The accompanying footnotes are an integral part of these financial statements
The accompanying footnotes are an integral part of these financial statements
Notes to Consolidated Financial Statements
Notes 1- GENERAL
Business Overview
We design, build, and market clean energy products focused on energy efficiency and environmentally sustainable technologies and we perform electronics manufacturing services for Heat recovery Solutions and third parties. Our principal products are based upon the Clean Cycle
heat recovery system, offered by our wholly owned subsidiary Clean Energy HRS LLC DBA Heat Recovery Solutions. Our Clean Cycle
captures waste heat from a variety of sources and turns it into electricity that users can use, store, or export, such as to an external or utility power grid. The proven, cutting-edge Clean Cycle
technology allows commercial and industrial heat generators or sources to boost their overall energy efficiency with no additional fuel, no pollutants, and virtually no maintenance. The engineering and manufacturing resources from our electronics manufacturing services business support our heat recovery solutions business. We intend also to leverage these capabilities to identify and exploit other clean energy technologies and opportunities.
The Clean Cycle
heat recovery solution is an Organic Rankine Cycle, or ORC, system. An ORC system is a closed-loop heat recovery steam generator system, sometimes referred to as an HRS or an HRSG, that utilizes heat from a heat source, such as an existing power generation system, to heat a fluid to produce steam. The steam then passes through a turbine generator, and turbine generator converts the kinetic energy in the steam to produce electrical energy, which can be used, stored, or exported. The ORC cycle then recycles and further cools the fluid medium to again use heat from the external heat source to continue the power-generation cycle.
The technology at the heart of the Clean Cycle
is a magnetic levitation bearing generator, which requires no oil or other lubricants and has no gear box. The turbine generator and related power management electronics are what convert the kinetic energy in the steam cycle into electrical energy. There are over 100 Clean Cycle
HRS units installed globally with more than one million fleet operating hours in diesel, gas, and biomass applications.
The magnetic levitation bearing generator technology was originally developed by Calnetix, Inc. General Electric International, Inc. acquired the rights to the technology in certain applications from Calnetix in 2010. In September 2015, our CE HRS subsidiary acquired General Electric
s rights to the technology in those applications, together with General Electric
s related HRS technology and improvements, pursuant to an Asset Purchase Agreement with General Electric International, Inc. and General Electric Company that was filed as Exhibit 10.1 to the Company
s Current Report on Form 8K dated September 11, 2015 and a concurrent Transaction Completion and Financing Agreement with ETI Partners IV, LLC. CE HRS made an initial purchase price payment of $300,000 at closing and issued a three-year $1.2 million promissory note to GEII with respect to payment of the balance of the cash portion of the purchase price. CE HRS also assumed certain liabilities of GEII related to the acquired assets. In connection with the Asset Purchase Agreement, the Company also entered into various ancillary agreements customary for asset acquisition transactions of this type. Pursuant to the companion Transaction Completion and Financing Agreement facilitating our acquisition of the GE HRS assets, we issued 100,910,321 restricted shares of our common stock to ETI Partners IV, LLC (representing approximately 70% of the post-acquisition outstanding common stock). Concurrently, we entered into a Loan, Guarantee, and Collateral Agreement and a Registration Rights Agreement with ETI Partners IV, LLC to provide a framework for further financing in the Company.
Pursuant to our license agreement with Calnetix (which General Electric assigned to us in connection with the Asset Purchase Agreement), we market and sell our Clean Cycle
products world-wide to ORC-based application where heat is sourced from reciprocating combustion engines, of any type (other than those employed on transiting marine vessels), gas or steam turbine systems used for power generation, and biomass boiler systems. Our rights in these applications are exclusive. We also market our Clean Cycle
products world-wide on a non-exclusive basis in the following applications, whether or not ORC-based: reciprocating combustion engines, of any type (except those employed on transiting marine vessels or in the automotive application for cars, trucks, and other motor vehicles); gas or steam turbine systems with an ISO rated power output above one megawatt (1 MW); and applications that use biomass as a source of heat. We have also periodically negotiated to obtain additional non-exclusive marketing rights to the technology from Calnetix as commercial opportunities have arisen that are not in conflict with other licensees of Calnetix.
34
Our growth strategy is to scale up our business by focusing on the significant installed base of power generation and biomass boiler systems ideally suited to ORC-based heat recovery systems, exploiting market segments and regions where there are significantly high electricity prices, and identifying and exploiting incentive markets as they are available. We sell equipment and complete heat recovery systems globally directly to end customers and also through distributors. We also commercialize our heat recovery systems through lease and energy-based programs where appropriate. We are also developing technology co-ventures with owners of compatible power generation technology to develop integrated energy production systems to exploit additional potential customers.
The GE HRS asset acquisition and related financing transactions resulted in a change of control of the Company according to FASB No. 2014-17 Business Combinations (Topic 805). As a result, the transactions qualify as a business combination. In accordance with Topic 805, the Company elected to apply pushdown accounting, using the valuation date of December 31, 2015. As a result we recognized $747,976 in goodwill.
| |
ETI Recognized
|
|
Assets Acquired
|
2,949,592
|
Liabilities Acquired
|
3,589,558
|
Cash paid
|
300,000
|
Non-controlling interest
|
191,990
|
Goodwill recognized
|
747,976
|
|
|
|
|
CETY - Push down accounting election
|
|
Cash Received
|
300,000
|
Goodwill recognized
|
747,976
|
Equity
|
1,047,976
|
Following completion of the acquisition and integration of the GE HRS into our business, on November 13, 2015 we changed our name to
Clean Energy Technologies, Inc.
to better reflect the focus of our new business and business strategies.
Going Concern
The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a total stockholder
s deficit of $4,113,182 and a working capital deficit of $5,547,652 and a net loss of $2,214,854 for the year ended December 31, 2017. The company also had an accumulated deficit of $8,789,718 as of December 31, 2017 and used $1,495,470 in net cash from operating activities for the year ended December 31, 2017. 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
Management is taking the following steps to sustain profitability and growth: (i) pursuing increased sales through existing global distribution channels and utilization of direct sales, integrators, and engineering firms; (ii) pursuing lease and energy-based contracts with customers, including targeted island or isolated locations where the economics, energy production, and emissions reduction profiles are attractive; (iii) pursuing stable and higher-margin electronics manufacturing services contracts where the terms are favorable to the Company; (iv) arranging financing partnerships and relationships to facilitate increased lease and energy-based commercialization of our HRS products; (v) leveraging core competencies to acquire or integrate other technologies and entertain equity opportunities; and (vi) pursuing licenses of our patented technology and proprietary processes and developing cogeneration and OEM opportunities.
Our future success is likely dependent on our ability to sustain profitable growth and attain additional capital to support growth. There can be no assurance that we will be successful in obtaining any such financing, or that it will be able to generate sufficient positive cash flow from operations. The successful outcome of these or any future activities cannot be determined at this time and there is no assurance that if achieved, we will have sufficient funds to execute its business plans. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.
Our Products and Services
36
Our main product, the Clean Cycle
HRS system, converts heat from variety of heat sources into clean, affordable electricity. Our heat recovery solution system generates electricity from heat with zero additional fuel required, zero additional emissions produced, and low maintenance. The Clean Cycle
HRS system is also re-deployable with continuous 24x7 operation.
Sales and Marketing
Our marketing approach is to position the Company, our products and our services under our new
Clean Energy Technologies, Inc.
and
CETY
identity and brand. We intend to market our Heat Recovery Solutions products specifically using the market-recognized Clean Cycle
brand name. We also intend to utilize our relationships to identify new market segments and regions in which we can expand the commercialization of our products. We intend to offer our products for sale and also to commercialize them under leases, energy-based contracts and other financing structures to accelerate customer adoption and increase market penetration. We also intend to explore licensing opportunities for our patented and other proprietary technologies. We utilize both direct sales force and global distributors with expertise in clean energy.
Corporate Information
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 OTC Market Group
s Pink Open Market under the symbol
CETY.
Our internet website address is www.cetyinc.com. The information contained on our website is 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.
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.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates may be materially different from actual financial results. Significant estimates include the recoverability of long-lived assets, the collection of accounts receivable and valuation of inventory and reserves.
Cash and Cash Equivalents
We maintain the majority of our cash accounts at a commercial bank. The total cash balance is insured by the Federal Deposit Insurance Corporation (
FDIC
) up to $250,000 per commercial bank. For purposes of the statement of cash flows we consider all cash and highly liquid investments with initial maturities of one year or less to be cash equivalents.
Accounts Receivable
We grant credit to our customers located within the United States of America; and do not require collateral. Our ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by us. Reserves for un-collectable amounts are provided, based on past experience and a specific analysis of the accounts. Although we expect to collect amounts due, actual collections may differ from the estimated amounts. As of December 31, 2017, and December 31, 2016, we had a reserve for potentially un-collectable accounts of $7,000. Five (5) customers accounted for approximately 96% of accounts receivable at December 31, 2017. Our trade accounts primarily represent unsecured receivables. Historically, our bad debt write-offs related to these trade accounts have been insignificant.
Inventory
Inventories are valued at the lower of weighted average cost or market value. Our industry experiences changes in technology, changes in market value and availability of raw materials, as well as changing customer demand. We
37
make provisions for estimated excess and obsolete inventories based on regular audits and cycle counts of our on-hand inventory levels and forecasted customer demands and at times additional provisions are made. Any inventory write offs are charged to the reserve account. As of December 31, 2017 and December 31, 2016, we had a reserve for potentially obsolete inventory of $250,000.
Property and Equipment
Property and equipment are recorded at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets. The cost of ordinary maintenance and repairs is charged to operations. Depreciation and amortization are computed on the straight-line method over the following estimated useful lives of the related assets:
Furniture and fixtures 3 to 7 years
Equipment 7 to 10 years
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
Revenue from product and services are recognized at the time goods are shipped or services are provided to the customer, with an appropriate provision for returns and allowances. Terms are generally FOB origination with the right of inspection and acceptance. We have not experienced a material amount of rejected or damaged product.
The Company provides services for its customers that range from contract design to original product design to repair services. The Company recognizes service revenue when the services have been performed, and the related costs are expensed as incurred.
Fair Value of Financial Instruments
The carrying amount of accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of these financial instruments.
Other Comprehensive Income
We have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods.
Net Profit (Loss) per Common Share
Basic profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding. At December 31, 2017, we had outstanding common shares of 210,881,122 used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents at December 31, 2017 and 2016 were 200,560,377 and 59,583,060, respectively. As of December 31, 2017, we had outstanding warrants to purchase 750,000 additional common shares and options to purchase 2,618,818 additional common shares. In addition, we had convertible notes, convertible into 43,376,000 of additional common shares. Fully diluted weighted average common shares and equivalents were withheld from the calculation as they were considered anti-dilutive.
Research and Development
We had no amounts of research and development R&D expense during the year ended December 31, 2017 and 2016.
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 two reportable segments: Clean Energy HRS
(HRS) and the legacy electronic 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
38
channels and similar economic characteristics. Refer to note 1 for a description of the various product categories manufactured under each of these segments. Prior to March 31, 2016 we only had one reporting segment.
An operating segment's performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, and segment selling, general and administrative expenses, and does not include amortization of intangibles, stock-based compensation, other charges (income), net and interest and other, net.
Selected Financial Data
:
|
| |
|
For the years ended December 31,
|
|
2017
|
2016
|
Net Sales
|
|
|
Electronics Assembly
|
$
581,191
|
$
1,222,856
|
Clean Energy HRS
|
376,442
|
824,477
|
Total Sales
|
957,633
|
2,047,333
|
|
|
|
Segment income and reconciliation before tax
|
|
|
Electronics Assembly
|
70,949
|
145,858
|
Clean Energy HRS
|
341,932
|
618,464
|
Total Segment income
|
412,881
|
764,322
|
|
|
|
Reconciling items
|
|
|
General and Administrative expense
|
(422,746)
|
(527,943)
|
Salaries
|
(783,656)
|
(933,125)
|
Moving Expense
|
-
|
(78,702)
|
Facility lease
|
(268,551)
|
(230,024)
|
Professional fees
|
(139,322)
|
(157,976)
|
Share Based Expense
|
(2,460)
|
(113,347)
|
Loss on Disposal of fixed assets
|
-
|
(73,967)
|
Change in derivative liability
|
142,326
|
2,576
|
Beneficial conversion Feature
|
|
(52,621)
|
Gain on Warranty liability
|
-
|
141,611
|
Financing Fees
|
(708,714)
|
(122,397)
|
Interest Expense
|
(444,612)
|
(318,133)
|
Net Loss before income tax
|
$
(2,214,854)
|
$
(1,699,726)
|
|
|
|
|
|
|
December 31, 2017
|
December 31, 2016
|
Total Assets
|
|
|
Electronics Assembly
|
$
1,161,901
|
$
1,219,848
|
Clean Energy HRS
|
1,613,615
|
1,557,291
|
|
$
2,775,516
|
$
2,777,139
|
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
39
Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black-Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the
risk-free interest rate,
we use the Constant Maturity Treasury rate on 90-day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the Company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20-trading-day average. At the time of grant, the share-based compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature of the shares. The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.
We re-evaluate the assumptions used to value our share-based awards on a quarterly basis and, if changes warrant different assumptions, the share-based compensation expense could vary significantly from the amount expensed in the past. We may be required to adjust any remaining share-based compensation expense, based on any additions, cancellations or adjustments to the share-based awards. The expense is recognized over the period during which an employee is required to provide service in exchange for the award
the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For the year ended December 31, 2017 and 2016 we had $2460 and $113,347 respectively, in share-based expense, due to the issuance of common stock. As of December 31, 2017, we had no further non-vested expense to be recognized.
Income Taxes
The Company accounts for income taxes under SFAS No. 109 (now contained in FASB Codification Topic 740-10-25, Accounting for Uncertainty in Income Taxes), which requires the asset and liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are measured based on differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. As of December 31, 2017, we had a net operating loss carry-forward of approximately $(4,026,145) and a deferred tax asset of $845,490 using the statutory rate of 21%. The deferred tax asset may be recognized in future periods, not to exceed 20 years. However, due to the uncertainty of future events we have booked valuation allowance of $(845,490). FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2017 the Company had not taken any tax positions that would require disclosure under FASB ASC 740.
|
| |
|
December 31, 2017
|
December 31, 2016
|
Deferred Tax Asset
|
$ 845,490
|
$ 696,639
|
Valuation Allowance
|
(845,490)
|
(696,639)
|
Deferred Tax Asset (Net)
|
$ -
|
$ -
|
Subsequently, 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 will receive $907,388 in exchange for
40
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 $0.003 per share, as adjusted as provided therein.
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 and Utah. Further, the Company currently has no open tax years
subject to audit prior to December 31, 2013. 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.
Business Combination and Goodwill
On March 20, 2013, we completed the acquisition of Trident whereby we acquired 100% of the issued and outstanding common stock shares of Trident in exchange for 1,600,000 shares of our restricted shares of common stock. As a result of the acquisition, Trident has become a wholly-owned subsidiary of the Company. As a result, we recognized $420,673 in goodwill. On January 2, 2016 we closed the Trident facility in Utah and as for the year ended December 31, 2015 we booked an impairment of the goodwill in the amount of $420,673.
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 2017-08
Receivables
Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
·
Update 2017-05
Other Income
Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
·
Update 2017-04
Intangibles
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
·
Update 2017-03
Accounting Changes and Error Corrections (Topic 250) and Investments
Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update)
·
Update 2017-01
Business Combinations (Topic 805): Clarifying the Definition of a Business
·
Update 2016-20
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
·
Update 2016-18
Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)
·
Update 2016-17
Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control
·
Update 2016-16
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
·
Update 2016-15
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
·
41
Update 2016-13
Financial Instruments
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
·
Update 2016-12
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
·
Update 2016-10
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
·
Update 2016-09
Compensation
Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
·
Update 2016-08
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
·
Update 2016-07
Investments
Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
·
Update 2016-03
Intangibles
Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (a consensus of the Private Company Council)
·
Update 2015-16
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
·
Update 2015-15
Interest
Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)
·
Update 2015-11
Inventory (Topic 330): Simplifying the Measurement of Inventory
·
Update 2015-08
Business Combinations (Topic 805): Pushdown Accounting
Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 (SEC Update)
·
Update No. 2015-03
Interest
Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
·
Update No. 2015-02
Consolidation (Topic 810): Amendments to the Consolidation Analysis.
NOTE 3
ACCOUNTS AND NOTES RECEIVABLE
|
| |
|
December 31, 2017
|
December 31, 2016
|
Accounts Receivable
|
$ 487,081
|
$ 374,623
|
Less Reserve for uncollectable accounts
|
(7,000)
|
(7,000)
|
Accounts Receivable (Net)
|
$ 477,081
|
$ 367,623
|
NOTE 4
ASSET ACQUISITION
On September 11, 2015, we issued a promissory note in the initial principal amount of $1,400,000 and assumed a pension liability of $100,000, for a total liability of $1,500,000, in connection with the Company
s acquisition from General Electric International, Inc., a Delaware corporation (
GEII
) of certain GEII
s heat recovery solutions, or HRS, assets, including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures.
| |
Acquired Assets
|
|
Inventory
|
$ 848,029
|
Leased asset
|
217,584
|
Property and Equipment
|
130,887
|
Intellectual Property
|
545,112
|
Assumed warranty Liability
|
(241,612)
|
Net Assets Acquired
|
$ 1,500,000
|
NOTE 5
INVENTORY
Inventories by major classification were comprised of the following at:
|
| |
|
December 31, 2017
|
December 31, 2016
|
Raw Material
|
$
1,089,813
|
$
1,136,850
|
Work in Process
|
14,734
|
27,104
|
Total
|
1,104,547
|
1,163,954
|
Less reserve for excess or obsolete inventory
|
(250,000)
|
(250,000)
|
Total Inventory
|
$
854,547
|
$
913,954
|
Our Inventory is pledged to Nations Interbanc, our line of credit
NOTE 6
PROPERTY AND EQUIPMENT
Property and equipment were comprised of the following at:
|
| |
|
December 31, 2017
|
December 31, 2016
|
Capital Equipment
|
$ 1,772,632
|
$ 1,772,632
|
Leasehold improvements
|
75,436
|
75,436
|
Accumulated Depreciation
|
(1,703,201)
|
(1,660,386)
|
Net Fixed Assets
|
$ 144,867
|
$ 187,682
|
Our Depreciation Expense for the years ended December 31, 2017 and 2016 was $42,815 and 29,542 respectively.
NOTE 7
ACCRUED EXPENSES
|
| |
|
December 31, 2017
|
December 31, 2016
|
|
|
|
Accrued Wages
|
$ 287,002
|
$ 419,501
|
Accrued Interest
|
224,918
|
148,456
|
Accrued Interest Related party
|
133,259
|
107,167
|
Customer Deposit
|
98,594
|
3,000
|
Accrued Payable to GE - TSA
|
972,233
|
972,233
|
Accrued Rents and Moving Expenses
|
123,626
|
123,626
|
|
$ 1,839,631
|
$ 1,773,983
|
NOTE 8
NOTES PAYABLE
The Company issued a short-term note payable to an individual, secured by the assets of the Company, dated September 6, 2013 in the amount of $50,000 and fixed fee amount of $3,500. As of December 31, 2016 the outstanding balance was $38,500
.
43
On November 11, 2013, we entered in to an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). Amounts outstanding under the agreement bear interest at the rate of 2.5% per month. It is secured by the assets of the Company. In addition, it is personally guaranteed by Kambiz Mahdi, our Chief Executive Officer. As of December 31, 2017, the outstanding balance was $1,145,801 compared to $688,969 at December 31, 2016.
On November 3, 2009, the Company issued an unsecured note payable to Linwood Goddard at a 12.00% interest rate, with a 36-month amortization and monthly payments of $334.14. At March 31, 2016, the outstanding balance was $4,332. On May 13, 2016 the remaining principal balance of this note and accrued interest were converted into common stock at $.08.
On December 24, 2009, the Company issued an unsecured note payable to Linwood Goddard at a 12.00% interest rate, with a 36-month amortization and monthly payments of $334.14. At March 31, 2016, the outstanding balance was $4,332. On May 13, 2016 the remaining Principal balance of this note and accrued interest were converted into common stock at $.08
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 installments of principal and interest of $157,609.02, commencing on December 31, 2016 and continuing until December 31, 2018, at which time the remaining unpaid principal amount of this note and all accrued and unpaid interest thereon shall be due and payable in full
We are currently in default on the payment of the purchase price pursuant to our asset purchase agreement with General Electric due to a combination of our inability to raise sufficient capital as expected and our belief that we are entitled to a reduction in purchase price we paid. We are in the process of negotiations with General Electric..
Convertible notes
On March 15, 2016, we entered into a three-year convertible note payable in the initial face amount of $75,000, which accrues interest at the rate of 1.46% per annum. It was not convertible until six months after its issuance and has a conversion rate of sixty five percent (65%) of the lowest closing bid price (as reported by Bloomberg LP) of common stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion. On September 15, 2016 we issued shares at a price of $.006 per share for a partial conversion of this note in the amount of $15,000. On November 1, 2016 the Company exercised its right to redeem the note, assigned its redemption right to a third-party investor, agreed to amend the conversion price of a replacement note to $.005 per share, and that investor now holds the replacement note in the principal amount of $84,000.
On June 6, 2016, we entered into a one-year convertible note payable for $87,500, which accrues interest at the rate of 12% per annum. It is not convertible until six months after its issuance and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion. On December 16, 2016 we issued 1,200,000 shares of common stock at $.0031 for a partial conversion of this note in the amount of $3,696. Subsequently on January 4, we issued 2,300,000 shares of common stock at $.002192 for a partial conversion of this note in the amount of $5,042.
On June 15, 2016, Meddy Sahebi, Chairman of our Board of Directors, advanced the Company $5,000. There were no specified terms for repayment of this loan other than that it was to be repaid within a reasonable time. As of December 31, 2016 the outstanding balance was $5,000.
On July 6, 2016, we entered into a six-month convertible note payable for $77,500, which accrues interest at the rate of 10% per annum. It is not convertible until six months after its issuance and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion.
44
On August 12, 2016, we entered into a six-month convertible note payable for $57,000, which accrues interest at the rate of 12% per annum. It is not convertible until six months after its issuance and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion.
On November 2, 2016, we effected the repayment of the convertible note dated March 15, 2016 for an aggregate amount of $84,000. Concurrently, we entered into an Escrow Funding Agreement with Red Dot Investment, Inc., a California corporation (
Reddot
), pursuant to which Reddot deposited funds into escrow to fund the repayment and we assigned to Reddot our right to acquire the convertible note and Reddot acquired the convertible note. Concurrently, we and Reddot amended the convertible note (a) to have a fixed conversion price of $.005 per share, subject to potential further adjustment in the event of certain Common Stock issuances, (b) to have a fixed interest rate of ten percent (10%) per annum with respect to both the redemption amount and including a financing fee and any costs, expenses, or other fees relating to the convertible note or its enforcement and collection, and any other expense for or on our account (in each case with a minimum 10% yield in the event of payoff or conversion within the first year), such amounts to constitute additional principal under the convertible note, as amended, and (c) as otherwise provided in the Escrow Funding Agreement. The March 2016 convertible note, as so amended, is referred to as the
Master Note.
On January 9, 2017, we effected the partial repayment of the convertible note dated July 6, 2016. The holder had elected to convert $15,400 ($11,544.45 in principal and $3.855.55 in accrued interest) into a total of 7,000,000 shares of Common Stock. The conversion left $66,205.55 remaining due and payable under the July 2016 convertible note and we paid the note holder a total of $89,401.98 in repayment. On January 12, 2017, we effected the partial repayment of the convertible note dated June 6, 2016. The holder had elected to retain $26,117.77 (consisting of $24,228.72 in principal and $1,899.05 in interest), leaving $60,941.49 remaining due and payable under the June 2016 convertible note, which was satisfied and canceled in consideration of the payment to the note holder of $97,506.38. On January 9, 2017, we effected the repayment in full of the convertible note dated August 12, 2016 through payment to the note holder of a total of $89,401.98.
Concurrently with the foregoing note repayments, we entered into a Credit Agreement and Promissory Note (the
Credit Agreement
) with Megawell USA Technology Investment Fund I LLC, a Wyoming limited liability company in formation (
MW I
), pursuant to which MW I deposited funds into escrow to fund the repayment of the convertible notes and we assigned to MW I our right to acquire the convertible notes and otherwise agreed that MW I would be subrogated to the rights of each note holder to the extent a note was repaid with funds advanced by MW I. Concurrently, MW I acquired the Master Note and we agreed that all amounts advanced by MG I to or for our benefit would be governed by the terms of the Master Note, including the payment of a financing fees, interest, minimum interest, and convertibility. Reddot is MW I
s agent for purposes of administration of the Credit Agreement and the Master Note and advances thereunder.
The foregoing summary descriptions of the Escrow Funding Agreement (including amendments to the Master Note), the Settlement Agreement, and the Credit Agreement are not complete and are qualified in their entirety by reference to the full texts thereof, copies of which were included as Exhibits 10.02 to our Current Report on Form 8-K dated October 31, 2016 and to Exhibits 10.01 and 10.02 to our Current Report on Form 8-K dated January 4, 2016. The foregoing summary description of the original Master Note is not complete and is qualified in its entirety by reference to the full text thereof, a copy of which was included as Exhibit 10.03 to our Current Report on Form 8-K dated October 31, 2016.
On May 5, 2017 we entered into a six-month convertible note payable for $78,000, which accrues interest at the rate of 12% per annum. It is not convertible until six 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 this note was assumed and paid in full at a premium for a total of $116,600 by Cybernaut Zfounder Ventures. An amended term were added to the original note with the interest rate of 14%. This note matured on February 21
st
of 2018 and is currently in default.
On May 24, 2017 we entered into a six-month convertible note payable for $32,000, which accrues interest at the rate of 12% per annum. It is not convertible until six months after its issuance and has a conversion rate of fifty-five
45
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 this note was assumed and paid in full at a premium for a total of $95,685 by Cybernaut Zfounder Ventures. An amended term were added to the original note with the interest rate of 14%. This note matured on February 26
th
, 2018 and is currently in default.
On June 13, 2017 we entered into a nine-month convertible note payable for $110,000, which accrues interest at the rate of 12% per annum. It is not convertible until six months after its issuance and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the twenty-five (25) Trading Days immediately preceding the date of conversion. Subsequently this note was partially converted into common stock and the balance was paid in full on February 14, 2018
On July 13, 2017 we entered into a convertible note payable for $58,000, with a maturity date of April 30, 2018, which accrues interest at the rate of 12% per annum. It is not convertible until six months after its issuance and has a conversion rate of fifty-eight percent (58%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. This note was subsequently converted into common stock
On August 17, 2017 we entered into a convertible note payable for $68,000, with a maturity date of May 30, 2018, which accrues interest at the rate of 12% per annum. It is not convertible until six months after its issuance and has a conversion rate of fifty-eight percent (58%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion. This note was subsequently paid in full on February 15, 2018
On July 25, 2017 we entered into a convertible note payable for $103,000, with a maturity date of April 25, 2018, which accrues interest at the rate of 12% per annum. It is not convertible until six months after its issuance and has a conversion rate of sixty percent (60%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion. This note was subsequently paid in full on February 15, 2018
Note 9
Derivative Liabilities
As a result of the convertible notes we recognized the embedded derivative liability on the date that the note was convertible. We also revalued the remaining derivative liability on the outstanding note balance on the date of the balance sheet. The remaining derivative liabilities were:
|
| |
|
December 31, 2017
|
December 31, 2016
|
Derivative Liabilities on Convertible Loans:
|
|
|
Outstanding Balance
|
$ 244,496
|
$ 102,913
|
NOTE 10
COMMITMENTS AND CONTINGENCIES
The company has received an invoice from Oberon Securities for $291,767 which is in dispute. The company believes it has defenses to the claim for compensation and plans to assert appropriate counterclaims and actions as permitted by law. No liability has been recorded for this claim as the Company believes there is a greater than not probability that our Company will prevail in defending against the claim.
46
Operating Rental Leases
On August 27, 2015, we entered into a sublease agreement with Rosenson Properties, LLC, a California limited liability company, as landlord, and General Electric International, Inc., a Delaware corporation, as tenant and assignor, for the premises located at 150 Baker Street East, Costa Mesa, California. GEII had entered into a lease dated as of December 17, 2010, as amended by a First Amendment to Lease dated March 11, 2014, wherein Rosenson Properties leased the premises to GEII. The premises consist of approximately 35,704 square feet of space and the lease provides for monthly triple-net lease payments of $22,973. The lease term ended on December 31, 2016.
On March 10, 2016, we signed a lease agreement for a 18,200 square-foot CTU Industrial Building at 2990 Redhill Unit A, Costa Mesa, CA. On May 1, 2016 we moved out of the Baker Street facility and moved our operations and headquarters to the new facility. The lease term at the new facility is seven years and two months beginning October 1, 2016. Future minimum lease payments for the years ended December 31, as follows:
|
| |
Year
|
|
Lease Payment
|
2018
|
|
$228,000
|
2019
|
|
$234,840
|
2020
|
|
$241,884
|
2021
|
|
$249,132
|
2022
|
|
$256,608
|
2023
|
|
$44,052
|
Our Rent expense including common area maintenance for the years ended December 31, 2017 and 2016 was $268.551 and $230,024 respectively.
Severance Benefits
Effective at December 31, 2017, Mr. Bennett, was entitled to receive in the event of his termination without cause a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Bennett would have been entitled to receive through the remainder of his employment period or two (2) years, whichever is greater, at an annual salary of $140,000.
NOTE 11
CAPITAL STOCK TRANSACTIONS
On April 21, 2005, our Board of Directors and shareholders approved the re-domicile of the Company in the State of Nevada, in connection with which we increased the number of our authorized common shares to 200,000,000 and designated a par value of $.001 per share.
On May 25, 2006, our Board of Directors and shareholders approved an amendment to our Articles of Incorporation to authorize a new series of preferred stock, designated as Series C, and consisting of 15,000 authorized shares.
On June 30, 2016, 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, 2016.
On August 28, 2017, 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, 2017
Common Stock Transactions
Beginning with the year 2016, we issued the following securities without registration under the Securities Act of 1933, as amended. These securities were issued on the reliance of an exemption provided by Section 4(a)(2) or 4(a)(5) of the Securities Act.
On March 11, 2016 we issued 400,000 shares of our common stock @ $.07 for financing fees.
47
On May 5, 2016 we issued 387,866 to a previous employee @ $.08 for $8,644 in notes payable, $11,332 in accrued interest and $11,030 for past due payroll.
On August 15, 2016 we issued 562,500 shares @ $.08 to a consultant for past due amounts owed of $45,000.
On July 1, 2016 we entered into a consulting agreement with Uptick capital for 300,000 a term of 45 days. For these services, we agreed to issue a total of 300,000 shares of our common stock.
Pursuant to our 2016 Stock Compensation Program, effective July 1, 2016, we made the following stock option grants to members of our Board of Directors: (a) we issued to each of our non-employee members of our Board of Directors first joining the Board in October 2015 and who had not received any compensation for serving as directors of the Company (five persons) options to purchase 150,000 shares of our common stock with an exercise price of $.03 per share, the last sale price of our common stock on June 29, 2016 and (b) we issued to each of our non-employee members of our Board of Directors currently serving on the Board (six persons) options to purchase 300,000 shares of our common stock with an exercise price of $.03 per share.
On September 15, 2016 we issued 2,380,952 shares @ $.006 for a partial conversion of the convertible note dated March 11, 2016 in the amount of $15,000.
On October 31, 2016, Clean Energy Technologies, Inc., a Nevada corporation (the
Company
) closed a private placement pursuant to Section 4(a) (2) of the Securities Act to one investor, Cyberfuture One LP, (
Subscriber
) of an aggregate of 10,500,000 restricted common shares (
Shares
) at a price of US$0.04 per Share, for total gross proceeds of US $420,000. The offering provides that Subscriber obtains piggyback registration rights on the Shares, so long as the Subscriber holds at least 8% of the outstanding Common Stock. Also, the subscription agreement provides that if the Company and the Subscriber enter a joint venture that the Subscriber will be entitled to nominate a person to be elected to and to serve on the Board of Directors of the Company. The restricted common shares were offered by the Company pursuant to an exemption from registration under Regulation S of the Securities Act of 1933, as amended. The private placement was fully subscribed to by one non-U.S. person.
On December 16, 2016, we issued 1,200,000 shares @ .0031 for a partial conversion of a note dated June 6, 2016 in the amount of $3,696.
On January 4, 2017 we issued 2,300,000 shares @ .002291 for a partial conversion of a note dated June 6, 2016 in the amount of $5,041.
On January 4, 2017 we issued 7,000,000 shares @ .0022 for a partial conversion of a note dated July 6, 2016 in the amount of $15,400.
On February 8, 2017 we issued 2,400,000 shares @ .00188 for a partial conversion of a note dated June 6, 2016 in the amount of $4,512.
On February 27, 2017 we issued 8,600,000 shares @ .001 for a partial conversion of a note dated June 6, 2016 in the amount of $8,600.
On March 3, 2017 we issued 9,000,000 shares @ .001 for a partial conversion of a note dated June 6, 2016 in the amount of $9,000.
On March 8, 2017 we issued 600,000 shares @ .007 for compensation in the amount of $4,200.
On March 10, 2017 we issued 9,500,000 shares @ .001 for a partial conversion of a note dated June 6, 2016 in the amount of $9,500.
On April 4, 2017 we issued 7,700,000 shares @ .001 for a partial conversion of a note dated June 6, 2016 in the amount of $7,700.
May 11, 2017 we issued 7,369,080 shares of common stock for the final conversion of a note dated June 6, 2016 in the amount of $9,211.
On September 11, 2017 we issued 1,233,959 for a partial conversion of $20,000 in accrued interest.
48
Common Stock
Our Articles of Incorporation authorize us to issue 800,000,000 shares of common stock, par value $0.001 per share. As of December 31, 2017 there were 210,881,122 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 10,000,000 shares of preferred stock, par value $0.001 per share. Our Board of Directors has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the designation of and number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions of the shares of each such series.
Unless our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the payment of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may have the effect of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock.
We previously authorized 440 shares of Series A Convertible Preferred Stock, 20,000 shares of Series B Convertible Preferred Stock, and 15,000 shares Series C Convertible Preferred Stock. As of August 20, 2006, all series A, B, and C preferred had been converted into common stock.
Effective August 7, 2013, our Board of Directors designated a series of our preferred stock as Series D Preferred Stock, authorizing 15,000 shares. Our Series D Preferred Stock offering terms authorized us to raise up to $1,000,000 with an over-allotment of $500,000 in multiple closings over the course of 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 divided at the rate of 17.5% per annum. Initially, the Series D Preferred Stock was also entitled to be paid special dividends in the event cash dividends were not paid when scheduled. If the Company does not pay the dividend within five (5) business days from the end of the calendar month for which the payment of such dividend to owed, the Company will pay the investor a special dividend of an additional 3.5%. Any unpaid or accrued special dividends will be paid upon a liquidation or redemption. For any other dividends or distributions, the Series D Preferred Stock participates with common stock on an as-converted basis. The Series D Preferred holders may elect to convert the Series D Preferred Stock, in their sole discretion, at any time after a one year (1) year holding period, by sending the Company a notice to convert. The conversion rate is equal to the greater of $0.08 or a 20% discount to the average of the three (3) lowest closing market prices of the common stock during the ten (10) trading day period prior to conversion. The Series D Preferred Stock is redeemable from funds legally available for distribution at the option of the individual holders of the Series D Preferred Stock commencing any time after the one (1) year period from the offering closing at a price equal to the initial purchase price plus all accrued but unpaid dividends, provided, that if the Company gave notice to the investors that it was not in a financial position to redeem the Series D Preferred, the Company and the Series D Preferred holders are obligated to negotiate in good faith for an extension of the redemption period. The Company timely notified the investors that it was not in a financial position to redeem the Series D Preferred and the Company and the investors have engaged in ongoing negotiations to determine an appropriate extension period. The Company may elect to redeem the Series D Preferred Stock any time at a price equal to initial purchase price plus all accrued but unpaid dividends, subject to the investors
right to convert, by providing written notice about its intent to redeem. Each investor has the right to convert the Series D Preferred Stock at least ten (10) days prior to such redemption by the Company.
49
In connection with the subscriptions for the Series D Preferred, we issued series F warrants to purchase an aggregate of 375,000 shares of our common stock at $.10 per share and series G warrants to purchase an aggregate of 375,000 shares of our common stock at $.20 per share.
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.
Warrants
Series E
Common stock warrants
On April 8, 2011, we issued 300,000 series E Warrants. Each warrant gives the holder the right to purchase one share of common stock (300,000 total shares) at $0.50 per share. The Series E Warrants expired on April 8, 2016.
Series F
Common stock warrants
On June 25, 2013, we issued 250,000 series F warrants. Each warrant gives the holder the right to purchase one share of common stock at $.10.
On September 19, 2013, we issued 125,000 series F warrants. Each warrant gives the holder the right to purchase one share of common stock at $.10.
Series G
Common stock warrants
On June 25, 2013, we issued 250,000 series G warrants. Each warrant gives the holder the right to purchase one share of common stock at $.20.
On September 19, 2013, we issued 125,000 series G warrants. Each warrant gives the holder the right to purchase one share of common stock at $.20.
A summary of warrant activity for the periods is as follows:
|
|
|
|
|
| |
|
|
Warrants - Common Share Equivalents
|
Weighted Average Exercise price
|
|
Warrants exercisable - Common Share Equivalents
|
Weighted Average Exercise price
|
Outstanding December 31, 2015
|
1,050,000
|
0.25
|
|
1,050,000
|
0.25
|
|
Granted
|
-
|
-
|
|
-
|
-
|
|
Expired
|
(300,000)
|
0.50
|
|
(300,000)
|
0.50
|
|
Exercised
|
-
|
-
|
|
-
|
-
|
Outstanding December 31, 2016
|
750,000
|
0.15
|
|
750,000
|
0.15
|
|
Granted
|
-
|
-
|
|
-
|
-
|
|
Expired
|
-
|
-
|
|
-
|
0.50
|
|
Exercised
|
-
|
-
|
|
-
|
-
|
Outstanding December 31, 2017
|
750,000
|
0.15
|
|
750,000
|
0.15
|
50
|
|
|
|
|
| |
|
Warrants Outstanding
|
|
Warrants Exercisable
|
Range of Warrant Exercise Price
|
Warrants - Common Share Equivalents
|
Weighted Average Exercise price
|
Weighted Average Remaining Contractual life in years
|
|
Warrants - Common Share Equivalents
|
Weighted Average Exercise price
|
$
0.10
|
250,000
|
$
0.10
|
.50
|
|
250,000
|
$
0.10
|
$
0.20
|
250,000
|
$
0.20
|
.50
|
|
250,000
|
$
0.20
|
$
0.10
|
125,000
|
$
0.10
|
.75
|
|
125,000
|
$
0.10
|
$
0.20
|
125,000
|
$
0.20
|
.75
|
|
125,000
|
$
0.20
|
Total
|
750,000
|
$
0.15
|
|
|
750,000
|
$
0.15
|
Stock Options
On February 8, 2007 pursuant to our 2006 Qualified Incentive Option Plan, we granted to Company employees incentive stock options to purchase 406,638 shares of our common stock. These options were granted at $1.73 cents, the fair market value of the Company
s common stock at the time of the grant. These options expired on February 8, 2017.
On February 8, 2008, we granted stock options to our key employees to purchase up to 750,000 shares of our common stock. These options were granted at $1.73 cents, the fair market value of the Company
s common stock at the time of the grant. These options expired on February 8, 2017.
On February 28, 2008, we granted stock options to a key employee to purchase up to 30,000 shares of our common stock. These options were granted at $.033 cents, the fair market value of the Company
s common stock at the time of the grant. These options expired on February 8, 2017.
Pursuant to our 2016 Stock Compensation Program, effective July 1, 2016, we made the following stock option grants to members of our Board of Directors: (a) we issued to each of our non-employee members of our Board of Directors first joining the Board in October 2015 and who had not received any compensation for serving as directors of the Company (five persons) options to purchase 150,000 shares of our common stock with an exercise price of $.03 per share, the last sale price of our common stock on June 29, 2016 and (b) we issued to each of our non-employee members of our Board of Directors currently serving on the Board (six persons) options to purchase 300,000 shares of our common stock with an exercise price of $.03 per share. Subsequently on February 9, 2018 the non-employee board members resigned, as disclosed in our 8K filed on February 15, 2018. As a result, all remaining stock options were cancelled.
NOTE 12
RELATED PARTY TRANSACTIONS
Kambiz Mahdi, our Chief Executive Officer, owns Billet Electronics, which is distributor of electronic components. From time to time, we purchase parts from Billet Electronics. In addition, Billet was a supplier of parts and had dealings with current and former customers of the Company prior to joining the company. Our Board of Directors has approved the transactions between Billet Electronics and the Company.
51
On June 15, 2016 Meddy Sahebi Chairman of our Board of Directors advanced the Company $5,000. There were no specified terms for repayment of this loan other than that it was to be repaid within a reasonable time. As of December 31, 2016, the outstanding balance was $5,000. Mr. Sahebi resigned from the board of directors on February 8, 2018.
Pursuant to our 2016 Stock Compensation Program, effective July 1, 2016, we made the following stock option grants to members of our Board of Directors: (a) we issued to each of our non-employee members of our Board of Directors first joining the Board in October 2015 and who had not received any compensation for serving as directors of the Company (five persons) options to purchase 150,000 shares of our common stock with an exercise price of $.03 per share, the last sale price of our common stock on June 29, 2016 and (b) we issued to each of our non-employee members of our Board of Directors currently serving on the Board (six persons) options to purchase 300,000 shares of our common stock with an exercise price of $.03 per share.
Note 13 - Warranty Liability
For the year ended December 31, 2016 we recognized a gain on our warranty liability in the amount of $141,611
There was no change in our warranty liability for the year December 31, 2017
NOTE 14
SUBSEQUENT EVENTS
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 will receive $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
), as disclosed on form 8K on February 15, 2018.
From January 1 through February 13, 2018 we issued 26,054,672 for partial conversions of our convertible notes
PART III
Item 10. Directors, Executive Officers and Corporate Governance
O
ur officers and directors
are
the individuals listed below
as of December 31, 2017 and directors pending the effective date of a Form 14F-1 to be filed with the Securities and Exchange
Commission:
|
| |
Name
|
Age
|
Position
|
Kambiz Mahdi
|
53
|
President, CEO, Director
|
John Bennett
|
57
|
CFO, Director
|
Wang Jun
|
51
|
Pending Director
|
Lin Shuangan
|
30
|
Pending Director
|
Lyu Yongsheng
|
65
|
Pending Director
|
Calvin Pang
|
33
|
Pending Director
|
Robert Young
|
64
|
Director
|
Kevin Scott
|
53
|
Director
|
Meddy Sahebi
|
62
|
Director
|
William Maloney
|
58
|
Director
|
Juha Rouvinen
|
50
|
Director
|
Erin Falconer
|
41
|
Director
|
53
On February 8, 2018 all of the directors except Mr. Mahdi tendered their resignations in connection with a condition precedent to the financing of the company.
There are no family relationships among any of the directors or the executive officer.
Biographical Information.
Kambiz Mahdi
,
age 53, Kambiz Mahdi is co-founder, and served as President and Chief Executive Officer of Probe Manufacturing from 1996 until December of 2005 and again from July 2009 until present. Prior to CETY, Mr. Mahdi was technical director at Future Electronics for six years supporting Motorola, Analog Devices and Micro Chip technologies and product lines. While at Future Electronics, Mr. Mahdi developed superior technical management leadership and skills servicing some of the top 100 fortune technology customers and their applications. Mr. Mahdi also started Billet Electronics a global supply chain provider of products, services and solutions in the technology sector in 2007. He has established the company as a leading independent distributor of electronic components and provider of value-added services to its market. Mr. Mahdi has a BS degree in Electrical Engineering from California State University of Northridge. Mr. Mahdi has not served on any other boards of public companies in the past five years.
Our Board of Directors selected Mr. Mahdi to serve as a director because he is our Chief Executive Officer and has served in various executive roles with our company for 14 years, with a focus on electrical design & manufacturing, sales and operations. Mr. Mahdi has profound insight into the development, marketing, finance, and operations aspects of our company. He has expansive knowledge of engineering and manufacturing industry and relationships with chief executives and other senior management at technology companies. Our Board of Directors believes that Mr. Mahdi brings a unique and valuable perspective to our Board of Directors.
John Bennett
, age 57, John Bennett has been with Probe Manufacturing since February 2005, as the Chief Financial Officer. He has been in the Electronic Manufacturing Industry for 22 years. He has held positions as the Controller, Vice President of Finance and Chief Financial Officer, with experience in Contract Manufacturing of Printed Circuit Board Assembly, Cable and Harness Assembly, Box Builds and Battery & Charger assembly. He holds a Bachelor of Science in Accounting from Mesa University and a Master of Science in Finance from the University of Colorado. Mr. Bennett has not served on any other boards of public companies in the past five years.
Our Board of Directors selected Mr. Bennett to serve as a director because he is our Chief Financial Officer and has been with our company for more than 10 years, where his primary focus has been on the financial systems and operations and SEC reporting of the company. He has significant knowledge of, and relationships within, the electronic manufacturing industry, due in part to the 25 years he has spent working in the industry. Our Board of Directors believes that his executive experience in the electronic manufacturing coupled with his deep knowledge of our company
s strategies and operations will bring strong financial and operational expertise to our Board of Directors.
Robert Young
,
age 64, prior to joining our board of directors in June of 2012, Mr. Young was Director of Mobile Services for Boeing Satellite Systems, Inc. (
BSS
), the world
s largest manufacturer of commercial satellites, where he was responsible for developing communication and navigation services for governmental and commercial clients. Prior to joining BSS, Mr. Young was the CFO and Chief of Business Operations for a joint venture between Hughes Electronics, General Motors and Delco Electronics. Previously, Mr. Young was assigned to the Hughes Electronics Corporate Office where he was responsible for mergers and acquisitions, identifying and developing foreign offset programs and served as the Hughes Chief Economist. Mr. Young currently sits on the board of Kinecta Federal Credit Union, which is the 19
th
largest credit union in the United States (having previously served as Kinecta
s Chairman of the board of directors from 2007-2009). Mr. Young received his B.S. degree from the San Diego State University and an M.BA. from Loyola Marymount University.
Our Board of Directors selected Mr. Young to serve as a director due to his knowledge of the electronics manufacturing industry and his previous relationships with companies such as BSS, Hughes Electronics, General Motors and Delco Electronics. Mr. Young
s extensive knowledge of our company
s business sector combined with his executive experience at numerous other companies focused on the manufacturing industry is a significant asset
54
to our company. Our Board of Directors believes that Mr. Young
s experience will assist us in developing our long- term strategy in the electronics manufacturing services industry.
Meddy Sahebi
age 62
Meddy Sahebi, has over 35 years of experience in business development, where he has focused specifically on finding opportunities in emerging markets, and product development. Mr. Sahebi, was a founder of Mann Healthcare Partners, in 2011, and has been a director since that time. From 2008 to 2011, Mr. Sahebi was a business development consultant to Crescent Financial Partners, a Los Angeles
based private equity and merchant banking firm. While at Crescent, Mr. Sahebi focused on business development for fast growing, early-stage and middle market companies across multiple industries ranging from high-tech to real estate to energy companies. Prior to 2008, Mr. Sahebi founded a consulting company that worked with master developers to develop eco-friendly, socially responsible, sustainable communities comprising of entertainment, commercial and residential real estate projects in the United States and Canada. The Board of Directors appointed Mr. Sahebi as Chairman of the Board of the Company due to his strong experience in management of small to mid-size companies and his work in the emerging markets.
William Maloney
age 58
William Maloney has been the President of Bioenergy Associates, LLC, since 2008, where he is currently managing consultants and providing advisory services to biofuels and bioenergy producers, traders and project developers. Mr. Maloney has been involved in the renewable energy sector for over 30 years. Previously to working at Bioenergy Associates, Mr. Maloney served as President and CEO of Pacific West Energy, LLC, a renewable energy company involved in developing renewable energy projects in Hawaii, and affiliated with Province Line Capital LLC, a company that traded in soft commodities and biofuels, as well as, providing consulting and advisory services. From 1996
2008 Mr. Maloney served as Director of Business development for ED & F Man Alcohols. In this position Mr. Maloney was responsible for fuel ethanol sales in the USA as well as project evaluation and development in the US and Central America. In addition to ED & F Man, Mr. Maloney has or continues to provide consulting services to such firms the Louis Dreyfus, Vitol SA, Morgan Stanley, Pacific Ventures, Pacific International Energy Solutions, Windstrip and Aloha Petroleum. Prior to joining ED & F Man Mr. Maloney was the principal owner and director of Caribbean Pacific Alcohol Company (1992-1998), owner and operator of a twelve million gallon per annum ethanol plant in Kingston, Jamaica. The Board of Directors believes that Mr. Maloney
s experience in the renewable energy sectors and his financial knowledge would be a valuable asset to the Company, and as such, has elected Mr. Maloney as a Director to the Company.
Juha Rouvinen
age 59
Juha Rouvinen, has been the Chairman and CEO of Windstrip LLC, since 2005. At Windstrip, Mr. Rouvinen manages teams that have invented and are commercializing an integrated hybrid power system that provides continuous power to remote locations that otherwise would not have access to electricity. Mr. Rouvinen has more than 20 years of experience in founding, managing, financing and investing in start-up companies. Mr. Rouvinen specializes in advising clean technology investors, incubators and green technology funds in Finland, the Middle East and North America. Previously to Windstrip, Mr. Rouvinen founded and managed a hospitality and health services company in Finland. In light of Mr. Rouvinen
s past experience in green technology, start-up companies and his business knowledge, he was appointed as a Director of the Company.
Erin Falconer
age 42
Erin Falconer, is the co-owner and Editor-in-Chief of PickTheBrain.com, which is currently one of the most successful self-development websites on the internet, with Forbes Magazine distinguishing her blog as
One of the Top 100 Most Influential Sites for Women
, in 2013. In 2012, Erin along with her partner, raised one million dollars to fund her tech start-up LEAF.tv (an ecommerce video brand for the Millennial generation). She was president until 2015, when LEAF was sold to publicly traded, Demand Media. She is now the General Manager of the brand. Simultaneously, since 2008, Erin has been the Editor in Chief and co-owner of PickTheBrain - one of the most successful and respected self-improvement blogs online, today.
Prior to this, Erin was the Vice-President of Marketing for ThisNext - a popular social shopping platform from 2010-2012 and the Content Manager for PeopleJam until it was purchased by Chicken Soup for the Soul, from 2008-2010). Ms. Falconer is a seasoned tech expert with over 8 years of online experience. She has been heralded as one of the most innovative thought leaders in her space by many media outlets, including LA Confidential. Ms. Falconer is also the co-founder of the lifestyle online website Leaf.tv
a how-to video portal for the millennial generation, which she recently sold. We appointed Ms. Falconer as a Director of the Company due to her extensive online experience creating successful websites, her ability to find innovative solutions to market demands, and her talent of growing small companies into successful brands.
55
Mr. Wang Jun
, age: 51. Mr. Wang, is the current Chairman and Chief Executive Officer of Taiyu (Shenyang) Energy Technology Co., Ltd. and has held those positions since 2002. From 2008 -2012 Mr. Wang served as Chief Executive Officer and director of SmartHeat, Inc. Prior to that, he served as an executive at Beijing HTN Pipeline Equipment Co., Ltd. from 2000 to 2002 and Honeywell from 1996 to 1999. Mr. Wang graduated from Tsinghua University and obtained a master
s degree in engineering. Our Board of Directors selected Mr. Wang to serve as a director because of his extensive experience in clean energy technology and his prior experience as a CEO and board member of a public company. Mr. Wang will join the Board of Directors after the Form 14F-1 filed with the Securities and Exchange Commission becomes effective.
Mr. Lin Shuangan
. age: 30. Mr. Lin is the Deputy Chief Executive of Shanghai New Hope Data Technology Co., Ltd. where he has worked since 2015. Prior to that Mr. Lin, worked for New Hope Group Co., Ltd from 2012 to 2015 as a project manager for the chemical industry subsidiary. Mr. Lin graduated from De Montford University and obtained a bachelor
s degree in business. Our Board of Directors selected Mr. Lin to serve as a director because of his extensive experience in product manufacturing. Mr. Lin will join the Board of Directors after the Form 14F-1 filed with the Securities and Exchange Commission becomes effective.
Mr. Lyu Yongsheng
. age: 65. Mr. Lyu has acted as an independent project consultant for Taiyu (Shenyang) Energy Technology Co., Ltd. since 2009. From 2003 to 2009, he served as the Executive Director of the Mianyang City Civil Aviation Administration Greening Company. From 1996 to 2003, he was the General Manager of Mianyang Township Enterprise Supply and Marketing Corporation. Mr. Lyu graduated from Jilin University with a bachelor
s degree in engineering. Our Board of Directors selected Mr. Lyu to serve as a director because of his extensive experience in clean energy technology and his experience in managing complex engineering processes. Mr. Lyu will join the Board after the Form 14F-1 filed with the Securities and Exchange Commission becomes effective
Mr. Calvin Pang
. age: 33. Since 2015 Mr. Pang has been the Managing Director of Megawell Capital Limited. From 2007 to 2015, he was a banker at UBS AG managing portfolios of Hong Kong and China based investors. Mr. Pang graduated from the Olin School of Business in Washington University in St. Louis with a bachelor
s degree in business and finance. Our Board of Directors selected Mr. Wang to serve as a director because of his extensive experience in corporate finance. Mr. Pang will join the Board after the Form 14F-1 filed with the Securities and Exchange Commission becomes effective.
Corporate Governance
Director Attendance at Meetings of the Board of Directors
Our Board of Directors held nine meetings during the fiscal year ended December 31, 2017. Each of our incumbent directors attended at least 75.0% of the aggregate total number of meetings of our Board of Directors held during the period for which he served as a director.
Director Attendance at Annual Meetings of the Shareholders
Although we have no policy with regard to attendance by the members of our Board of Directors at our annual meetings, we invite and encourage the members of our Board of Directors to attend our annual meetings to foster communication between Shareholders and our Board of Directors.
We did not hold an annual meeting in 2017.
Stockholder Communication with the Board of Directors
Any stockholder who desires to contact members of our Board of Directors, or a specified committee of our Board of Directors, may do so by writing to: Clean Energy Technologies, Inc., Board of Directors, 2990. Redhill Ave, Costa Mesa, California 92626, Attention: Secretary. Communications received will be distributed by our Secretary to such member or members of our Board of Directors as deemed appropriate by our Secretary, depending on the facts and circumstances outlined in the communication received.
Director Independence
56
We had a seven-member Board of Directors in 2017. After the resignation of 6 members of our Board of Directors on February 8 and 14, 2018, Kam Mahdi was our sole director. Upon the effective date of the Form 14F-1, we will have 5 members of our Board of Directors.
Board Leadership Structure; Independent Lead Director
The Company currently does not have an Independent Directors. Upon the effective date of the Form 14F-1, we will have 3 members of our Board of Directors that are classified as independent.
Committees of our Board of Directors
We have no standing committees of our Board of Directors at the current time, which is due to the size of our operations. From time to time, our Board of Directors may establish committees it deems appropriate to address specific areas in more depth than may be possible at a full Board of Directors meeting. As our Company grows, we plan to establish an audit committee, compensation committee and nominating and corporate governance committee. The functions that these committees will perform are currently being performed by our five-member Board.
Director Nomination Procedures and Diversity
As outlined above, in selecting a qualified nominee, our Board of Directors considers such factors as it deems appropriate, which may include: the current composition of our Board of Directors; the range of talents of a nominee that would best complement those already represented on our Board of Directors; the extent to which a nominee would diversify our Board of Directors; a nominee
s standards of integrity, commitment and independence of thought and judgment; a nominee
s ability to
represent the long-term interests of our shareholders as a whole;
a nominee
s
relevant expertise and experience upon which to be able to offer advice and guidance to management; a nominee who is accomplished in his or her respective field, with superior credentials and recognition;
and the need for specialized expertise.
While we do not have a formal diversity policy, we believe that the backgrounds and qualifications of our directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow our Board of Directors to fulfill its responsibilities.
Applying these criteria, our Board of Directors considers candidates for membership on our Board of Directors suggested by its members, as well as by our Shareholders. Members of o
ur Board of Directors annually review our Board of Directors
composition by evaluating whether our Board of Directors has the right mix of skills, experience and backgrounds.
Our Board of Directors may also consider an assessment of its diversity, in its broadest sense, reflecting, but not limited to, age, geography, gender and ethnicity.
Our Board of Directors identifies nominees by first evaluating the current members of our Board of Directors willing to continue in service. Current members of our Board of Directors with skills and experience relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of our Board of Directors does not wish to continue in service or if our Board of Directors decides not to nominate a member for re-election, our Board of Directors will review the desired skills and experience of a new nominee in light of the criteria set forth above.
Our Board of Directors also considers nominees for our Board of Directors recommended by Shareholders. Notice of proposed stockholder nominations for our Board of Directors must be delivered in accordance with the requirements set forth in our bylaws and SEC Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Nominations must include the full name of the proposed nominee, a brief description of the proposed nominee
s business experience for at least the previous five years and a representation that the nominating stockholder is a beneficial or record owner of our common stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. Nominations should be delivered to: Clean Energy Technologies, Inc., Board of Directors, 2990. Redhill Ave, Costa Mesa, California 92626, Attention: Chief Executive Officer.
57
Our Board of Directors will recommend the slate of directors to be nominated for election at the annual meeting of shareholders. We have not and do not currently employ or pay a fee to any third party to identify or evaluate, or assist in identifying or evaluating, potential director nominees.
Board of Directors Role in Risk Oversight
Our Board of Directors oversees our shareholders
interest in the long-term success of our business strategy and our overall financial strength.
Our Board of Directors is actively involved in overseeing risks associated with our business strategies and decisions. It does so, in part, through its approval of all acquisitions and business-related investments and all assumptions of debt, as well as its oversight of our executive officers pursuant to annual reviews. Our Board of Directors is also responsible for overseeing risks related to corporate governance and the selection of nominees to our Board of Directors.
In addition, the Board reviews the potential risks related to our financial reporting. The Board meets with our Chief Financial Officer and with representatives of our independent registered public accounting firm on a quarterly basis to discuss and assess the risks related to our internal controls. Additionally, material violations of our Code of Ethics and related corporate policies are reported to our Board of Directors.
Code of Business Conduct and Ethics
We have adopted our Code of Ethics, which contains general guidelines for conducting our business and is designed to help our directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. Our Code of Ethics applies to our Principal Executive Officer, Principal Financial Officer, and persons performing similar functions and all members of our Board of Directors. Our Code of Ethics covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. Shareholders may request a copy of our Code of Ethics, which will be provided without charge, by writing to: Clean Energy Technologies, Inc., Board of Directors, 2990. Redhill Ave, Costa Mesa, California 92626; Attention: Chief Executive Officer.
Compensation of Directors
The key objective of our non-employee directors' compensation program is to attract and retain highly qualified directors with the necessary skills, experience and character to oversee our management. We currently use equity-based compensation to compensate our directors due to our restricted cash flow position; however, we may in the future provide cash compensation to our directors. The use of equity-based compensation is designed to recognize the time commitment, expertise and potential liability relating to active Board service, while aligning the interests of our Board of Directors with the long-term interests of our shareholders.
In addition to the compensation provided to our non-employee director, which is detailed below, each non-employee director is reimbursed for any reasonable out-of-pocket expenses incurred in connection with attending in-person meetings of the Board of Directors and Board committees, as well for any fees incurred in attending continuing education courses for directors.
Fiscal Years
201
7
and
201
6
Annual Cash Compensation
We currently do not provide cash compensation to our directors and as such did not provide any cash compensation during the years ended December 31, 2017 and 2016.
Fiscal Years
201
7
and
201
6
Equity Compensation
Yearly Restricted Share Awards
Under the terms of the discretionary restricted share unit grant provisions of our 2006 Incentive Stock Plan and our
2011 Omnibus Incentive Plan
, which we refer to as the 2006 Plan and 2011 Plan, respectively, each non-employee
58
director is eligible to receive grants of restricted common stock share awards at the discretion of our Board of Directors. These yearly restricted share unit awards vest in full on the grant date. For the year ended 2016, we issued the 450,000 shares of common stock options to our five new independent directors and 300,000 to our one legacy director. For the year ended December 31, 2017 there were no stock options granted
Discretionary Grants
Under the terms of the discretionary option grant provisions of the 2006 Plan and the 2011 Plan, non-employee directors are eligible to receive stock options or other stock awards granted at the discretion of the Board of Directors. No director received stock awards pursuant to the discretionary grant program during fiscal year 2017 or 2016.
Director Summary Compensation in Fiscal Years
201
7
and
201
6
The following table sets forth the fiscal years 2016, and 2017 compensation for our non-employee directors.
|
|
| |
Name
|
Fees Earned or Paid in Cash ($) (1)
|
Stock Awards ($) (2)
|
Total ($)
|
|
|
|
|
Robert Young 2016
|
$ -
|
$ -
|
$ -
|
Robert Young 2017
|
$ -
|
$ -
|
$ -
|
|
|
|
|
Kevin Scott 2016
|
$ -
|
$ -
|
$ -
|
|
|
|
|
Meddy Sahebi 2016
|
$ -
|
$ -
|
$ -
|
Meddy Sahebi 2017
|
$ -
|
$ -
|
$ -
|
|
|
|
|
William Maloney 2016
|
$ -
|
$ -
|
$ -
|
William Maloney 2017
|
$ -
|
$ -
|
$ -
|
|
|
|
|
Juha Rouvinen 2016
|
$ -
|
$ -
|
$ -
|
Juha Rouvinen 2017
|
$ -
|
$ -
|
$ -
|
|
|
|
|
Daniel Elliott 2016
|
$ -
|
$ -
|
$ -
|
Daniel Elliott 2017
|
$ -
|
$ -
|
$ -
|
|
|
|
|
Erin Falconer 2016
|
$ -
|
$ -
|
$ -
|
Erin Falconer 2017
|
$ -
|
$ -
|
$ -
|
(1)
This column represents the amount of cash compensation earned in fiscal years 2017, and 2016 for Board and committee service.
(2)
This column represents the grant date fair value of restricted share awards granted in fiscal years, 2017, and 2016 in accordance with FASB ASC Topic 718. The grant date fair value of restricted share unit awards is the closing price of our common stock shares on the date of grant.
Change of Control and Termination Provisions
We currently have stock options issued and outstanding to our non-employee directors purchase
2,550,000 shares of our common
stock
at
$
.03 per shar
e
. In the event of a dissolution or liquidation of the company or if we are acquired by merger or asset sale or in the event of other change of control events
, no acceleration of the termination of any of the restrictions applicable to Restricted Shares, Restricted Stock Unit Awards, Options or Stock Appreciation Rights
59
as defined in the 2011 Plan shall occur in the event of a change in control, unless otherwise provided by our Board of Directors or committee thereof, in such grant.
Family Relationship
We currently do not have any officers or directors of our Company who are related to each other.
Involvement in Certain Legal Proceedings
During the past ten years no director, executive officer, promoter or control person of the Company has been involved in the following:
(1)
A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(2)
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3)
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
i.
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii.
Engaging in any type of business practice; or
iii.
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
(4)
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
(5)
Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
(6)
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7)
Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i.
Any Federal or State securities or commodities law or regulation; or
ii.
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii.
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(8)
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the
60
Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended December 31, 2017, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2017, and the representations made by the reporting persons to us, we believe that during the year ended December 31, 2017, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements with the exception of ETI Partners IV LLC or their members who may be considered to beneficially own our common stock who have not filed a Forms 3 or 4 in 2012 or thereafter or a Form 5 as required in 2017.
| |
Item 11.
|
Executive Compensation.
|
The following table sets forth the fiscal year 2017 and 2016 compensation for:
·
Kambiz Mahdi, our Chief Executive Officer; and
·
John Bennett, our Chief Financial Officer
The executive officers included in the Summary Compensation Table are referred to in this Form 10K as our named executive officers. A detailed description of the plans and programs under which our named executive officers received the following compensation can be found in the section entitled "
Compensation Discussion and Analysis
.
Summary Compensation Table
|
|
|
|
|
|
|
|
| |
|
|
Salary
|
Bonus
|
Stock Awards
|
Option Awards
|
Non-equity Incentive Plan Compensation
|
Change in Pension Value and Nonqualified Deferred Compensation Earnings
|
All Other Compensation ($)
|
Total
|
Name and Principal Position
|
Year
|
($)
|
($)(3)
|
($)(4)
|
($)
|
($)
|
($)
|
|
($)
|
Kambiz Mahdi (1)
|
2017
|
$275,000
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$275,000
|
Chief Executive Officer
|
2016
|
$275,000
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$275,000
|
|
|
|
|
|
|
|
|
|
|
John Bennett (2)
|
2017
|
$140,000
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$140,000
|
Chief Financial Officer
|
2016
|
$140,000
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$140,000
|
1)
On October 1, 2015, we entered into a new employment agreement with Mr. Mahdi for 2 years with an annual salary of $275,000 In 2017 Mr. Mahdi was paid down total of $38,461 from the past due balance of unpaid salary from 2016 with remaining outstanding balance of $69,884 due to lack of capital.
2)
In 201
6
Mr. Bennett
was only paid
$
74,821
due to lack of capital
and is still due $
58,145
from 2016.
3)
There were no bonuses paid or accrued for any executives for fiscal years 201
7
and 2016.
61
4)
Mr. Bennett was issued an option to purchase 30,000 shares of our common stock on February 8, 2007 at $1.73 under our 2006 Plan and an option to purchase 30,000 shares of our common stock at $.33 per share on February 28, 2008. Both option grants expired on February 08, 2017.
Outstanding Equity Awards at 2017 Fiscal Year-End
There are no outstanding options or stock awards held by our named executive officers as of December 31, 2017.
(1)
Mr. Bennett was issued an option to purchase 30,000 shares of our common stock on February 8, 2007 at $1.73 under our 2006 Plan and an option to purchase 300,000 shares of our common stock on February 28, 2008. Both option grants expired on February 08, 2017.
The company has adopted the use of Statement of Financial Accounting Standards No. 123R,
Share-Based Payment
(SFAS No. 123R) (now contained in FASB Codification Topic 718,
Compensation-Stock Compensation
), which supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees
, and its related implementation guidance and eliminates the alternative to use Opinion 25
s intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date, (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black- Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the
risk-free interest rate
, we use the Constant Maturity Treasury rate on 90 day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20 trading day average. At the time of grant, the share based-compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature of the shares. The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.
We re-evaluate the assumptions used to value our share-based awards on a 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 years ended December 31, 2017 and 2016, we had $0 in non-vested expense to be recognized.
Executive Employment Agreements
On September 1, 2011, the Board approved long-term executive employment agreements with our Chief Executive Officer, Kambiz Mahdi and Chief Financial Officer John Bennett, for a period of five years from execution, unless terminated earlier pursuant to the terms of their respective agreements.
On October 1, 2015 we entered into a new employment agreement with Mr. Mahdi for 2 years with an annual salary of $275,000.
In addition, 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 (1) year, whichever is greater.
Mr. Mahdi employment contract expired on October 1, 2017
. Mr Mahdi
has
been cont
i
nuing to work under the same term and we are negotiating a new contract
with Mr. Mahdi.
62
Mr. Bennett will receive an annual compensation of $140,000 per year, subject to annual increases based on the greater of the consumer price index or 5.0% to take into account annual cost of living increases and also subject to such increases as may from time to time be determined by the Board of the Directors of the Company. Additionally, Mr. Bennett will receive $40,000, payable in 800,000 shares of the company
s common stock at $.05 per share, as a retention bonus. The shares will be issued at the rate of 100,000 shares per quarter, on the 15th day of each quarter, commencing on September 15, 2011 and continuing for the following seven quarters.
Mr. Bennett will also receive a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Bennett would have been entitled to receive through the remainder or the Employment Period or two (2) years, whichever is greater. On September 1, 2016 Mr. Bennett
s employment agreement automatically renewed for an additional five years.
Potential Payments upon Termination or Change of Control
Severance Benefits
Mr. Mahdi will receive a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Mahdi would have been entitled to receive through the remainder or the Employment Period or One (1) year, whichever is greater.
Mr. Bennett will receive a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Bennett would have been entitled to receive through the remainder or the Employment Period or two (2) years, whichever is greater.
| |
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
The following table shows, as of March 31, 2018 the number of shares of our common stock beneficially owned by (1) any person who is known by us to be the beneficial owner of more than 5.0% of the outstanding shares of our common stock; (2) our directors and former directors; (3) our named executive officers; and (4) all of our directors and executive officers as a group. The percentage of common stock beneficially owned is based on 554,773,461 shares of our common stock outstanding as of March 31, 2018. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes securities over which a person has voting or investment power and securities that a person has the right to acquire within 60 days. Unless otherwise provided, the address of each beneficial owner listed is c/o Clean Energy Technologies, Inc., Board of Directors, 2990. Redhill Ave, Costa Mesa, California 92626.
|
| |
Name of Beneficial Owners
(1)
|
Number of Shares of Common Stock Beneficially Owned
|
Percentage
|
MGW Investments I Limited (11
|
615,629,334
|
70.93%
|
ETI Capital Partners (6)
|
57,380,323
|
6.61%
|
Kambiz Mahdi (2)
Director and CEO
|
22,866,000
|
2.63%
|
John Bennett (3)
Former Director and CFO
|
1,359,200
|
0.16%
|
Robert Young (4)
Former Director
|
400,000
|
0.05%
|
Meddy Sahebi
Former Director (6)
|
-
|
0.00%
|
William Maloney
Former Director
|
-
|
0.00%
|
Juha Rouvinen
Former Director
|
-
|
0.00%
|
Erin Falconer
Former Director
|
-
|
0.00%
|
All directors and officers as a group
|
24,225,200
|
2.79%
|
Total Issuable and Outstanding March 31, 2018
|
867,940,128
|
|
1)
The shares of common stock are held directly by the Kambiz and Bahareh Mahdi Living Trust and indirectly by Kambiz Mahdi and Bahareh Mahdi as Trustees.
2)
ETI Partners IV LLC (
P-IV
) is a private investment company organized as a Delaware limited liability company, with its principal offices c/o Energy Technology Innovations, Inc., 901 Washington Boulevard, Suite 208, Marina Del Rey, CA 90292. Energy Technology Innovations, Inc. is the Manager of P-IV. Mr. Meddy Sahebi is the President of Energy Technology Innovations, Inc. P-IV is the beneficial owner of 57,380,323 shares of common stock. Mr. Sahebi, is the President of Energy Technology Innovations, Inc., which is the Manager of P-IV.
3)
Calvin Pang has voting and investment power over all of our common stock held by MGWI Investment I Limited (
MGWI
). MGWI
| |
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence.
|
Director Independence
64
We have a five-member Board of Directors. Due to the size of our company and the difficulty in finding directors that have experience in our industry, four of our directors can be deemed an
independent directors.
While our stock is not listed on the New York Stock Exchange, our independent directors would qualify as independent under the rules of the New York Stock Exchange.
Review of Related Person Transactions
Our Code of Business Conduct and Ethics provides guidance for addressing actual or potential conflicts of interests, including those that may arise from transactions and relationships between us and our executive officers or directors, such as:
·
Business transaction between the company and any executive are prohibited, unless otherwise approved by the Board;
·
Activities that may interfere with an executive
s performance in carrying out company responsibilities;
·
Activities that call for the use of the company
s influence, resources or facilities; and
·
Activities that may discredit the name or reputation of the company.
We have various procedures in place to identify potential related person transactions, and the Board of Directors and a separate compliance committee work together in reviewing and considering whether any identified transactions or relationships are covered by the Code of Business Conduct and Ethics.
Transactions with Related Persons
Kambiz Mahdi, our Chief Executive Officer, owns Billet Electronics, which is an independent 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 our company. Our board of directors has approved such transactions of our chief executive officer.
On August 7, 2013, we held our initial closing of our Series D Preferred Stock private financing offering with two related parties, whereby we received $750,000 in financing. Our Series D Preferred Stock offering terms allow us to raise up to $1,000,000 US with an over-allotment of $500,000 in multiple closings over the course of 6 months.
On June 25th, 2013 we received $500,000 from a related party and issued 5,000 shares of Preferred Series D Preferred stock.
On September 8, 2015 the investors signed an estoppel agreement, whereby the investors agreed to reduce, (effective as of June 30, 2015), the dividend rate on the Series D Preferred Stock to six percent per annum and to terminate the penalty provided for in the IAs in respect of unpaid dividends accruing on or after such date.
Item 14. Principal Accounting Fees and Services.
The aggregate fees billed to us by our principal accountant for services rendered during the fiscal years ended December 31, 2016 and December 31, 2017 are set forth in the table below:
|
|
| |
Services:
|
|
2016
|
2017
|
Audit Fees (1)
|
|
$
62,846
|
$
50,528
|
Audit Related Fees (2)
|
|
1,400
|
-
|
Tax Fees (3)
|
|
1,500
|
3,885
|
Total
|
|
$
52,513
|
$
54,413
|
65