CETY(US:CETY)2022-08-21 16:00PART I. FINANCIAL INFORMATION Consolidated Financial Statements The company's financial statements show increased assets and revenue but also a growing deficit and net loss, raising substantial doubt about its ability to continue as a going concern - The company's financial statements have been prepared on a going concern basis, but there is substantial doubt about its ability to continue due to a total stockholder's deficit of $646,909, a working capital deficit of $3,208,372, and an accumulated deficit of $17,883,464 as of June 30, 202225215 Consolidated Balance Sheets As of June 30, 2022, total assets increased to $7.95 million while total liabilities grew to $8.60 million, resulting in an improved but still negative stockholders' deficit Consolidated Balance Sheet Summary (as of June 30, 2022 vs. December 31, 2021) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $4,256,879 | $2,605,504 | | Total Assets | $7,951,016 | $6,432,274 | | Total Current Liabilities | $7,465,251 | $6,865,123 | | Total Liabilities | $8,597,924 | $8,153,986 | | Total Stockholders' (Deficit) | ($646,909) | ($1,721,712) | Consolidated Statements of Operations Sales surged to $2.52 million for the six months ended June 30, 2022, but the company recorded a net loss of $459k due to the absence of a prior-year gain on derivative liability Statement of Operations Summary (Six Months Ended June 30) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Sales | $2,522,968 | $291,158 | | Gross Profit | $1,125,990 | $218,539 | | Net Profit / (Loss) From Operations | ($28,368) | ($862,670) | | Change in derivative liability | ($13,399) | $1,745,369 | | Net Profit / (Loss) | ($459,531) | $836,728 | | Net Profit / (Loss) per share | ($0.00) | $0.00 | Consolidated Statements of Stockholders Deficit The stockholders' deficit improved to ($647k) from ($1.72 million) due to capital raised from common stock issuances, which offset the period's net loss - During the first six months of 2022, the company issued 15,035,000 shares under its Reg A offering and 8,071,797 shares under its S-1 registration, contributing to an increase in additional paid-in capital15 Consolidated Statements of Cash Flows The company used $1.23 million in operating activities and funded its deficit with $1.91 million from financing activities, resulting in a net cash decrease of $223k Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($1,233,918) | ($1,449,202) | | Net Cash Used In Investing Activities | ($785,828) | $0 | | Net Cash Provided By Financing Activities | $1,905,454 | $3,077,155 | | Net (Decrease) Increase in Cash | ($223,397) | $1,627,953 | | Cash at End of Period | $968,919 | $2,042,838 | Notes to the Consolidated Financial Statements The notes detail the 'going concern' basis, debt defaults, related-party transactions, and the four reporting segments, with CETY HK driving revenue growth - The company has four reportable segments: Clean Energy HRS (waste heat recovery), CETY Europe, the legacy Electronic Assembly division, and CETY Hong Kong (LNG trading and infrastructure)2461 - The company is in default on the payment of the purchase price to General Electric for the HRS asset acquisition, with a total liability to GE of $2,526,036 as of June 30, 2022102 - Subsequent to the quarter's end, the company entered into new convertible promissory note agreements with Jefferson Street Capital and First Fire Global Opportunities Fund in August 2022 to raise additional capital191192 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue growth to its new LNG trading segment in China and explains the net loss as a result of a non-recurring gain in the prior year - The company's mission is to be a leader in the 'Zero Emission Revolution' by offering recyclable energy solutions, clean energy fuels, and alternative power for small and mid-sized projects26207 - The company's principal businesses include Waste Heat Recovery Solutions, Waste to Energy Solutions, Engineering/Consulting, and LNG trading operations in China via its CETY HK subsidiary208209210 - The 'Going Concern' issue is re-emphasized, citing a stockholder's deficit of $646,909, a working capital deficit of $3,208,372, and reliance on future financing to continue operations215216 Results of Operations Net sales grew to $2.52 million driven by the CETY HK segment, but a net loss was recorded due to the non-recurrence of a prior-year gain on derivative liability Segment Revenue (Six Months Ended June 30) | Segment | 2022 Revenue | 2021 Revenue | | :--- | :--- | :--- | | Engineering & Manufacturing | $61,018 | $41,223 | | Clean Energy HRS | $460,885 | $88,807 | | CETY Europe | $38,012 | $161,128 | | CETY HK | $1,983,062 | $0 | - The significant increase in net profit in 2021 compared to the net loss in 2022 was mainly due to a $1.75 million gain on derivative liability in 2021218233 - Professional fees increased to $224,195 from $82,209 year-over-year, attributed to higher expenses related to a proposed IPO and up-listing to NASDAQ229 Liquidity and Capital Resources The company's liquidity is strained with negative operating cash flow, necessitating continued reliance on equity and debt financing for operations Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($1,233,918) | ($1,449,202) | | Cash Flows Used In Investing Activities | ($785,828) | $0 | | Cash Flows Provided By Financing Activities | $1,905,454 | $3,077,155 | | Net (Decrease) Increase in Cash | ($223,397) | $1,627,953 | - The company will continue to rely on equity sales of its common shares to fund business operations, which will result in dilution to existing stockholders242 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, this section is not applicable and no information is provided - The company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item246 Controls and Procedures Management concluded that disclosure controls were ineffective due to material weaknesses, including a lack of independent directors on the Board - Management concluded that disclosure controls and procedures were not effective as of June 30, 2022247 - The ineffectiveness is due to material weaknesses, including the Board of Directors not having any independent members and no director qualifying as an audit committee financial expert247 PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings - The Company is presently not involved in any legal proceedings which in the opinion of management are likely to have a material adverse effect on the Company's consolidated financial position or results of operations249 Risk Factors No material changes to risk factors have occurred since the last Annual Report on Form 10-K - There have been no material changes in the Company's risk factors from those previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021250 Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered equity securities to settle debt, for preferred stock conversion, and through a Reg A offering - On February 21, 2022, the company issued 15,035,000 shares of its common stock under its Reg A offering at $0.08 per share258 - In June 2021, related party MGW I converted $75,000 of its convertible note into 25,000,000 shares of common stock256 Defaults Upon Senior Securities The company is in default on senior securities payments to General Electric International and Cybernaut Zfounder Ventures - The company is in default on the payment of $1,200,000 to General Electric International related to an asset purchase agreement260 - The company is also in default of $187,285 in payments on notes payable to Cybernaut Zfounder Ventures261 Mine Safety Disclosures This item is not applicable to the company - Not Applicable262 Other Information No other information was reported for this item - None263 Exhibits This section lists all exhibits filed with the report, including officer certifications and Inline XBRL data List of Exhibits | Exhibit | Description | | :--- | :--- | | 31.01 | Certification of Principal Executive Officer | | 31.02 | Certification of Principal Financial Officer | | 32.01 | Certification of CEO Pursuant to Section 906 | | 32.02 | Certification of CFO Pursuant to Section 906 | | 101.* | Inline XBRL Documents |