8-K: Clean Energy Technologies Secures $175,000 in New Funding Through Convertible Note and Stock Sale

Clean Energy Technologies, Inc. has entered into a securities purchase agreement with Firstfire Global Opportunities Fund, LLC, raising $175,000 in gross proceeds through the sale of a convertible promissory note and common stock.

Summary

• Clean Energy Technologies, Inc. (CETY) entered a Securities Purchase Agreement (SPA) with Firstfire Global Opportunities Fund, LLC on July 18, 2025.
• The Company sold a convertible promissory note with a principal amount of $201,250 and 125,000 shares of common stock for an aggregate purchase price of $175,000.
• The transaction closed on July 21, 2025, with the Company receiving net funding of $169,500 after $5,500 was paid for FirstFire's legal expenses.
• Proceeds are designated for business development and working capital, explicitly excluding repayment of debt to officers, directors, employees, affiliates, or corporate finance debt.
• The convertible note matures in 12 months, accrues guaranteed interest of 10% per annum (first 12 months earned in full), and is unsecured.
• Monthly payments of $22,137.50 are required starting September 18, 2025, with the final balance due July 18, 2026.
• The note is convertible into common stock at the holder's election at 85% of the lowest traded price during the 10 trading days prior to conversion, subject to a 4.99% beneficial ownership limitation.
• The Company must obtain shareholder approval by July 23, 2025, to issue shares exceeding the Nasdaq Exchange Cap (Rule 5635(d)) and file a preliminary information statement by July 25, 2025, and a definitive one within 60 days of closing.

Sentiment

Score: 2

Explanation: The financing terms are highly unfavorable and predatory, indicating significant financial distress or limited options for the Company. The extreme dilution potential from the conversion terms, coupled with punitive default clauses and restrictions on future capital allocation, suggest a very negative outlook for existing shareholders. While the Company secured funding, the cost and future implications are severe.

Positives

• Secured $169,500 in net funding for business development and working capital.
• The funding is explicitly restricted from being used for repayment of indebtedness to officers, directors, or employees, or for corporate finance debt, which could indicate a focus on operational growth.
• The note is unsecured, potentially limiting the impact on existing secured creditors.

Negatives

• The convertible note has a principal amount of $201,250 for a purchase price of $175,000, implying an original issue discount (OID) of $26,250, which is a form of immediate dilution or cost.
• The conversion price is set at 85% of the lowest traded price during the 10 trading days prior to conversion, which is a 'toxic' or 'death spiral' financing term, highly dilutive to existing shareholders.
• The Company is required to obtain shareholder approval for issuing shares in excess of the Nasdaq Exchange Cap, and failure to do so within 60 days of the issue date constitutes an Event of Default.
• The note includes a 'Most Favored Nation' clause, meaning if the Company offers more favorable terms to future investors, FirstFire will also receive those terms, potentially limiting future financing flexibility.
• Events of Default trigger a 150% repayment penalty on the outstanding principal and interest, plus a $5,000 monthly increase in principal balance, which is highly punitive.
• The 'Repayment from Proceeds' clause allows the holder to demand repayment of up to 100% of the note if the Company receives more than $2,000,000 in aggregated cash proceeds, potentially hindering future strategic uses of capital.
• The Company is prohibited from entering into 'Variable Rate Transactions' or 'merchant cash advance transactions' while the note is outstanding, restricting financing options.
• The Company is prohibited from repaying any affiliate indebtedness or accrued amounts without the holder's written consent.
• The Company must pay $3,000 per day in liquidated damages if it provides material non-public information to the Buyer without consent and fails to file an 8-K immediately.

Risks

• Significant Dilution Risk: The conversion price mechanism (85% of the lowest traded price over 10 days) and the potential for conversion of the entire note (including the 150% default amount) pose a substantial risk of severe dilution to existing shareholders.
• Event of Default Triggers: Numerous events can trigger a default, including failure to obtain shareholder approval for share issuance, failure to maintain the reserved amount of shares, failure to comply with 1934 Act reporting, financial statement restatement, and cross-defaults.
• Punitive Default Penalties: Upon an Event of Default, the note becomes immediately due and payable at 150% of the outstanding principal and accrued interest, plus a $5,000 monthly increase in principal, which could severely impact the Company's financial stability.
• Liquidity Risk: The 'Repayment from Proceeds' clause could force the Company to use significant cash inflows to repay the note, potentially limiting funds for operations, growth, or other strategic initiatives.
• Financing Restrictions: Prohibitions on 'Variable Rate Transactions' and 'merchant cash advance transactions' limit the Company's future financing options.
• Operational Restrictions: Restrictions on changing the nature of business or selling material assets outside the ordinary course without the Buyer's consent could hinder strategic flexibility.
• Going Concern Risk: While the filing states that a 'going concern' disclosure is not an admission of inability to pay debts, the numerous default triggers and punitive terms could exacerbate any existing going concern issues.
• Nasdaq Delisting Risk: Delisting, suspension, or halt of trading on Nasdaq Capital Market is an Event of Default.
• Legal and Compliance Risk: Failure to comply with SEC reporting requirements (1934 Act) or to obtain Rule 144 legal opinions for share transfers are Events of Default.

Future Outlook

The Company intends to use the net proceeds from this transaction for business development and working capital, aiming to support its existing operations. Future actions include obtaining shareholder approval for share issuance and maintaining compliance with Nasdaq listing rules and 1934 Act reporting requirements.

Management Comments

• The Company understands and acknowledges the potentially dilutive effect of the Conversion Shares to the Common Stock upon the conversion of the Note.
• The Company further acknowledges that its obligation to issue, upon conversion of the Note, the Conversion Shares, is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
• The Company hereby agrees that it may never take the position that it is a shell company in connection with its obligations under this Agreement or otherwise.

Industry Context

This financing transaction is a common method for smaller public companies, particularly those in the clean energy technology sector, to raise capital for operational needs and growth initiatives. The use of a convertible note with a floating conversion price is a high-risk, high-reward strategy often employed when traditional equity or debt financing is less accessible or more expensive. The terms reflect the current market conditions and the Company's specific financial position, indicating a need for immediate capital despite potentially significant future dilution.

Comparison to Industry Standards

• The 85% discount to the lowest traded price over 10 days for conversion is a highly aggressive 'toxic' financing term, significantly worse than typical convertible notes which might offer a fixed discount or a premium to a recent average price. This structure is generally seen in companies with limited access to capital and can lead to substantial shareholder dilution.
• The 150% default penalty and $5,000 monthly principal increase upon default are exceptionally punitive compared to standard debt agreements, which typically involve higher interest rates or accelerated repayment, but rarely such a high multiplier on the principal.
• The 'Most Favored Nation' clause is common in such private placements to protect the investor, but it can constrain the company's ability to negotiate more favorable terms in future financings.
• The requirement for shareholder approval for exceeding the Nasdaq Exchange Cap (Rule 5635(d)) is a standard regulatory compliance measure for listed companies undertaking dilutive financings.

Corporate Governance

Related Party Transactions

• The use of proceeds from the transaction is explicitly prohibited for repayment of indebtedness owed to officers, directors, or employees of the Company or their affiliates.
• The Company is prohibited from lending money, giving credit, or making advances to any officers, directors, or employees of the Borrower, except for existing commitments, ordinary course transactions with subsidiaries/joint ventures/unaffiliated third parties, or unaffiliated third-party transactions not exceeding $200,000.
• The Company is prohibited from repaying any affiliate (as defined in Rule 144) of the Borrower in connection with any indebtedness or accrued amounts owed to any such party without the Holder's written consent.

Stakeholder Impact

• Shareholders: Highly negative impact due to significant potential dilution from the convertible note's variable conversion price and punitive default terms. Existing equity value is at high risk of erosion.
• Employees/Management: Restrictions on repayment of affiliate debt and advances to employees/officers could affect compensation or financial arrangements. The D&O insurance is a positive for management protection.
• Creditors: The note is senior unsecured, potentially impacting other unsecured creditors. The punitive default terms could lead to rapid asset depletion if triggered.
• Customers/Suppliers: The use of proceeds for business development and working capital could indirectly benefit customers and suppliers by supporting ongoing operations, but the overall financial instability implied by the financing terms could pose long-term risks.

Next Steps

• Company to obtain shareholder approval for share issuance exceeding Nasdaq Exchange Cap by July 23, 2025.
• Company to file preliminary information statement on Schedule 14C by July 25, 2025.
• Company to file definitive information statement on Schedule 14C within 60 calendar days of the Closing Date (by September 20, 2025).
• Company to begin making monthly payments of $22,137.50 on the note starting September 18, 2025.
• Company to purchase Director & Officer (D&O) insurance within 60 calendar days of closing, if available on commercially reasonable terms, for 18 months.
• Company to maintain Nasdaq listing and comply with 1934 Act reporting requirements.

Key Dates

Recommendation

The terms of this financing are extremely detrimental to existing shareholders. The convertible note's conversion price, set at 85% of the lowest traded price over 10 days, is a 'toxic' or 'death spiral' provision that will lead to massive dilution as the stock price declines. The punitive default clauses, including a 150% repayment penalty and monthly principal increases, create an unsustainable debt burden if triggered. The 'Repayment from Proceeds' clause further limits the Company's financial flexibility. This type of financing typically indicates severe financial distress and a lack of better options, making the stock a strong sell due to the high likelihood of significant value destruction for current equity holders.

Keywords

Clean Energy Technologies, CETY, Convertible Note, Securities Purchase Agreement, Dilution, Firstfire Global Opportunities Fund, SEC Filing, 8-K, Corporate Finance, Debt Financing, Equity Financing, Nasdaq, Shareholder Approval, Risk Factors, Working Capital, Business Development