8-K: Clean Energy Technologies Secures $620,000 Funding via Convertible Note and Warrants

Clean Energy Technologies, Inc. entered into a securities purchase agreement with Mast Hill Fund, L.P., securing $620,000 through a convertible note and warrants.

Summary

• Clean Energy Technologies, Inc. (CETY) has entered into a securities purchase agreement with Mast Hill Fund, L.P.
• The agreement involves the sale of a junior secured convertible promissory note with a principal amount of $620,000 and warrants to purchase 310,000 shares of CETY common stock.
• The aggregate purchase price for the note and warrants is $558,000.
• After deducting Mast Hill's legal expenses of $8,000 and a $50,000 payment to Nations Interbanc, CETY received net funding of $500,000.
• The proceeds will be used for payment to Nations Interbanc, working capital, and business development, but not for repayment of debt to insiders or for corporate finance transactions.
• CETY is required to hold a special shareholder meeting to approve the issuance of shares to Mast Hill exceeding the Exchange Cap of 9,156,726 shares.
• The note matures in 12 months, accrues 10% annual interest, and is secured by a junior security interest.
• The conversion price is the lesser of $2.50 per share or 90% of the lowest volume-weighted average price during the 5 trading days prior to conversion.
• The warrants have a 5-year term and an exercise price of $2.50, exercisable on a cashless basis.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company secures funding, there are potential dilution risks and the need for shareholder approval.

Positives

• CETY secures immediate funding of $500,000 to address working capital needs and business development.
• The agreement allows for flexibility in managing debt through conversion options.
• The funding helps to partially repay obligations to Nations Interbanc, improving the company's financial position.

Negatives

• The Exchange Cap limits the number of shares that can be issued to Mast Hill until shareholder approval is obtained.
• The note is secured by a junior security interest, subordinate to the company's senior secured lender, Nations Interbanc.
• The conversion of the note and exercise of warrants could lead to potential dilution of existing shareholders' equity.

Risks

• Failure to obtain shareholder approval for issuing shares above the Exchange Cap could limit Mast Hill's ability to convert the note.
• The conversion price being tied to the market price could result in significant dilution if the stock price declines.
• The company's ability to meet its obligations under the note depends on its financial performance and ability to generate sufficient cash flow.

Future Outlook

The company intends to use the proceeds from the transaction for payment of Nations Interbanc, working capital, and business development.

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, but it can also carry risks of dilution and increased debt.

Comparison to Industry Standards

• Comparable companies in the clean energy sector often utilize similar financing structures, such as convertible notes and warrants, to raise capital.
• The terms of the agreement, including the interest rate, conversion price, and warrant terms, appear to be within the typical range for such transactions in the current market environment.
• Companies like FuelCell Energy and Ballard Power Systems have used similar financing methods to fund their operations and growth initiatives.
• The specific terms, however, are tailored to the company's financial situation and the investor's risk appetite.

Stakeholder Impact

• Shareholders may experience dilution if the note and warrants are converted into shares of common stock.
• Employees may benefit from the increased working capital and business development activities.
• Creditors may be impacted by the repayment of obligations to Nations Interbanc.
• Customers may see improved products and services as a result of the funding.

Next Steps

• Clean Energy Technologies will use the proceeds for payment to Nations Interbanc, working capital, and business development.
• The company will hold a special shareholder meeting to approve the issuance of shares to Mast Hill exceeding the Exchange Cap.
• Mast Hill Fund, L.P. will monitor its investment and may choose to convert the note into shares of CETY common stock.

Key Dates