Notes
to Consolidated Financial Statements (Unaudited)
NOTE
1
– BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
These
unaudited interim consolidated financial statements as of and for the three months ended June 30, 2019, reflect all adjustments
which, in the opinion of management, are necessary to fairly state the Company’s financial position and the results of its
operations for the periods presented, in accordance with the accounting principles generally accepted in the United States of
America. All adjustments are of a normal recurring nature.
These
unaudited interim consolidated financial statements should be read in conjunction with the Company’s financial statements
and notes thereto included in the Company’s fiscal year end December 31, 2018, report. The Company assumes that the users
of the interim financial information herein have read, or have access to, the audited financial statements for the preceding period,
and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of
operations for the three and six months ended June 30, 2019, are not necessarily indicative of results for the entire year ending
December 31, 2019.
The
summary of significant accounting policies of Clean Energy Technologies, Inc. is presented to assist in the understanding of the
Company’s financial statements. The financial statements and notes are representations of the Company’s management,
who is responsible for their integrity and objectivity.
Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Such estimates may be materially different from actual financial results. Significant estimates include the recoverability
of long-lived assets, the collection of accounts receivable and valuation of inventory and reserves.
Cash
and Cash Equivalents
We
maintain the majority of our cash accounts at a commercial bank. The total cash balance is insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $250,000 per commercial bank. For purposes of the statement of cash flows we consider all
cash and highly liquid investments with initial maturities of one year or less to be cash equivalents.
Accounts
Receivable
We
grant credit to our customers located within the United States of America; and do not require collateral. Our ability to collect
receivables is affected by economic fluctuations in the geographic areas and industries served by us. Reserves for un-collectable
amounts are provided, based on past experience and a specific analysis of the accounts. Although we expect to collect amounts
due, actual collections may differ from the estimated amounts. As of June 30, 2019, and December 31, 2018, we had a reserve for
potentially un-collectable accounts of $57,000. Five (5) customers accounted for approximately 96% of accounts receivable at June
30, 2019. Our trade accounts primarily represent unsecured receivables. Historically, our bad debt write-offs related to these
trade accounts have been insignificant.
Inventory
Inventories
are valued at the lower of weighted average cost or market value. Our industry experiences changes in technology, changes in market
value and availability of raw materials, as well as changing customer demand. We make provisions for estimated excess and obsolete
inventories based on regular audits and cycle counts of our on-hand inventory levels and forecasted customer demands and at times
additional provisions are made. Any inventory write offs are charged to the reserve account. As of June 30, 2019, and December
31, 2018, we had a reserve for potentially obsolete inventory of $250,000.
Property
and Equipment
Property
and equipment are recorded at cost. Assets held under capital leases are recorded at lease inception at the lower of the present
value of the minimum lease payments or the fair market value of the related assets. The cost of ordinary maintenance and repairs
is charged to operations. Depreciation and amortization are computed on the straight-line method over the following estimated
useful lives of the related assets:
Furniture
and fixtures
|
3
to 7 years
|
Equipment
|
7
to 10 years
|
Leasehold
Improvements
|
7
years
|
Long
–Lived Assets
Our
management assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long-lived
assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived
asset impairment if any, is measured based on fair value and is charged to operations in the period in which long-lived assets
impairment is determined by management. There can be no assurance however, that market conditions will not change or demand for
our services will continue, which could result in impairment of long-lived assets in the future.
Revenue
Recognition
The
Company recognizes revenue under ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606),”
(“ASC
606”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange
for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will
collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following
five steps are applied to achieve that core principle for our HRS and Cety Europe and clean energy revenue:
|
●
|
Identify
the contract with the customer
|
|
●
|
Identify
the performance obligations in the contract
|
|
●
|
Determine
the transaction price
|
|
●
|
Allocate
the transaction price to the performance obligations in the contract
|
|
●
|
Recognize
revenue when the company satisfies a performance obligation
|
We
also collect deposits with our order. Our customer deposit are recognized as revenue when we have met the contractual obligations.
The following is table summarizes the customer deposit activity for the six months ended June 30, 2019:
Customer Deposits as of December 31, 2018
|
|
$
|
365,815
|
|
Customer Deposits applied
|
|
|
(56,585
|
)
|
New customer
Deposits
|
|
|
-
|
|
Customer Deposits as of June 30,
2019
|
|
$
|
309,230
|
|
We
Invoice the customer and the time of the contract and only recognize the revenue when the company satisfies a performance obligation.
The following is table summarizes the deferred revenue activity for the six months ended June 30, 2019:
Deferred revenue December 31, 2018
|
|
$
|
33,000
|
|
Deferred revenue recognized in the Six
months ended June 30, 2019
|
|
|
-
|
|
Additional deferred
revenue added in the Six months ended June 30, 2019
|
|
|
14,750
|
|
Deferred revenue June 30, 2019
|
|
$
|
47,750
|
|
The
following steps are applied to our contract manufacturing revenue:
|
●
|
We
generate a quotation
|
|
●
|
We
receive Purchase orders from our customers.
|
|
●
|
We
build the product to their specification
|
|
●
|
We
invoice at the time of shipment
|
|
●
|
The
terms are typically Net 30 days
|
Fair
Value of Financial Instruments
The
Financial Accounting Standards Board issued ASC (Accounting Standards Codification) 820-10 (SFAS No. 157), “Fair Value Measurements
and Disclosures” for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires
expanded disclosures regarding fair value measurements. FASB ASC 820-10 defines fair value as the price that would be received
for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly
transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs
required by the standard that the Company uses to measure fair value:
|
●
|
Level
1: Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the related assets or liabilities.
|
|
|
|
|
●
|
Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
|
The
carrying amounts of the Company’s financial instruments as of December 31 2018 and June 30, 2019, reflect:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of convertible notes derivative liability –
December 31, 2018
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
245,988
|
|
|
$
|
245,988
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of convertible notes derivative liability –
June 30, 2019
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
544,522
|
|
|
$
|
544,522
|
|
The
carrying amount of accounts payable and accrued expenses are considered to be representative of their respective fair values because
of the short-term nature of these financial instruments.
Other
Comprehensive Income
We
have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all
periods.
Net
Profit (Loss) per Common Share
Basic
profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding. At June 30, 2019,
we had outstanding common shares of 580,157,656 used in the calculation of basic earnings per share. Basic Weighted average common
shares and equivalents at June 30, 2019 and 2018 were 579,698,041 and 471,235,772, respectively. In addition, we had convertible
notes and convertible preferred shares, convertible into of additional common shares of approximately 613 million shares. Fully
diluted weighted average common shares and equivalents were withheld from the calculation as they were considered anti-dilutive
we also had an adjustment to retained earnings of $60,000 due to the inducement on the conversion of preferred shares.
Research
and Development
We
had no amounts of research and development expense during the three months ended June 30, 2019 and 2018.
Segment
Disclosure
FASB
Codification Topic 280,
Segment Reporting
, establishes standards for reporting financial and descriptive information about
an enterprise’s reportable segments. The Company has three reportable segments: Clean Energy Technologies; Heat recovery
solutions and our service center CETY Europe, which provides support services to our currently installed units in Europe. The
segments are determined based on several factors, including the nature of products and services, the nature of production processes,
customer base, delivery channels and similar economic characteristics. Refer to note 1 for a description of the various product
categories manufactured under each of these segments. An operating segment’s performance is evaluated based on its pre-tax
operating contribution, or segment income. Segment income is defined as net sales less cost of sales, and segment selling, general
and administrative expenses, and does not include amortization of intangibles, stock-based compensation, other charges (income),
net and interest and other, net.
Selected
Financial Data
:
|
|
Six
months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net Sales
|
|
|
|
|
|
|
|
|
Electronics Assembly
|
|
$
|
226,206
|
|
|
$
|
319,399
|
|
Clean Energy HRS
|
|
|
46,137
|
|
|
|
392,094
|
|
Cety Europe
|
|
|
56,188
|
|
|
|
-
|
|
Total Sales
|
|
|
328,531
|
|
|
|
711,493
|
|
|
|
|
|
|
|
|
|
|
Segment income and reconciliation before
tax
|
|
|
|
|
|
|
|
|
Electronics Assembly
|
|
|
38,720
|
|
|
|
105,259
|
|
Clean Energy HRS
|
|
|
37,463
|
|
|
|
273,276
|
|
Cety Europe
|
|
|
41,116
|
|
|
|
-
|
|
Total Segment income
|
|
|
117,299
|
|
|
|
378,535
|
|
|
|
|
|
|
|
|
|
|
Reconciling items
|
|
|
|
|
|
|
|
|
General and Administrative
expense
|
|
|
(208,173
|
)
|
|
|
(409,717
|
)
|
Salaries
|
|
|
(407,867
|
)
|
|
|
(348,725
|
)
|
Professional fees
|
|
|
(70,685
|
)
|
|
|
(88,058
|
)
|
Travel
|
|
|
(86,107
|
)
|
|
|
(25,634
|
)
|
Facility lease
|
|
|
(162,852
|
)
|
|
|
(139,325
|
)
|
Share Based Expense
|
|
|
-
|
|
|
|
(91,140
|
)
|
Change in derivative liability
|
|
|
(104,930
|
)
|
|
|
(216,337
|
)
|
Gain / (Loss) on disposition of assets
|
|
|
-
|
|
|
|
4,044
|
|
Financing fees
|
|
|
-
|
|
|
|
(378,155
|
)
|
Interest expense
|
|
|
(645,257
|
)
|
|
|
(460,511
|
)
|
Net Loss before
income tax
|
|
$
|
(1,568,572
|
)
|
|
$
|
(1,611,400
|
)
|
|
|
June
30, 2019
|
|
|
June
30, 2018
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Electronics Assembly
|
|
$
|
2,728,606
|
|
|
$
|
1,303,343
|
|
Clean Energy HRS
|
|
|
1,884,847
|
|
|
|
1,649,116
|
|
Cety Europe
|
|
|
29,401
|
|
|
|
-
|
|
|
|
$
|
4,642,854
|
|
|
$
|
2,952,459
|
|
Share-Based
Compensation
The
Company has adopted the use of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS No.
123R) (now contained in FASB Codification Topic 718,
Compensation-Stock Compensation
), which supersedes APB Opinion No.
25, “Accounting for Stock Issued to Employees,” and its related implementation guidance and eliminates the alternative
to use Opinion 25’s intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement
requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which
includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date (with limited
exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that
meets certain requirements. We use the Black-Scholes option-pricing model to estimate the fair value of our equity awards, including
stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated
may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition
and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions,
including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility
and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature
of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the “risk-free
interest rate,” we use the Constant Maturity Treasury rate on 90-day government securities. The term is equal to the time
until the option expires. The dividend yield is not applicable, as the Company has not paid any dividends, nor do we anticipate
paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading
common stock, on the grant date calculated using a 20-trading-day average. At the time of grant, the share-based compensation
expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee
attrition rates and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature
of the shares. The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.
We
re-evaluate the assumptions used to value our share-based awards on a six months ended June 30, 2019 basis and, if changes
warrant different assumptions, the share-based compensation expense could vary significantly from the amount expensed in the past.
We may be required to adjust any remaining share-based compensation expense, based on any additions, cancellations or adjustments
to the share-based awards. The expense is recognized over the period during which an employee is required to provide service in
exchange for the award—the requisite service period (usually the vesting period). No compensation cost is recognized for
equity instruments for which employees do not render the requisite service. For the three months ended June 30, 2019 and 2018
we had $0 and $91,140 respectively, in share-based expense, due to the issuance of common stock. As of June 30, 2019, we had no
further non-vested expense to be recognized.
Income
Taxes
Federal
Income taxes are not currently due since we have had losses since inception.
On
December 22, 2018 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant
changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”)
from 35% to 21% effective January 1, 2018. The Company will compute its income tax expense for the three months ended June 30,
2019 using a Federal Tax Rate of 21%.
Income
taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25
Income Taxes – Recognition.
Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between
the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded
against deferred tax assets if management does not believe the Company has met the “more likely than not” standard
required by ASC 740-10-25-5.
Deferred
income tax amounts reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax reporting purposes.
As
of June 30, 2019, we had a net operating loss carry-forward of approximately $(3,988,042) and a deferred tax asset of approximately
$837,489 using the statutory rate of 21%. The deferred tax asset may be recognized in future periods, not to exceed 20 years.
However, due to the uncertainty of future events we have booked valuation allowance of $(837,489). FASB ASC 740 prescribes recognition
threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. At June 30, 2019, the Company had not taken any tax positions that would require
disclosure under FASB ASC 740.
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
Deferred Tax Asset
|
|
$
|
837,489
|
|
|
$
|
515,944
|
|
Valuation
Allowance
|
|
|
(837,489
|
)
|
|
|
(515,944
|
)
|
Deferred Tax
Asset (Net)
|
|
$
|
-
|
|
|
$
|
-
|
|
On
February 13, 2018, Clean Energy Technologies, Inc., a Nevada corporation (the “Registrant” or “Corporation”)
entered into a Common Stock Purchase Agreement (“Stock Purchase Agreement”) by and between MGW Investment I Limited
(“MGWI”) and the Corporation. The Corporation received $907,388 in exchange for the issuance of 302,462,667 restricted
shares of the Corporation’s common stock, par value $.001 per share (the “Common Stock”).
This
resulted in a change in control, which limited the net operating to that date forward.
We
are subject to taxation in the U.S. and the state of California. Further, the Company currently has no open tax years’ subject
to audit prior to December 31, 2015. The Company is current on its federal and state tax returns.
Reclassification
Certain
amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications
had no effect on reported income, total assets, or stockholders’ equity as previously reported.
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 deficit of
$4,355,066 and an accumulated deficit of $(13,228,307) and a working capital deficit of $5,706,463 and a net loss of $1,568,572
for the six months ended June 30, 2019. 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.
NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
The
Company is reviewing the effects of following recent updates. The Company has no expectation that any of these items will have
a material effect upon the financial statements.
|
●
|
Update
2019-04—Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and
Hedging, and Topic 825, Financial Instruments
|
|
|
|
|
●
|
Update
2019-01—Leases (Topic 842): Codification Improvements
|
|
|
|
|
●
|
Update
2018-17—Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
|
|
|
|
|
●
|
Update
2018-13
—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for
Fair Value Measurement
|
|
|
|
|
●
|
Update
2018-08
—Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased
Callable Debt Securities
|
|
|
|
|
●
|
Update
2018-05
—Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying
the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
|
|
|
|
|
●
|
Update
2018-04
—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
|
|
|
|
|
●
|
Update
2018-03
—Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures
(Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2017 and November 17, 2017
EITF Meetings (SEC Update)
|
|
|
|
|
●
|
Update
2018-01
—Business Combinations (Topic 805): Clarifying the Definition of a Business
|
FASB
ASU 2016-02 “Leases (Topic 842)” –
In February 2016, the FASB issued ASU 2016-02, which requires lessees
to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes,
the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based
on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting
is similar to the current model, but has been updated to align with certain changes to the lessee model and the new revenue recognition
standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. We have adopted the above ASU as of January 1, 2019. The right of use asset and lease liability have been recorded at the
present value of the future minimum lease payments, utilizing a 5% average borrowing rate
and
the company is utilizing the transition relief and “running off” on current leases.
NOTE
3 – ACCOUNTS AND NOTES RECEIVABLE
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
Accounts Receivable Trade
|
|
$
|
703,502
|
|
|
$
|
781,845
|
|
Less Reserve
for uncollectable accounts
|
|
|
(57,000
|
)
|
|
|
(57,000
|
)
|
Accounts receivable
- net
|
|
$
|
646,502
|
|
|
$
|
724,845
|
|
NOTE
4 – INVENTORY
Inventories
by major classification were comprised of the following at:
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
Raw Material
|
|
$
|
946,559
|
|
|
$
|
952,214
|
|
Work in Process
|
|
|
70,971
|
|
|
|
9,680
|
|
Total
|
|
|
1,017,530
|
|
|
|
961,894
|
|
Less reserve
for excess or obsolete inventory
|
|
|
(250,000
|
)
|
|
|
(250,000
|
)
|
Total Inventory
|
|
$
|
767,530
|
|
|
$
|
711,894
|
|
NOTE
5 – PROPERTY AND EQUIPMENT
Property
and equipment were comprised of the following at:
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
Capital Equipment
|
|
$
|
1,342,794
|
|
|
$
|
1,342,794
|
|
Leasehold improvements
|
|
|
75,436
|
|
|
|
75,436
|
|
Accumulated
Depreciation
|
|
|
(1,339,792
|
)
|
|
|
(1,322,203
|
)
|
Property
and Equipment - Net
|
|
$
|
78,438
|
|
|
$
|
96,027
|
|
For
the six months ended June 30, 2019 we recognized depreciation expense in the amount of $17,586 and for the three months ended
June 30, 2019 we recognized depreciation expense in the amount of $8,793
NOTE
6 – INTANGIBLE ASSETS
Intangible
assets were comprised of the following at:
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
Goodwill
|
|
$
|
747,976
|
|
|
$
|
747,976
|
|
License
|
|
|
354,322
|
|
|
|
354,322
|
|
Patents
|
|
|
190,789
|
|
|
|
190,789
|
|
Accumulated
Amortization
|
|
|
(45,528
|
)
|
|
|
(39,590
|
)
|
Net Intangible
Assets
|
|
$
|
1,247,559
|
|
|
$
|
1,253,497
|
|
Our
Amortization Expense for the three months ended June 30, 2019 and 2018 was $2,969 and 2,969 respectively.
NOTE
7 – ACCRUED EXPENSES
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Accrued Wages
|
|
$
|
209,570
|
|
|
$
|
224,514
|
|
Accrued Interest
|
|
|
549,560
|
|
|
|
466,425
|
|
Accrued Interest Related party
|
|
|
192,495
|
|
|
|
123,394
|
|
Customer Deposit
|
|
|
309,230
|
|
|
|
365,815
|
|
Accrued Payable to GE - TSA
|
|
|
972,231
|
|
|
|
972,231
|
|
Accrued Rents
and Moving Expenses
|
|
|
123,626
|
|
|
|
123,626
|
|
|
|
$
|
2,356,712
|
|
|
$
|
2,276,005
|
|
NOTE
8 – NOTES PAYABLE
The
Company issued a short-term note payable to an individual, secured by the assets of the Company, dated September 6, 2013 in the
amount of $50,000 and fixed fee amount of $3,500. As of June 30, 2019 the outstanding balance was $38,500.
On
November 11, 2013, we entered in to an accounts receivable financing agreement with American Interbanc (now Nations Interbanc).
Amounts outstanding under the agreement bear interest at the rate of 2.5% per month. It is secured by the assets of the Company.
In addition, it is personally guaranteed by Kambiz Mahdi, our Chief Executive Officer. As of June 30, 2019, the outstanding balance
was $1,506,425.
On
September 11, 2015, our CE HRS subsidiary issued a promissory note in the initial principal amount $1,400,000 and assumed a pension
liability of $100,000, for a total liability of $1,500,000, in connection with our acquisition of the heat recovery solutions,
or HRS, assets of General Electric International, Inc., a Delaware corporation (“GEII”), including intellectual property,
patents, trademarks, machinery, equipment, tooling and fixtures. The note bears interest at the rate of 2.66% per annum. The note
is payable on the following schedule: (a) $200,000 in principal on December 31, 2015 and (b) thereafter, the remaining principal
amount of $1,200,000, together with interest thereon, payable in equal six months ended June 30, 2019 installments of
principal and interest of $157,609, commencing on December 31, 2016 and continuing until December 31, 2018 at which time the remaining
unpaid principal amount of this note and all accrued and unpaid interest thereon shall be due and payable in full
We
are currently in default on the payment of the purchase price pursuant to our asset purchase agreement with General Electric due
to a combination of our inability to raise sufficient capital as expected and our belief that we are entitled to a reduction in
purchase price we paid. We are in the process of negotiations with General Electric.
On
September 15, 2016, Meddy Sahebi, Chairman of our previous Board of Directors, advanced the Company $5,000. There were no specified
terms for repayment of this loan other than that it was to be repaid within a reasonable time. As of June 30, 2019 the outstanding
balance was $5,000.
On
June 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $250,000,
with an interest rate of Eight Percent (8%) per annum and a maturity date of June 21, 2019. On May 28, 2019 this note was paid
in full.
On
September 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $100,000,
with an interest rate of Eight Percent (8%) per annum and a maturity date of September 21, 2019. On May 28, 2019 this note was
paid in full.
On
January 10, 2019 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $25,000,
with an interest rate of Eight Percent (8%) per annum and a maturity date of January 10, 2020. On May 28, 2019 this note was paid
in full.
On
April 15, 2019 we received an advance from an un-related party for $40,000, this advance has no interest rate or repayment terms.
Convertible
notes
On
September 6, 2016, we entered into a one-year convertible note payable for $87,500, which accrues interest at the rate of 12%
per annum. It is not convertible until nine months after its issuance and has a conversion rate of fifty-five percent (55%) of
the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding
the date of conversion. On December 16, 2016 we issued 1,200,000 shares of common stock at $.0031 for a partial conversion of
this note in the amount of $3,696. January 4, 2018, we issued 2,300,000 shares of common stock at $.002192 for a partial conversion
of this note in the amount of $5,042.
On
November 2, 2016, we effected the repayment of the convertible note dated March 15, 2016 for an aggregate amount of $84,000. Concurrently,
we entered into an Escrow Funding Agreement with Red Dot Investment, Inc., a California corporation (“Reddot”), pursuant
to which Reddot deposited funds into escrow to fund the repayment and we assigned to Reddot our right to acquire the convertible
note and Reddot acquired the convertible note. Concurrently, we and Reddot amended the convertible note (a) to have a fixed conversion
price of $.005 per share, subject to potential further adjustment in the event of certain Common Stock issuances, (b) to have
a fixed interest rate of ten percent (10%) per annum with respect to both the redemption amount and including a financing fee
and any costs, expenses, or other fees relating to the convertible note or its enforcement and collection, and any other expense
for or on our account (in each case with a minimum 10% yield in the event of payoff or conversion within the first year), such
amounts to constitute additional principal under the convertible note, as amended, and (c) as otherwise provided in the Escrow
Funding Agreement. The March 2016 convertible note, as so amended, is referred to as the “Master Note.”
On
January 9, 2017, we effected the partial repayment of the convertible note dated July 6, 2016. The holder had elected to convert
$15,400 ($11,544 in principal and $3,855 in accrued interest) into a total of 7,000,000 shares of Common Stock. The conversion
left $66,205 remaining due and payable under the July 2016 convertible note and we paid the note holder a total of $89,401 in
repayment. On January 12, 2017, we effected the partial repayment of the convertible note dated September 6, 2016. The holder
had elected to retain $26,117 (consisting of $24,228 in principal and $1,899 in interest), leaving $60,941 remaining due and payable
under the September 2016 convertible note, which was satisfied and canceled in consideration of the payment to the note holder
of $97,506. On January 9, 2017, we effected the repayment in full of the convertible note dated August 12, 2016 through payment
to the note holder of a total of $89,401.
Concurrently
with the foregoing note repayments, we entered into a Credit Agreement and Promissory Note (the “Credit Agreement”)
with Megawell USA Technology Investment Fund I LLC, a Wyoming limited liability company in formation (“MW I”), pursuant
to which MW I deposited funds into escrow to fund the repayment of the convertible notes and we assigned to MW I our right to
acquire the convertible notes and otherwise agreed that MW I would be subrogated to the rights of each note holder to the extent
a note was repaid with funds advanced by MW I. Concurrently, MW I acquired the Master Note and we agreed that all amounts advanced
by MG I to or for our benefit would be governed by the terms of the Master Note, including the payment of a financing fees, interest,
minimum interest, and convertibility. Reddot is MW I’s agent for purposes of administration of the Credit Agreement and
the Master Note and advances thereunder.
The
foregoing summary descriptions of the Escrow Funding Agreement (including amendments to the Master Note), the Settlement Agreement,
and the Credit Agreement are not complete and are qualified in their entirety by reference to the full texts thereof, copies of
which were included as Exhibits 10.02 to our Current Report on Form 8-K dated October 31, 2016 and to Exhibits 10.01 and 10.02
to our Current Report on Form 8-K dated January 4, 2016. The foregoing summary description of the original Master Note is not
complete and is qualified in its entirety by reference to the full text thereof, a copy of which was included as Exhibit 10.03
to our Current Report on Form 8-K dated October 31, 2016.
On
May 5, 2017 we entered into a nine-month convertible note payable for $78,000, which accrues interest at the rate of 12% per annum.
It is not convertible until nine months after its issuance and has a conversion rate of ninety one percent (61%) of the lowest
closing bid price (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the
date of conversion. On November 6, 2017 this note was assumed and paid in full at a premium for a total of $116,600 by Cybernaut
Zfounder Ventures. An amended term were added to the original note with the interest rate of 14%. This note matured on February
21
st
of 2018 and is currently in default.
On
May 24, 2017 we entered into a nine-month convertible note payable for $32,000, which accrues interest at the rate of 12% per
annum. It is not convertible until nine months after its issuance and has a conversion rate of fifty-five eight percent (58%)
of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately
preceding the date of conversion. On November 6, 2017 this note was assumed and paid in full at a premium for a total of $95,685,
by Cybernaut Zfounder Ventures. An amended term was added to the original note with the interest rate of 14%. This note matured
on February 26
th
, 2018 and is currently in default.
On
August 17, 2017 we entered into a convertible note payable for $68,000, with a maturity date of May 30, 2018, which accrues interest
at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of fifty-eight
percent (58%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the fifteen
(15) Trading Days immediately preceding the date of conversion. This note was paid in full on February 15, 2018
On
July 25, 2017 we entered into a convertible note payable for $103,000, with a maturity date of April 25, 2018, which accrues interest
at the rate of 12% per annum. It is not convertible until nine months after its issuance and has a conversion rate of ninety percent
(60%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading
Days immediately preceding the date of conversion. This note was paid in full on February 15, 2018
On
February 13, 2018 the Corporation and Confections Ventures Limited. (“CVL”) entered into a Convertible Note Purchase
Agreement (the “Convertible Note Purchase Agreement,” together with the Stock Purchase Agreement and the transactions
contemplated thereunder, the “Financing”) pursuant to which the Corporation issued to CVL a convertible promissory
Note (the “CVL Note”) in the principal amount of $939,500 with an interest rate of 10% per annum interest rate and
a maturity date of February 13, 2020. The CVL Note is convertible into shares of Common Stock at $0.003 per share, as adjusted
as provided therein. As a result we recognized a beneficial conversion feature of $532,383, which is amortized over the life of
the note. This note was assigned to Mgw Investments and they agreed not to convert the $939,500 note in to shares in excess of
the 800,000,000 Authorized limit until we have increased the Authorized shares to the Board approved limit of 2 billion shares.
On
February 8, 2018 the Corporation entered a Convertible Promissory Note in the principal amount of $153,123, due October 8, 2018,
with an interest rate of 12% per annum payable to MGWI (the “MGWI Note”). The MGWI Note is convertible into shares
of the Corporation’s common stock at the lower of: (i) a 40% discount to the lowest trading price during the previous twenty
(20) trading days to the date of a Conversion Notice; or (ii) 0.003. As a result of the closing of the transactions contemplated
by the Stock Purchase Agreement and Convertible Note Purchase Agreement, the MGWI Note must be redeemed by the Corporation in
an amount that will permit CVL and MGWI and their affiliates to hold 65% of the issued and outstanding Common Stock of the Corporation
on a fully diluted basis. The proceeds from the MGWI Note were used to redeem the convertible note of the Corporation to JSJ Investments,
Inc. in the principal amount of $103,000 with an interest rate of 12% per annum, due April 25, 2018. At December 31, 2018 the
holder of this note beneficially owned 70% of the company and this note is not convertible if the holder holds more than 9.99%,
as a result, we did not recognize a derivative liability or a beneficial conversion feature.
On
December 13, 2018 we entered into a convertible note payable for $83,000, with a maturity date of December 13, 2019, which accrues
interest at the rate of 12% per annum. It is convertible six months after its issuance and has a conversion rate of fifty-eight
percent (65%) of the average of the two lowest trading prices (as reported by Bloomberg LP) of our common stock for the fifteen
(15) Trading Days immediately preceding the date of conversion. On May 28, 2019 this note was paid in full.
February
13, 2019 we entered into a convertible note payable for $138,000, with a maturity date of February 13, 2020, which accrues interest
at the rate of 12% per annum. It is convertible six months after its issuance and has a conversion rate of sixty-five percent
(65%) of the average of the two lowest closing prices (as reported by Bloomberg LP) of our common stock for the fifteen (15) Trading
Days immediately preceding the date of conversion.
On
January 10, 2019 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $25,000,
with an interest rate of Eight Percent (8%) per annum and a maturity date of January 10, 2020. On May 28, 2019 this note was paid
in full.
On
April 9, 2019 we entered into a convertible note payable for
$53,000, with a maturity date of April 9, 2020, which accrues interest at the rate of 12% per annum. It is convertible six months
after its issuance and has a conversion rate of sixty-five percent (65%) of the average of the two lowest closing prices (as reported
by Bloomberg LP) of our common stock for the fifteen (15) Trading Days immediately preceding the date of conversion.
Note
9 – Derivative Liabilities
As
a result of the convertible notes we recognized the embedded derivative liability on the date of note issuance. We also revalued
the remaining derivative liability on the outstanding note balance on the date of the balance sheet. We value the derivative liability
using a binomial lattice model with an expected volatility of 163% and a risk free interest rate of 2.09% The remaining derivative
liabilities were:
Derivative
Liabilities on Convertible Loans:
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance
|
|
$
|
544,522
|
|
|
$
|
245,988
|
|
NOTE
10 – COMMITMENTS AND CONTINGENCIES
The
company has received an invoice from Oberon Securities for $291,767 which is in dispute. The company believes it has defenses
to the claim for compensation and plans to assert appropriate counterclaims and actions as permitted by law. No liability has
been recorded for this claim as the Company believes there is a greater than not probability that our Company will prevail in
defending against the claim.
Operating
Rental Leases
On
March 10, 2016, we signed a lease agreement for a 18,200 square-foot CTU Industrial Building at 2990 Redhill Unit A, Costa Mesa,
CA. The lease term at the new facility is seven years and two months beginning October 1, 2016. In October of 2018 we signed a
sublease agreement with our facility in Italy with an indefinite term that may be terminated by either party with a 60 day notice
for 1,000 Euro per month. Due to the short termination clause, we are treating this as a month to month lease. Future minimum
lease payments for the years ended December 31, as follows:
Year
|
|
Lease
Payment
|
|
2019
|
|
$
|
101,870
|
|
2020
|
|
$
|
241,884
|
|
2021
|
|
$
|
249,132
|
|
2022
|
|
$
|
256,608
|
|
2023
|
|
$
|
44,052
|
|
Our
Rent expense including common area maintenance for the three months ended June 30, 2019 and 2018 was $80,818 and $68,346
respectively and for the six months ended June 30, 2019 and 2018 was $162,852 and $139,325 respectively.
Per
FASB ASU 2016-02 “Leases (Topic 842)” –
In February 2016, the FASB issued
ASU 2016-02, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease
liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating
or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but
without explicit bright lines. Lessor accounting is similar to the current model, but has been updated to align with certain
changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. We have adopted the above ASU as of January 1, 2019. We have
recorded a right of use asset of $917,097 and a corresponding lease liability of $917,097.
Severance
Benefits
Effective
at December 31, 2018, Mr. Bennett, was entitled to receive in the event of his termination without cause a severance benefit consisting
of a single lump sum cash payment equal the salary that Mr. Bennett would have been entitled to receive through the remainder
of his employment period or two (2) years, whichever is greater.
NOTE
11 – CAPITAL STOCK TRANSACTIONS
On
April 21, 2005, our Board of Directors and shareholders approved the re-domicile of the Company in the State of Nevada, in connection
with which we increased the number of our authorized common shares to 200,000,000 and designated a par value of $.001 per share.
On
May 25, 2006, our Board of Directors and shareholders approved an amendment to our Articles of Incorporation to authorize a new
series of preferred stock, designated as Series C, and consisting of 15,000 authorized shares.
On
, 2017, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 400,000,000
and in the number of our authorized preferred shares to 10,000,000. The amendment effecting the increase in our authorized capital
was filed and effective on July 5, 2017.
On
August 28, 2018, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to
800,000,000. The amendment effecting the increase in our authorized capital was filed and effective on August 23, 2018
On
April 30, 2019, by written consent, in lieu of a meeting of the stockholders; our Board of Directors and shareholders approved
an increase in the number of our authorized common shares to 2,000,000,000. The amendment effecting the increase in our authorized
capital was filed and effective on July 23, 2019
Common
Stock Transactions
On
February 13, 2018, Clean Energy Technologies, Inc., a Nevada corporation (the “Registrant” or “Corporation”)
entered into a Common Stock Purchase Agreement (“Stock Purchase Agreement”) by and between MGW Investment I Limited
(“MGWI”) and the Corporation. The Corporation received $907,377 in exchange for the issuance of 302,462,667 restricted
shares of the Corporation’s common stock, par value $.001 per share (the “Common Stock”), as disclosed on form
8K on February 15, 2018.
From
January 1 through September 30, 2018 we issued 26,054,672 for partial conversions of our convertible notes. We also issued 13,800,000
shares for additional compensation and 1,500,000 for consulting services.
On
October 9, 2018 we issued 884,195 shares @ .04 for payment of an accounts payable in the amount of $35,367.
On
February 13, 2019 we issued 20,000,000 @ $.0131 to Kambiz Mahdi our CEO as additional compensation accrued for in 2018 in the
amount of $262,000.
In
the first quarter of
2019, we signed agreements to issue
4,000,000 shares of common stock valued at $.015 for a total value of $60,000 for the conversion of 800 preferred
series D shares, which were subsequently issued. We also recorded a $60,000 inducement fee to account for the difference in
the fair value which we offset to retained earnings.
On
May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a
“Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200,
or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”)
and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such
time as the Company increases the number of shares of its authorized Common Stock. The Warrant is exercisable at $.04 per share
of Common Stock and expires one year from the date of the Agreement.
During
the quarter ended June 30, 2019 we returned 75,000 from an administrative hold due to the fact that we cannot locate the recipients
to the replaced shares.
On
June 10, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000
in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of
Common Stock and expires one year from the date of the Agreement.
Subsequently
on July 18, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of
$10,000 in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per
share of Common Stock and expires one year from the date of the Agreement.
Common
Stock
Our
Articles of Incorporation authorize us to issue 2,000,000,000 shares of common stock, par value $0.001 per share. As of June 30,
2018, there were 580,157,656 shares of common stock outstanding. All outstanding shares of common stock are, and the common stock
to be issued will be, fully paid and non-assessable. Each share of our common stock has identical rights and privileges in every
respect. The holders of our common stock are entitled to vote upon all matters submitted to a vote of our shareholders and are
entitled to one vote for each share of common stock held. There are no cumulative voting rights.
The
holders of our common stock are entitled to share equally in dividends and other distributions that our Board of Directors may
declare from time to time out of funds legally available for that purpose, if any, after the satisfaction of any prior rights
and preferences of any outstanding preferred stock. If we liquidate, dissolve or wind up, the holders of common stock shares will
be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction
of all our liabilities and our obligations to holders of our outstanding preferred stock.
Preferred
Stock
Our
Articles of Incorporation authorize us to issue 10,000,000 shares of preferred stock, par value $0.001 per share. Our Board of
Directors has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the
designation of and number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers,
privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the
qualifications, limitations or restrictions of the shares of each such series.
Unless
our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the
payment of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may
have the effect of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance
of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock
or could adversely affect the rights and powers, including voting rights, of the holders of common stock.
We
previously authorized 440 shares of Series A Convertible Preferred Stock, 20,000 shares of Series B Convertible Preferred Stock,
and 15,000 shares Series C Convertible Preferred Stock. As of August 20, 2006, all series A, B, and C preferred had been converted
into common stock.
Effective
August 7, 2013, our Board of Directors designated a series of our preferred stock as Series D Preferred Stock, authorizing 15,000
shares. Our Series D Preferred Stock offering terms authorized us to raise up to $1,000,000 with an over-allotment of $500,000
in multiple closings over the course of six months. We received an aggregate of $750,000 in financing in subscription for Series
D Preferred Stock, or 7,500 shares.
The
following are primary terms of the Series D Preferred Stock. The Series D Preferred holders were initially entitled to be paid
a special monthly divided at the rate of 17.5% per annum. Initially, the Series D Preferred Stock was also entitled to be paid
special dividends in the event cash dividends were not paid when scheduled. If the Company does not pay the dividend within five
(5) business days from the end of the calendar month for which the payment of such dividend to owed, the Company will pay the
investor a special dividend of an additional 3.5%. Any unpaid or accrued special dividends will be paid upon a liquidation or
redemption. For any other dividends or distributions, the Series D Preferred Stock participates with common stock on an as-converted
basis. The Series D Preferred holders may elect to convert the Series D Preferred Stock, in their sole discretion, at any time
after a one year (1) year holding period, by sending the Company a notice to convert. The conversion rate is equal to the greater
of $0.08 or a 20% discount to the average of the three (3) lowest closing market prices of the common stock during the ten (10)
trading day period prior to conversion. The Series D Preferred Stock is redeemable from funds legally available for distribution
at the option of the individual holders of the Series D Preferred Stock commencing any time after the one (1) year period from
the offering closing at a price equal to the initial purchase price plus all accrued but unpaid dividends, provided, that if the
Company gave notice to the investors that it was not in a financial position to redeem the Series D Preferred, the Company and
the Series D Preferred holders are obligated to negotiate in good faith for an extension of the redemption period. The Company
timely notified the investors that it was not in a financial position to redeem the Series D Preferred and the Company and the
investors have engaged in ongoing negotiations to determine an appropriate extension period. The Company may elect to redeem the
Series D Preferred Stock any time at a price equal to initial purchase price plus all accrued but unpaid dividends, subject to
the investors’ right to convert, by providing written notice about its intent to redeem. Each investor has the right to
convert the Series D Preferred Stock at least ten (10) days prior to such redemption by the Company.
In
connection with the subscriptions for the Series D Preferred, we issued series F warrants to purchase an aggregate of 375,000
shares of our common stock at $.10 per share and series G warrants to purchase an aggregate of 375,000 shares of our common stock
at $.20 per share.
On
August 21, 2014, a holder holding 5,000 shares of Preferred Series D Preferred agreed to lower the dividend rate to 13% on its
Series D Preferred. In September 2015, all holders of Series D Preferred signed and delivered estoppel agreements, whereby the
holders agreed, among other things, that the Series D Preferred was not in default and to reduce (effective as of December 31,
2015) the dividend rate on the Series D Preferred Stock to six percent per annum and to terminate the 3.5% penalty in respect
of unpaid dividends accruing on or after such date.
In
the first quarter of 2019, we signed agreements to issue 4,000,000 shares of common stock valued at $.015 for a total value of
$60,000 for the conversion of 800 preferred series D shares, which were subsequently issued. We also recorded a $60,000 inducement
fee to account for the difference in the fair value which we offset to retained earnings. We also reclassed 200 preferred valued
at $20,000, which were previously recorded as converted preferred dividends.
Warrants
Warrant
Activity
On
May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a
“Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200,
or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”)
and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such
time as the Company increases the number of shares of its authorized Common Stock. The Warrant is exercisable at $.04 per share
of Common Stock and expires one year from the date of the Agreement. Of the $1,999,200 purchase price, we valued the warrants
portion at 1,066,520 and booked this amount to additional paid in capital.
On
June 10, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of $10,000
in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per share of
Common Stock and expires one year from the date of the Agreement.
Subsequently
on July 18, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price of
$10,000 in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04 per
share of Common Stock and expires one year from the date of the Agreement.
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Warrants
- Common Share Equivalents
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Weighted
Average Exercise price
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Warrants
exercisable - Common Share Equivalents
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Weighted
Average Exercise price
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Outstanding
December 31, 2018
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-
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$
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-
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-
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$
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-
|
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Issued
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168,500,000
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$
|
0.04
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|
|
|
168,500,000
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|
|
$
|
0.04
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|
Exercised
|
|
|
-
|
|
|
|
-
|
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|
-
|
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|
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Expired
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-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
June 30, 2019
|
|
|
168,500,000
|
|
|
$
|
0.04
|
|
|
|
168,500,000
|
|
|
$
|
0.04
|
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Stock
Options
As
of June 30, 2019, and December 31, 2018 there were no outstanding stock options
NOTE
12 – RELATED PARTY TRANSACTIONS
Kambiz
Mahdi, our Chief Executive Officer, owns Billet Electronics, which is distributor of electronic components. From time to time,
we purchase parts from Billet Electronics. In addition, Billet was a supplier of parts and had dealings with current and former
customers of the Company prior to joining the company. Our Board of Directors has approved the transactions between Billet Electronics
and the Company.
On
June 15, 2017 Meddy Sahebi Chairman of our Board of Directors advanced the Company $5,000. There were no specified terms for repayment
of this loan other than that it was to be repaid within a reasonable time. As of December 31, 2017, the outstanding balance was
$5,000. Mr. Sahebi resigned from the board of directors on February 8, 2018 .
Pursuant
to our 2017 Stock Compensation Program, effective July 1, 2017, we made the following stock option grants to members of our Board
of Directors: (a) we issued to each of our non-employee members of our Board of Directors first joining the Board in October 2015
and who had not received any compensation for serving as directors of the Company (five persons) options to purchase 150,000 shares
of our common stock with an exercise price of $.03 per share, the last sale price of our common stock on June 29, 2017 and (b)
we issued to each of our non-employee members of our Board of Directors currently serving on the Board (six persons) options to
purchase 300,000 shares of our common stock with an exercise price of $.03 per share. On the non-employee board members resigned,
as disclosed in our 8K filed on February 15, 2018. As a result, all remaining stock options were cancelled.
On
February 13, 2018 the Corporation and Confections Ventures Limited. (“CVL”) entered into a Convertible Note Purchase
Agreement (the “Convertible Note Purchase Agreement,” together with the Stock Purchase Agreement and the transactions
contemplated thereunder, the “Financing”) pursuant to which the Corporation issued to CVL a convertible promissory
Note (the “CVL Note”) in the principal amount of $939,500 with an interest rate of 10% per annum interest rate and
a maturity date of February 13, 2020. The CVL Note is convertible into shares of Common Stock at $0.003 per share, as adjusted
as provided therein. As a result we recognized a beneficial conversion feature of $532,383, which is amortized over the life of
the note. This note was assigned to Mgw Investments and they agreed not to convert the $939,500 note in to shares in excess of
the 800,000,000 Authorized limit until we have increased the Authorized shares to the Board approved limit of 2 billion shares.
On
February 8, 2018 the Corporation entered a Convertible Promissory Note in the principal amount of $153,123, due October 8, 2018,
with an interest rate of 12% per annum payable to MGWI (the “MGWI Note”). The MGWI Note is convertible into shares
of the Corporation’s common stock at the lower of: (i) a 40% discount to the lowest trading price during the previous twenty
(20) trading days to the date of a Conversion Notice; or (ii) 0.003. As a result of the closing of the transactions contemplated
by the Stock Purchase Agreement and Convertible Note Purchase Agreement, the MGWI Note must be redeemed by the Corporation in
an amount that will permit CVL and MGWI and their affiliates to hold 65% of the issued and outstanding Common Stock of the Corporation
on a fully diluted basis. The proceeds from the MGWI Note were used to redeem the convertible note of the Corporation to JSJ Investments,
Inc. in the principal amount of $103,000 with an interest rate of 12% per annum, due April 25, 2018. At December 31, 2018 the
holder of this note beneficially owned 70% of the company and this note is not convertible if the holder holds more than 9.99%,
as a result, we did not recognize a derivative liability or a beneficial conversion feature.
On
June 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $250,000,
with an interest rate of Eight Percent (8%) per annum and a maturity date of June 21, 2019. On May 28, 2019 this note was paid
in full.
On
September 21, 2018 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $100,000,
with an interest rate of Eight Percent (8%) per annum and a maturity date of September 21, 2019. On May 28, 2019 this note was
paid in full.
On
February 15, 2018 we issued 9,200,000 @ .0053 as additional compensation in the amount of $48,760.
On
October 18, 2018 we entered into a 1 year employment agreement with Kambiz Mahdi our CEO, as part of the agreement Mr. Mahdi was
to be issued 20,000,000 shares of our common stock, as additional compensation. As a result; for the year ended December 31, 2018
we accrued for and subsequently on February 13, 2019, issued 20,000,000 shares @ $.0131 to Mr. Mahdi in the amount of $262,000.
On
January 10, 2019 the corporation entered into a promissory note with MGW Investment I Limited, for the principal amount of $25,000,
with an interest rate of Eight Percent (8%) per annum and a maturity date of January 10, 2020. On May 28, 2019 this note was paid
in full.
On
May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a
“Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200,
or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”)
and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such
time as the Company increases the number of shares of its authorized Common Stock. The Warrant is exercisable at $.04 per share
of Common Stock and expires one year from the date of the Agreement. Of the $1,999,200 purchase price, we valued the warrants
portion at 1,066,520 and booked this amount to additional paid in capital.
Note
13 - Warranty Liability
There
was no change in our warranty liability for the three and three months ended June 30, 2019.
Our
policy is to accrue 2% of revenue for warranty liability, however our experience has been low due to the claim experience that
we feel that the current warranty accrual is reasonable.
NOTE
14 – SUBSEQUENT EVENTS
On
July 19, 2019 we issued 500,000 shares of common stock at $.02 per share to an accredited investor for an aggregate price
of $10,000 in a private sale. We also issued 500,000 warrants as part of the transaction. Each Warrant is exercisable at $.04
per share of Common Stock and expires one year from the date of the Agreement.
On
April 30, 2019, by written consent, in lieu of a meeting of the stockholders; our Board of Directors and shareholders approved
an increase in the number of our authorized common shares to 2,000,000,000. The amendment effecting the increase in our authorized
capital was filed and effective on July 23, 2019.
On
May 31, 2019, we entered into a subscription agreement pursuant to which the Company agreed to sell 168,000,000 units (each a
“Unit” and together the “Units”) to MGW Investment I Limited MGWI for an aggregate purchase price of $1,999,200,
or $.0119 per Unit, with each unit consisting of one share of common stock, par value $.001 per share (the “Common Stock”)
and a warrant (the “Warrant”) to purchase one share of common stock. The Common Stock will be issued to MGWI at such
time as the Company increases the number of shares of its authorized Common Stock. The Warrant is exercisable at $.04 per share
of Common Stock and expires one year from the date of the Agreement. Of the $1,999,200 purchase price, we valued the warrants
portion at 1,066,520 and booked this amount to additional paid in capital. These shares were issued on August 15, 2019.
In
accordance with ASC 855, the Company has analyzed its operations subsequent to June 30, 2019 through the date these financial
statements were issued, and has determined that it does not have any other material subsequent events to disclose in these financial
statements.