10-Q

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.

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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

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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

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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.

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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.” 

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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

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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

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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

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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.

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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.

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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

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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

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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.

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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.

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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

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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.

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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

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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.

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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.

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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 increased to 29%from20% for the same period in 2015,mainly due to theincrease in sales in 2016 and higher utilization of our direct labor in 2016. 

For the nine months ended September 30, 2016, our gross profits increased to 46% from 34% for the same period in 2015,the increase was mainly due to HRS division Revenue with very low cost of salesin 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 2015.The decreasewas mainly due to theincrease in sales, as the SG&A expense did not increase at the same rate.

For the ninemonths ended September 30, 2016, our SG&A cost was 98% compared to 61% for the same period in 2015.The increase was mainly due to the relocation of our operating facility and the corresponding shut down in operations in the second Quarter of 2016.

Net (loss) from operations

For the three months ended September 30,2016, our net profit from operations was(179%)compared to net loss from operations of (201%) for the same period in 2015. The decrease was mainly due to the relocation of our operating facility and the corresponding 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 2015. The decrease 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 2015. The decrease was mainly due to the relocation of our operating facility and the corresponding 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 2015. The decrease 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 $44,154 compared to $69,379for the same period in 2015.  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 $229,959for the same period in 2015.  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 expenses 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.

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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).

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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

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** 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

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EX-10.4

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)

1

“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

2

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)

3

 “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

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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

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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

15

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

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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

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EX-10.5

SECURITIES PURCHASE AGREEMENT

This SECURITIESPURCHASEAGREEMENT(this“Agreement”),datedasofJune6,

2016, is entered intobyandbetweenCLEANENERGYTECHNOLOGIES,INC.,aNevada

corporation(the“Company”),andEMAFinancial,LLC,aDelawarelimitedliabilitycompany

(the “Purchaser”).

WHEREAS,subjecttotheterms andconditionssetforthin thisAgreementandpursuant

toSection4(2)oftheSecuritiesActof1933,asamended(the“SecuritiesAct”or“1933Act”),

andRule 506 promulgated thereunderby the United States Securities and Exchange Commission

(the “SEC”), theCompany desires toissue andsell to the Purchaser, andthe Purchaser desires to

purchasefromtheCompanya12%ConvertibleNoteoftheCompany,  intheformattached

heretoasExhibitA,intheprincipalamountof$87,500.00(togetherwithanynote(s)issuedin

replacementthereoforasinterestthereonorotherwisewithrespecttheretoinaccordancewith

thetermsthereof,the“Note”),convertibleintoshares(“ConversionShares”)ofcommonstock,

$0.001parvaluepershare(the“CommonStock”),of theCompany,uponthetermsandsubject

to thelimitations and conditions setforth in such Note.

NOW,THEREFORE,INCONSIDERATIONofthemutualcovenantscontainedinthis

Agreement, andfor other good and valuable consideration, the receiptand adequacyof which are

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

1.   Purchase and Sale of Note.

a)

PurchaseofNote.OntheClosingDate(asdefinedbelow),theCompany

shallissueandselltothePurchaser,andthePurchaseragreestopurchasefromtheCompany,

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

b)

FormofPayment.OntheClosingDate(i)the  Purchaser  shallpaythe

PurchasePricebywiretransferofimmediatelyavailablefundstotheCompany,inaccordance

  withtheCompany’swrittenwiringinstructions,simultaneouslywithdeliveryoftheNote,and

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

Purchaser, simultaneouslywith deliveryof such Purchase Price.

c)

ClosingDate.Subjecttothesatisfaction(orwrittenwaiver)ofthe

conditionstheretosetforthinSection6andSection7below,theclosingofthetransactions

contemplatedbythisAgreement(the“Closing”)shalloccuronthefirstbusinessdayfollowing

thedatehereoforsuchothermutuallyagreedupontime(the“ClosingDate”)attheofficesof

  Purchaser’s counsel.

2.   Purchaser’s   Representations   andWarranties.ThePurchaserrepresents   and

warrants to the Companythat:

a)

InvestmentPurpose.  PurchaserisacquiringtheSecuritiesforits  own

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

distribution thereof inviolation of applicablesecuritieslaws; provided,however,bymakingthe

representationsherein,Purchaserdoesnotagree,ormakeanyrepresentationorwarranty,to

holdanyoftheSecuritiesforanyminimumorotherspecifictermandreservestherightto

1

SPA–CETY, T1, 2016-06-06

disposeoftheSecuritiesatanytimeinaccordancewithorpursuanttoaregistrationstatement

or an exemption underthe1933Act.ThePurchaseris acquiringthe Securitieshereunderin the

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

understanding,  directlyor  indirectly,  with  any  personto  distribute  anyofthe  Securities  in

violation of applicable securities laws.

b)

AccreditedInvestorStatus.ThePurchaserisan“accreditedinvestor”as

  that term is definedin Rule 501(a) of Regulation D (an “Accredited Investor”).

c)

Reliance on Exemptions. The Purchaser understands that the Securities are

beingofferedandsoldtoitinrelianceuponspecificexemptionsfromtheregistration

requirementsof UnitedStatesfederalandstatesecuritieslawsandthattheCompanyisrelying

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

warranties,agreements,acknowledgmentsandunderstandingsofthePurchasersetforthherein

inordertodeterminetheavailabilityofsuchexemptionsandtheeligibilityofthePurchaserto

acquire the Securities.

d)

Information.ThePurchaseranditsadvisors,ifany,havebeen,andforso

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

relatingtothebusiness,financesandoperationsoftheCompanyandmaterialsrelatingtothe

offerandsaleoftheSecuritieswhichhavebeenreasonablyrequestedbythePurchaserorits

advisors, providedthatthe Purchaserhas notbeenfurnished with, andthe Company shall notin

the  futuredelivertothePurchaserwithout  itsconsent,anymaterialnon-public  information

concerningtheCompany.ThePurchaseranditsadvisors,ifany,havebeen,andforsolongas

theSecuritiesremainoutstandingwillcontinuetobe,affordedtheopportunity toaskquestions

of theCompany.Neithersuchinquiriesnoranyotherduediligenceinvestigationconductedby

Purchaseroranyofitsadvisorsorrepresentativesshallmodify,amendoraffectPurchaser’s

  righttorely  ontheCompany’srepresentationsandwarrantiescontainedinSection3below.

ThePurchaserunderstandsthatitsinvestmentintheSecuritiesinvolvesasignificantdegreeof

risk.

e)

GovernmentalReview.ThePurchaserunderstandsthatnoUnitedStates

federalorstateagencyoranyothergovernmentorgovernmentalagencyhaspasseduponor

made anyrecommendation or endorsement of the Securities.

f)

TransferorRe-sale.ThePurchaserunderstandsthat(i)thesaleorre-sale

of theSecuritieshasnotbeenandisnotbeingregisteredunderthe1933Actoranyapplicable

statesecuritieslaws,andtheSecuritiesmaynotbetransferredunless(a)theSecuritiesaresold

pursuanttoaneffectiveregistrationstatementunderthe1933Act,(b)thePurchasershallhave

deliveredtotheCompanyanopinionofcounselthatshallbe  inform,substanceandscope

customaryforopinionsof counselincomparabletransactionstotheeffectthatthesecuritiesto

besoldortransferredmaybesoldortransferredpursuanttoanexemptionfromsuch

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

  soldortransferredtoan“affiliate”(as definedinRule144promulgatedunderthe1933Act(or

  asuccessorrule)(“Rule144”)ofthePurchaserwhoagreestosell  orotherwisetransferthe

SecuritiesonlyinaccordancewiththisSection2(f)andwhoisanAccreditedInvestor,(d)the

SecuritiesaresoldpursuanttoRule144,or(e)theSecuritiesaresoldpursuanttoRegulationS

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SPA–CETY, T1, 2016-06-06

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

totheCompanyanopinionofcounselreasonablyacceptabletotheCompanyrelatingtosuch

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

accordance with the terms of such Rule andfurther, if such Rule is notapplicable, any re-sale of

such Securities undercircumstancesinwhich theseller(or the person through whom thesaleis

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

compliancewithsomeotherexemptionunderthe1933Actortherulesandregulationsofthe

SECthereunder;and(iii)neithertheCompanynoranyotherpersonisunderanyobligationto

registersuchSecuritiesunderthe1933Actoranystatesecuritieslawsortocomplywiththe

termsandconditionsofanyexemptionthereunder(ineachcase).Notwithstandingthe

foregoingoranythingelsecontainedhereintothecontrary,theSecuritiesmaybepledgedas

collateral in connection with abonafidemargin account or other lending arrangement.

g)

Legends.ThePurchaserunderstandsthattheSecuritieshavebeenissued

(or  will  beissuedin  the  case  of  the  Conversion  Shares)  pursuant  toan  exemption  from

registrationorqualificationunderthe1933Actandapplicablestatesecuritieslaws,andexcept

as setforth below, the Securities shall bear any legend as requiredbythe “blue sky” laws of any

stateandarestrictivelegendinsubstantiallythefollowingform (andastop-transferordermay

be placed againsttransfer of such stock certificates):

“NEITHERTHEISSUANCEANDSALEOFTHESECURITIES

REPRESENTEDBYTHISCERTIFICATENORTHESECURITIES

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,ORAPPLICABLESTATESECURITIESLAWS.THE

SECURITIESMAYNOTBEOFFEREDFORSALE,SOLD,

TRANSFERREDORASSIGNED(I)INTHEABSENCEOF(A)AN

EFFECTIVE

REGISTRATION

STATEMENT

FOR

THE

SECURITIESUNDERTHESECURITIESACTOF1933,AS

AMENDED,    OR(B) ANOPINIONOF    COUNSELTO    THE

HOLDER(IFREQUESTEDBYTHECOMPANY),INAFORM

REASONABLY    ACCEPTABLE    TO    THE    COMPANY,    THAT

REGISTRATIONISNOTREQUIREDUNDERSAIDACTOR(II)

UNLESSSOLDORELIGIBLETOBESOLDPURSUANTTO

RULE

144

OR

RULE

144A

UNDER

SAID

ACT.

NOTWITHSTANDINGTHEFOREGOING,THESECURITIES

MAYBEPLEDGEDINCONNECTIONWITHABONAFIDE

MARGIN    ACCOUNT    OR    OTHER    LOAN    OR    FINANCING

ARRANGEMENT SECURED BY THE SECURITIES.”

ThelegendsetforthaboveshallberemovedandtheCompanyshallissueacertificate

withoutsuchlegendtotheholderof anySecurityuponwhichitisstamped,if,unlessotherwise

requiredbyapplicablestatesecuritieslaws,(a)suchSecurityisregistered  forsaleunderan

effectiveregistrationstatementfiledunderthe1933Actorotherwisemaybesoldpursuantto

Rule144orRegulation Swithoutany restriction as tothe numberof securities as of a particular

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SPA–CETY, T1, 2016-06-06

date thatcan then beimmediately sold, or (b) such holder provides the Company with anopinion

ofcounselattheCompany’sexpense,intheform,substanceandscopecustomaryforopinions

of counselincomparabletransactions,tothe effectthata publicsale or transferof such Security

may  bemade  without  registration  under  the  1933  Act,which  opinion  shall  bereasonably

acceptedby theCompanysothatthesaleortransferiseffected.ThePurchaseragreestosellall

Securities,including  those  representedby  acertificate(s)from  which  thelegendhasbeen

removed,in compliance with applicable prospectus deliveryrequirements, if any.

h)

Authorization;Enforcement.ThisAgreementhasbeendulyandvalidly

authorized.ThisAgreementhasbeendulyexecutedanddeliveredonbehalfofthePurchaser,

andthisAgreementconstitutesavalidandbindingagreementofthePurchaserenforceablein

accordance with its terms.

3.   RepresentationsandWarrantiesoftheCompany.TheCompanyrepresentsand

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

a)

Organization and Qualification. The Company andeach of its Subsidiaries

(as definedbelow),if any,is acorporation duly organized,validly existing andin good standing

underthelawsofthejurisdictioninwhichit  isincorporated,withfullpowerandauthority

(corporate andother) toown,lease, use and operateits properties and tocarry on its business as

andwherenowowned,leased,used,operatedandconducted.Schedule3(a)setsforthalistof

alloftheSubsidiariesoftheCompanyandthejurisdictioninwhicheachisincorporated.The

CompanyandeachofitsSubsidiariesisdulyqualifiedasaforeigncorporationtodobusiness

andisingoodstandingineveryjurisdictioninwhichitsownershiporuseofpropertyorthe

natureofthebusinessconductedbyit  makessuchqualificationnecessaryexceptwherethe

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

  “Material Adverse Effect”means any material adverse effecton the business, operations, assets,

financial condition orprospects of theCompany orits Subsidiaries,ifany,takenasa whole,or

onthetransactionscontemplatedherebyorbytheagreementsorinstrumentstobeenteredinto

inconnectionherewith.   “Subsidiaries”meansanycorporationorotherorganization,whether

incorporatedorunincorporated,inwhichtheCompanyowns,directlyorindirectly,anyequity

or other ownershipinterest.

b)

Authorization;Enforcement.(i)TheCompanyhasallrequisitecorporate

powerandauthority toenterintoandperform thisAgreementandthe Noteandtoconsummate

the transactions contemplated hereby and thereby and toissue the Securities,in accordance with

thetermshereof andthereof,(ii)theexecutionanddelivery of thisAgreementandtheNoteby

theCompanyandtheconsummationbyitofthetransactionscontemplatedherebyandthereby

(includingwithout  limitation,the  issuanceoftheNote  andthe  issuanceandreservationfor

issuanceoftheConversionSharesissuableuponconversionandexercisethereof)havebeen

  duly authorizedby the Company’s Board of Directors and nofurther consentor authorization of

theCompany,itsBoardofDirectors,oritsshareholdersisrequired,(iii)thisAgreementhas

beendulyexecutedanddeliveredbytheCompanybyitsauthorizedrepresentative,andsuch

authorized  representativeis  the  true  and  official  representativewith  authority  tosign  this

AgreementandtheotherdocumentsexecutedinconnectionherewithandbindtheCompany

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

4

SPA–CETY, T1, 2016-06-06

CompanyoftheNoteandeachofsuchinstrumentswillconstitute,alegal,validandbinding

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

c)

Capitalization.Asofthedatehereof,theauthorizedcapitalstockofthe

Company,andnumberofsharesissuedandoutstanding,isassetforthintheCompany’smost

recent  periodicreport  filed  withtheSEC.  Except  asdisclosedonSchedule  3(c)hereof,  no

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

disclosed  inthe  SEC  Documentsno  sharesare  reserved  for  issuance  pursuant  to  securities

exercisablefor,orconvertibleintoorexchangeableforsharesofCommonStock.Allofsuch

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

fully  paid  andnon-assessable.Noshares  of  capital  stock  of  theCompany  are  subjectto

preemptiverights orany othersimilarrights of the shareholders of the Company orany liens or

encumbrancesimposedthrough theactions orfailure toactof the Company.Asof the effective

date  of  this  Agreement,  and  except  as  disclosed  in  theSEC  Documents,  (i)  there  areno

outstandingoptions,warrants,scrip,rightstosubscribefor,puts,calls,rightsoffirstrefusal,

agreements,understandings,claims or othercommitments orrights of any characterwhatsoever

relatingto,orsecurities,  notesorrightsconvertible  into  orexchangeable  foranysharesof

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

orany ofitsSubsidiariesisormaybecomeboundtoissueadditionalsharesof capitalstockof

theCompanyoranyofitsSubsidiaries,(ii)therearenoagreementsorarrangementsunder

whichtheCompanyoranyofitsSubsidiariesisobligatedtoregisterthesaleofanyofitsor

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

provisionscontainedinanysecurityissuedbytheCompany(orinanyagreementproviding

rightstosecurityholders)thatwillbetriggeredbytheissuanceofanyoftheSecurities.The

Company has furnished to the Purchaser true and correctcopies of the Company’s Certificate of

  Incorporationasineffectonthedatehereof(“CertificateofIncorporation”),theCompany’s

By-laws,asineffecton  the  datehereof  (the“By-laws”),and  the  terms  of  all  securities

convertibleinto or exercisablefor Common Stock of the Company and the material rights of the

holders thereof in respect thereto.

d)

IssuanceofShares.TheConversionSharesaredulyauthorizedand

reservedforissuanceand,uponconversionof theNote,as the casemaybe,inaccordancewith

theirrespectiveterms,willbevalidlyissued,fullypaidandnon-assessable,andfreefromall

taxes,liens,claimsandencumbranceswithrespecttotheissuethereofandshallnotbesubject

topreemptiverights or othersimilarrights of shareholders of the Company andwillnotimpose

personal liability upon the holder thereof.

e)

AcknowledgmentofDilution.TheCompany’sexecutiveofficersand

directors  understand  thenature  ofthe  Securities  being  sold  hereby  and  recognize  that  the

issuanceoftheSecuritieswillhaveapotentialdilutiveeffectontheequityholdingsofother

  holdersoftheCompany’sequityorrightstoreceiveequityoftheCompany.Theboardof

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

theSecuritiesisinthebestinterests of theCompany.TheCompanyspecifically acknowledges

thatitsobligationtoissuetheConversionSharesuponconversionof theNotesisbindingupon

theCompanyandenforceableregardlessofthedilutionsuchissuancemayhaveon  the

ownershipinterests of other stockholders of the Company or parties entitled toreceive equity of

the Company.

5

SPA–CETY, T1, 2016-06-06

f)

NoConflicts. The execution, delivery and performance of thisAgreement,

theNotebytheCompanyandtheconsummationbytheCompanyofthetransactions

contemplated hereby and thereby (including, withoutlimitation, the issuance and reservation for

issuanceoftheConversionShares)willnot(i)conflictwithorresult  ina  violationofany

provision of theCertificateof Incorporation orBy-laws,or(ii)violate orconflictwith,orresult

in abreach of any provision of, or constitute a default(or an eventwhich with notice orlapseof

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

amendment,accelerationorcancellationof,anyagreement,indenture,patent,patentlicenseor

instrumenttowhichtheCompany orany ofits Subsidiariesisa party andthatisnotfiledas an

SECDocumentorotherdocumentfiledwiththeSEC,or(iii)resultinaviolationofanylaw,

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

regulationsandregulationsofanyself-regulatoryorganizationstowhichtheCompanyorits

securitiesaresubject)applicabletotheCompanyoranyofitsSubsidiariesorbywhichany

propertyor assetof the Company or any of its Subsidiaries is bound or affected (exceptfor such

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

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

CompanynoranyofitsSubsidiariesisinviolationofitsCertificateofIncorporation,By-laws

orotherorganizationaldocumentsandneithertheCompanynoranyofitsSubsidiariesisin

default(andnoeventhasoccurredwhichwithnoticeorlapseoftimeorbothcouldputthe

CompanyoranyofitsSubsidiariesindefault)under,andneithertheCompanynoranyofits

Subsidiarieshastakenanyactionorfailedtotakeanyactionthatwouldgivetoothersany

rightsoftermination,amendment,accelerationorcancellationof,anyagreement,indentureor

instrumenttowhich theCompany orany of its Subsidiariesis a party orby whichany property

orassetsoftheCompanyoranyofitsSubsidiariesisboundoraffected,exceptforpossible

defaultsaswouldnot,individuallyorintheaggregate,haveaMaterialAdverseEffect.The

businessesoftheCompanyanditsSubsidiaries,ifany,arenotbeingconducted,andshallnot

beconductedso  longasthePurchaserownsanyoftheSecurities,inviolationofanylaw,

ordinanceorregulation of any governmental entity.Exceptas specificallycontemplatedby this

Agreementandasrequiredunderthe1933Actandanyapplicablestatesecuritieslaws,the

Companyisnotrequiredtoobtainanyconsent,authorizationororderof,ormakeanyfilingor

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

organization orstockmarketorany thirdparty inorderforittoexecute,deliverorperform any

ofitsobligationsunderthisAgreementandtheNoteinaccordancewiththetermshereofor

thereof or toissueandselltheSecuritiesinaccordance with the terms hereof andthereof andto

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

theCompanyisrequiredtoobtainpursuanttotheprecedingsentencehavebeenobtainedor

effectedon  orpriortothedatehereof.TheCompanyisnotinviolationofthelisting

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

anddoesnotreasonablyanticipatethattheCommonStockwillbedelistedbytheOTCBB,or

OTCQB, orOTCPinkin theforeseeablefuture.The Company andits Subsidiaries are unaware

of any facts or circumstances which mightgive rise to anyof the foregoing.

g)

SEC Documents; Financial Statements. The Company has filedall reports,

schedules,forms,statements andotherdocuments requiredtobefiledbyitwith theSEC (all of

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

statementsandschedulestheretoanddocuments(otherthan  exhibitstosuch  documents)

  incorporatedby   referencetherein,beinghereinafterreferredtoherein   as   the   “SEC

6

SPA–CETY, T1, 2016-06-06

Documents”).UponwrittenrequesttheCompanywilldelivertothePurchasertrueand

completecopiesoftheSECDocuments,exceptforsuchexhibitsandincorporateddocuments.

Asoftheirrespectivedates,theSECDocumentscompliedinallmaterialrespectswiththe

requirementsoftheSecuritiesExchangeActof1934,asamended(“1934Act”or“Exchange

  Act”), andnone of the SEC Documents, at the time theywere filed with theSEC, contained any

untrue statementof amaterial factor omitted tostate a material factrequired tobe stated therein

ornecessaryinordertomakethestatementstherein,inlightof thecircumstancesunderwhich

theyweremade,notmisleading.NoneofthestatementsmadeinanysuchSECDocumentsis,

orhasbeen,requiredtobeamendedorupdatedunderapplicablelaw(exceptforsuch

statementsashavebeenamendedorupdatedinsubsequentfilingspriorthedatehereof).Asof

theirrespectivedates,thefinancial statements of theCompanyincludedintheSEC Documents

compliedastoforminallmaterialrespectswithapplicableaccountingrequirementsandthe

publishedrulesandregulationsof theSECwithrespectthereto.Suchfinancialstatementshave

been  preparedin  accordancewith  United  States  generally  accepted  accounting  principles,

consistentlyapplied,duringtheperiodsinvolvedandfairlypresentinallmaterialrespectsthe

consolidatedfinancial positionof theCompany andits consolidatedSubsidiaries as of thedates

thereofandtheconsolidatedresultsoftheiroperationsandcashflowsfortheperiodsthen

ended  (subject,  inthe  caseofunauditedstatements,to  normalyear-endaudit  adjustments).

Exceptas setforthin thefinancialstatements of theCompanyincludedintheSEC Documents,

theCompanyhasnoliabilities,contingentorotherwise,otherthan(i)liabilitiesincurredinthe

ordinarycourseofbusiness,and(ii)obligationsundercontractsandcommitmentsincurredin

theordinary courseof business andnotrequiredundergenerally acceptedaccountingprinciples

tobereflectedinsuchfinancialstatements,which,individuallyorintheaggregate,arenot

material to thefinancial condition oroperating results of the Company. The Companyis subject

to the reporting requirements of the 1934 Act.

h)

AbsenceofCertainChanges.SinceMarch31,2016,therehasbeenno

material adversechangeandnomaterial adverse developmentin the assets,liabilities,business,

properties, operations,financial condition, results of operations, prospects or 1934 Actreporting

status of the Company or anyof its Subsidiaries.

i)

AbsenceofLitigation.Thereisnoaction,suit,claim,proceeding,inquiry

orinvestigation  before  orby  any  court,publicboard,governmentagency,self-regulatory

organizationorbodypendingor,totheknowledgeoftheCompanyoranyofitsSubsidiaries,

threatened  against  or  affecting  the  CompanyoranyofitsSubsidiaries,  ortheir  officers  or

directorsintheircapacityassuch,thatcouldhaveaMaterialAdverseEffect.Schedule3(i)

containsacompletelistandsummarydescriptionofanypendingor,totheknowledgeofthe

Company,threatenedproceedingagainstoraffectingtheCompanyoranyofitsSubsidiaries,

without  regardto  whether  it  would  have  a  Material  Adverse  Effect.  The  Companyand  its

Subsidiariesareunawareofanyfactsorcircumstanceswhichmightgiverisetoanyofthe

foregoing.

j)

Patents,Copyrights,etc.TheCompanyandeachofitsSubsidiariesowns

orpossessestherequisitelicensesorrightstouseallpatents,patentapplications,patentrights,

inventions,know-how, tradesecrets, trademarks,trademarkapplications,servicemarks,service

names, trade names andcopyrights (“IntellectualProperty”) necessary toenable ittoconductits

businessasnowoperated(and,aspresentlycontemplatedtobeoperatedinthefuture);thereis

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SPA–CETY, T1, 2016-06-06

noclaimoractionbyanypersonpertainingto,orproceedingpending,ortotheCompany’s

knowledge  threatened,  whichchallengesthe  right  ofthe  Companyorofa  Subsidiarywith

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,

servicesandprocessesdonotinfringeonanyIntellectualPropertyorotherrightsheldbyany

personand/orentity;andtheCompanyisunawareofanyfactsorcircumstanceswhichmight

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

reasonablesecuritymeasuresto   protect   thesecrecy,confidentialityand   valueoftheir

IntellectualProperty.

k)

NoMaterially Adverse Contracts, Etc. Neitherthe Company nor any of its

Subsidiaries  issubject  to  anycharter,corporateorother  legalrestriction,oranyjudgment,

  decree,order,ruleorregulationwhichinthejudgmentoftheCompany’sofficershasoris

expectedinthefuturetohaveaMaterialAdverseEffect.NeithertheCompanynoranyofits

  Subsidiariesisapartyto  anycontractoragreementwhich  inthejudgmentoftheCompany’s

officers has or is expected tohave a Material Adverse Effect.

l)

TaxStatus.TheCompanyandeachofitsSubsidiarieshasmadeorfiled

allfederal,stateandforeignincomeandallothertaxreturns,reportsanddeclarationsrequired

byanyjurisdictiontowhichitissubject(unlessandonlytotheextentthattheCompanyand

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

paymentofallunpaidandunreportedtaxes)andhaspaidalltaxesandothergovernmental

assessmentsandchargesthatarematerialinamount,shownordeterminedtobedueonsuch

returns, reports anddeclarations, exceptthose being contestedin good faith andhas setaside on

itsbooksprovisionsreasonablyadequateforthepaymentof alltaxesforperiodssubsequentto

theperiodstowhichsuchreturns,reportsordeclarationsapply.Therearenounpaidtaxesin

anymaterialamount  claimedto  beduebythetaxingauthorityofanyjurisdiction,andthe

officers of theCompany knowof nobasisforanysuch claim.The Companyhasnotexecuteda

waiverwithrespecttothestatuteoflimitationsrelatingtotheassessmentorcollectionofany

  foreign,federal,state orlocal tax.None of the Company’s tax returnsis presently beingaudited

by anytaxing 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

businessupon termsnolessfavorable thanthe Company orany of its Subsidiariescouldobtain

fromthird parties and other than the grantof any stock options disclosed on Schedule 3(c), none

oftheofficers,directors,oremployeesoftheCompanyispresentlyapartytoanytransaction

withtheCompanyorany ofitsSubsidiaries(otherthanforservicesasemployees,officersand

directors),includinganycontract,agreementorotherarrangementprovidingforthefurnishing

ofservicestoorby,providingforrentalofrealorpersonalpropertytoorfrom,orotherwise

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

Company,anycorporation,partnership,trustorotherentityinwhichanyofficer,director,or

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

n)

Disclosure.AllinformationrelatingtoorconcerningtheCompanyorany

of its Subsidiaries setforth in thisAgreementandprovidedtothePurchaserpursuanttoSection

8

SPA–CETY, T1, 2016-06-06

2(d)hereofandotherwiseinconnectionwiththetransactionscontemplatedherebyistrueand

correct  inallmaterialrespectsandtheCompanyhasnot  omittedto  stateanymaterialfact

necessaryinordertomakethestatementsmadehereinortherein,inlightofthecircumstances

underwhichtheyweremade,notmisleading.Noeventorcircumstancehasoccurredorexists

withrespect  to  the  Companyor  anyofitsSubsidiariesor  itsortheir  business,  properties,

prospects,operationsorfinancialconditions,which,underapplicablelaw,ruleorregulation,

requires public disclosure or announcementby the Company butwhich has notbeen sopublicly

announced or disclosed.

o)

Acknowledgment   Regarding   Purchaser’   Purchase   ofSecurities.   The

CompanyacknowledgesandagreesthatthePurchaserisactingsolelyinthecapacityofarm’s

lengthpurchaserwithrespecttothisAgreementandthetransactionscontemplatedhereby.The

Company  furtheracknowledges  that  thePurchaserisnotacting  asafinancial  advisoror

fiduciaryoftheCompany(orinanysimilarcapacity)withrespecttothisAgreementandthe

transactions  contemplated  hereby  and  any  statementmade  by  thePurchaseror  any  of  its

respectiverepresentativesoragentsinconnectionwiththisAgreement  andthetransactions

contemplatedherebyisnotadviceorarecommendationandismerelyincidental  tothe

Purchaser’s purchase of the Securities.

p)

NoIntegratedOffering.Neitherthe Company,norany of its affiliates,nor

any person acting on its or theirbehalf,has directly orindirectly made any offers or sales inany

securityorsolicited  anyoffersto  buyanysecurityundercircumstancesthat  wouldrequire

registrationunderthe1933Actof theissuanceoftheSecuritiestothePurchaser.Theissuance

of  theSecuritiestothePurchaserwillnotbeintegratedwith  any  otherissuanceof  the

  Company’ssecurities(past,currentorfuture)forpurposesofanyshareholderapproval

provisions applicable to the Company or its securities.

q)

Brokers.TheCompanyherebyrepresentsand  warrantsthat  it  has  not

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

connectionwiththenegotiation,executionordeliveryofthisAgreementorthetransactions

contemplatedhereunder.TheCompanycovenantsandagreesthatshouldanyclaimbemade

againstPurchaserfor any commission or other compensationby any broker, finder, person, firm

or corporation,including withoutlimitation, the Broker,based upon the Company’s engagement

ofsuchpersoninconnectionwiththistransaction,theCompanyshallindemnify,defendand

  holdPurchaserharmlessfromandagainstanyandalldamages,expenses(includingattorneys’

fees  and  disbursements)  and  liabilityarising  fromsuchclaim.The  Companyshallpaythe

commission of the Broker, to the attention of the Broker, pursuantto 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,approvalsandordersnecessarytoown,leaseandoperateits

  properties andtocarry onits business asitis nowbeingconducted(collectively,the“Company

  Permits”),andthereisnoactionpendingor,totheknowledgeoftheCompany,threatened

regardingsuspensionorcancellationof any of theCompanyPermits.NeithertheCompanynor

anyofitsSubsidiariesisinconflictwith,orindefaultorviolationof,anyoftheCompany

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

9

SPA–CETY, T1, 2016-06-06

aggregate,wouldnotreasonablybeexpectedtohaveaMaterialAdverseEffect.SinceMarch

31,2016,neithertheCompanynoranyofitsSubsidiarieshasreceivedanynotificationwith

respecttopossible conflicts, defaults or violations of applicable laws, exceptfor notices relating

topossibleconflicts,defaultsorviolations,whichconflicts,defaultsorviolationswouldnot

have a Material Adverse Effect.

s)

EnvironmentalMatters.

i.

Thereare,totheCompany’sknowledge,withrespecttothe

CompanyoranyofitsSubsidiariesoranypredecessoroftheCompany,nopastorpresent

violations  of  Environmental  Laws  (as  definedbelow),releases  ofany  material  intothe

environment,actions,activities,circumstances,conditions,events,incidents,orcontractual

obligationswhichmaygiverisetoanycommonlawenvironmentalliabilityoranyliability

undertheComprehensiveEnvironmentalResponse,CompensationandLiabilityActof1980

or  similarfederal,state,  local  orforeign  lawsandneither  the  Company  nor  any  of  its

Subsidiarieshasreceivedanynoticewithrespecttoanyoftheforegoing,norisanyaction

     pendingor, to theCompany’s knowledge,threatenedin connection with any of theforegoing.

     Theterm“EnvironmentalLaws”meansallfederal,state,  localorforeignlawsrelatingto

pollutionorprotectionofhumanhealthortheenvironment(including,withoutlimitation,

ambientair,surfacewater,groundwater,landsurface orsubsurface strata),including,without

limitation,laws relatingtoemissions,discharges,releases or threatenedreleases of chemicals,

pollutants contaminants,or toxicorhazardous substancesorwastes (collectively,“Hazardous

     Materials”)intotheenvironment,orotherwiserelatingtothemanufacture,processing,

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

wellasallauthorizations,codes,decrees,demandsordemandletters,injunctions,judgments,

licenses,noticesornoticeletters,orders,permits,plansorregulationsissued,entered,

promulgated or approved thereunder.

ii.

Otherthanthosethatareorwerestored,usedordisposedofin

compliancewithapplicablelaw,noHazardousMaterialsarecontainedonoraboutanyreal

propertycurrentlyowned,leasedorusedbytheCompanyoranyofitsSubsidiaries,andno

Hazardous Materials werereleasedon oraboutany realproperty previously owned,leasedor

usedbytheCompanyoranyofitsSubsidiariesduringtheperiodthepropertywasowned,

leasedorusedbytheCompanyoranyofitsSubsidiaries,exceptinthenormalcourseofthe

     Company’s or anyof its Subsidiaries’ business.

iii.

There  arenoundergroundstorage  tankson  or  under  any  real

propertyowned,leasedorusedbytheCompanyoranyofitsSubsidiariesthatarenotin

compliance with applicablelaw.

t)

TitletoProperty.TheCompanyanditsSubsidiarieshavegoodand

marketabletitleinfeesimpletoall real property andgoodandmarketable title toall personal

propertyownedbythemwhichismaterialtothebusinessoftheCompanyandits

Subsidiaries,ineachcasefreeandclearof allliens,encumbrances anddefects exceptsuch as

aredescribedinSchedule3(t)orsuchaswouldnothaveaMaterialAdverseEffect.Any real

property andfacilitiesheldunderleaseby the Company andits Subsidiariesareheldby them

10

SPA–CETY, T1, 2016-06-06

under  valid,  subsisting  and  enforceable  leases  withsuchexceptions  aswould  not  havea

Material Adverse Effect.

u)

Insurance.TheCompanyanditsSubsidiariesareinsuredbyinsurersof

recognizedfinancial responsibility againstsuch losses and risks andin suchcoverage amounts

asareprudentandcustomaryinthebusinessesinwhichtheCompanyisengaged,including,

butnotlimitedto,directors andofficersinsurance coveragewith coverage amountsthatare at

leastequal totheaggregatePurchase Price.Neither the Company norany Subsidiary has any

reason tobelievethatitwillnotbeable torenewits existinginsurance coverage as andwhen

such coverage expires or to obtain similarcoverage from similarinsurers as may be necessary

to continueits business withouta significantincrease in cost.

v)

InternalAccountingControls.Exceptasdisclosedin theSEC Documents,

theCompanyandeachofitsSubsidiariesmaintainasystemofinternalaccountingcontrols

     sufficient,in  thejudgmentof  theCompany’sboardof  directors,toprovidereasonable

assurance  that  (i)  transactions  are  executedin  accordance  with  management’s  general  or

specificauthorizations,(ii)transactionsarerecordedasnecessarytopermitpreparationof

financial  statementsinconformity  with  generally  acceptedaccountingprinciplesandto

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

     management’s general orspecificauthorization and(iv)the recordedaccountabilityforassets

iscomparedwiththeexistingassetsatreasonableintervalsandappropriateactionistaken

with respect toanydifferences.

w)

Foreign   CorruptPractices.Neitherthe   Company,norany   of   its

Subsidiaries,norany director, officer,agent,employee or otherperson actingon behalf of the

Company  orany  Subsidiary  has,in  thecourse  of  his  actionsfor,or  onbehalf  of,the

Company, used any corporate funds for any unlawful contribution, gift, entertainmentor other

unlawfulexpensesrelatingtopolitical activity;madeanydirectorindirectunlawfulpayment

toany foreignordomesticgovernmentofficial oremployeefrom corporate funds;violatedor

isinviolation  of  any  provision  of  the  U.S.Foreign  CorruptPracticesActof  1977,as

amended,ormadeanybribe,rebate,payoff,influencepayment,kickbackorotherunlawful

paymentto any foreign or domestic government officialor employee.

x)

Solvency.Exceptas disclosedintheSEC Documents,the Company (after

givingeffecttothetransactionscontemplatedbythisAgreement)issolvent(i.e.,itsassets

haveafairmarketvalueinexcessof theamountrequiredtopayitsprobableliabilitiesonits

existing  debtsasthey  become  absolute  and  matured)  and  currentlythe  Company  has  no

informationthat  would  lead  it  to  reasonablyconcludethat  theCompanywould  not,  after

givingeffecttothetransactioncontemplatedbythisAgreement,havetheabilityto,nordoes

itintendtotakeanyactionthatwouldimpairitsabilityto,payitsdebtsfromtimetotime

incurredin connection therewith as such debts mature.

y)

NoInvestmentCompany.The Companyisnot,andupon theissuanceand

saleoftheSecuritiesascontemplatedbythisAgreementwillnotbe,an“investment

     company”requiredtoberegisteredundertheInvestmentCompanyActof1940(an

     “InvestmentCompany”). The Company is not controlled by an InvestmentCompany.

11

SPA–CETY, T1, 2016-06-06

z)

No“Shell”.TheCompanyisnot,andhasnotatanytimepreviouslybeen

a Shell Company, as definedin Rule 144.

4.   COVENANTS.

a)

BestEfforts.Thepartiesshallusetheirbesteffortstosatisfytimelyeach

of the conditions describedin Section 6 and 7 of this Agreement.

b)

FormD;BlueSkyLaws.TheCompanyagreestotimelyfileaFormD

with respecttotheSecurities as requiredunderRegulation Dandtoprovide a copy thereof to

thePurchaserpromptlyaftersuchfiling.TheCompanyshall,onorbeforetheClosingDate,

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

SecuritiesforsaletothePurchaseratthe applicableclosingpursuanttothisAgreementunder

     applicablesecuritiesor“bluesky”lawsofthestatesoftheUnitedStates(ortoobtainan

exemptionfrom such qualification),andshall provide evidence of anysuch actionsotaken to

the Purchaser on or prior to the Closing Date.

c)

Useof Proceeds.The Company shall use the proceedsfrom the sale of the

Securities  for  generalcorporate  purposes,  marketing  and  sales,  product  development,  key

personnel recruiting and business developmentpurposes.

d)

Financial   Information.   Upon   written   requestof   the   Purchaser,   the

CompanyagreestosendormakeavailablethefollowingreportstothePurchaseruntilthe

Purchasertransfers,assigns,orsellsalloftheSecurities:(i)withinten(10)daysafterthe

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

AnnualReportanditsQuarterlyReportsandanySupplementalReports;(ii)withinone(1)

dayafter release, copies of all press releases issuedby the Company or any of its Subsidiaries;

and(iii)contemporaneouslywiththemakingavailableorgivingtotheshareholdersofthe

Company,copiesofanynoticesorotherinformationtheCompanymakesavailableorgives

to  suchshareholders.  Notwithstanding  the  foregoing,  the  Companyshall  not  disclose  any

material nonpublicinformation to the Purchaser withoutits consentunless such information is

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

e)

Listing.TheCompanywill obtainand,solongasthePurchaserownsany

oftheSecurities,maintainthelistingandtradingofitsCommonStockontheOTCBB,and

OTCQB,orOTCPinkoranyequivalentreplacementexchange,theNASDAQStockMarket

     (“NASDAQ”), the NewYork Stock Exchange (“NYSE”), or theNYSE MKT,f/k/aAmerican

     StockExchange(“AMEX”),andwillcomplyinallrespectswiththeCompany’sreporting,

filingandotherobligationsunderthebylawsorrulesoftheFinancialIndustryRegulatory

     Authority  (“FINRA”)andsuchexchanges,asapplicable.TheCompanyshallpromptly

providetothePurchasercopies of anynoticesitreceivesfrom theSEC,OTC Markets Group

andanyotherexchangesorquotationsystemsonwhichtheCommonStockisthenlisted

regardingthecontinuedeligibilityoftheCommonStockforlistingonsuchexchangesand

quotationsystems,providedthatitshallnotprovideanynoticesconstitutingmaterial

nonpublicinformation.

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SPA–CETY, T1, 2016-06-06

f)

Corporate  Existence.Solong  as  thePurchaserbeneficially  ownsany

Securities,theCompany  shallmaintainitscorporate  existenceandshallnotsell  allor

     substantiallyalloftheCompany’sassets,exceptintheeventofamergerorconsolidationor

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

     in   suchtransaction(i)   assumestheCompany’sobligationshereunder   andunder   the

agreementsandinstrumentsenteredintoinconnectionherewithand(ii)isapubliclytraded

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

g)

NoIntegration.TheCompanyshallnotmakeanyoffersorsalesofany

security(otherthantheSecurities)undercircumstancesthatwouldrequireregistrationofthe

Securitiesbeingofferedorsoldhereunderunderthe1933Actorcausetheofferingofthe

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

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

h)

SecuritiesLawsDisclosure;Publicity.   TheCompanyshallcomplywith

applicablesecuritieslawsbyfilingaCurrentReporton Form 8-K,withinfour(4)TradingDays

following  the  date  hereof,  disclosing  allthe  materialtermsofthe  transactionscontemplated

hereby,iftheCompanydeemsthetransactionscontemplatedherebytoconstitutematerialnon-

publicinformation.TheCompanyandPurchasershallconsultwitheachotherinissuingany

otherpressreleaseswithrespecttothetransactionscontemplatedhereby,andneitherthe

CompanynorPurchasershallissueanysuchpressreleaseorotherwisemakeanysuchpublic

statementwithoutthepriorconsentoftheCompany,withrespecttoanypressreleaseofany

Purchaser,orwithoutthepriorconsentofPurchaser,withrespecttoanypressreleaseofthe

Company,exceptifsuchdisclosureisrequiredbylaw,inwhichcasethedisclosingpartyshall

promptly provide the other partywith prior notice of such public statementor communication.

i)

Non-PublicInformation.Exceptwithrespecttothematerialtermsand

conditionsofthetransactionscontemplated  bythis  Agreement,theCompanycovenantsand

agreesthatneitheritnoranyotherpersonactingonitsbehalfwillprovidethePurchaserorits

agentsorcounselwithanyinformationthat  theCompanybelievesconstitutesmaterialnon-

publicinformation,unlesspriortheretothePurchasershallhaveexecutedawrittenagreement

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

confirms thatthe Purchaser shall be relying on the foregoing covenantin effecting transactions in

securities of the Company.

j)

Subsidiaries.Solong as theNote remains outstanding, the Company shall

nottransferanyassetsorrightstoanyofitssubsidiariesorpermitanyofitssubsidiariesto

engagein anysignificantbusiness oroperations,whethersuchsubsidiaries are currentlyexisting

or hereafter created.

k)

Insurance.SolongastheNoteremainsoutstanding,theCompany andits

Subsidiariesshallmaintaininfullforceandeffectinsurancereasonablybelievedbythe

Companyto  beadequatecoverage(a)onallassetsand  activities,coveringpropertylossor

damageandlossofincomebyfireorotherhazardsorcasualty,and(b)againstallliabilities,

claimsandrisksforwhichitiscustomaryforcompaniessimilarlysituatedtotheCompanyto

insure,includingwithoutlimitationapplicableproductliabilityinsurance,requiredworkmen’s

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SPA–CETY, T1, 2016-06-06

compensationinsurance,andotherinsurancecoveringinjuryordamagetopersonsorproperty,

butexcluding directors and officersinsurance coverage.The Company shall promptly furnish or

cause  to  be  furnished  evidence  of  such  insurance  tothe  Purchaser,in  form  and  substance

reasonablysatisfactoryto the Purchaser.

l)

Par Value.If the closingbid price atanytime the Note is outstandingfalls

below$0.005,theCompanyshallcausetheparvalueofitsCommonStocktobereducedto

$0.0001 or less.

m)

[Intentionally Omitted].

n)

FutureFinancings:FromthedatehereofuntilsuchtimeasthePurchaser

nolongerholdsanyoftheSecurities,intheeventtheCompanyissuesorsellsanysharesof

CommonStockorsecuritiesdirectlyorindirectlyconvertibleintoorexercisableforCommon

Stock(“CommonStockEquivalents”)oramendsthetransactiondocumentsrelatingtoanysale

or  issuance  of  Common  Stock  or  Common  Stock  Equivalents,if  the  Purchaser  reasonably

believesthatthetermsandconditionsthereunderaremorefavorabletosuchinvestorsasthe

termsandconditionsgrantedundertheTransactionDocuments,uponnoticetotheCompanyby

such Purchaser, the Transaction Documents shall be deemed automatically amended soas togive

thePurchasersthebenefitofsuchmorefavorabletermsorconditions.Promptlyfollowinga

request  to  the  Companythe  Companyshallprovide  Purchaser  withallexecuted  transaction

documentsrelatingtoanysuchsaleorissueofCommonStockorCommonStockEquivalents.

CompanyshalldeliveracknowledgmentofsuchautomaticamendmenttotheTransaction

DocumentstoPurchaserinformandsubstancereasonablysatisfactorytothePurchaser(the

“Acknowledgment”)withinthree(3)businessdaysof  Company’sreceiptof  requestfrom

Purchaser(the“Deadline”),providedthatCompany’sfailuretotimelyprovidethe

Acknowledgementshallnotaffecttheautomaticamendmentscontemplatedhereby.Ifthe

Acknowledgementisnotdeliveredby  theDeadline,Companyshall  pay  tothePurchaser

$1000.00perdayincash,foreachdaybeyondtheDeadlinethattheCompanyfailstodeliver

such Acknowledgement.

5.   Transfer   Agent   Instructions.   Upon   receipt   of   a   duly   executed   Notice   of

Conversion,theCompanyshallissue  irrevocableinstructionstoitstransferagenttoissue

certificates,registeredinthenameof thePurchaserorits nominee,forthe Conversion Shares

in  such  amounts  as  specified  fromtime  to  time  by  the  Purchaser  to  the  Companyupon

conversion  of  theNote,orany  partthereof,in  accordancewith  thetermsthereof  (the

     “IrrevocableTransferAgentInstructions”).In the eventthat theCompany proposes toreplace

its transfer agent, the Company shall provide, prior to the effective date of such replacement, a

fully executed Irrevocable TransferAgentInstructions in a formas initially delivered pursuant

tothisAgreementandtheSecurities(includingbutnotlimitedtothe provision toirrevocably

reservesharesof Common Stockin theReservedAmount(as definedinthe Note))signedby

the  successor  transferagenttoCompany  and  the  Company.Prior  to  registration  of  the

ConversionSharesunderthe1933ActorthedateonwhichtheConversionSharesmaybe

sold  pursuant  to  Rule  144  without  anyrestrictionasto  the  number  ofSecuritiesas  ofa

particulardate thatcan thenbeimmediately sold,all such certificates shall bearthe restrictive

legend  specified  in  Section  2(g)  of  thisAgreement.  The  Company  warrants  that:  (i)no

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SPA–CETY, T1, 2016-06-06

instruction otherthan theIrrevocable TransferAgentInstructions referredtoin this Section 5,

andstoptransferinstructionstogiveeffecttoSection2(f)hereof(inthecaseofthe

ConversionShares,priortoregistrationoftheConversionSharesunderthe1933Actorthe

date on which the Conversion Shares may be soldpursuantto Rule 144 withoutanyrestriction

astothenumberof Securitiesasofaparticulardatethatcanthenbeimmediatelysold),will

begivenby theCompany toits transferagentandthatthe Securitiesshall otherwisebefreely

transferableonthebooksandrecordsoftheCompanyasandtotheextentprovidedinthis

Agreementand the Note; (ii)itwill notdirectits transfer agentnot to transfer or delay,impair,

and/orhinder  itstransferagent  intransferring  (orissuing)(electronicallyor  incertificated

form)anycertificateforConversionSharestobeissuedtothePurchaseruponconversionof

orotherwisepursuanttotheNoteasandwhenrequiredbytheNoteandthisAgreement;and

(iii)itwill notfailto remove (or directits transfer agentnot toremove or impair, delay, and/or

hinder  its  transfer  agent  fromremoving)  any  restrictive  legend  (or  to  withdraw  any  stop

transferinstructionsinrespectthereof)onanycertificateforany ConversionSharesissuedto

thePurchaseruponconversionof orotherwisepursuanttotheNoteasandwhenrequiredby

theNoteandthisAgreement.NothinginthisSectionshallaffectinanywaythePurchaser’s

obligations  and  agreement  set  forth  in  Section  2(g)  hereofto  comply  withall  applicable

prospectus  delivery  requirements,  if  any,  upon  re-sale  ofthe  Securities.  Ifthe  Purchaser

provides theCompany with (i)an opinion of counselinform,substance andscope customary

foropinionsincomparabletransactions,totheeffectthatapublicsaleortransferofsuch

Securitiesmaybemadewithoutregistrationunderthe1933Actandsuchsaleortransferis

effectedor(ii)thePurchaserprovidesreasonableassurancesthattheSecuritiescanbesold

pursuanttoRule144,theCompanyshallpermitthetransfer,and,inthecaseofthe

ConversionShares,promptlyinstructitstransferagenttoissueoneormorecertificates,free

fromrestrictivelegend,insuchnameandinsuchdenominationsasspecifiedbythe

Purchaser.TheCompanyacknowledgesthatabreachbyitofitsobligationshereunderwill

causeirreparableharm to thePurchaser,by vitiatingtheintentandpurpose of the transactions

contemplatedhereby.Accordingly,theCompanyacknowledgesthattheremedyatlawfora

breachofitsobligationsunderthisSection5maybeinadequateandagrees,intheeventof a

breach  or  threatened  breach  by  the  Company  of  the  provisions  of  this  Section,  that  the

Purchasershall  be  entitled,in  addition  toall  other  available  remedies,toan  injunction

restraininganybreachandrequiringimmediatetransfer,withoutthenecessityofshowing

economicloss and without any bond or other security being required.

6.   Injunction PostingofBond.IntheeventthePurchasershallelecttoconvertthe

Noteoranypartsthereof,theCompanymaynotrefuseconversionorexercisebasedonany

claimthatPurchaseroranyoneassociatedoraffiliatedwithPurchaserhasbeenengagedin

anyviolationoflaw,orforanyotherreason.Inconnectionwithanyinjunctionsoughtor

attemptedby theCompany,theCompany shallbe requiredtoposta bondatleastequal tothe

greater of either:(i)theoutstandingprincipal amountof the Note; and(ii)themarketvalueof

theConversion Shares soughttobe converted,exercisedorissued,basedon the sale priceper

share of Common Stock onthe principal marketon which itistraded.

7.   Deliveryof Unlegended Shares.

a)

Withinthree(3)businessdays(suchthirdbusinessdaybeingthe

     “UnlegendedSharesDelivery  Date”)afterthebusinessdayonwhichtheCompanyhas

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SPA–CETY, T1, 2016-06-06

received(i)anotice  thatConversion  Shares,or  any  other  Common  Stock  heldby  the

PurchaserhasbeensoldpursuanttoaregistrationstatementorRule144underthe1933Act,

(ii)arepresentationthattheprospectusdeliveryrequirements,ortherequirementsofRule

144,  as  applicable  and  ifrequired,  have  beensatisfied,  (iii)  the  originalshare  certificates

representingthesharesofCommonStockthathavebeensold,and(iv)inthecaseofsales

under Rule 144, customaryrepresentation letters of thePurchaser and,if required,Purchaser’s

brokerregardingcompliancewiththerequirementsof Rule144,theCompanyatitsexpense,

(y)shalldeliver,andshallcause  legalcounselselectedbythe  Companyto  deliverto  its

transfer  agent  (with  copies  toPurchaser)  an  appropriate  instruction  and  opinion  of  such

counsel,directingthedelivery of sharesof CommonStockwithoutanylegendsincludingthe

     legendsetforthinSection4(h)above(the“UnlegendedShares”);and(z)causethe

transmissionofthecertificatesrepresentingtheUnlegendedSharestogetherwithalegended

certificaterepresentingthebalanceofthesubmittedCommonStockcertificate,ifany,tothe

Purchaser  attheaddressspecified  inthe  notice  ofsale,viaexpresscourier,byelectronic

transfer or otherwise on or before the UnlegendedShares DeliveryDate.

b)

TheCompanyunderstandsthatadelayinthedeliveryoftheUnlegended

ShareslaterthantheUnlegendedSharesDeliveryDatecouldresultineconomiclosstothe

Purchaser.    Ascompensationto  Purchaser  forsuchloss,theCompanyagreesto  paylate

paymentfees (as liquidated damages andnotas a penalty) to thePurchaserforlate delivery of

UnlegendedSharesintheamountof $1,000.00perbusinessdayaftertheUnlegendedShares

DeliveryDate.Ifduringanythreehundredandsixty(360)dayperiod,theCompanyfailsto

deliverUnlegendedSharesasrequiredbythisSectionforanaggregateofthirty(30)days,

then  Purchaser  or  assignee  holding  Securities  subject  to  such  default  may,  at  its  option,

requiretheCompanytoredeemalloranyportionofthesharessubjecttosuchdefaultata

price  per  share  equalto  the  greater  of(i)  200%  ofthe  most  recent  closing  price  ofthe

CommonStockor(ii)afractioninwhichthenumeratoristhehighestclosingpriceofthe

Common Stock during the aforedescribed thirty(30) dayperiod and the denominator of which

is thelowestconversion price during such thirty (30) day period,multipliedby theconversion

price  or  exercise  price,  asthe  case  may  be  (“Unlegended  Redemption  Amount”).    The

CompanyshallpayanypaymentsincurredunderthisSectioninimmediatelyavailablefunds

upon demand.

8.   ConditionstotheCompany’sObligationtoSell.TheobligationoftheCompany

hereundertoissueandsell  theNotetothePurchaserattheClosingissubjecttothe

satisfaction,atorbefore  theClosingDate  ofeach  of  thefollowingconditionsthereto,

providedthattheseconditionsarefortheCompany’ssolebenefitandmaybewaivedbythe

Company atanytimein its sole discretion:

a)

ThePurchasershallhaveexecutedthisAgreementanddeliveredthesame

to the Company.

b)

The Purchaser shall have delivered the Purchase Priceto the Company.

c)

The  representations  and  warranties  of  the  Purchaser  shall  be  true  and

correctin allmaterial respects as of the date whenmade andas of the ClosingDate as though

madeatthattime(exceptforrepresentationsandwarrantiesthatspeakasofaspecificdate),

16

SPA–CETY, T1, 2016-06-06

andthePurchasershallhaveperformed,satisfiedandcompliedinallmaterialrespectswith

thecovenants,agreementsandconditionsrequiredby  thisAgreementtobeperformed,

satisfied or complied with by thePurchaser at or prior to the Closing Date.

d)

Nolitigation,statute,rule,regulation,executiveorder,decree,rulingor

injunctionshallhavebeenenacted,entered,promulgatedorendorsedbyorinanycourtor

governmentalauthorityofcompetentjurisdictionoranyself-regulatoryorganizationhaving

authorityoverthematterscontemplatedherebywhichprohibitstheconsummationofanyof

the transactions contemplated bythis Agreement.

9.   Conditions  to  The  Purchaser’s  Obligation  to  Purchase.  The  obligation  of  the

PurchaserhereundertopurchasetheNoteattheClosingissubjecttothesatisfaction,ator

before the Closing Date of each of the following conditions, provided that these conditions are

forthePurchaser’ssolebenefitandmaybewaivedbythePurchaseratanytimeinitssole

discretion:

a)

TheCompanyshallhaveexecutedthisAgreementanddeliveredthesame

to the Purchaser.

b)

The  Companyshall  have  delivered  to  the  Purchaser  the  dulyexecuted

Note(insuchdenominationsasthePurchasershallrequest)inaccordancewithSection1

above.

c)

TheIrrevocableTransferAgentInstructions,   informandsubstance

satisfactory to thePurchaser,shall havebeen delivered toandacknowledgedin writingby the

     Company’sTransferAgent(acopyofwhichwrittenacknowledgmentshallbeprovidedto

Purchaser simultaneously with Closing).

d)

The  representations  and  warranties  of  the  Company  shall  be  true  and

correctin allmaterial respects as of the date whenmade andas of the ClosingDate as though

madeatsuchtime(exceptforrepresentationsandwarrantiesthatspeakasof aspecificdate)

andtheCompanyshallhaveperformed,satisfiedandcompliedinallmaterialrespectswith

thecovenants,agreementsandconditionsrequiredby  thisAgreementtobeperformed,

satisfiedorcompliedwithbytheCompanyatorpriortotheClosingDate.ThePurchaser

shallhavereceivedacertificateorcertificates,executedbythechiefexecutiveofficerofthe

Company, dated as of theClosing Date, to the foregoing effectandas tosuch othermatters as

maybereasonablyrequestedbythePurchaserincluding,butnotlimitedtocertificateswith

     respecttotheCompany’sCertificateofIncorporation,By-laws,incumbency,andBoardof

     Directors’ resolutions relating to the transactions contemplated hereby.

e)

Nolitigation,statute,rule,regulation,executiveorder,decree,rulingor

injunctionshallhavebeenenacted,entered,promulgatedorendorsedbyorinanycourtor

governmentalauthorityofcompetentjurisdictionoranyself-regulatoryorganizationhaving

authorityoverthematterscontemplatedherebywhichprohibitstheconsummationofanyof

the transactions contemplated bythis Agreement.

f)

Noeventshallhaveoccurredwhichcouldreasonablybe expectedtohave

aMaterialAdverseEffectontheCompanyincludingbutnotlimitedtoachangeinthe1934

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SPA–CETY, T1, 2016-06-06

ActreportingstatusoftheCompanyorthefailureoftheCompanytobetimelyinits1934

Actreporting obligations.

g)

TheConversionSharesshallhavebeenauthorizedforquotationonthe

OTCBB,OTCQB,andOTCPink,andtradingof  theCommon  Stock  on  theOTCBB,

OTCQB,  and  OTCPink  shall  not  have  beensuspended  bythe  SEC  or  the  OTC  Markets

Group.

10. Governing Law; Miscellaneous.

a)

GoverningLaw.ThisAgreementshallbegovernedbyandconstruedin

accordance with thelaws of the State of New York withoutregardtoprinciples of conflicts of

lawsthereoforanyotherState.Anyactionbroughtbyanypartyagainstanyotherparty

heretoconcerningthetransactionscontemplatedbythisAgreementshallbebroughtonlyin

thestatecourtsofNewYorkorinthefederalcourtslocatedinthestateandcountyofNew

York.  ThepartiestothisAgreementherebyirrevocablywaiveanyobjectiontojurisdiction

andvenueof any actioninstitutedhereunderandshallnotassertany defensebasedonlackof

jurisdiction  orvenueorbasedupon forum  nonconveniens.Thepartiesexecutingthis

Agreementandotheragreementsreferredtohereinor deliveredinconnectionherewith

onbehalf of theCompanyagreetosubmitto the inpersonam jurisdictionof suchcourts

and  hereby  irrevocably  waive  trial  by  jury.The  prevailing  party  shall  be  entitled  to

     recoverfromtheotherpartyitsreasonableattorney’sfeesandcosts.Intheeventthatany

provision  ofthis  Agreement  or  anyother  agreement  delivered  in  connection  herewith  is

invalidorunenforceableunderanyapplicablestatute orruleoflaw,thensuch provisionshall

be  deemed  inoperative  to  the  extent  that  it  may  conflict  therewith  and  shall  be  deemed

modifiedtoconformwithsuchstatuteorruleoflaw.Anysuchprovisionwhichmayprove

invalidorunenforceableunderanylawshallnotaffectthevalidityorenforceabilityofany

other  provision  ofany  agreement.Each  party  hereto  hereby  irrevocably  waives  personal

serviceofprocessandconsentstoprocessbeingservedinanysuit,actionorproceedingin

connectionwiththisAgreementoranyothertransactiondocumentcontemplatedherebyby

mailingacopy thereofviaregisteredorcertifiedmail orovernightdelivery (withevidenceof

delivery)tosuchpartyattheaddressineffectfornoticestoitunderthisAgreementand

agreesthat  suchserviceshallconstitutegoodandsufficient  serviceofprocessand  notice

thereof.Nothingcontainedhereinshallbedeemedtolimit  inanywayanyrighttoserve

process in anyothermanner permitted by law.

b)

Removal  of  RestrictiveLegends.In  the  event  thatPurchaserhas  any

     shares  ofthe  Company’s  Common  Stock  bearing  any  restrictive  legends,  andPurchaser,

through its counsel or other representatives, submits to the TransferAgentanysuch sharesfor

the  removal  of  the  restrictivelegends  thereon  in  connection  with  a  sale  of  such  shares

pursuantto anyexemptiontotheregistrationrequirementsundertheSecuritiesAct,andthe

Companyandoritscounselrefusesorfailsforanyreason(excepttotheextentthatsuch

refusalorfailureisbasedsolelyonapplicablelawthatwouldpreventtheremovalofsuch

restrictivelegends)torenderanopinionofcounseloranyotherdocumentsorcertificates

required  for  the  removalofthe  restrictive  legends,  thenthe  Company  hereby  agrees  and

acknowledges  thatthe  Purchaseris  hereby  irrevocably  and  expressly  authorized  to  have

counseltothePurchaserrenderanyandallopinionsandothercertificatesorinstruments

18

SPA–CETY, T1, 2016-06-06

whichmayberequiredforpurposesofremovingsuchrestrictivelegends,andtheCompany

herebyirrevocablyauthorizesanddirectstheTransferAgentto,withoutanyfurther

confirmationor  instructions  fromthe  Company,  issue  any  such  shareswithout  restrictive

legends  as  instructed  bythe  Purchaser,  and  surrender  to  a  commoncarrier  for  overnight

delivery to the address as specifiedby the Purchaser, certificates, registeredin the name of the

Purchaseroritsdesignees,representingthesharesofCommonStocktowhichthePurchaser

isentitled,withoutanyrestrictivelegendsandotherwisefreelytransferableonthebooksand

records of the Company.

c)

FilingRequirements.From the date of thisAgreementuntiltheNotes are

nolongeroutstanding,theCompanywilltimelyandvoluntarilycomplywithallreporting

requirementsthat  areapplicabletoanissuerwithaclassofsharesregisteredpursuant  to

Section12(g)ofthe1934Act,whetherornottheCompanyisthensubjecttosuchreporting

requirements,andcomplywithallrequirementsrelatedtoanyregistrationstatement  filed

pursuanttothisAgreement.TheCompanywillusereasonableeffortsnottotakeanyaction

orfileanydocument(whetherornotpermittedbythe1933Actorthe1934Actortherules

thereunder)toterminateorsuspendsuchregistrationortoterminateorsuspenditsreporting

andfilingobligations undersaidacts until theNotes arenolongeroutstanding.The Company

will maintain the quotation or listing of its Common Stock on theOTCBB, OTCQB, and OTC

Pink,  NYSE,  or  NASDAQ  Stock  Market  (whichever  ofthe  foregoing  is  at  the  time  the

     principaltradingexchangeormarketfortheCommonStock(the“PrincipalMarket”),and

     willcomplyinallrespectswiththeCompany’sreporting,filingandotherobligationsunder

thebylawsorrulesof  thePrincipal  Market,asapplicable.TheCompany  will  provide

PurchaserwithcopiesofallnoticesitreceivesnotifyingtheCompanyofthethreatenedand

actualdelistingofthe  CommonStockfromanyPrincipalMarket.Asofthedateofthis

AgreementandtheClosingDate,theOTCPink,isthePrincipalMarket.UntiltheNote isno

longeroutstanding,theCompanywillcontinuethelistingorquotationof theCommonStock

     on a Principal Marketand 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

ClosingDateandendingtwenty-four(24)monthsthereafter, thePurchaserisnotpermitted to

resell  any  of  the  Conversion  Shares  withoutany  restrictivelegendor  ifsuch  salesare

permittedbutsubjecttovolumelimitationsorfurtherrestrictionsonresaleasaresultofthe

unavailabilitytoSubscriberofRule144(b)(1)(i)underthe1933Actoranysuccessorrule(a

     “144  Default”),for  any  reason  except  forPurchasers’  status  as  an  Affiliate  or  “control

     person”of theCompany,orasaresultof achangeincurrentapplicablesecuritieslaws,then

theCompanyshallpaysuchPurchaserasliquidateddamagesandnotasapenaltyanamount

equal totwopercent(2%)of thevalue ofConversion Shares(basedon the closingsale of the

CommonStock)subjecttosuch144Defaultduringthependencyofthe144Defaultofeach

thirtydayperiod thereafter (or portion thereof).

e)

Fees andExpenses.Onorpriortothe Closing,the Companyshallpayor

reimbursetoPurchaseranon-refundable,non-accountablesumequalto$5,000.00asandfor

thefees,costsandexpenses(includingwithoutlimitationlegalfeesanddisbursementsand

duediligenceandadministrativeexpenses)incurredbythePurchaserinconnectionwiththe

     Purchaser’s  due  diligenceandnegotiation,preparation  andexecution  of  the  Transaction

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SPA–CETY, T1, 2016-06-06

DocumentsandconsummationoftheTransactions.   ThePurchasermaywithholdandoffset

thebalanceof  such  amountfrom  thepaymentofits  Purchase  Price  otherwise  payable

hereunderatClosing,whichoffsetshallconstitutepartialpaymentofsuchPurchasePricein

an amountequal tosuch offset.Exceptas expressly setforth in thisAgreementor the Note to

thecontrary,eachpartyshallpaythefeesandexpensesofitsadvisers,counsel,accountants

and  other  experts,  if  any,  and  all  other  expenses  incurred  by  such  party  incident  to  the

negotiation,preparation,execution,deliveryandperformanceofthisAgreement.     The

Companyshallpayalltransferagentfees,stamptaxesandothertaxesanddutiesleviedin

connection with the deliveryof any Securities to the Purchaser.

f)

Usury.   Totheextentitmaylawfullydoso,theCompanyherebyagrees

nottoinsistuponorpleadorinanymannerwhatsoeverclaim,andwillresistanyandall

efforts tobecompelledtotake thebenefitoradvantage of,usury laws whereverenacted,now

oratany timehereafterinforce,inconnectionwithany claim,actionorproceedingthatmay

bebroughtbythePurchaserin  ordertoenforceany  rightorremedy  undertheNote.

Notwithstandinganyprovisiontothecontrarycontainedin  hereinorundertheNote,itis

expresslyagreed  andprovided  that  thetotalliabilityofthe  Companyunder  the  Notefor

paymentsinthenatureof interestshallnotexceedthemaximumlawful rate authorizedunder

     applicablelaw(the“MaximumRate”),and,withoutlimitingtheforegoing,innoeventshall

anyrateofinterestordefaultinterest,orbothof them,whenaggregatedwithanyothersums

inthenatureofinterestthattheCompanymaybeobligatedtopayundertheNoteorherein

exceed such Maximum Rate.  Itis agreed thatif the maximumcontract rate of interestallowed

by  law  andapplicableto  theNote  isincreased  or  decreasedby  statute  or  any  official

governmental action subsequenttothe date hereof, the newmaximum contractrate of interest

allowedbylawwillbetheMaximumRateapplicabletotheNotefromtheeffectivedate

forward,unlesssuchapplicationisprecludedbyapplicablelaw.Ifunderanycircumstances

whatsoever,interestinexcess of theMaximum Rate is paidby theCompany tothePurchaser

withrespect  to  indebtednessevidenced  bythe  Note,  suchexcessshall  be  applied  by  the

Purchasertotheunpaidprincipalbalanceofanysuchindebtednessorberefundedtothe

Company, themanner of handling such excess to be at the Purchaser’s election.

g)

Headings.TheheadingsofthisAgreement   are   forconvenienceof

reference only and shall notformpartof, or affectthe interpretation of, this Agreement.

h)

Severability.IntheeventthatanyprovisionofthisAgreementisinvalid

orunenforceableunderanyapplicablestatuteorruleoflaw,thensuchprovisionshallbe

deemedinoperativetotheextentthatitmayconflicttherewithandshallbedeemedmodified

toconform with suchstatute orrule of law.Any provisionhereof whichmay proveinvalidor

unenforceable  under  any  law  shall  not  affect  thevalidity  or  enforceability  of  any  other

provision hereof.

i)

EntireAgreement;  Amendments.ThisAgreementand  theinstruments

referencedhereincontaintheentireunderstandingofthepartieswithrespecttothematters

coveredhereinandthereinand,exceptasspecificallysetforthhereinortherein,neitherthe

Company nor the Purchasermakes anyrepresentation, warranty, covenantor undertaking with

respecttosuchmatters.NoprovisionofthisAgreementmaybewaivedoramendedother

than byan instrumentin writing signed by thePurchaser.

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SPA–CETY, T1, 2016-06-06

j)

Notices.  All  notices,  demands,  requests,  consents,  approvals,  and  other

communicationsrequiredorpermittedhereundershallbeinwritingand,unlessotherwise

specifiedherein,shall  be(i)personally  served,(ii)depositedin  themail,registered  or

certified,  returnreceipt  requested,  postage  prepaid,  (iii)  delivered  byreputable  air  courier

servicewithchargesprepaid,or(iv)transmittedbyhanddelivery,telegram,emailor

facsimile,addressed  asset  forthbeloworto  suchotheraddressassuchpartyshallhave

specified  mostrecentlybywrittennotice.Anynoticeorothercommunicationrequiredor

permittedtobegivenhereundershallbedeemedeffective(a)uponhanddelivery ordelivery

by  facsimile  or  email,  withaccurate  confirmationgenerated  bythe  transmitting  facsimile

machineorcomputer,attheaddress,emailornumberdesignatedbelow(ifdeliveredona

businessdayduringnormalbusinesshourswheresuchnoticeistobereceived),orthefirst

business dayfollowingsuch delivery (if deliveredother than on a business day duringnormal

businesshours  where  such  notice  is  to  be  received)  or  (b)  on  the  second  business  day

followingthedateofmailing  byexpresscourierservice,fullyprepaid,addressedto  such

address,orupon actual receiptof suchmailing,whichevershallfirstoccur. The addressesfor

such communications shall be:

Purchaser:

EMA Financial, LLC

40 WallStreet, Suite 1700

New York, NY 10005

Attn: Felicia Preston

admin@emafin.com

Company:

Clean EnergyTechnologies, Inc.

150 Bake Street E

Costa Mesa, CA 92626

Attn: KamMahdi, CEO

Email: ________________

Fax: ________________

Each partyshall providenotice to the other partyof any change in address.

k)

SuccessorsandAssigns.ThisAgreementshallbebindinguponandinure

tothebenefitofthepartiesandtheirsuccessorsandassigns.NeithertheCompanynorthe

Purchasershall assign thisAgreementorany rights or obligationshereunderwithouttheprior

written  consent  of  the  other.  Notwithstanding  the  foregoing,  subject  to  Section  2(f),  the

PurchasermayassignitsrightshereundertoanypersonthatpurchasesSecuritiesinaprivate

transactionfromthePurchaserortoanyofits“affiliates,”asthattermisdefinedunderthe

1934 Act, without the consentof the Company.

l)

ThirdPartyBeneficiaries.ThisAgreementisintendedforthebenefitof

thepartiesheretoandtheirrespectivepermittedsuccessorsandassigns,andisnotforthe

benefitof, nor may anyprovision hereof be enforced by, anyother person.

m)

Survival.  The  representations  and  warranties  of  the  Company  and  the

agreementsandcovenantsset  forthinthisAgreement  shallsurvivetheclosing  hereunder

notwithstandinganyduediligenceinvestigationconductedbyoronbehalfofthePurchaser.

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SPA–CETY, T1, 2016-06-06

TheCompanyagreestoindemnifyandholdharmlessthePurchaserandalltheirofficers,

directors,employeesandagentsforlossordamagearisingasaresultoforrelatedtoany

breach  orallegedbreach  by  the  Company  of  any  of  its  representations,warranties  and

covenantsset  forth  inthis  Agreement  or  anyof  itscovenantsand  obligationsunder  this

Agreement, including advancementof expenses as theyare incurred.

n)

FurtherAssurances.Eachpartyshalldoandperform,orcausetobedone

andperformed,allsuchfurtheractsandthings,andshallexecuteanddeliverallsuchother

agreements,certificates,instrumentsanddocuments,astheotherpartymayreasonably

requestin order tocarry out theintentandaccomplish the purposes of thisAgreementandthe

consummation of the transactions contemplated hereby.

o)

No  Strict  Construction.  Thelanguage  used  in  thisAgreement  will  be

deemed tobe thelanguage chosen by the parties to express theirmutual intent, andnorules of

strictconstruction will be applied againstanyparty.

p)

Remedies.   The   Companyacknowledgesthat   a   breach   by   it   ofits

obligationshereunderwillcauseirreparableharmtothePurchaserbyvitiatingtheintentand

purposeofthetransactioncontemplatedhereby.  Accordingly,theCompanyacknowledges

thattheremedy atlawforabreach of its obligationsunderthisAgreementwillbeinadequate

andagrees,in theeventof abreach or threatenedbreachby the Company of the provisions of

thisAgreement, thatthePurchasershallbe entitled,in addition toall otheravailable remedies

atlaworinequity,andinadditiontothepenaltiesassessable  herein,toaninjunctionor

injunctionsrestraining,preventingorcuringanybreachofthisAgreement  andto  enforce

specificallythetermsandprovisionshereof,withoutthenecessityofshowingeconomicloss

and withoutany bond or other securitybeing required.

q)

Counterparts.     ThisAgreementmaybeexecutedinanynumberof

counterparts, each of which when soexecutedanddeliveredshall be deemedtobe an original

and allof which together shall be deemed to be one and the same agreement.

r)

Signatures.     Anysignaturetransmittedbyfacsimile,e-mail,orother

electronicmeans shall be deemed tobe an original signature.

(Remainder of page intentionally leftblank)

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SPA–CETY, T1, 2016-06-06

INWITNESSWHEREOF,theundersignedPurchaserandtheCompanyhavecausedthis

Agreement tobe dulyexecuted as of the date firstabove written.

CLEAN ENERGY TECHNOLOGIES, INC.

By:

Name:Kam Mahdi

Title: CEO

EMA FINANCIAL, LLC

By:

Name:Felicia Preston

Title:Director

GUARANTY

EachoftheundersignedsubsidiariesoftheCompany   jointlyandseverally,absolutely,

unconditionallyand  irrevocably,guaranteestothePurchaserandtheirrespective  successors,

indorsees,transfereesandassigns,thepromptandcompletepaymentandperformancebythe

Companywhen due(whetheratthestatedmaturity,by acceleration orotherwise)of allamounts

dueunder,andallotherobligationsunder,theNote.Eachsuchsubsidiary’sliabilityunderthis

Guarantyshall be unlimited, open and continuous for solong as thisGuarantyremains inforce.

TRIDENT MANUFACTURING, INC.

HEAT RECOVERY

SOLUTIONS

By:

PrintName/Title:

By:

PrintName/Title:

CLEAN ENERGY HRS, LLC.

By:

PrintName/Title:

23

SPA–CETY, T1, 2016-06-06

EX-10.6

NEITHER  THE  ISSUANCE  AND  SALE  OF  THE  SECURITIES  REPRESENTED  BY
THIS  CERTIFICATE  NOR  THE  SECURITIES  INTO  WHICH  THESE  SECURITIES
ARE  CONVERTIBLE  HAVE  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  (WHICH  COUNSEL  SHALL  BE
SELECTED  BY  THE  HOLDER),  IN  A  GENERALLY  ACCEPTABLE  FORM,  THAT
REGISTRATION  IS  NOT  REQUIRED  UNDER  SAID  ACT  OR  (II)  UNLESS  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.



PRINCIPAL AMOUNT: US$77,750                   ISSUE DATE: JULY 6, 2016
PURCHASE PRICE: US$77,750

                    CONVERTIBLE PROMISSORY NOTE

      FOR  VALUE  RECEIVED,  CLEAN  ENERGY  TECHNOLOGIES,  INC.,  a  Nevada
corporation   (hereinafter   called   the   "Borrower"),   hereby   promises
to   pay   to   the   order   of
AUCTUS   FUND,   LLC,   a   Delaware   limited   liability   company,   or
registered   assigns   (the
"Holder")  the  sum  of  US$77,750  together  with  any  interest  as  set
forth  herein,  on  April  6,  2017
(the "Maturity Date"), and to pay interest on the unpaid principal balance
hereof at the rate of ten
percent  (10%)  (the  "Interest  Rate")  per  annum  from  the  date  hereof
(the  "Issue  Date")  until  the
same  becomes  due  and  payable,  whether  at  maturity  or  upon  acceleration
or  by  prepayment  or
otherwise.   This  Note  may  not  be  prepaid  in  whole  or  in  part  except
as  otherwise  explicitly  set
forth  herein  with  the  written  consent  of  the  Holder  which  may  be
withheld  for  any  reason  or  for
no reason. Any amount of principal or interest on this Note which is not paid
when due shall bear
interest  at  the  rate  of  twenty-four  percent  (24%)  per  annum  from  the
due  date  thereof  until  the
same is paid (the "Default Interest").   Interest shall commence accruing on the
date that the Note
is  fully  paid  and  shall  be  computed  on  the  basis  of  a  360-day  year
and  the  actual  number  of  days
elapsed.  All payments due hereunder (to the extent not converted into common
stock, $0.001 par
value  per  share  (the  "Common  Stock")  in  accordance  with  the  terms
hereof)  shall  be  made  in
lawful  money  of  the  United  States  of  America.   All  payments  shall  be
made  at  such  address  as
the  Holder  shall  hereafter  give  to  the  Borrower  by  written  notice
made  in  accordance  with  the
provisions  of  this  Note.   Whenever  any  amount  expressed  to  be  due  by
the  terms  of  this  Note  is
due on any day which is not a business day, the same shall instead be due on the
next succeeding
day which is a business day and, in the case of any interest payment date which
is not the date on
which  this  Note  is  paid  in  full,  the  extension  of  the  due  date
thereof  shall  not  be  taken  into
account  for  purposes  of  determining  the  amount  of  interest  due  on
such  date.   As  used  in  this
Note,  the  term  "business  day"  shall  mean  any  day  other  than  a
Saturday,  Sunday  or  a  day  on
which  commercial  banks  in  the  city  of  New  York,  New  York  are
authorized  or  required  by  law









or  executive  order  to  remain  closed.    Each  capitalized  term  used
herein,  and  not  otherwise
defined,  shall  have  the  meaning  ascribed  thereto  in  that  certain
Securities  Purchase  Agreement
dated   the   date   hereof,   pursuant   to   which   this   Note   was
originally   issued   (the   "Purchase
Agreement").

      This  Note  is  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
Borrower and will not impose personal liability upon the holder thereof.

      The following terms shall apply to this Note:

                      ARTICLE I.  CONVERSION RIGHTS

           1.1 Conversion  Right.   The  Holder  shall  have  the  right  from
time  to  time,  and  at
any  time  following  one  hundred  eighty  (180)  days  after  the  date  of
this  Note  and  ending  on  the
later  of  (i)  the  Maturity  Date  and  (ii)  the  date  of  payment  of  the
Default  Amount  (as  defined  in
Article  III)  pursuant  to  Section  1.6(a)  or  Article  III,  each  in
respect  of  the  remaining  outstanding
principal  amount  of  this  Note  to  convert  all  or  any  part  of  the
outstanding  and  unpaid  principal
amount  of  this  Note  into  fully  paid  and  non-assessable  shares  of
Common  Stock,  as  such
Common  Stock  exists  on  the  Issue  Date,  or  any  shares  of  capital
stock  or  other  securities  of  the
Borrower  into  which  such  Common  Stock  shall  hereafter  be  changed  or
reclassified  at  the
Conversion  Price  (as  defined  below)  determined  as  provided  herein  (a
"Conversion");  provided,
however,  that  in  no  event  shall  the  Holder  be  entitled  to  convert
any  portion  of  this  Note  in
excess of that portion of this Note upon conversion of which the sum of (1) the
number of shares
of  Common  Stock  beneficially  owned  by  the  Holder  and  its  affiliates
(other  than  shares  of
Common   Stock   which   may   be   deemed   beneficially   owned   through
the   ownership   of   the
unconverted portion of the Notes or the unexercised or unconverted portion of
any other security
of  the  Borrower  subject  to  a  limitation  on  conversion  or  exercise
analogous  to  the  limitations
contained  herein)  and  (2)  the  number  of  shares  of  Common  Stock
issuable  upon  the  conversion
of the portion of this Note with respect to which the determination of this
proviso is being made,
would  result  in  beneficial  ownership  by  the  Holder  and  its  affiliates
of  more  than  4.99%  of  the
outstanding shares of Common Stock.   For purposes of the proviso to the
immediately preceding
sentence,  beneficial  ownership  shall  be  determined  in  accordance  with
Section  13(d)  of  the
Securities  Exchange  Act  of  1934,  as  amended  (the  "Exchange  Act"),  and
Regulations  13D-G
thereunder,   except   as   otherwise   provided   in   clause   (1)   of   such
proviso,   provided,   further,
however, that the limitations on conversion may be waived by the Holder upon, at
the election of
the  Holder,  not  less  than  61  days'  prior  notice  to  the  Borrower,  and
the  provisions  of  the
conversion   limitation   shall   continue   to   apply   until   such   61st
day   (or   such   later   date,   as
determined  by  the  Holder,  as  may  be  specified  in  such  notice  of
waiver).   The  number  of  shares
of  Common  Stock  to  be  issued  upon  each  conversion  of  this  Note  shall
be  determined  by
dividing  the  Conversion  Amount  (as  defined  below)  by  the  applicable
Conversion  Price  then  in
effect  on  the  date  specified  in  the  notice  of  conversion,  in  the
form  attached  hereto  as  Exhibit  A
(the  "Notice  of  Conversion"),  delivered  to  the  Borrower  by  the  Holder
in  accordance  with
Section 1.4 below; provided that the Notice of Conversion is submitted by
facsimile or e-mail (or
by  other  means  resulting  in,  or  reasonably  expected  to  result  in,
notice)  to  the  Borrower  before
6:00  p.m.,  New  York,  New  York  time  on  such  conversion  date  (the
"Conversion  Date").   The



                                     2












term  "Conversion  Amount"  means,  with  respect  to  any  conversion  of  this
Note,  the  sum  of  (1)
the  principal  amount  of  this  Note  to  be  converted  in  such  conversion
plus  (2)  at  the  Holder's
option,  accrued  and  unpaid  interest,  if  any,  on  such  principal  amount
at  the  interest  rates
provided  in  this  Note  to  the  Conversion  Date,  provided  however,  that
the  Borrower  shall  have
the  right  to  pay  any  or  all  interest  in  cash  plus  (3)  at  the
Holder's  option,  Default  Interest,  if  any,
on  the  amounts  referred  to  in  the  immediately  preceding  clauses  (1)
and/or  (2)  plus  (4)  at  the
Holder's option, any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(g) hereof.

           1.2 Conversion Price.

                 (a)  Calculation  of  Conversion  Price.   Subject  to  the
adjustments  described
herein,  and  provided  that  no  Event  of  Default  (as  defined  in  Article
III)  has  occurred,  the
conversion  price  (the  "Conversion  Price")  shall  equal  the  lesser  of
(i)  55%  multiplied  by  the
lowest  Trading  Price  (as  defined  below)  (representing  a  discount  rate
of  45%)  during  the
previous  twenty  (20)  Trading  Day  period  ending  on  the  latest  complete
Trading  Day  prior  to  the
date  of  this  Note  and  (ii)  the  Variable  Conversion  Price  (as  defined
herein)  (subject  to  equitable
adjustments  for  stock  splits,  stock  dividends  or  rights  offerings  by
the  Borrower  relating  to  the
Borrower's   securities   or   the   securities   of   any   subsidiary   of
the   Borrower,   combinations,
recapitalization,  reclassifications,  extraordinary  distributions  and
similar  events).   The  "Variable
Conversion   Price"   shall   mean   55%   multiplied   by   the   Market
Price   (as   defined   herein)
(representing  a  discount  rate  of  45%).    "Market  Price"  means  the
lowest  Trading  Price  (as
defined  below)  for  the  Common  Stock  during  the  twenty  (20)  Trading
Day  period  ending  on  the
latest  complete  Trading  Day  prior  to  the  Conversion  Date.    "Trading
Price"  means,  for  any
security  as  of  any  date,  the  lesser  of:  (i)  the  lowest  trade  price
on  the  Over-the-Counter  Bulletin
Board  (the  "OTCBB"),  OTCQB  or  applicable  trading  market  as  reported  by
a  reliable  reporting
service  ("Reporting  Service")  designated  by  the  Holder  or,  if  the
OTCBB  is  not  the  principal
trading  market  for  such  security,  the  trading  price  of  such  security
on  the  principal  securities
exchange  or  trading  market  where  such  security  is  listed  or  traded
or,  if  no  trading  price  of  such
security  is  available  in  any  of  the  foregoing  manners,  the  average  of
the  trading  prices  of  any
market  makers  for  such  security  that  are  listed  in  the  "pink  sheets"
by  the  OTC  Markets  Group,
Inc.,  or  (ii)  the  closing  bid  price  on  the  OTCBB,  OTCQB  or
applicable  trading  market  as
reported  by  a  Reporting  Service  designated  by  the  Holder  or,  if  the
OTCBB  is  not  the  principal
trading  market  for  such  security,  the  closing  bid  price  of  such
security  on  the  principal  securities
exchange  or  trading  market  where  such  security  is  listed  or  traded
or,  if  no  closing  bid  price  of
such  security  is  available  in  any  of  the  foregoing  manners,  the
average  of  the  closing  bid  prices
of  any  market  makers  for  such  security  that  are  listed  in  the  "pink
sheets"  by  the  OTC  Markets
Group,  Inc.   To  the  extent  the  Conversion  Price  of  the  Borrower's
Common  Stock  closes  below
the  par  value  per  share,  the  Borrower  will  take  all  steps  necessary
to  solicit  the  consent  of  the
stockholders to reduce the par value to the lowest value possible under law. The
Borrower agrees
to  honor  all  conversions  submitted  pending  this  adjustment.
Furthermore,  the  Conversion  Price
may  be  adjusted  downward  if,  within  three  (3)  business  days  of  the
transmittal  of  the  Notice  of
Conversion to the Borrower, the Common Stock has a closing bid which is 5% or
lower than that
set  forth  in  the  Notice  of  Conversion.  If  the  shares  of  the
Borrower's  Common  Stock  have  not
been  delivered  within  three  (3)  business  days  to  the  Borrower,  the
Notice  of  Conversion  may  be
rescinded.   At  any  time  after  the  Closing  Date,  if  in  the  case  that
the  Borrower's  Common  Stock
is  not  deliverable  by  DWAC  (including  if  the  Borrower's  transfer  agent
has  a  policy  prohibiting



                                     3












or   limiting   delivery   of   shares   of   the   Borrower's   Common   Stock
specified   in   a   Notice   of
Conversion), an additional 10% discount will apply for all future conversions
under all Notes.   If
in  the  case  that  the  Borrower's  Common  Stock  is  "chilled"  for  deposit
into  the  DTC  system  and
only   eligible   for   clearing   deposit,   an   additional   15%   discount
shall   apply   for   all   future
conversions  under  all  Notes  while  the  "chill"  is  in  effect.   If  in
the  case  of  both  of  the  above,  an
additional  cumulative  25%  discount  shall  apply.   Additionally,  if  the
Company  ceases  to  be  a
reporting  company  pursuant  to  the  1934  Act  or  if  the  Note  cannot  be
converted  into  free  trading
shares  after  one  hundred  eighty-one  (181)  days  from  the  Issue  Date,
an  additional  15%  discount
will  be  attributed  to  the  Conversion  Price.   If  the  Trading  Price
cannot  be  calculated  for  such
security  on  such  date  in  the  manner  provided  above,  the  Trading  Price
shall  be  the  fair  market
value  as  mutually  determined  by  the  Borrower  and  the  holders  of  a
majority  in  interest  of  the
Notes  being  converted  for  which  the  calculation  of  the  Trading  Price
is  required  in  order  to
determine  the  Conversion  Price  of  such  Notes.   "Trading  Day"  shall
mean  any  day  on  which  the
Common  Stock  is  tradable  for  any  period  on  the  OTCBB,  OTCQB  or  on
the  principal  securities
exchange  or  other  securities  market  on  which  the  Common  Stock  is  then
being  traded.    The
Borrower  shall  be  responsible  for  the  fees  of  its  transfer  agent  and
all  DTC  fees  associated  with
any such issuance.

                 (b)  Conversion  Price  During  Major  Announcements.
Notwithstanding
anything contained in Section 1.2(a) to the contrary, in the event the Borrower
(i) makes a public
announcement  that  it  intends  to  consolidate  or  merge  with  any  other
corporation  (other  than  a
merger  in  which  the  Borrower  is  the  surviving  or  continuing
corporation  and  its  capital  stock  is
unchanged)  or  sell  or  transfer  all  or  substantially  all  of  the  assets
of  the  Borrower  or  (ii)  any
person,  group  or  entity  (including  the  Borrower)  publicly  announces  a
tender  offer  to  purchase
50%  or  more  of  the  Borrower's  Common  Stock  (or  any  other  takeover
scheme)  (the  date  of  the
announcement  referred  to  in  clause  (i)  or  (ii)  is  hereinafter  referred
to  as  the   "Announcement
Date"),  then  the  Conversion  Price  shall,  effective  upon  the
Announcement  Date  and  continuing
through  the  Adjusted  Conversion  Price  Termination  Date  (as  defined
below),  be  equal  to  the
lower  of  (x)  the  Conversion  Price  which  would  have  been  applicable
for  a  Conversion  occurring
on the Announcement Date and (y) the Conversion Price that would otherwise be in
effect. From
and   after   the   Adjusted   Conversion   Price   Termination   Date,   the
Conversion   Price   shall   be
determined  as  set  forth  in  this  Section  1.2(a).   For  purposes  hereof,
"Adjusted  Conversion  Price
Termination  Date"  shall  mean,  with  respect  to  any  proposed  transaction
or  tender  offer  (or
takeover  scheme)  for  which  a  public  announcement  as  contemplated  by
this  Section  1.2(b)  has
been  made,  the  date  upon  which  the  Borrower  (in  the  case  of  clause
(i)  above)  or  the  person,
group  or  entity  (in  the  case  of  clause  (ii)  above)  consummates  or
publicly  announces  the
termination  or  abandonment  of  the  proposed  transaction  or  tender  offer
(or  takeover  scheme)
which caused this Section 1.2(b) to become operative.

                 (c)   Pro  Rata  Conversion;  Disputes.  In  the  event  of  a
dispute  as  to  the
number of shares of Common Stock issuable to the Holder in connection with a
conversion of this
Note,  the  Borrower  shall  issue  to  the  Holder  the  number  of  shares  of
Common  Stock  not  in
dispute and resolve such dispute in accordance with Section 4.13.

           1.3 Authorized   Shares.     The   Borrower   covenants   that
during   the   period   the
conversion  right  exists,  the  Borrower  will  reserve  from  its  authorized
and  unissued  Common



                                     4












Stock  a  sufficient  number  of  shares,  free  from  preemptive  rights,  to
provide  for  the  issuance  of
Common Stock upon the full conversion of this Note issued pursuant to the
Purchase Agreement.
The  Borrower  is  required  at  all  times  to  have  authorized  and  reserved
seven  times  the  number  of
shares  that  is  actually  issuable  upon  full  conversion  of  the  Note
(based  on  the  Conversion  Price
of  the  Notes  in  effect  from  time  to  time)  (the  "Reserved  Amount").
The  Reserved  Amount  shall
be increased from time to time in accordance with the Borrower's obligations
pursuant to Section
3(d)  of  the  Purchase  Agreement.   The  Borrower  represents  that  upon
issuance,  such  shares  will
be duly and validly issued, fully paid and non-assessable.  In addition, if the
Borrower shall issue
any  securities  or  make  any  change  to  its  capital  structure  which
would  change  the  number  of
shares   of   Common   Stock   into   which   the   Notes   shall   be
convertible   at   the   then   current
Conversion  Price,  the  Borrower  shall  at  the  same  time  make  proper
provision  so  that  thereafter
there shall be a sufficient number of shares of Common Stock authorized and
reserved, free from
preemptive  rights,  for  conversion  of  the  outstanding  Notes.   The
Borrower  (i)  acknowledges  that
it has irrevocably instructed its transfer agent to issue certificates for the
Common Stock issuable
upon  conversion  of  this  Note,  and  (ii) agrees  that  its  issuance  of
this  Note  shall  constitute  full
authority  to  its  officers  and  agents  who  are  charged  with  the  duty
of  executing  stock  certificates
to  execute  and  issue  the  necessary  certificates  for  shares  of  Common
Stock  in  accordance  with
the  terms  and  conditions  of  this  Note.    Notwithstanding  the  foregoing,
in  no  event  shall  the
Reserved   Amount   be   lower   than   the   initial   Reserved   Amount,
regardless   of   any   prior
conversions.

           If,  at  any  time  the  Borrower  does  not  maintain  or  replenish
the  Reserved  Amount
within three (3) business days of the request of the Holder, the principal
amount of the Note shall
increase  by  Five  Thousand  and  No/100  United  States  Dollars  ($5,000)
(under  Holder's  and
Borrower's  expectation  that  any  principal  amount  increase  will  tack
back  to  the  Issue  Date)  per
occurrence.

           1.4 Method of Conversion.

                 (a)  Mechanics  of  Conversion.   Subject  to  Section  1.1,
this  Note  may  be
converted by the Holder in whole or in part at any time from time to time after
the Issue Date, by
(A) submitting  to  the  Borrower  a  Notice  of  Conversion  (by  facsimile,
e-mail  or  other  reasonable
means of communication dispatched on the Conversion Date prior to 5:00 p.m., New
York, New
York  time)  and  (B) subject  to  Section  1.4(b),  surrendering  this  Note
at  the  principal  office  of  the
Borrower.

                 (b)  Surrender  of  Note  Upon  Conversion.   Notwithstanding
anything  to  the
contrary  set  forth  herein,  upon  conversion  of  this  Note  in  accordance
with  the  terms  hereof,  the
Holder  shall  not  be  required  to  physically  surrender  this  Note  to  the
Borrower  unless  the  entire
unpaid  principal  amount  of  this  Note  is  so  converted.    The  Holder
and  the  Borrower  shall
maintain records showing the principal amount so converted and the dates of such
conversions or
shall use such other method, reasonably satisfactory to the Holder and the
Borrower, so  as  not to
require physical surrender of this Note upon each such conversion.  In the event
of any dispute or
discrepancy, such records of the Borrower shall, prima facie, be controlling and
determinative in
the  absence  of  manifest  error.    Notwithstanding  the  foregoing,  if  any
portion  of  this  Note  is
converted  as  aforesaid,  the  Holder  may  not  transfer  this  Note  unless
the  Holder  first  physically



                                     5












surrenders  this  Note  to  the  Borrower,  whereupon  the  Borrower  will
forthwith  issue  and  deliver
upon the order of the Holder a new Note of like tenor, registered as the Holder
(upon payment by
the  Holder  of  any  applicable  transfer  taxes)  may  request,  representing
in  the  aggregate  the
remaining unpaid principal amount of  this  Note.   The Holder and any assignee,
by acceptance of
this  Note,  acknowledge  and  agree  that,  by  reason  of  the  provisions  of
this  paragraph,  following
conversion  of  a  portion  of  this  Note,  the  unpaid  and  unconverted
principal  amount  of  this  Note
represented by this Note may be less than the amount stated on the face hereof.

                 (c)  Payment  of  Taxes.   The  Borrower  shall  not  be
required  to  pay  any  tax
which  may  be  payable  in  respect  of  any  transfer  involved  in  the
issue  and  delivery  of  shares  of
Common  Stock  or  other  securities  or  property  on  conversion  of  this
Note  in  a  name  other  than
that  of  the  Holder  (or  in  street  name),  and  the  Borrower  shall  not
be  required  to  issue  or  deliver
any  such  shares  or  other  securities  or  property  unless  and  until  the
person  or  persons  (other  than
the  Holder  or  the  custodian  in  whose  street  name  such  shares  are  to
be  held  for  the  Holder's
account)  requesting  the  issuance  thereof  shall  have  paid  to  the
Borrower  the  amount  of  any  such
tax or shall have established to the satisfaction of the Borrower that such tax
has been paid.

                 (d)  Delivery  of  Common  Stock  Upon  Conversion.    Upon
receipt  by  the
Borrower  from  the  Holder  of  a  facsimile  transmission  or  e-mail  (or
other  reasonable  means  of
communication)  of  a  Notice  of  Conversion  meeting  the  requirements  for
conversion  as  provided
in  this  Section  1.4,  the  Borrower  shall  issue  and  deliver  or  cause
to  be  issued  and  delivered  to  or
upon  the  order  of  the  Holder  certificates  for  the  Common  Stock
issuable  upon  such  conversion
within  three  (3)  business  days  after  such  receipt  (the  "Deadline")
(and,  solely  in  the  case  of
conversion  of  the  entire  unpaid  principal  amount  hereof,  surrender  of
this  Note)  in  accordance
with the terms hereof and the Purchase Agreement.

                 (e)  Obligation  of  Borrower  to  Deliver  Common  Stock.
Upon  receipt  by
the Borrower of a Notice of Conversion, the Holder shall be deemed to be the
holder of record of
the  Common  Stock  issuable  upon  such  conversion,  the  outstanding
principal  amount  and  the
amount  of  accrued  and  unpaid  interest  on  this  Note  shall  be  reduced
to  reflect  such  conversion,
and,  unless  the  Borrower  defaults  on  its  obligations  under  this
Article  I,  all  rights  with  respect  to
the  portion  of  this  Note  being  so  converted  shall  forthwith  terminate
except  the  right  to  receive
the   Common   Stock   or   other   securities,   cash   or   other   assets,
as   herein   provided,   on   such
conversion.    If  the  Holder  shall  have  given  a  Notice  of  Conversion
as  provided  herein,  the
Borrower's  obligation  to  issue  and  deliver  the  certificates  for  Common
Stock  shall  be  absolute
and  unconditional,  irrespective  of  the  absence  of  any  action  by  the
Holder  to  enforce  the  same,
any  waiver  or  consent  with  respect  to  any  provision  thereof,  the
recovery  of  any  judgment
against  any  person  or  any  action  to  enforce  the  same,  any  failure  or
delay  in  the  enforcement  of
any  other  obligation  of  the  Borrower  to  the  holder  of  record,  or  any
setoff,  counterclaim,
recoupment,  limitation  or  termination,  or  any  breach  or  alleged  breach
by  the  Holder  of  any
obligation  to  the  Borrower,  and  irrespective  of  any  other  circumstance
which  might  otherwise
limit  such  obligation  of  the  Borrower  to  the  Holder  in  connection
with  such  conversion.   The
Conversion  Date  specified  in  the  Notice  of  Conversion  shall  be  the
Conversion  Date  so  long  as
the  Notice  of  Conversion  is  received  by  the  Borrower  before  5:00
p.m.,  New  York,  New  York
time, on such date.




                                     6













                 (f)  Delivery   of   Common   Stock   by   Electronic
Transfer.     In   lieu   of
delivering   physical   certificates   representing   the   Common   Stock
issuable   upon   conversion,
provided   the   Borrower   is   participating   in   the   Depository   Trust
Company   ("DTC")   Fast
Automated   Securities   Transfer   ("FAST")   program,   upon   request   of
the   Holder   and   its
compliance  with  the  provisions  contained  in  Section  1.1  and  in  this
Section  1.4,  the  Borrower
shall  use  its  commercially  reasonable  best  efforts  to  cause  its
transfer  agent  to  electronically
transmit  the  Common  Stock  issuable  upon  conversion  to  the  Holder  by
crediting  the  account  of
Holder's  Prime  Broker  with  DTC  through  its  Deposit  Withdrawal  At
Custodian  ("DWAC")
system.

                 (g)   DTC  Eligibility  &  Sub-Penny.  If  the  Borrower  fails
to  maintain  its
status  as  "DTC  Eligible"  for  any  reason,  or,  if  the  Conversion  Price
is  less  than  $0.01,  the
principal  amount  of  the  Note  shall  increase  by  Fifteen  Thousand  and
No/100  United  States
Dollars   ($15,000)   (under   Holder's   and   Borrower's   expectation   that
any   principal   amount
increase  will  tack  back  to  the  Issue  Date).   In  addition,  the
Variable  Conversion  Price  shall  be
redefined  to  mean  forty  percent  (40%)  multiplied  by  the  Market  Price,
subject  to  adjustment  as
provided in this Note.

                 (h)  Failure   to   Deliver   Common   Stock   Prior   to
Delivery   Deadline.
Without  in  any  way  limiting  the  Holder's  right  to  pursue  other
remedies,  including  actual
damages  and/or  equitable  relief,  the  parties  agree  that  if  delivery  of
the  Common  Stock  issuable
upon  conversion  of  this  Note  is  not  delivered  by  the  Deadline  (other
than  a  failure  due  to  the
circumstances  described  in  Section  1.3  above,  which  failure  shall  be
governed  by  such  Section)
the  Borrower  shall  pay  to  the  Holder  $2,000  per  day  in  cash,  for
each  day  beyond  the  Deadline
that  the  Borrower  fails  to  deliver  such  Common  Stock  until  the
Borrower  issues  and  delivers  a
certificate  to  the  Holder  or  credit  the  Holder's  balance  account  with
OTC  for  the  number  of
shares  of  Common  Stock  to  which  the  Holder  is  entitled  upon  such
Holder's  conversion  of  any
Conversion Amount (under Holder's and Borrower's expectation that any damages
will tack back
to  the  Issue  Date)..   Such  cash  amount  shall  be  paid  to  Holder  by
the  fifth  day  of  the  month
following  the  month  in  which  it  has  accrued  or,  at  the  option  of
the  Holder  (by  written  notice  to
the Borrower by the first day of the month following the month in which it has
accrued), shall be
added  to  the  principal  amount  of  this  Note,  in  which  event  interest
shall  accrue  thereon  in
accordance  with  the  terms  of  this  Note  and  such  additional  principal
amount  shall  be  convertible
into  Common  Stock  in  accordance  with  the  terms  of  this  Note.   The
Borrower  agrees  that  the
right  to  convert  is  a  valuable  right  to  the  Holder.   The  damages
resulting  from  a  failure,  attempt
to  frustrate,  interference  with  such  conversion  right  are  difficult  if
not  impossible  to  qualify.
Accordingly  the  parties  acknowledge  that  the  liquidated  damages
provision  contained  in  this
Section 1.4(h) are justified.

                 (i)   Rescindment  of  a  Notice  of  Conversion.   If  (i)
the  Borrower  fails
to  respond  to  Holder  within  one  (1)  business  day  from  the  Conversion
Date  confirming  the
details  of  Notice  of  Conversion,  (ii)  the  Borrower  fails  to  provide
any  of  the  shares  of  the
Borrower's Common Stock requested in the Notice of Conversion within three (3)
business days
from  the  date  of  receipt  of  the  Note  of  Conversion,  (iii)  the  Holder
is  unable  to  procure  a  legal
opinion  required  to  have  the  shares  of  the  Borrower's  Common  Stock
issued  unrestricted  and/or
deposited  to  sell  for  any  reason  related  to  the  Borrower's  standing,
(iv)  the  Holder  is  unable  to



                                     7












deposit  the  shares  of  the  Borrower's  Common  Stock  requested  in  the
Notice  of  Conversion  for
any  reason  related  to  the  Borrower's  standing,  (v)  at  any  time  after
a  missed  Deadline,  at  the
Holder's  sole  discretion,  or  (vi)  if  OTC  Markets  changes  the
Borrower's  designation  to  `Limited
Information'  (Yield),  `No  Information'  (Stop  Sign),  `Caveat  Emptor'
(Skull  &  Crossbones),
`OTC',  `Other  OTC'  or  `Grey  Market'  (Exclamation  Mark  Sign)  or  other
trading  restriction  on
the  day  of  or  any  day  after  the  Conversion  Date,  the  Holder
maintains  the  option  and  sole
discretion to rescind the Notice of Conversion ("Rescindment") with a "Notice of
Rescindment."

           1.5 Concerning   the   Shares.      The   shares   of   Common
Stock   issuable   upon
conversion of this Note may not be sold or transferred unless   (i) such shares
are sold pursuant to
an  effective  registration  statement  under  the  Act  or  (ii)  the  Borrower
or  its  transfer  agent  shall
have  been  furnished  with  an  opinion  of   counsel  (which  opinion  shall
be  in  form,  substance  and
scope  customary  for  opinions  of  counsel  in  comparable  transactions)  to
the  effect  that  the  shares
to  be  sold  or  transferred  may  be  sold  or  transferred  pursuant  to  an
exemption  from  such
registration  or  (iii) such  shares  are  sold  or  transferred  pursuant  to
Rule  144  under  the  Act  (or  a
successor  rule)  ("Rule  144")  or  (iv)  such  shares  are  transferred  to
an  "affiliate"  (as  defined  in
Rule 144)  of  the Borrower  who  agrees  to  sell or  otherwise transfer  the
shares  only  in  accordance
with  this  Section  1.5  and  who  is  an  Accredited  Investor  (as  defined
in  the  Purchase  Agreement).
Except  as  otherwise  provided  in  the  Purchase  Agreement  (and  subject  to
the  removal  provisions
set forth below), until such time as the shares of Common Stock issuable upon
conversion of this
Note  have  been  registered  under  the  Act  or  otherwise  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, each certificate for shares of Common Stock issuable upon conversion of
this Note that has
not  been  so  included  in  an  effective  registration  statement  or  that
has  not  been  sold  pursuant  to
an effective registration statement or an exemption that permits removal of the
legend, shall bear
a legend substantially in the following form, as appropriate:


      "NEITHER      THE      ISSUANCE      AND      SALE      OF      THE
SECURITIES
      REPRESENTED   BY   THIS   CERTIFICATE   NOR   THE   SECURITIES   INTO
      WHICH      THESE      SECURITIES      ARE      EXERCISABLE      HAVE
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  (WHICH  COUNSEL  SHALL  BE  SELECTED  BY
      THE     HOLDER),     IN     A     GENERALLY     ACCEPTABLE     FORM,
THAT
      REGISTRATION   IS   NOT   REQUIRED   UNDER   SAID   ACT   OR   (II)
UNLESS
      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
Borrower  shall  issue  to  the
Holder  a  new  certificate  therefore  free  of  any  transfer  legend  if  (i)
the  Borrower  or  its  transfer
agent  shall  have  received  an  opinion  of  counsel,  in  form,  substance
and  scope  customary  for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such


                                     8











Common   Stock   may   be   made   without   registration   under   the   Act,
which   opinion   shall   be
reasonably  accepted  by  the  Borrower  so  that  the  sale  or  transfer  is
effected  or  (ii)  in  the  case  of
the  Common  Stock  issuable  upon  conversion  of  this  Note,  such  security
is  registered  for  sale  by
the Holder under an effective registration statement filed under the Act or
otherwise 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.  In  the  event  that  the  Borrower
does  not  accept  the  opinion  of
counsel provided by the Buyer with respect to the transfer of Securities
pursuant to an exemption
from  registration,  such  as  Rule  144  or  Regulation  S,  at  the  Deadline,
it  will  be  considered  an
Event of Default pursuant to Section 3.2 of the Note.

           1.6 Effect of Certain Events.

                 (a)  Effect  of  Merger,  Consolidation,  Etc.   At  the
option  of  the  Holder,  the
sale,  conveyance  or  disposition  of  all  or  substantially  all  of  the
assets  of  the  Borrower,  the
effectuation by the Borrower of a transaction or series of related transactions
in which more than
50%  of  the  voting  power  of  the  Borrower  is  disposed  of,  or  the
consolidation,  merger  or  other
business  combination  of  the  Borrower  with  or  into  any  other  Person
(as  defined  below)  or
Persons  when  the  Borrower  is  not  the  survivor  shall  either:  (i)  be
deemed  to  be  an  Event  of
Default  (as  defined  in  Article  III)  pursuant  to  which  the  Borrower
shall  be  required  to  pay  to  the
Holder  upon  the  consummation  of  and  as  a  condition  to  such
transaction  an  amount  equal  to  the
Default  Amount  (as  defined  in  Article  III)  or  (ii)  be  treated
pursuant  to  Section  1.6(b)  hereof.
"Person"   shall   mean   any   individual,   corporation,   limited   liability
company,   partnership,
association, trust or other entity or organization.

                 (b)  Adjustment  Due  to  Merger,  Consolidation,  Etc.   If,
at  any  time  when
this  Note  is  issued  and  outstanding  and  prior  to  conversion  of  all
of  the  Notes,  there  shall  be  any
merger,   consolidation,   exchange   of   shares,   recapitalization,
reorganization,   or   other   similar
event,  as  a  result  of  which  shares  of  Common  Stock  of  the  Borrower
shall  be  changed  into  the
same  or  a  different  number  of  shares  of  another  class  or  classes  of
stock  or  securities  of  the
Borrower  or  another  entity,  or  in  case  of  any  sale  or  conveyance  of
all  or  substantially  all  of  the
assets  of  the  Borrower  other  than  in  connection  with  a  plan  of
complete  liquidation  of  the
Borrower,  then  the  Holder  of  this  Note  shall  thereafter  have  the
right  to  receive  upon  conversion
of this Note, upon the basis and upon the terms and conditions specified herein
and in lieu of the
shares   of   Common   Stock   immediately   theretofore   issuable   upon
conversion,   such   stock,
securities  or  assets  which  the  Holder  would  have  been  entitled  to
receive  in  such  transaction  had
this  Note  been  converted  in  full  immediately  prior  to  such  transaction
(without  regard  to  any
limitations  on  conversion  set  forth  herein),  and  in  any  such  case
appropriate  provisions  shall  be
made  with  respect  to  the  rights  and  interests  of  the  Holder  of  this
Note  to  the  end  that  the
provisions  hereof  (including,  without  limitation,  provisions  for
adjustment  of  the  Conversion
Price  and  of  the  number  of  shares  issuable  upon  conversion  of  the
Note)  shall  thereafter  be
applicable,  as  nearly  as  may  be  practicable  in  relation  to  any
securities  or  assets  thereafter
deliverable  upon  the  conversion  hereof.   The  Borrower  shall  not  affect
any  transaction  described
in  this  Section  1.6(b)  unless  (a)  it  first  gives,  to  the  extent
practicable,  thirty  (30)  days  prior
written  notice  (but  in  any  event  at  least  fifteen  (15)  days  prior
written  notice)  of  the  record  date
of  the  special  meeting  of  shareholders  to  approve,  or  if  there  is  no
such  record  date,  the
consummation    of,    such    merger,    consolidation,    exchange    of
shares,    recapitalization,



                                     9












reorganization  or  other  similar  event  or  sale  of  assets  (during  which
time  the  Holder  shall  be
entitled  to  convert  this  Note)  and  (b)  the  resulting  successor  or
acquiring  entity  (if  not  the
Borrower)  assumes  by  written  instrument  the  obligations  of  this  Section
1.6(b).    The  above
provisions  shall  similarly  apply  to  successive  consolidations,  mergers,
sales,  transfers  or  share
exchanges.

                 (c)  Adjustment Due to Distribution.  If the Borrower shall
declare or make
any  distribution  of  its  assets  (or  rights  to  acquire  its  assets)  to
holders  of  Common  Stock  as  a
dividend,  stock  repurchase,  by  way  of  return  of  capital  or  otherwise
(including  any  dividend  or
distribution  to  the  Borrower's  shareholders  in  cash  or  shares  (or
rights  to  acquire  shares)  of
capital  stock  of  a  subsidiary  (i.e.,  a  spin-off))  (a  "Distribution"),
then  the  Holder  of  this  Note
shall  be  entitled,  upon  any  conversion  of  this  Note  after  the  date
of  record  for  determining
shareholders entitled to such Distribution, to receive the amount of such assets
which would have
been  payable  to  the  Holder  with  respect  to  the  shares  of  Common
Stock  issuable  upon  such
conversion  had  such  Holder  been  the  holder  of  such  shares  of  Common
Stock  on  the  record  date
for the determination of shareholders entitled to such Distribution.

                 (d)  Adjustment  Due  to  Dilutive  Issuance.   If,  at  any
time  when  any  Notes
are issued and outstanding, the Borrower issues or sells, or in accordance with
this Section 1.6(d)
hereof  is  deemed  to  have  issued  or  sold,  except  for  shares  of  Common
Stock  issued  directly  to
vendors  or  suppliers  of  the  Borrower  in  satisfaction  of  amounts  owed
to  such  vendors  or
suppliers  (provided,  however,  that  such  vendors  or  suppliers  shall  not
have  an  arrangement  to
transfer,  sell  or  assign  such  shares  of  Common  Stock  prior  to  the
issuance  of  such  shares),  any
shares  of  Common  Stock  for  no  consideration  or  for  a  consideration
per  share  (before  deduction
of  reasonable  expenses  or  commissions  or  underwriting  discounts  or
allowances  in  connection
therewith)  less  than  the  Conversion  Price  in  effect  on  the  date  of
such  issuance  (or  deemed
issuance)  of  such  shares  of  Common  Stock  (a  "Dilutive  Issuance"),  then
immediately  upon  the
Dilutive  Issuance,  the  Conversion  Price  will  be  reduced  to  the  amount
of  the  consideration  per
share received by the Borrower in such Dilutive Issuance.

                 The  Borrower  shall  be  deemed  to  have  issued  or  sold
shares  of  Common
Stock  if  the  Borrower  in  any  manner  issues  or  grants  any  warrants,
rights  or  options  (not
including employee stock option plans), whether or not immediately exercisable,
to subscribe for
or  to  purchase  Common  Stock  or  other  securities  convertible  into  or
exchangeable  for  Common
Stock  ("Convertible  Securities")  (such  warrants,  rights  and  options  to
purchase  Common  Stock
or  Convertible  Securities  are  hereinafter  referred  to  as  "Options")  and
the  price  per  share  for
which  Common  Stock  is  issuable  upon  the  exercise  of  such  Options  is
less  than  the  Conversion
Price  then  in  effect,  then  the  Conversion  Price  shall  be  equal  to
such  price  per  share.    For
purposes  of  the  preceding  sentence,  the  "price  per  share  for  which
Common  Stock  is  issuable
upon  the  exercise  of  such  Options"  is  determined  by  dividing  (i)  the
total  amount,  if  any,
received  or  receivable  by  the  Borrower  as  consideration  for  the
issuance  or  granting  of  all  such
Options,  plus  the  minimum  aggregate  amount  of  additional  consideration,
if  any,  payable  to  the
Borrower  upon  the  exercise  of  all  such  Options,  plus,  in  the  case  of
Convertible  Securities
issuable   upon   the   exercise   of   such   Options,   the   minimum
aggregate   amount   of   additional
consideration  payable  upon  the  conversion  or  exchange  thereof  at  the
time  such  Convertible
Securities  first  become  convertible  or  exchangeable,  by  (ii)  the
maximum  total  number  of  shares



                                    10












of  Common  Stock  issuable  upon  the  exercise  of  all  such  Options
(assuming  full  conversion  of
Convertible  Securities,  if  applicable).    No  further  adjustment  to  the
Conversion  Price  will  be
made upon the actual issuance of such Common Stock upon the exercise of such
Options or upon
the conversion or exchange of Convertible Securities issuable upon exercise of
such Options.

                 Additionally,  the  Borrower  shall  be  deemed  to  have
issued  or  sold  shares
of  Common  Stock  if  the  Borrower  in  any  manner  issues  or  sells  any
Convertible  Securities,
whether  or  not  immediately  convertible  (other  than  where  the  same  are
issuable  upon  the
exercise  of  Options),  and  the  price  per  share  for  which  Common  Stock
is  issuable  upon  such
conversion  or  exchange  is  less  than  the  Conversion  Price  then  in
effect,  then  the  Conversion
Price  shall  be  equal  to  such  price  per  share.    For  the  purposes  of
the  preceding  sentence,  the
"price  per  share  for  which  Common  Stock  is  issuable  upon  such
conversion  or  exchange"  is
determined  by  dividing  (i)  the  total  amount,  if  any,  received  or
receivable  by  the  Borrower  as
consideration  for  the  issuance  or  sale  of  all  such  Convertible
Securities,  plus  the  minimum
aggregate   amount   of   additional   consideration,   if   any,   payable   to
the   Borrower   upon   the
conversion  or  exchange  thereof  at  the  time  such  Convertible  Securities
first  become  convertible
or  exchangeable,  by  (ii)  the  maximum  total  number  of  shares  of  Common
Stock  issuable  upon
the  conversion  or  exchange  of  all  such  Convertible  Securities.    No
further  adjustment  to  the
Conversion Price will be made upon the actual issuance of such Common Stock upon
conversion
or exchange of such Convertible Securities.

                 (e)  Purchase  Rights.    If,  at  any  time  when  any  Notes
are  issued  and
outstanding,  the  Borrower  issues  any  convertible  securities  or  rights
to  purchase  stock,  warrants,
securities  or  other  property  (the  "Purchase  Rights")  pro  rata  to  the
record  holders  of  any  class  of
Common   Stock,   then   the   Holder   of   this   Note   will   be   entitled
to   acquire,   upon   the   terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
Holder could have
acquired  if  such  Holder  had  held  the  number  of  shares  of  Common
Stock  acquirable  upon
complete  conversion  of  this  Note  (without  regard  to  any  limitations  on
conversion  contained
herein)  immediately  before  the  date  on  which  a  record  is  taken  for
the  grant,  issuance  or  sale  of
such  Purchase  Rights  or,  if  no  such  record  is  taken,  the  date  as  of
which  the  record  holders  of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

                 (f)  Notice  of  Adjustments.    Upon  the  occurrence  of
each  adjustment  or
readjustment  of  the  Conversion  Price  as  a  result  of  the  events
described  in  this  Section  1.6,  the
Borrower,  at  its  expense,  shall  promptly  compute  such  adjustment  or
readjustment  and  prepare
and furnish to the Holder a certificate setting forth such adjustment or
readjustment and  showing
in  detail  the  facts  upon  which  such  adjustment  or  readjustment  is
based.   The  Borrower  shall,
upon  the  written  request  at  any  time  of  the  Holder,  furnish  to  such
Holder  a  like  certificate
setting  forth  (i)  such  adjustment  or  readjustment,  (ii)  the  Conversion
Price  at  the  time  in  effect
and  (iii)  the  number  of  shares  of  Common  Stock  and  the  amount,  if
any,  of  other  securities  or
property which at the time would be received upon conversion of the Note.

           1.7 Trading  Market  Limitations.  Unless  permitted  by  the
applicable  rules  and
regulations  of  the  principal  securities  market  on  which  the  Common
Stock  is  then  listed  or
traded,  in  no  event  shall  the  Borrower  issue  upon  conversion  of  or
otherwise  pursuant  to  this
Note  and  the  other  Notes  issued  pursuant  to  the  Purchase  Agreement
more  than  the  maximum



                                    11












number  of  shares  of  Common  Stock  that  the  Borrower  can  issue  pursuant
to  any  rule  of  the
principal  United  States  securities  market  on  which  the  Common  Stock  is
then  traded  (the
"Maximum Share Amount"), which shall be 4.99% of the total shares outstanding on
the Closing
Date  (as  defined  in  the  Purchase  Agreement),  subject  to  equitable
adjustment  from  time  to  time
for stock splits, stock dividends, combinations, capital reorganizations and
similar events relating
to  the  Common  Stock  occurring  after  the  date  hereof.   Once  the
Maximum  Share  Amount  has
been  issued,  if  the  Borrower  fails  to  eliminate  any  prohibitions  under
applicable  law  or  the  rules
or  regulations  of  any  stock  exchange,  interdealer  quotation  system  or
other  self-regulatory
organization with jurisdiction over the Borrower or any of its securities on the
Borrower's ability
to  issue  shares  of  Common  Stock  in  excess  of  the  Maximum  Share
Amount,  in  lieu  of  any
further  right  to  convert  this  Note,  this  will  be  considered  an  Event
of  Default  under  Section  3.2
of the Note.

           1.8 Status  as  Shareholder.    Upon  submission  of  a  Notice  of
Conversion  by  a
Holder,  (i)  the  shares  covered  thereby  (other  than  the  shares,  if
any,  which  cannot  be  issued
because  their  issuance  would  exceed  such  Holder's  allocated  portion  of
the  Reserved  Amount  or
Maximum  Share  Amount)  shall  be  deemed  converted  into  shares  of  Common
Stock  and  (ii)  the
Holder's  rights  as  a  Holder  of  such  converted  portion  of  this  Note
shall  cease  and  terminate,
excepting  only  the  right  to  receive  certificates  for  such  shares  of
Common  Stock  and  to  any
remedies  provided  herein  or  otherwise  available  at  law  or  in  equity
to  such  Holder  because  of  a
failure  by  the  Borrower  to  comply  with  the  terms   of  this  Note.
Notwithstanding  the  foregoing,
if  a  Holder  has  not  received  certificates  for  all  shares  of  Common
Stock  prior  to  the  tenth  (10th)
business  day  after  the  expiration  of  the  Deadline  with  respect  to  a
conversion  of  any  portion  of
this  Note  for  any  reason,  then  (unless  the  Holder  otherwise  elects  to
retain  its  status  as  a  holder
of Common Stock by so notifying the Borrower) the Holder shall regain the rights
of a Holder of
this  Note  with  respect  to  such  unconverted  portions  of  this  Note  and
the  Borrower  shall,  as  soon
as   practicable,   return   such   unconverted   Note   to   the   Holder   or,
if   the   Note   has   not   been
surrendered, adjust its records to reflect that such portion of this Note has
not been converted.  In
all  cases,  the  Holder  shall  retain  all  of  its  rights  and  remedies
(including,  without  limitation,  (i)
the  right  to  receive  Conversion  Default  Payments  pursuant  to  Section
1.3  to  the  extent  required
thereby  for  such  Conversion  Default  and  any  subsequent  Conversion
Default  and  (ii)  the  right  to
have the Conversion Price with respect to subsequent conversions determined in
accordance with
Section 1.3) for the Borrower's failure to convert this Note.

           1.9 Prepayment.   Notwithstanding anything to the contrary contained
in this Note,
the  Borrower  may  prepay  the  amounts  outstanding  hereunder  pursuant  to
the  following  terms
and conditions:

                 (a)  At  any  time  during  the  period  beginning  on  the
Issue  Date  and  ending
on the date which is ninety (90) days following the Issue Date, the Borrower
shall have the right,
exercisable on not less than three (3) Trading Days prior written notice to the
Holder of the Note
to  prepay  the  outstanding  Note  (principal  and  accrued  interest),  in
full  by  making  a  payment  to
the  Holder  of  an  amount  in  cash  equal  to  125%,  multiplied  by  the
sum  of:  (w)  the  then
outstanding  principal  amount  of  this  Note  plus  (x) accrued  and  unpaid
interest  on  the  unpaid
principal amount of this Note plus (y) Default Interest, if any.




                                    12













                 (b)  At  any  time  during  the  period  beginning  the  day
which  is  ninety  one
(91)  days  following  the  Issue  Date  and  ending  on  the  date  which  is
one  hundred  eighty  (180)
days  following  the  Issue  Date,  the  Borrower  shall  have  the  right,
exercisable  on  not  less  than
three  (3)  Trading  Days  prior  written  notice  to  the  Holder  of  the
Note  to  prepay  the  outstanding
Note  (principal  and  accrued  interest),  in  full  by  making  a  payment  to
the  Holder  of  an  amount  in
cash  equal  to  135%,  multiplied  by  the  sum  of:  (w)  the  then
outstanding  principal  amount  of  this
Note  plus  (x) accrued  and  unpaid  interest  on  the  unpaid  principal
amount  of  this  Note  plus  (y)
Default Interest, if any.

                 (c)  After  the  expiration  of  one  hundred  eighty  (180)
days  following  the
date of the Note, the Borrower shall have no right of prepayment.

Any notice of prepayment hereunder (an "Optional Prepayment Notice") shall be
delivered to the
Holder  of  the  Note  at  its  registered  addresses  and  shall  state:  (1)
that  the  Borrower  is  exercising
its  right  to  prepay  the  Note,  and  (2)  the  date  of  prepayment  which
shall  be  not  more  than  three
(3)  Trading  Days  from  the  date  of  the  Optional  Prepayment  Notice.
On  the  date  fixed  for
prepayment   (the   "Optional   Prepayment   Date"),   the   Borrower   shall
make   payment   of   the
applicable  prepayment  amount  to  or  upon  the  order  of  the  Holder  as
specified  by  the  Holder  in
writing  to  the  Borrower  at  least  one  (1)  business  day  prior  to  the
Optional  Prepayment  Date.   If
the Borrower delivers an Optional Prepayment Notice and fails to pay the
applicable prepayment
amount  due  to  the  Holder  of  the  Note  within  two  (2)  business  days
following  the  Optional
Prepayment  Date,  the  Borrower  shall  forever  forfeit  its  right  to
prepay  the  Note  pursuant  to  this
Section 1.9.

                      ARTICLE II.  CERTAIN COVENANTS

           2.1 Distributions  on  Capital  Stock.    So  long  as  the  Borrower
shall  have  any
obligation  under  this  Note,  the  Borrower  shall  not  without  the
Holder's  written  consent  (a)  pay,
declare  or  set  apart  for  such  payment,  any  dividend  or  other
distribution  (whether  in  cash,
property or other securities) on shares of capital stock other than dividends on
shares of Common
Stock  solely  in  the  form  of  additional  shares  of  Common  Stock  or  (b)
directly  or  indirectly  or
through  any  subsidiary  make  any  other  payment  or  distribution  in
respect  of  its  capital  stock
except for distributions pursuant to any shareholders' rights plan which is
approved by a majority
of the Borrower's disinterested directors.

           2.2 Restriction  on  Stock  Repurchases.   So  long  as  the
Borrower  shall  have  any
obligation  under  this  Note,  the  Borrower  shall  not  without  the
Holder's  written  consent  redeem,
repurchase  or  otherwise  acquire  (whether  for  cash  or  in  exchange  for
property  or  other  securities
or otherwise) in any one transaction or series of related transactions any
shares of capital stock of
the Borrower or any warrants, rights or options to purchase or acquire any such
shares.

           2.3 Borrowings.    So  long  as  the  Borrower  shall  have  any
obligation  under  this
Note,   the   Borrower   shall   not,   without   the   Holder's   written
consent,   create,   incur,   assume
guarantee,   endorse,   contingently   agree   to   purchase   or   otherwise
become   liable   upon   the
obligation   of   any   person,   firm,   partnership,   joint   venture   or
corporation,   except   by   the
endorsement of negotiable instruments for deposit or collection, or suffer to
exist any liability for
borrowed  money,  except  (a)  borrowings  in  existence  or  committed  on  the
date  hereof  and  of


                                    13











which  the  Borrower  has  informed  Holder  in  writing  prior  to  the  date
hereof,  (b)  indebtedness  to
trade  creditors  financial  institutions  or  other  lenders  incurred  in  the
ordinary  course  of  business
or (c) borrowings, the proceeds of which shall be used to repay this Note.

           2.4 Sale  of  Assets.   So  long  as  the  Borrower  shall  have  any
obligation  under  this
Note,  the  Borrower  shall  not,  without  the  Holder's  written  consent,
sell,  lease  or  otherwise
dispose  of  any  significant  portion  of  its  assets  outside  the  ordinary
course  of  business.    Any
consent  to  the  disposition  of  any  assets  may  be  conditioned  on  a
specified  use  of  the  proceeds  of
disposition.

           2.5 Advances  and  Loans.    So  long  as  the  Borrower  shall  have
any  obligation
under  this  Note,  the  Borrower  shall  not,  without  the  Holder's  written
consent,  lend  money,  give
credit  or  make  advances  to  any  person,  firm,  joint  venture  or
corporation,  including,  without
limitation,  officers,  directors,  employees,  subsidiaries  and  affiliates
of  the  Borrower,  except
loans,  credits  or  advances  (a)  in  existence  or  committed  on  the  date
hereof  and  which  the
Borrower  has  informed  Holder  in  writing  prior  to  the  date  hereof,  (b)
made  in  the  ordinary
course of business or (c) not in excess of $100,000.

           2.6 Section  3(a)(9)  or  3(a)(10)  Transaction.  So  long  as  this
Note  is  outstanding,
the  Borrower  shall  not  enter  into  any  transaction  or  arrangement
structured  in  accordance  with,
based  upon,  or  related  or  pursuant  to,  in  whole  or  in  part,  either
Section  3(a)(9)  of  the  Securities
Act  (a  "3(a)(9)  Transaction")  or  Section  3(a)(l0)  of  the  Securities
Act  (a  "3(a)(l0)  Transaction").
In  the  event  that  the  Borrower  does  enter  into,  or  makes  any
issuance  of  Common  Stock  related
to  a  3(a)(9)  Transaction  or  a  3(a)(l0)  Transaction  while  this  note  is
outstanding,  a  liquidated
damages  charge  of  25%  of  the  outstanding  principal  balance  of  this
Note,  but  not  less  than
Fifteen  Thousand  Dollars  $15,000,  will  be  assessed  and  will  become
immediately  due  and
payable to the Holder at its election in the form of cash payment or addition to
the balance of this
Note.

           2.7 Preservation  of  Existence,  etc.  The  Borrower  shall
maintain  and  preserve,  and
cause  each  of  its  Subsidiaries  to  maintain  and  preserve,  its
existence,  rights  and  privileges,  and
become  or  remain,  and  cause  each  of  its  Subsidiaries  (other  than
dormant  Subsidiaries  that  have
no  or  minimum  assets)  to  become  or  remain,  duly  qualified  and  in
good  standing  in  each
jurisdiction  in  which  the  character  of  the  properties  owned  or  leased
by  it  or  in  which  the
transaction of its business makes such qualification necessary.

           2.8 Non-circumvention.   The   Borrower   hereby   covenants   and
agrees   that   the
Borrower  will  not,  by  amendment  of  its  Certificate  or  Articles  of
Incorporation  or  Bylaws,  or
through  any  reorganization,  transfer  of  assets,  consolidation,  merger,
scheme  of  arrangement,
dissolution,  issue  or  sale  of  securities,  or  any  other  voluntary
action,  avoid  or  seek  to  avoid  the
observance  or  performance  of  any  of  the  terms  of  this  Note,  and  will
at  all  times  in  good  faith
carry  out  all  the  provisions  of  this  Note  and  take  all  action  as
may  be  required  to  protect  the
rights of the Holder.

                      ARTICLE III.  EVENTS OF DEFAULT




                                    14













           If any of the following events of default (each, an "Event of
Default") shall occur:

           3.1 Failure  to  Pay  Principal  or  Interest.   The  Borrower  fails
to  pay  the  principal
hereof  or  interest  thereon  when  due  on  this  Note,  whether  at
maturity,  upon  acceleration  or
otherwise.

           3.2 Conversion  and  the  Shares.   The  Borrower  fails  to  issue
shares  of  Common
Stock  to  the  Holder  (or  announces  or  threatens  in  writing  that  it
will  not  honor  its  obligation  to
do  so)  upon  exercise by  the  Holder  of  the conversion  rights  of  the
Holder  in  accordance with  the
terms  of  this  Note,  fails  to  transfer  or  cause  its  transfer  agent  to
transfer  (issue)  (electronically  or
in  certificated  form)  any  certificate  for  shares  of  Common  Stock
issued  to  the  Holder  upon
conversion  of  or  otherwise  pursuant  to  this  Note  as  and  when  required
by  this  Note,  the
Borrower  directs  its  transfer  agent  not  to  transfer  or  delays,
impairs,  and/or  hinders  its  transfer
agent  in  transferring  (or  issuing)  (electronically  or  in  certificated
form)  any  certificate  for  shares
of  Common  Stock  to  be  issued  to  the  Holder  upon  conversion  of  or
otherwise  pursuant  to  this
Note  as  and  when  required  by  this  Note,  or  fails  to  remove  (or
directs  its  transfer  agent  not  to
remove  or  impairs,  delays,  and/or  hinders  its  transfer  agent  from
removing)  any  restrictive
legend (or to withdraw any stop transfer instructions in respect thereof) on any
certificate for any
shares  of  Common  Stock  issued  to  the  Holder  upon  conversion  of  or
otherwise  pursuant  to  this
Note as and when required by this Note (or makes any written announcement,
statement or threat
that  it  does  not  intend  to  honor  the  obligations  described  in  this
paragraph)  and  any  such  failure
shall  continue  uncured  (or  any  written  announcement,  statement  or
threat  not  to  honor  its
obligations  shall  not  be  rescinded  in  writing)  for  three  (3)  business
days  after  the  Holder  shall
have  delivered  a  Notice  of  Conversion.   It  is  an  obligation  of  the
Borrower  to  remain  current  in
its  obligations  to  its  transfer  agent.  It  shall  be  an  event  of
default  of  this  Note,  if  a  conversion  of
this  Note  is  delayed,  hindered  or  frustrated  due  to  a  balance  owed
by  the  Borrower  to  its  transfer
agent.  If  at  the  option  of  the  Holder,  the  Holder  advances  any  funds
to  the  Borrower's  transfer
agent in order to process a conversion, such advanced funds shall be paid by the
Borrower to the
Holder within forty eight (48) hours of a demand from the Holder.

           3.3 Failure   to   Deliver   Transaction   Expense   Amount.     The
Borrower   fails   to
deliver  the  Transaction  Expense  Amount  (as  defined  in  the  Purchase
Agreement)  to  the  Holder
within three (3) business days of the date such amount is due.

           3.4 Breach  of  Covenants.   The  Borrower  breaches  any  material
covenant  or  other
material  term  or  condition  contained  in  this  Note  and  any  collateral
documents  including  but  not
limited  to  the  Purchase  Agreement  and  such  breach  continues  for  a
period  of  ten  (10)  days  after
written notice thereof to the Borrower from the Holder.

           3.5 Breach  of  Representations  and  Warranties.   Any
representation  or  warranty  of
the Borrower made herein or in any agreement, statement or certificate given in
writing pursuant
hereto  or  in  connection  herewith  (including,  without  limitation,  the
Purchase  Agreement),  shall
be  false  or  misleading  in  any  material  respect  when  made  and  the
breach  of  which  has  (or  with
the passage of time will have) a material adverse effect on the rights of the
Holder with respect to
this Note or the Purchase Agreement.




                                    15













           3.6 Receiver  or  Trustee.   The  Borrower  or  any  subsidiary  of
the  Borrower  shall
make  an  assignment  for  the  benefit  of  creditors  or  commence
proceedings  for  its  dissolution,  or
apply  for  or  consent  to  the  appointment  of  a  receiver  or  trustee  for
it  or  for  a  substantial  part  of
its  property  or  business,  or  such  a  receiver  or  trustee  shall
otherwise  be  appointed  for  the
Borrower  or  for  a  substantial  part  of  its  property  or  business
without  its  consent  and  shall  not  be
discharged within sixty (60) days after such appointment.

           3.7 Judgments.   Any  money  judgment,  writ  or  similar  process
shall  be  entered  or
filed against the Borrower or any subsidiary of the Borrower or any of its
property or other assets
for more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of twenty
(20)  days  unless  otherwise  consented  to  by  the  Holder,  which  consent
will  not  be  unreasonably
withheld.

           3.8 Bankruptcy.  Bankruptcy,    insolvency,    reorganization    or
liquidation
proceedings  or  other  proceedings,  voluntary  or  involuntary,  for  relief
under  any  bankruptcy  law
or  any  law  for  the  relief  of  debtors  shall  be  instituted  by  or
against  the  Borrower  or  any
subsidiary  of  the  Borrower,  or  the  Borrower  admits  in  writing  its
inability  to  pay  its  debts
generally as  they mature, or have filed against it an involuntary petition for
bankruptcy relief, all
under  federal  or  state  laws  as  applicable  or  the  Borrower  admits  in
writing  its  inability  to  pay  its
debts  generally  as  they  mature,  or  have  filed  against  it  an
involuntary  petition  for  bankruptcy
relief, all under international, federal or state laws as applicable.

           3.9 Delisting of Common Stock.  The Borrower shall fail to maintain
the listing of
the  Common  Stock  on  at  least  one  of  the  OTCBB,  a  tier  of  the  OTC
Markets  Group  Inc.  or  an
equivalent  replacement  exchange,  the  Nasdaq  National  Market,  the  Nasdaq
Small  Cap  Market,
the New York Stock Exchange, or the NYSE MKT.

           3.10     Failure  to  Comply  with  the  Exchange  Act.    The
Borrower  shall  fail  to
comply  with  the  reporting  requirements  of  the  Exchange  Act;  and/or  the
Borrower  shall  cease  to
be subject to the reporting requirements of the Exchange Act.

           3.11     Liquidation.     Any  dissolution,  liquidation,  or
winding  up  of  Borrower  or
any substantial portion of its business.

           3.12     Cessation  of  Operations.    Any  cessation  of  operations
by  Borrower  or
Borrower  admits  it  is  otherwise  generally  unable  to  pay  its  debts  as
such  debts  become  due,
provided, however, that any disclosure of the Borrower's ability to continue as
a "going concern"
shall not be an admission that the Borrower cannot pay its debts as they become
due.

           3.13     Maintenance  of  Assets.   The  failure  by  Borrower  to
maintain  any  material
intellectual property rights, personal, real property or other assets which are
necessary to conduct
its business (whether now or in the future).

           3.14     Financial Statement Restatement.The   restatement   of   any
financial
statements filed by the Borrower with the SEC for any date or period from two
years prior to the
Issue  Date  of  this  Note  and  until  this  Note  is  no  longer
outstanding,  if  the  result  of  such



                                    16












restatement  would,  by  comparison  to  the  unrestated  financial  statement,
have  constituted  a
material  adverse  effect  on  the  rights  of  the  Holder  with  respect  to
this  Note  or  the  Purchase
Agreement.

           3.15     Reverse Splits.  The  Borrower  effectuates  a  reverse
split  of  its  Common
Stock without twenty (20) days prior written notice to the Holder.

           3.16     Replacement of Transfer Agent. In the event that the
Borrower proposes to
replace  its  transfer  agent,  the  Borrower  fails  to  provide,  prior  to
the  effective  date  of  such
replacement,  a  fully  executed  Irrevocable  Transfer  Agent  Instructions  in
a  form  as  initially
delivered  pursuant  to  the  Purchase  Agreement  (including  but  not  limited
to  the  provision  to
irrevocably  reserve  shares  of  Common  Stock  in  the  Reserved  Amount)
signed  by  the  successor
transfer agent to Borrower and the Borrower.

           3.17     Cessation  of  Trading.   Any  cessation  of  trading  of
the  Common  Stock  on
at  least  one  of  the  OTCBB,  a  tier  of  the  OTC  Markets  Group  Inc.  or
an  equivalent  replacement
exchange,  the  Nasdaq  National  Market,  the  Nasdaq  Small  Cap  Market,  the
New  York  Stock
Exchange,  or  the  NYSE  MKT,  and  such  cessation  of  trading  shall
continue  for  a  period  of  five
consecutive (5) Trading Days.

           3.18     Cross-Default.   Notwithstanding  anything  to  the
contrary  contained  in  this
Note  or  the  other  related  or  companion  documents,  a  breach  or  default
by  the  Borrower  of  any
covenant  or  other  term  or  condition  contained  in  any  of  the  Other
Agreements,  after  the  passage
of all applicable notice and cure or grace periods, shall, at the option of the
Holder, be considered
a  default  under  this  Note  and  the  Other  Agreements,  in  which  event
the  Holder  shall  be  entitled
(but  in  no  event  required)  to  apply  all  rights  and  remedies  of  the
Holder  under  the  terms  of  this
Note   and   the   Other   Agreements   by   reason   of   a   default   under
said   Other   Agreement   or
hereunder.   "Other  Agreements"  means,  collectively,  all  agreements  and
instruments  between,
among  or  by:  (1)  the  Borrower,  and,  or  for  the  benefit  of,  (2) the
Holder  and  any  affiliate  of  the
Holder,  including,  without  limitation,  promissory  notes;  provided,
however,  the  term  "Other
Agreements"  shall  not  include  the  agreements  and  instruments  defined  as
the  Documents.   Each
of the loan transactions will be cross-defaulted with each other loan
transaction and with all other
existing and future debt of Borrower to the Holder.

           3.19     Bid  Price.   The  Borrower  shall  lose  the  "bid" price
for  its  Common  Stock
($0.0001  on  the  "Ask"  with  zero  market  makers  on  the  "Bid"  per  Level
2)  and/or  a  market
(including  the  OTCBB,  any  tier  of  the  OTC  Markets  Group  Inc.   or  an
equivalent  replacement
exchange).

           3.20     OTC   Markets   Designation.      OTC   Markets   changes
the   Borrower's
designation   to   `No   Information'   (Stop   Sign),   `Limited   Information'
(Yield   Sign),   `Caveat
Emptor'  (Skull  and  Crossbones),  or  `OTC',  `Other  OTC'  or  `Grey  Market'
(Exclamation  Mark
Sign).

Upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1
(solely  with  respect  to  failure  to  pay  the  principal  hereof  or
interest  thereon  when  due  at  the
Maturity  Date),  the  Note  shall  become  immediately  due  and  payable  and
the  Borrower  shall  pay


                                    17











to  the  Holder,  in  full  satisfaction  of  its  obligations  hereunder,  an
amount  equal  to  the  Default
Sum (as defined herein).  UPON THE OCCURRENCE AND DURING THE CONTINUATION
OF   ANY   EVENT   OF   DEFAULT   SPECIFIED   IN   SECTION   3.2,   THE   NOTE
SHALL
BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO
THE   HOLDER,   IN   FULL   SATISFACTION   OF   ITS   OBLIGATIONS   HEREUNDER,
AN
AMOUNT  EQUAL  TO:  (Y)  THE  DEFAULT  SUM  (AS  DEFINED  HEREIN);  MULTIPLIED
BY  (Z)  TWO  (2).  Upon  the  occurrence  and  during  the  continuation  of
any  Event  of  Default
specified  in  Sections  3.1  (solely  with  respect  to  failure  to  pay  the
principal  hereof  or  interest
thereon  when  due  on  this  Note  upon  acceleration),  3.3,  3.4,  3.6,  3.8,
3.9,  3.11,  3.12,  3.13,  3.14,
3.15,  3.16.  3.17,  3.18,  3.19  and/or  3.20  exercisable  through  the
delivery  of  written  notice  to  the
Borrower  by  such  Holders  (the  "Default  Notice"),  and  upon  the
occurrence  of  an  Event  of
Default  specified  the  remaining  sections  of  Article  III  (other  than
failure  to  pay  the  principal
hereof  or  interest  thereon  at  the  Maturity  Date  specified  in  Section
3,1  hereof),  the  Note  shall
become   immediately   due   and   payable   and   the   Borrower   shall   pay
to   the   Holder,   in   full
satisfaction  of  its  obligations  hereunder,  an  amount  equal  to  (i)  130%
times  the  sum  of  (w)  the
then outstanding principal amount of this Note plus (x) accrued and unpaid
interest on the unpaid
principal  amount  of  this  Note  to  the  date  of  payment  (the  "Mandatory
Prepayment  Date")  plus
(y)  Default  Interest,  if  any,  on  the  amounts  referred  to  in  clauses
(w)  and/or  (x)  plus  (z)  any
amounts  owed  to  the  Holder  pursuant  to  Sections  1.3  and  1.4(g)  hereof
(the  then  outstanding
principal  amount  of  this  Note  to  the  date  of  payment  plus  the
amounts  referred  to  in  clauses  (x),
(y)  and  (z)  shall  collectively  be  known  as  the  "Default  Sum")  or
(ii)  at  the  option  of  the  Holder,
the  "parity  value"  of  the  Default  Sum  to  be  prepaid,  where  parity
value  means  (a)  the  highest
number  of  shares  of  Common  Stock  issuable  upon  conversion  of  or
otherwise  pursuant  to  such
Default  Sum  in  accordance  with  Article  I,  treating  the  Trading  Day
immediately  preceding  the
Mandatory  Prepayment  Date  as  the  "Conversion  Date"  for  purposes  of
determining  the  lowest
applicable Conversion Price, unless the Default Event arises as a result of a
breach in respect of a
specific  Conversion  Date  in  which  case  such  Conversion  Date  shall  be
the  Conversion  Date),
multiplied  by  (b)  the  highest  Trading  Price  for  the  Common  Stock
during  the  period  beginning
on the date of first occurrence of the Event of Default and ending one day prior
to the Mandatory
Prepayment   Date   (the   "Default   Amount")   and   all   other   amounts
payable   hereunder   shall
immediately  become  due  and  payable,  all  without  demand,  presentment  or
notice,  all  of  which
hereby  are  expressly  waived,  together  with  all  costs,  including,
without  limitation,  legal  fees  and
expenses,  of  collection,  and  the  Holder  shall  be  entitled  to  exercise
all  other  rights  and  remedies
available  at  law  or  in  equity.   Further,  if  a  breach  of  Sections
3.9,  3.10  and/or  3.19  occurs  or  is
continuing after the six (6) month anniversary of this Note, then the principal
amount of the Note
shall  increase  by  Fifteen  Thousand  and  No/100  United  States  Dollars
($15,000)  (under  Holder's
and  Borrower's  expectation  that  any  principal  amount  increase  will  tack
back  to  the  Issue  Date)
and  the  Holder  shall  be  entitled  to  use  the  lowest  Trading  Price
during  the  delinquency  period  as
a  base  price  for  the  conversion  with  the  Variable  Conversion  Price
shall  be  redefined  to  mean
forty  percent  (40%)  multiplied  by  the  Market  Price,  subject  to
adjustment  as  provided  in  this
Note.  For  example,  if  the  lowest  Trading  Price  during  the  delinquency
period  is  $0.01  per  share
and  the  conversion  discount  is  50%,  then  the  Holder  may  elect  to
convert  future  conversions  at
$0.005  per  share.   If  this  Note  is  not  paid  at  Maturity  Date,  then
the  outstanding  principal  due
under this Note shall increase by Fifteen Thousand and No/100 United States
Dollars ($15,000).






                                    18















If  the  Borrower  fails  to  pay  the  Default  Amount  within  five  (5)
business  days  of  written  notice
that  such  amount  is  due  and  payable,  then  the  Holder  shall  have  the
right  at  any  time,  so  long  as
the Borrower remains in default (and so long and to the extent that there are
sufficient authorized
shares), to require the Borrower, upon written notice, to immediately issue, in
lieu of  the Default
Amount,  the  number  of  shares  of  Common  Stock  of  the  Borrower  equal
to  the  Default  Amount
divided   by   the   Conversion   Price   then   in   effect.     This
requirement   by   the   Borrower   shall
automatically apply upon the occurrence of an Event of Default without the need
for any party to
give any notice or take any other action.

If  the  Holder  shall  commence  an  action  or  proceeding  to  enforce  any
provisions  of  this  Note,
including, without limitation, engaging an attorney, then if the Holder prevails
in such action, the
Holder  shall  be  reimbursed  by  the  Borrower  for  its  attorneys'  fees
and  other  costs  and  expenses
incurred in the investigation, preparation and prosecution of such action or
proceeding.

                       ARTICLE IV.  MISCELLANEOUS

           4.1 Failure  or  Indulgence  Not  Waiver.    No  failure  or  delay
on  the  part  of  the
Holder  in  the  exercise  of  any  power,  right  or  privilege  hereunder
shall  operate  as  a  waiver
thereof,  nor  shall  any  single  or  partial  exercise  of  any  such  power,
right  or  privilege  preclude
other  or  further  exercise  thereof  or  of  any  other  right,  power  or
privileges.    All  rights  and
remedies  existing  hereunder  are  cumulative  to,  and  not  exclusive  of,
any  rights  or  remedies
otherwise available.

           4.2 Notices.     All   notices,   demands,   requests,   consents,
approvals,   and   other
communications   required   or   permitted   hereunder   shall   be   in
writing   and,   unless   otherwise
specified  herein,  shall  be  (i)  personally  served,  (ii)  deposited  in
the  mail,  registered  or  certified,
return  receipt  requested,  postage  prepaid,  (iii)  delivered  by  reputable
air  courier  service  with
charges  prepaid,  or  (iv)  transmitted  by  hand  delivery,  telegram,  or
facsimile,  addressed  as  set
forth  below  or  to  such  other  address  as  such  party  shall  have
specified  most  recently  by  written
notice.   Any  notice  or  other  communication  required  or  permitted  to  be
given  hereunder  shall  be
deemed  effective  (a)  upon  hand  delivery  or  delivery  by  facsimile,  with
accurate  confirmation
generated  by  the  transmitting  facsimile  machine,  at  the  address  or
number  designated  below  (if
delivered on a business day during normal business hours where such notice is to
be received), or
the  first  business  day  following  such  delivery  (if  delivered  other
than  on  a  business  day  during
normal  business  hours  where  such  notice  is  to  be  received)  or  (b)  on
the  second  business  day
following  the  date  of  mailing  by  express  courier  service,  fully
prepaid,  addressed  to  such
address,  or  upon  actual  receipt  of  such  mailing,  whichever  shall  first
occur.   The  addresses  for
such communications shall be:

         If to the Borrower, to:

           Clean Energy Technologies, Inc.
           2990 Redhill Avenue
           Costa Mesa, CA 92626
           Attn:  John Bennett, CFO
           E-mail:  jbennett@cetyinc.com



                                    19













         With a copy to (which copy shall not constitute notice):

           Law Office of Andrew Coldicutt
           1220 Rosecrans Street, PMB 258
           San Diego, CA 92106
           Attn:  Andrew Coldicutt, Esq.
           E-mail: andrew@coldicuttlaw.com

         If to the Holder:

           Auctus Fund, LLC
           101 Arch Street, 20th Floor
           Boston, MA 02110
           Attn: Lou Posner
           Facsimile: (617) 532-6420

         With a copy to (which copy shall not constitute notice):

           Lucosky Brookman LLP
           101 Wood Avenue South, 5th Floor
           Woodbridge, NJ 08830
           Attn: Joseph M. Lucosky, Esq.
           Facsimile: (732) 395-4401

           4.3 Amendments.   This  Note  and  any  provision  hereof  may  only
be  amended  by
an  instrument  in  writing  signed  by  the  Borrower  and  the  Holder.    The
term  "Note"  and  all
reference  thereto,  as  used  throughout  this  instrument,  shall  mean  this
instrument  (and  the  other
Notes  issued  pursuant  to  the  Purchase  Agreement)  as  originally
executed,  or  if  later  amended  or
supplemented, then as so amended or supplemented.

           4.4 Assignability.     This   Note   shall   be   binding   upon
the   Borrower   and   its
successors  and  assigns,  and  shall  inure  to  be  the  benefit  of  the
Holder  and  its  successors  and
assigns.   Each transferee of this Note must be an "accredited investor" (as
defined in Rule 501(a)
of  the  1933  Act).    Notwithstanding  anything  in  this  Note  to  the
contrary,  this  Note  may  be
pledged   as   collateral   in   connection   with   a   bona   fide   margin
account   or   other   lending
arrangement.   The  Holder  and  any  assignee,  by  acceptance  of  this  Note,
acknowledge  and  agree
that following conversion of a portion of this Note, the unpaid and unconverted
principal amount
of this Note represented by this Note may be less than the amount stated on the
face hereof.

           4.5 Cost  of  Collection.    If  default  is  made  in  the  payment
of  this  Note,  the
Borrower   shall   pay   the   Holder   hereof   reasonable   costs   of
collection,   including   reasonable
attorneys' fees.

           4.6 Governing  Law.  This  Note  shall  be  governed  by  and
construed  in  accordance
with the laws of the State of Nevada without regard to principles of conflicts
of laws.  Any action



                                    20












brought  by  either  party  against  the  other  concerning  the  transactions
contemplated  by  this  Note
shall  be  brought  only  in  the  state  courts  of  Massachusetts  or  in  the
federal  courts  located  in  the
Commonwealth  of  Massachusetts.     The  parties  to  this  Note  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
BORROWER  HEREBY  IRREVOCABLY  WAIVES  ANY  RIGHT  IT  MAY  HAVE  TO,
AND  AGREES  NOT  TO  REQUEST,  A  JURY  TRIAL  FOR  THE  ADJUDICATION  OF
ANY  DISPUTE  HEREUNDER  OR  IN  CONNECTION  WITH  OR  ARISING  OUT  OF
THIS  NOTE  OR  ANY  TRANSACTION  CONTEMPLATED  HEREBY.    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 Note 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  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  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.

           4.7 Certain Amounts.  Whenever pursuant to this Note the Borrower is
required to
pay  an  amount  in  excess  of  the  outstanding  principal  amount  (or  the
portion  thereof  required  to
be  paid  at  that  time)  plus  accrued  and  unpaid  interest  plus  Default
Interest  on  such  interest,  the
Borrower  and  the  Holder  agree  that  the  actual  damages  to  the  Holder
from  the  receipt  of  cash
payment  on  this  Note  may  be  difficult  to  determine  and  the  amount  to
be  so  paid  by  the
Borrower  represents  stipulated  damages  and  not  a  penalty  and  is
intended  to  compensate  the
Holder  in  part  for  loss  of  the  opportunity  to  convert  this  Note  and
to  earn  a  return  from  the  sale
of  shares  of  Common  Stock  acquired  upon  conversion  of  this  Note  at  a
price  in  excess  of  the
price  paid  for  such  shares  pursuant  to  this  Note.   The  Borrower  and
the  Holder  hereby  agree  that
such  amount  of  stipulated  damages  is  not  plainly  disproportionate  to
the  possible  loss  to  the
Holder  from  the  receipt  of  a  cash  payment  without  the  opportunity  to
convert  this  Note  into
shares of Common Stock.

           4.8 Purchase  Agreement.   By  its  acceptance  of  this  Note,  each
party  agrees  to  be
bound by the applicable terms of the Purchase Agreement.

           4.9 Notice  of  Corporate  Events.   Except  as  otherwise  provided
below,  the  Holder
of this Note shall have no rights as a Holder of Common Stock unless and only to
the extent that
it  converts  this  Note  into  Common  Stock.  The  Borrower  shall  provide
the  Holder  with  prior
notification  of  any  meeting  of  the  Borrower's  shareholders  (and  copies
of  proxy  materials  and
other  information  sent  to  shareholders).   In  the  event  of  any  taking
by  the  Borrower  of  a  record
of  its  shareholders  for  the  purpose  of  determining  shareholders  who
are  entitled  to  receive
payment  of  any  dividend  or  other  distribution,  any  right  to  subscribe
for,  purchase  or  otherwise



                                    21












acquire (including by way of merger, consolidation, reclassification or
recapitalization) any share
of any class or any other securities or property, or to receive any other right,
or for the purpose of
determining  shareholders  who  are  entitled  to  vote  in  connection  with
any  proposed  sale,  lease  or
conveyance  of  all  or  substantially  all  of  the  assets  of  the  Borrower
or  any  proposed  liquidation,
dissolution  or  winding  up  of  the  Borrower,  the  Borrower  shall  mail  a
notice  to  the  Holder,  at
least  twenty  (20)  days  prior  to  the  record  date  specified  therein  (or
thirty  (30)  days  prior  to  the
consummation  of  the  transaction  or  event,  whichever  is  earlier),  of
the  date  on  which  any  such
record  is  to  be  taken  for  the  purpose  of  such  dividend,  distribution,
right  or  other  event,  and  a
brief  statement  regarding  the  amount  and  character  of  such  dividend,
distribution,  right  or  other
event to the extent known at such time.   The Borrower shall make a public
announcement of any
event   requiring   notification   to   the   Holder   hereunder   substantially
simultaneously   with   the
notification  to  the  Holder  in  accordance  with  the  terms  of  this
Section  4.9  including,  but  not
limited to, name changes, recapitalizations, etc. as soon as possible under law.

           4.10     Usury.  If  it  shall  be  found  that  any  interest  or
other  amount  deemed
interest due hereunder violates the applicable law governing usury, the
applicable provision shall
automatically  be  revised  to  equal  the  maximum  rate  of  interest  or
other  amount  deemed  interest
permitted  under  applicable  law.  The  Borrower  covenants  (to  the  extent
that  it  may  lawfully  do
so)  that  it  will  not  seek  to  claim  or  take  advantage  of  any  law
that  would  prohibit  or  forgive  the
Borrower from paying all or a portion of the principal or interest on this Note.

           4.11     Remedies.     The   Borrower   acknowledges   that   a
breach   by   it   of   its
obligations  hereunder  will  cause  irreparable  harm  to  the  Holder,  by
vitiating  the  intent  and
purpose  of  the  transaction  contemplated  hereby.   Accordingly,  the
Borrower  acknowledges  that
the remedy at law for a breach of its obligations under this Note will be
inadequate and agrees, in
the event of a breach or threatened breach by the Borrower of the provisions of
this Note, that the
Holder  shall  be  entitled,  in  addition  to  all  other  available  remedies
at  law  or  in  equity,  and  in
addition  to  the  penalties  assessable  herein,  to  an  injunction  or
injunctions  restraining,  preventing
or  curing  any  breach  of  this  Note  and  to  enforce  specifically  the
terms  and  provisions  thereof,
without  the  necessity  of  showing  economic  loss  and  without  any  bond
or  other  security  being
required.   No provision of this Note shall alter or impair the obligation of
the Borrower, which is
absolute  and  unconditional,  to  pay  the  principal  of,  and  interest  on,
this  Note  at  the  time,  place,
and rate, and in the form, herein prescribed.

           4.12     Severability.    In  the  event  that  any  provision  of
this  Note  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
provision hereof.

           4.13     Dispute  Resolution.  In  the  case  of  a  dispute  as  to
the  determination  of  the
Conversion  Price,  Conversion  Amount,  any  prepayment  amount  or  Default
Amount,  Default
Sum, Closing or Maturity Date, the closing bid price, or fair market value (as
the case may be) or
the arithmetic calculation of the Conversion Price or the applicable prepayment
amount(s) (as the
case  may  be),  the  Borrower  or  the  Holder  shall  submit  the  disputed
determinations  or  arithmetic
calculations  via  facsimile  (i)  within  two  (2)  Business  Days  after
receipt  of  the  applicable  notice



                                    22












giving  rise  to  such  dispute  to  the  Borrower  or  the  Holder  or  (ii)
if  no  notice  gave  rise  to  such
dispute,  at  any  time  after  the  Holder  learned  of  the  circumstances
giving  rise  to  such  dispute.  If
the  Holder  and  the  Borrower  are  unable  to  agree  upon  such
determination  or  calculation  within
two  (2)  Business  Days  of  such  disputed  determination  or  arithmetic
calculation  (as  the  case  may
be)  being  submitted  to  the  Borrower  or  the  Holder,  then  the  Borrower
shall,  within  two  (2)
Business  Days,  submit  via  facsimile  (a)  the  disputed  determination  of
the  Conversion  Price,  the
closing  bid  price,  the  or  fair  market  value  (as  the  case  may  be)  to
an  independent,  reputable
investment  bank  selected  by  the  Borrower  and  approved  by  the  Holder
or  (b)  the  disputed
arithmetic  calculation  of  the  Conversion  Price,  Conversion  Amount,  any
prepayment  amount  or
Default  Amount,  Default  Sum  to  an  independent,  outside  accountant
selected  by  the  Holder  that
is reasonably acceptable to the Borrower. The Borrower shall cause at its
expense the investment
bank or the accountant to perform the determinations or calculations and notify
the Borrower and
the  Holder  of  the  results  no  later  than  ten  (10)  Business  Days  from
the  time  it  receives  such
disputed  determinations  or  calculations.  Such  investment  bank's  or
accountant's  determination
or calculation shall be binding upon all parties absent demonstrable error.

           4.14     Terms of Future Financings.  So long as this Note is
outstanding, upon any
issuance  by  the  Borrower  or  any  of  its  subsidiaries  of  any  security
with  any  term  more  favorable
to  the  holder  of  such  security  or  with  a  term  in  favor  of  the
holder  of  such  security  that  was  not
similarly  provided  to  the  Holder  in  this  Note,  then  the  Borrower
shall  notify  the  Holder  of  such
additional  or  more  favorable  term  and  such  term,  at  Holder's  option,
shall  become  a  part  of  the
transaction  documents  with  the  Holder.   The  types  of  terms  contained
in  another  security  that
may  be  more  favorable  to  the  holder  of  such  security  include,  but
are  not  limited  to,  terms
addressing  conversion  discounts,  prepayment  rate,  conversion  lookback
periods,  interest  rates,
original   issue   discounts,   stock   sale   price,   private   placement
price   per   share,   and   warrant
coverage.

           4.15     Piggyback  Registration  Rights.   The  Borrower  shall
include  on  the  next
registration statement the Borrower files with SEC (or on the subsequent
registration statement if
such  registration  statement  is  withdrawn)  all  shares  issuable  upon
conversion  of  this  Note.
Failure  to  do  so  will  result  in  liquidated  damages  of  25%  of  the
outstanding  principal  balance  of
this  Note,  but  not  less  than  Fifteen  Thousand  and  No/100  United
States  Dollars  ($15,000),  being
immediately due and payable to the Holder at its election in the form of cash
payment or addition
to the balance of this Note.




                            [signature page follows]













                                    23























      IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its
duly authorized officer as of the date first above written.

                                        CLEAN    ENERGY    TECHNOLOGIES,
                                        INC.











                                        By:



                                        Name: Meddy Sahebi
                                        Title: Executive Chairman



































                                    24











































                                EXHIBIT A
                          NOTICE OF CONVERSION

           The  undersigned  hereby  elects  to  convert
$_________________principal  amount
of  the  Note  (defined  below)  together  with  $________________  of  accrued
and  unpaid  interest
thereto,  totaling  $_____________  into  that  number  of  shares  of  Common
Stock  to  be  issued
pursuant  to  the  conversion  of  the  Note  ("Common  Stock")  as  set  forth
below,  of  Clean  Energy
Technologies,  Inc.,  a  Nevada  corporation  (the  "Borrower"),  according  to
the  conditions  of  the
convertible  note  of  the  Borrower  dated  as  of  July  6,  2016  (the
"Note"),  as  of  the  date  written
below.  No fee will be charged to the Holder for any conversion, except for
transfer taxes, if any.

Box Checked as to applicable instructions:

      [ ]  The  Borrower  shall  electronically  transmit  the  Common  Stock
issuable  pursuant
           to this Notice of Conversion to the account of the undersigned or its
nominee with
           DTC through its Deposit Withdrawal At Custodian system ("DWAC
Transfer").

           Name of DTC Prime Broker:
           Account Number:

      [  ] The   undersigned   hereby   requests   that   the   Borrower   issue
a   certificate   or
           certificates  for  the  number  of  shares  of  Common  Stock  set
forth  below  (which
           numbers  are  based  on  the  Holder's  calculation  attached
hereto)  in  the  name(s)
           specified immediately below or, if additional space is necessary, on
an attachment
           hereto:

           Name: [NAME]
           Address: [ADDRESS]

           Date of Conversion:                      _____________
           Applicable Conversion Price:            $____________
           Number of Shares of Common Stock to be Issued
             Pursuant to Conversion of the Notes:  ______________
           Amount of Principal Balance Due remaining
             Under the Note after this conversion: ______________
           Accrued and unpaid interest remaining:  ______________

           [HOLDER]



           By:_____________________________
           Name:  [NAME]
           Title:    [TITLE]
           Date:  [DATE]




4818-3048-2483, v.  1-2690-2064, v.  1-0454, v.  1

EX-10.7

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kambiz Mahdi, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Clean Energy Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 18, 2016	By: /s/ KAMBIZ MAHDI
	Kambiz Mahdi, Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John Bennett, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Clean Energy Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 18, 2016	By: /s/ JOHN BENNETT
	John Bennett, Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Clean Energy Technologies, Inc. (the “Company”) hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 18, 2016	By: /s/ Kambiz Mahdi
Date	Kambiz Mahdi Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Clean Energy Technologies, Inc. (the “Company”) hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 18, 2016	By: /s/ John Bennett
Date	John Bennett Chief Financial Officer

XML

Document and Entity Information - USD ($)	9 Months Ended
	Sep. 30, 2016	Nov. 14, 2016	Jun. 30, 2015
Document and Entity Information:
Entity Registrant Name	Probe Manufacturing Inc.
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Trading Symbol	cety
Amendment Flag	false
Entity Central Index Key	0001329606
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		153,978,083
Entity Public Float			$ 1,078,629
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3

XML

Statement of Financial Position - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Assets, Current
Cash and Cash Equivalents, at Carrying Value	$ 299	$ 4,196
Accounts Receivable, Net, Current	501,858	474,699
Inventory, Net	1,013,820	1,207,409
Assets, Current	1,515,977	1,686,304
Assets, Noncurrent
Property Plant And Equipment Other	230,514	215,755
Goodwill	747,976	747,976
Indefinite-Lived Intangible Assets (Excluding Goodwill)	532,202	541,135
Other Assets, Noncurrent	53,793	57,708
Assets, Noncurrent	1,564,485	1,562,574
Assets	3,080,462	3,248,878
Liabilities, Current
BankOverdrafts	8,596
Accounts Payable, Current	866,154	609,407
Accrued Liabilities, Current	1,774,782	1,412,742
Other Short-term Borrowings	241,612	241,612
Due To Related Parties Current	103,417	143,038
Notes Payable, Current	1,499,097	1,291,922
Derivative Instruments and Hedges, Liabilities	56,550
Liabilities, Current	4,550,208	3,698,721
Liabilities, Noncurrent
Loans Payable, Noncurrent	800,000	800,000
Liabilities	5,350,208	4,498,721
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
Preferred Stock, Value, Issued	750,000	750,000
Common Stock, Value, Issued	143,479	139,448
Additional Paid in Capital, Common Stock	2,924,823	2,736,480
Treasury Stock, Value	633	633
Retained Earnings (Accumulated Deficit)	(6,087,415)	(4,875,138)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest	(2,269,746)	(1,249,843)
Liabilities and Equity	$ 3,080,462	$ 3,248,878

XML

Statement of Financial Position - Parenthetical - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Balance Sheets
Preferred Stock, Par Value	$ 100	$ 100
Preferred Stock, Shares Authorized	20,000	20,000
Preferred Stock, Shares Issued	7,500	7,500
Preferred Stock, Shares Outstanding	7,500	7,500
Common Stock, Par Value	$ 0.001	$ 0.001
Common Stock, Shares Authorized	400,000,000	400,000,000
Common Stock, Shares Issued	143,478,083	24,251,945
Common Stock, Shares Outstanding	143,478,083	24,251,945

XML

Statement of Income - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues
Sales Revenue Goods, Net	$ 280,299	$ 235,838	$ 1,687,656	$ 1,848,854
Revenues	280,299	235,838	1,687,656	1,848,854
Cost of Revenue
Cost of Goods Sold	199,943	188,250	906,612	1,212,969
Cost of Revenue	199,943	188,250	906,612	1,212,969
Gross Profit	80,356	47,588	781,044	635,885
Operating Expenses
General and Administrative Expense	497,334	455,169	1,557,497	1,057,559
ShareBasedCompensation	85,347	66,250	101,347	73,450
Operating Expenses	582,681	521,419	1,658,844	1,131,009
Operating Income (Loss)	(502,325)	(473,831)	(877,800)	(495,124)
Nonoperating Income (Expense)
loss on Derivative liability	(56,550)		(56,550)
Other Nonoperating Income (Expense)			(41,459)
Nonoperating Income (Expense)	(56,550)		(98,009)
Interest and Debt Expense
Interest Expense	44,157	69,379	236,466	229,959
Interest and Debt Expense	44,157	69,379	236,466	229,959
Income (Loss) from Continuing Operations before Income Taxes, Extraordinary Items, Noncontrolling Interest	(603,032)	(543,210)	(1,212,275)	(725,083)
IncomeTaxExpenseBenefitContinuingOperationsAbstract
Income (Loss) from Continuing Operations, Including Portion Attributable to Noncontrolling Interest	(603,032)	(543,210)	(1,212,275)	(725,083)
Net Income (Loss) Attributable to Parent	(603,032)	(543,210)	(1,212,275)	(725,083)
OtherComprehensiveIncomeLossNetOfTaxPortionAttributableToParentAbstract
ComprehensiveIncomeNetOfTax	$ (603,032)	$ (543,210)	$ (1,212,275)	$ (725,083)
Earnings Per Share
Earnings Per Share, Basic	$ (0.00)	$ (0.02)	$ (0.01)	$ (0.02)
Weighted Average Number of Shares Outstanding, Basic	141,436,164	33,344,054	140,347,605	32,667,452
Earnings Per Share, Diluted	$ (0.00)	$ (0.02)	$ (0.01)	$ (0.02)
Weighted Average Number of Shares Outstanding, Diluted	141,436,164	33,344,054	140,347,605	32,667,452

XML

Statement of Cash Flows - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Net Cash Provided by (Used in) Operating Activities
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	$ (1,212,275)	$ (725,083)
Adjustments, Noncash Items, to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities
Depreciation	41,977	23,926
Change in Derivative liability	56,550
Employee Benefits and Share-based Compensation	101,347	73,450
Adjustments, Noncash Items, to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities	(970,942)	(627,707)
Increase (Decrease) in Operating Assets
Increase Decrease In Receivables	(27,159)	(123,294)
Increase (Decrease) in Inventories	193,585	(755,274)
Increase (Decrease) in Prepaid Expense and Other Assets	3,915	24,260
Increase (Decrease) in Other Operating Assets
Increase (Decrease) in Operating Assets	170,341	(854,308)
Increase (Decrease) in Operating Liabilities
Increase (Decrease) in Accounts Payable	256,747	(32,671)
Increase (Decrease) in Accrued Liabilities	389,784	420,484
Increase (Decrease) in Operating Capital	646,531	387,813
Net Cash Provided by (Used in) Operating Activities	(154,070)	(1,094,202)
Net Cash Provided by (Used in) Investing Activities
Payments to Acquire Property, Plant, and Equipment	(89,262)	(675,999)
Net Cash Provided by (Used in) Investing Activities	(89,262)	(675,999)
Net Cash Provided by (Used in) Financing Activities
ProceedsFromRepaymentsOfBankOverdrafts	8,596	(48,744)
Proceeds from Issuance of Common Stock		71,000
Proceeds from (Repayments of) Notes Payable	230,839	1,721,263
Net Cash Provided by (Used in) Financing Activities	239,435	1,743,519
Cash and Cash Equivalents, Period Increase (Decrease)	(3,897)	(26,682)
Cash and Cash Equivalents, at Carrying Value	4,196	27,241
Cash and Cash Equivalents, at Carrying Value	$ 299	$ 559

XML

Nature of Operations

9 Months Ended

Sep. 30, 2016

Notes

Nature of Operations

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 8 K 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 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.

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 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.” 

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.  

XML

Basis of Accounting

9 Months Ended

Sep. 30, 2016

Notes

Basis of Accounting

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 10 Q.  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 10 K.  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 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 six 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 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	(25,000)
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	$               (1,123,352)
	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 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, 2011.  The Company is current on its federal and state tax returns.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported income, total assets, or stockholders’ equity as previously reported.

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.

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Loans, Notes, Trade and Other Receivables Disclosure

9 Months Ended

Sep. 30, 2016

Notes

Loans, Notes, Trade and Other Receivables Disclosure

NOTE 3 – ACCOUNTS AND NOTES RECEIVABLE 

	September 30, 2016	December 31, 2015
Accounts Receivable Trade	$                       508,858	$                         481,699
Less Reserve for uncollectable accounts	(7,000)	(7,000)
Accounts Receivable (Net)	$                         501,858	$                        474,699

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Cost-method Investments, Description

9 Months Ended

Sep. 30, 2016

Notes

Cost-method Investments, Description

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

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Inventory Disclosure

9 Months Ended

Sep. 30, 2016

Notes

Inventory Disclosure

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	$                      1,013,790	$                      1,207,409

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Property, Plant and Equipment Disclosure

9 Months Ended

Sep. 30, 2016

Notes

Property, Plant and Equipment Disclosure

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

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Accounts Payable and Accrued Liabilities Disclosure

9 Months Ended

Sep. 30, 2016

Notes

Accounts Payable and Accrued Liabilities Disclosure

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

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Debt Disclosure

9 Months Ended

Sep. 30, 2016

Notes

Debt Disclosure

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 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 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 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.  Aas 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.

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:
Derivative Liability Peak One Investments	$        56,550	$            0

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Commitments and Contingencies Disclosure

9 Months Ended

Sep. 30, 2016

Notes

Commitments and Contingencies Disclosure

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.

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.

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Note 10 - Capital Stock Transactions

9 Months Ended

Sep. 30, 2016

Notes

Note 10 - Capital Stock Transactions

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 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.

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.

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.

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.

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 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.

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Related Party Transactions Disclosure

9 Months Ended

Sep. 30, 2016

Notes

Related Party Transactions Disclosure

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.

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.

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Subsequent Events

9 Months Ended

Sep. 30, 2016

Notes

Subsequent Events

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.

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Basis of Accounting: Use of Estimates, Policy (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Use of Estimates, Policy

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.

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Basis of Accounting: Cash and Cash Equivalents, Policy (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Cash and Cash Equivalents, Policy

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.

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Basis of Accounting: Accounts Receivable (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Accounts Receivable

Accounts Receivable

We grant credit to our customers located within the United States of America; and do not require collateral. Our ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by us.  Reserves for un-collectable amounts are provided, based on past experience and a specific analysis of the accounts.  Although we expect to collect amounts due, actual collections may differ from the estimated amounts. As of 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.

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Basis of Accounting: Inventory (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Inventory

Inventory

Inventories are valued at the lower of weighted average cost or market value. Our industry experiences changes in technology, changes in market value and availability of raw materials, as well as changing customer demand. We make provisions for estimated excess and obsolete inventories based on regular audits and cycle counts of our on-hand inventory levels and forecasted customer demands and at times additional provisions are made. Any inventory write offs are charged to the reserve account. As of September 30, 2016 and December 31, 2015, we had a reserve for potentially obsolete inventory of $250,000. 

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Basis of Accounting: Property and Equipment (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets.  The cost of ordinary maintenance and repairs is charged to operations. Depreciation and amortization are computed on the straight-line method over the following estimated useful lives of the related assets:

                Furniture and fixtures                                                          3 to 7 years

                Equipment                                                                           7 to 10 years

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Basis of Accounting: Long -lived Assets (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Long -lived Assets

Long –Lived Assets

Our management assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment if any, is measured based on fair value and is charged to operations in the period in which long-lived assets impairment is determined by management. There can be no assurance however, that market conditions will not change or demand for our services will continue, which could result in impairment of long-lived assets in the future.

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Basis of Accounting: Revenue Recognition, Policy (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Revenue Recognition, Policy

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.

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Basis of Accounting: Fair Value of Financial Instruments (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Fair Value of Financial Instruments

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.

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Basis of Accounting: Comprehensive Income, Policy (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Comprehensive Income, Policy

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.

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Basis of Accounting: Net Profit (loss) Per Common Share (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Net Profit (loss) Per Common Share

Net Profit (Loss) per Common Share   

Basic profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding.  At 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. 

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Basis of Accounting: Research and Development (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Research and Development

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 six months ended September 30, 2016 and 2015. 

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Basis of Accounting: Segment Reporting, Policy (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Segment Reporting, Policy

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 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	(25,000)
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	$               (1,123,352)
	September 30, 2016
Total Assets
Electronics Assembly	$               1,382,398
Clean Energy HRS	1,698,064
	$               3,080,462

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Basis of Accounting: Compensation Related Costs, Policy (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Compensation Related Costs, Policy

Share-Based Compensation  

The Company has adopted the use of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS No. 123R) (now contained in FASB Codification Topic 718, Compensation-Stock Compensation), which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance and eliminates the alternative to use Opinion 25’s intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black-Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the “risk-free interest rate,” we use the Constant Maturity Treasury rate on 90-day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the Company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20-trading-day average. At the time of grant, the share-based compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly.  It is also adjusted to account for the restricted and thinly traded nature of the shares.  The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.

We re-evaluate the assumptions used to value our share-based awards on a 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. 

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Basis of Accounting: Income Tax, Policy (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Income Tax, Policy

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, 2011.  The Company is current on its federal and state tax returns.

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Basis of Accounting: Reclassifications (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Reclassifications

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.

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Basis of Accounting: Goodwill and Intangible Assets, Policy (Policies)

9 Months Ended

Sep. 30, 2016

Policies

Goodwill and Intangible Assets, Policy

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.

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Basis of Accounting: New Accounting Pronouncements, Policy (Policies)

9 Months Ended

Sep. 30, 2016

Policies

New Accounting Pronouncements, Policy

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.

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Basis of Accounting: Income Tax, Policy: Schedule of Deferred Tax Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2016

Tables/Schedules

Schedule of Deferred Tax Assets and Liabilities

	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)	$                            -	$                            -

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Loans, Notes, Trade and Other Receivables Disclosure: Schedule of Accounts, Notes, Loans and Financing Receivable (Tables)

9 Months Ended

Sep. 30, 2016

Tables/Schedules

Schedule of Accounts, Notes, Loans and Financing Receivable

	September 30, 2016	December 31, 2015
Accounts Receivable Trade	$                       508,858	$                         481,699
Less Reserve for uncollectable accounts	(7,000)	(7,000)
Accounts Receivable (Net)	$                         501,858	$                        474,699

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Cost-method Investments, Description: Schedule of Cost Method Investments (Tables)

9 Months Ended

Sep. 30, 2016

Tables/Schedules

Schedule of Cost Method Investments

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

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Inventory Disclosure: Schedule of Inventory, Current (Tables)

9 Months Ended

Sep. 30, 2016

Tables/Schedules

Schedule of Inventory, Current

	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	$                      1,013,790	$                      1,207,409

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Property, Plant and Equipment Disclosure: Property, Plant and Equipment (Tables)

9 Months Ended

Sep. 30, 2016

Tables/Schedules

Property, Plant and Equipment

	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

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Debt Disclosure: Other Current Liabilities (Tables)

9 Months Ended

Sep. 30, 2016

Tables/Schedules

Other Current Liabilities

	September 30, 2016	December  31, 2015
Derivative Liabilities on Convertible Loans:
Derivative Liability Peak One Investments	$        56,550	$            0

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Loans, Notes, Trade and Other Receivables Disclosure: Schedule of Accounts, Notes, Loans and Financing Receivable (Details) - USD ($)	Jun. 30, 2016	Dec. 31, 2015
Details
Accounts Receivable Trade	$ 508,858	$ 481,699
Less Reserve for uncollectable accounts	(7,000)	(7,000)
Accounts Receivable, Net	$ 501,858	$ 474,699

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Inventory Disclosure: Schedule of Inventory, Current (Details) - USD ($)	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015
Details
Inventory, Raw Materials, Gross		$ 1,173,275	$ 1,311,069
Inventory, Work in Process, Gross		88,263	143,119
Inventory, Finished Goods, Gross		2,282	3,221
Less reserve for excess or obsolete inventory		(250,000)	(250,000)
Inventory, Net	$ 1,013,820	$ 1,013,790	$ 1,207,409

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Property, Plant and Equipment Disclosure: Property, Plant and Equipment (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Details
Capital Equipment	$ 1,809,132	$ 1,842,329
Leasehold Improvements, Gross	75,436
Accumulated Depreciation	(1,654,054)	(1,626,574)
Net Fixed Assets	$ 230,514	$ 215,755

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Schedule of Accounts Payable and Accrued Liabilities (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Details
Accrued Wages	$ 506,702	$ 339,329
Accrued Interest	233,811	27,592
Customer Deposit	5,780	204,763
Payable to GE	935,450	792,868
Accrued Rent	196,456	48,190
Total Accrued Expenses	$ 1,878,199	$ 1,412,742

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Debt Disclosure: Other Current Liabilities (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Details
Derivative Liability	$ 56,550	$ 0