10-K/A: Clean Energy Technologies Reports Reduced Net Loss Amidst Strategic Shift to Renewables, Faces Going Concern and Nasdaq Delisting Challenges

Clean Energy Technologies, Inc. (CETY) filed an amended annual report for fiscal year 2024, revealing a reduced net loss and increased gross profit driven by a strategic focus on higher-margin waste-to-energy solutions, despite a significant revenue decline and ongoing financial and Nasdaq compliance concerns.

Summary

• Clean Energy Technologies, Inc. (CETY) filed an Amendment No. 2 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2024, primarily to correct a typographical error in the Consolidated Statements of Stockholders Equity, reclassifying $141,709 from 'shares issued for series E preferred conversion' to 'accrued series E preferred dividends' without impacting total stockholders' equity.
• The company reported a net loss of $4,416,319 for fiscal year 2024, a reduction from $5,782,666 in 2023, attributed to strategic expansion into higher-margin waste-to-energy business and reduced interest and financing fees.
• Total revenue for 2024 significantly decreased to $2,424,659 from $6,693,844 in 2023, primarily due to lower demand and increased competition in the China natural gas (NG) trading business.
• Gross profit increased to $846,555 in 2024 from $460,835 in 2023, reflecting improved operational efficiencies and a stronger revenue mix from higher-margin segments, particularly CETY Renewables.
• The CETY Renewables (waste-to-energy) segment saw a substantial revenue increase to $1,064,757 in 2024 from $429,999 in 2023, driven by the development and progress of the Vermont Renewable Gas (VRG) project.
• The company's financial statements include a going concern qualification from its independent accountants, citing an accumulated deficit of $27,443,231, a working capital deficit of $3,240,008, and negative cash flows from operating activities of $3,560,951 for 2024.
• CETY is not in compliance with Nasdaq's minimum bid price requirement ($1.00) and annual shareholder meeting requirement, facing potential delisting.
• The company continues to rely on equity sales and debt financing to fund operations, having issued a substantial amount of convertible securities and entered into new financing agreements in late 2024 and early 2025.

Sentiment

Score: 4

Explanation: The company shows mixed signals. While it has reduced its net loss and increased gross profit by shifting to higher-margin renewable energy segments, it faces severe financial challenges including a going concern opinion, significant revenue decline, and Nasdaq delisting risks. Its heavy reliance on continuous financing and the struggles in its China operations are major concerns, outweighing the positive strategic shifts for now.

Positives

• Net loss decreased to $4,416,319 in 2024 from $5,782,666 in 2023, indicating an improvement in overall financial performance.
• Gross profit increased to $846,555 in 2024 from $460,835 in 2023, despite a significant revenue decline, due to improved operational efficiencies and a shift to higher-margin business segments.
• Revenue from the CETY Renewables (waste-to-energy) segment grew significantly to $1,064,757 in 2024 from $429,999 in 2023, driven by the development of the Vermont Renewable Gas (VRG) project.
• Gross profit from CETY Renewables increased substantially to $829,784 in 2024 from $355,303 in 2023, reflecting the high-margin nature of this expanding business.
• Net cash used in operating activities decreased to $3,560,951 in 2024 from $4,783,077 in 2023, indicating a reduction in cash burn from operations.
• Interest and finance fees decreased to $1,199,042 in 2024 from $2,137,649 in 2023, primarily due to a reduction in convertible notes and bridge financing fees.
• The company's Clean CycleTM generator is stated to have approximately 15% higher efficiency than competitors and its magnetic design reduces downtime and operating costs.
• CETY's products directly benefit from the Inflation Reduction Act of 2022, which offers a 30% Investment Tax Credit for waste heat recovery and technology-neutral tax credits for clean electricity production.
• The company has established a wholly-owned subsidiary, CETY Capital, to help finance customer renewable energy projects, which is expected to support sales and build new facilities.

Negatives

• Total revenue significantly declined to $2,424,659 in 2024 from $6,693,844 in 2023, a drop of approximately 63.8%.
• The company has an accumulated deficit of $27,443,231 as of December 31, 2024, and a working capital deficit of $3,240,008, indicating significant financial distress.
• Total stockholders' equity decreased significantly from $5,869,198 in 2023 to $2,938,502 in 2024, primarily due to ongoing investments in the waste-to-energy business, lower-margin revenue from China, and continued financing costs.
• Revenue from the NG business (CETY HK) dropped substantially to $1,192,420 in 2024 from $5,719,170 in 2023, due to lower demand in China, economic factors, increased competition, and pricing pressure.
• Gross profit from the NG business (CETY HK) remained negative at $(6,195) in 2024, despite improving from $(35,379) in 2023.
• Revenue from Engineering and Manufacturing decreased to $9,341 in 2024 from $47,091 in 2023, due to the gradual shutdown of legacy manufacturing operations.
• Revenue from Heat Recovery Solutions (HRS) decreased to $158,141 in 2024 from $497,584 in 2023, primarily due to project delays, longer sales cycles, supply chain disruptions, and customer financing/permitting challenges.
• Selling, General, and Administrative (SG&A) expenses increased to $797,518 in 2024 from $679,004 in 2023, driven by investments in Media and Investor Relations, marketing, sales initiatives, subscription services, IT infrastructure, and inducement shares.
• Total salaries increased to $1,906,701 in 2024 from $1,570,909 in 2023, due to team expansion and salary increases in China operations.
• Professional fees (legal and accounting) increased to $578,937 in 2024 from $356,785 in 2023, due to higher costs associated with a new auditor and Nasdaq listing expenses.
• Net loss from operations increased to $3,112,847 in 2024 from $2,925,984 in 2023, despite efforts to manage costs.
• The planned joint venture with Shenzhen Gas has not commenced due to macro-economic factors such as falling natural gas prices and reduced industrial demand.
• The convertible note investment in Heze Hongyuan Natural Gas Co. has experienced delays in pipeline construction due to permitting processes, with cash flow expected only by the end of 2025.

Risks

• The company's independent accountants have issued a going concern opinion, indicating substantial doubt about its ability to continue operations without additional financing or significant cost reductions.
• The company is not currently in compliance with Nasdaq's $1.00 minimum bid price requirement and its annual shareholder meeting listing requirement, which could lead to delisting and trigger default under outstanding promissory notes.
• Operations in China expose the company to significant legal and operational risks, including uncertainties in PRC laws, substantial government influence and intervention, and potential requirements for CSRC/CAC approvals for future capital raising activities.
• The Holding Foreign Companies Accountable Act (HFCAA) poses a risk of delisting from U.S. markets if the PCAOB is unable to inspect or investigate the company's auditor completely for two consecutive years, despite the current auditor being U.S.-based and inspected.
• Restrictions on paying dividends or making other payments from PRC subsidiaries to the parent company may limit CETY's ability to satisfy its liquidity requirements.
• Fluctuations in Renminbi (RMB) exchange rates could adversely affect the operating results of the company's Hong Kong and China subsidiaries.
• Demand for the company's products and services may slow due to economic conditions, energy costs, intense competition, and the company's ability to maintain efficient and cost-effective production.
• The company operates in a highly competitive market and may lose out to larger, better-established competitors with greater financial, technical, marketing, and distribution resources.
• The company's products may be displaced by newer technologies in the rapidly changing alternative power industry, and the company may lack resources to respond quickly to such changes.
• The company depends on a limited number of suppliers for components, and shortages could increase costs or delay production.
• The principal shareholders, directors, and executive officers beneficially own over 50% of outstanding common stock, allowing them to exert substantial influence over shareholder matters.
• The loss of key senior management personnel or the inability to recruit and retain additional skilled management and engineering personnel could negatively affect the business.
• The company is subject to environmental compliance risks and may incur unexpected costs related to environmental matters.
• Sales and contract fulfillment cycles can be long, unpredictable, and seasonal, leading to significant variations in revenues and profitability.
• Operating margins may decline due to increasing product costs, raw material price fluctuations, labor costs, and inflationary pressures.
• The sales and profitability of Waste Heat Recovery and Waste to Energy products are dependent on the price of oil and natural gas; lower traditional fuel prices reduce incentive for customers to purchase CETY's products.
• The NG trading operations in China face the risk of spot prices dropping below purchase prices, leading to losses, as the company does not hedge against commodity price declines.
• The company may not have sufficient funds to conduct its trading operations in China.
• The ENEX Waste to Energy products (HTAP 5 and 10) have not been tested in the United States, and purchasers may not deem data from Ukraine and Russia reliable, posing challenges for sales and project financing.
• Implementation of waste-to-energy joint ventures is dependent on securing direct or third-party funding, with no assurances that such financing will be available.
• The issuance of a substantial amount of convertible securities (7,653,262 common share equivalents as of December 31, 2024) will substantially dilute existing stockholders.
• Future acquisitions may be dilutive to existing stockholders and involve numerous risks, including integration problems, costs, and potential loss of key employees.

Future Outlook

Clean Energy Technologies aims to be a segment leader in the Zero Emission Revolution by offering turnkey energy solutions leveraging advanced technologies, delivering eco-friendly green energy solutions, clean energy fuels, and alternative electric power for small and mid-sized projects in North America, Europe, and Asia. The company plans to expand its Waste Heat Recovery product line to include ORC systems producing over 1 MW of power, establish a Waste to Energy business by selling HTAP products and building power plants, and leverage its engineering experience for turnkey energy solutions. The company expects to benefit from Inflation Reduction Act tax credits and higher energy costs, and plans to improve its balance sheet and capital position to invest in more products and projects. The natural gas pipeline project in Heze is expected to generate cash flow by the end of 2025. The company anticipates continued significant expenses and operating losses for the foreseeable future and its ability to continue as a going concern is dependent on obtaining additional financing.

Management Comments

• "CETY has a clear strategy in place and has the capability to successfully restructure its existing debt and secure additional financing."
• "With its current strategic approach and diversification of its products and solutions, the management has created a favorable environment for the company to transition towards profitability."
• "CETYs net loss was impacted by a shift in our revenue mix, with lower business from China, which historically had lower margins, and an increasing focus on higher-margin opportunities from our waste-to-energy business."
• "Additionally, while interest and financing fees were lower compared to previous periods, they remained high due to delays in our registration becoming effective."
• "Despite this, our strategic focus on higher-margin opportunities positions us for stronger long-term growth and improved financial performance."
• "We remain focused on expanding our higher-margin renewable energy and waste-to-energy solutions to drive sustainable profitability."

Industry Context

Clean Energy Technologies operates within the rapidly growing renewable energy and waste-to-energy sectors, which are driven by increasing energy demands, rising electricity prices, and government initiatives to reduce carbon emissions and promote clean energy. The company's focus on Waste Heat Recovery and Waste to Energy aligns with global trends towards energy efficiency and sustainable waste management. The natural gas market in China, where CETY has trading operations, is also experiencing significant growth as China seeks to reduce reliance on coal. The Inflation Reduction Act of 2022 in the U.S. provides significant tax credits that directly benefit CETY's products, enhancing their profitability and market appeal. The company's strategy to target small and mid-sized waste processing applications with its HTAP technology aims to capitalize on a market segment potentially underserved by larger, more complex traditional incineration methods.

Comparison to Industry Standards

• CETY's Clean CycleTM generator is believed to be the most efficient turbine generator in its class and size for ORC systems up to 1 MW, with approximately 15% higher efficiency than competitors like ORMAT, Exergy, TAS, and Turboden.
• The magnetic design of the Clean CycleTM generator eliminates the use of oils and lubricants, significantly reducing downtime, repairs, and operating costs compared to traditional systems.
• CETY's High Temperature Ablative Pyrolysis (HTAP) Biomass Reactor is presented as a more cost-effective and environmentally friendly solution for small to mid-sized waste processing applications compared to traditional incineration methods, which produce substantial ash, heavy metals, and carbon dioxide.
• The HTAP system addresses pre-treatment issues and substantially reduces or eliminates pollutants, unlike traditional incineration which can increase air pollution and require burning fossil fuels for high-moisture waste.
• Pyrolysis systems, like HTAP, are gaining momentum in the waste-to-energy market as they offer more flexibility in scale and output integration with downstream technologies compared to conventional incineration plants that run in kilotons per day capacity.
• In the China natural gas trading market, CETY's JHJ operations aim for 20-30% margins by purchasing large volumes at discounts and prepaying, which is substantially higher than the 1-5% margins believed to be achieved by competitors like large state-owned LNG producers (e.g., Sinopec) and smaller local energy trading companies.

Corporate Governance

Legal Proceedings

• As of the date of this Annual Report, there are no material pending legal or governmental proceedings relating to the Company to which it is a party, and to its knowledge, no material proceedings to which any directors, executive officers, or affiliates are a party adverse to the company or have a material adverse interest.

Related Party Transactions

• CETY Capital LLC, a wholly-owned subsidiary, owns a 49% interest in Vermont Renewable Gas LLC (VRG), a joint venture formed with Synergy Bioproducts Corporation (SBC) for a pyrolysis plant.
• CETY Renewables invoiced VRG $801,086 in 2023 and $110,517 in 2024 for design, construction, and delivery of an organics-to-energy plant, recorded as related party revenue.
• CETY Renewables has $1,556,531 in accounts receivable from Vermont Renewable Gas.
• VRG entered into a $12 million loan agreement with FPM Development LLC and Evergreen Credit Facility I LLP, with CETY providing a corporate guarantee for VRG's liabilities and obligations under the loan agreement.
• The lenders of the VRG loan are currently in default for failing to disburse tranches.
• JHJ, a wholly-owned subsidiary of CETY HK, entered a convertible note agreement with Chengdu Rongjun Enterprise Consulting Co., Ltd (Rongjun), which owns 90% of Heze Hongyuan Natural Gas Co., Ltd. JHJ has the right to convert this note into 15% of Heze's outstanding equity interest.
• The company's accounts receivable and long-term financing receivables are pledged to Nations Interbanc, a line of credit provider, and the line of credit is personally guaranteed by Kambiz Mahdi, the CEO.
• The company's inventory, property, plant, and equipment are also pledged to Nations Interbanc.

Stakeholder Impact

• **Shareholders**: Face significant dilution from the issuance of substantial convertible securities and future equity financings. Are at risk of losing most or all of their investment due to the company's going concern qualification and potential Nasdaq delisting.
• **Employees**: The company is expanding its CETY Renewables team and increasing salaries in China operations, indicating growth opportunities in certain segments. However, the gradual shutdown of legacy manufacturing operations may impact some employees.
• **Customers**: May experience project delays and longer sales cycles in the Heat Recovery Solutions segment. Customers of Waste to Energy solutions stand to benefit from eco-friendly and cost-effective energy solutions.
• **Suppliers**: The company's reliance on a limited number of suppliers and past supply chain disruptions could affect supplier relationships and payment terms.
• **Creditors**: The company has substantial outstanding convertible notes and lines of credit. A Nasdaq delisting could trigger events of default, making notes immediately due and payable with penalties. The company's ability to meet debt service obligations is a concern given its financial condition.

Next Steps

• Regain compliance with Nasdaq's $1.00 minimum bid price requirement by May 5, 2025.
• Hold the annual shareholder meeting before June 3, 2025, to regain Nasdaq compliance.
• Continue to explore more cost-effective financing options to address high interest and financing fees.
• Further develop and progress the Vermont Renewable Gas (VRG) project to scale operations and strengthen market presence in the renewable energy sector.
• Develop additional ablative technology and manufacture waste-to-energy units in the United States, with sales and European distribution run out of a CETY office in Turkey.
• Wait for improved macro-economic factors (e.g., natural gas prices, industrial demand) before commencing the planned joint venture with Shenzhen Gas.
• Identify and implement additional projects domestically and internationally for the HTAP Biomass Reactor.
• Continue efforts to optimize space utilization and streamline processes to reduce facility lease costs.
• Address the default by FPM Development LLC and Evergreen Credit Facility I LLP regarding the $12 million loan to VRG, and potentially amend the agreement once the cure is completed.
• Monitor and comply with changing PRC laws and regulations, especially those related to overseas securities offerings and foreign investment.

Key Dates

Recommendation

Keywords

Clean Energy Technologies, CETY, Waste Heat Recovery, Waste to Energy, Renewable Energy, Natural Gas Trading, SEC Filing, 10-K/A, Financial Performance, Going Concern, Nasdaq Delisting, Corporate Governance, China Operations, HTAP Technology, Clean Cycle Generator, Biomass, BioChar, Convertible Notes, Equity Financing, Environmental Solutions, Energy Efficiency