XML 33 R22.htm IDEA: XBRL DOCUMENT v3.19.2
Basis of Presentation and Summary of Significant Accounting Policies (Policies)
 6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Estimates

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

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

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

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

 

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

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

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

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

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

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

Research and Development

 

We had no amounts of research and development expense during the three months ended June 30, 2019 and 2018.
Segment Disclosure

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

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

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

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

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.