounding the Company’s acquisition of LWL, it is the Company’s position that the
Company is the acquirer of LWL, under the acquisition method of accounting.
As
such, as of November 8, 2021 (the acquisition date), the Company recognized, separately from goodwill, the identifiable assets acquired
and the liabilities assumed in the Business combination.
The
following table presents the purchase price allocation:
SCHEDULE OF BUSINESS ACQUISITION PURCHASE PRICE ALLOCATION
Consideration: | |
| | |
Cash and cash equivalents | |
$ | 1,500,000 | |
| |
| | |
Total purchaser consideration | |
$ | 1,500,000 | |
| |
| | |
Assets acquired: | |
| | |
Cash and cash equivalents | |
$ | 6,156 | |
Prepayment | |
$ | 13,496 | |
Other receivable | |
$ | 20,000 | |
Trading Contracts | |
$ | 146,035 | |
Shenzhen Gas Relationship | |
$ | 1,314,313 | |
Total assets acquired | |
$ | 1,508,539 | |
| |
| | |
Liabilities assumed: | |
| | |
Advance Receipts | |
$ | (8539 | |
Taxes Payable | |
$ | 179 | |
Net Assets Acquired: | |
$ | 1,500,000 | |
If
LWL reach USD 5 million in revenue or net profit of USD 1 million by December 31, 2023, then based on the performance contingency there
will be issuance of 20,000,000 shares of CETY to the Seller. As of the date of the filing the performance contingencies have not been
met.
NOTE
7 – CONVERTIBLE NOTE RECEIVABLE
Effective
January 10, 2022, JHJ (“note holder”) entered a convertible note agreement with Chengdu Rongjun Enterprise Consulting Co.,
Ltd (“Rongjun” or “the borrower”) with maturity on January 10, 2025. Under this convertible note, JHJ lent RMB
5,000,000 ($0.78 million) to Rongjun with annual interest rate of 12%, calculated from the Issuance Date until all outstanding interest
and principal is paid in full. The Borrower may pre-pay principal or interest on this Note at any time prior to the maturity date, without
penalty. JHJ has the right to convert this note directly or indirectly into shares or equity interest of Heze Hongyuan Natural Gas Co.,
Ltd (“Heze”) equal to 15% of Heze’s outstanding Equity Interest. Rongjun owns 90% of Heze.
NOTE
8 – ACCRUED EXPENSES
SCHEDULE
OF ACCRUED EXPENSES
| |
March
31, 2023 | | |
December
31, 2022 | |
Accrued
Wages | |
$ | 194,375 | | |
$ |
- | |
Accrued
Taxes and other | |
| 44,975 | | |
| 119,030 | |
Accrued
Wages and Taxes | |
$ | 239,350 | | |
$ | 119,030 | |
NOTE
9 – NOTES PAYABLE
On
November 11, 2013, we entered into an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). Amounts
outstanding under the agreement bear interest at the rate of 2.5% annually. It is secured by the assets of the Company. In addition,
it is personally guaranteed by Kambiz Mahdi, our Chief Executive Officer. As of March 31, 2023, the outstanding balance was $776,588
compared to $998,820 at December 31, 2022.
On
April 1, 2021, we entered into an amendment to the purchase order financing agreement with DHN Capital, LLC dba Nations Interbanc. Nations
Interbanc has lowered the accrued fees balance by $275,000.00 as well as the accrual rate to 2.25% per 30 days. As a result, CETY has
agreed to remit a minimum monthly payment of $25,000 by the final calendar day of each month.
On
September 11, 2015, our CE HRS subsidiary issued a promissory note in the initial principal amount $1,400,000 and assumed a pension liability
of $100,000, for a total liability of $1,500,000, in connection with our acquisition of the heat recovery solutions, or HRS, assets of
General Electric International, Inc., a Delaware corporation (“GEII”), including intellectual property, patents, trademarks,
machinery, equipment, tooling and fixtures. The note bears interest at the rate of 2.66% per annum. The note is payable on the following
schedule: (a) $200,000 in principal on December 31, 2015 and (b) thereafter, the remaining principal amount of $1,200,000, together with
interest thereon, payable in equal quarterly instalments of principal and interest of $157,609, commencing on December 31, 2016 and continuing
until December 31, 2019, at which time the remaining unpaid principal amount of this note and all accrued and unpaid interest thereon
shall be due and payable in full. 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. The total gain recognized from this write off was $2,556,916.
On
September 7, 2021, the company entered into a promissory note in the amount of $226,345, with and interest rate of 10% per annum and
a default interest rate of 22% per annum. This note is due in full on September 7, 2022, and has mandatory monthly payments of $23,828.
The note had an OID of $23,345 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 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 31, 2022 was $119,142. This
note was paid off in June 29, 2022.
On
September 28, 2021, the company entered into a promissory note in the amount of $142,720, with and interest rate of 10% per annum and
a default interest rate of 22% per annum. This note is due in full on September 28, 2022 and has mandatory monthly payments of $15,003.
The note had an OID of $14,720 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 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. This note was paid off as of July 13, 2022.
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. This note was paid off as of Dec 6, 2022.
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 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
. This note was paid off as of Feb 13, 2023.
On
July 13, 2022, the company entered into a promissory note in the amount of $159,450 with and interest rate of 10% per annum and a default
interest rate of 22% per annum. This note is due in full on July 13, 2023 and has mandatory monthly payments of $17,539.50. The note
had an OID of $16,447.00 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 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 $87,697.50. This
note was paid off as of March 7, 2023.
On
October 25, 2022, the company entered into a promissory note in the amount of $114,850 with and interest rate of 10% per annum and a
default interest rate of 22% per annum. This note is due in full on October 25, 2023 and has mandatory monthly payments of $12,633.50
The note had an OID of $11,850.00 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 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 31, 2023 was $78,151.50.
On
Dec 5,2022 the company entered into a promissory note in the amount of $191,526 with an 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 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 31, 2023, was $147,474.60.
On
Feb 10,2023 the company entered into a promissory note 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 Feb
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. This note is convertible,
but not until a contingent event of default has taken place, none of which has occurred as of the date of this filing. The balance on
this note as of March 31, 2023, was $232,669.
On
March 6,2023 the company entered into a promissory note 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 6, 2024, and has mandatory monthly payments of $13,500. The note had
an OID of $14,465.50 and was 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 note is convertible, but not until a contingent event of default has taken
place, none of which has occurred as of the date of this filing. The balance on this note as of March 31, 2023, was $135,005.
Convertible
notes
On
May 5, 2017, we entered into a nine-month convertible note payable for $78,000, which accrues interest at the rate of 12% per annum.
It is not convertible until three months after its issuance and has a conversion rate of sixty one percent (61%) of the lowest closing
bid price (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion.
On November 6, 2017, this note was assumed and paid in full at a premium for a total of $116,600 by Cybernaut Zfounder Ventures. An amended
term was added to the original note with the interest rate of 14%. This note matured on February 21st of 2018 and is currently
in default. As of March 31, 2023, the outstanding balance due was $159,894.95. As of April 3, 2023, this note was settled and paid off.
On
May 24, 2017, we entered into a nine-month convertible note payable for $32,000, which accrues interest at the rate of 12% per annum.
It is not convertible until three months after its issuance and has a conversion rate of fifty-five eight percent (58%) of the lowest
closing bid price (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date
of conversion. On November 6, 2017, this note was assumed and paid in full at a premium for a total of $95,685, by Cybernaut Zfounder
Ventures. An amended term was added to the original note with the interest rate of 14%. This note matured on February 26th,
2018, and is currently in default. As of March 31, 2023, the outstanding balance due was $163,979.95. As of April 3, 2023, this note
was settled and paid off.
On
December 27, 2021, we entered into a convertible note payable with Universal Scope Inc. for $650,000
with a maturity date of June
21, 2022, which accrues interest at the rate
of 2%
per annum. It is convertible at any time after its issuance and has a fixed conversion rate of $0.06
of our common stock. This note was converted
into 277,604
of our common shares on March 28, 2023.
On
May 6, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company issued
to Mast Hill a $750,000 Convertible Promissory Note, due May 6, 2023 (the “Note”) for a purchase price of $675,000.00 plus
an original issue discount in the amount of $75,000.00, and an interest rate of fifteen percent (15%) per annum. Mast Hill Fund is entitled
to purchase 234,375 shares of common stock per the warrant agreement at the exercise price of $1.60. The Securities Purchase Agreement
provides customary representations, warranties and covenants of the Company and Mast Hill as well as providing Mast Hill with registration
rights.
On
August 5, 2022, we entered into a Securities Purchase Agreement with Jefferson Street Capital, LLC (Jefferson) pursuant to which the
Company issued to Jefferson a $138,888 Convertible Promissory Note, due August 5, 2023 (the “Note”) for a purchase price
of $125,000.00 plus an original issue discount in the amount of $13,888.88, and an interest rate of fifteen percent (15%) per annum.
Jefferson is entitled to purchase 43,403 shares of common stock per the warrant agreement at the exercise price of $1.60. The Securities
Purchase Agreement provides customary representations, warranties and covenants of the Company and Jefferson as well as providing Jefferson
with registration rights. This note was paid off as of March 9, 2023, $187,451.37
On
August 17, 2022, we entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund LLC (“Firstfire”)
pursuant to which the Company issued to Mast Hill a $150,000 Convertible Promissory Note, due August 17, 2023 (the “Note”)
for a purchase price of $135,000.00 plus an original issue discount in the amount of $15,000.00, and an interest rate of fifteen percent
(15%) per annum. Firstfire is entitled to purchase 46,875 shares of common stock per the warrant agreement at the exercise price of
$1.60. The Securities Purchase Agreement provides customary representations, warranties and covenants of the Company and Firstfire as
well as providing Firstfire with registration rights. This note was paid off as of March 9, 2023, $215,000
On
September 1, 2022, we entered into a Securities Purchase Agreement with Pacific Pier Capital, LLC (Pacific) pursuant to which the
Company issued to Pacific a $138,888
Convertible Promissory Note, due August
5, 2023 (the “Note”) for a purchase price of $125,000.00
plus an original issue discount in the amount of $13,888.88,
and an interest rate of fifteen percent (15%)
per annum. Pacific is entitled to purchase 43,403
shares of common stock per the warrant agreement at the exercise price of $1.60.
The Securities Purchase Agreement provides customary representations, warranties and covenants of the Company and Pacific as well as
providing Pacific with registration rights. This note was paid off as of March 9, 2023, $190,605.67
On
September 16, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $300,000 Convertible Promissory Note, due September 16, 2023 (the “Note”) for a purchase price of $270,000.00
plus an original issue discount in the amount of $30,000.00, and an interest rate of fifteen percent (15%) per annum. Mast Hill Fund
is entitled to purchase 93,750 shares of common stock per the warrant agreement at the exercise price of $1.60. The Securities Purchase
Agreement provides customary representations, warranties and covenants of the Company and Mast Hill as well as providing Mast Hill with
registration rights. Mast Hill converted their warrant on April 18, 2023.
On
November 10, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $95,000 Convertible Promissory Note, due November 10, 2023 (the “Note”) for a purchase price of $85,500
plus an original issue discount in the amount of $9,500 and an interest rate of fifteen percent (15%) per annum. Mast Hill Fund is entitled
to purchase 29,686 shares of common stock per the warrant agreement at the exercise price of $1.60. The Securities Purchase Agreement
provides customary representations, warranties and covenants of the Company and Mast Hill as well as providing Mast Hill with registration
rights.
On
November 21, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $95,000 Convertible Promissory Note, due November 21, 2023 (the “Note”) for a purchase price of $85,500
plus an original issue discount in the amount of $9,500, and an interest rate of fifteen percent (15%) per annum. Mast Hill Fund is entitled
to purchase 29,686 shares of common stock per the warrant agreement at the exercise price of $1.60. The Securities Purchase Agreement
provides customary representations, warranties and covenants of the Company and Mast Hill as well as providing Mast Hill with registration
rights.
On
December 26, 2022, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $123,000 Convertible Promissory Note, due December 26, 2023 (the “Note”) for a purchase price of $110,700
plus an original issue discount in the amount of $12,300 and an interest rate of fifteen percent (15%) per annum. Mast Hill Fund is entitled
to purchase 38,437 shares of common stock per the warrant agreement at the exercise price of $1.60. The Securities Purchase Agreement
provides customary representations, warranties and covenants of the Company and Mast Hill as well as providing Mast Hill with registration
rights.
On January 19, 2023, we entered into a Securities
Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company issued to Mast Hill a $187,000 Convertible Promissory
Note, due January 19, 2024 (the “Note”) for a purchase price of $168,300 plus an original issue discount in the amount of
$18,700 and an interest rate of fifteen percent (15%) per annum. Mast Hill Fund is entitled to purchase 58,438 shares of common stock
per the warrant agreement at the exercise price of $1.60. The Securities Purchase Agreement provides customary representations, warranties
and covenants of the Company and Mast Hill as well as providing Mast Hill with registration rights.
On
March 8, 2023, we entered into a Securities Purchase Agreement with Mast Hill, L.P. (Mast Hill”) pursuant to which the Company
issued to Mast Hill a $734,000 Convertible Promissory Note, due March 8, 2024 (the “Note”) for a purchase price of $660,600
plus an original issue discount in the amount of $73,400 and an interest rate of fifteen percent (15%) per annum. Mast Hill Fund is entitled
to purchase 367,000 shares of common stock per the warrant agreement at the exercise price of $1.60. The Securities Purchase Agreement
provides customary representations, warranties and covenants of the Company and Mast Hill as well as providing Mast Hill with registration
rights.
Total
due to Convertible Notes
SCHEDULE OF CONVERTIBLE NOTES
| |
March
31, 2023 | | |
December
31, 2022 | |
Total
convertible notes | |
$ | 3,043,363 | | |
| 3,156,528 | |
Accrued
Interest | |
| 326,067 | | |
| 262,331 | |
Debt
Discount | |
| (651,167 | ) | |
| (326,804 | ) |
Total | |
$ | 2,718,263 | | |
| 3,092,055 | |
Note
10 – Derivative Liabilities
As
a result of the convertible notes, we recognized the embedded derivative liability on the date of note issuance. We also revalued the
remaining derivative liability on the outstanding note balance on the date of the balance sheet. We value the derivative liability using
a binomial lattice model with an expected volatility of 91.5%, a risk-free interest rate range of 4.5%, and an exercise price of $1.00.
The remaining derivative liabilities were:
SCHEDULE OF FAIR VALUE OF DERIVATIVE LIABILITY
| |
March
31, 2023 | | |
December
31, 2022 | |
Derivative
Liabilities on Convertible Loans: | |
| | | |
| | |
Outstanding
Balance | |
$ | 261,639 | | |
$ | 588,178 | |
NOTE
11 – COMMITMENTS AND CONTINGENCIES
Operating
Rental Leases
As
of May 1, 2017, our corporate headquarters are located at 2990 Redhill Unit A, Costa Mesa, CA. On March 10, 2017, the Company signed
a lease agreement for an 18,200-square
foot CTU Industrial Building. Lease term is seven years and two months beginning July 1, 2017. Future minimum lease payments for the
years ending December 31, are: In
October of 2018 we signed a sublease agreement with our facility in Italy with an indefinite term that may be terminated by either party
with a 60-day notice for 1,000 Euro per month. Due to the short termination clause, we are treating this as a month-to-month lease.
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
As
of March 31, 2023
Year | |
Lease
Payment | |
2023 | |
| 124,566 | |
March 31, 2024 | |
| | |
March 31, 2025 | |
| | |
March 31, 2026 | |
| | |
March 31, 2027 | |
| | |
Total undiscounted cash flows | |
| | |
Imputed
Interest | |
| (3,630 | ) |
Net
Lease Liability | |
$ | 120,936 | |
Our
lease expense for the three months ended March 31, 2023 and 2022 was $122,779 and $88,962 respectively.
Effective August 5, 2022, Shuya entered a 48 months lease for
a natural gas recycle station from Leishen (the 41% shareholder of Shuya), including the operating right and use right of all the assets
and equipment in the station. The annual rent is approximately $76,100, to be paid each year in advance. Effective August 5, 2022, Shuya
entered another 48 months lease for leasing a sewage treatment land from Leishen for the purpose of operating the natural gas recycling
station. The annual rent is approximately $19,540, to be paid each year in advance.
The
following is a schedule, by year of lease payment for Shuya as of March 31, 2023.
Our
lease expense of Shuya for the three months ended March 31, 2023 and 2022 was $86,774 and $0 respectively.
ASB
ASU 2016-02 “Leases (Topic 842)” – In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize
almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained
a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely
similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current
model but has been updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have adopted the above ASU
as of January 1, 2019. The right of use asset and lease liability have been recorded at the present value of the future minimum lease
payments, utilizing a 5% average borrowing rate and the company is utilizing the transition relief and “running off” on current
leases.
Severance
Benefits
Mr.
Mahdi will receive a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Mahdi would have been entitled
to receive through the remainder or the Employment Period or One (1) year, whichever is greater.
NOTE
12 – CAPITAL STOCK TRANSACTIONS
On
April 21, 2005, our Board of Directors and shareholders approved the re-domicile of the Company in the State of Nevada, in connection
with which we increased the number of our authorized common shares to 200,000,000 and designated a par value of $.001 per share.
On
May 25, 2006, our Board of Directors and shareholders approved an amendment to our Articles of Incorporation to authorize a new series
of preferred stock, designated as Series C, and consisting of 15,000 authorized shares.
On
June 30, 2017, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 400,000,000
and in the number of our authorized preferred shares to 10,000,000. The amendment effecting the increase in our authorized capital was
filed and effective on July 5, 2017.
On
August 28, 2018, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 800,000,000.
The amendment effecting the increase in our authorized capital was filed and effective on August 23, 2018.
On
June 10, 2019, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 2,000,000,000.
The amendment effecting the increase in our authorized capital was effective on September 27, 2019.
On
January 6, 2023, our board of directors and majority shareholders approved a reverse stock split. Effective upon the filing of our Certificate
of Amendment of Articles of Incorporation with the Secretary of State of the State of Nevada, the shares of the Corporation’s Common
Stock issued and outstanding immediately prior to the Effective Time of January 6, 2023, will be automatically reclassified as and combined
into shares of Common Stock such that each (40) shares of Old Common Stock shall be reclassified as and combined into one (1) share of
New Common Stock. All per share references to common stock have been retroactively represented throughout the financials.
Common
Stock Transactions
During
the quarter ended March 31, 2022, we issued 78,897
shares of common stock, under S-1 registration
statement with GHS for a total of $134,755
in net proceeds and expensed $45,498
in legal and financing fees as a result.
On
February 21, 2022, we issued 375,875 shares of our common stock under our Reg A offering at $.08 per share. These shares are unrestricted
and free trading.
During
April of 2022, we issued 3,072 shares of common stock, under S-1 registration statement with GHS for a total of $153,324 in net proceeds
and expensed $34,500 in legal and financing fees as a result.
On
September 21, 2022, MGW I converted $1,548,904 from the outstanding balance of their convertible note into 322,688 shares of company’s
common stock.
On
May 6, 2022, the Company entered into a Securities Purchase Agreement and a warrant agreement with Mast Hill, L.P. (Mast Hill”)
pursuant to which the Company issued to Mast Hill the Company issued Mast Hill a five-year warrant to purchase 234,375 shares of common
stock in connections with the transactions.
On
December 28, 2022 Mast Hill exercised their warrant in full on a cashless basis to purchase 100,446 shares of Common Stock.
On January 27,2023, we issued,3,745 shares of our common
stock due to rounding post the reverse stock split.
On August 17, 2022, we issued 46,875 warrant shares
in connection with the issuance of the promissory note in the principal amount of $150,000 to First Fire at the exercise price per share
of $1.60. However, that if the Company consummates an Uplist Offering on or before the date that is one hundred eighty (180) calendar
days after the Issuance Date, then the Exercise Price shall equal 120% of the offering price per share of Common Stock. On March 1, 2023,
First Fire exercised the warrant in full on a cashless basis to purchase 33,114 shares of common stock.
On September 1, 2022, we issued 43,403 warrant shares
in connection with the issuance of the promissory note in the principal amount of $138,889 to Pacific Pier at the exercise price per share
of $1.60. However, that if the Company consummates an Uplist Offering on or before the date that is one hundred eighty (180) calendar
days after the Issuance Date, then the Exercise Price shall equal 120% of the offering price per share of Common Stock. On March 1, 2023,
Pacific Pier exercised the warrant in full on a cashless basis to purchase 31,111 shares of common stock.
On December 27, 2021, we entered into a convertible
note payable with Universal Scope Inc. for $650,000 with a maturity date of June 21, 2022, which accrues interest at the rate of 2% per
annum. It is convertible at any time after its issuance and has a fixed conversion rate of $2.40 of our common stock. This note was converted
into 277,604 of our common shares on March 28, 2023.
On March 23, 2023 we sold 975,000 shares of our common stock in an underwritten
offering to R.F. Lafferty & CO and Phillip US. The initial public offering price per share is $4.00 per share.
Common
Stock
Our
Articles of Incorporation authorize us to issue 2,000,000,000 shares of common stock, par value $0.001 per share. As of March 31, 2023
there were 38,495,453 shares of common stock outstanding. All outstanding shares of common stock are, and the common stock to be issued
will be, fully paid and non-assessable. Each share of our common stock has identical rights and privileges in every respect. The holders
of our common stock are entitled to vote upon all matters submitted to a vote of our shareholders and are entitled to one vote for each
share of common stock held. There are no cumulative voting rights.
The
holders of our common stock are entitled to share equally in dividends and other distributions that our Board of Directors may declare
from time to time out of funds legally available for that purpose, if any, after the satisfaction of any prior rights and preferences
of any outstanding preferred stock. If we liquidate, dissolve or wind up, the holders of common stock shares will be entitled to share
ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities and our
obligations to holders of our outstanding preferred stock.
Preferred
Stock
Our
Articles of Incorporation authorize us to issue 20,000,000 shares of preferred stock, par value $0.001 per share. Our Board of Directors
has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the designation of and
number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers, privileges, preferences,
and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or
restrictions of the shares of each such series.
Unless
our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the payment
of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may have the effect
of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance of preferred stock
also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect
the rights and powers, including voting rights, of the holders of common stock.
We
previously authorized 440 shares of Series A Convertible Preferred Stock, 20,000 shares of Series B Convertible Preferred Stock, and
15,000 shares Series C Convertible Preferred Stock. As of August 20, 2006, all series A, B, and C preferred had been converted into common
stock.
Effective
August 7, 2013, our Board of Directors designated a series of our preferred stock as Series D Preferred Stock, authorizing 15,000 shares.
Our Series D Preferred Stock offering terms authorized us to raise up to $1,000,000 with an over-allotment of $500,000 in multiple closings
over the course of six months. We received an aggregate of $750,000 in financing in subscription for Series D Preferred Stock, or 7,500
shares.
The
following are primary terms of the Series D Preferred Stock. The
Series D Preferred holders were initially entitled to be paid a special monthly divide at the rate of 17.5%
per annum. Initially, the Series D Preferred Stock was also entitled to be paid special dividends in the event cash dividends were
not paid when scheduled. If the Company does not pay the dividend within five (5) business days from the end of the calendar month
for which the payment of such dividend is owed, the Company will pay the investor a special dividend of an additional 3.5%. Any
unpaid or accrued special dividends will be paid upon liquidation or redemption. For any other dividends or distributions, the
Series D Preferred Stock participates with common stock on an as-converted basis. The Series D Preferred holders may elect to
convert the Series D Preferred Stock, in their sole discretion, at any time after a one-year (1) year holding period, by sending the
Company a notice to convert. The conversion rate is equal to the greater of $3.20 or a 20% discount to the average of the three (3)
lowest closing market prices of the common stock during the ten (10) trading day period prior to conversion. The Series D Preferred
Stock is redeemable from funds legally available for distribution at the option of the individual holders of the Series D Preferred
Stock commencing any time after the one (1) year period from the offering closing at a price equal to the initial purchase price
plus all accrued but unpaid dividends, provided, that if the Company gave notice to the investors that it was not in a financial
position to redeem the Series D Preferred, the Company and the Series D Preferred holders are obligated to negotiate in good faith
for an extension of the redemption period. The Company timely notified the investors that it was not in a financial position
to redeem the Series D Preferred and the Company and the investors have engaged in ongoing negotiations to determine an appropriate
extension period. The Company may elect to redeem the Series D Preferred Stock any time at a price equal to the initial purchase
price plus all accrued but unpaid dividends, subject to the investors’ right to convert, by providing written notice about its
intent to redeem. Each investor has the right to convert the Series D Preferred Stock at least ten (10) days prior to such
redemption by the Company.
In
connection with the subscriptions for the Series D Preferred, we issued series F warrants to purchase an aggregate of 9,375 shares of
our common stock at $4.00 per share and series G warrants to purchase an aggregate of 9,375 shares of our common stock at $8.00 per share.
On
August 21, 2014, a holder holding 5,000 shares of Preferred Series D Preferred agreed to lower the dividend rate to 13% on its Series
D Preferred. In September 2015, all holders of Series D Preferred signed and delivered estoppel agreements, whereby the holders agreed,
among other things, that the Series D Preferred was not in default and to reduce (effective as of December 31, 2015) the dividend rate
on the Series D Preferred Stock to six percent per annum and to terminate the 3.5% penalty in respect of unpaid dividends accruing on
or after such date.
In
the first quarter of 2019, we signed agreements to issue 1000 shares of common stock valued at $.60 for a total value of $60,000 for
the conversion of 800 preferred series D shares, which were subsequently issued.
We
also recorded a $60,000 commitment fee in exchange for the “standoff” and estoppel agreement and discounted conversion terms
to account for the difference in the fair value which we offset to retained earnings.
On
February 4, 2020, we issued 50,000 shares of our common stock at a price of $1.60 per share, in exchange for the conversion of 800
shares of our Series D Preferred Stock.
On
July 23, 2020, we issued 75,000 shares of our common stock at a price of $1.60 per share, in exchange for the conversion of 1,200 shares
of our Series D Preferred Stock.
On
February 5, 2021, we issued 75,000
shares of our common stock at a price of $.08
per share, in exchange for the conversion of
1,200
shares of our Series D Preferred Stock.
On
February 9, 2021, we issued 56,892 shares of our common stock share, in exchange for the conversion of $182,052 of accrued dividend
for the series D Preferred Stock.
On
February 9, 2021, we issued 50,000 shares of our common stock at a price of $.04 per share, in exchange for the conversion of 800
shares of our Series D Preferred Stock.
On
March 12, 2021, we issued 92,340 shares of our common stock together with accrued preferred dividend at a price of $3.20 per share,
in exchange for the conversion of 1300 shares of our Series D Preferred Stock and accrued preferred dividend.
Warrants
A
summary of warrant activity for the periods is as follows:
On
May 6, 2022, we issued 234,375 warrant
shares in connection with the issuance of the promissory note in the principal amount of $750,000 to
Mast Hill Fund at the exercise price per share of $1.60.
However, that if the Company consummates an Uplist Offering on or before the date that is one hundred eighty (180) calendar days
after the Issuance Date, then the Exercise Price shall equal 120%
of the offering price per share of Common Stock. On December 28, 2022, Mast Hill exercised the warrant in full on a cashless basis to
purchase 100,446 shares
of Common Stock.
On
August 5, 2022, we issued 43,403 warrant shares in connection with the issuance of the promissory note in the principal amount of $138,889
to Jefferson Street at the exercise price per share of $1.60. However, that if the Company consummates an Uplist Offering on or before
the date that is one hundred eighty (180) calendar days after the Issuance Date, then the Exercise Price shall equal 120% of the offering
price per share of Common Stock.
On
August 17, 2022, we issued 46,875 warrant shares in connection with the issuance of the promissory note in the principal amount of $150,000
to First Fire at the exercise price per share of $1.60. However, that if the Company consummates an Uplist Offering on or before the date
that is one hundred eighty (180) calendar days after the Issuance Date, then the Exercise Price shall equal 120% of the offering price
per share of Common Stock. On March 1, 2023, First Fire exercised the warrant in full on a cashless basis to purchase 33,114 shares of
common stock.
On
September 1, 2022, we issued 43,403 warrant shares in connection with the issuance of the promissory note in the principal amount
of $138,889 to Pacific Pier at the exercise price per share of $1.60. However, that if the Company consummates an Uplist Offering on or
before the date that is one hundred eighty (180) calendar days after the Issuance Date, then the Exercise Price shall equal 120% of the
offering price per share of Common Stock. On March 1, 2023, Pacific Pier exercised the warrant in full on a cashless basis to purchase
31,111 shares of common stock.
On
September 16, 2022, we issued 93,750 warrant shares in connection with the issuance of the promissory note in the principal amount of
$300,000 to Mast Hill Fund at the exercise price per share of $1.60. However, that if the Company consummates an Uplist Offering on or
before the date that is one hundred eighty (180) calendar days after the Issuance Date, then the Exercise Price shall equal 120% of the
offering price per share of Common Stock.
On
November 10, 2022, we issued 29,687
warrant shares in connection with the issuance of the promissory note in the principal amount of $300,000
to Mast Hill Fund at the exercise price per share of $1.60.
However, that if the Company consummates an Uplist Offering on or before the date that is one hundred eighty (180) calendar days
after the Issuance Date, then the Exercise Price shall equal 120%
of the offering price per share of Common Stock.
On
November 21, 2022, we issued 29,687 warrant shares in connection with the issuance of the promissory note in the principal amount
of $95,000 to Mast Hill Fund at the exercise price per share of $1.60. However, that if the Company consummates an Uplist Offering on
or before the date that is one hundred eighty (180) calendar days after the Issuance Date, then the Exercise Price shall equal 120% of
the offering price per share of Common Stock.
On
December 26, 2022, we issued 38,437 warrant shares in connection with the issuance of the promissory note in the principal amount of
$123,000 to Mast Hill Fund at the exercise price per share of $1.60. However, that if the Company consummates an Uplist Offering on or
before the date that is one hundred eighty (180) calendar days after the Issuance Date, then the Exercise Price shall equal 120% of the
offering price per share of Common Stock.
On January 19, 2023, we issued 58,438 warrant shares
in connection with the issuance of the promissory note in the principal amount of $187,000 to Mast Hill Fund at the exercise price per
share of $1.60. However, that if the Company consummates an Uplist Offering on or before the date that is one hundred eighty (180) calendar
days after the Issuance Date, then the Exercise Price shall equal 120% of the offering price per share of Common Stock. Mast Hill exercised
this not in full on May 10, 2023.
On
Feb 13, 2023, we issued 26,700 warrant shares to J.H. Darbie & Co., Inc. according to finder agreement we entered into date April,
2022 at the exercise price of $5.00.
On
March 8, 2023, we issued 367,000 warrant shares in connection with the issuance of the promissory note in the principal amount of $734,000
to Mast Hill Fund at the exercise price per share of $1.60. However, that if the Company consummates an Uplist Offering on or before the
date that is one hundred eighty (180) calendar days after the Issuance Date, then the Exercise Price shall equal 120% of the offering
price per share of Common Stock.
SCHEDULE
OF WARRANT ACTIVITY
| |
Warrants - Common Share Equivalents | | |
Weighted Average Exercise price | | |
Warrants exercisable - Common Share Equivalents | | |
Weighted Average Exercise price | |
Outstanding December 31, 2022 | |
| 325,243 | | |
$ | 1.60 | | |
| 325,243 | | |
$ | 1.60 | |
Expired | |
| | | |
| | | |
| | | |
| | |
Additions | |
| 425,438 | | |
| 1.60 | | |
| 425,438 | | |
| 1.60 | |
Additions | |
| 26,701 | | |
| 5.00 | | |
| 26,701 | | |
| 5.00 | |
Exercised | |
| (90,278 | ) | |
| 1.60 | | |
| (90,278 | ) | |
| 1.60 | |
Outstanding March 31, 2023 | |
| 687,104 | | |
$ | 3.73 | | |
| 687,104 | | |
$ | 3.73 | |
Stock
Options
We
currently have no outstanding stock options.
NOTE
13 – RELATED PARTY TRANSACTIONS
From August 2022 through October 2022, Hongzhuo
Shuya (Shuya) a 49% owned subsidiary (also is our consolidated VIE) of CETY HK limited engaged in the trading of pipeline gas
and CNG processing and sales provided Sichuan Leishen Hongzhuo Energy Development Co., Ltd (Leishen) with approximately total of
$740,000
loan with a 4
years term to facilitate building of a natural gas recycling station to provide Shuya with CNG sales. Leishen owns 41% of Shuya and
as an entity can obtain the permits and licenses to build and operate the NG Recycling Station to produce CNG. At the end of the 4
year term of the loan, Leishen has the option to either move the NG Recycling Station and all permits to Shuya, or repay the
loan.
Additionally, Leishen has relationships with the
supply side of the NG business and is able to obtain large amounts of NG. As a result, Shuya also has a supplier relationship with
Leishen. The price obtained from Leishen will be better than any unrelated party as their markup is below market. Our Board of
Directors has approved the transactions between Leishen and the Company. During the quarter ended March 31, 2023, Shuya made $1.03
million purchase from Leishen. As of March 31, 2023, we had account receivable from Leishen $4,883, advance to supplier of Leishen of $458,014,
accounts payable to Leishen of $138,347. In addition, we lent $736,736 to Leishen as of March 31, 2023 for Leishen to construct a CNG
refueling station on behalf of Shuya, the loan term is four years. When the CNG refueling station is ready for operation, Shuya will lease
the CNG refueling station from Leishen at a favorabvle price equivalent to the depreciation amount of the station; when the assets are
eligible for transfer, Leishen will transfer the assets of CNG refueling station to Shuya at the net asset value.
Effective August 5, 2022, Shuya entered a 48 months
lease for a natural gas recycle station from Leishen, including the operating right and use right of all the assets and equipment in
the station. The annual rent is approximately $76,100, to be paid each year in advance. Effective August 5, 2022, Shuya entered
another 48 months lease for leasing a sewage treatment land from Leishen for the purpose of operating the natural gas recycling
station. The annual rent is approximately $19,540, to be paid each year in advance.
On
November 2, 2016, we effected the repayment of the convertible note dated March 15, 2016 for an aggregate amount of $84,000. Concurrently,
we entered into an Escrow Funding Agreement with Red Dot Investment, Inc., a California corporation (“Reddot”), pursuant
to which Reddot deposited funds into escrow to fund the repayment and we assigned to Reddot our right to acquire the convertible note
and Reddot acquired the convertible note. Concurrently, we and Reddot amended the convertible note (a) to have a fixed conversion price
of $.20 per share, subject to potential further adjustment in the event of certain Common Stock issuances, (b) to have a fixed interest
rate of ten percent (10%) per annum with respect to both the redemption amount and including a financing fee and any costs, expenses,
or other fees relating to the convertible note or its enforcement and collection, and any other expense for or on our account (in each
case with a minimum 10% yield in the event of payoff or conversion within the first year), such amounts to constitute additional principal
under the convertible note, as amended, and (c) as otherwise provided in the Escrow Funding Agreement. The March 2016 convertible note,
as so amended, is referred to as the “Master Note.”
Concurrently
with the foregoing note repayments, we entered into a Credit Agreement and Promissory Note (the “Credit Agreement”) with
Megawell USA Technology Investment Fund I LLC, a Wyoming limited liability company in formation (“MW I”), pursuant to which
MW I deposited funds into escrow to fund the repayment of the convertible notes and we assigned to MW I our right to acquire the convertible
notes and otherwise agreed that MW I would be subrogated to the rights of each note holder to the extent a note was repaid with funds
advanced by MW I. Concurrently, MW I acquired the Master Note and we agreed that all amounts advanced by MG I to or for our benefit would
be governed by the terms of the Master Note, including the payment of a financing fees, interest, minimum interest, and convertibility.
Reddot is MW I’s agent for purposes of administration of the Credit Agreement and the Master Note and advances thereunder.
On
February 13, 2018, the Corporation and Confections Ventures Limited. (“CVL”) entered into a Convertible Note Purchase Agreement
(the “Convertible Note Purchase Agreement,” together with the Stock Purchase Agreement and the transactions contemplated
thereunder, the “Financing”) pursuant to which the Corporation issued to CVL a convertible promissory Note (the “CVL
Note”) in the principal amount of $939,500 with an interest rate of 10% per annum interest rate and a maturity date of February
13, 2020. The CVL Note is convertible into shares of Common Stock at $0.12 per share, as adjusted as provided therein. As a result, we
recognized a beneficial conversion feature of $532,383, which is amortized over the life of the note. This note was assigned to MGW Investments
and they agreed not to convert the $939,500 note into shares in excess of the 20,000,000 Authorized limit until we have increased the
Authorized shares to the Board approved limit of 50,000,000 shares. This note converted into 34,644 of company’s common stock on
September 21, 2022.
On
February 8, 2018, the Corporation entered a Convertible Promissory Note in the principal amount of $153,123, due October 8, 2018, with
an interest rate of 12% per annum payable to MGWI (the “MGWI Note”). The MGWI Note is convertible into shares of the Corporation’s
common stock at the lower of: (i) a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date
of a Conversion Notice; or (ii) 0.12. As a result of the closing of the transactions contemplated by the Stock Purchase Agreement and
Convertible Note Purchase Agreement, the MGWI Note must be redeemed by the Corporation in an amount that will permit CVL and MGWI and
their affiliates to hold 65% of the issued and outstanding Common Stock of the Corporation on a fully diluted basis. The proceeds from
the MGWI Note were used to redeem the convertible note of the Corporation to JSJ Investments, Inc. in the principal amount of $103,000
with an interest rate of 12% per annum, due April 25, 2018. At December 31, 2019 the holder of this note beneficially owned 70% of the
company and this note is not convertible if the holder holds more than 9.99%, as a result, we did not recognize a derivative liability
or a beneficial conversion feature. This note was converted into 33,987 of company’s common stock on September 21, 2022.
Subsequently
on May 11th this note was amended and the maturity date was extended to October 8, 2023, and the restriction on the conversion of the
note was removed if the holder of this note holds over 9.9% of the Company’s common stock. On June 24, 2021, MGW I converted $75,000
of the outstanding balance of this note into 625,000 shares of company’s common stock.
On
May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 4,200,000 units (each a “Unit”
and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200, or $.476 per Unit,
with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”) and a warrant (the
“Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such time as the Company increases
the number of shares of its authorized Common Stock. The Warrant is exercisable at $1.60 per share of Common Stock and expires one year
from the date of the Agreement.
In
the fourth quarter of 2019 MGW Investment I Limited, advanced $167,975, with no terms or interest rate. MGW Investment limited forgave
$80,000 of this amount in the 4th quarter of 2022. The outstanding balance on this advance on December 31, 2022, is $87,975.
On
March 24, 2021, the Company transferred $500,000 to MGWI, an affiliate of the majority stockholder of the Company to hold in trust for
our investment in two planned ventures in China. The investment was used for the acquisition of LWL.
On
September 21, 2022, MGW I converted $1,548,904 from the outstanding balance of their convertible note into 12,907,534 shares of company’s
common stock.
Kambiz
Mahdi, our Chief Executive Officer, owns Billet Electronics, which is a distributor of electronic components. From time to time, we purchase
parts from Billet Electronics. In addition, Billet was a supplier of parts and had dealings with current and former customers of the
Company prior to joining the company. The number of parts purchases in the 1st quarter of 2023 was $6,180. Our Board of Directors
has approved the transactions between Billet Electronics and the Company.
Note
14 - WARRANTY
LIABILITY
For
the quarter ended March 31, 2023, and for the year ended December 31, 2022, there was no change in our warranty liability. We estimate
our warranty liability based on past experiences and estimated replacement cost of material and labor to replace the critical turbine
in the units that are still under warranty.
NOTE
15 – NON-CONTROLLING INTEREST
On
April 2, 2023, the Company formed CETY Capital LLC a wholly owned subsidiary of CETY. In addition, the company with established Vermont
Renewable Gas LLC (“VRG”) C with our partner, Synergy Bioproducts Corporation (“SBC”) The purpose of the joint
venture is the development of a pyrolysis plant established to convert wood feedstock into electricity and BioChar by using high temperature
ablative fast pyrolysis reactor for which Clean Energy Technology, Inc. holds the license for. The VRG is located in Lyndon, Vermont.
Based upon the terms of the members’ agreement, CETY Capital LLC owns a 49% interest and SBC owns a 51% interest in Vermont Renewable
Gas LLC.
In
July 2022, JHJ and other three shareholders agreed to form and make total capital contribution of RMB 20 million ($2.81 million)
with latest contribution due date in February 2066 into Sichuan Hongzuo Shuya Energy Limited (“Shuya”), JHK owns 20% of
Shuya. In August 2022, JHJ purchased 100% ownership of Sichuan Shunengwei Energy Technology Limited (“SSET”) for $0, who
owns 29% of Shuya; Shunengwei is a holding company and did not have any operations nor made any capital contribution into Shuya as
of the ownership purchase date by JHJ; right after the ownership purchase of SSET, JHJ ultimately owns 49% of Shuya. As a result of
Consistent Action Agreement entered on December 31, 2022, the Company re-analyzed and determined that Shuya is the variable interest
entity (“VIE”) of JHJ, and the Company consolidates Shuya into its consolidated financial statements effective on
January 1, 2023. The non-controlling interest of Shuya representes the 41% equity ownership that is owned by Leishen, and 10% equity
ownership owned by another shareholder.
NOTE
16 – THE STATUTORY RESERVES
The
Company’s ability to pay dividends primarily depends on it receiving funds from its subsidiaries. PRC laws and regulations permit
payments of dividends by the Company’s PRC subsidiaries only out of the subsidiary’s retained earnings, if any, as determined
in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared
in accordance with US GAAP differ from those reflected in the statutory financial statements of the Company’s PRC subsidiaries.
In
accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise
(“FIE”) established in the PRC is required to provide statutory reserves, which are appropriated from net profit as reported
in the FIE’s PRC statutory accounts. An FIE is required to allocate at least 10% of its annual after-tax profit to the surplus
reserve until such reserve reaches 50% of its respective registered capital based on the FIE’s PRC statutory accounts. Appropriations
to other funds are at the discretion of the BOD for all FIEs. The aforementioned reserves can only be used for specific purposes and
are not distributable as cash dividends. Additionally, shareholders of an FIE are required to contribute capital to satisfy the registered
capital requirement of the FIE. Until such a contribution of capital is satisfied, the FIE is not allowed to repatriate profits to its
shareholders, unless otherwise approved by the State Administration of Foreign Exchange.
Additionally,
in accordance with the Company Laws of the PRC, a domestic enterprise is required to provide surplus reserve at least 10% of its annual
after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory
accounts. A domestic enterprise is also required to have a discretionary surplus reserve, at the discretion of the BOD, from the profits
determined in accordance with the enterprise’s PRC statutory accounts. Appropriation to such reserve by the Company is based on
profit arrived at under PRC accounting standards for business enterprises for each year. The profit arrived at must be set off against
any accumulated losses sustained by the Company in prior years, before allocation is made to the statutory reserve. The aforementioned
reserves can only be used for specific purposes and are not distributable as cash dividends. Technology was established as domestic enterprises
and therefore is subject to the above-mentioned restrictions on distributable profits.
As
a result of these PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside prior to payment
of dividends as general reserve fund, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their
net assets to the Company as a dividend.
In
addition, according to Administrative Measures for the Collection and Utilization of Enterprise Work Safety Funds issued by the PRC Ministry
of Finance and the State Administration of Work Safety, for the companies with dangerous goods production or storage, the company is
required to make a special reserve for the use of enhancing and improving its safe production conditions. Under PRC GAAP, the reserve
is recorded as selling expense; however, under US GAAP, since the expense has not been incurred and the Company will record cost of sales
for safety related expenses when it is actually happened or incurred, this special reserve was recorded as an appropriation of its after-tax
income. The reserve is calculated at a rate of 15% of total sales.
NOTE
17 – SUBSEQUENT EVENTS
On
April 3, 2023, Clean Energy Technologies, Inc. reached an agreement with Cybernaut Zfounder Ventures, LLC to pay off the outstanding
convertible notes in amount equal to $324,000 that were in default for a settlement amount of $200,000.
On
April 18, 2023, Mast Hill exercised the right to purchase 93,750 of the shares of Common Stock (“Warrant Shares”) of Clean
Energy Technologies, Inc., because of the Common Stock Purchase Warrant (the “Warrant”) issued on September 16, 2022. The
exercise price is $1.60 per share. The total purchase price was $150,000.
On January 19, 2023, we issued 58,438 warrant
shares in connection with the issuance of the promissory note in the principal amount of $187,000 to Mast Hill Fund at the exercise price
per share of $1.60. However, that if the Company consummates an Uplist Offering on or before the date that is one hundred eighty (180)
calendar days after the Issuance Date, then the Exercise Price shall equal 120% of the offering price per share of Common Stock. Mast
Hill exercised this note in full on May 10, 2023.