FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) contains forward-looking statements that involve known and
unknown risks, significant uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed, or implied, by those forward-looking statements. You can
identify forward-looking statements by the use of the words may, will, should,
could, expects, plans, anticipates, believes, estimates, predicts, intends,
potential, proposed, or continue or the negative of those terms. These
statements are only predictions. In evaluating these statements, you should
consider various factors which may cause our actual results to differ materially
from any forward-looking statements. Although we believe that the exceptions
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Therefore,
actual results may differ materially and adversely from those expressed in any
forward-looking statements. We undertake no obligation to revise or update
publicly any forward-looking statements for any reason.
Description of the Company
We specialize in renewable energy & energy efficiency systems design,
manufacturing and project implementation. We were incorporated in California in
July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to
Nevada in April 2005 under the name Probe Manufacturing, Inc. We provided
engineering and manufacturing electronics services to original equipment
manufacturers (OEMs) of clean energy, industrial, automotive, semiconductor,
medical, communication, military, and high technology products.
With the vision to combat climate change and creating a better, cleaner and
environmentally sustainable future, we formed Clean Energy HRS, LLC a wholly
owned subsidiary of Clean Energy Technologies, Inc. and acquired the assets of
Heat Recovery Solutions from General Electric International on September 11,
2015. In November 2015, we changed our name to Clean Energy Technologies, Inc.
Our principal executive offices are located at 2990 Redhill Avenue, Costa Mesa,
CA 92626. We have 12 full time employees. All employees and overhead are shared
between Clean Energy Technologies, Inc. (which still provides the contract
electronic manufacturing services) and Clean Energy HRS, LLC.
Clean Energy Technologies, Inc. established a new company CETY Europe, SRL (CETY
Europe) as a wholly owned subsidiary. CETY Europe is a Sales and Service Center
in Silea (Treviso), Italy established in 2017. The service center became
operational in November 2018. Their offices are located at Alzaia Sul Sile, 26D,
31057 Silea (TV) and the have 1 full time employee.
Clean Energy Technologies, Inc. established a wholly owned subsidiary called
CETY Capital, a financing arm of CETY to fund captive renewable energy projects
producing low carbon energy. CETY Capital will add flexibility to the capacity
CETY offers its customers and fund projects utilizing its products and clean
energy solutions.
CETY Capital retains 49% ownership interest in Vermont Renewable Gas LLC
established to develop a biomass plant in Vermont utilizing CETY's High
Temperature Ablative Pyrolysis system.
Clean Energy Technologies (H.K.) Limited., a wholly owned subsidiary of Clean
Energy Technologies Inc. acquired 100% ownership of Leading Wave Limited a
liquid natural gas trading company in China.
The Company has four reportable segments: Clean Energy HRS (HRS) and CETY
Europe, CETY Renewables, CETY HK and the legacy engineering and manufacturing
services division.
Business Overview
General
The Company's business and operating results are directly affected by changes in
overall customer demand, operational costs and performance and leverage of our
fixed cost and selling, general and administrative ("SG&A") infrastructure.
Product sales fluctuate in response to several factors including many that are
beyond the Company's control, such as general economic conditions, interest
rates, government regulations, consumer spending, labor availability, and our
customers' production rates and inventory levels. Product sales consist of
demand from customers in many different markets with different levels of
cyclicality and seasonality.
Operating performance is dependent on the Company's ability to manage changes in
input costs for items such as raw materials, labor, and overhead operating
costs. Performance is also affected by manufacturing efficiencies, including
items such as on time delivery, quality, scrap, and productivity. Market factors
of supply and demand can impact operating costs
In December 2019, a novel strain of coronavirus (COVID-19) was reported in
Wuhan, China and has spread throughout the United States and the rest of the
world. The World Health Organization has declared the outbreak to constitute a
"Public Health Emergency of International Concern." This contagious disease
outbreak, which has not been contained, and is disrupting supply chains and
affecting production and sales across a range of industries in United States and
other companies as a result of quarantines, facility closures, and travel and
logistics restrictions in connection with the outbreak, as well as the worldwide
adverse effect to workforces, economies and financial markets, leading to a
global economic downturn. Therefore, the Company expects this matter to
negatively impact its operating results. However, the related financial impact
and duration cannot be reasonably estimated at this time.
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Who We Are
We develop renewable energy products and solutions and establish partnerships in
renewable energy that make environmental and economic sense. Our mission is to
be a segment leader in the Zero Emission Revolution by offering recyclable
energy solutions, clean energy fuels and alternative electric power for small
and mid-sized projects in North America, Europe, and Asia. We target sustainable
energy solutions that are profitable for us, profitable for our customers and
represent the future of global energy production.
Our principal businesses
Waste Heat Recovery Solutions - we recycle wasted heat produced in
manufacturing, waste to energy and power generation facilities using our
patented Clean CycleTM generator to create electricity which can be recycled or
sold to the grid.
Waste to Energy Solutions - we convert waste products created in manufacturing,
agriculture, wastewater treatment plants and other industries to electricity,
renewable natural gas ("RNG"), hydrogen and bio char which are sold or used by
our customers.
Engineering, Consulting and Project Management Solutions - we bring a wealth of
experience in developing clean energy projects for municipal and industrial
customers and Engineering, Procurement and Construction (EPC) companies so they
can identify, design and incorporate clean energy solutions in their projects.
CETY HK
Clean Energy Technologies (H.K.) Limited ("CETY HK") consists of two business
ventures in mainland China:(i) our liquefied natural gas ("LNG") trading
operations sourcing and suppling LNG to industries and municipalities. The LNG
is principally used for heavy truck refueling stations and urban or industrial
users in areas that do not have a connection to local LNG pipeline systems. We
purchase large quantities of LNG from large wholesale LNG depots at fixed prices
which are prepaid for in advance at a discount to market. We sell the LNG to our
customers at prevailing daily spot prices for the duration of the contracts; and
(ii) our planned joint venture with a large state-owned gas enterprise in China
called Shenzhen Gas (Hong Kong) International Co. Ltd. ("Shenzhen Gas"),
acquiring natural gas pipeline operator facilities, each primarily located in
the southern part of Sichuan Province and portions of Yunnan Province. Our
planned joint venture with Shenzhen Gas plans to acquire, with financing from
Shenzhen Gas, natural gas pipeline operator facilities with the goal of
aggregating and selling the facilities to Shenzhen Gas in the future. According
to our Framework Agreement with Shenzhen Gas, we will be required to contribute
$8 million to the joint venture. The terms of the joint venture are subject to
the execution of definitive agreements.
Business and Segment Information
We design, produce and market clean energy products and integrated solutions
focused on energy efficiency and renewable energy. Our aim is to become a
leading provider of renewable and energy efficiency products and solutions by
helping commercial companies and municipalities reduce energy waste and
emissions, lower energy costs and generate incremental revenue by providing
electricity, renewable natural gas and biochar to the grid.
Segment Information
Our four segments for accounting purposes are:
Clean Energy Solutions - our Waste Heat Recovery Solutions, Waste to Energy
Solutions, China LNG initiatives and Engineering and Consulting Services which
are the core offerings of our business.
CETY Europe - our subsidiary established in Italy for the purposes of servicing
our customers in the EU that we are required to report as a separate accounting
entity.
Electronic Manufacturing Business - our legacy electronics manufacturing
business that do not contribute significantly to our revenues or business plan
that we are required to report as a separate accounting entity.
CETY HK - which is the parent company of our LNG trading operations in China
that source and supply LNG and our planned joint venture to acquire LNG
distribution systems depots and transmission systems. Prior to the first quarter
of 2022, the Company had three reportable segments but added the CETY HK segment
to reflect its recent new businesses in China.
Summary of Operating Results the three months ended September 30, 2022 Compared
to the same period in 2021
Going Concern
The financial statements have been prepared on a going concern basis, which
contemplates continuity of operations, realization of assets and liquidation of
liabilities in the normal course of business. The Company had a total
stockholder's equity of $166,173 and a working capital deficit of $4,000,686 as
of September 30, 2022 The company also had an accumulated deficit of $18,763,939
as of September 30, 2022 and used $1,016,545 in net cash from operating
activities for the three months ended September 30, 2022. Therefore, there is
substantial doubt about the ability of the Company to continue as a going
concern. There can be no assurance that the Company will achieve its goals and
reach profitable operations and is still dependent upon its ability (1) to
obtain sufficient debt and/or equity capital and/or (2) to generate positive
cash flow from operations.
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The three months ended September 30, 2022; we had a net loss of $540,986
compared to a net loss of $277,664 for the same period in 2021. The increase in
the net loss in 2022 was mainly due to the increase in professional fees
including legal & accounting due to the expenses associated with the IPO up
listing to NASDAQ and lower sales in the quarter. The three months ended
September 30, 2022; our revenue was $44,629 compared to $575,545 for the same
period in 2021. For the three months ended September 30, 2022, our gross margin
was 58% compared to 52% for the same period in 2021. For the three months ended
September 30, 2022, our operating expense was $566,899 compared to $578,808 for
the same period in 2021.
See note 1 to the notes to the financial statements for a discussion on critical
accounting policies
RELATED PARTY TRANSACTIONS
See note 13 to the notes to the financial statements for a discussion on related
party transaction
Results of the three month ended September 30, 2022, Compared to the nine month
ended September 30, 2021
Net Sales
Segment breakdown
The three months ended September 30, 2022, our revenue from Engineering and
Manufacturing was $71,298 compared to $50,040 for the same period in 2021.
The three months ended September 30, 2022, our revenue from HRS was $307
compared to $513,400 for the same period in 2021. This decrease was mainly
because of delay with the passing of inflation reduction act and the incentives
associated with heat recovery solution and delays with supply chain.
The three months ended September 30, 2022, our revenue from CETY Europe was
$10,125 compared to $12,105 for the same period in 2021.
The three months ended September 30, 2022, our revenue from our wholly owned
subsidiary CETY HK was $0.0 due to lack of availability of natural gas during
the quarter compared to $0 for the same period in 2021.This is a s a result of
the acquisition of JHJ gas company made in November of 2021. We started to
generate revenue from this entity in the 1st quarter of 2022.
Gross Profit
The three months ended September 30, 2022; our gross profits were $25,913
compared to $301,144 for the same period in 2021. The decrease in gross profit
was due to lower revenues.
Segment breakdown
The three months ended September 30, 2022, our gross profit from Engineering and
Manufacturing was $46,876 compared to $43,216 for the same period in 2021.
The three months ended September 30, 2022, we had negative gross profit from HRS
of $18,146 compared to $250,500 for the same period in 2021. The decrease from
the HRS segment was mainly due to 0 revenue in the third quarter of 2022.
The three months ended September 30, 2022, our gross profit from CETY Europe was
$9,685 compared to $4,101 for the same period in 2021. The increase in gross
profit was due higher service revenue.
The three months ended September 30, 2022, our gross profit from our wholly
owned subsidiary CETY HK was negative $12,158 compared to $0 for the same period
in 2021. We had zero revenue from CETY HK in 2021.
Selling, General and Administrative (SG&A) Expenses
The three months ended September 30, 2022; our SG&A expense was $83,162 compared
to $188,817 for the same period in 2021. The decrease was a result of separating
the subcontractor category from SG&A.
Salaries Expense
The three months ended September 30, 2022; our Salaries expense was $197,036
compared to $228,565 for the same period in 2021.
Travel Expense
The three months ended September 30, 2022; our travel expense was $38,990
compared to $26,381for the same period in 2021. The increase in the quarter
ending in September 30, 2022 was due to additional site assessment surveys of
multiple facilities in Europe and global commissioning.
Professional fees Expense
The three months ended September 30, 2022; our Professional fees expense was
$135,441 compared to $41,174 for the same period in 2021. The increase in legal
fees was due to higher expenses related to a proposed IPO and up listing to
NASDAQ.
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Results of the nine month ended September 30, 2022, Compared to the nine month
ended September 30, 2021
Net Sales
The Company has four reportable segments: Clean Energy HRS (HRS), CETY Europe
srl, Engineering and Manufacturing Business and CETY HK.
Segment breakdown
The nine months ended September 30, 2022, our revenue from Engineering and
Manufacturing was $132,316 compared to $91,262 for the same period in 2021.
The nine months ended September 30, 2022, our revenue from HRS was $461,292
compared to $602,207 for the same period in 2021. This decrease was mainly
because of delay with the passing of inflation reduction act and the incentives
associated with heat recovery solution.
The nine months ended September 30, 2022, our revenue from CETY Europe was
$48,138 compared to $173,234 for the same period in 2021. This decrease was a
result of a sell of an equipment in 2021 vs. just the service revenue.
The nine months ended September 30, 2022, our revenue from our wholly owned
subsidiary CETY HK was $1,925,950 compared to $0 for the same period in 2021.
This is a s a result of the acquisition of JHJ gas company made in November of
2021. We started to generate revenue from this entity in the 1st quarter of
2022.
Gross Profit
The nine months ended September 30, 2022; our gross profits were $1,151,903
compared to $519,683 for the same period in 2021. The increase in gross profit
was due to higher revenues.
Segment breakdown
The nine months ended September 30, 2022, our gross profit from Engineering and
Manufacturing was $85,352 compared to $72,853 for the same period in 2021.
The nine months ended September 30, 2022, our gross profit from HRS was $427,219
compared to $312,118, for the same period in 2021. The increase from the HRS
segment was mainly due to higher revenue in the first quarter of 2022.
The nine months ended September 30, 2022, our gross profit from CETY Europe was
$40,315 compared to $134,712 for the same period in 2021. The decrease in gross
profit was due to revenue generated from the sale of a clean cycle waste heat
recovery system.
The nine months ended September 30, 2022, our gross profit from our wholly owned
subsidiary CETY HK was $631,082 compared to $0 for the same period in 2021. We
had zero revenue from CETY HK in 2021.
Selling, General and Administrative (SG&A) Expenses
The nine months ended September 30, 2022; our SG&A expense was $284,025 compared
to $529,335, for the same period in 2021. The decrease was a result of
separating the subcontractor category from SG&A and lower cost of repair.
Salaries Expense
The nine months ended September 30, 2022; our Salaries expense was $587,928
compared to $661,634 for the same period in 2021. The decrease in the quarter
ending in September 30, 2022 was due to less number of employees.
Travel Expense
The nine months ended September 30, 2022; our travel expense was $126,388
compared to $66,735 for the same period in 2021. The increase in the quarter
ending in September 30, 2022 was due to additional site assessment surveys of
multiple facilities in Europe and global commissioning.
Professional fees Expense
The nine months ended September 30, 2022; our Professional fees expense was
$359,636 compared to $123,383 for the same period in 2021. The increase in legal
fees was due to higher expenses related to a proposed IPO and up listing to
NASDAQ.
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Facility Lease and Maintenance Expense
The nine months ended September 30, 2022; our Facility Lease and maintenance
expense was $260,262 compared to $254,708 for the same period in 2021.
Depreciation and Amortization Expense
The nine months ended September 30, 2022, our depreciation and amortization
expense was $22,557 compared to $24,219 for the same period in 2021, which
remained relatively unchanged.
Change in Derivative Liability
The nine months ended September 30, 2022; we had a gain on derivative liability
of $12,980, compared to a gain of $1,734,624 for the same period in 2021. The
gain in derivative liability was due to paying off several convertible notes in
the six months ended June 30, 2021.
Gain on debt settlement
The nine months ended September 30, 2022, we recognized a gain on debt
settlement in the amount of $2920 compared to $828,666 for the nine months ended
September 30, 2021.
Interest and Finance Fees
The nine months ended September 30, 2022 interest and finance fees were $747,451
compared to $603,240 for the same period in 2021.
Net Income / Loss
The nine months ended September 30, 2022; our loss was $1,338,010 compared to
net profit of $819,719 for the same period in 2021. The higher profits was
primarily due to the gain on derivative liability in 2021.
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CLEAN ENERGY TECHNOLOGIES, INC. 
