8-K: Clean Energy Tech Secures Costly Convertible Note

Clean Energy Technologies, Inc. secured $125,000 in net funding through a high-cost convertible promissory note with 1800 Diagonal Lending LLC.

Summary

• Clean Energy Technologies, Inc. (CETY) entered into a Securities Purchase Agreement with 1800 Diagonal Lending LLC on July 30, 2025.
• The company sold a convertible promissory note with a principal amount of $151,800 for a purchase price of $132,000.
• Net funding received by the company was $125,000, after $2,500 for legal expenses and $4,500 for due diligence fees were retained by the lender.
• The note matures on May 30, 2026, and accrues a one-time interest charge of 13% on the issuance date.
• Repayment is structured in 10 monthly payments of $17,153.40, totaling $171,534.00, with the first payment due August 30, 2025.
• Upon an Event of Default, the note is convertible into common stock at the holder's election at a conversion price equal to 85% of the lowest closing bid price during the trading day prior to conversion.
• Conversion is subject to beneficial ownership limits (4.99%) and Nasdaq Rule 5635(d) limits (19.99% without shareholder approval).
• The holder is entitled to deduct $1,500 from the conversion amount in each note conversion to cover fees.
• Proceeds from the transaction are designated for general working capital purposes.

Sentiment

Score: 3

Explanation: While the company secured necessary working capital, the terms of the convertible note are highly unfavorable, indicating financial distress and posing significant risks of dilution and high repayment burdens for existing shareholders.

Positives

• Secured $125,000 in net funding for general working capital purposes, addressing immediate liquidity needs.

Negatives

• The company received only $125,000 in net proceeds for a note with a principal amount of $151,800, indicating a significant upfront discount and fees.
• A one-time interest charge of 13% on the principal amount is applied on the issuance date, increasing the effective cost of capital.
• The total payback amount of $171,534.00 for $125,000 net received represents a high cost of financing.
• Conversion upon default occurs at a significant discount (85% of the lowest closing bid price), posing a high risk of substantial dilution for existing shareholders.
• Punitive default penalties include the note becoming immediately due and payable at 150% of the outstanding principal, or 200% if a failure-to-issue-shares default occurs.
• The lender retains $7,000 from the gross purchase price for legal expenses and due diligence fees, further reducing the net proceeds to the company.
• The note includes restrictive covenants, such as maintaining corporate existence, not selling significant assets, and complying with 1934 Act reporting requirements, with breaches leading to an Event of Default.

Risks

• Risk of significant shareholder dilution if the convertible note is converted upon default, especially given the 15% discount to the lowest bid price.
• High default penalties (150% to 200% of outstanding principal) could severely impact the company's financial health if an Event of Default occurs.
• Failure to make timely monthly payments of $17,153.40 will trigger an Event of Default.
• Breach of material covenants, including maintaining corporate existence, not selling significant assets, or failing to comply with 1934 Act reporting, constitutes an Event of Default.
• Failure to maintain the listing of common stock on Nasdaq or other specified exchanges is an Event of Default.
• Restatement of financial statements filed with the SEC that results in a material adverse effect on the holder's rights is an Event of Default.
• Cross-default provisions mean a default under any other agreement with the holder or its affiliates could trigger a default on this note.

Future Outlook

The proceeds from this financing are intended for general working capital purposes, indicating a focus on supporting ongoing operations. No specific forward-looking financial guidance or strategic initiatives are provided beyond this general use of funds.

Industry Context

This convertible note financing is characteristic of smaller, potentially higher-risk companies that may have limited access to traditional bank loans or more favorable equity financing. The aggressive terms, including a significant original issue discount, high interest rate, and discounted conversion price upon default, suggest that Clean Energy Technologies, Inc. is securing capital under challenging conditions. Such financing can be a necessary lifeline but often comes at a substantial cost to existing shareholders through potential dilution and high repayment obligations, which is a common trade-off in the clean energy technology sector for companies in early or growth stages without established profitability.

Comparison to Industry Standards

• The effective cost of capital for this note, considering the original issue discount, one-time interest charge, and fees, is significantly higher than typical traditional debt financing available to more established companies.
• The conversion feature, allowing conversion at 85% of the lowest closing bid price upon default, is highly dilutive and more punitive than standard convertible debt terms, which often feature conversion premiums or fixed conversion prices.
• The 150% to 200% default penalties are aggressive and exceed standard default clauses in conventional corporate debt, indicating a high-risk profile from the lender's perspective.
• Companies with stronger financial positions or more mature business models, such as NextEra Energy or Brookfield Renewable Partners, typically secure financing with much lower interest rates, no original issue discounts, and less dilutive or punitive conversion terms, often through investment-grade bonds or syndicated bank loans.
• This type of financing is more akin to distressed debt or venture debt for early-stage companies, rather than standard corporate financing for a publicly traded entity, suggesting the company's limited access to more favorable capital markets.

Corporate Governance

Stakeholder Impact

• **Shareholders**: Face a high risk of significant dilution due to the note's conversion terms upon default, which allow conversion at a substantial discount to the market price. The high cost of financing also impacts potential future profitability.
• **Company**: Secured critical working capital but at a very high cost and with restrictive covenants that could limit operational and strategic flexibility. The debt burden is substantial relative to the net proceeds.
• **Creditors (1800 Diagonal Lending LLC)**: Benefit from highly favorable terms, including a significant discount, high interest, and punitive default clauses, providing strong downside protection and potential for high returns.

Next Steps

• Commence 10 monthly payments of $17,153.40, starting August 30, 2025.
• Ensure compliance with all covenants to avoid an Event of Default, which could trigger punitive conversion or repayment terms.

Key Dates

Recommendation

The terms of this convertible note are highly unfavorable to Clean Energy Technologies, Inc. and its existing shareholders. The significant discount on the principal amount, high one-time interest charge, and the deeply discounted conversion price upon default (85% of the lowest bid price) suggest a high likelihood of substantial future dilution. The punitive default penalties (150-200% of outstanding principal) further exacerbate the risk. This financing structure indicates the company may be in a precarious financial position, struggling to secure capital on more favorable terms. Investors should be wary of the potential for significant value erosion due to future conversions and the high cost of this debt.

Keywords

Convertible Note, Debt Financing, SEC Filing, 8-K, Clean Energy Technologies, CETY, Dilution, Working Capital, Promissory Note, Corporate Finance