8-K: Clean Energy Tech Secures $350K Convertible Note

Clean Energy Technologies, Inc. entered a securities purchase agreement with Mast Hill Fund, L.P. for a $388,888 convertible note and 150,000 common shares, providing $341,500 net funding for working capital and business development.

Summary

• Clean Energy Technologies, Inc. (CETY) entered into a Securities Purchase Agreement (SPA) with Mast Hill Fund, L.P. on August 18, 2025.
• The Company sold a junior secured convertible promissory note with a principal amount of $388,888 (including a $38,888 original issue discount) and 150,000 shares of common stock.
• The aggregate purchase price for the note and shares was $350,000.
• After deducting Mast Hill's legal expenses of $8,500, the Company received net funding of $341,500.
• Proceeds from the transaction are designated for working capital and business development, explicitly prohibiting repayment of indebtedness to officers, directors, employees, or affiliates, or debt from corporate finance transactions, or loans/investments in other entities (except existing operations).
• The note matures in 12 months from the issue date (August 15, 2025) and accrues guaranteed interest at 10% per annum.
• The note is convertible into common stock at the holder's election at a conversion price equal to the lesser of $2.50/share or 90% of the lowest volume-weighted average price (VWAP) during the 5 trading days prior to conversion.
• Conversion is limited such that the holder's beneficial ownership cannot exceed 4.99% of the Company's outstanding common stock.
• The Company is required to hold a special shareholder meeting within 60 calendar days after its common stock trades below $0.50/share to obtain approval for issuing shares in excess of the 12,370,000 'Exchange Cap' to Mast Hill.
• Until shareholder approval is obtained, the Company is prohibited from issuing more than 12,370,000 shares to Mast Hill in aggregate.
• The Company is prohibited from effecting or entering into 'Variable Rate Transactions' (e.g., equity lines, convertible securities with floating/resetting conversion prices) until the note is fully converted or repaid.
• The Company is also prohibited from issuing any Common Stock or Common Stock Equivalents below the $0.50 'Threshold Price' until shareholder approval is obtained, except for the securities in this transaction.
• A 'Most Favored Nation' clause ensures that if the Company offers more favorable terms to another investor, Mast Hill will receive those same terms.
• The Company is prohibited from entering into any 3(a)(10) transactions, with a liquidated damages charge of 25% of the outstanding principal (minimum $25,000) if violated.
• The Company is restricted from issuing any Common Stock or Common Stock Equivalents for 180 calendar days after the agreement date, except for the securities in this transaction.
• If the Company or its majority-owned subsidiaries receive more than $1,000,000 in cash proceeds from any source (excluding accounts receivable/customer payments), the holder can require immediate repayment of up to 50% of the outstanding note.

Sentiment

Score: 3

Explanation: The sentiment is moderately negative. While the Company secured needed funding, the terms of the financing are highly dilutive and restrictive, indicating a high cost of capital and potential financial distress. The floating conversion price, OID, high default penalties, and numerous covenants place significant burdens on the Company and its existing shareholders.

Positives

• Secured $341,500 in net funding for working capital and business development, which can support ongoing operations and growth initiatives.
• The Company has a 'Right of Participation and First Refusal' on future equity or debt placements, allowing the Buyer to participate in subsequent financings.

Negatives

• The transaction involves significant potential dilution for existing shareholders due to the convertible note and the issuance of 150,000 commitment shares.
• The note includes an Original Issue Discount (OID) of $38,888, meaning the Company received less cash ($350,000) than the principal amount of the debt ($388,888).
• The conversion price is highly dilutive, set at the lesser of $2.50 or 90% of the lowest VWAP during the 5 trading days prior to conversion, which can lead to substantial share issuance if the stock price declines.
• The note carries a high default interest rate of 16% per annum.
• Upon an Event of Default, the Company is obligated to pay 150% of the outstanding principal plus accrued interest, significantly increasing the cost of default.
• The Company is subject to restrictive covenants, including prohibitions on 'Variable Rate Transactions' and other equity/debt issuances for 180 days, limiting future financing flexibility.
• A special shareholder meeting is required to approve conversions exceeding 12,370,000 shares, and failure to obtain this approval could hinder full conversion.
• The Company is prohibited from issuing common stock or equivalents below $0.50 per share until shareholder approval is obtained, which could restrict capital raising options.
• The holder can force repayment of up to 50% of the note if the Company or its majority-owned subsidiaries receive more than $1,000,000 in cash proceeds from certain sources, potentially draining future capital infusions.

Risks

• Significant shareholder dilution from the conversion of the note and issuance of commitment shares, especially given the floating conversion price.
• Inability to obtain shareholder approval for conversions exceeding the 'Exchange Cap' (12,370,000 shares), which could lead to an Event of Default.
• The Company's stock price falling below $0.50 per share could trigger the requirement for shareholder approval and further restrict the Company's ability to issue shares.
• High default interest (16%) and a 150% default payment penalty could severely impact the Company's financial health if an Event of Default occurs.
• Restrictive covenants, such as the prohibition on 'Variable Rate Transactions' and other equity issuances, may limit the Company's ability to raise capital or conduct strategic transactions in the future.
• Potential for forced repayment of the note from future cash proceeds could strain the Company's liquidity.
• Risk of delisting or trading suspension if the Company fails to maintain Nasdaq listing requirements or other trading conditions.
• Risk of liquidated damages ($3,000/day) for failure to file an 8-K if material non-public information is disclosed to the holder without consent.
• Risk of liquidated damages (25% of principal, min $25,000) if the Company enters into a 3(a)(10) transaction.

Future Outlook

The Company intends to use the net proceeds from this financing for working capital and business development. The terms of the agreement impose significant restrictions on future capital raising activities and certain operational changes until the note is fully converted or repaid.

Industry Context

This financing provides capital for Clean Energy Technologies, Inc., a company operating in the clean energy sector. The terms of the financing, particularly the highly dilutive conversion features and restrictive covenants, suggest a challenging capital raising environment for the Company, which may reflect broader difficulties for smaller players in securing favorable terms in the clean energy industry or specific challenges faced by the Company.

Comparison to Industry Standards

• The floating conversion price at a discount to VWAP (90%) is a common feature in distressed or high-risk financings, often seen when companies have limited access to traditional capital markets. This is generally less favorable than fixed conversion prices or equity raises at market rates.
• The Original Issue Discount (OID) and the high default interest rate (16%) are indicative of a high cost of capital, typically associated with companies perceived as having higher credit risk compared to industry peers with access to lower-cost debt.
• The 'Most Favored Nation' clause and the prohibition on 'Variable Rate Transactions' are highly restrictive covenants that can significantly limit a company's strategic and financing flexibility. More established or financially robust companies typically secure less restrictive terms in their financing agreements.
• The requirement for shareholder approval for conversions exceeding a certain cap (19.99% of outstanding shares) and the trigger for this approval based on a low stock price ($0.50) are common Nasdaq listing requirements for dilutive issuances, but the low trigger price suggests the Company is already trading at a low valuation relative to many industry standards.

Corporate Governance

Related Party Transactions

• The proceeds from the transaction are explicitly prohibited from being used for the repayment of indebtedness owed to officers, directors, or employees of the Company or their affiliates, or any loan, credit, or advance to any officers, directors, employees, or affiliates of the Company.

Stakeholder Impact

• **Shareholders:** Face significant potential dilution due to the convertible note's terms (floating conversion price, OID) and the issuance of commitment shares. Their voting power could be diluted if the 'Exchange Cap' is exceeded and approved. The restrictive covenants may also limit future growth opportunities or favorable financing.
• **Employees/Management:** The use of proceeds for working capital and business development could support job security and operational stability. However, the restrictive covenants on loans/advances to officers/employees limit certain internal financial flexibility.
• **Creditors:** The note is unsecured but has priority over other unsecured indebtedness. The 'Most Favored Nation' clause could benefit other creditors if more favorable terms are granted in future financings. The high default penalties could impact the Company's ability to repay other debts if triggered.

Next Steps

• The Company must hold a special meeting of shareholders to obtain approval for issuing shares in excess of the 12,370,000 'Exchange Cap' to Mast Hill, particularly if the common stock trades below $0.50/share.
• The Company is required to purchase Director and Officer (D&O) insurance within 60 calendar days of the closing date.

Key Dates

Recommendation

The terms of this financing are highly unfavorable to existing shareholders, indicating a distressed capital raise. The significant dilution potential from the convertible note with a floating conversion price (90% of VWAP), the Original Issue Discount, and the issuance of commitment shares will likely depress the share price. Furthermore, the high default interest rate (16%) and the 150% default payment penalty expose the Company to substantial financial risk. The restrictive covenants, including prohibitions on 'Variable Rate Transactions' and other equity issuances, severely limit the Company's future financing flexibility and strategic options. The requirement for shareholder approval for full conversion and the potential for forced repayment from future proceeds add further uncertainty and risk. These terms suggest a high cost of capital and a challenging outlook for existing equity holders.

Keywords

Clean Energy Technologies, CETY, Convertible Note, Securities Purchase Agreement, Mast Hill Fund, Equity Financing, Working Capital, Business Development, SEC Filing, 8-K, Corporate Finance, Dilution, Nasdaq, Promissory Note