UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)


[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



 


  For the quarterly period ended: September 30, 2016

 



 

or

 



 

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 



 

      For the transition period from

 to

 


Commission File Number: 000-55656




CLEAN ENERGY TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



Nevada

20-2675800

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)



2990 Redhill Avenue, Costa Mesa, CA

92626

(Address of principal executive offices)



(949) 273-4990

(Registrant s telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [X] Yes [  ] No


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.  (check one)


Large accelerated filer [  ]

 


 

Accelerated filer                          [   ]

 


Non-accelerated filer    [  ]

 

 (Do not check if a smaller reporting company)

 

Smaller reporting company         [X]

 




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       

[  ]Yes [X] No


    As of November 15, 2016, there were 153,978,083 shares of the Registrant s $0.001 par value common stock issued and outstanding.





Page 2 of 35

CLEAN ENERGY TECHNOLOGIES, INC.

(A Nevada Corporation)


TABLE OF CONTENTS

 

 


Page

PART I. FINANCIAL INFORMATION





ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

4




ITEM 2.

  MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

17




ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

18




ITEM 4.

CONTROLS AND PROCEDURES    

18






PART II. OTHER INFORMATION





ITEM 1.

LEGAL PROCEEDINGS

20




ITEM 1A.

RISK FACTORS

20




ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

20




ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

20




ITEM 4.

MINE SAFETY DISCLOSURES

20




ITEM 5.

OTHER INFORMATION

20




ITEM 6.

EXHIBITS

20























Page 3 of 35

Special Note Regarding Forward-Looking Statements

Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ( Securities Act ), and Section 21E of the Securities Exchange Act of 1934, as amended ( Exchange Act ).  This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Clean Energy Technologies, Inc. (the Company ), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.  Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words may, will, should, expect, anticipate, estimate, believe, intend, or project or the negative of these words or other variations on these words or comparable terminology.  These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that possible future events included in these forward-looking statements will come to pass.  Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of numerous factors, including the Risk Factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the U.S. Securities and Exchange Commission.  Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.


* Please note that throughout this Quarterly Report, and except as otherwise indicated by the context, references in this report to Company, CETY, PMFI, Probe, Clean Energy, we, us, and our are references to Clean Energy Technologies, Inc., (f/k/a Probe Manufacturing Inc. ).   All references to USD or United States Dollars refer to the legal currency of the United States of America.




































Page 4 of 35

Part I Financial Information


Item 1. Consolidated Financial Statements




Clean Energy Technologies, Inc.


As of and for the three and nine months ended September 30, 2016

(Unaudited)


Financial Statement Index


Consolidated Balance Sheets as of September 30, 2016 (unaudited)

and December 31, 2015 (audited)

6


Consolidated Statements of Operations (unaudited)

7


Consolidated Statements of Cash Flows (unaudited)

8


Notes to the Consolidated Financial Statements (unaudited)

9





























Clean Energy Technologies, Inc.

Consolidated Balance Sheet





(unaudited)




September 30,

December 31,



2016

2015

Assets



Current Assets:




 Cash

 $                           299

 $                        4,196


Accounts receivable - net

                       501,858

                       474,699


Inventory

                    1,013,820

                    1,207,409


Total Current Assets

                    1,515,977

                    1,686,304

Property and Equipment - Net

                       230,514

                       215,755






Goodwill

                       747,976

                       747,976


License

                       354,322

                       354,322


Patents

                       177,880

                       186,813


Other Assets

                         53,793

                         57,708

Total Assets

 $                 3,080,462

 $                 3,248,878





Liabilities and Stockholders' (Deficit)



Current Liabilities:




Bank Overdraft

 $                        8,596

 $                              -   


Accounts payable - trade

                       866,154

                       609,407


Accrued Expenses

                    1,774,782

                    1,412,742


Accrued Expenses Related party

                       103,417

                       143,038


Warranty Liability

                       241,612

                       241,612


Derivative Liability

                         56,550

                                 -   


Notes Payable - Current

                    1,499,097

                    1,291,922


Total Current Liabilities

                    4,550,208

                    3,698,721

Long-Term Debt:




Notes Payable

                       800,000

                       800,000


Net Long-Term Debt

                       800,000

                       800,000

Total Liabilities

                    5,350,208

                    4,498,721






Commitments and contingencies

 $                              -   

 $                              -   





Stockholders' (Deficit)




Preferred D stock, stated value $100 per share; 15,000 shares authorized; 7,500 shares and 7,500 shares issued and outstanding respectively

                       750,000

                       750,000


Common stock, $.001 par value; 400,000,000 shares authorized; 143,478,083 and 139,446,765 shares issued and outstanding respectively

                       143,479

                       139,448


Additional paid-in capital

                    2,924,823

                    2,736,480


Treasury Stock

                             (633)

                             (633)


Accumulated deficit

                   (6,087,415)

                   (4,875,138)


Total Stockholders'  (Deficit)

                   (2,269,746)

                   (1,249,843)

Total Liabilities and Stockholders' Deficit

 $                 3,080,462

 $                 3,248,878




Page 6 of 35

The accompanying footnotes are an integral part of these financial statements



Clean Energy Technologies, Inc.

Consolidated Statement of Operations

For the three and nine months ended September 30,
(Unaudited)



three months ended September 30,

nine months ended September 30,


2016

2015

2016

2015

Sales

 $           280,299

 $           235,838

 $        1,687,656

 $        1,848,854

Cost of Goods Sold

              199,943

              188,250

              906,612

           1,212,969

Gross Profit

                80,356

                47,588

              781,044

              635,885

 





General and Administrative

              205,381

              233,554

              539,669

              397,421

 Salaries

              203,002

              159,257

              628,856

              457,539

 Moving Expense

                  2,194

                31,492

                77,202

                31,492

 Professional fees

                65,927

                  5,961

              137,996

                44,584

 Rent

                20,830

                24,905

              173,774

              126,523

Share Based Expense

                85,347

                66,250

              101,347

                73,450

Total Expenses

              582,681

              521,419

           1,658,844

           1,131,009

Net Profit / (Loss) From Operations

            (502,325)

            (473,831)

            (877,800)

            (495,124)






Loss on disposal of fixed assets

                       -   

                       -   

              (41,459)

                       -   

Loss on derivative liability

              (96,923)

                       -   

              (96,923)

                       -   

Change in derivative liability

                40,373

                       -   

                40,373

                       -   

Interest Expense

              (44,157)

              (69,379)

            (236,466)

            (229,959)

Net Profit / (Loss) Before Income Taxes

            (603,032)

            (543,210)

         (1,212,275)

            (725,083)

Income Tax Expense

                         -

                         -

                         -

                         -

Net Profit / (Loss)

 $         (603,032)

 $         (543,210)

 $      (1,212,275)

 $         (725,083)






Per Share Information:





Basic and diluted weighted average number





of common shares outstanding

       141,436,164

         33,344,054

       140,347,605

         32,667,452






Net Profit / (Loss) per common share basic and diluted

                  (0.00)

                  (0.02)

                  (0.01)

                  (0.02)


The accompanying footnotes are an integral part of these financial statements



Clean Energy Technologies, Inc.

Consolidated Statements of Cash Flows

for the nine months ended September 30,
(Unaudited)





2016

2015

Cash Flows from Operating Activities:



Net Income / (Loss)

 $           (1,212,275)

 $              (725,083)

Adjustments to reconcile net loss to net cash



used in operating activities:



Depreciation and amortization

                     41,977

                     23,926

Share based compensation

                   101,347

                     73,450

Loss on disposal of fixed assets

                     41,459

                            -   

Loss on derivative liability

                     56,550

                            -   

Changes in assets and liabilities:



(Increase) decrease in accounts receivable

                   (27,159)

                 (123,294)

(Increase) decrease in inventory

                   193,585

                 (755,274)

(Increase) decrease in other assets

                       3,915

                     24,260

(Decrease) increase in accounts payable

                   256,747

                   (32,671)

(Decrease) increase in warranty liability

                            -   

                   241,612

Other (Decrease) increase in accrued expenses

                   389,784

                   178,872

Net Cash provided / (Used) In Operating Activities

                 (154,070)

              (1,094,202)




Cash Flows from Investing Activities



Purchase property plant and equipment

                   (89,262)

                 (130,887)

Purchase license

                            -   

                 (545,112)

Cash Flows Used In Investing Activities

                   (89,262)

                 (675,999)




Cash Flows from Financing Activities



Bank Overdraft / (Repayment)

                       8,596

                   (48,744)

(Decrease) increase in advances line of credit

                            -   

                   301,327

Proceeds from sale of common stock

                            -   

                     71,000

Proceeds from notes payable

                   395,512

                1,500,000

(Payments) on notes payable

                 (164,673)

                   (80,064)

Cash Flows Provided / (used) By Financing Activities

                   239,435

                1,743,519




Net (Decrease) Increase in Cash and Cash Equivalents

                     (3,897)

                   (26,682)

Cash and Cash Equivalents at Beginning of Period

                       4,196

                     27,241

Cash and Cash Equivalents at End of Period

 $                       299

 $                       559




Supplemental Information:



Interest Paid

 $                187,716

 $                160,281




Non-cash financing activity



  Accounts receivable acquired with notes payable

 $                         -   

 $                217,584

  Inventory acquired with notes payable

 $                         -   

 $                848,029

  Property acquired with notes payable

 $                         -   

 $                130,887

  License acquired with notes payable

 $                         -   

 $                545,112




Page 9 of 35

The accompanying footnotes are an integral part of these financial statements




Page 10 of 35

Clean Energy Technologies, Inc.

(f/k/a Probe Manufacturing, Inc.)

 Notes to Consolidated Financial Statements (Unaudited)

 

Notes 1- GENERAL


Business Overview

We design, build, and market clean energy products focused on energy efficiency and environmentally sustainable technologies and we perform electronics manufacturing services for third parties.  Our principal products are based upon the Clean Cycle heat recovery system, offered by our wholly owned subsidiary Clean Energy HRS LLC.  Our Clean Cycle captures waste heat from a variety of sources and turns it into electricity that users can use, store, or export, such as to an external or utility power grid.  The proven, cutting-edge Clean Cycle technology allows commercial and industrial heat generators or sources to boost their overall energy efficiency with no additional fuel, no pollutants, and virtually no maintenance.  The engineering and manufacturing resources from our electronics manufacturing services business support our heat recovery solutions business.  We intend also to leverage these capabilities to identify and exploit other clean energy technologies and opportunities.

The Clean Cycle heat recovery solution is an Organic Rankine Cycle, or ORC, system.  An ORC system is a closed-loop heat recovery steam generator system, sometimes referred to as an HRS or an HRSG, that utilizes heat from a heat source, such as an existing power generation system, to heat a fluid to produce steam.  The steam then passes through a turbine generator, and turbine generator converts the kinetic energy in the steam to produce electrical energy, which can be used, stored, or exported.  The ORC cycle then recycles and further cools the fluid medium to again use heat from the external heat source to continue the power-generation cycle.  

The technology at the heart of the Clean Cycle is a magnetic levitation bearing generator, which requires no oil or other lubricants and has no gear box.  The turbine generator and related power management electronics are what convert the kinetic energy in the steam cycle into electrical energy.  There are over 100 Clean Cycle HRS units installed globally with more than one million fleet operating hours in diesel, gas, and biomass applications. 

The magnetic levitation bearing generator technology was originally developed by Calnetix, Inc.  General Electric International, Inc. acquired the rights to the technology in certain applications from Calnetix in 2010.  In September 2015, our CE HRS subsidiary acquired General Electric s rights to the technology in those applications, together with General Electric s related HRS technology and improvements, pursuant to an Asset Purchase Agreement with General Electric International, Inc. and General Electric Company that was filed as Exhibit 10.1 to the Company s Current Report on Form 8K dated September 11, 2015 and a concurrent Transaction Completion and Financing Agreement with ETI Partners IV, LLC.  CE HRS made an initial purchase price payment of $300,000 at closing and issued a three-year $1.2 million promissory note to GEII with respect to payment of the balance of the cash portion of the purchase price.  CE HRS also assumed certain liabilities of GEII related to the acquired assets.  In connection with the Asset Purchase Agreement, the Company also entered into various ancillary agreements customary for asset acquisition transactions of this type.  Pursuant to the companion Transaction Completion and Financing Agreement facilitating our acquisition of the GE HRS assets, we issued 100,910,321 restricted shares of our common stock to ETI Partners IV, LLC (representing approximately 70% of the post-acquisition outstanding common stock).  Concurrently, we entered into a Loan, Guarantee, and Collateral Agreement and a Registration Rights Agreement with ETI Partners IV, LLC to provide a framework for further financing in the Company.  

Pursuant to our license agreement with Calnetix (which General Electric assigned to us in connection with the Asset Purchase Agreement), we market and sell our Clean Cycle products world-wide to ORC-based application where heat is sourced from reciprocating combustion engines, of any type (other than those employed on transiting marine vessels), gas or steam turbine systems used for power generation, and biomass boiler systems.  Our rights in these applications are exclusive.  We also market our Clean Cycle products world-wide on a non-exclusive basis in the following applications, whether or not ORC-based:  reciprocating combustion engines, of any type (except those employed on transiting marine vessels or in the automotive application for cars, trucks, and other motor vehicles); gas or steam turbine systems with an ISO rated power



Page 11 of 35

output above one megawatt (1 MW); and applications that use biomass as a source of heat.  We have also periodically negotiated to obtain additional non-exclusive marketing rights to the technology from Calnetix as commercial opportunities have arisen that are not in conflict with other licensees of Calnetix.  

Our growth strategy is to scale up our business by focusing on the significant installed base of power generation and biomass boiler systems ideally suited to ORC-based heat recovery systems, exploiting market segments and regions where there are significantly high electricity prices, and identifying and exploiting incentive markets as they are available.  We sell equipment and complete heat recovery systems globally directly to end customers and also through distributors.  We also commercialize our heat recovery systems through lease and energy-based programs where appropriate.   We are also developing technology co-ventures with owners of compatible power generation technology to develop integrated energy production systems to exploit additional potential customers.

The GE HRS asset acquisition and related financing transactions resulted in a change of control of the Company according to FASB No. 2014-17 Business Combinations (Topic 805).  As a result, the transactions qualify as a business combination.  In accordance with Topic 805, the Company elected to apply pushdown accounting, using the valuation date of September 30, 2015.  As a result we recognized $747,976 in goodwill.


ETI Recognized


Assets Acquired

       2,949,592

Liabilities Acquired

       3,589,558

Cash paid

          300,000

Non-controlling interest

          191,990

Goodwill recognized

          747,976





CETY - Push down accounting election


Cash Received

          300,000

Goodwill recognized

          747,976

Equity

       1,047,976


Following completion of the acquisition and integration of the GE HRS into our business, on November 13, 2015 we changed our name to Clean Energy Technologies, Inc. to better reflect the focus of our new business and business strategies.

Previously, in March 2013, we acquired 100% of the issued and outstanding common stock of Trident Manufacturing, Inc., a Utah corporation engaged in electronics manufacturing services focused on industrial, aerospace, military, instrumentation, and medical markets, in exchange for 1,600,000 restricted shares of our common stock.  As of the Trident acquisition, we recognized $420,673 in goodwill.  For the year ended December 31, 2015, we impaired the goodwill in the amount of $420,673.




Page 12 of 35

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 $2,269,746 and a working capital deficit of $3,034,231 as of September 30, 2016. The company also had an accumulated deficit of $6,087,415 as of September 30, 2016. 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 a profitable operating stand 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.

Plan of Operation

Management is taking the following steps to sustain profitability and growth: (i) pursuing increased sales through existing global distribution channels and utilization of direct sales; (ii) pursuing lease and energy-based contracts with customers, including targeted island or isolated locations where the economics, energy production, and emissions reduction profiles are attractive; (iii) pursuing stable and higher-margin electronics manufacturing services contracts where the terms are favorable to the Company; (iv) arranging financing partnerships and relationships to facilitate increased lease and energy-based commercialization of our HRS products; (v) leveraging core competencies to acquire or integrate other technologies and entertain equity opportunities; and (vi) pursuing licenses of our patented technology and proprietary processes and developing cogeneration and OEM opportunities.

Our future success is likely dependent on our ability to sustain profitable growth and attain additional capital to support growth. There can be no assurance that we will be successful in obtaining any such financing, or that it will be able to generate sufficient positive cash flow from operations.  The successful outcome of these or any future activities cannot be determined at this time and there is no assurance that if achieved, we will have sufficient funds to execute its business plans. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.   

Our Products and Services

Our main product, the Clean Cycle HRS system, converts heat from variety of heat sources into clean, affordable electricity. Our heat recovery solution system generates electricity from heat with zero additional fuel required, zero additional emissions produced, and low maintenance.  The Clean Cycle HRS system is also re-deployable with continuous 24x7 operation.

Sales and Marketing

Our marketing approach is to position the Company, our products and our services under our new Clean Energy Technologies, Inc. and CETY identity and brand.  We intend to market our Heat Recovery Solutions products specifically using the market-recognized Clean Cycle brand name.  We also intend to utilize our relationships to identify new market segments and regions in which we can expand the commercialization of our products.  We intend to offer our products for sale and also to commercialize them under leases, energy-based contracts and other financing structures to accelerate customer adoption and increase market penetration.  We also intend to explore licensing opportunities for our patented and other proprietary technologies. We utilize both direct sales force and global distributors with expertise in clean energy.

Corporate Information

We were originally incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc.  We reincorporated in Nevada in April 2005 under the name Probe Manufacturing, Inc.  In November 2015, following our acquisition of heat recovery solutions assets from General Electric, we changed our name to Clean Energy Technologies, Inc.  Our principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626.  Our telephone number is (949) 273-4990.  Our common stock is listed on the OTC Market Group s Pink Open Market under the symbol CETY.  



Page 13 of 35

Our internet website address is www.cetyinc.com .  The information contained on our website is not incorporated by reference into this document, and you should not consider any information contained on, or that can be accessed through, our website as part of this document.  

NOTE 2 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The summary of significant accounting policies of Clean Energy Technologies, Inc. (formerly Probe Manufacturing, 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.

The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines.  The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the instructions to Form 10Q.  They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2015 included in the Company s Annual Report on Form 10-K filed with the Securities and Exchange Commission.  The interim unaudited financial statements should be read in conjunction with those financial statements included in the Annual Report on Form 10K.  In the opinion of management, all adjustments considered necessary for a fair presentation, which unless otherwise disclosed herein, consisting primarily of normal recurring adjustments, have been made. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

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 December 31, 2015 and September 30, 2016, we had a reserve for potentially un-collectable accounts of $7,000.  Five (5) customers accounted for approximately 93% of accounts receivable at September 30, 2016 and one customer accounted for 28% and no other customer accounted for more than 10% of the accounts receivable balance. 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



Page 14 of 35

provisions are made. Any inventory write offs are charged to the reserve account. As of September 30, 2016 and December 31, 2015, 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

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 from product and services are recognized at the time goods are shipped or services are provided to the customer, with an appropriate provision for returns and allowances. Terms are generally FOB origination with the right of inspection and acceptance. We have not experienced a material amount of rejected or damaged product.

The Company provides services for its customers that range from contract design to original product design to repair services. The Company recognizes service revenue when the services have been performed, and the related costs are expensed as incurred.

Fair Value of Financial Instruments

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 September 30, 2016, we had outstanding common shares of 143,478,083 used in the calculation of basic earnings per share.  Basic Weighted average common shares and equivalents for the nine months ended September 30, 2016 and 2015 were 140,347,605 and 32,667,452 respectively.  As of September 30, 2016, we had outstanding warrants to purchase 750,000 additional common shares and options to purchase 2,625,122 additional common shares. Fully diluted weighted average common shares and equivalents for the three months ended September 30, 2016 were 143,794,838 and 32,847,574 for the same period in 2015, however were withheld from the calculation, as they were considered anti-dilutive. 

Research and Development

Research and development costs incurred in association with the alternative fuels technology development (which include salaries and equipment) were expensed as incurred.  We had no amounts of research and development R&D during the nine months ended September 30, 2016 and 2015. 

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 two reportable



Page 15 of 35

segments: Clean Energy HRS(HRS) and the legacy electronic manufacturing services division. 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. Prior to March 31, 2016 we only had one reporting segment.

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 :


 nine

 months ended


September 30, 2016

 Net Sales


 Electronics Assembly

 $                  856,285

 Clean Energy HRS

                     831,371

 Total Sales

     $               1,687,656



 Segment income and reconciliation before tax


 Electronics Assembly

  $                 100,294

 Clean Energy HRS

                     680,750  

 Total Segment income

                     781,044



 Reconciling items


 General and Administrative  

                  (1,544,921)

 Share Based Expense

                     (101,347)

 Loss on disposal of fixed assets

                      (41,459)

Loss on Derivative liability

                      (96,923)

Change in derivative liability

                        40,373

 Interest expense

                     (236,466)

 Net Loss before income tax

 $               (1,212,275)






September 30, 2016

 Total Assets


 Electronics Assembly

 $               1,382,398

 Clean Energy HRS

                  1,698,064


 $               3,080,462  


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



Page 16 of 35

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 quarterly 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 nine months ended September 30, 2016 and 2015 we had $101,347 and $73,450 respectively, in share based expense, due to the issuance of common stock.  As of September 30, 2016 we had no further non-vested expense to be recognized. 

Income Taxes

The Company accounts for income taxes under SFAS No. 109 (now contained in FASB Codification Topic 740-10-25, Accounting for Uncertainty in Income Taxes), which requires the asset and liability approach to accounting for income taxes.  Under this method, deferred tax assets and liabilities are measured based on differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. As of September 30, 2016, we had a net operating loss carry-forward of approximately $(6,087,415) and a deferred tax asset of approximately $2,069,721 using the statutory rate of 34%. 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 $(2,069,721).  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 September 30, 2016 the Company had not taken any tax positions that would require disclosure under FASB ASC 740.



September 30, 2016

December 31, 2015

Deferred Tax Asset

 $ 2,069,721 

 $ 1,731,293 

Valuation Allowance

  (2,069,721)

  (1,731,293)

Deferred Tax Asset (Net)

$                            -

$                            -


On September 15, 2015, the Company entered into a Transaction Completion and Financing Agreement  with ETI Partners IV LLC, and Company agreed to issue to ETI 100,910,321 shares of restricted common stock, representing 70% of the fully diluted common stock of the Company.  This resulted in a change in control.  We are in the process of analyzing the effect on the deferred tax asset and the numbers above may change as a result, however the Deferred Tax Asset (net) will remain unchanged.

We are subject to taxation in the U.S. and the states of California and Utah. Further, the Company currently has no open tax years subject to audit prior to December 31, 2013.  The Company is current on its federal and state tax returns.



Page 17 of 35

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.

Business Combination and Goodwill

On March 20, 2013, we completed the acquisition of Trident whereby we acquired 100% of the issued and outstanding common stock shares of Trident in exchange for 1,600,000 shares of our restricted shares of common stock. As a result of the acquisition, Trident has become a wholly-owned subsidiary of the Company. As a result, we recognized $420,673 in goodwill.  On January 2, 2016 we closed the Trident facility in Utah and as for the year ended December 31, 2015 we booked an impairment of the goodwill in the amount of $420,673.

Recently Issued Accounting Standards

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 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients

Update 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

Update 2016-09 Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

Update 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

Update 2016-07 Investments Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting

Update 2016-03 Intangibles Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (a consensus of the Private Company Council)

Update 2015-16 Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

Update 2015-15 Interest Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)

Update 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date

Update 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory

Update 2015-08 Business Combinations (Topic 805): Pushdown Accounting Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 (SEC Update)

Update No. 2015-03 Interest Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs

Update No. 2015-02 Consolidation (Topic 810): Amendments to the Consolidation Analysis.




Page 18 of 35

NOTE 3 ACCOUNTS AND NOTES RECEIVABLE 

  


September 30, 2016

December 31, 2015

Accounts Receivable

 $                       508,858

 $                         481,699

Less Reserve for uncollectable accounts

                             (7,000)

                             (7,000)

Accounts Receivable (Net)

  $                       501,858

 $                        474,699

 

NOTE 4 ASSET ACQUISITION

On September 11, 2015, we issued a promissory note in the initial principal amount of $1,400,000 and assumed a pension liability of $100,000, for a total liability of $1,500,000, in connection with the Company s acquisition from General Electric International, Inc., a Delaware corporation ( GEII ) of certain GEII s heat recovery solutions, or HRS, assets, including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures.


Acquired Assets


Inventory

 $            848,029

Leased asset

                217,584

Property and Equipment

                130,887

Intellectual Property

                545,112

Assumed warranty Liability

              (241,612)

Net Assets Acquired

 $         1,500,000






Page 19 of 35

NOTE 5 INVENTORY

 

Inventories by major classification were comprised of the following at:

  


September 30, 2016

December 31, 2015

Raw Material

$

1,173,275 

$

1,311,069 

Work in Process

88,263 

143,119 

Finished Goods

2,282 

3,221 

Total

1,263,790 

1,457,409 

Less reserve for excess or obsolete inventory

(250,000)

(250,000)

Total Inventory

$

1,013,820 

$

1,207,409 


NOTE 6 PROPERTY AND EQUIPMENT

 

Property and equipment were comprised of the following at:



















September 30, 2016

December 31, 2015

Capital Equipment

 $              1,809,132

 $              1,842,329

Leasehold improvements

                      75,436

                             -   

Accumulated Depreciation

                (1,654,054)

               (1,626,574)

Net Fixed Assets

 $                 230,514

 $                 215,755

 



 NOTE 7 ACCRUED EXPENSES


 

September 30, 2016

December 31, 2015




Accrued Wages

$                      506,702                        

  $                     339,329

Accrued Interest

233,811

                         27,592

Customer Deposit

                           5,780

                       204,763

Accrued Payable to GE - Estimate

                       935,450

                       792,868

Accrued Rent

                         196,456

                         48,190

Total Accrued Expenses

$                    1,878,199

 $                   1,412,742


 

NOTE 8 NOTES PAYABLE  

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 September 30, 2016 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



Page 20 of 35

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 September 30, 2016, the outstanding balance was $790,959 compared to $786,227 at December 31, 2015.

On November 3, 2009, the Company issued an unsecured note payable to Linwood Goddard at a 12.00% interest rate, with a 36-month amortization and monthly payments of $334.14.  At March 31, 2016, the outstanding balance was $4,332. On May 13, 2016 the remaining principal balance of this note and accrued interest were converted into common stock at $.08

On December 24, 2009, the Company issued an unsecured note payable to Linwood Goddard at a 12.00% interest rate, with a 36-month amortization and monthly payments of $334.14.  At March 31, 2016, the outstanding balance was $4,332. On May 13, 2016 the remaining Principal balance of this note and accrued interest were converted into common stock at $.08

On August 28, 2014, we issued an unsecured note for $100,000 with a fixed fee of $20,000, amortized over 7 months.  On December 22, 2014, the outstanding balance of this note including remaining fees was $58,441, when the outstanding balance was rolled into a new note in the initial principal amount of $150,000, with fees in the amount of $28,500.  The new note amortizes over 18 months.  The outstanding balance at September 30, 2016 was $7,388

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 September 30, 2015 and (b) thereafter, the remaining principal amount of $1,200,000, together with interest thereon, payable in equal quarterly installments of principal and interest of $157,609.02, commencing on September 30, 2016 and continuing until September 30, 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.

On March 11, 2016, we entered into a three-year convertible note payable in the initial face amount of $75,000, which accrues interest at the rate of 1.46% per annum.  It was not convertible until six months after its issuance and has a conversion rate of sixty five percent (65%) of the lowest closing bid price (as reported by Bloomberg LP) of common stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion.  On September 15, 2016 we issued shares at a price of $.006 per share for a partial conversion of this note in the amount of $15,000.  Subsequently, on November 1, 2016 the Company exercised its right to redeem the note, assigned its redemption right to a third-party investor, agreed to amend the conversion price of a replacement note to $.005 per share, and that investor now holds the replacement note in the principal amount of $84,000.

On June 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 six 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 June 15, 2016, 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 September 30, 2016 the outstanding balance was $5,000.

On July 6, 2016, we entered into a six-month convertible note payable for $77,500, which accrues interest at the rate of 10% per annum.  It is not convertible until six 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 August 12, 2016, we entered into a six-month convertible note payable for $57,000, which accrues interest at the rate of 12% per annum.  It is not convertible until six 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.






Page 21 of 35

Note 9 Derivative Liabilities

On March 11, 2016, we entered into a 3-year convertible note payable with Peak One Investments for $75,000, which accrues interest at the rate of 1.46% per annum. It is not convertible for 6 months and has a conversion rate of sixty five percent (65%) of the lowest closing bid price (as reported by Bloomberg LP) of Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion.  On September 15, 2016 we issued shares @ $.006 for a partial conversion of this note in the amount of $15,000.  Subsequently on October 31, 2016 the balance of this note was paid in full.



 

September 30, 2016

December  31, 2015

Derivative Liabilities on Convertible Loans:

 

 

Convertible note dated March 11, 2016

$        56,550

$            0



NOTE 10 COMMITMENTS AND CONTINGENCIES

Operating Rental Leases

On February 21, 2012 Trident Manufacturing, Inc. entered into a five-year lease for the facility in Salt Lake City, Utah with First Industrial Realty Trust, Inc. with a commencement date of February 21, 2012. The facility is approximately 15,040 square feet and located at 440 West Lawndale Drive, Salt Lake City UT 84115.


 


Year

Rent

2016

40,608

2017

13,536


In April 2015, Trident entered into a sublease agreement for the facility with Lucky Spoon, LLC. The term of the sublease commenced on April 1, 2015 and expires on the last day of Trident s lease.

On August 27, 2015, we entered into a sublease agreement with Rosenson Properties, LLC, a California limited liability company, as landlord, and General Electric International, Inc., a Delaware corporation, as tenant and assignor, for the premises located at 150 Baker Street East, Costa Mesa, California.  GEII had entered into a lease dated as of December 17, 2010, as amended by a First Amendment to Lease dated March 11, 2014, wherein Rosenson Properties leased the premises to GEII.  The premises consist of approximately 35,704 square feet of space and the lease provides for monthly triple-net lease payments of $22,973.  The lease term ended on September 30, 2016.

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.  On May 1, 2016 we moved out of the Baker Street facility and moved our operations and headquarters to the new facility.  The lease term at the new facility is seven years and two months beginning October 1, 2016.  Rental is $179,090 for the first twelve months.






Page 22 of 35

 

Year

 

Lease Payment

 

 

 

2016

 

$65,603

2017

 

$221,352

2018

 

$228,000

2019

 

$234,840

2020

 

$241,884

2021

 

$249,132

2022

 

$256,608

2023

 

$44,052



Severance Benefits

Effective at September 30, 2016, Mr. Mahdi, 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. Mahdi would have been entitled to receive period of (1) year, at an annual salary of $275,000.

Effective at September 30, 2016, 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, at an annual salary of $140,000.

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 June 30, 2016, 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, 2016.

Stock Repurchase Program

On November 1, 2011, the Company adopted a plan to repurchase up to 500,000 shares of its issued and outstanding common stock in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended.

The plan allows the Company to purchase its issued and outstanding common shares in the open market or in negotiated transactions, from time to time, depending on market conditions and other factors as well as being in compliance with applicable securities laws. The plan does not obligate the Company to make any purchases, at any specific time or in any particular situation. The plan may be suspended or discontinued at any time at the sole discretion of the Company. Share repurchases will be funded with the Company s available cash, after determining the working capital requirements of the Company. Accordingly, there is no guarantee as to the exact number of shares that will be repurchased under the plan.

The Company s Board of Directors authorized the repurchase plan because it believed market conditions at the time of the plan s adoption or thereafter may cause the Company s common stock to be undervalued and



Page 23 of 35

repurchases of Company common stock to be in the best interests of the Company and its stockholders. The timing and number of any shares repurchased will depend on the terms and conditions of the plan and no assurance can be given that any specific amount of common stock will be repurchased.

As of September 30, 2016, we had repurchased an aggregate total of 11,500 shares of our common stock under the plan.

Common Stock Transactions

Beginning with the year 2015, we issued the following securities without registration under the Securities Act of 1933, as amended. These securities were issued on the reliance of an exemption provided by Section 4(a)(2) or 4(a)(5) of the Securities Act.

On February 2, 2015, we issued 40,000 shares of common stock for services at $.08

On February 24, 2015, we issued 1,845,000 shares of common stock for cash in the amount of $116,698, of which $70,699 was received in 2014 and the balance included in to be issued.

On March 6, 2015, we issued 450,000 shares of common stock for services to related parties at $.05 per share, which was accrued for in 2014.

On March 6, 2015, we issued 50,000 shares of common stock for services at $.05 per share.

On April 1, 2015 we issued 25,000 shares of common stock for consulting services at $.05 per share.

On September 11, 2015, we issued 1,300,000 shares of common stock for compensation at $.05 per share.

On October 1, 2015, we issued 104,910,321 shares of common stock to two investors for $500,000 in cash.

On March 11, 2016 we issued 400,000 shares of our common stock @ $.05 for financing fees.

On May 5, 2016 we issued 387,866 to a previous employee @ $.08 for $8,644 in notes payable, $11,332 in accrued interest and $11,030 for past due payroll.

On August 15, 2016 we issued 562,500 shares @ $.08 to a consultant for past due amounts owed of $45,000.

On July 1, 2016 we entered into a consulting agreement with Uptick capital for 300,000 a term of 45 days. For these services, we agreed to issue a total of 300,000 shares of our common stock.

Pursuant to our 2016 Stock Compensation Program, effective July 1, 2016, 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, 2016 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 September 15, 2016 we issued shares @ $.006 for a partial conversion of the convertible note dated March 11, 2016 in the amount of $15,000.


Subsequently Pursuant to a subscription agreement dated October 31, 2016, Clean Energy Technologies, Inc., a Nevada corporation (the Company ) closed a private placement pursuant to Section 4(a) (2) of the Securities Act to one investor, Cyberfuture One LP, ( Subscriber ) of an aggregate of 10,500,000 restricted common shares ( Shares ) at a price of US$0.04 per Share, for total gross proceeds of US $420,000. The offering provides that Subscriber obtains piggyback registration rights on the Shares, so long as the Subscriber holds at least 8% of the outstanding Common Stock. Also, the subscription agreement provides that if the Company and the Subscriber enter a joint venture that the Subscriber will be entitled to nominate a person to be elected to and to serve on the Board of Directors of the Company.  The restricted common shares were offered by the Company pursuant to an exemption from registration under Regulation S of the Securities Act of 1933, as amended. The private placement was fully subscribed to by one non-U.S. person.



Page 24 of 35

Common Stock  

Our Articles of Incorporation authorize us to issue 400,000,000 shares of common stock, par value $0.001 per share. As of September 30, 2016 there were 143,478,083 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



Page 25 of 35

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 September 30, 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.

Warrants

Series E Common stock warrants

On April 8, 2011, we issued 300,000 series E Warrants.  Each warrant gives the holder the right to purchase one share of common stock (300,000 total shares) at $0.50 per share. The Series E Warrants expired on April 8, 2016.

Series F Common stock warrants

On June 25, 2013, we issued 250,000 series F warrants.  Each warrant gives the holder the right to purchase one share of common stock at $.10.

On September 19, 2013, we issued 125,000 series F warrants.  Each warrant gives the holder the right to purchase one share of common stock at $.10.

Series G Common stock warrants

On June 25, 2013, we issued 250,000 series G warrants.  Each warrant gives the holder the right to purchase one share of common stock at $.20.

On September 19, 2013, we issued 125,000 series G warrants.  Each warrant gives the holder the right to purchase one share of common stock at $.20.


A summary of warrant activity for the periods is as follows:




 Warrants - Common Share Equivalents

Weighted Average Exercise price

 

 Warrants exercisable - Common Share Equivalents

Weighted Average Exercise price

Outstanding December 31, 2015

1,050,000

0.25


1,050,000

0.25

 

Granted

-

-


-

-

 

Expired

300,000

.50


300,000

.50

 

Exercised

-

-


-

-

Outstanding September 30, 2016

 750,000

0.15


 750,000

0.15


   


Warrants Outstanding


 Warrants Exercisable

Range of Warrant Exercise Price

 Warrants - Common Share Equivalents

Weighted Average Exercise price

Weighted Average Remaining Contractual life in years

 

 Warrants - Common Share Equivalents

Weighted Average Exercise price

$

0.10

250,000

$

0.10

1.75


250,000

$

0.10

$

0.20

250,000

$

0.20

1.75


250,000

$

0.20

$

0.10

125,000

$

0.10

2.00


125,000

$

0.10

$

0.20

125,000

$

0.20

2.00


125,000

$

0.20

Total

750,000

$

0.15



750,000

$

0.15


Stock Options

On February 8, 2007 pursuant to our 2006 Qualified Incentive Option Plan, we granted to Company employees incentive stock options to purchase 406,638 shares of our common stock.  These options were granted at $1.73 cents, the fair market value of the Company s common stock at the time of the grant. These options expire on February 8, 2017.  At September 30, 2016 there were 15,122 outstanding options under this plan.

On February 8, 2008, we granted stock options to our key employees to purchase up to 750,000 shares of our common stock. These options were granted at $1.73 cents, the fair market value of the Company s common stock at the time of the grant. These options expire on February 8, 2017.  As of September 30, 2016 the balance of the outstanding options under this plan is 30,000.

On February 28, 2008, we granted stock options to a key employee to purchase up to 30,000 shares of our common stock. These options were granted at $.033 cents, the fair market value of the Company s common stock at the time of the grant. These options expire on February 8, 2017.  As of September 30, 2016, the balance of the outstanding options under this plan was 30,000.

Pursuant to our 2016 Stock Compensation Program, effective July 1, 2016, 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, 2016 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.


NOTE 12 RELATED PARTY TRANSACTIONS

Kevin Scott, one of the Board of Directors members, owns SK Polymers.  SK Polymers is a supplier to the Company.  Our Board of Directors has approved the supply transactions between SK Polymers and the Company.  On June 7, 2016 Mr. Scott resigned from our Board of Directors

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, from time to time, we provide assembly and value-added services to Billet Electronics.  In addition, Billet was a supplier of parts and had dealings with current and former customers of the Company.  Our Board of Directors has approved the transactions between Billet Electronics and the Company.

On September 11, 2015, we issued 400,000 shares of common stock to John Bennett, our Chief Financial Officer, as additional compensation at $.05 per share.



Page 27 of 35

On September 11, 2015, we issued 150,000 shares of common stock at $.05 per share for Board of Director compensation to each of Kam Mahdi our Chief Executive officer, Robert Young, Shervin Talieh, Kevin Scott, Juhani Taskinen, and John Bennett our Chief Financial Officer.

On June 15, 2016 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 September 30, 2016, the outstanding balance was $5,000.

Pursuant to our 2016 Stock Compensation Program, effective July 1, 2016, 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, 2016 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.


NOTE 13 SUBSEQUENT EVENTS

On November 1, 2016, we issued in a private placement to one investor, Cyberfuture One LP, an aggregate of 10,500,000 restricted common shares at a price of $0.04 per share, for total gross proceeds of US $420,000.  The Company also granted the subscriber piggyback registration rights on all shares of common stock held by the subscriber, so long as the subscriber holds at least 8% of the outstanding common stock, and we granted the subscriber a board observer right.  If the Company and a party introduced by the subscriber enter into a joint venture for manufacturing and marketing the Company s HRS products, in lieu of such board observer, the subscriber will be entitled to nominate a person to be elected to and to serve on the Board of Directors of the Company.  The Company concurrently entered into a memorandum of agreement with a party introduced by the subscriber regarding a potential joint venture for manufacturing and marketing the Company s HRS products in China.  The Company has not yet entered into a definitive joint venture agreement and there is no assurance that it will do so.

On November 1, 2016, we exercised our right to redeem the note, assigned our redemption right to a third-party investor, agreed to the terms of a $.005 per share fixed price conversion for a replacement note, and that investor now holds the replacement note in the principal amount of $84,000.

Management has reviewed and evaluated subsequent events and transactions occurring after the balance sheet date through the filing of this Quarterly Report on Form 10-Q and determined that no other subsequent events occurred.





Page 28 of 35

Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operation (unaudited)

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements.  You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms or other variations on these words or comparable terminology.  These statements are only present statements about possible future events and are not predictions.  In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements, including the Risk Factors contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 3015 filed with the U.S. Securities and Exchange Commission.  Although we believe that the assumptions on which the forward-looking statements are based are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.  Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

OVERVIEW

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 $2,269,746 and a working capital deficit of $3,034,231 as of September 30, 2016. The Company also had an accumulated deficit of $6,087,415 as of September 30, 2016. 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 a profitable operating stand 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.


Results for the three and nine months ended September 30, 2016, Compared to the same periods in 2015.

Net Sales 

For the three months ended September 30, 2016, our revenue was $280,299 compared to $235,838 for the same period in 2015.  Our revenue increased by $44,461 for the three months ended September 30, 2016, compared to the same period in 2015 mainly due to the shut down and relocation of our facility in the third quarter of 2015.

For the nine months ended September 30, 2016, our revenue was $1,687,656 compared to $1,848,854 for the same period in 2015.  Our revenue decreased by $161,198 for the nine months ended September 30, 2016, compared to the same period in 2015. Our revenue decrease was mainly due to the relocation of our operating facility and the corresponding shut down in operations from April through June, 2016.  

Major Customers

Our top five customers accounted for approximately 98% of our net sales for the three months ended September 30, 2016, compared to 85%, for the same period in 2015. Our top five customers accounted for approximately 80% of our net sales for the nine months ended September 30, 2016, compared to 81%, for the same period in 2015.

We believe that our ability to grow our core business depends on increasing sales to existing customers, and on successfully attracting new customers. Customer contracts can be canceled and volume levels can be



Page 29 of 35

changed or delayed based on our customer s performance and the end users markets they serve which we have no control over. The timely replacement of delayed, canceled or reduced orders with new business cannot be ensured. In addition, we cannot assume that any of our current customers will continue to utilize our services. Consequently, our results of operations may be materially adversely affected.

Gross Profit 

For the three months ended September 30, 2016 , our gross profits in creased to 29% from 20 % for the same period in 20 15 , mainly due to the increase in sales in 2016 and higher utilization of our direct labor in 2016

For the nine months ended September 30, 2016 , our gross profits incr eased to 4 6 % from 3 4 % for the same period in 20 15, the increase was mainly due to HRS division Revenue with very low cost of sales in the first quarter of 2016 .  

Our gross profits could vary from period to period and is affected by a number of factors, including product mix, production efficiencies, component availability and costs, pricing, competition, customer requirements and unanticipated restructuring or inventory charges and potential scrap of materials

Selling, General and Administrative (SG&A) Expenses 

For the three months ended September 30, 2016 , our SG&A cost was 208 % compared to 221 % for the same period in 201 5 . The decrease was mainly due to the increase in sales, as the SG&A expense did not increase at the same rate .

For the nine months ended September 30, 2016 , our SG&A cost was 9 8 % compared to 61 % for the same period in 201 5 . The in crease was mainly due to the relocation of our operating facility and the corresponding shut down in operations in the second Quarter of 2016 .

Net ( l oss) from operations

For the three months ended September 30, 2016 , our net profit from operations was ( 1 79 % ) compared to net loss from operations of ( 20 1 % ) for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresp onding shut down in operations in the third quarter of 2015 .

For the nine months ended September 30, 2016 , our net profit from operations was ( 52 %) compared to net loss from operations of ( 27 % ) for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresponding shut down in operations in the second quarter of 2016 .

Net Income (loss)

For the three months ended September 30, 2016 , our net loss was ( 215 %) compared to net loss of ( 230 ) % for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresp onding shut down in operations.

For the nine months ended September 30, 2016 , our net loss was ( 72 %) compared to net loss of ( 39 ) % for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresponding shut down in operations.

Loss on Disposal of Fixed Assets

For the three and nine months ended September 30, 2016, we relocated our facility and as a result recognized a net loss of $41,459 on the abandonment of certain assets related to the previous facility.

Loss on Derivative liability

On March 11, 2016, we entered into a 3-year convertible note payable for $75,000, which accrues interest at the rate of 1.46% per annum. It is not convertible for 6 months and has a conversion rate of sixty five percent (65%) of the lowest closing bid price (as reported by Bloomberg LP) of Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion.  As a result, for the three and nine months ended September 30, 2016, we recognized a net loss from derivative liability of $56,550.



Page 30 of 35

Interest Expense

For the three months ended September 30, 2016 interest expense was $ 4 4,154 compared to $ 69,379 for the same period in 201 5 .  The decrease was mainly due to the decrease in the use of our line of credit .

For the nine months ended September 30, 2016 interest expense was $ 236,466 compared to $ 229,959 for the same period in 201 5 .  The increase was mainly due to the increase in the line of credit usage in the first quarter of 2016.

Liquidity and Capital Resources


Condensed Consolidated Statements of Cash Flows

for the nine months ended September 30,
(Unaudited)






Un-audited

Un-audited


2016

2015

Net Cash provided / (Used) In Operating Activities

$

(154,070)

$

(1,094,202)

Cash Flows Used In Investing Activities

(89,262)

(675,999)

Cash Flows Provided / (used) By Financing Activities

239,435 

1,743,519 

Net (Decrease) Increase in Cash and Cash Equivalents

$

(3,897)

$

(26,682)


Capital Requirements for long-term Obligations

 


2016

2017

2018

Note payable General Electric

          315,218

          630,436

          254,346


Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense s during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Future Financing

We will continue to rely on equity sales of our common shares and the issuance of debt securities or establishment of other credit facilities to continue to fund our business operations.  Issuances of additional shares or securities convertible or exchangeable for shares may result in dilution to existing stockholders.  There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our business operations.

Off-balance Sheet Arrangement

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.



Page 31 of 35

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act ) is recorded, processed, summarized and reported, within the time periods specified in the SEC s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act.  Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2016, due to the material weaknesses resulting from the fact that none of our present directors qualifies as a financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements.  Please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (as filed with the SEC on April 14, 2016) for a complete discussion relating to the foregoing evaluation of Disclosures and Procedures.

Changes in Internal Control over Financial Reporting

Our management has also evaluated our internal control over financial reporting, and have added four independent members to our Board of Directors, there have been no other significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.

The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.

PART II--OTHER INFORMATION

Item 1.

 Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 1A. Risk Factors.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A., Risk Factors in our Annual Report on Form 10-K, for the fiscal year ended



Page 32 of 35

December 31, 2015. The information set forth in these Reports could materially affect the Company s business, financial position and results of operations. There are no material changes from the risk factors set forth in Part I, Item 1A, Risk Factors, of our Annual Report on Forms 10-K for the fiscal year ended December 31, 2015.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

On May 5, 2016 we issued 387,866 shares of common stock to a previous employee at a price of $.08 for $8,644 in notes payable, $11,332 in accrued interest and $11,030 for past due payroll.

On August 15, 2016 we issued 562,500 shares of common stock at a price of $.08 to a consultant for past due amounts owed of $45,000.

On July 1, 2016 we entered into a consulting agreement with Uptick capital for 300,000 a term of 45 days. For these services, we will issue a total of 300,000 shares of our common stock.

On September 15, 2016 we issued shares @ $.006 for a partial conversion of the convertible note dated March 11, 2016 in the amount of $15,000.


Subsequently Pursuant to a subscription agreement dated October 31, 2016, Clean Energy Technologies, Inc., a Nevada corporation (the Company ) closed a private placement pursuant to Section 4(a) (2) of the Securities Act to one  investor, Cyberfuture One LP, ( Subscriber ) of an aggregate of 10,500,000 restricted common shares ( Shares ) at a price of US$0.04 per Share, for total gross proceeds of US $420,000. The offering provides that Subscriber obtains piggyback registration rights on the Shares, so long as the Subscriber holds at least 8% of the outstanding Common Stock. Also, the subscription agreement provides that if the Company and the Subscriber enter into a joint venture that the Subscriber will be entitled to nominate a person to be elected to and to serve on the Board of Directors of the Company.  The restricted common shares were offered by the Company pursuant to an exemption from registration under Regulation S of the Securities Act of 1933, as amended. The private placement was fully subscribed to by one non-U.S. person.

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

Item 3.

 Defaults upon Senior Securities

None.

Item 4.

 Mine Safety Disclosures

Not Applicable.

Item 5.

 Other Information

None.

Item 6.  Exhibits

The exhibit listed on the Exhibit Index (following the signatures section of this Quarterly Report on Form 10-Q are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.


EXHIBIT

NUMBER                                          DESCRIPTION

 

3.1 Amended and Restated Articles of Incorporation (included as exhibit 3.1 to the Current Report on Form 8-K filed July 6, 2016 and incorporated herein by reference).

 



Page 33 of 35

3.2 Amended Bylaws (included as exhibit 3.2 to the Current Report on Form 8-K filed July 6, 2016 and incorporated herein by reference).


4.1 Registration Rights Agreement, by and between the Registrant and ETI Partners IV LLC, dated as of September 15, 2015 (included as exhibit 4.1 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).


10.1 Asset Purchase Agreement, by and between the Registrant and General Electric International, Inc., dated as of September 11, 2015 (included as exhibit 10.1 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).


10.2 Transaction Completion and Financing Agreement, by and between the Company and ETI Partners IV LLC, dated as of September 15, 2015 (included as exhibit 10.2 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).


10.3 Loan, Guarantee, and Collateral Agreement, by and between the Company and ETI Partners IV LLC, dated as of September 15, 2015 (included as exhibit 10.3 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).


10.4* Securities Purchase agreement between the company and Peak One Opportunity Fund, LP


10.5* Securities Purchase agreement between the company and EMA Financial, LLC, dated June 6, 2016.


10.6* Convertible note payable between the company and Auctus Fund, LLC, dated July 6, 2016.


10.7* Convertible note payable between the company and JSJ Investments, Inc., dated August 15, 2016.


14.1 Code of Ethics (included as exhibit 14.1 to the Form 10-KSB on April 5, 2007 and incorporated herein by reference).


31.1* Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.

 

31.2* Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act  of  2002.

 

32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act  of  2002.

 

32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act  of  2002.

 

101.INS**       XBRL Instance Document

 

101.SCH**      XBRL Taxonomy Extension Schema Document

 

101.CAL**      XBRL Taxonomy Extension Calculation Linkbase Document

 

101.LAB**      XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE**      XBRL Taxonomy Extension Presentation Linkbase Document

 

101.DEF**      XBRL Taxonomy Extension Definition Linkbase Document

_________________

 

* Filed herewith



Page 34 of 35

** Furnished herewith

** Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 
SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.


Signature                  

 Title                                

      Date


/s/ Kambiz Mahdi

Chief Executive Officer  

November 18, 2016

Kambiz Mahdi


/s/ John Bennett

Chief Financial Officer

November 18, 2016

John Bennett



Page 35 of 35


SECURITIES PURCHASE AGREEMENT


THIS SECURITIES PURCHASE AGREEMENT (the Agreement ), dated as of March  11, 2016, is entered into by and between CLEAN ENERGY TECHNOLOGIES, INC., a Nevada corporation, (the Company ) and PEAK ONE OPPORTUNITY FUND, L.P., a Delaware limited partnership (the Buyer ).


WITNESSETH:


WHEREAS , the Company and the Buyer are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded, inter alia , by Rule 506 under Regulation D ( Regulation D ) as promulgated by the United States Securities and Exchange Commission (the SEC ) under the Securities Act of 1933, as amended (the 1933 Act ), and/or Section 4(a)(2) of the 1933 Act; and


WHEREAS, the Buyer wishes to purchase from the Company, and the Company wishes to sell the Buyer, upon the terms and subject to the conditions of this Agreement, securities consisting of the Company s Convertible Debentures due three years from the respective dates of issuance (the Debentures ), each of which are in the form of Exhibit A hereto, which will be convertible into shares of the Company s common stock, par value $0.001 per share (the Common Stock ), in the aggregate principal amount of up to Three Hundred Fifty Thousand and 00/100 Dollars ($350,000.00), for an aggregate Purchase Price of up to Three Hundred Fifteen Thousand and 00/100 Dollars ($315,000.00), all upon the terms and subject to the conditions of this Agreement, the Debentures, and other related documents;


NOW THEREFORE , in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:


1. DEFINITIONS; AGREEMENT TO PURCHASE.


a. Certain Definitions.  As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:


(i) Affiliate means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.


(ii) Certificates means certificates representing the Conversion Shares issuable hereunder, each duly executed on behalf of the Company and issued hereunder.


(iii) Closing Date means the date on which one of the three (3) Closings are held, which are the Signing Closing Date, the Second Closing Date and the Third Closing Date.


(iv) Intentionally Omitted.


(v)




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Commitment Fee shall have the meaning ascribed to such term in Section 12(a).


(vi) Common Stock shall have the meaning ascribed to such term in the Recitals.


(vii) Conversion Amount shall mean the Conversion Amount as defined in the Debentures, provided, however that for purposes of the foregoing calculation, the full indebtedness under the Debentures shall be deemed immediately convertible, notwithstanding the one hundred eighty (180) day waiting period or 4.99% limitation on ownership set forth in the Debentures.


(viii) Conversion Price means the Conversion Price as defined in the Debentures.


(ix) Conversion Shares means the shares of Common Stock issuable upon conversion of the Debentures.


(x) DWAC Operational means that the Common Stock is eligible for clearing through the Depository Trust Company ( DTC ) via the DTC s Deposit Withdrawal Agent Commission or DWAC system and active and in good standing for DWAC issuance by the Transfer Agent.


(xi) Dollars or $ means United States Dollars.


(xii) Exchange Act means the Securities Exchange Act of 1934, as amended.


(xiii) Investments means Peak One Investments, LLC, the general partner of the Buyer.


(xiv) Irrevocable Resolutions has the meaning set forth in Section 8(i).


(i) Market Price of the Common Stock means (x) the closing bid price of the Common Stock for the period indicated in the relevant provision hereof (unless a different relevant period is specified in the relevant provision), as reported by Bloomberg, LP or, if not so reported, as reported on the OTCQB, OTCQX or OTC Pink or (y) if the Common Stock is listed on a stock exchange, the closing price on such exchange, as reported by Bloomberg LP.


(ii) Material Adverse Effect means a material adverse effect on the business, operations or condition (financial or otherwise)  or results of operation of the Company and its Subsidiaries taken as a whole, in the reasonable commercial discretion of the Buyer, irrespective of any finding of fault, magnitude of liability (or lack of financial liability).  Without limiting the generality of the foregoing, the occurrence of any of the following, in the reasonable commercial discretion of the Buyer, shall be considered a Material Adverse Effect:  (i) any final money, judgment, writ or warrant of attachment, or similar process (including an arbitral determination) in excess of Fifty Thousand Dollars ($50,000) shall be entered or filed against the



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Company or any of its Subsidiaries (including, in any event, products liability claims against the Company or its Subsidiaries), (ii) the suspension or withdrawal of any governmental authority or permit pertaining to a material amount of the Company s or any Subsidiary s products or services, (iii) the loss of any material insurance coverage (including, in any case, comprehensive general liability coverage, products liability coverage or directors and officers coverage, in each case in effect at the time of execution and delivery of this Agreement), (iv) an action by a regulatory agency or governmental body affecting the Common Stock (including, without limitation, (1) the commencement of any regulatory investigation of which the Company is aware, the suspension of trading of the Common Stock by the Financial Industry Regulation Authority ( FINRA ), the SEC, the OTC Bulletin Board ( OTCBB ) or the OTC Markets Group, Inc., the failure of the Common Stock to be DTC eligible or the placing of the Common Stock on the DTC chill list or (2) the engaging in any market manipulation or other unlawful or improper trading or other activity by any Affiliate), (v) the Company s independent registered accountants shall resign under circumstances where a disagreement exists between the Company and its independent registered accountants, (vi) the Company shall fail to timely file any disclosure document as required by applicable federal or state securities laws and regulations or by the rules and regulations of any exchange, trading market or quotation system to which the Company or the Common Stock is subject, or (vii) the Chief Executive Officer of the Company or any other key full-time officer or director of the Company, shall, for any reason (including, without limitation, termination, resignation, retirement, death or disability) cease to act on behalf of the Company in the same role and to the same extent as his or her involvement as of the date of execution and delivery of this Agreement.


(iii) Person means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.


(iv) Purchase Price means the price that the Buyer pays for the Debentures at each respective Closing, which are the Signing Purchase Price, the Second Purchase Price and the Third Closing Price, as the case may be.


(v) Registrable Securities shall mean the Conversion Shares, the Restricted Stock issued to Investments pursuant to Section 12(a) and, to the extent applicable, any other shares of capital stock or other securities of the Company or any successor to the Company that are issued upon exchange of Conversion Shares and/or such Restricted Stock.


(vi) Registration Statement shall mean a registration statement on Form S-1 (or any successor thereto) filed or contemplated to be filed by the Company with the SEC under the Securities Act.

 

(vii) Restricted Stock shall mean shares of Common Stock which are not freely trading shares when issued.


(viii) Securities means the Debentures and the Shares.


(ix)   Shares means the Conversion Shares.


(x)




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  Second Closing Date shall have the meaning ascribed to such term in Section 6(b).


(xi) Second Debenture means the second of the three (3) Debentures, in the principal amount of One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00), which is issued by the Company to the Buyer on the Second Closing Date.


(xii) Second Purchase Price shall be One Hundred Twelve Thousand Five Hundred and 00/100 Dollars ($112,500.00)


(xiii) Signing Closing Date shall have the meaning ascribed to such term in Section 6(a).


(xiv) Signing Debenture means the first of the three (3) Debentures, in the principal amount of Seventy Five Thousand and 00/100 Dollars ($75,000.00), to be issued by the Company to the Buyer on the Signing Closing Date.


(xv) Signing Purchase Price shall be Sixty Seven Thousand Five Hundred and 00/100 Dollars ($67,500.00).


(xvi) Subsidiary shall have the meaning ascribed to such term in Section 3(b).


(xvii) Third Closing Date shall have the meaning ascribed to such term in Section 6(c).


(xviii)    Third Debenture means the third of the three (3) Debentures, in the principal amount of One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00), which is issued by the Company to the Buyer on the Third Closing Date.


(xix) Third Purchase Price shall be One Hundred Thirty Five Thousand and 00/100 Dollars ($135,000.00).


(xx)   Transaction Documents means, collectively, this Agreement, the Debentures, the Transfer Agent Instruction Letter, the Irrevocable Resolutions and the other agreements, documents and instruments contemplated hereby or thereby.


(xxi) Transfer Agent shall have the meaning ascribed to such term in Section 4(a).


(xxii)   Transfer Agent Instruction Letter shall have the meaning ascribed to such term in Section 5(a).


a. Purchase and Sale of Debentures .


(i)



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The Buyer agrees to purchase from the Company, and the Company agrees to sell to the Buyer, the Debentures on the terms and conditions set forth below in this Agreement and the other Transaction Documents.


(ii) Subject to the terms and conditions of this Agreement and the other Transaction Documents, the Buyer will purchase the Debentures at certain closings (each, a Closing ) to be held on certain respective Closing Dates.  


b. Intentionally Omitted


1. BUYER S REPRESENTATIONS, WARRANTIES, ETC.


The Buyer represents and warrants to, and covenants and agrees with, the Company as follows:


a. Investment Purpose.  Without limiting the Buyer s right to sell the Shares pursuant to a Registration Statement, Buyer is purchasing the Debentures, and will be acquiring the Conversion Shares, for its own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.


b. Accredited Investor Status.  Buyer is (i) an accredited investor as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the Securities.


c. Subsequent Offers and Sales.  All subsequent offers and sales of the Securities by the Buyer shall be made pursuant to registration of the Shares under the 1933 Act or pursuant to an exemption from registration and compliance with applicable states securities laws.


d. Reliance on Exemptions.  Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.


e. Information.  Buyer and its advisors have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer.  Buyer and its advisors have been afforded the opportunity to ask questions of the Company and have received complete




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and satisfactory answers to any such inquiries.  Without limiting the generality of the foregoing, Buyer has also had the opportunity to obtain and to review the Company s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2015, June 30, 2015 and September 30, 2015 and the Company s Current Report on Form 8-K filed with the SEC on September 21, 2015 and (collectively, the SEC Documents ).


f. Investment Risk.  Buyer understands that its investment in the securities constitutes high risk investment, its investment in the Securities involves a high degree of risk, including the risk of loss of the Buyer s entire investment.


g. Governmental Review.  Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities.


h. Organization; Authorization.  Buyer is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.  This Agreement and the other Transaction Documents have been duly and validly authorized, executed and delivered on behalf of the Buyer and create a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors rights generally.


i. Residency.  The state in which any offer to sell Securities hereunder was made to or accepted by the Buyer is the state shown as the Buyer s address contained herein, and Buyer is a resident of such state only.


2. COMPANY REPRESENTATIONS AND WARRANTIES, ETC.



The Company represents and warrants to the Buyer that:


a. Concerning the Debentures and the Shares.   There are no preemptive rights of any stockholder of the Company to acquire the Debentures or the Shares.


b. Organization; Subsidiaries; Reporting Company Status.   Attached hereto as Schedule 3(b) is an organizational chart describing all of the Company s wholly-owned and majority-owned subsidiaries (the Subsidiaries ) and other Affiliates, including the relationships among the Company and such Subsidiaries, including as to each Subsidiary its jurisdiction of organization and the percentage of ownership held by the Company, and the parent company of the Subsidiary, including the percentage of ownership of the Company held by it.  The Company and each Subsidiary is a corporation or other form of businesses entity duly organized, validly existing and in good standing under the laws its respective jurisdiction of organization, and each of them has the requisite corporate or other power to own its properties and to carry on its business as now being conducted.  The Company and each Subsidiary is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction



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where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect.  The Common Stock is listed and traded on the OTCBQ Market of the OTC Markets Group, Inc. (trading symbol:  PMFI).  The Company has received no notice, either oral or written, from FINRA, the SEC, or any other organization, with respect to the continued eligibility of the Common Stock for such listing, and the Company has maintained all requirements for the continuation of such listing.  The Company is an operating company in that, among other things (A) it primarily engages, wholly or substantially, directly or indirectly through a majority owned Subsidiary or Subsidiaries, in the production or sale, or the research or development, of a product or service other than the investment of capital, (B) it is not an individual or sole proprietorship, (C) it is not an entity with no specific business plan or purpose and its business plan is not to engage in a merger or acquisition with an unidentified company or companies or other entity or person, and (D) it intends to use the proceeds from the sale of the Debentures solely for the operation of the Company s business and uses other than personal, family, or household purposes.    


c. Authorized Shares .   Schedule 3(c) sets forth all capital stock and derivative securities of the Company that are authorized for issuance and that are issued and outstanding. All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable.  The Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares, assuming the prior issuance and exercise, exchange or conversion, as the case may be, of all derivative securities authorized, as indicated in Schedule 3(c) .  The Shares have been duly authorized and, when issued upon conversion of, or as interest on, the Debentures, the Shares will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder.  At all times, the Company shall keep available and reserved for issuance to the holders of the Debentures shares of Common Stock duly authorized for issuance against the Debentures.


d. Authorization.   This Agreement, the issuance of the Debentures (including without limitation the incurrence of indebtedness thereunder), the issuance of the Conversion Shares under the Debentures and the other transactions contemplated by the Transaction Documents, have been duly, validly and irrevocably authorized by the Company, and this Agreement has been duly executed and delivered by the Company.  The Company s board of directors, in the exercise of its fiduciary duties, has irrevocably approved the entry into and performance of the Transaction Documents, including, without limitation the sale of the Debentures and the issuance of Conversion Shares, based upon a reasonable inquiry concerning the Company s financing objectives and financial situation.  Each of the Transaction Documents, when executed and delivered by the Company, are and will be, valid, legal and binding agreements of the Company, enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors rights generally.  


e. Non-contravention.   The execution and delivery of the Transaction Documents, the issuance of the Securities and the consummation by the Company of the other transactions contemplated by this Agreement and the Debentures (including without limitation




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the incurrence of indebtedness thereunder) do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the articles of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock, except as herein set forth or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the triggering of any anti-dilution rights, rights of first refusal or first offer on the part of holders of the Company s securities, (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, or (iv) the Company s listing agreement for its Common Stock (if applicable).


f. Approvals.   No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the entering into and performing this Agreement and the other Transaction Documents (including without limitation the issuance and sale of the Securities to the Buyer as contemplated by this Agreement) except such authorizations, approvals and consents that have been obtained, or such authorizations, approvals and consents, the failure of which to obtain would not have a Material Adverse Effect.


g. SEC Filings; Rule 144 Status.     None of the SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading.  The Company timely filed all requisite forms, reports and exhibits thereto with the SEC as required.  The Company is not aware of any event occurring on or prior to the execution and delivery of this Agreement that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after such time.  The Company satisfies the requirements of Rule 144(i)(2), and the Company shall continue to satisfy all applicable requirements of Rule 144 (or any successor thereto) for so long as any Securities are outstanding and not registered pursuant to an effective registration statement filed with the SEC.


h. Absence of Certain Changes.   Since September 30, 2015, when viewed from the perspective of the Company and its Subsidiaries taken as a whole, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company and its Subsidiaries (including, without limitation, a change or development which constitutes, or with the passage of time is reasonably likely to become, a Material Adverse Effect), except as disclosed in the SEC Documents.  Since September 30, 2015, except as provided in the SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or



8



distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.


i. Full Disclosure.   There is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the SEC Documents) that has not been disclosed in writing to the Buyer that (i) would reasonably be expected to have a Material Adverse Effect, (ii) would reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to the Transaction Documents, or (iii) would reasonably be expected to materially and adversely affect the value of the rights granted to the Buyer in the Transaction Documents.


j. Absence of Litigation.   Except as described in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Documents.  The Company is not a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could reasonably be expected to have a Material Adverse Effect.  


k. Absence of Liens.   The Company s assets  are not encumbered by any liens or mortgages except as described in the SEC Documents and Schedule 3(k) .


l. Absence of Events of Default.   No event of default (or its equivalent term), as defined in the respective agreement, indenture, mortgage, deed of trust or other instrument, to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an event of default (or its equivalent term) (as so defined in such document), has occurred and is continuing, which would have a Material Adverse Effect.  


m. No Undisclosed Liabilities or Events.   The Company has no liabilities or obligations other than those disclosed in the SEC Documents or those incurred in the ordinary course of the Company s business since September 30, 2015, and which individually or in the aggregate, do not or would not have a Material Adverse Effect.  No event or circumstances has occurred or exists with respect to the Company or its properties, business, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed.  There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive




9




officers of the Company which proposal would (x) change the articles of incorporation, by-laws or any other charter document of the Company, each as currently in effect, with or without shareholder approval, which change would reduce or otherwise adversely affect the rights and powers of the shareholders of the Common Stock or (y) materially or substantially change the business, assets or capital of the Company.


n. No Integrated Offering.   Neither the Company nor any of its affiliates nor any Person acting on its or their behalf has, directly or indirectly, at any time during the six month period immediately prior to the date of this Agreement made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Rule 506 of Regulation D in connection with the offer and sale of the Securities as contemplated hereby.


o. Dilution.   The number of Shares issuable upon conversion of the Debentures may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the Market Price of the Common Stock declines prior to the conversion of the Debentures.  The Company s executive officers and directors have studied and fully understand the nature of the securities being sold hereby and recognize that they have a potential dilutive effect and further that the conversion of the Debentures and/or sale of the Conversion Shares may have an adverse effect on the Market Price of the Common Stock.  The Board of Directors of the Company has concluded, in its good faith business judgment that such issuance is in the best interests of the Company.  The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Debentures is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.


p. Regulatory Permits.   The Company has all such permits, easements, consents, licenses, franchises and other governmental and regulatory authorizations from all appropriate federal, state, local or other public authorities ( Permits ) as are necessary to own and lease its properties and conduct its businesses in all material respects in the manner described in the SEC Documents and as currently being conducted.  All such Permits are in full force and effect and the Company has fulfilled and performed all of its material obligations with respect to such Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or will result in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be disclosed in the SEC Documents.  Such Permits contain no restrictions that would materially impair the ability of the Company to conduct businesses in the manner consistent with its past practices.  The Company has not received notice or otherwise has knowledge of any proceeding or action relating to the revocation or modification of any such Permit.


q. Residency.  The state in which any offer to sell Securities  hereunder was made or accepted by the Seller is the state shown as the Seller s address contained herein, and Seller is a resident of such state only.


r.



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Hazardous Materials.  The Company is in compliance with all applicable Environmental Laws in all respects except where the failure to comply does not have and could not reasonably be expected to have a Material Adverse Effect.  For purposes of the foregoing:


Environmental Laws means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other Superfund or Superlien law or any other applicable federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, the environment or any Hazardous Material.


Hazardous Material means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law.


s. Independent Public Accountants.   The Company s auditor, MartinelliMick PLLC, is an independent registered public accounting firm with respect to the Company, as required by the 1933 Act, the Exchange Act and the rules and regulations promulgated thereunder.


t. Internal Accounting Controls.   The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (1) transactions are executed in accordance with management s general or specific authorization; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management s general or specific authorization; and (4) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.


s.

Brokers.  No Person (other than the Buyer and its principals, employees and agents) is entitled to receive any consideration from the Company or the Buyer arising from any finder s agreement, brokerage agreement or other agreement to which the Company is a party.  


3. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.


a. Transfer Restrictions.   The parties acknowledge and agree that (1) the Debentures have not been registered under the provisions of the 1933 Act and the Shares have not been registered under the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (2) any sale of the Securities made in reliance on Rule 144 promulgated under the 1933 Act ( Rule 144 ) may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder, (3)




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at the request of the Buyer, the Company shall, from time to time, within two (2) business days of such request, at the sole cost and expense of the Company, either (i) deliver to its transfer agent and registrar for the Common Stock (the Transfer Agent ) a written letter instructing and authorizing the Transfer Agent to process transfers of the Shares at such time as the Buyer has held the Securities for the minimum holding period permitted under Rule 144, subject to the Buyer s providing to the Transfer Agent certain customary representations contemporaneously with any requested transfer, or (ii) at the Buyer s option or if the Transfer Agent requires further confirmation of the availability of an exemption from registration, furnish to the Buyer an opinion of the Company s counsel in favor of the Buyer (and, at the request of the Buyer, any agent of the Buyer, including but not limited to the Buyer s broker or clearing firm) and the Transfer Agent, reasonably satisfactory in form, scope and substance to the Buyer and the Transfer Agent, to the effect that a contemporaneously requested transfer of shares does not require registration under the 1933 Act, pursuant to the 1933 Act, Rule 144 or other regulations promulgated under the 1933 Act and (4) neither the Company nor any other Person is under any obligation to register the Securities (other than pursuant to this Agreement) under the 1933 Act or to comply with the terms and conditions of any exemption thereunder.


b. Restrictive Legend.   The Buyer acknowledges and agrees that the Debentures, and, until such time as the Shares have been registered under the 1933 Act as contemplated hereby and sold in accordance with an effective Registration Statement, certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):


THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.


c.    Piggy-Back Registration Rights.   From and after the Signing Closing Date and until eighteen (18) months after the Signing Closing Date, if the Company contemplates making an offering of Common Stock (or other equity securities convertible into or exchangeable for Common Stock) registered for sale under the Securities Act or proposes to file a Registration Statement covering any of its securities, the Company shall at each such time give prompt written notice to Investments and Buyer of its intention to do so and of the registration



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rights granted under this Agreement.  Upon the written request of Investments and/or Buyer made within thirty (30) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by Investments and/or Buyer and the intended method of disposition thereof), the Company shall, at its sole cost and expense, use its best efforts to effect the registration of all Registrable Securities which the Company has been so requested to register by Investments and/or Buyer, to the extent requisite to permit the disposition (in accordance with the intended methods of disposition) of the Registrable Securities by Investments and/or Buyer, by inclusion of such Registrable Securities in the Registration Statement which covers the securities which the Company proposes to register; provided, that if the Company is unable to register the full amount of Registrable Securities in an at the market offering under SEC rules and regulations due to the high percentage of the Company s Common Stock the Registrable Securities represents (giving effect to all other securities being registered in the Registration Statement), then the Company may reduce, on a pro rata basis, the amount of Registrable Securities subject to the Registration Statement to a lesser amount which equals the maximum number of Registrable Securities that the Company is permitted to register in an at the market offering ; and provided, further, that if, at any time after giving written notice of its intention to register any Registrable Securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such Registrable Securities, the Company may, at its election, give written notice of such determination to Investments and/or the Buyer and, thereupon, (i) in the case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the expenses of registration in connection therewith), and (ii) in the case of a determination to delay registering such Registrable Securities, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities.  If Buyer shall have transferred all or part of its Registrable Securities, then for purposes of this Section, the term Buyer shall reference Buyer and/or such transferee(s).  

 

d. Securities Filings.  The Company undertakes and agrees to make all necessary filings (including, without limitation, a Form D) in connection with the sale of the Securities to the Buyer required under any United States laws and regulations applicable to the Company (including without limitation state blue sky laws), or by any domestic securities exchange or trading market, and to provide a copy thereof to the Buyer promptly after such filing.


e. Reporting Status; Public Trading Market; DTC Eligibility.  So long as the Buyer and/or Investments beneficially own any Securities, (i) the Company shall timely file, prior to or on the date when due, all reports that would be required to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if the Company had securities registered under Section 12(b) or 12(g) of the Exchange Act; (ii) the Company shall not be operated as, or report, to the SEC or any other Person, that the Company is a shell company or indicate to the contrary to the SEC or any other Person; (iii) the Company shall take all other action under its control necessary to ensure the availability of Rule 144 under the 1933 Act for the sale of Shares by the Buyer at the earliest possible date; and (iv) the Company shall at all times while any Securities are outstanding maintain its engagement of an independent registered public




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accounting firm.  Except as otherwise set forth in Transaction Documents, the Company shall take all action under its control necessary to obtain and to continue the listing and trading of its Common Stock (including, without limitation, all Registrable Securities) on the OTC Markets, Inc. ( OTCM ) at the mid-tier ( OTCQB ) or top-tier ( OTCQX ), and will comply in all material respects with the Company s reporting, filing and other obligations under the by-laws or rules of the Financial Industry Regulatory Authority ( FINRA ).  If, so long as the Buyer and/or Investments beneficially own any of the Securities, the Company receives any written notice from the OTCM, FINRA, or the SEC with respect to either any alleged deficiency in the Company s compliance with applicable rules and regulations (including without limitation any comments from the SEC on any of the Company s documents filed (or the failure to have made any such filing) under the 1933 Act or the Exchange Act) (each, a Regulatory Notice ), then the Company shall promptly, and in any event within two (2) business days, provide copies of the Regulatory Notice to the Buyer, and shall promptly, and in any event within five (5) business days of receipt of the Regulatory Notice (a Regulatory Response ), respond in writing to the OTCM, FIRNA and/or SEC (as the case may be), setting forth the Company s explanation and/or response to the issues raised in the Regulatory Notice, with a view towards maintaining and/or regaining full compliance with the applicable rules and regulations of the OTCM, FIRNA and/or SEC and maintaining or regaining good standing of the Company with the OTCM, FINRA and/or SEC, as the case may be, the intent being to ensure that the Company maintain its reporting company status with the SEC and that its Common Stock be and remain available for trading on the OTCQB or OTCQX (for the avoidance of doubt, excluding the bottom-tier OTC Pink (or, pink sheets ).  Further, at all times while any Securities are outstanding, the Common Stock shall be DWAC Operational, and the Common Stock shall not be subject to any DTC chill designation or similar restriction on the clearing of the Common Stock through DTC.  


f. Use of Proceeds.   The Company shall use the proceeds from the sale of the Debentures for working capital purposes only and will be subject to customary restrictions. Absent the prior written approval of a majority of the principal amount of the Debentures then outstanding, the Company shall not use any portion of the proceeds of the sale of the Debentures to (i) repay any indebtedness or other obligation of the Company incurred prior to the date of this Agreement outside the normal course of business, (ii) pay any dividends or redemption amount on any of the Company s equity or equity equivalents, (iii) pay any amounts, whether on account of debt obligations of the Company or otherwise, except for compensation, to any officer, director or other related party of the Company or (iv) pay deferred compensation or any compensation to any of the directors or officers of the Company in excess of the rate or amount paid or accrued during the fiscal year ended December, 2014 (as base compensation and excluding any discretionary amounts), other than modest increases consistent with prior practice that are approved by the Company s Board of Directors.


g. Available Shares.  Commencing on the date of execution and delivery of this Agreement, the Company shall have and maintain authorized and reserved for issuance, free from preemptive rights, that number of shares equal to Five Hundred percent (500%) of the number of shares of Common Stock (1) issuable based upon the conversion of the then-outstanding Debentures (including accrued interest thereon) as may be required to satisfy the conversion rights of the Buyer pursuant to the terms and conditions of the Debenture (without giving effect to the 4.99% limitation on ownership or One Hundred Eighty (180) day delay in



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convertibility, as set forth in the Debentures), provided, however that for purposes of the foregoing calculation, the full indebtedness under the Debentures shall be deemed immediately convertible and (2) issuable to the Buyer on future Closing Dates, based upon the lowest closing bid price per share of the Common Stock on the date before the most recent Closing Date (as reported by Bloomberg LP). The Company shall monitor its compliance with the foregoing requirements on an ongoing basis.  If at any time the Company does not have available an amount of authorized and non-issued Shares required to be reserved pursuant to this Section, then the Company shall, without notice or demand by the Buyer, call within thirty (30) days of such occurrence and hold within sixty (60) days of such occurrence a special meeting of shareholders, for the sole purpose of increasing the number of shares authorized.  Management of the Company shall recommend to shareholders to vote in favor of increasing the number of Common Stock authorized at the meeting.  Members of the Company s management shall also vote all of their own shares in favor of increasing the number of Common Stock authorized at the meeting.  If the increase in authorized shares is approved by the stockholders at the meeting, the Company shall implement the increase in authorized shares within one (1) business day following approval at such meeting.  Alternatively, to the extent permitted by applicable law, in lieu of calling and holding a meeting as described above, the Company may, within thirty (30) days of the date when the Company does not have available an amount of authorized and non-issued Shares required to be reserved as described above, procure the written consent of stockholders to increase the number of shares authorized, and provide the stockholders with notice thereof as may be required under applicable law (including without limitation Section 14(c) of the Exchange Act and Regulation 14C thereunder).  Upon obtaining stockholder approval as aforesaid, the Company shall cause the appropriate increase in its authorized shares of Common Stock within one (1) business day (or as soon thereafter as permitted by applicable law). Company s failure to comply with these provisions will be an Event of Default (as defined in the Debentures).


h. Reimbursement.   If (i) Buyer and/or Investments becomes a party defendant in any capacity in any action or proceeding brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if the Buyer and/or Investments is impleaded in any such action, proceeding or investigation by any Person, or (ii) the Buyer and/or Investments, other than by reason of its own gross negligence, willful misconduct or breach of law (as adjudicated by a court of law having proper jurisdiction and such adjudication is not subject to appeal), becomes a party defendant in any capacity in any action or proceeding brought by the SEC against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if the Buyer or Investments is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company shall promptly reimburse the Buyer and/or Investments for its or their reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of the Buyer and/or Investments who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling Persons (if any), as the case may be, of the Buyer, Investments and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and




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personal representatives of the Company, the Buyer, Investments and any such Affiliate and any such Person.  Except as otherwise set forth in the Transaction Documents, the Company also agrees that neither any Buyer, Investments nor any such Affiliate, partners, directors, agents, employees or controlling Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of the Transaction Documents.


i. The Company shall provide the Transfer Agent and/or the Buyer, Investments or their respective brokerage and/or clearing firm with all relevant legal opinions and other documentation requested by the Buyer or Investments in connection with the issuance of the Conversion Shares or the Restricted Stock, or the sale thereof, to confirm the share issuance(s) such that the Conversion Shares and/or Restricted Stock may be deposited with the applicable brokerage and/or clearing firm.

j. No Payments to Affiliates or Related Parties.  So long as any of the Debentures remain outstanding, if the Debentures are in default, the Company shall not, absent the prior written consent of the holders of all Debentures then outstanding, make any payments to any of the Company s or the Subsidiaries respective affiliates or related parties, including without limitation payments or prepayments of principal or interest accrued on any indebtedness or obligation in favor of affiliates or related parties.  Notwithstanding anything to the contrary contained herein, the provisions of this Section 4(j) shall not apply to payments to the Subsidiaries, or other businesses in which affiliates have an interest, made in the ordinary course of business and consistent with past practice as disclosed in the SEC Documents.


k. Notice of Material Adverse Effect.   The Company shall notify the Buyer (and any subsequent holder of the Debentures), as soon as practicable and in no event later than three (3) business days of the Company s knowledge of any Material Adverse Effect on the Company.  For purposes of the foregoing, knowledge means the earlier of the Company s actual knowledge or the Company s constructive knowledge upon due inquiry.


l. Public Disclosure.  Except to the extent required by applicable law, absent the Buyer s prior written consent, the Company shall not reference the name of the Buyer in any press release, securities disclosure, business plan, marketing or funding proposal.


m. Nature of Transaction; Savings Clause.  It is the parties express understanding and agreement that the transactions contemplated by the Transaction Documents constitute an investment and not a loan.  If nonetheless such transactions are deemed to be a loan (as adjudicated by a court of law having proper jurisdiction and such adjudication is not subject to appeal), the Company shall not be obligated or required to pay interest at a rate that could subject Buyer to either civil or criminal liability as a result of such rate exceeding the maximum rate that the Buyer is permitted to charge under applicable law, and the Company s obligations under the Transaction Documents shall not be void or voidable on the basis of the Buyer s lack of any license or registration as a lender with any governmental authority.   It is expressly understood and agreed by the parties that neither the amounts payable pursuant to Section 12, any redemption premium, remedy upon an Event of Default (as defined in the Debentures) or any Acceleration Amount (as defined in the Debentures), original issue discount nor any investment returns of the Buyer on the sale of the Debentures or the sale of any Conversion



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Shares (whether unrealized or realized) shall be construed as interest.  If, by the terms of the Debentures, any other Transaction Document or any other instrument, Buyer is at any time required or obligated to pay interest at a rate exceeding such maximum rate, interest payable under the Debenture and/or such other Transaction Documents or other instrument shall be computed (or recomputed) at such maximum rate, and the portion of all prior interest payments (if any) exceeding such maximum shall be applied to payment of the outstanding principal of the Debentures.  


4. TRANSFER AGENT INSTRUCTIONS.


a. Transfer Agent Instruction Letter.  On or before the Signing Closing Date, the Company shall irrevocably instruct its Transfer Agent in writing using the letter substantially in the form of Exhibit B annexed hereto, with only such modifications as the Buyer agrees to, executed by the Company, the Buyer and the Transfer Agent (the Transfer Agent Instruction Letter ), to (i) reserve that number of shares of Common Stock as is required under Section 4(g) hereof, and (ii) issue Common Stock from time to time upon conversion of the Debentures in such amounts as specified from time to time by the Buyer to the Transfer Agent in a Notice of Conversion, in such denominations to be specified by the Buyer in connection with each conversion of the Debentures.   The Transfer Agent shall not be restricted from issuing shares from only the allotment reserved hereunder for the Conversion Amount (as defined in the Debentures), but instead may, to the extent necessary to satisfy the amount of shares issuable upon conversion, issue shares above and beyond the amount reserved on account of the Conversion Amount, without any additional instructions or authorization from the Company, and the Company shall not provide the Transfer Agent with any instructions or documentation contrary to the foregoing.  As of the date of this Agreement, the Transfer Agent is Colonial Stock Transfer Company, Inc.  The Company shall at all times while any Debentures are outstanding engage a Transfer Agent which is a party to the Transfer Agent Instruction Letter.  The Company shall not terminate the Transfer Agent or otherwise change Transfer Agents without at least fifteen (15) days prior written notice to the Buyer and with the Buyer s prior written consent to such change, which the Buyer may grant or withhold in its sole discretion.  The Company shall continuously monitor its compliance with the share reservation requirements and, if and to the extent necessary to increase the number of reserved shares to remain and be at least Five Hundred percent (500%) of the Conversion Amount to account for any decrease in the Market Price of the Common Stock, the Company shall immediately (and in any event within two (2) business days) notify the Transfer Agent in writing of the reservation of such additional shares, provided that in the event that the number of shares reserved for conversion of the Debentures is less than Five Hundred percent (500%) of the Conversion Amount, the Buyer may also directly instruct the Transfer Agent to increase the reserved shares as necessary to satisfy the minimum reserved share requirement, and the Transfer Agent shall act accordingly, provided, further, that the Company shall within two (2) business days provide any written confirmation, assent or documentation thereof as the Transfer Agent may request to act upon a share increase instruction delivered by the Buyer.  The Company shall provide the Buyer with a copy of all written instructions to the Company s Transfer Agent with respect to the reservation of shares simultaneously with the issuance of such instructions to the Transfer Agent.  The Company covenants that no instruction other than such instructions referred to in this Section 5 and stop transfer instructions to give effect to Section 4(a) hereof prior to registration and sale of the




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Conversion Shares under the 1933 Act will be given by the Company to the Transfer Agent and that the Conversion Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and applicable law.  If the Buyer provides the Company and/or the Transfer Agent with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is not required under the 1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of this Agreement) permit the de-legending or transfer of the Securities and, in the case of the Conversion Shares, instruct the Company s Transfer Agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Buyer.  

b. Conversion.  (i) The Company shall permit the Buyer to exercise the right to convert the Debentures by faxing, emailing or delivering overnight an executed and completed Notice of Conversion to the Company or the Transfer Agent.  If so requested by the Buyer or the Transfer Agent, the Company shall within one (1) business day respond with its endorsement so as to confirm the outstanding principal amount of any Debenture submitted for conversion or shall reconcile any difference with the Buyer promptly after receiving such Notice of Conversion.


(i) The term Conversion Date means, with respect to any conversion elected by the holder of the Debentures, the date specified in the Notice of Conversion, provided the copy of the Notice of Conversion is given either via mail or facsimile to or otherwise delivered to the Transfer Agent and/or the Company in accordance with the provisions hereof so that it is received by the Transfer Agent and/or the Company on or before such specified date.


(i) The Company shall deliver (or will cause the Transfer Agent to deliver) the Conversion Shares issuable upon conversion (i) if the Company is then DWAC Operational, in electronic form by DWAC pursuant to the Buyer s instructions, or (ii) if the Company is not then DWAC Operational, then in certificated form to the Buyer at the address specified in the Notice of Conversion (which may be the Buyer s address for notices as contemplated by Section 10 hereof or a different address) via express courier, by electronic transfer or otherwise, within two (2) business days (the Delivery Date ) after (A) the business day on which the Buyer delivered the Notice of Conversion to the Company or Transfer Agent (by facsimile, email or other delivery) or (B) the date on which payment of interest and principal on the Debentures, which the Company has elected to pay by the issuance of Common Stock, as contemplated by the Debentures, was due, as the case may be.


a. Failure to Timely Issue Conversion Shares or De-Legended Shares.    The Company s failure to issue and deliver Conversion Shares to the Buyer (either by DWAC or in certificated form, as required by Section 5(b)) on or before the Delivery Date shall be considered an Event of Default, which shall entitle the Buyer to certain remedies set forth in the Debentures and provided by applicable law .  Similarly, the Company s failure to issue and deliver Common Stock in unrestricted form without a restrictive legend when required under the Transaction Documents shall entitle the Buyer to damages for the diminution in value (if any) of the relevant shares between the date delivery was due versus the date ultimately delivered in unrestricted form.  The Company acknowledges that its failure to timely honor a Notice of Conversion (or the occurrence of any other Event of Default) shall cause definable financial hardship on the



18



Buyer(s) and that the remedies set forth herein and in the Debentures are reasonable and appropriate.


b. Duties of Company; Authorization.  The Company shall inform the Transfer Agent of the reservation of shares contemplated by Section 4(g) and this Section 5, and shall keep current in its payment obligations to the Transfer Agent such that the Transfer Agent will continue to process share transfers and the initial issuance of shares of Common Stock upon the conversion of Debentures.  The Company hereby authorizes and agrees to authorize the Transfer Agent to correspond and otherwise communicate with the Buyer or their representatives in connection with the foregoing and other matters related to the Common Stock.  Further, the Company hereby authorizes the Buyer or its representative to provide instructions to the Transfer Agent that are consistent with the foregoing and instructs the Transfer Agent to honor any such instructions.  Should the Company fail for any reason to keep current in its payment obligations to the Transfer Agent, the Buyer and/or Investments may pay such amounts as are necessary to compensate the Transfer Agent for performing its duties with respect to share reservation, issuance of Conversion Shares and/or de-legending certificates representing Restricted Stock, and all amounts so paid shall be promptly reimbursed by the Company.  If not so reimbursed within thirty (30) days, such amounts shall, at the option of the Buyer and without prior notice to or consent of the Company, be added to the principal amount due under the Debenture(s) held by the Buyer, whereupon interest will begin to accrue on such amounts at the rate specified in the Debentures.


c. Effect of Bankruptcy.  The Buyer shall be entitled to exercise its conversion privilege with respect to the Debentures notwithstanding the commencement of any case under 11 U.S.C. 101 et seq. (the Bankruptcy Code ).  In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. 362 in respect of the Buyer s conversion privilege.  The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. 362 in respect of the conversion of the Debentures.  The Company agrees, without cost or expense to the Buyer, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C. 362.  


1. CLOSINGS.   


a. Signing Closing.   Promptly upon the execution and delivery of this Agreement, the Signing Debenture, and all conditions in Sections 7 and 8 herein are met (the Signing Closing Date ), (A) the Company shall deliver to the Buyer the following: (i) the Signing Debenture; (ii) the Transfer Agent Instruction Letter; (iii) duly executed counterparts of the Transaction Documents; and (iv) an officer s certificate of the Company confirming the accuracy of the Company s representations and warranties contained herein, and (B) the Buyer shall deliver to the Company the following:  (i) the Signing Purchase Price and (ii) duly executed counterparts of the Transaction Documents (as applicable).  The Company shall immediately pay the fees due under Section 12 of this Agreement upon receipt of the Signing Purchase Price if Buyer does not withhold such amounts from the Signing Purchase Price pursuant to Section 12.  


b.




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Second Closing.  At any time sixty one (61) to ninety (90) days following the Signing Closing Date, subject to the mutual agreement of the Buyer and the Company, for the Second Closing Date and subject to satisfaction of the conditions set forth in Sections 7 and 8, (A) the Company shall deliver to the Buyer the following: (i) the Second Debenture; (ii) an amendment to the Transfer Agent Instruction Letter instructing the Transfer Agent to reserve that number of shares of Common Stock as is required under Section 4(g) hereof, if necessary; and (iii) an officer s certificate of the Company confirming, as of the Second Closing Date, the accuracy of the Company s representations and warranties contained herein and updating Schedules 3(b), 3(c) and 3(k) as of the Second Closing Date, and (B) the Buyer shall deliver to the Company the Second Purchase Price.


c. Third Closing.  At any time sixty one (61) to ninety (90) days following the Second Closing Date, subject to the mutual agreement of the Buyer and the Company, for the Third Closing Date and subject to satisfaction of the conditions set forth in Sections 7 and 8, (A) the Company shall deliver to the Buyer the following: (i) the Third Debenture; (ii) an amendment to the Transfer Agent Instruction Letter instructing the Transfer Agent to reserve that number of shares of Common Stock as is required under Section 4(g) hereof, if necessary; and (iii) an officer s certificate of the Company confirming, as of the Third Closing Date, the accuracy of the Company s representations and warranties contained herein and updating Schedules 3(b), 3(c) and 3(k) as of the Third Closing Date, and (B) the Buyer shall deliver to the Company the Third Purchase Price.


d. Location and Time of Closings.  Each Closing shall be deemed to occur on the related Closing Date at the office of the Buyer s counsel and shall take place no later than 5:00 P.M., New York time, on such day or such other time as is mutually agreed upon by the Company and the Buyer.


2. CONDITIONS TO THE COMPANY S OBLIGATION TO SELL.


The Company s obligation to sell the Debentures to the Buyer pursuant to this Agreement on each Closing Date is conditioned upon:


a. Purchase Price.  Delivery to the Company of good funds as payment in full of the respective Purchase Price for the Debentures at each Closing in accordance with this Agreement;


b. Representations and Warranties; Covenants.  The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement, each as if made on such date, and the performance by the Buyer on or before such date of all covenants and agreements of the Buyer required to be performed on or before such date; and


c. Laws and Regulations; Consents and Approvals.  There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.


3.



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CONDITIONS TO THE BUYER S OBLIGATION TO PURCHASE.


The Buyer s obligation to purchase the Debentures at each Closing is conditioned upon:


a. Transaction Documents.  The execution and delivery of this Agreement by the Company;


b. Debenture(s).  Delivery by the Company to the Buyer of the Debentures to be purchased in accordance with this Agreement;     


c. Section 4(a)(2) Exemption. The Debentures and the Conversion Shares shall be exempt from registration under the Securities Act of 1933 (as amended), pursuant to Section 4(a)(2) thereof;


d.   DWAC Status .  The Common Stock shall be DWAC Operational;

e. Representations and Warranties; Covenants. The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;


f. Good-faith Opinion.  It should be Buyer s reasonable belief that (i) no Event of Default under the terms of any outstanding indebtedness of the Company shall have occurred or would likely occur with the passage of time and (ii) no material adverse change in the financial condition or business operations of the Company shall have occurred;


g. Legal Proceedings.  There shall be no litigation, criminal or civil, regulatory impairment or other legal and/or administrative proceedings challenging or seeking to limit the Company s ability to issue the Securities or the Common Stock;


h. Intentionally Omitted.


i. Corporate Resolutions.  Delivery by the Company to the Buyer a copy of resolutions of the Company s board of directors, approving and authorizing the execution, delivery and performance of the Transaction Documents and the transactions contemplated thereby in the form attached hereto as Exhibit C (the Irrevocable Resolutions );


j. Officer s Certificate.  Delivery by the Company to the Buyer of a certificate of the Chief Executive Officer of the Company in the form attached hereto as Exhibit D ;


k. Search Results.   Delivery by the Company to the Buyer of copies of UCC search reports, issued by the Secretary of State of the state of incorporation of the Company and each Subsidiary, dated such a date as is reasonably acceptable to Buyer, listing all effective financing statements which name the Company or Subsidiary (as applicable), under its present name and any previous names, as debtor, together with copies of such financing statements;

l.




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Certificate of Good Standing.  Delivery by the Company to the Buyer of a copy of a certificate of good standing with respect to the Company, issued by the Secretary of State of the state of incorporation of the Company, dated such a date as is reasonably acceptable to Buyer, evidencing the good standing thereof;


m. Laws and Regulations; Consents and Approvals.  There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained; and


n. Adverse Changes.  From and after the date hereof to and including each Closing Date, (i) the trading of the Common Stock shall not have been suspended by the SEC, FINRA, or any other governmental or self-regulatory organization, and trading in securities generally on OTCM shall not have been suspended or limited, nor shall minimum prices been established for securities traded on the OTCM; (ii) there shall not have occurred any outbreak or escalation of hostilities involving the United States or any material adverse change in any financial market that in either case in the reasonable judgment of the Buyer makes it impracticable or inadvisable to purchase the Debentures.


4. GOVERNING LAW; MISCELLANEOUS.  


a. MANDATORY FORUM SELECTION.  ANY DISPUTE ARISING UNDER, RELATING TO, OR IN CONNECTION WITH THE AGREEMENT OR RELATED TO ANY MATTER WHICH IS THE SUBJECT OF OR INCIDENTAL TO THE AGREEMENT (WHETHER OR NOT SUCH CLAIM IS BASED UPON BREACH OF CONTRACT OR TORT) SHALL BE SUBJECT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE STATE AND/OR FEDERAL COURTS LOCATED IN MIAMI-DADE COUNTY, FLORIDA.  THIS PROVISION IS INTENDED TO BE A MANDATORY FORUM SELECTION CLAUSE AND GOVERNED BY AND INTERPRETED CONSISTENTLY WITH FLORIDA LAW.


b. Governing Law.   Except in the case of the Mandatory Forum Selection clause above, this Agreement shall be delivered and accepted in and shall be deemed to be contracts made under and governed by the internal laws of the State of Florida, and for all purposes shall be construed in accordance with the laws of the State of Floridaa, without giving effect to the choice of law provisions.  To the extent determined by the applicable court described above, the Company shall reimburse the Buyer for any reasonable legal fees and disbursements incurred by the Buyer in enforcement of or protection of any of its rights under any of the Transaction Documents.


c. Waivers.  Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.


d. Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.


e.



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Construction.  All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.


f. Facsimiles; E-mails.  A facsimile or email transmission of this signed Agreement or a Notice of Conversion under the Debentures shall be legal and binding on all parties hereto.  Such electronic signatures shall be the equivalent of original signatures.


g. Counterparts.  This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.  


h. Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.  


i. Enforceability.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.


j. Amendment.  This Agreement may be amended only by the written consent of a majority in interest of the holders of the Debentures and an instrument in writing signed by the Company.


k. Entire Agreement.  This Agreement, together with the other Transaction Documents, supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.  


l. No Strict Construction.  This Agreement shall be construed as if both Parties had equal say in its drafting, and thus shall not be construed against the drafter.


m. Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.


5. NOTICES.



Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:


a. the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile or email transmission,


b. the third (3 rd ) business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or


c.




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the first (1 st ) business day after deposit with a recognized courier service (e.g. FedEx, UPS, DHL, US Postal Service) for delivery by next-day express courier, with delivery costs and fees prepaid,


in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) days advance written notice similarly given to each of the other parties hereto):


COMPANY :    

Clean Energy Technologies, Inc.

150 Baker Street East

Costa Mesa, CA  92626

Attention:  Kambiz Mahdi, Chief Executive Officer

Facsimile:  949-273-4990 x 814

Email:  kmahdi@ceti.io




With copies to (which shall not constitute notice):


Law Office of Andrew Coldicutt

1220 Rosecrans Street, PMB 258

San Diego, CA 92106

Attention:  Andrew Coldicutt, Esq.

Email:  Andrew@ColdicuttLaw.com


BUYER:

Peak One Opportunity Fund, L.P.

333 South Hibiscus Drive

Miami Beach, FL 33139

Attention:  Jason Goldstein

Email:  jgoldstein@peakoneinvestments.com



With copies to (which shall not constitute notice):



Zabatta Group, LLP

91 Central Park West, Suite 1H

New York, NY  10023

Attention:  Patrick G. Zabatta, Esq.

Email:  pzabatta@gmail.com


6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company s representations and warranties herein shall survive for so long as any Debentures are outstanding, and shall inure to the benefit of the Buyer, its successors and assigns.


7. FEES; EXPENSES.


a. Commitment Fee .  The Company shall pay to Investments a non-accountable fee (the Commitment Fee ) of (i) Two Thousand Five Hundred and 00/100 Dollars ($2,500.00)



24



and (ii) Four Hundred Thousand (400,000) shares of Restricted Stock for Investments expenses and analysis performed in connection with the analysis of the Company and the propriety of the Buyer s making the contemplated investment.  The Commitment Fee shall be paid on the Signing Closing Date immediately upon receipt of the Signing Purchase Price if Buyer does not withhold such amounts from the Signing Purchase Price pursuant to Section 12(c).


b. Legal Fees .  The Company shall pay the legal fees of the Buyer s counsel (the Legal Fees ) in the amount of Two Thousand Five Hundred and 00/100 Dollars ($2,500.00).  The foregoing legal fees shall be paid on the Signing Closing Date immediately upon receipt of the Signing Purchase Price if Buyer does not withhold such amounts from the Signing Purchase Price pursuant to Section 12(c).  The Company further agrees to pay in full the reasonable legal fees of the Buyer s counsel incurred after the Signing Closing Date incurred in connection with the Transaction Documents (including addressing any purported breach(es) or default(s) by the Company, enforcement of the Company s obligations or the exercise of the Buyer s remedies thereunder).  


c. Disbursements. In furtherance of the foregoing, the Company hereby authorizes the Buyer to deduct the cash portion of the Commitment Fee and the Legal Fees from the Signing Purchase Price and transmit same to the respective payee.  The Company shall pay disbursements of the Buyer s legal counsel and legal fees incurred after the Signing Closing Date (within ten (10) days of invoice therefor (if applicable).  


[Signature Page Follows]




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IN WITNESS WHEREOF , this Agreement has been duly executed by the Buyer and the Company as of the date first set forth above.


COMPANY:


CLEAN ENERGY TECHNOLOGIES, INC.




By:   ______________________________________

Name:  Kambiz Mahdi

Title:    Chief Executive Officer



BUYER:  


PEAK ONE OPPORTUNITY FUND, L.P.  


By:   Peak One Investments, LLC,

        General Partner




          By:  ___________________________________

          Name: Jason Goldstein

          Title:   Managing Member















26



SECURITIES PURCHASE AGREEMENT

This SECURITIES   PURCHASE   AGREEMENT   (this   Agreement ),   dated   as   of   June   6,

2016, is entered into   by and   between   CLEAN    ENERGY    TECHNOLOGIES,    INC.,    a    Nevada

corporation   (the   Company ),   and   EMA   Financial,   LLC,   a   Delaware   limited   liability   company

(the Purchaser ).

WHEREAS,   subject   to   the   terms and   conditions   set   forth   in this   Agreement   and   pursuant

to   Section   4(2)   of   the   Securities   Act   of   1933,   as   amended   (the   Securities   Act   or   1933   Act ),

and   Rule 506 promulgated thereunder   by the United States Securities and Exchange Commission

(the SEC ), the   Company desires to   issue and   sell to the Purchaser, and   the Purchaser desires to

purchase   from   the   Company   a   12%   Convertible   Note   of   the   Company,  in   the   form   attached

hereto   as   Exhibit   A,   in   the   principal   amount   of   $87,500.00   (together   with   any   note(s)   issued   in

replacement   thereof   or   as   interest   thereon   or   otherwise   with   respect   thereto   in   accordance   with

the   terms   thereof,   the   Note ),   convertible   into   shares   ( Conversion   Shares )   of   common   stock,

$0.001   par   value   per   share   (the   Common   Stock ),   of the   Company,   upon   the   terms   and   subject

to the   limitations and conditions set   forth in such Note.

NOW,   THEREFORE,   IN   CONSIDERATION   of   the   mutual   covenants   contained   in   this

Agreement, and   for other good and valuable consideration, the receipt   and adequacy of which are

hereby acknowledged, the Company and the Purchaser agree as follows:

1.   Purchase and Sale of Note.

a)

Purchase   of   Note.   On   the   Closing   Date   (as   defined   below),   the   Company

shall   issue   and   sell   to   the   Purchaser,   and   the   Purchaser   agrees   to   purchase   from   the   Company,

the Note for an aggregate purchase price of $80,000.00 ( Purchase Price ).

b)

Form   of   Payment.   On   the   Closing   Date   (i)   the  Purchaser  shall   pay   the

Purchase   Price   by   wire   transfer   of   immediately   available   funds   to   the   Company,   in   accordance

   with   the   Company s   written   wiring   instructions,   simultaneously   with   delivery   of   the   Note,   and

(ii)  the  Company  shall  deliver  such  Note  duly  executed  on  behalf   of   the  Company  to  the

Purchaser, simultaneously with delivery of such Purchase Price.

c)

Closing    Date.    Subject    to    the    satisfaction    (or    written    waiver)    of    the

conditions   thereto   set   forth   in   Section   6   and   Section   7   below,   the   closing   of   the   transactions

contemplated   by   this   Agreement   (the   Closing )   shall   occur   on   the   first   business   day   following

the   date   hereof   or   such   other   mutually   agreed   upon   time   (the   Closing   Date )   at   the   offices   of

   Purchaser s counsel.

2.   Purchaser s   Representations   and     Warranties.   The     Purchaser     represents   and

warrants to the Company that:

a)

Investment    Purpose.  Purchaser    is    acquiring    the    Securities    for    its  own

account  and  not  with  a  view  towards,   or  for  resale  in  connection  with,  the  public  sale  or

distribution thereof in   violation of applicable   securities   laws; provided,   however,   by   making   the

representations   herein,   Purchaser   does   not   agree,   or   make   any   representation   or   warranty,   to

hold   any   of   the   Securities   for   any   minimum   or   other   specific   term   and   reserves   the   right   to

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SPA   CETY, T1, 2016-06-06



dispose   of   the   Securities   at   any   time   in   accordance   with   or   pursuant   to   a   registration   statement

or an exemption under   the   1933   Act.    The   Purchaser   is acquiring   the Securities   hereunder   in the

ordinary  course  of  its  business.    The  Purchaser    does  not  presently  have  any  agreement  or

understanding,  directly   or  indirectly,  with  any  person   to  distribute  any   of   the  Securities  in

violation of applicable securities laws.

b)

Accredited   Investor   Status.   The   Purchaser   is   an   accredited   investor   as

   that term is defined   in Rule 501(a) of Regulation D (an Accredited Investor ).

c)

Reliance on Exemptions. The Purchaser understands that the Securities are

being    offered    and    sold    to    it    in    reliance    upon    specific    exemptions    from    the    registration

requirements   of United   States   federal   and   state   securities   laws   and   that   the   Company   is   relying

upon  the  truth  and  accuracy  of,  and  the  Purchaser s  compliance  with,  the  representations,

warranties,   agreements,   acknowledgments   and   understandings   of   the   Purchaser   set   forth   herein

in   order   to   determine   the   availability   of   such   exemptions   and   the   eligibility   of   the   Purchaser   to

acquire the Securities.

d)

Information.   The   Purchaser   and   its   advisors,   if   any,   have   been,   and   for   so

long  as  the  Securities  remain  outstanding  will  continue  to  be,  furnished  with  all  materials

relating   to   the   business,   finances   and   operations   of   the   Company   and   materials   relating   to   the

offer   and   sale   of   the   Securities   which   have   been   reasonably   requested   by   the   Purchaser   or   its

advisors, provided   that   the Purchaser   has not   been   furnished with, and   the Company shall not   in

the  future   deliver   to   the   Purchaser   without  its   consent,   any   material   non-public  information

concerning   the   Company.   The   Purchaser   and   its   advisors,   if   any,   have   been,   and   for   so   long   as

the   Securities   remain   outstanding   will   continue   to   be,   afforded   the   opportunity to   ask   questions

of the   Company.   Neither   such   inquiries   nor   any   other   due   diligence   investigation   conducted   by

Purchaser   or   any   of   its   advisors   or   representatives   shall   modify,   amend   or   affect   Purchaser s

   right   to   rely   on   the   Company s   representations   and   warranties   contained   in   Section   3   below.

The   Purchaser   understands   that   its   investment   in   the   Securities   involves   a   significant   degree   of

risk.

e)

Governmental   Review.   The   Purchaser   understands   that   no   United   States

federal   or   state   agency   or   any   other   government   or   governmental   agency   has   passed   upon   or

made any recommendation or endorsement of the Securities.

f)

Transfer   or   Re-sale.   The   Purchaser   understands   that   (i)   the   sale   or   re-sale

of the   Securities   has   not   been   and   is   not   being   registered   under   the   1933   Act   or   any   applicable

state   securities   laws,   and   the   Securities   may   not   be   transferred   unless   (a)   the   Securities   are   sold

pursuant   to   an   effective   registration   statement   under   the   1933   Act,   (b)   the   Purchaser   shall   have

delivered   to   the   Company   an   opinion   of   counsel   that   shall   be  in   form,   substance   and   scope

customary   for   opinions   of counsel   in   comparable   transactions   to   the   effect   that   the   securities   to

be    sold    or    transferred    may    be    sold    or    transferred    pursuant    to    an    exemption    from    such

registration, which opinion shall be reasonably acceptable to the Company,   (c) the Securities are

   sold   or   transferred   to   an   affiliate   (as defined   in   Rule   144   promulgated   under   the   1933   Act   (or

   a   successor   rule)   ( Rule   144 )   of   the   Purchaser   who   agrees   to   sell   or   otherwise   transfer   the

Securities   only   in   accordance   with   this   Section   2(f)   and   who   is   an   Accredited   Investor,   (d)   the

Securities   are   sold   pursuant   to   Rule   144,   or   (e)   the   Securities   are   sold   pursuant   to   Regulation   S

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SPA   CETY, T1, 2016-06-06



   under the 1933 Act   (or a successor rule) ( Regulation S ) and the   Purchaser shall have delivered

to   the   Company   an   opinion   of   counsel   reasonably   acceptable   to   the   Company   relating   to   such

Regulation S; (ii) any sale of such Securities made   in reliance on Rule 144   may be made only in

accordance with the terms of such Rule and   further, if such Rule is not   applicable, any re-sale of

such Securities under   circumstances   in   which the   seller   (or the person through whom the   sale   is

made)   may be deemed to be an underwriter (as that term is defined   in the 1933 Act) may require

compliance   with   some   other   exemption   under   the   1933   Act   or   the   rules   and   regulations   of   the

SEC   thereunder;   and   (iii)   neither   the   Company   nor   any   other   person   is   under   any   obligation   to

register   such   Securities   under   the   1933   Act   or   any   state   securities   laws   or   to   comply   with   the

terms    and    conditions    of    any    exemption    thereunder    (in    each    case).    Notwithstanding    the

foregoing   or   anything   else   contained   herein   to   the   contrary,   the   Securities   may   be   pledged   as

collateral in connection with a   bona   fide   margin account or other lending arrangement.

g)

Legends.   The   Purchaser   understands   that   the   Securities   have   been   issued

(or  will  be    issued    in  the  case  of  the  Conversion  Shares)  pursuant  to    an  exemption  from

registration   or   qualification   under   the   1933   Act   and   applicable   state   securities   laws,   and   except

as set   forth below, the Securities shall bear any legend as required   by   the blue sky laws of any

state   and   a   restrictive   legend   in   substantially   the   following   form (and   a   stop-transfer   order   may

be placed against   transfer of such stock certificates):

NEITHER    THE    ISSUANCE    AND    SALE    OF    THE    SECURITIES

REPRESENTED   BY   THIS   CERTIFICATE   NOR   THE   SECURITIES

INTO    WHICH    THESE    SECURITIES    ARE    [CONVERTIBLE]

[EXERCISABLE]

HAVE

BEEN][THE

SECURITIES

REPRESENTED   BY   THIS   CERTIFICATE   HAVE   NOT   BEEN]

REGISTERED   UNDER   THE   SECURITIES   ACT   OF   1933,   AS

AMENDED,   OR   APPLICABLE   STATE   SECURITIES   LAWS.   THE

SECURITIES     MAY     NOT     BE     OFFERED     FOR     SALE,     SOLD,

TRANSFERRED   OR   ASSIGNED   (I)   IN   THE   ABSENCE   OF   (A)   AN

EFFECTIVE

REGISTRATION

STATEMENT

FOR

THE

SECURITIES     UNDER     THE     SECURITIES     ACT     OF     1933,     AS

AMENDED,    OR     (B) AN     OPINION     OF    COUNSEL     TO    THE

HOLDER    (IF    REQUESTED    BY    THE    COMPANY),    IN    A    FORM

REASONABLY    ACCEPTABLE    TO    THE    COMPANY,    THAT

REGISTRATION   IS   NOT   REQUIRED   UNDER   SAID   ACT   OR   (II)

UNLESS    SOLD    OR    ELIGIBLE    TO    BE    SOLD    PURSUANT    TO

RULE

144

OR

RULE

144A

UNDER

SAID

ACT.

NOTWITHSTANDING     THE     FOREGOING,     THE     SECURITIES

MAY    BE    PLEDGED    IN    CONNECTION    WITH    A    BONA    FIDE

MARGIN    ACCOUNT    OR    OTHER    LOAN    OR    FINANCING

ARRANGEMENT SECURED BY THE SECURITIES.

The   legend   set   forth   above   shall   be   removed   and   the   Company   shall   issue   a   certificate

without   such   legend   to   the   holder   of any   Security   upon   which   it   is   stamped,   if,   unless   otherwise

required   by   applicable   state   securities   laws,   (a)   such   Security   is   registered  for   sale   under   an

effective   registration   statement   filed   under   the   1933   Act   or   otherwise   may   be   sold   pursuant   to

Rule   144   or   Regulation S   without   any restriction as to   the number   of securities as of a particular

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SPA   CETY, T1, 2016-06-06



date that   can then be   immediately sold, or (b) such holder provides the Company with an   opinion

of   counsel   at   the   Company s   expense,   in   the   form,   substance   and   scope   customary   for   opinions

of counsel   in   comparable   transactions,   to   the effect   that   a public   sale or transfer   of such Security

may  be    made  without  registration  under  the  1933  Act,    which  opinion  shall  be    reasonably

accepted   by the   Company   so   that   the   sale   or   transfer   is   effected.   The   Purchaser   agrees   to   sell   all

Securities,    including  those  represented    by  a    certificate(s)    from  which  the    legend    has    been

removed,   in compliance with applicable prospectus delivery requirements, if any.

h)

Authorization;   Enforcement.   This   Agreement   has   been   duly   and   validly

authorized.   This   Agreement   has   been   duly   executed   and   delivered   on   behalf   of   the   Purchaser,

and   this   Agreement   constitutes   a   valid   and   binding   agreement   of   the   Purchaser   enforceable   in

accordance with its terms.

3.   Representations   and   Warranties   of   the   Company.   The   Company   represents   and

warrants to the Purchaser, as of the date hereof and the Closing Date,   that:

a)

Organization and Qualification. The Company and   each of its Subsidiaries

(as defined   below),   if any,   is a   corporation duly organized,   validly existing and   in good standing

under   the   laws   of   the   jurisdiction   in   which   it  is   incorporated,   with   full   power   and   authority

(corporate and   other) to   own,   lease, use and operate   its properties and to   carry on its business as

and   where   now   owned,   leased,   used,   operated   and   conducted.   Schedule   3(a)   sets   forth   a   list   of

all   of   the   Subsidiaries   of   the   Company   and   the   jurisdiction   in   which   each   is   incorporated.   The

Company   and   each   of   its   Subsidiaries   is   duly   qualified   as   a   foreign   corporation   to   do   business

and   is   in   good   standing   in   every   jurisdiction   in   which   its   ownership   or   use   of   property   or   the

nature   of   the   business   conducted   by   it  makes   such   qualification   necessary   except   where   the

failure  to  be  so  qualified  or  in  good  standing  would  not  have  a  Material  Adverse  Effect.

   Material Adverse Effect   means any material adverse effect   on the business, operations, assets,

financial condition or   prospects of the   Company or   its Subsidiaries,   if   any,   taken   as   a whole,   or

on   the   transactions   contemplated   hereby   or   by   the   agreements   or   instruments   to   be   entered   into

in   connection   herewith.    Subsidiaries   means   any   corporation   or   other   organization,   whether

incorporated   or   unincorporated,   in   which   the   Company   owns,   directly   or   indirectly,   any   equity

or other ownership   interest.

b)

Authorization;   Enforcement.   (i)   The   Company   has   all   requisite   corporate

power   and   authority to   enter   into   and   perform this   Agreement   and   the Note   and   to   consummate

the transactions contemplated hereby and thereby and to   issue the Securities,   in accordance with

the   terms   hereof and   thereof,   (ii)   the   execution   and   delivery of this   Agreement   and   the   Note   by

the   Company   and   the   consummation   by   it   of   the   transactions   contemplated   hereby   and   thereby

(including   without  limitation,   the  issuance   of   the   Note  and   the  issuance   and   reservation   for

issuance   of   the   Conversion   Shares   issuable   upon   conversion   and   exercise   thereof)   have   been

   duly authorized   by the Company s Board of Directors and no   further consent   or authorization of

the   Company,   its   Board   of   Directors,   or   its   shareholders   is   required,   (iii)   this   Agreement   has

been   duly   executed   and   delivered   by   the   Company   by   its   authorized   representative,   and   such

authorized  representative    is  the  true  and  official  representative    with  authority  to    sign  this

Agreement   and   the   other   documents   executed   in   connection   herewith   and   bind   the   Company

accordingly,    and  (iv)  this    Agreement  constitutes,  and  upon  execution  and  delivery  by  the

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SPA   CETY, T1, 2016-06-06



Company   of   the   Note   and   each   of   such   instruments   will   constitute,   a   legal,   valid   and   binding

obligation of the Company enforceable against the Company in accordance with its terms.

c)

Capitalization.   As   of   the   date   hereof,   the   authorized   capital   stock   of   the

Company,   and   number   of   shares   issued   and   outstanding,   is   as   set   forth   in   the   Company s   most

recent  periodic   report  filed  with   the   SEC.  Except  as   disclosed   on   Schedule  3(c)   hereof,  no

   shares  are  reserved  for  issuance  pursuant  to  the  Company s  stock  option  plans.  Except  as

disclosed  in   the  SEC  Documents   no  shares   are  reserved  for  issuance  pursuant  to  securities

exercisable   for,   or   convertible   into   or   exchangeable   for   shares   of   Common   Stock.   All   of   such

outstanding   shares of capital stock are, or upon issuance will be, duly authorized,   validly issued,

fully  paid  and    non-assessable.    No    shares  of  capital  stock  of  the    Company  are  subject    to

preemptive   rights or   any other   similar   rights of the shareholders of the Company or   any liens or

encumbrances   imposed   through the   actions or   failure to   act   of the Company.   As   of the effective

date  of  this  Agreement,  and  except  as  disclosed  in  the    SEC  Documents,  (i)  there  are    no

outstanding   options,   warrants,   scrip,   rights   to   subscribe   for,   puts,   calls,   rights   of   first   refusal,

agreements,   understandings,   claims or other   commitments or   rights of any character   whatsoever

relating   to,   or   securities,  notes   or   rights   convertible  into  or   exchangeable  for   any   shares   of

capital stock of the   Company or any of its Subsidiaries, or arrangements by which the Company

or   any of   its   Subsidiaries   is   or   may   become   bound   to   issue   additional   shares   of capital   stock   of

the   Company   or   any   of   its   Subsidiaries,   (ii)   there   are   no   agreements   or   arrangements   under

which   the   Company   or   any   of   its   Subsidiaries   is   obligated   to   register   the   sale   of   any   of   its   or

their  securities  under  the  1933  Act  and  (iii)  there  are  no  anti-dilution  or  price  adjustment

provisions   contained   in   any   security   issued   by   the   Company   (or   in   any   agreement   providing

rights   to   security   holders)   that   will   be   triggered   by   the   issuance   of   any   of   the   Securities.   The

Company has furnished to the Purchaser true and correct   copies of the Company s Certificate of

   Incorporation   as   in   effect   on   the   date   hereof   ( Certificate   of   Incorporation ),   the   Company s

By-laws,    as    in    effect    on  the  date    hereof  (the    By-laws ),    and  the  terms  of  all  securities

convertible   into or exercisable   for Common Stock of the Company and the material rights of the

holders thereof in respect thereto.

d)

Issuance    of    Shares.    The    Conversion    Shares    are    duly    authorized    and

reserved   for   issuance   and,   upon   conversion   of the   Note,   as the case   may   be,   in   accordance   with

their   respective   terms,   will   be   validly   issued,   fully   paid   and   non-assessable,   and   free   from   all

taxes,   liens,   claims   and   encumbrances   with   respect   to   the   issue   thereof   and   shall   not   be   subject

to   preemptive   rights or other   similar   rights of shareholders of the Company and   will   not   impose

personal liability upon the holder thereof.

e)

Acknowledgment    of    Dilution.    The    Company s    executive    officers    and

directors  understand  the    nature  of   the  Securities  being  sold  hereby  and  recognize  that  the

issuance   of   the   Securities   will   have   a   potential   dilutive   effect   on   the   equity   holdings   of   other

   holders   of   the   Company s   equity   or   rights   to   receive   equity   of   the   Company.    The   board   of

directors of the Company has concluded,   in its good faith business judgment   that the issuance of

the   Securities   is   in   the   best   interests of the   Company.    The   Company   specifically acknowledges

that   its   obligation   to   issue   the   Conversion   Shares   upon   conversion   of the   Notes   is   binding   upon

the    Company    and    enforceable    regardless    of    the    dilution    such    issuance    may    have    on  the

ownership   interests of other stockholders of the Company or parties entitled to   receive equity of

the Company.

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SPA   CETY, T1, 2016-06-06



f)

No   Conflicts. The execution, delivery and performance of this   Agreement,

the    Note    by    the    Company    and    the    consummation    by    the    Company    of    the    transactions

contemplated hereby and thereby (including, without   limitation, the issuance and reservation for

issuance   of   the   Conversion   Shares)   will   not   (i)   conflict   with   or   result  in   a  violation   of   any

provision of the   Certificate   of Incorporation or   By-laws,   or   (ii)   violate or   conflict   with,   or   result

in a   breach of any provision of, or constitute a default   (or an event   which with notice or   lapse   of

time  or  both  could  become  a  default)  under,  or  give  to  others  any  rights  of  termination,

amendment,   acceleration   or   cancellation   of,   any   agreement,   indenture,   patent,   patent   license   or

instrument   to   which   the   Company or   any of   its Subsidiaries   is   a part y and   that   is   not   filed   as an

SEC   Document   or   other   document   filed   with   the   SEC,   or   (iii)   result   in   a   violation   of   any   law,

rule,  regulation,  order,  judgment  or  decree  (including  federal   and  state  securities  laws  and

regulations   and   regulations   of   any   self-regulatory   organizations   to   which   the   Company   or   its

securities   are   subject)   applicable   to   the   Company   or   any   of   its   Subsidiaries   or   by   which   any

property or asset   of the Company or any of its Subsidiaries is bound or affected (except   for such

conflicts,  defaults,  terminations,  amendments,  accelerations,  cancellations  and  violations  as

would  not,  individually  or  in  the  aggregate,  have  a  Material  Adverse  Effect).  Neither  the

Company   nor   any   of   its   Subsidiaries   is   in   violation   of   its   Certificate   of   Incorporation,   By-laws

or   other   organizational   documents   and   neither   the   Company   nor   any   of   its   Subsidiaries   is   in

default   (and   no   event   has   occurred   which   with   notice   or   lapse   of   time   or   both   could   put   the

Company   or   any   of   its   Subsidiaries   in   default)   under,   and   neither   the   Company   nor   any   of   its

Subsidiaries   has   taken   any   action   or   failed   to   take   any   action   that   would   give   to   others   any

rights   of   termination,   amendment,   acceleration   or   cancellation   of,   any   agreement,   indenture   or

instrument   to   which the   Company or   any of its Subsidiaries   is a party or   by which   any property

or   assets   of   the   Company   or   any   of   its   Subsidiaries   is   bound   or   affected,   except   for   possible

defaults   as   would   not,   individually   or   in   the   aggregate,   have   a   Material   Adverse   Effect.   The

businesses   of   the   Company   and   its   Subsidiaries,   if   any,   are   not   being   conducted,   and   shall   not

be   conducted   so  long   as   the   Purchaser   owns   any   of   the   Securities,   in   violation   of   any   law,

ordinance   or   regulation of any governmental entity.   Except   as specifically   contemplated   by this

Agreement   and   as   required   under   the   1933   Act   and   any   applicable   state   securities   laws,   the

Company   is   not   required   to   obtain   any   consent,   authorization   or   order   of,   or   make   any   filing   or

registration   with,     any   court,   governmental   agency,     regulatory   agency,     self   regulatory

organization or   stock   market   or   any third   party in   order   for   it   to   execute,   deliver   or   perform any

of   its   obligations   under   this   Agreement   and   the   Note   in   accordance   with   the   terms   hereof   or

thereof or to   issue   and   sell   the   Securities   in   accordance with the terms hereof and   thereof and   to

issue the Conversion Shares. All consents, authorizations, orders, filings and registrations which

the   Company   is   required   to   obtain   pursuant   to   the   preceding   sentence   have   been   obtained   or

effected    on  or    prior    to    the    date    hereof.    The    Company    is    not    in    violation    of    the    listing

requirements of the Over-the-Counter Bulletin Board (the OTCBB ), or OTCQB, or OTC Pink

and   does   not   reasonably   anticipate   that   the   Common   Stock   will   be   delisted   by   the   OTCBB,   or

OTCQB, or   OTC   Pink   in the   foreseeable   future.   The Company and   its Subsidiaries are unaware

of any facts or circumstances which might   give rise to any of the foregoing.

g)

SEC Documents; Financial Statements. The Company has filed   all reports,

schedules,   forms,   statements and   other   documents required   to   be   filed   by   it   with the   SEC (all of

the  foregoing  filed  prior  to  the  date  hereof   and  all  exhibits  included  therein  and  financial

statements    and    schedules    thereto    and    documents    (other    than  exhibits    to    such  documents)

   incorporated     by   reference     therein,     being     hereinafter     referred     to     herein   as   the    SEC

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SPA   CETY, T1, 2016-06-06



Documents ).    Upon    written    request    the    Company    will    deliver    to    the    Purchaser    true    and

complete   copies   of   the   SEC   Documents,   except   for   such   exhibits   and   incorporated   documents.

As   of   their   respective   dates,   the   SEC   Documents   complied   in   all   material   respects   with   the

requirements   of   the   Securities   Exchange   Act   of   1934,   as   amended   ( 1934   Act   or   Exchange

   Act ), and   none of the SEC Documents, at the time they were filed with the   SEC, contained any

untrue statement   of a   material fact   or omitted to   state a material fact   required to   be stated therein

or   necessary   in   order   to   make   the   statements   therein,   in   light   of the   circumstances   under   which

they   were   made,   not   misleading.   None   of   the   statements   made   in   any   such   SEC   Documents   is,

or    has    been,    required    to    be    amended    or    updated    under    applicable    law    (except    for    such

statements   as   have   been   amended   or   updated   in   subsequent   filings   prior   the   date   hereof).   As   of

their   respective   dates,   the   financial statements of the   Company   included   in   the   SEC Documents

complied   as   to   form   in   all   material   respects   with   applicable   accounting   requirements   and   the

published   rules   and   regulations   of the   SEC   with   respect   thereto.   Such   financial   statements   have

been  prepared    in  accordance    with  United  States  generally  accepted  accounting  principles,

consistently   applied,   during   the   periods   involved   and   fairly   present   in   all   material   respects   the

consolidated   financial position   of the   Company and   its consolidated   Subsidiaries as of the   dates

thereof   and   the   consolidated   results   of   their   operations   and   cash   flows   for   the   periods   then

ended  (subject,  in   the  case   of   unaudited   statements,   to  normal   year-end   audit  adjustments).

Except   as set   forth   in the   financial   statements of the   Company   included   in   the   SEC Documents,

the   Company   has   no   liabilities,   contingent   or   otherwise,   other   than   (i)   liabilities   incurred   in   the

ordinary   course   of   business,   and   (ii)   obligations   under   contracts   and   commitments   incurred   in

the   ordinary course   of business and   not   required   under   generally accepted   accounting   principles

to   be   reflected   in   such   financial   statements,   which,   individually   or   in   the   aggregate,   are   not

material to the   financial condition or   operating results of the Company. The Company   is subject

to the reporting requirements of the 1934 Act.

h)

Absence   of   Certain   Changes.   Since   March   31,   2016,   there   has   been   no

material adverse   change   and   no   material adverse development   in the assets,   liabilit ies,   business,

properties, operations,   financial condition, results of operations, prospects or 1934 Act   reporting

status of the Company or any of its Subsidiaries.

i)

Absence   of   Litigation.   There   is   no   action,   suit,   claim,   proceeding,   inquiry

or    investigation  before  or    by  any  court,    public    board,    government    agency,    self-regulatory

organization   or   body   pending   or,   to   the   knowledge   of   the   Company   or   any   of   its   Subsidiaries,

threatened  against  or  affecting  the  Company   or   any   of   its   Subsidiaries,  or   their  officers  or

directors   in   their   capacity   as   such,   that   could   have   a   Material   Adverse   Effect.   Schedule   3(i)

contains   a   complete   list   and   summary   description   of   any   pending   or,   to   the   knowledge   of   the

Company,   threatened   proceeding   against   or   affecting   the   Company   or   any   of   its   Subsidiaries,

without  regard   to  whether  it  would  have  a  Material  Adverse  Effect.  The  Company   and  its

Subsidiaries   are   unaware   of   any   facts   or   circumstances   which   might   give   rise   to   any   of   the

foregoing.

j)

Patents,   Copyrights,   etc.   The   Company   and   each   of   its   Subsidiaries   owns

or   possesses   the   requisite   licenses   or   rights   to   use   all   patents,   patent   applications,   patent   rights,

inventions,   know-how, trade   secrets, trademarks,   trademark   applications,   service   marks,   service

names, trade names and   copyrights ( Intellectual Property ) necessary to   enable it   to   conduct   its

business   as   now   operated   (and,   as   presently   contemplated   to   be   operated   in   the   future);   there   is

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SPA   CETY, T1, 2016-06-06



no   claim   or   action   by   any   person   pertaining   to,   or   proceeding   pending,   or   to   the   Company s

knowledge  threatened,  which   challenges   the  right  of   the  Company   or   of   a  Subsidiary   with

respect  to  any  Intellectual  Property  necessary  to  enable  it  to  conduct  its  business  as  now

operated  (and,  as  presently  contemplated  to  be  operated  in  the  future);  to  the  best  of  the

   Company s  knowledge,    the  Company s  or  its  Subsidiaries  current    and    intended  products,

services   and   processes   do   not   infringe   on   any   Intellectual   Property   or   other   rights   held   by   any

person   and/or   entity;   and   the   Company   is   unaware   of   any   facts   or   circumstances   which   might

give  rise  to  any  of  the  foregoing.  The  Company  and  each  of  its  Subsidiaries  have  taken

reasonable    security    measures    to   protect   the    secrecy,    confidentiality    and   value    of    their

Intellectual Property.

k)

No   Materially Adverse Contracts, Etc. Neither   the Company nor any of its

Subsidiaries  is   subject  to  any   charter,   corporate   or   other  legal   restriction,   or   any   judgment,

   decree,   order,   rule   or   regulation   which   in   the   judgment   of   the   Company s   officers   has   or   is

expected   in   the   future   to   have   a   Material   Adverse   Effect.   Neither   the   Company   nor   any   of   its

   Subsidiaries   is   a   party   to   any   contract   or   agreement   which   in   the   judgment   of   the   Company s

officers has or is expected to   have a Material Adverse Effect.

l)

Tax   Status.   The   Company   and   each   of   its   Subsidiaries   has   made   or   filed

all   federal,   state   and   foreign   income   and   all   other   tax   returns,   reports   and   declarations   required

by   any   jurisdiction   to   which   it   is   subject   (unless   and   only   to   the   extent   that   the   Company   and

each  of  its  Subsidiaries  has  set  aside  on  its  books  provisions  reasonably  adequate  for  the

payment   of   all   unpaid   and   unreported   taxes)   and   has   paid   all   taxes   and   other   governmental

assessments   and   charges   that   are   material   in   amount,   shown   or   determined   to   be   due   on   such

returns, reports and   declarations, except   those being contested   in good faith and   has set   aside on

its   books   provisions   reasonably   adequate   for   the   payment   of all   taxes   for   periods   subsequent   to

the   periods   to   which   such   returns,   reports   or   declarations   apply.   There   are   no   unpaid   taxes   in

any   material   amount  claimed   to  be   due   by   the   taxing   authority   of   any   jurisdiction,   and   the

officers of the   Company know   of no   basis   for   any   such claim.   The Company   has   not   executed   a

waiver   with   respect   to   the   statute   of   limitations   relating   to   the   assessment   or   collection   of   any

   foreign,   federal,   state or   local tax.   None of the Company s tax returns   is presently being   audited

by any taxing authority.

m)

Certain  Transactions.  Except  for  arm s  length  transactions  pursuant  to

which  the  Company  or  any  of  its  Subsidiaries  makes  payments  in  the  ordinary  course  of

business   upon terms   no   less   favorable than   the Company or   any of its Subsidiaries   could   obtain

from third parties and other than the grant   of any stock options disclosed on Schedule 3(c), none

of   the   officers,   directors,   or   employees   of   the   Company   is   presently   a   party   to   any   transaction

with   the   Company   or   any of   its   Subsidiaries   (other   than   for   services   as   employees,   officers   and

directors),   including   any   contract,   agreement   or   other   arrangement   providing   for   the   furnishing

of   services   to   or   by,   providing   for   rental   of   real   or   personal   property   to   or   from,   or   otherwise

requiring payments to or from any officer, director or such employee or, to the knowledge of the

Company,   any   corporation,   partnership,   trust   or   other   entity   in   which   any   officer,   director,   or

any such employee   has a substantial interest or is an officer, director, trustee or partner.

n)

Disclosure.   All   information   relating   to   or   concerning   the   Company   or   any

of its Subsidiaries set   forth in this   Agreement   and   provided   to   the   Purchaser   pursuant   to   Section

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SPA   CETY, T1, 2016-06-06



2(d)   hereof   and   otherwise   in   connection   with   the   transactions   contemplated   hereby   is   true   and

correct  in   all   material   respects   and   the   Company   has   not  omitted   to  state   any   material   fact

necessary   in   order   to   make   the   statements   made   herein   or   therein,   in   light   of   the   circumstances

under   which   they   were   made,   not   misleading.   No   event   or   circumstance   has   occurred   or   exists

with   respect  to  the  Company   or  any   of   its   Subsidiaries   or  its   or   their  business,  properties,

prospects,   operations   or   financial   conditions,   which,   under   applicable   law,   rule   or   regulation,

requires public disclosure or announcement   by the Company but   which has not   been so   publicly

announced or disclosed.

o)

Acknowledgment   Regarding   Purchaser   Purchase   of    Securities.   The

Company   acknowledges   and   agrees   that   the   Purchaser   is   acting   solely   in   the   capacity   of   arm s

length   purchaser   with   respect   to   this   Agreement   and   the   transactions   contemplated   hereby.   The

Company  further    acknowledges  that  the    Purchaser    is    not    acting  as    a    financial  advisor    or

fiduciary   of   the   Company   (or   in   any   similar   capacity)   with   respect   to   this   Agreement   and   the

transactions  contemplated  hereby  and  any  statement    made  by  the    Purchaser    or  any  of  its

respective   representatives   or   agents   in   connection   with   this   Agreement  and   the   transactions

contemplated    hereby    is    not    advice    or    a    recommendation    and    is    merely    incidental  to    the

Purchaser s purchase of the Securities.

p)

No   Integrated   Offering.   Neither   the Company,   nor   any of its affiliates,   nor

any person acting on its or their   behalf,   has directly or   indirectly made any offers or sales in   any

security   or   solicited  any   offers   to  buy   any   security   under   circumstances   that  would   require

registration   under   the   1933   Act   of the   issuance   of   the   Securities   to   the   Purchaser.   The   issuance

of  the    Securities    to    the    Purchaser    will    not    be    integrated    with  any  other    issuance    of  the

   Company s    securities    (past,    current    or    future)    for    purposes    of    any    shareholder    approval

provisions applicable to the Company or its securities.

q)

Brokers.     The   Company   hereby   represents   and  warrants   that  it  has  not

hired,  retained  or  dealt  with  any  broker,  finder,  consultant,  person,  firm  or  corporation  in

connection   with   the   negotiation,   execution   or   delivery   of   this   Agreement   or   the   transactions

contemplated   hereunder.   The   Company   covenants   and   agrees   that   should   any   claim   be   made

against   Purchaser   for any commission or other compensation   by any broker, finder, person, firm

or corporation,   including without   limitation, the Broker,   based upon the Company s engagement

of   such   person   in   connection   with   this   transaction,   the   Company   shall   indemnify,   defend   and

   hold   Purchaser   harmless   from   and   against   any   and   all   damages,   expenses   (including   attorneys

fees  and  disbursements)  and  liability   arising  from   such   claim.    The  Company   shall   pay   the

commission of the Broker, to the attention of the Broker, pursuant   to their separate agreement(s)

between the Company and the Broker.

r)

Permits;  Compliance.  The  Company  and  each  of  its  Subsidiaries  is  in

possession  of  all  franchises,    grants,  authorizations,    licenses,  permits,  easements,    variances,

exemptions,   consents,   certificates,   approvals   and   orders   necessary   to   own,   lease   and   operate   its

   properties and   to   carry on   its business as   it   is now   being   conducted   (collectively,   the   Company

   Permits ),   and   there   is   no   action   pending   or,   to   the   knowledge   of   the   Company,   threatened

regarding   suspension   or   cancellation   of any of the   Company   Permits.   Neither   the   Company   nor

any   of   its   Subsidiaries   is   in   conflict   with,   or   in   default   or   violation   of,   any   of   the   Company

Permits,  except  for  any  such  conflicts,  defaults  or  violations  which,  individually  or  in  the

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SPA   CETY, T1, 2016-06-06



aggregate,   would   not   reasonably   be   expected   to   have   a   Material   Adverse   Effect.   Since   March

31,   2016,   neither   the   Company   nor   any   of   its   Subsidiaries   has   received   any   notification   with

respect   to   possible conflicts, defaults or violations of applicable laws, except   for notices relating

to   possible   conflicts,   defaults   or   violations,   which   conflicts,   defaults   or   violations   would   not

have a Material Adverse Effect.

s)

Environmental Matters.

i.

There    are,    to    the    Company s    knowledge,    with    respect    to    the

Company   or   any   of   its   Subsidiaries   or   any   predecessor   of   the   Company,   no   past   or   present

violations  of  Environmental  Laws  (as  defined    below),    releases  of    any  material  into    the

environment,   actions,   activities,   circumstances,   conditions,   events,   incidents,   or   contractual

obligations   which   may   give   rise   to   any   common   law   environmental   liability   or   any   liability

under   the   Comprehensive   Environmental   Response,   Compensation   and   Liability   Act   of   1980

or  similar    federal,    state,  local  or    foreign  laws    and    neither  the  Company  nor  any  of  its

Subsidiaries   has   received   any   notice   with   respect   to   any   of   the   foregoing,   nor   is   any   action

      pending   or, to the   Company s knowledge,   threatened   in connection with any of the   foregoing.

      The   term   Environmental   Laws   means   all   federal,   state,   local   or   foreign   laws   relating   to

pollution   or   protection   of   human   health   or   the   environment   (including,   without   limitation,

ambient   air,   surface   water,   groundwater,   land   surface or   subsurface strata),   including,   without

limitation,   laws relating   to   emissions,   discharges,   releases or threatened   releases of chemicals,

pollutants contaminants,   or toxic   or   hazardous substances   or   wastes (collectively,   Hazardous

      Materials )    into    the    environment,    or    otherwise    relating    to    the    manufacture,    processing,

distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as

well   as   all   authorizations,   codes,   decrees,   demands   or   demand   letters,   injunctions,   judgments,

licenses,    notices    or    notice    letters,    orders,    permits,    plans    or    regulations    issued,    entered,

promulgated or approved thereunder.

ii.

Other   than   those   that   are   or   were   stored,   used   or   disposed   of   in

compliance   with   applicable   law,   no   Hazardous   Materials   are   contained   on   or   about   any   real

property   currently   owned,   leased   or   used   by   the   Company   or   any   of   its   Subsidiaries,   and   no

Hazardous Materials were   released   on or   about   any real   property previously owned,   leased   or

used   by   the   Company   or   any   of   its   Subsidiaries   during   the   period   the   property   was   owned,

leased   or   used   by   the   Company   or   any   of   its   Subsidiaries,   except   in   the   normal   course   of   the

     Company s or any of its Subsidiaries business.

iii.

There  are    no    underground    storage  tanks    on  or  under  any  real

property   owned,   leased   or   used   by   the   Company   or   any   of   its   Subsidiaries   that   are   not   in

compliance with applicable   law.

t)

Title    to    Property.    The    Company    and    its    Subsidiaries    have    good    and

marketable   title   in   fee   simple   to   all real property and   good   and   marketable title to   all personal

property    owned    by    them    which    is    material    to    the    business    of    the    Company    and    its

Subsidiaries,   in   each   case   free   and   clear   of all   liens,   encumbrances and   defects except   such as

are   described   in   Schedule   3(t)   or   such   as   would   not   have   a   Material   Adverse   Effect.   Any real

property and   facilities   held   under   lease   by the Company and   its Subsidiaries   are   held   by them

10

SPA   CETY, T1, 2016-06-06



under  valid,  subsisting  and  enforceable  leases  with   such   exceptions  as   would  not  have    a

Material Adverse Effect.

u)

Insurance.   The   Company   and   its   Subsidiaries   are   insured   by   insurers   of

recognized   financial responsibility against   such losses and risks and   in such   coverage amounts

as   are   prudent   and   customary   in   the   businesses   in   which   the   Company   is   engaged,   including,

but   not   limited   to,   directors and   officers   insurance coverage   with coverage amounts   that   are at

least   equal to   the   aggregate   Purchase Price.    Neither the Company nor   any Subsidiary has any

reason to   believe   that   it   will   not   be   able to   renew   its existing   insurance coverage as and   when

such coverage expires or to obtain similar   coverage from similar   insurers as may be necessary

to continue   its business without   a significant   increase in cost.

v)

Internal   Accounting   Controls.   Except   as   disclosed   in the   SEC Documents,

the   Company   and   each   of   its   Subsidiaries   maintain   a   system   of   internal   accounting   controls

     sufficient,    in  the    judgment    of  the    Company s    board    of  directors,    to    provide    reasonable

assurance  that  (i)  transactions  are  executed    in  accordance  with  management s  general  or

specific   authorizations,   (ii)   transactions   are   recorded   as   necessary   to   permit   preparation   of

financial  statements    in    conformity  with  generally  accepted    accounting    principles    and    to

maintain  asset  accountability,    (iii)  access  to  assets  is  permitted  only  in  accordance  with

     management s general or   specific   authorization and   (iv)   the recorded   accountability   for   assets

is   compared   with   the   existing   assets   at   reasonable   intervals   and   appropriate   action   is   taken

with respect to   any differences.

w)

Foreign   Corrupt     Practices.     Neither     the   Company,     nor     any   of   its

Subsidiaries,   nor   any director, officer,   agent,   employee or other   person acting   on behalf of the

Company  or    any  Subsidiary  has,    in  the    course  of  his  actions    for,    or  on    behalf  of,    the

Company, used any corporate funds for any unlawful contribution, gift, entertainment   or other

unlawful   expenses   relating   to   political activity;   made   any   direct   or   indirect   unlawful   payment

to   any foreign   or   domestic   government   official or   employee   from corporate funds;   violated   or

is    in    violation  of  any  provision  of  the  U.S.    Foreign  Corrupt    Practices    Act    of  1977,    as

amended,   or   made   any   bribe,   rebate,   payoff,   influence   payment,   kickback   or   other   unlawful

payment   to any foreign or domestic government official or employee.

x)

Solvency.   Except   as disclosed   in   the   SEC Documents,   the Company (after

giving   effect   to   the   transactions   contemplated   by   this   Agreement)   is   solvent   (i.e.,   its   assets

have   a   fair   market   value   in   excess   of the   amount   required   to   pay   its   probable   liabilities   on   its

existing  debts   as   they  become  absolute  and  matured)  and  currently   the  Company  has  no

information   that  would  lead  it  to  reasonably   conclude   that  the   Company   would  not,  after

giving   effect   to   the   transaction   contemplated   by   this   Agreement,   have   the   ability   to,   nor   does

it   intend   to   take   any   action   that   would   impair   its   ability   to,   pay   its   debts   from   time   to   time

incurred   in connection therewith as such debts mature.

y)

No   Investment   Company.   The Company   is   not,   and   upon the   issuance   and

sale    of    the    Securities    as    contemplated    by    this    Agreement    will    not    be,    an    investment

     company    required    to    be    registered    under    the    Investment    Company    Act    of    1940    (an

      Investment   Company ). The Company is not controlled by an Investment   Company.

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SPA   CETY, T1, 2016-06-06



z)

No   Shell .   The   Company   is   not ,   and   has   not   at   any   time   previously   been

a Shell Company, as defined   in Rule 144.

4.   COVENANTS.

a)

Best   Efforts.   The   parties   shall   use   their   best   efforts   to   satisfy   timely   each

of the conditions described   in Section 6 and 7 of this Agreement.

b)

Form   D;   Blue   Sky   Laws.   The   Company   agrees   to   timely   file   a   Form   D

with respect   to   the   Securities as required   under   Regulation D   and   to   provide a copy thereof to

the   Purchaser   promptly   after   such   filing.   The   Company   shall,   on   or   before   the   Closing   Date,

take  such  action  as  the  Company  shall  reasonably  determine  is  necessary  to  qualify  the

Securities   for   sale   to   the   Purchaser   at   the applicable   closing   pursuant   to   this   Agreement   under

      applicable   securities   or   blue   sky   laws   of   the   states   of   the   United   States   (or   to   obtain   an

exemption   from such qualification),   and   shall provide evidence of any   such action   so   taken to

the Purchaser on or prior to the Closing Date.

c)

Use   of Proceeds.   The Company shall use the proceeds   from the sale of the

Securities  for  general   corporate  purposes,  marketing  and  sales,  product  development,  key

personnel recruiting and business development   purposes.

d)

Financial   Information.   Upon   written   request     of   the   Purchaser,   the

Company   agrees   to   send   or   make   available   the   following   reports   to   the   Purchaser   until   the

Purchaser   transfers,   assigns,   or   sells   all   of   the   Securities:   (i)   within   ten   (10)   days   after   the

filing (or the applicable deadline to so file)   with the SEC or OTC Markets Group, a copy of its

Annual   Report   and   its   Quarterly   Reports   and   any   Supplemental   Reports;   (ii)   within   one   (1)

day after release, copies of all press releases issued   by the Company or any of its Subsidiaries;

and   (iii)   contemporaneously   with   the   making   available   or   giving   to   the   shareholders   of   the

Company,   copies   of   any   notices   or   other   information   the   Company   makes   available   or   gives

to  such   shareholders.  Notwithstanding  the  foregoing,  the  Company   shall  not  disclose  any

material nonpublic   information to the Purchaser without   its consent   unless such information is

disclosed to the public prior to or promptly following such disclosure to the Purchaser.

e)

Listing.   The   Company   will obtain   and,   so   long   as   the   Purchaser   owns   any

of   the   Securities,   maintain   the   listing   and   trading   of   its   Common   Stock   on   the   OTCBB,   and

OTCQB,   or   OTC   Pink   or   any   equivalent   replacement   exchange,   the   NASDAQ   Stock   Market

     ( NASDAQ ), the New   York Stock Exchange ( NYSE ), or the   NYSE MKT,   f/k/a   American

     Stock   Exchange   ( AMEX ),   and   will   comply   in   all   respects   with   the   Company s   reporting,

filing   and   other   obligations   under   the   bylaws   or   rules   of   the   Financial   Industry   Regulatory

     Authority  ( FINRA )    and    such    exchanges,    as    applicable.    The    Company    shall    promptly

provide   to   the   Purchaser   copies of any   notices   it   receives   from the   SEC,   OTC Markets Group

and   any   other   exchanges   or   quotation   systems   on   which   the   Common   Stock   is   then   listed

regarding   the   continued   eligibility   of   the   Common   Stock   for   listing   on   such   exchanges   and

quotation    systems,    provided    that    it    shall    not    provide    any    notices    constituting    material

nonpublic   information.

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f)

Corporate  Existence.    So    long  as  the    Purchaser    beneficially  owns    any

Securities,    the    Company  shall    maintain    its    corporate  existence    and    shall    not    sell  all    or

     substantially   all   of   the   Company s   assets,   except   in   the   event   of   a   merger   or   consolidation   or

     sale of all or substantially all of the Company s assets, where the surviving or successor entity

     in   such    transaction    (i)   assumes    the    Company s    obligations    hereunder   and    under   the

agreements   and   instruments   entered   into   in   connection   herewith   and   (ii)   is   a   publicly   traded

corporation whose Common Stock   is listed for trading on NASDAQ, NYSE or AMEX.

g)

No   Integration.   The   Company   shall   not   make   any   offers   or   sales   of   any

security   (other   than   the   Securities)   under   circumstances   that   would   require   registration   of   the

Securities   being   offered   or   sold   hereunder   under   the   1933   Act   or   cause   the   offering   of   the

Securities  to  be  integrated  with  any  other  offering  of   securities  by  the  Company  for  the

purpose of any stockholder approval provision applicable to the Company or its securities.

h)

Securities   Laws   Disclosure;   Publicity.   The   Company   shall   comply   with

applicable   securities   laws   by   filing   a   Current   Report   on Form 8-K,   within   four   (4)   Trading   Days

following  the  date  hereof,  disclosing  all   the  material   terms   of   the  transactions   contemplated

hereby,   if   the   Company   deems   the   transactions   contemplated   hereby   to   constitute   material   non-

public   information.   The   Company   and   Purchaser   shall   consult   with   each   other   in   issuing   any

other    press    releases    with    respect    to    the    transactions    contemplated    hereby,    and    neither    the

Company   nor   Purchaser   shall   issue   any   such   press   release   or   otherwise   make   any   such   public

statement   without   the   prior   consent   of   the   Company,   with   respect   to   any   press   release   of   any

Purchaser,   or   without   the   prior   consent   of   Purchaser,   with   respect   to   any   press   release   of   the

Company,   except   if   such   disclosure   is   required   by   law,   in   which   case   the   disclosing   part y   shall

promptly provide the other party with prior notice of such public statement   or communication.

i)

Non-Public   Information.     Except   with   respect   to   the   material   terms   and

conditions   of   the   transactions   contemplated  by   this  Agreement,   the   Company   covenants   and

agrees   that   neither   it   nor   any   other   person   acting   on   its   behalf   will   provide   the   Purchaser   or   its

agents   or   counsel   with   any   information   that  the   Company   believes   constitutes   material   non-

public   information,   unless   prior   thereto   the   Purchaser   shall   have   executed   a   written   agreement

regarding  the  confidentiality  and  use  of  such  information.    The  Company  understands  and

confirms that   the Purchaser shall be relying on the foregoing covenant   in effecting transactions in

securities of the Company.

j)

Subsidiaries.    So   long as the   Note remains outstanding, the Company shall

not   transfer   any   assets   or   rights   to   any   of   its   subsidiaries   or   permit   any   of   its   subsidiaries   to

engage   in any   significant   business or   operations,   whether   such   subsidiaries are currently   existing

or hereafter created.

k)

Insurance.    So   long   as   the   Note   remains   outstanding,   the   Company and   its

Subsidiaries    shall    maintain    in    full    force    and    effect    insurance    reasonably    believed    by    the

Company   to  be   adequate   coverage   (a)   on   all   assets   and  activities,   covering   property   loss   or

damage   and   loss   of   income   by   fire   or   other   hazards   or   casualty,   and   (b)   against   all   liabilities,

claims   and   risks   for   which   it   is   customary   for   companies   similarly   situated   to   the   Company   to

insure,   including   without   limitation   applicable   product   liability   insurance,   required   workmen s

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compensation   insurance,   and   other   insurance   covering   injury   or   damage   to   persons   or   property,

but   excluding directors and officers   insurance coverage.    The Company shall promptly furnish or

cause  to  be  furnished  evidence  of  such  insurance  to    the  Purchaser,    in  form  and  substance

reasonably satisfactory to the Purchaser.

l)

Par Value.    If the closing   bid price at   any time the Note is outstanding   falls

below   $0.005 ,   the   Company   shall   cause   the   par   value   of   its   Common   Stock   to   be   reduced   to

$0.0001 or less.

m)

[Intentionally Omitted].

n)

Future   Financings:   From   the   date   hereof   until   such   time   as   the   Purchaser

no   longer   holds   any   of   the   Securities,   in   the   event   the   Company   issues   or   sells   any   shares   of

Common   Stock   or   securities   directly   or   indirectly   convertible   into   or   exercisable   for   Common

Stock   ( Common   Stock   Equivalents )   or   amends   the   transaction   documents   relating   to   any   sale

or  issuance  of  Common  Stock  or  Common  Stock  Equivalents,    if  the  Purchaser  reasonably

believes   that   the   terms   and   conditions   thereunder   are   more   favorable   to   such   investors   as   the

terms   and   conditions   granted   under   the   Transaction   Documents,   upon   notice   to   the   Company   by

such Purchaser, the Transaction Documents shall be deemed automatically amended so   as to   give

the   Purchasers   the   benefit   of   such   more   favorable   terms   or   conditions.   Promptly   following   a

request  to  the  Company   the  Company   shall   provide  Purchaser  with   all   executed  transaction

documents   relating   to   any   such   sale   or   issue   of   Common   Stock   or   Common   Stock   Equivalents.

Company    shall    deliver    acknowledgment    of    such    automatic    amendment    to    the    Transaction

Documents   to   Purchaser   in   form   and   substance   reasonably   satisfactory   to   the   Purchaser   (   the

Acknowledgment )    within    three    (3)    business    days    of  Company s    receipt    of  request    from

Purchaser     (the     Deadline ),     provided     that     Company s     failure     to     timely     provide     the

Acknowledgement    shall    not    affect    the    automatic    amendments    contemplated    hereby.    If    the

Acknowledgement    is    not    delivered    by  the    Deadline,    Company    shall  pay  to    the    Purchaser

$1000.00   per   day   in   cash,   for   each   day   beyond   the   Deadline   that   the   Company   fails   to   deliver

such Acknowledgement.

5.   Transfer   Agent   Instructions.   Upon   receipt   of   a   duly   executed   Notice   of

Conversion,   the   Company   shall   issue  irrevocable   instructions   to   its   transfer   agent   to   issue

certificates,   registered   in   the   name   of the   Purchaser   or   its nominee,   for   the Conversion Shares

in  such  amounts  as  specified  from   time  to  time  by  the  Purchaser  to  the  Company   upon

conversion  of  the    Note,    or    any  part    thereof,    in  accordance    with  the    terms    thereof  (the

      Irrevocable   Transfer   Agent   Instructions ).   In the event   that the   Company proposes to   replace

its transfer agent, the Company shall provide, prior to the effective date of such replacement, a

fully executed Irrevocable Transfer   Agent   Instructions in a form as initially delivered pursuant

to   this   Agreement   and   the   Securities   (including   but   not   limited   to   the provision to   irrevocably

reserve   shares   of Common Stock   in the   Reserved   Amount   (as defined   in   the Note))   signed   by

the  successor  transfer    agent    to    Company  and  the  Company.    Prior  to  registration  of  the

Conversion   Shares   under   the   1933   Act   or   the   date   on   which   the   Conversion   Shares   may   be

sold  pursuant  to  Rule  144  without  any   restriction   as   to  the  number  of   Securities   as  of   a

particular   date that   can then   be   immediately sold,   all such certificates shall bear   the restrictive

legend  specified  in  Section  2(g)  of  this    Agreement.  The  Company  warrants  that:  (i)    no

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SPA   CETY, T1, 2016-06-06



instruction other   than the   Irrevocable Transfer   Agent   Instructions referred   to   in this Section 5,

and    stop    transfer    instructions    to    give    effect    to    Section    2(f)    hereof    (in    the    case    of    the

Conversion   Shares,   prior   to   registration   of   the   Conversion   Shares   under   the   1933   Act   or   the

date on which the Conversion Shares may be sold   pursuant   to Rule 144 without   any restriction

as   to   the   number   of Securities   as   of   a   particular   date   that   can   then   be   immediately   sold),   will

be   given   by the   Company to   its transfer   agent   and   that   the Securities   shall otherwise   be   freely

transferable   on   the   books   and   records   of   the   Company   as   and   to   the   extent   provided   in   this

Agreement   and the Note; (ii)   it   will not   direct   its transfer agent   not to transfer or delay,   impair,

and/or   hinder  its   transfer   agent  in   transferring  (or   issuing)(electronically   or  in   certificated

form)   any   certificate   for   Conversion   Shares   to   be   issued   to   the   Purchaser   upon   conversion   of

or   otherwise   pursuant   to   the   Note   as   and   when   required   by   the   Note   and   this   Agreement;   and

(iii)   it   will not   fail to remove (or direct   its transfer agent   not to   remove or impair, delay, and/or

hinder  its  transfer  agent  from   removing)  any  restrictive  legend  (or  to  withdraw  any  stop

transfer   instructions   in   respect   thereof)   on   any   certificate   for   any Conversion   Shares   issued   to

the   Purchaser   upon   conversion   of or   otherwise   pursuant   to   the   Note   as   and   when   required   by

the   Note   and   this   Agreement.   Nothing   in   this   Section   shall   affect   in   any   way   the   Purchaser s

obligations  and  agreement  set  forth  in  Section  2(g)  hereof   to  comply  with   all  applicable

prospectus  delivery  requirements,  if  any,  upon  re-sale  of   the  Securities.  If   the  Purchaser

provides the   Company with (i)   an opinion of counsel   in   form,   substance and   scope customary

for   opinions   in   comparable   transactions,   to   the   effect   that   a   public   sale   or   transfer   of   such

Securities   may   be   made   without   registration   under   the   1933   Act   and   such   sale   or   transfer   is

effected   or   (ii)   the   Purchaser   provides   reasonable   assurances   that   the   Securities   can   be   sold

pursuant    to    Rule    144,    the    Company    shall    permit    the    transfer,    and,    in    the    case    of    the

Conversion   Shares,   promptly   instruct   its   transfer   agent   to   issue   one   or   more   certificates,   free

from    restrictive    legend,    in    such    name    and    in    such    denominations    as    specified    by    the

Purchaser.   The   Company   acknowledges   that   a   breach   by   it   of   its   obligations   hereunder   will

cause   irreparable   harm to the   Purchaser,   by vitiating   the   intent   and   purpose of the transactions

contemplated   hereby.   Accordingly,   the   Company   acknowledges   that   the   remedy   at   law   for   a

breach   of   its   obligations   under   this   Section   5   may   be   inadequate   and   agrees,   in   the   event   of a

breach  or  threatened  breach  by  the  Company  of  the  provisions  of  this  Section,  that  the

Purchaser    shall  be  entitled,    in  addition  to    all  other  available  remedies,    to    an  injunction

restraining   any   breach   and   requiring   immediate   transfer,   without   the   necessity   of   showing

economic   loss and without any bond or other security being required.

6.   Injunction Posting   of   Bond.    In   the   event   the   Purchaser   shall   elect   to   convert   the

Note   or   any   parts   thereof,   the   Company   may   not   refuse   conversion   or   exercise   based   on   any

claim   that   Purchaser   or   anyone   associated   or   affiliated   with   Purchaser   has   been   engaged   in

any   violation   of   law,   or   for   any   other   reason.     In   connection   with   any   injunction   sought   or

attempted   by the   Company,   the   Company shall   be required   to   post   a bond   at   least   equal to   the

greater of either:   (i)   the   outstanding   principal amount   of the Note; and   (ii)   the   market   value   of

the   Conversion Shares sought   to   be converted,   exercised   or   issued,   based   on the sale price   per

share of Common Stock on the principal market   on which it   is   traded.

7.   Delivery of Unlegended Shares.

a)

Within    three    (3)    business    days    (such    third    business    day    being    the

      Unlegended   Shares   Delivery  Date )   after   the   business   day   on   which   the   Company   has

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SPA   CETY, T1, 2016-06-06



received    (i)    a    notice  that    Conversion  Shares,    or  any  other  Common  Stock  held    by  the

Purchaser   has   been   sold   pursuant   to   a   registration   statement   or   Rule   144   under   the   1933   Act,

(ii)   a   representation   that   the   prospectus   delivery   requirements,   or   the   requirements   of   Rule

144,  as  applicable  and  if   required,  have  been   satisfied,  (iii)  the  original   share  certificates

representing   the   shares   of   Common   Stock   that   have   been   sold,   and   (iv)   in   the   case   of   sales

under Rule 144, customary representation letters of the   Purchaser and,   if required,   Purchaser s

broker   regarding   compliance   with   the   requirements   of Rule   144,   the   Company   at   its   expense,

(y)   shall   deliver,   and   shall   cause  legal   counsel   selected   by   the  Company   to  deliver   to  its

transfer  agent  (with  copies  to    Purchaser)  an  appropriate  instruction  and  opinion  of  such

counsel,   directing   the   delivery of shares   of Common   Stock   without   any   legends   including   the

      legend    set    forth    in    Section    4(h)    above    (the    Unlegended    Shares );    and    (z)    cause    the

transmission   of   the   certificates   representing   the   Unlegended   Shares   together   with   a   legended

certificate   representing   the   balance   of   the   submitted   Common   Stock   certificate,   if   any,   to   the

Purchaser  at   the   address   specified  in   the  notice  of   sale,   via   express   courier,   by   electronic

transfer or otherwise on or before the Unlegended   Shares Delivery Date.

b)

The   Company   understands   that   a   delay   in   the   delivery   of   the   Unlegended

Shares   later   than   the   Unlegended   Shares   Delivery   Date   could   result   in   economic   loss   to   the

Purchaser.    As   compensation   to  Purchaser  for   such   loss,   the   Company   agrees   to  pay   late

payment   fees (as liquidated damages and   not   as a penalty) to the   Purchaser   for   late delivery of

Unlegended   Shares   in   the   amount   of $1,000.00   per   business   day   after   the   Unlegended   Shares

Delivery   Date.   If   during   any   three   hundred   and   sixty   (360)   day   period,   the   Company   fails   to

deliver   Unlegended   Shares   as   required   by   this   Section   for   an   aggregate   of   thirty   (30)   days,

then  Purchaser  or  assignee  holding  Securities  subject  to  such  default  may,  at  its  option,

require   the   Company   to   redeem   all   or   any   portion   of   the   shares   subject   to   such   default   at   a

price  per  share  equal   to  the  greater  of   (i)  200%  of   the  most  recent  closing  price  of   the

Common   Stock   or   (ii)   a   fraction   in   which   the   numerator   is   the   highest   closing   price   of   the

Common Stock during the aforedescribed thirty (30) day period and the denominator of which

is the   lowest   conversion price during such thirty (30) day period,   multiplied   by the   conversion

price  or  exercise  price,  as   the  case  may  be  ( Unlegended  Redemption  Amount ).    The

Company   shall   pay   any   payments   incurred   under   this   Section   in   immediately   available   funds

upon demand.

8.   Conditions   to   the   Company s   Obligation   to   Sell.   The   obligation   of   the   Company

hereunder    to    issue    and    sell  the    Note    to    the    Purchaser    at    the    Closing    is    subject    to    the

satisfaction,    at    or    before  the    Closing    Date  of    each  of  the    following    conditions    thereto,

provided   that   these   conditions   are   for   the   Company s   sole   benefit   and   may   be   waived   by   the

Company at   any time   in its sole discretion:

a)

The   Purchaser   shall   have   executed   this   Agreement   and   delivered   the   same

to the Company.

b)

The Purchaser shall have delivered the Purchase Price   to the Company.

c)

The  representations  and  warranties  of  the  Purchaser  shall  be  true  and

correct   in all   material respects as of the date when   made and   as of the Closing   Date as though

made   at   that   time   (except   for   representations   and   warranties   that   speak   as   of   a   specific   date),

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SPA   CETY, T1, 2016-06-06



and   the   Purchaser   shall   have   performed,   satisfied   and   complied   in   all   material   respects   with

the    covenants,    agreements    and    conditions    required    by  this    Agreement    to    be    performed,

satisfied or complied with by the   Purchaser at or prior to the Closing Date.

d)

No   litigation,   statute,   rule,   regulation,   executive   order,   decree,   ruling   or

injunction   shall   have   been   enacted,   entered,   promulgated   or   endorsed   by   or   in   any   court   or

governmental   authority   of   competent   jurisdiction   or   any   self-regulatory   organization   having

authority   over   the   matters   contemplated   hereby   which   prohibits   the   consummation   of   any   of

the transactions contemplated by this Agreement.

9.   Conditions  to  The  Purchaser s  Obligation  to  Purchase.  The  obligation  of  the

Purchaser   hereunder   to   purchase   the   Note   at   the   Closing   is   subject   to   the   satisfaction,   at   or

before the Closing Date of each of the following conditions, provided that these conditions are

for   the   Purchaser s   sole   benefit   and   may   be   waived   by   the   Purchaser   at   any   time   in   its   sole

discretion:

a)

The   Company   shall   have   executed   this   Agreement   and   delivered   the   same

to the Purchaser.

b)

The  Company   shall  have  delivered  to  the  Purchaser  the  duly   executed

Note   (in   such   denominations   as   the   Purchaser   shall   request)   in   accordance   with   Section   1

above.

c)

The    Irrevocable    Transfer    Agent    Instructions,   in    form    and    substance

satisfactory to the   Purchaser,   shall have   been delivered to   and   acknowledged   in writing   by the

     Company s   Transfer   Agent   (a   copy   of   which   written   acknowledgment   shall   be   provided   to

Purchaser simultaneously with Closing).

d)

The  representations  and  warranties  of  the  Company  shall  be  true  and

correct   in all   material respects as of the date when   made and   as of the Closing   Date as though

made   at   such   time   (except   for   representations   and   warranties   that   speak   as   of a   specific   date)

and   the   Company   shall   have   performed,   satisfied   and   complied   in   all   material   respects   with

the    covenants,    agreements    and    conditions    required    by  this    Agreement    to    be    performed,

satisfied   or   complied   with   by   the   Company   at   or   prior   to   the   Closing   Date.   The   Purchaser

shall   have   received   a   certificate   or   certificates,   executed   by   the   chief   executive   officer   of   the

Company, dated as of the   Closing Date, to the foregoing effect   and   as to   such other   matters as

may   be   reasonably   requested   by   the   Purchaser   including,   but   not   limited   to   certificates   with

     respect   to   the   Company s   Certificate   of   Incorporation,   By-laws,   incumbency,   and   Board   of

     Directors resolutions relating to the transactions contemplated hereby.

e)

No   litigation,   statute,   rule,   regulation,   executive   order,   decree,   ruling   or

injunction   shall   have   been   enacted,   entered,   promulgated   or   endorsed   by   or   in   any   court   or

governmental   authority   of   competent   jurisdiction   or   any   self-regulatory   organization   having

authority   over   the   matters   contemplated   hereby   which   prohibits   the   consummation   of   any   of

the transactions contemplated by this Agreement.

f)

No   event   shall   have   occurred   which   could   reasonably   be expected   to   have

a   Material   Adverse   Effect   on   the   Company   including   but   not   limited   to   a   change   in   the   1934

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SPA   CETY, T1, 2016-06-06



Act   reporting   status   of   the   Company   or   the   failure   of   the   Company   to   be   timely   in   its   1934

Act   reporting obligations.

g)

The   Conversion   Shares   shall   have   been   authorized   for   quotation   on   the

OTCBB,    OTCQB,    and    OTC    Pink,    and    trading    of  the    Common  Stock  on  the    OTCBB,

OTCQB,  and  OTCPink  shall  not  have  been   suspended  by   the  SEC  or  the  OTC  Markets

Group.

10. Governing Law; Miscellaneous.

a)

Governing   Law.   This   Agreement   shall   be   governed   by   and   construed   in

accordance with the   laws of the State of New York without   regard   to   principles of conflicts of

laws   thereof   or   any   other   State.    Any   action   brought   by   any   party   against   any   other   party

hereto   concerning   the   transactions   contemplated   by   this   Agreement   shall   be   brought   only   in

the   state   courts   of   New   York   or   in   the   federal   courts   located   in   the   state   and   county   of   New

York.  The   parties   to   this   Agreement   hereby   irrevocably   waive   any   objection   to   jurisdiction

and   venue   of any action   instituted   hereunder   and   shall   not   assert   any defense   based   on   lack   of

jurisdiction  or    venue    or    based    upon forum  non    conveniens.    The    parties    executing    this

Agreement   and   other   agreements   referred   to   herein   or delivered   in   connection   herewith

on   behalf of the   Company   agree   to   submit   to the in   personam jurisdiction   of such   courts

and  hereby  irrevocably  waive  trial  by  jury.    The  prevailing  party  shall  be  entitled  to

      recover   from   the   other   party   its   reasonable   attorney s   fees   and   costs.    In   the   event   that   any

provision  of   this  Agreement  or  any   other  agreement  delivered  in  connection  herewith  is

invalid   or   unenforceable   under   any   applicable   statute or   rule   of   law,   then   such provision   shall

be  deemed  inoperative  to  the  extent  that  it  may  conflict  therewith  and  shall  be  deemed

modified   to   conform   with   such   statute   or   rule   of   law.    Any   such   provision   which   may   prove

invalid   or   unenforceable   under   any   law   shall   not   affect   the   validity   or   enforceability   of   any

other  provision  of   any  agreement.    Each  party  hereto  hereby  irrevocably  waives  personal

service   of   process   and   consents   to   process   being   served   in   any   suit,   action   or   proceeding   in

connection   with   this   Agreement   or   any   other   transaction   document   contemplated   hereby   by

mailing   a   copy thereof   via   registered   or   certified   mail or   overnight   delivery (with   evidence   of

delivery)   to   such   party   at   the   address   in   effect   for   notices   to   it   under   this   Agreement   and

agrees   that  such   service   shall   constitute   good   and   sufficient  service   of   process   and  notice

thereof.    Nothing   contained   herein   shall   be   deemed   to   limit  in   any   way   any   right   to   serve

process in any other   manner permitted by law.

b)

Removal  of  Restrictive    Legends.    In  the  event  that    Purchaser    has  any

      shares  of   the  Company s  Common  Stock  bearing  any  restrictive  legends,  and    Purchaser,

through its counsel or other representatives, submits to the Transfer   Agent   any   such shares   for

the  removal  of  the  restrictive    legends  thereon  in  connection  with  a  sale  of  such  shares

pursuant   to any exemption   to   the   registration   requirements   under   the   Securities   Act,   and   the

Company   and   or   its   counsel   refuses   or   fails   for   any   reason   (except   to   the   extent   that   such

refusal   or   failure   is   based   solely   on   applicable   law   that   would   prevent   the   removal   of   such

restrictive   legends)   to   render   an   opinion   of   counsel   or   any   other   documents   or   certificates

required  for  the  removal   of   the  restrictive  legends,  then   the  Company  hereby  agrees  and

acknowledges  that    the  Purchaser    is  hereby  irrevocably  and  expressly  authorized  to  have

counsel   to   the   Purchaser   render   any   and   all   opinions   and   other   certificates   or   instruments

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which   may   be   required   for   purposes   of   removing   such   restrictive   legends,   and   the   Company

hereby    irrevocably    authorizes    and    directs    the    Transfer    Agent    to,    without    any    further

confirmation   or  instructions  from   the  Company,  issue  any  such  shares   without  restrictive

legends  as  instructed  by   the  Purchaser,  and  surrender  to  a  common   carrier  for  overnight

delivery to the address as specified   by the Purchaser, certificates, registered   in the name of the

Purchaser   or   its   designees,   representing   the   shares   of   Common   Stock   to   which   the   Purchaser

is   entitled,   without   any   restrictive   legends   and   otherwise   freely   transferable   on   the   books   and

records of the Company.

c)

Filing   Requirements.    From the date of this   Agreement   until   the   Notes are

no   longer   outstanding,   the   Company   will   timely   and   voluntarily   comply   with   all   reporting

requirements   that  are   applicable   to   an   issuer   with   a   class   of   shares   registered   pursuant  to

Section   12(g)   of   the   1934   Act,   whether   or   not   the   Company   is   then   subject   to   such   reporting

requirements,   and   comply   with   all   requirements   related   to   any   registration   statement  filed

pursuant   to   this   Agreement.    The   Company   will   use   reasonable   efforts   not   to   take   any   action

or   file   any   document   (whether   or   not   permitted   by   the   1933   Act   or   the   1934   Act   or   the   rules

thereunder)   to   terminate   or   suspend   such   registration   or   to   terminate   or   suspend   its   reporting

and   filing   obligations under   said   acts until the   Notes are   no   longer   outstanding.   The Company

will maintain the quotation or listing of its Common Stock on the   OTCBB, OTCQB, and OTC

Pink,  NYSE,  or  NASDAQ  Stock  Market  (whichever  of   the  foregoing  is  at  the  time  the

      principal   trading   exchange   or   market   for   the   Common   Stock   (the   Principal   Market ),   and

      will   comply   in   all   respects   with   the   Company s   reporting,   filing   and   other   obligations   under

the    bylaws    or    rules    of  the    Principal  Market,    as    applicable.    The    Company  will  provide

Purchaser   with   copies   of   all   notices   it   receives   notifying   the   Company   of   the   threatened   and

actual   delisting   of   the  Common   Stock   from   any   Principal   Market.    As   of   the   date   of   this

Agreement   and   the   Closing   Date,   the   OTC   Pink,   is   the   Principal   Market.   Until   the   Note is   no

longer   outstanding,   the   Company   will   continue   the   listing   or   quotation   of the   Common   Stock

      on a Principal Market   and will comply in all respects with the Company s reporting,   filing and

other obligations under the bylaws or rules of the Principal Market.

d)

144  Default.    In  the  event  commencing  twelve  (12)  months  after  the

Closing   Date   and   ending   twenty-four   (24)   months   thereafter, the   Purchaser   is   not   permitted to

resell  any  of  the  Conversion  Shares  without    any  restrictive    legend    or  if    such  sales    are

permitted   but   subject   to   volume   limitations   or   further   restrictions   on   resale   as   a   result   of   the

unavailability   to   Subscriber   of   Rule   144(b)(1)(i)   under   the   1933   Act   or   any   successor   rule   (a

      144  Default ),    for  any  reason  except  for    Purchasers  status  as  an  Affiliate  or   control

      person   of the   Company,   or   as   a   result   of a   change   in   current   applicable   securities   laws,   then

the   Company   shall   pay   such   Purchaser   as   liquidated   damages   and   not   as   a   penalty   an   amount

equal to   two   percent   (2%)   of the   value of   Conversion Shares   (based   on the closing   sale of the

Common   Stock)   subject   to   such   144   Default   during   the   pendency   of   the   144   Default   of   each

thirty day period thereafter (or portion thereof).

e)

Fees and   Expenses.    On   or   prior   to   the Closing,   the Company   shall   pay   or

reimburse   to   Purchaser   a   non-refundable,   non-accountable   sum   equal   to   $5,000.00   as   and   for

the   fees,   costs   and   expenses   (including   without   limitation   legal   fees   and   disbursements   and

due   diligence   and   administrative   expenses)   incurred   by   the   Purchaser   in   connection   with   the

      Purchaser s  due  diligence    and    negotiation,    preparation  and    execution  of  the  Transaction

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Documents   and   consummation   of   the   Transactions.   The   Purchaser   may   withhold   and   offset

the    balance    of  such  amount    from  the    payment    of    its  Purchase  Price  otherwise  payable

hereunder   at   Closing,   which   offset   shall   constitute   partial   payment   of   such   Purchase   Price   in

an amount   equal to   such offset.    Except   as expressly set   forth in this   Agreement   or the Note to

the   contrary,   each   party   shall   pay   the   fees   and   expenses   of   its   advisers,   counsel,   accountants

and  other  experts,  if  any,  and  all  other  expenses  incurred  by  such  party  incident  to  the

negotiation,    preparation,    execution,    delivery    and    performance    of    this    Agreement.     The

Company   shall   pay   all   transfer   agent   fees,   stamp   taxes   and   other   taxes   and   duties   levied   in

connection with the delivery of any Securities to the Purchaser.

f)

Usury.   To   the   extent   it   may   lawfully   do   so,   the   Company   hereby   agrees

not   to   insist   upon   or   plead   or   in   any   manner   whatsoever   claim,   and   will   resist   any   and   all

efforts to   be   compelled   to   take the   benefit   or   advantage of,   usury laws wherever   enacted,   now

or   at   any time   hereafter   in   force,   in   connection   with   any claim,   action   or   proceeding   that   may

be    brought    by    the    Purchaser    in  order    to    enforce    any  right    or    remedy  under    the    Note.

Notwithstanding   any   provision   to   the   contrary   contained   in  herein   or   under   the   Note,   it   is

expressly   agreed  and   provided  that  the   total   liability   of   the  Company   under  the  Note   for

payments   in   the   nature   of interest   shall   not   exceed   the   maximum   lawful rate authorized   under

      applicable   law   (the   Maximum   Rate ),   and,   without   limiting   the   foregoing,   in   no   event   shall

any   rate   of   interest   or   default   interest,   or   both   of them,   when   aggregated   with   any   other   sums

in   the   nature   of   interest   that   the   Company   may   be   obligated   to   pay   under   the   Note   or   herein

exceed such Maximum Rate.  It   is agreed that   if the maximum contract rate of interest   allowed

by  law  and    applicable    to  the    Note  is    increased  or  decreased    by  statute  or  any  official

governmental action subsequent   to   the date hereof, the new   maximum contract   rate of interest

allowed   by   law   will   be   the   Maximum   Rate   applicable   to   the   Note   from   the   effective   date

forward,   unless   such   application   is   precluded   by   applicable   law.    If   under   any   circumstances

whatsoever,   interest   in   excess of the   Maximum Rate is paid   by the   Company to   the   Purchaser

with   respect  to  indebtedness   evidenced  by   the  Note,  such   excess   shall  be  applied  by  the

Purchaser   to   the   unpaid   principal   balance   of   any   such   indebtedness   or   be   refunded   to   the

Company, the   manner of handling such excess to be at the Purchaser s election.

g)

Headings.    The    headings    of    this    Agreement   are   for    convenience    of

reference only and shall not   form part   of, or affect   the interpretation of, this Agreement.

h)

Severability.   In   the   event   that   any   provision   of   this   Agreement   is   invalid

or   unenforceable   under   any   applicable   statute   or   rule   of   law,   then   such   provision   shall   be

deemed   inoperative   to   the   extent   that   it   may   conflict   therewith   and   shall   be   deemed   modified

to   conform with such   statute or   rule of law.   Any provision   hereof which   may prove   invalid   or

unenforceable  under  any  law  shall  not  affect  the    validity  or  enforceability  of  any  other