10-K/A: Clean Energy Technologies Amends 2022 Annual Report, Citing China Risks

Clean Energy Technologies files an amendment to its 2022 annual report to include additional disclosures about legal and operational risks associated with its business in China.

Summary

• Clean Energy Technologies, Inc. has filed an amendment to its annual report for the fiscal year ended December 31, 2022, to address SEC comments regarding its operations in China.
• The amendment includes new sections detailing legal and operational risks, forward-looking statements, and business and risk factors related to its Chinese operations.
• The company's PRC subsidiaries are involved in natural gas trading and a planned joint venture to acquire natural gas pipeline facilities.
• The company faces risks related to the Chinese legal system, government intervention, and potential regulatory changes.
• The company is also subject to the Holding Foreign Companies Accountable Act (HFCAA), which could impact its ability to remain listed on U.S. exchanges.
• The company's financial statements show a net profit of $147,395 for 2022, compared to $297,551 in 2021, with a working capital deficit of $2,245,996 as of December 31, 2022.
• The company's revenue increased to $2,663,212 in 2022 from $1,300,439 in 2021, primarily due to its new CETY HK segment.
• The company has a current backlog of two waste heat recovery units representing approximately $800,000 in sales revenues.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there is revenue growth and some positive developments, the company faces significant risks and financial challenges, including a working capital deficit, decreased profitability, and reliance on future capital raises. The risks associated with its Chinese operations and the HFCAA add further uncertainty.

Positives

• The company's revenue increased significantly in 2022, driven by its new CETY HK segment.
• The company has a current backlog of two waste heat recovery units representing approximately $800,000 in sales revenues.
• The company has secured bridge financing of approximately $2,180,460 and repaid approximately $636,494 of debt in 2022.
• The company has demonstrated profitability for two consecutive years and is no longer in default to any major creditors.
• The company's ability to access capital has significantly improved as it listed on Nasdaq on March 23, 2023.

Negatives

• The company has a working capital deficit of $2,245,996 as of December 31, 2022.
• The company used $2,244,133 in net cash from operating activities for the year ended December 31, 2022.
• The company's net profit decreased in 2022 compared to 2021, mainly due to changes in derivative liability and higher interest expense.
• The company is in default of $323,875 payments of principal and interest on notes payable to Cybernaut Zfounder Ventures, this not was settled and paid off subsequently as of March 31, 2023.

Risks

• The company faces legal and operational risks due to its operations in China, including uncertainties in the Chinese legal system and potential government intervention.
• The company's PRC subsidiaries are subject to restrictions on paying dividends or making other payments, which may restrict the company's ability to satisfy liquidity requirements.
• The company's ability to access capital markets and the borrowing costs associated with such financing are dependent upon market conditions.
• The company's sales and profitability are dependent on the price of oil and natural gas.
• The company's waste to energy products from ENEX have not been tested in the United States and depend on data obtained from operations in the Ukraine and Russia.
• The company's implementation of waste to energy joint ventures depends on finding funding for the projects.
• The company is subject to the Holding Foreign Companies Accountable Act (HFCAA), which could impact its ability to remain listed on U.S. exchanges.
• The company has issued a substantial amount of convertible securities which, if converted, will substantially dilute all of its stockholders.

Future Outlook

The company plans to expand its waste heat recovery product line, establish a waste-to-energy business, and leverage its engineering and consulting services. It also intends to expand its natural gas trading operations in China and acquire natural gas pipeline operators through a joint venture.

Management Comments

• Management believes through streamlined operations and scaling global sales, the Company can maintain long-term profitability and sufficient capitalization.
• Management believes the Company has sufficient operating capital and can continue to deliver profitability in its current state.

Industry Context

The company operates in the renewable energy sector, which is experiencing growth due to increasing environmental concerns and government regulations. The company's focus on waste heat recovery and waste-to-energy solutions aligns with the trend towards sustainable energy production. The company's natural gas trading operations in China are also positioned to benefit from the country's increasing demand for natural gas as a cleaner alternative to coal.

Comparison to Industry Standards

• The company competes with major players in the ORC system market such as ORMAT, Exergy, TAS and Turboden, which have more than 75% of installed capacity.
• The company also competes with large companies in the Waste to Energy Market such as Hitachi Zosen Inova AG, Suez, Veolia, Ramboll Group A/S, Covanta Holding Corporation, China Everbright International Ltd., Abu Dhabi National Energy Company PJSC, Babcock & Wilcox Enterprises lnc., Whaleboater Technologies lnc., Xcel Energy lnc.
• The company believes its Clean Cycle generator has a higher efficiency of approximately 15% than its competitors.
• The company believes its HTAP Biomass Reactor is more efficient for use in small and medium sized operations than its competitors.
• The company's LNG trading operations compete with large state-owned LNG producers and importers such as Sinopec and many smaller local energy trading companies in the PRC.

Related Party Transactions

• The company has transactions with Billet Electronics, a company owned by its CEO, Kambiz Mahdi.
• The company has related party notes payable to MGW Investment I Limited.

Stakeholder Impact

• Shareholders face potential dilution from the issuance of additional capital stock and convertible securities.
• Shareholders face potential risks related to the company's operations in China and compliance with the HFCAA.
• Customers may benefit from the company's expanded product offerings and services.
• Employees may be affected by the company's financial performance and strategic decisions.

Next Steps

• The company plans to expand its waste heat recovery product line.
• The company plans to establish a waste-to-energy business.
• The company plans to leverage its engineering and consulting services.
• The company intends to expand its natural gas trading operations in China.
• The company plans to acquire natural gas pipeline operators through a joint venture.

Key Dates

Keywords

China, natural gas, waste heat recovery, waste to energy, renewable energy, HFCAA, convertible notes, joint venture, LNG trading, financial risk