The accompanying footnotes are an integral part of these financial statements
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 (Unaudited)
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
Page 8 of 38
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.
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.
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
”
).
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.
Page 9 of 38
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 $3,723,904 and an accumulated deficit of $10,102,976 and a working capital deficit of $5,139,925 and a net loss of $1,313,258 for the three months ended March 31, 2018. 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
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.
Page 10 of 38
NOTE 2
–
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
These unaudited interim financial statements as of and for the three months ended March 31, 2018, reflect all adjustments which, in the opinion of management, are necessary to fairly state the Company
’
s financial position and the results of its operations for the periods presented, in accordance with the accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature.
These unaudited interim financial statements should be read in conjunction with the Company
’
s financial statements and notes thereto included in the Company
’
s fiscal year end December 31, 2017, report. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three month period ended March 31, 2018, are not necessarily indicative of results for the entire year ending December 31, 2018.
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 March 31, 2018, and December 31, 2017, we had a reserve for potentially un-collectable accounts of $7,000. Five (5) customers accounted for approximately 97% of accounts receivable at March 31, 2018. Our trade accounts primarily represent unsecured receivables. Historically, our bad debt write-offs related to these trade accounts have been insignificant.
Inventory
Inventories are valued at the lower of weighted average cost or market value. Our industry experiences changes in technology, changes in market value and availability of raw materials, as well as changing customer demand. We make provisions for estimated excess and obsolete inventories based on regular audits and cycle counts of our on-hand inventory levels and forecasted customer demands and at times additional provisions are made. Any inventory write offs are charged to the reserve account. As of March 31, 2018 and December 31, 2017, we had a reserve for potentially obsolete inventory of $250,000.
Page 11 of 38
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
The Company recognizes revenue in accordance with ASC 606,
”
Revenue from Contracts with Customers
”
(
“
ASC 606
”
). In accordance with ASC 606, the company applies the following methodology to recognize revenue:
|
|
|
|
1)
|
Identify the contract with a customer.
|
|
2)
|
Identify the performance obligations in the contract.
|
|
3)
|
Determine the transaction price.
|
|
4)
|
Allocate the transaction price to the performance obligations in the contract.
|
|
5)
|
Recognize revenue when (or as) the entity satisfies a performance obligation.
|
Fair Value of Financial Instruments
The Financial Accounting Standards Board issued ASC (Accounting Standards Codification) 820-10 (SFAS No. 157),
“
Fair Value Measurements and Disclosures" for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820-10 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:
·
Level 1: Quoted prices in active markets for identical assets or liabilities.
·
Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
·
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts of the Company
’
s financial instruments as of March 31, 2018, reflect:
·
Cash: Level 1 Measurement based on bank reporting.
Level 2 Loans from Officers and related parties
Level 3 Derivatives on convertible notes
·
Level 2 Based on promissory notes.
Page 12 of 38
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 March 31, 2018, we had outstanding common shares of 553,198,461 used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents at March 31, 2018 and 2017 were 388,286,554 and 171,683,639, respectively. As of March 31, 2018, 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 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 three months ended March 31, 2018 and 2017.
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 channels and similar economic characteristics. Refer to note 1 for a description of the various product categories manufactured under each of these segments. An operating segment's performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, and segment selling, general and administrative expenses, and does not include amortization of intangibles, stock-based compensation, other charges (income), net and interest and other, net.
Selected Financial Data
:
|
|
|
|
three months ended March 31,
|
|
2018
|
2017
|
Net Sales
|
|
|
Electronics Assembly
|
149,515
|
187,393
|
Clean Energy HRS
|
22,876
|
81,477
|
Total Sales
|
172,391
|
268,870
|
|
|
|
Segment income and reconciliation before tax
|
|
|
Electronics Assembly
|
7,232
|
3,965
|
Clean Energy HRS
|
21,445
|
58,121
|
Total Segment income
|
28,677
|
62,086
|
|
|
|
Reconciling items
|
|
|
General and Administrative
|
(159,335)
|
(122,920)
|
Share Based Expense
|
(91,140)
|
(2,460)
|
Salaries
|
(194,062)
|
(187,096)
|
Moving Expense
|
|
-
|
Rent
|
(70,979)
|
(66,735)
|
Professional fees
|
-
|
-
|
Financing Fees
|
(378,155)
|
(187,511)
|
Loss on disposal of fixed assets
|
(6,618)
|
-
|
Change in derivative liability
|
(273,178)
|
(47,990)
|
Interest expense
|
(168,468)
|
(63,471)
|
Net Loss before income tax
|
(1,313,258)
|
(616,097)
|
|
|
|
|
|
|
March 31, 2018
|
December 31, 2017
|
Total Assets
|
|
|
Electronics Assembly
|
1,308,322
|
1,180,522
|
Clean Energy HRS
|
1,702,632
|
1,548,796
|
|
3,010,954
|
2,729,318
|
Share-Based Compensation
The Company has adopted the use of Statement of Financial Accounting Standards No. 123R,
“
Share-Based Payment
”
(SFAS No. 123R) (now contained in FASB Codification Topic 718,
Compensation-Stock Compensation
), which supersedes APB Opinion No. 25,
“
Accounting for Stock Issued to Employees,
”
and its related implementation guidance and eliminates the alternative to use Opinion 25
’
s intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black-Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the
“
risk-free interest rate,
”
we use the Constant Maturity Treasury rate on 90-day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the Company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20-trading-day average. At the time of grant, the share-based compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature of the shares. The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.
We re-evaluate the assumptions used to value our share-based awards on a quarterly basis and, if changes warrant different assumptions, the share-based compensation expense could vary significantly from the amount expensed in the past. We may be required to adjust any remaining share-based compensation expense, based on any additions, cancellations or adjustments to the share-based awards. The expense is recognized over the period during which an employee is required to provide service in exchange for the award
—
the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For the three months ended March 31, 2018 and 2017 we had $91,140 and $2,460 respectively, in share-based expense, due to the issuance of common stock. As of March 31, 2018, we had no further non-vested expense to be recognized.
Page 14 of 38
Income Taxes
Federal Income taxes are not currently due since we have had losses since inception.
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the
“
Tax Act
”
) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (
“
Federal Tax Rate
”
) from 35% to 21% effective January 1, 2018. The Company will compute its income tax expense for the three months ended March 31, 2018 using a Federal Tax Rate of 21%.
Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25
Income Taxes
–
Recognition.
Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the
“
more likely than not
”
standard required by ASC 740-10-25-5.
Deferred income tax amounts reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes.
As of March 31, 2018, we had a net operating loss carry-forward of approximately $(1,313,258) and a deferred tax asset of approximately $281,171 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 $(81,171). 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 March 31, 2018, the Company had not taken any tax positions that would require disclosure under FASB ASC 740.
|
|
|
|
March 31, 2018
|
December 31, 2017
|
Deferred Tax Asset
|
$ 281,171
|
$ 845,490
|
Valuation Allowance
|
(281,171)
|
(845,490)
|
Deferred Tax Asset (Net)
|
$ -
|
$ -
|
On February 13, 2018, Clean Energy Technologies, Inc., a Nevada corporation (the
“
Registrant
”
or
“
Corporation
”
) entered into a Common Stock Purchase Agreement (
“
Stock Purchase Agreement
”
) by and between MGW Investment I Limited (
“
MGWI
”
) and the Corporation. The Corporation 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
”
).
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.
Page 15 of 38
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, 2014. 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, 2017 we closed the Trident facility in Utah and as for the three months 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, 2017 and November 17, 2017 EITF Meetings (SEC Update)
·
Update 2017-01
—
Business Combinations (Topic 805): Clarifying the Definition of a Business
·
Update 2017-20
—
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
·
Update 2017-18
—
Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)
·
Update 2017-17
—
Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control
·
Update 2017-16
—
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
·
Update
2017
-15
—
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
·
Update
2017
-13
—
Financial Instruments
—
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
·
Update
2017
-12
—
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
·
Update
2017
-10
—
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
·
Page 16 of 38
Update
2017
-09
—
Compensation
—
Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
·
Update
2017
-08
—
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
·
Update
2017
-07
—
Investments
—
Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
·
Update
2017
-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)
NOTE 3
–
ACCOUNTS AND NOTES RECEIVABLE
|
|
|
|
March 31, 2018
|
December 31, 2017
|
Accounts Receivable Trade
|
$ 482,112
|
$ 484,081
|
Less Reserve for uncollectable accounts
|
(7,000)
|
(7,000)
|
Accounts Receivable (Net)
|
$ 475,112
|
$ 477,081
|
NOTE 4
–
INVENTORY
Inventories by major classification were comprised of the following at:
|
|
|
|
March 31, 2018
|
December 31, 2017
|
Raw Material
|
$
1,083,534
|
$
1,089,813
|
Work in Process
|
7,208
|
14,734
|
Total
|
1,090,742
|
1163,954
|
Less reserve for excess or obsolete inventory
|
(250,000)
|
(250,000)
|
Total Inventory
|
$
840,742
|
$
913,954
|
NOTE 5
–
PROPERTY AND EQUIPMENT
Property and equipment were comprised of the following at:
|
|
|
|
March 31, 2018
|
December 31, 2017
|
Capital Equipment
|
$
1,390,333
|
$
1,772,632
|
Leasehold improvements
|
75,436
|
75,436
|
Accumulated Depreciation
|
(1,336,382)
|
(1,703,201)
|
Net Fixed Assets
|
$
129,387
|
$
187,682
|
During the three months ended March 31, 2018 we disposed of obsolete fixed assets and as a result recognized a net loss of $6,618.
NOTE 7
–
ACCRUED EXPENSES
|
|
|
|
March 31, 2018
|
December 31, 2017
|
|
|
|
Accrued Wages
|
$
268,784
|
$
287,002
|
Accrued Interest
|
389,654
|
224,918
|
Accrued Interest Related party
|
-
|
133,259
|
Customer Deposit
|
135,892
|
98,594
|
Accrued Payable to GE - TSA
|
972,233
|
972,233
|
Accrued Rents and Moving Expenses
|
123,626
|
123,626
|
|
$
1,890,189
|
$
1,839,632
|
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 March 31, 2018 the outstanding balance was $38,500
.
On November 11, 2013, we entered in to an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). Amounts outstanding under the agreement bear interest at the rate of 2.5% per month. It is secured by the assets of the Company. In addition, it is personally guaranteed by Kambiz Mahdi, our Chief Executive Officer. As of March 31, 2018, the outstanding balance was $1,207,146 compared to $1,170,462 at December 31, 2017.
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.
Page 18 of 38
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 March 31, 2018 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.
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.
Page 19 of 38
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 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. 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 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 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 paid in full on February 15, 2018
On February 13, 2018 the Corporation and Confections Ventures Limited. (
“
CVL
”
) entered into a Convertible Note Purchase Agreement (the
“
Convertible Note Purchase Agreement,
”
together with the Stock Purchase Agreement and the transactions contemplated thereunder, the
“
Financing
”
) pursuant to which the Corporation issued to CVL a convertible promissory Note (the
“
CVL Note
”
) in the principal amount of $939,500 with an interest rate of 10% per annum
interest rate and a maturity date of February 13, 2020. The CVL Note is convertible into shares of Common Stock at $0.003 per share, as adjusted as provided therein. As a result we recognized a beneficial conversion feature of $532,383, which is amortized over the life of the note
Page 20 of 38
On February 8, 2018 the Corporation entered a Convertible Promissory Note in the principal amount of $153,123, due October 8, 2018, with an interest rate of 12% per annum payable to MGWI (the
“
MGWI Note
”
). The MGWI Note is convertible into shares of the Corporation
’
s common stock at the lower of: (i) a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of a Conversion Notice; or (ii) 0.003. $As a result of the closing of the transactions contemplated by the Stock Purchase Agreement and Convertible Note Purchase Agreement, the MGWI Note must be redeemed by the Corporation in an amount that will permit CVL and MGWI and their affiliates to hold 65% of the issued and outstanding Common Stock of the Corporation on a fully diluted basis. The proceeds from the MGWI Note were used to redeem the convertible note of the Corporation to JSJ Investments, Inc. in the principal amount of $103,000 with an interest rate of 12% per annum, due April 25, 2018. At March 31, 2018 the holder of this note beneficially
owned 70% of the company and this note is not convertible if the holder holds more that 9.99%, as a result, we did not recognize a derivative liability or a beneficial conversion feature.
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:
Derivative Liabilities on Convertible Loans:
|
|
|
|
March 31, 2018
|
December 31, 2017
|
|
|
|
Outstanding Balance
|
$
517,674
|
$
244,496
|
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.
Operating Rental Leases
On March 10, 2016, we signed a lease agreement for a 18,200 square-foot CTU Industrial Building at 2990 Redhill Unit A, Costa Mesa, CA. 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
|
|
$171,000
|
2019
|
|
$234,840
|
2020
|
|
$241,884
|
2021
|
|
$249,132
|
2022
|
|
$256,608
|
2023
|
|
$44,052
|
Our Rent expense including common area maintenance for the Three months ended March 31, 2018 and 2017 was $70,979 and $66,735 respectively.
Page 21 of 38
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 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 2017, 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 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.
On February 13, 2018, Clean Energy Technologies, Inc., a Nevada corporation (the
“
Registrant
”
or
“
Corporation
”
) entered into a Common Stock Purchase Agreement (
“
Stock Purchase Agreement
”
) by and between MGW Investment I Limited (
“
MGWI
”
) and the Corporation. The Corporation received $907,377 in exchange for the issuance of 302,462,667 restricted shares of the Corporation
’
s common stock, par value $.001 per share (the
“
Common Stock
”
), as disclosed on form 8K on February 15, 2018.
From January 1 through March 31, 2018 we issued 26,054,672 for partial conversions of our convertible notes. We also issued 13,800,000 shares for additional compensation and accrued for 1,500,000 for consulting services subsequently issued on May 18, 2018.
Page 22 of 38
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 March 31, 2018 there were 553,198,461 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
Page 23 of 38
in ongoing negotiations to determine an appropriate extension period. The Company may elect to redeem the Series D Preferred Stock any time at a price equal to initial purchase price plus all accrued but unpaid dividends, subject to the investors
’
right to convert, by providing written notice about its intent to redeem. Each investor has the right to convert the Series D Preferred Stock at least ten (10) days prior to such redemption by the Company.
In connection with the subscriptions for the Series D Preferred, we issued series F warrants to purchase an aggregate of 375,000 shares of our common stock at $.10 per share and series G warrants to purchase an aggregate of 375,000 shares of our common stock at $.20 per share.
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 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, which expire on June 30, 2018.
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, which expire on September 19, 2018.
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, which expire on June 30, 2018.
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, which expire on September 19, 2018.
Page 24 of 38
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, 2017
|
750,000
|
0.15
|
|
750,000
|
0.15
|
|
Granted
|
-
|
-
|
|
-
|
-
|
|
Expired
|
-
|
-
|
|
-
|
|
|
Exercised
|
-
|
-
|
|
-
|
-
|
Outstanding March 31, 2018
|
750,000
|
0.15
|
|
750,000
|
0.15
|
|
|
|
|
|
|
|
|
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
|
.25
|
|
250,000
|
$
0.10
|
$
0.20
|
250,000
|
$
0.20
|
.25
|
|
250,000
|
$
0.20
|
$
0.10
|
125,000
|
$
0.10
|
.50
|
|
125,000
|
$
0.10
|
$
0.20
|
125,000
|
$
0.20
|
.50
|
|
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
Page 25 of 38
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
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RELATED PARTY TRANSACTIONS
Kambiz Mahdi, our Chief Executive Officer, owns Billet Electronics, which is distributor of electronic components. From time to time, we purchase parts from Billet Electronics. In addition, Billet was a supplier of parts and had dealings with current and former customers of the Company prior to joining the company. Our Board of Directors has approved the transactions between Billet Electronics and the Company.
On 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 March 31, 2017, the outstanding balance was $5,000. Mr. Sahebi resigned from the board of directors on February 8, 2018. As a result as of March 31, 2018 Mr. Sahebi was no longer a related party.
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
There was no change in our warranty liability for the three months ended March 31, 2017
NOTE 14
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SUBSEQUENT EVENTS
In accordance with ASC 855, the Company has analyzed its operations subsequent to March 31, 2018 through the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.