CETY.NASDAQClean Energy Technologies, INC
10-Q: Clean Energy Technologies Reports Q3 2024 Results Amidst Strategic Shift
Sentiment:
Quarterly Report
Clean Energy Technologies reports a net loss of $3.55 million for the nine months ended September 30, 2024, as the company navigates a strategic shift and deconsolidation of its China operations.
Delay expectedThe company's pilot Waste-to-Energy plant in Vermont is progressing steadily with delays related to permitting.The company is experiencing delays in securing affordable financing for its Vermont project.
Capital raiseThe company will continue to rely on equity sales of its common shares to continue to fund its business operations.The company is seeking to finalize financing for its Vermont project in the fourth quarter of 2024.The company has entered into multiple securities purchase agreements for convertible promissory notes.
Worse than expectedThe company's net loss increased compared to the same period last year.The company's revenue decreased significantly due to the deconsolidation of its China operations.The company's operating expenses increased due to higher salaries, professional fees, and stock compensation.
Summary
- Clean Energy Technologies reported a net loss of $3.55 million for the nine months ended September 30, 2024, compared to a net loss of $2.46 million for the same period in 2023.
- The company's total revenue decreased to $1.94 million for the nine months ended September 30, 2024, from $5.28 million in the same period of 2023, primarily due to the deconsolidation of its China operations.
- Gross profit for the nine months ended September 30, 2024, was $641,575, compared to $992,943 for the same period in 2023.
- Operating expenses increased to $3.19 million for the nine months ended September 30, 2024, from $2.46 million in the same period of 2023, due to higher salaries, professional fees, and stock compensation.
- The company's cash balance decreased to $44,149 as of September 30, 2024, from $89,625 at the end of 2023.
- The company had a working capital deficit of $778,464 as of September 30, 2024, and an accumulated deficit of $26,643,673.
- The company has four reportable segments: Clean Energy Heat Recovery Solutions (HRS) & CETY Europe, CETY Renewables waste to energy, engineering & manufacturing services, and CETY HK NG trading.
Sentiment
Score: 3
Explanation: The document presents a concerning financial picture with increased losses, decreased revenue, and a negative working capital. While there are some positive strategic shifts, the company faces significant challenges and risks, including going concern issues and potential delisting from Nasdaq.
Positives
- The company is focusing on higher margin segments such as Waste-to-Energy, Heat Recovery, and EPC.
- The company has a large $12M contract with Vermont Renewable Gas in the waste to energy segment.
- The company is working with financial institutions to assist in financing projects.
- The company has a growing market for Heat Recovery in the U.S. and Europe.
- CETY HK has begun cross-selling Heat Recovery products in China.
- The company is gearing up for the EPC segment to implement holistic self-generation solutions globally.
Negatives
- The company experienced a significant decrease in revenue due to the deconsolidation of its China operations.
- The company's cash balance has decreased significantly.
- The company has a substantial accumulated deficit.
- The company is currently in default of a note with Nations Interbanc.
- The company is relying on high-cost financing options due to delays in securing affordable financing for the Vermont project.
- The company's disclosure controls and procedures were not effective as of September 30, 2024, due to material weaknesses.
Risks
- The company's ability to continue as a going concern is in doubt due to its negative working capital and accumulated deficit.
- The company is dependent on its ability to obtain sufficient debt and/or equity capital and/or to generate positive cash flow from operations.
- The company is subject to various legal and operational risks and uncertainties due to its operations in China.
- The company's ability to transfer cash between PRC entities and entities outside of PRC may be restricted.
- The company may be delisted from Nasdaq if it does not regain compliance with the minimum bid price requirement.
- The company is exposed to risks associated with the Holding Foreign Companies Accountable Act (HFCAA).
- The company is currently in default of a note with Nations Interbanc.
Future Outlook
The company expects larger revenue contributions from Waste-to-Energy, Heat Recovery, and EPC segments in the coming year. The company is also working to finalize financing for its Vermont project in the fourth quarter of 2024 and is exploring cross-selling opportunities for its products in China.
Management Comments
- Management believes the 4-segment strategy has created many operational synergies and cross-selling opportunities across different markets.
- Management believes that it will continue to deliver growth on all segments due to our belief that there is an optimistic industry macro backdrop.
- Management is working diligently to finalize financing in the fourth quarter of 2024.
Industry Context
The company is operating in a favorable industry environment with a global commitment to renewable energy and government incentives such as the Inflation Reduction Act. The European energy crisis has also created opportunities for the company's self-generation solutions.
Comparison to Industry Standards
- The company's performance is below industry standards in terms of profitability and cash flow, as evidenced by its net loss and negative working capital.
- Compared to companies like FuelCell Energy and Ballard Power Systems, which are also in the clean energy sector, Clean Energy Technologies has a much smaller revenue base and is not yet profitable.
- The company's reliance on high-cost financing is a concern, as it indicates a lack of access to more favorable capital markets, unlike larger, more established players in the industry.
- The company's strategic shift towards higher-margin segments is a positive step, but it remains to be seen if it can execute this strategy effectively and achieve profitability.
- The company's deconsolidation of its China operations is a significant change, and its impact on future revenue and profitability is uncertain.
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Disclosure Controls and Procedures | The company's disclosure controls and procedures were not effective as of September 30, 2024, due to material weaknesses resulting from the Board of Directors not currently having any independent members and no director qualifies as an audit committee financial expert. | 2024-09-30 | This indicates a significant weakness in the company's internal controls and could lead to inaccurate financial reporting. |
Related Party Transactions
- CETY Capital LLC owns a 49% interest in Vermont Renewable Gas LLC (VRG).
- CETY Renewables executed a turnkey agreement for the design, construction, and delivery of organics to energy plant with Vermont Renewable Gas, LLC.
- The company has recognized revenue from VRG of $197,989 for the three months ended March 31, 2024, recorded as related party revenue.
- Vermont Renewable Gas LLC entered into a loan agreement with FPM Development LLC and Evergreen Credit Facility I LLP, secured by a corporate guarantee from the company.
Stakeholder Impact
- Shareholders are at risk due to the company's negative financial performance and potential delisting from Nasdaq.
- Employees may be affected by the company's financial instability and potential restructuring.
- Customers may be impacted by the company's ability to deliver on its contracts and projects.
- Suppliers may be at risk due to the company's financial instability and potential payment delays.
- Creditors are at risk due to the company's high debt levels and potential default.
Next Steps
- The company will focus on executing its corporate strategy to build sustained and profitable growth.
- The company will expand its global sales and marketing, production, research & development.
- The company will search for synergistic acquisition opportunities.
- The company will work to finalize financing for its Vermont project.
- The company will work to regain compliance with Nasdaq's minimum bid price requirement.
Key Dates
| Date | Description |
|---|---|
| 2013-11-11 | Entered into an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). |
| 2015-09-11 | Clean Energy HRS acquired the assets of Heat Recovery Solutions from General Electric International. |
| 2017-05-05 | Entered into a nine-month convertible note payable for $78,000. |
| 2017-05-24 | Entered into a nine-month convertible note payable for $32,000. |
| 2018-02-12 | Entered into a Common Stock Purchase Agreement with MGW Investment I Limited. |
| 2018-02-13 | Entered into a Convertible Note Purchase Agreement with Confections Ventures Limited. |
| 2021-04-01 | Entered into an amendment to the purchase order financing agreement with DHN Capital, LLC dba Nations Interbanc. |
| 2022-01-10 | JHJ entered a convertible note agreement with Chengdu Rongjun Enterprise Consulting Co., Ltd. |
| 2022-03-10 | Entered into a promissory note in the amount of $170,600. |
| 2022-05-06 | Entered into a Securities Purchase Agreement with Mast Hill, L.P. for a $750,000 Convertible Promissory Note. |
| 2022-06-30 | Entered into a promissory note in the amount of $252,928.44. |
| 2022-07-13 | Entered into a promissory note in the amount of $159,450. |
| 2022-08-05 | Entered into a Securities Purchase Agreement with Jefferson Street Capital, LLC for a $138,888 Convertible Promissory Note. |
| 2022-08-17 | Entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund LLC for a $150,000 Convertible Promissory Note. |
| 2022-09-01 | Entered into a Securities Purchase Agreement with Pacific Pier Capital, LLC for a $138,888 Convertible Promissory Note. |
| 2022-09-16 | Entered into a Securities Purchase Agreement with Mast Hill, L.P. for a $300,000 Convertible Promissory Note. |
| 2022-10-25 | Entered into a promissory note in the amount of $114,850. |
| 2022-11-10 | Entered into a Securities Purchase Agreement with Mast Hill, L.P. for a $95,000 Convertible Promissory Note. |
| 2022-11-21 | Entered into a Securities Purchase Agreement with Mast Hill, L.P. for a $95,000 Convertible Promissory Note. |
| 2022-12-05 | Entered into a promissory note with 1800 Diagonal in the amount of $191,526. |
| 2022-12-26 | Entered into a Securities Purchase Agreement with Mast Hill, L.P. for a $123,000 Convertible Promissory Note. |
| 2023-01-19 | Entered into a Securities Purchase Agreement with Mast Hill, L.P. for a $187,000 Convertible Promissory Note. |
| 2023-02-10 | Entered into a promissory note with 1800 Diagonal in the amount of $258,521. |
| 2023-03-06 | Entered into a promissory note with 1800 Diagonal in the amount of $135,005. |
| 2023-03-08 | Entered into a Securities Purchase Agreement with Mast Hill, L.P. for a $734,000 Convertible Promissory Note. |
| 2023-07-20 | Closed the transactions contemplated by the Securities Purchase Agreement with Mast Hill, L.P. for a $556,000 Convertible Promissory Note. |
| 2023-10-13 | Entered into a promissory note with 1800 Diagonal in the amount of $197,196. |
| 2023-11-17 | Entered into a promissory note with 1800 Diagonal in the amount of $261,450. |
| 2023-11-30 | Entered into a promissory note with 1800 Diagonal in the amount of $136,550. |
| 2023-12-19 | Entered into a promissory note in the amount of $92,000. |
| 2024-01-03 | Entered into a securities purchase agreement with FirstFire Global Opportunities Fund, LLC for a $143,750 promissory note. |
| 2024-02-02 | Entered into a securities purchase agreement with Coventry Enterprises LLC for a $92,000 promissory note. |
| 2024-03-04 | Entered into a securities purchase agreement with FirstFire Global Opportunities Fund, LLC for a $280,500 promissory note. |
| 2024-06-21 | Vermont Renewable Gas LLC entered into a loan agreement for $12 million. |
| 2024-08-22 | Entered into a securities purchase agreement with 1800 Diagonal Lending LLC for a $180,960 convertible promissory note. |
| 2024-09-02 | Entered into a securities purchase agreement with Coventry Enterprises LLC for a $92,000 convertible promissory note. |
| 2024-09-10 | Entered into an amendment to the promissory notes with Mast Hill, L.P. and a new securities purchase agreement for a $612,000 convertible promissory note. |
| 2024-09-30 | Entered into a securities purchase agreement with 1800 Diagonal Lending LLC for a $150,650 convertible promissory note. |
| 2024-10-15 | Entered into a securities purchase agreement with 1800 Diagonal Lending LLC for a $125,080 convertible promissory note. |
| 2024-11-05 | Received a deficiency letter from Nasdaq regarding the minimum bid price. |
| 2024-11-08 | Entered into a securities purchase agreement with Coventry Enterprises LLC for a $101,000 convertible promissory note. |
| 2024-11-18 | Entered into an amendment to the promissory note with Mast Hill, L.P. |
Keywords
Clean Energy Technologies, Renewable Energy, Heat Recovery, Waste to Energy, Natural Gas Trading, EPC, China Operations, Financial Results, Net Loss, Revenue, Operating Expenses, Convertible Notes, Stock Compensation, Going Concern, Nasdaq
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