8-K: Clean Energy Technologies Secures $1.47 Million Financing from Mast Hill Fund

Clean Energy Technologies, Inc. finalized a securities purchase agreement with Mast Hill Fund, L.P., involving a convertible promissory note and warrants for an aggregate purchase price of $1.47 million.

Summary

• Clean Energy Technologies, Inc. entered into a securities purchase agreement with Mast Hill Fund, L.P. on January 16, 2025.
• The agreement involves the sale of a junior secured convertible promissory note with a principal amount of $1,637,833.33 and warrants to purchase 818,917 shares of the company's common stock.
• The aggregate purchase price for the note and warrants is $1,474,050.
• From the gross purchase price, $22,000 was used to pay Mast Hill's legal expenses, and $852,406.35 was paid to settle a previous promissory note issued to Mast Hill on September 10, 2024.
• The company received net funding of $308,051.20 from the transaction.
• The note matures in 12 months, accrues interest at 10% per annum, and is secured by a junior security interest in the company's assets.
• The note is convertible into common stock at a price equal to the lesser of $2.50 per share or 90% of the lowest dollar volume-weighted average price during the 5 trading days prior to the conversion date.
• The warrants have a 5-year term and an exercise price of $2.50, exercisable on a cashless basis.
• The company is required to hold a special meeting of shareholders to obtain approval for issuing shares to Mast Hill in excess of the Exchange Cap of 9,156,726 shares.
• Proceeds from the transaction will be used for working capital, business development, and repayment of the September 10th Mast Hill Note.

Sentiment

Score: 4

Explanation: The financing provides needed capital but comes with debt and potential dilution, making it a mixed bag for investors. The high interest rate and the need for shareholder approval for full conversion add further uncertainty.

Positives

• The financing provides Clean Energy Technologies with $308,051.20 in net funding for working capital and business development.
• The agreement allows the company to settle a previous debt obligation of $852,406.35 with Mast Hill.
• The convertible note structure provides flexibility for both the company and the investor.
• The warrants offer potential upside for Mast Hill if the company's stock price appreciates.

Negatives

• The company is taking on additional debt, which could increase its financial risk.
• The conversion of the note and exercise of warrants could dilute existing shareholders' equity.
• The financing agreement restricts the use of proceeds, prohibiting repayment of debt to officers, directors, or employees.
• The company is required to hold a special meeting of its shareholders, on or before the date that is 60 calendar days after the first date (after the date of the SPA) that the Company's common stock has traded at a price per share of less than $0.50.

Risks

• The company's ability to repay the note depends on its future financial performance.
• The conversion price of the note is subject to market fluctuations, which could impact the number of shares issued upon conversion.
• Failure to obtain shareholder approval for issuing shares above the Exchange Cap could limit Mast Hill's ability to convert the note.
• The junior security interest of the note means it is subordinate to the company's senior secured lender, Nations Interbanc.

Future Outlook

The company intends to use the proceeds from the transaction for working capital, business development, and repayment of existing debt. The company is required to hold a special meeting of shareholders to approve the issuance of shares to Mast Hill in excess of the Exchange Cap.

Management Comments

• Kambiz Mahdi, Chief Executive Officer, signed the report on behalf of Clean Energy Technologies, Inc.

Industry Context

This type of financing, involving convertible notes and warrants, is common for small-cap companies seeking capital. The terms of the agreement, including the interest rate, conversion price, and warrant exercise price, are typical for such transactions, reflecting the risk and potential reward for the investor.

Comparison to Industry Standards

• Comparable companies in the clean energy sector, such as FuelCell Energy and Ballard Power Systems, have also utilized convertible notes and warrants to raise capital.
• The 10% interest rate on the note is within the typical range for similar financings, but the specific terms depend on the company's creditworthiness and market conditions.
• The conversion price of $2.50 and warrant exercise price of $2.50 are subject to adjustment based on market conditions and company performance, which is standard practice.
• The requirement for shareholder approval to issue shares above a certain threshold is a common protective measure for existing shareholders.

Stakeholder Impact

• Shareholders may experience dilution if the note is converted and warrants are exercised.
• Employees may benefit from the increased working capital and business development activities.
• Customers may see improved products and services as a result of the financing.
• Creditors may be impacted by the junior security interest of the note.

Next Steps

• Clean Energy Technologies will use the proceeds for working capital, business development, and repayment of the September 10th Mast Hill Note.
• The company will hold a special meeting of shareholders to seek approval for issuing shares to Mast Hill in excess of the Exchange Cap.
• Mast Hill Fund will monitor the company's performance and may exercise its conversion and warrant rights based on market conditions.

Key Dates