Clean Energy Technologies, Inc.

 

You should read this section together with our consolidated financial statements and related notes thereto included elsewhere in this report.

 

Forward-Looking Statements

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. For example, statements in this Annual Report regarding our plans, strategy and focus areas are forward-looking statements. You can identify some forward-looking statements by the use of words such as “believe,” “anticipate,” “expect,” “intend,” “goal,” “plan,” and similar expressions. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position.

 

A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to risks relating to pandemics, the ongoing war in Ukraine and the conflict in Israel and their impact on the global economy, trade tariffs and threats of trade tariffs and their impact on localized economies, our history of losses, our dependence on key members of our management and development team, and our ability to generate and/or obtain adequate capital to fund future operations.

 

For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under “Risk Factors” in our other publicly available filings with the Securities and Exchange Commission. Forward-looking statements reflect our analysis only as of the date of this Annual Report on Form 10-K.

 

Because actual events or results may differ materially from those discussed in or implied by forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statement. We do not undertake responsibility to update or revise any of these factors or to announce publicly any revision to forward-looking statements, whether as a result of new information, future events or otherwise.

 

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 8 of this Annual Report on Form 10-K.

 

Company Information

 

We were incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to Nevada in April 2005 under the name Probe Manufacturing, Inc. We manufactured electronics and provided services to original equipment manufacturers (OEMs) of industrial, automotive, semiconductor, medical, communication, military, and high technology products. On September 11, 2015 Clean Energy HRS, or “CE HRS”, our wholly owned subsidiary acquired the assets of Heat Recovery Solutions from General Electric International. In November 2015, we changed our name to Clean Energy Technologies, Inc.

 

Our principal executive offices are located at 1340 Reynolds Avenue Unit 120, Irvine, California 92614. Our common stock is listed on the NASDAQ Markets under the symbol “CETY.”

 

Our internet website address is www.cetyinc.com. The information contained on our websites are 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.

 

The Company has four reportable segments: Clean Energy HRS (HRS), CETY Renewables waste to energy solutions, engineering, procurement, construction and program management services, and CETY HK natural gas trading business.

 

We offer turnkey energy solutions leveraging our technologies and solutions to provide green energy solutions, clean energy fuels and alternative electricity. We were incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc. We redomiciled to Nevada in April 2005 under the name Probe Manufacturing, Inc. We provided engineering and manufacturing electronics services to original equipment manufacturers (OEMs) of clean energy, industrial, automotive, semiconductor, medical, communication, military, and high technology products.

 

With the vision to combat climate change and creating a better, cleaner and environmentally sustainable future, we formed Clean Energy HRS, LLC a wholly owned subsidiary of Clean Energy Technologies, Inc. and acquired the assets of Heat Recovery Solutions from General Electric International on September 11, 2015. In November 2015, we changed our name to Clean Energy Technologies, Inc. Our principal executive offices are located at 1340 Reynolds Avenue Unit 120, Irvine, CA 92614. We have 22 full-time employees. All employees and overhead are shared between Clean Energy Technologies, Inc, Clean Energy HRS, LLC, waste to energy business unit, engineering solutions, and our natural gas trading business.

 

Clean Energy Technologies, Inc. established a new company, CETY Europe, SRL (CETY Europe) as a wholly owned subsidiary. CETY Europe is a Sales and Service Center in Silea (Treviso), Italy established in 2017. The service center became operational in November 2018. Their offices are located at Alzaia Sul Sile, 26D, 31057 Silea (TV) and the have 1 full time employee.

 

Clean Energy Technologies, Inc. established a wholly owned subsidiary called CETY Capital, a financing arm of CETY to fund captive renewable energy projects producing low carbon energy. CETY Capital will add flexibility to the capacity CETY offers its customers and fund projects utilizing its products and clean energy solutions.

 

CETY Capital retains 49% ownership interest in Vermont Renewable Gas LLC established to develop a biomass plant in Vermont utilizing CETY’s High Temperature Ablative Pyrolysis system.

 

Clean Energy Technologies (H.K.) Limited., a wholly owned subsidiary of Clean Energy Technologies Inc. acquired 100% ownership of Leading Wave Limited a natural gas trading company in China.

 

The Company has four reportable segments: Clean Energy HRS (HRS) and CETY Europe, CETY Renewables, CETY HK and CETY engineering solution services division. During the reporting period, the Company made the strategic decision to discontinue its involvement in the Shuya operations, which was previously aligned under the CETY HK segment. This decision reflects a broader effort to sharpen the Company’s focus on its core competencies and highest-value opportunities in waste-to-energy, heat recovery, and eco-friendly energy solutions.

 

Business Overview

 

General

 

The Company’s business and operating results are directly affected by changes in overall customer demand, operational costs and performance and leverage of our fixed cost and selling, general and administrative (“SG&A”) infrastructure.

 

Product sales fluctuate in response to several factors including many that are beyond the Company’s control, such as general economic conditions, interest rates, government regulations, consumer spending, labor availability, and our customers’ production rates and inventory levels. Product sales consist of demand from customers in many different markets with different levels of cyclicality and seasonality.

 

 

Operating performance is dependent on the Company’s ability to manage changes in input costs for items such as raw materials, labor, and overhead operating costs. Performance is also affected by manufacturing efficiencies, including items such as on time delivery, quality, scrap, and productivity. Market factors of supply and demand can impact operating costs

 

Who We Are

 

We provide turnkey energy solutions leveraging our technologies, including power generation, heat recovery, and waste to energy to deliver green energy solutions, clean energy fuels, and alternative electricity to small and midsize projects in North America, Europe, and ASEAN markets that make environmental and economic sense. Our mission is to be a segment leader in the Zero Emission Revolution by offering eco-friendly energy solutions for a sustainable future. We target sustainable energy solutions that are profitable for us, profitable for our customers and represent the future of global energy production.

 

Our principal businesses

 

Waste Heat Recovery Solutions – we recycle wasted heat produced in manufacturing, waste to energy and power generation facilities using our patented Clean Cycle^TM generator to create electricity which can be recycled or sold to the grid.

 

Waste to Energy Solutions - we convert waste products created in manufacturing, agriculture, wastewater treatment plants and other industries to electricity, renewable natural gas (“RNG”), hydrogen and bio char which are sold or used by our customers.

 

Engineering, Consulting and Project Management Solutions – we bring a wealth of experience in developing clean energy projects for municipal and industrial customers and Engineering, Project Development companies so they can identify, design, and incorporate clean energy solutions in their projects.

 

CETY HK

 

Clean Energy Technologies (H.K.) Limited (“CETY HK”) consists of a ventures in mainland China: (i) our natural gas (“NG”) trading operations sourcing and suppling NG to industries and municipalities. The NG is principally used for heavy truck refueling stations and urban or industrial users. We purchase large quantities of NG from large wholesale NG depots at fixed prices which are prepaid for in advance at a discount to market. We sell the NG to our customers at prevailing daily spot prices for the duration of the contracts.

 

Business and Segment Information

 

We design, produce and market clean energy products and integrated solutions focused on energy efficiency and renewable energy. Our aim is to become a leading provider of renewable and energy efficiency products and solutions by helping commercial companies and municipalities reduce energy waste and emissions, lower energy costs and generate incremental revenue by providing electricity, renewable natural gas, hydrogen and biochar to the grid.

 

Segment Information

 

Our four segments for accounting purposes are:

 

Clean Energy HRS & CETY Europe – Our Waste Heat Recovery Solutions, converting thermal energy to zero emission electricity.

 

CETY Renewables Waste to Energy Solutions – Providing Waste to Energy technologies and solutions.

 

Engineering and Manufacturing Business – Providing customers with comprehensive design, manufacturing, and project management solutions.

 

CETY HK – The parent company of our NG trading operations in China. Prior to the first quarter of 2022, the Company had three reportable segments but added the CETY HK segment to reflect its recent new businesses in China.

 

 

Summary of Operating Results for the year ended December 31, 2024 (Restated), Compared to the year ended December 31, 2023 (Restated)

 

Going Concern

 

The financial statements have been prepared on a 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 equity of $1,897,145 and a working capital deficit of $3,478,090 and an accumulated deficit of $28,480,730 as of December 31, 2024 and used $3,560,951 in net cash from operating activities for the year ended December 31, 2024. CETY has a clear strategy in place and has the capability to successfully restructure its existing debt and secure additional financing. With its current strategic approach and diversification of its products and solutions, the management has created a favorable environment for the company to transition towards profitability.

 

For the fiscal year closing on December 31, 2024, our company reported a net loss amounting to $4,550,296, to the net loss of $5,734,071 before non-controlling interest and tax we achieved during the equivalent period in 2023. CETY’s net loss was impacted by a shift in our revenue mix, with lower business from China, which historically had lower margins, and an increasing focus on higher-margin opportunities from our waste-to-energy business. Additionally, while interest and financing fees were lower compared to previous periods, they remained high due to delays in our registration becoming effective. These factors contributed to the overall financial performance for the period.

 

Following the close of the 2024 fiscal year, CETY’s equity saw a significant decrease, dropping from $4,208,460 to $1,897,145, as reflected in our quarterly financials. This decline was primarily driven by ongoing investments in our waste-to-energy business, the impact of lower-margin revenue from China, and continued financing costs. Despite this, our strategic focus on higher-margin opportunities positions us for stronger long-term growth and improved financial performance.

 

The financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business. As of December 31, 2024, the Company had stockholders’ equity of $1,897,145, a working capital deficit of $3,478,090, and an accumulated deficit of $28,480,730. The Company also reported net cash used in operating activities of $3,560,951 for the year ended December 31, 2024. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

 

During 2024 and continuing into 2025, the Company’s financial condition and operating results were adversely impacted by several factors, including continued financing and interest-related costs, delays associated with financing and registration effectiveness, lower-margin revenue contributions from certain operations, ongoing investments in strategic waste-to-energy initiatives, and accounting adjustments and restatement-related impacts associated with prior period activities and financial reporting reviews.

 

Management has implemented and continues to pursue multiple initiatives intended to improve liquidity and operating performance. These initiatives include restructuring certain existing obligations, pursuing additional equity and strategic financing opportunities, reducing operating costs where appropriate, focusing on higher-margin waste-to-energy and heat recovery opportunities, advancing strategic commercial projects, and pursuing operational efficiencies across the organization. Management is also actively evaluating strategic partnerships, project-level financing opportunities, and other capital formation initiatives intended to support the Company’s long-term business objectives.

 

For the fiscal year ended December 31, 2024, the Company reported a net loss of $4,550,296 compared to a net loss of $5,734,071 for the prior year period. While management believes the actions presently being taken provide a path toward improving liquidity and operating performance, such plans are subject to various risks and uncertainties, and there can be no assurance that such efforts will be successful or sufficient to alleviate substantial doubt regarding the Company’s ability to continue as a going concern.

 

Accordingly, the accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

RELATED PARTY TRANSACTIONS

 

See note 12 to the notes to the financial statements for a discussion on related party transaction

 

Results for the year ended December 31, 2024 (Restated), compared to the year ended December 31, 2023 (Restated).

 

Net Sales

 

For the year ending December 31, 2024, our total revenue was $2,424,659 compared to $6,693,844 for the same period in 2023. The Company has four reportable segments: CETY Renewables division, Clean Energy HRS (HRS) and CETY Europe, the engineering and program management services division, and CETY HK.

 

Segment Breakdown

 

For the fiscal year ending December 31, 2024, our revenue from Engineering and Manufacturing amounted to $9,341, a decrease from $47,091 for the corresponding period in 2023. This decline is due to the gradual shutdown of our legacy manufacturing operations and the strategic reallocation of resources towards becoming a turnkey provider of technology energy solutions, thus enhancing support for our other advanced technology segments. Going forward, our power generation site design and integration for data centers and industrial operations will be assigned to this segment.

 

For the year ended December 31, 2024, our revenue from HRS was $158,141 compared to $497,584 for the same period in 2023. The decrease in revenue for Heat Recovery Solutions (HRS) and ORC systems in 2024 compared to 2023 was primarily due to project delays and longer sales cycles associated with supply chain disruptions and extended customer decision-making processes. Additionally, some key contracts that were expected to close in 2024 were pushed into 2025 due to permitting and financing challenges faced by customers. The lower revenue also reflects a strategic shift toward larger-scale projects, which have longer development timelines but are expected to generate higher future revenues.

 

For the fiscal year ending December 31, 2024, our revenue from CETY Renewables, our newly launched waste-to-energy business, amounted to $1,064,757 compared to $429,999 for the same period in 2023. The increase in revenue from CETY Renewables in 2024 compared to 2023 was primarily driven by the continued development and progress of the VRG project, which advanced through critical permitting and early-stage construction design phases. The rise in revenue also aligns with our strategic efforts to scale operations and establish a stronger market presence in the renewable energy sector.

 

For the fiscal year ending December 31, 2024, our revenue from the NG business reached $1,192,420, a significant drop from $5,719,170 in the corresponding period of 2023. The decline in revenue from our NG business in 2024 compared to 2023 was primarily due to lower demand in China, driven by economic factors and shifts in energy consumption patterns. Additionally, increased competition and more competitive pricing in the market pressured margins, leading to a significant drop in revenue. These factors contributed to a slower sales cycle and reduced order volume compared to the previous year.

 

Gross Profit

 

For the year ending December 31, 2024, our gross profit increased to $846,555 compared to $460,835 for the same period in 2023. This growth was achieved despite a significant decline in revenue, primarily due to the slowdown in CETY HK’s natural gas business. The increase in gross profit reflects improved operational efficiencies and a stronger revenue mix from higher-margin segments, including CETY Renewables. However, the overall gross margin percentage declined, largely due to the lower-margin nature of the China natural gas business and increased competition in that market. Moving forward, we remain focused on expanding our higher-margin renewable energy and waste-to-energy solutions to drive sustainable profitability.

 

 

Segment Breakdown

 

For the year ended December 31, 2024, our gross profit from HRS was $19,206 compared to $157,178 for the same period in 2023; This decrease was primarily due to delays in booking and shipping products, as customers were evaluating their sites and waiting for clarity on economic factors driven by the U.S. government’s pending tax incentive programs and the release of new guidelines at the end of 2024, compounded by the election year uncertainties.

 

For the year ended December 31, 2024, our gross profit from CETY Renewables increased to $829,784, compared to $355,234 for the same period in 2023. This growth reflects the expansion of our higher-margin waste-to-energy business, which in 2024 consisted of engineering, project development, and services with minimal material costs. The strong profitability of this segment underscores our strategic focus on delivering turnkey renewable energy solutions that generate long-term value while maintaining a lean cost structure.

 

For the year ended December 31, 2024, our gross profit from CETY HK improved to $(6,195), compared to $(35,378) for the same period in 2023. While overall market conditions for the natural gas business in China remained challenging, we were able to mitigate some losses through operational efficiencies and pricing adjustments.

 

For the year ended December 31, 2024, our gross profit from PMI amounted to $7,806, compared to $(16,199) for the same period in 2023. This segment is a recent addition to CETY’s portfolio, currently serving as a support for our ongoing internal projects. Nevertheless, it is anticipated to expand notably as CETY shifts its focus towards providing comprehensive end-to-end power generation and integrated solutions.

 

Selling, General and Administrative (SG&A) Expenses

 

For the year ending December 31, 2024, our Selling, General, and Administrative (SG&A) expenses increased to $1,015,102, compared to $679,004 in 2023. This increase was primarily driven by expanded investments in Media and Investor Relations, marketing efforts, and sales initiatives aimed at supporting business growth. Increased spending on subscription services and IT infrastructure. Furthermore, the rise in SG&A includes expenses related to inducement shares issued in connection with inducement shares for various notes, contributing to the overall increase in administrative costs.

 

Salary Expense

 

For the fiscal year ending December 31, 2024, our total salaries increased to $1,906,701, compared to $1,570,909 in 2023. This increase was primarily driven by the expansion of our CETY Renewables team to support the growth of our waste-to-energy business, as well as salary increases in our China operations. These strategic investments in personnel were necessary to strengthen our capabilities, drive project execution, and support long-term business expansion.

 

Travel Expense

 

For the year ending December 31, 2024, our travel expenses totaled $185,876, compared to $247,124 for the same period in 2023. This reduction in expenditure is primarily due to a decrease in travel costs from both the US and Europe.

 

Facility Lease Expense

 

For the fiscal year ending December 31, 2024, our Facility Lease expense amounted to $285,823, a slight decrease from $310,004 in 2023. This reduction reflects our ongoing efforts to lower lease costs through renegotiations and our focus on more efficient operations. We have continuously worked to optimize our space utilization and streamline processes, contributing to this modest reduction in lease expenses.

 

Consulting Expense

 

For the fiscal year ending December 31, 2024, our total expenses for Investor Relations (IR), marketing, and contractors related to the VRG project were $195,640, compared to $196,301 for the same period in 2023. This represents a very slight decrease in expenses, reflecting our continued focus on cost management while maintaining efforts to support the VRG project.

 

Bad Debt

 

For the year ended December 31, 2024, our bad debt expense was $217,584 compared to $0 for the same period in 2023.

 

Depreciation and Amortization Expense

 

For the year ended December 31, 2024, our depreciation and amortization expense was $8,907 compared to $26,692 for the same period in 2024.

 

 

Professional fees legal and accounting

 

For the fiscal year ending December 31, 2024, our Professional Fees expense amounted to $578,937, up from $356,785 in the same period of 2023. This increase was primarily due to higher costs associated with engaging a new auditor, as well as the increased expenses tied to our status as a Nasdaq-listed company and expenses associated with our SEC filings.

 

Net (Loss) from operations

 

For the fiscal year ending December 31, 2024, our net loss from operations totaled $3,330,431, an increase compared to the net loss of $2,925,984 for the same period in 2023. This rise in loss is primarily due to the expansion of our team, our uplisting to Nasdaq, and the growth of our global business operations, as well as a decline in revenue from our NG business. Although revenue dropped substantially, our net loss remained relatively close to the losses incurred in 2023, reflecting our efforts to manage costs despite the challenges.

 

Change in Derivative Liability

 

For the year ended December 31, 2024, we had $0 compared to loss on derivative liability of $326,539 for the same period in 2023. The decrease in loss on derivative liability was due to maturity date and expiration of the notes.

 

Change in FV of warrant liability

 

For the year ended December 31, 2024 and 2023, we had $26,596 and nil gain on warrant liability related to Equity Line of Credit Agreement entered December 5, 2024.

 

Gain on debt settlement and write off

 

For the year ended December 31, 2024, we recorded gain of $8,135, compared to a loss of $1,124,654 for the same period in 2023. The loss in 2024 was primarily attributable to the deconsolidation of Shuya, while the 2023 loss was due to the fair market valuation of preferred shares.

 

Interest Income

 

For the year ended December 31, 2024, interest income from Florya associated with long-term financing receivable totaled $53,153 compared to $48,595 for the same period in 2024.

 

Interest and Finance Fees

 

For the year ended December 31, 2024, interest and finance fees totaled $1,199,042, compared to $2,137,649 for the same period in 2023. The decrease was primarily due to a reduction in convertible notes, bridge financing fees, and interest. However, we still incurred significant financing fees and higher interest costs due to delays in our registration statement becoming effective, delays in funding, and the need to rely on more expensive debt during the year.

 

Liquidity and Capital Resources

 

Cash Flow Summary

For the years ended December 31,

 

	2024			2023
Net Cash used in operating activities	$	(3,560,951	)	$	(4,783,077	)
Cash flows used in investing activities		161,240			(318,602	)
Cash flows provided by financing activities		3,373,903			5,096,483
Net decrease in cash and cash equivalents	$	(27,525	)	$	25,580

 

 

Capital Requirements for long-term obligations

 

The following table presents the Company’s material contractual obligations as of December 31, 2024:

 

Contractual Obligations	Total		Less than 1 year		1–3 years
Operating lease obligations	$	168,608	$	130,483	$	38,125
	$	168,608	$	130,483	$	38,125

 

None.

 

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.

 

Revenue Recognition

 

The Company recognizes revenue under ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASC 606”).

 

Performance Obligations Satisfied Over Time

 

FASB ASC 606-10-25-27 through 25-29, 25-36 through 25-37, 55-5 through 55-10

 

An entity transfers control of a good or service over time and satisfies a performance obligation and recognizes revenue over time if one of the following criteria is met:

 

a. The customer receives and consumes the benefits provided by the entity’s performance as the entity performs (as described in FASB ASC 606-10-55-5 through 55-6).

b. The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced (as described in FASB ASC 606-10-55-7).

c. The entity’s performance does not create an asset with an alternative use to the entity (see FASB ASC 606-10-25-28), and the entity has an enforceable right to payment for performance completed to date (as described in FASB ASC 606-10-25-29).

 

The following five steps are applied to achieve that core principle for our business:

 

●	Identify the contract with the customer
●	Identify the performance obligations in the contract
●	Determine the transaction price
●	Allocate the transaction price to the performance obligations in the contract
●	Recognize revenue when the company satisfies a performance obligation

 

Performance Obligations Satisfied at a Point in Time

 

FASB ASC 606-10-25-30

 

If a performance obligation is not satisfied over time, the performance obligation is satisfied at a point in time. To determine the point in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation, the entity should consider the guidance on control in FASB ASC 606-10-25-23 through 25-26. In addition, it should consider indicators of the transfer of control, which include, but are not limited to, the following:

 

a. The entity has a present right to payment for the asset

b. The customer has legal title to the asset

c. The entity has transferred physical possession of the asset

d. The customer has the significant risks and rewards of ownership of the asset

e. The customer has accepted the asset

 

The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. In addition a) the company also does not have an alternative use for the asset if the customer were to cancel the contract, and b) has a fully enforceable right to receive payment for work performed (i.e., customers are required to pay as various milestones and/or timeframes are met)

 

 

The following five steps are applied to achieve that core principle for our HRS and CETY Europe Divisions:

 

●	Identify the contract with the customer
●	Identify the performance obligations in the contract
●	Determine the transaction price
●	Allocate the transaction price to the performance obligations in the contract
●	Recognize revenue when the company satisfies a performance obligation

 

The following steps are applied to our legacy engineering and manufacturing division:

 

●	We generate a quotation
●	We receive Purchase orders from our customers.
●	We build the product to their specification
●	We invoice at the time of shipment
●	The terms are typically Net 30 days

 

The following step is applied to our CETY HK business unit:

 

●	CETY HK is primarily responsible for fulfilling the contract / promise to provide the specified good or service.

 

A principal obtains control over any one of the following (ASC 606-10-55-37A):

 

a.	A good or another asset from the other party which the entity then transfers to the customer. Note that momentary control before transfer to the customer may not qualify.
b.	A right to a service to be performed by the other party, which gives the entity the ability to direct that party to provide the service to the customer on the entity’s behalf.
c.	A good or service from the other party that it then combines with other goods or services in providing the specified good or service to the customer.

 

If the entity obtains control over one of the above before the good or service is transferred to a customer, the entity could be considered a principal.

 

During the project development and engineering phase of our CETY Renewable projects such as VRG, we employ the input method of revenue recognition to estimate revenue based on projected costs. This approach involves forecasting future costs and revenues to determine the amount of revenue we recognize in the current period. It’s important to understand, however, that these recognized revenue figures are not final and are subject to adjustments. Changes may occur as we gain more clarity on actual costs compared to our initial projections, affecting the revenue recognized accordingly.

 

The projected costs of the VRG project is based on estimates and profitability will be impacted depending on actual costs. Using the input method for revenue recognition, the amount of recorded revenue is also affected depending on the estimated total costs. The purchase price allocation for Shuya was also based on estimates and comparable data selected by the Company. The inputs for the valuation of the Series E preferred shares were also based on estimates and comparable data selected by the Company.

 

Additionally, the above five steps are applied to achieve core principle for our CETY Renewables Division:

 

Because the CETY Renewables division is presently engaged in the Engineering, Procurement, and Construction (EPC) of biomass power facilities, CETY Renewables has developed a process of executing EPC Agreements with customers for this work. In contracting these engagements, CETY Renewables recognizes revenue according to accounting standards in accordance with ASC 606.

 

In recognizing this revenue, CETY Renewables first identifies the relevant contract with its customer according to 606-10-25-1.

 

●	The entities, together known as the Parties, approved the contract in writing, through signatures and commitment to the performance of permitting, design, procurement, construction, and commissioning.

 

●	CETY’s work product includes permits, engineering designs, equipment, and full balance of plant specific to permitting, design, procurement, construction, and commissioning.

 

●	CETY and customer agree to a total EPC Contract price.

 

●	The contract has commercial substance. The risk associated with this EPC Agreement is that payment of the EPC contract price.

 

●	Per the EPC Agreement, CETY expects to collect substantially all of the consideration for its goods and services.

 

Secondly, CETY identifies the performance obligations of the Parties in performance of the EPC Agreement in accordance with 606-10-25-14. At contract inception, CETY assesses the goods and services necessary to deliver the facility in accordance with the agreement with its clients. The agreement specifically laid out all deliverables necessary to achieve the permitting, design, procurement, construction, and commissioning.

 

CETY also looks at 606-10-25-14(A). A bundle of goods or services is also present, in that CETY is delivering all work products associated with permitting, design, procurement, construction and commissioning of a commercially operable biomass power plant. A biomass power plant is a distinct bundle of goods or services, so the individual goods or services on their own do not lend themselves to a fully integrated or functional system.

 

CETY in accordance with 606-10-32-1, CETY reviews measurement of the performance obligations. There are no exclusion of any amount of the Contract Price due to constraints associated with 606-10-31-11 through 606-10-32-13.

 

 

In review of 606-10-32-2A, CETY did not exclude measurement from the measurement of the transaction price any taxes assessed by a government authority as no such taxes will be due.

 

In reviewing 606-10-32-3, CETY evaluated the nature, timing, and amount of consideration promised, and whether it impacts the estimate of the transaction price.

 

Finally, in identifying a single method of measuring progress for each performance obligation satisfied over time, in accordance with 606-10-25-32, CETY applies the methodology of 606-10-25-36. CETY adopted and implemented the input method for revenue recognition in accordance with ASC 606-10-25-33. The company adopts the input method for implementation. CETY recognizes revenue for performance obligations on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation per 606-10-55-20.

 

For CETY, the contracts with clients for the construction of biomass power plants are the basis for revenue recognition. In each separate EPC Agreement, the performance obligations include permitting, design, procurement, construction, and commissioning of the plant. All of these work products satisfy Section 606-10-25-27(b) as these work products create or enhance an asset under customer’s control. Upon delivery of the work product, the customer takes control of the work products and has full right and ability to direct the use of and obtain substantially all of the remaining benefits of the assets. We recognize revenue over time, using timeline and milestone methods to measure progress towards complete satisfaction of the performance obligation.

 

During the complexity and duration of the biomass power plant construction projects, CETY will recognize revenue over time, consistent with the criteria for over-time recognition under ASC 606. This approach reflects the continuous transfer of documents, permits, and the equipment over to the customer, which is characteristic of long-term construction contracts.

 

We have a list of appropriate measures of progress: This is based on milestones achieved, among other measures.

 

Given the long-term nature of the projects, CETY regularly reviews and, if necessary, updates its estimates of progress towards completion, transaction price, and the allocation of the transaction price to performance obligations.

 

Also, from time-to-time, our contracts state that the customer is not obligated to pay a final payment until the units are commissioned, i.e. a final payment of 10%. As of December 31, 2024 and 2023 we had $33,000 and $33,000 of deferred revenue, which is expected to be recognized in the second quarter of year 2025.

 

Also, from time-to-time, we require upfront deposits from our customers based on the contract. As of December 31, 2024 (Restated) and 2023, we had outstanding customer deposits of $172,061 and $307,236, respectively.

 

Change from fair value or equity method to consolidation

 

In July 2022, JHJ and other three shareholders agreed to form and make total capital contribution of RMB 20 million ($2.81 million) with latest contribution due date in February 2066 into Sichuan Hongzuo Shuya Energy Limited (“Shuya”), JHK owns 20% of Shuya. In August 2022, JHJ purchased 100% ownership of Sichuan Shunengwei Energy Technology Limited (“SSET”) for $0, who owns 29% of Shuya; Shunengwei is a holding company and did not have any operations nor made any capital contribution into Shuya as of the ownership purchase date by JHJ; right after the ownership purchase of SSET, JHJ ultimately owns 49% of Shuya.

 

Shuya was set up as the operating entity for pipeline natural gas (PNG) and compressed natural gas (CNG) trading business, while the other two shareholders of Shuaya have large supply relationships.

 

For the year ended December 31, 2022, the Company has determined that Shuya was not a VIE and has evaluated its consolidation analysis under the voting interest model. Because the Company does not own greater than 50% of the outstanding voting shares, either directly or indirectly, it has accounted for its investment in Shuya under the equity method of accounting. Under this method, the investor (“JHJ”) recognizes its share of the profits and losses of the investee (“Shuya”) in the periods when these profits and losses are also reflected in the accounts of the investee. Any profit or loss recognized by the investing entity appears in its income statement. Also, any recognized profit increases the investment recorded by the investing entity, while a recognized loss decreases the investment.

 

JHJ made a investment of RMB 3.91 million ($0.55 million) into Shuya during the 12 months ended December 31, 2022 recorded in accordance with ASC 323. Shuya had a net loss of approximately $10,750 during the year ending December 31, 2022, of which approximately $5,000 was allocated to the company, reducing the investment by that amount.

 

However, effective January 1, 2023, JHJ, SSET and Chengdu Xiangyueheng Enterprise Management Co., Ltd (“Xiangyueheng), who is the 10% shareholder of Shuya, entered a Three-Parties Consistent Action Agreement, wherein these three shareholders (or three parties) will guarantee that the voting rights will be expressed in the same way at the shareholders’ meeting of Shuya to consolidate the controlling position of the three parties in Shuya. The three parties agree that within the validity period of this agreement, before the party intends to propose the motions to the shareholders or the board of directors on the major matters related to the voting rights of the shareholders or the board of directors, the three parties internally will discuss, negotiate and coordinate the motion topics for consistency; in the event of disagreement, the opinions of JHJ shall prevail.

 

 

As a result of Consistent Action Agreement, the Company re-analyzed and determined that Shuya is the variable interest entity (“VIE”) of JHJ because 1) the equity investors at risk, as a group, lack the characteristics of a controlling financial interest, and 2) Shuya is structured with disproportionate voting rights, and substantially all of the activities are conducted on behalf of an investor with disproportionately few voting rights. Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The Company concluded JHJ is deemed the primary beneficiary of the VIE. Accordingly, the Company consolidates Shuya effective on January 1, 2023.

 

The change of control interest was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification, referred to as ASC, 805, Business Combinations. The management determined that the Company was the acquiror for financial accounting purposes. In identifying the Company as the accounting acquiror, the companies considered the structure of the transaction and other actions contemplated by the Three-Parties Consistent Action Agreement, relative outstanding share ownership and market values, the composition of the combined company’s board of directors, the relative size of Shuya, and the designation of certain senior management positions of the combined company.

 

In accordance with ASC 805, the Company recorded the acquisition based on the fair value of the consideration transferred and then allocated the purchase price to the identifiable assets acquired and liabilities assumed based on their respective fair values as of the Acquisition Date. The excess of the value of consideration transferred over the aggregate fair value of those net assets was recorded as goodwill. Any identified definite lived intangible assets will be amortized over their estimated useful lives and any identified intangible assets with indefinite useful lives and goodwill will not be amortized but will be tested for impairment at least annually. All intangible assets and goodwill will be tested for impairment when certain indicators are present. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates, and selection of comparable companies. The valuation of purchase considerations was based on preliminary estimates that management believes are reasonable under the circumstances.

 

As the Consistent Action Agreement did not quantify any considerations to gain the control, the deemed consideration paid is the fair value of 51% non-controlling interest as of January 1, 2023. The following table summarizes the fair value of the consideration paid and the fair value of assets acquired, and liabilities assumed on January 1, 2023, the acquisition date.

 

Fair value of non-controlling interests	$	650,951
Fair value of previously held equity investment		556,096
Subtotal	$	1,207,047
Recognized value of 100% of identifiable net assets		(1,207,047	)
Goodwill Recognized	$	-
Recognized amounts of identifiable assets acquired and liabilities assumed (preliminary):
Inventories	$	516,131
Cash and cash equivalents		50,346
Trade and other receivables		952,384
Advanced deposit		672,597
Net fixed assets		6,704
Trade and other payables		(1,021,897	)
Advanced payments		(5,317	)
Salaries and wages payables		(4,692	)
Other receivable		40,791
Total identifiable net assets	$	1,207,047

 

 

Under ASC-805-10-50-2, initial consolidation of an investee previously reported using fair value or the equity method should be accounted for prospectively as of the date the entity obtained a controlling financial interest. Therefore, the Company should provide pro forma information as if the consolidation had occurred as of the beginning of each of the current and prior comparative reporting period per

 

On January 1, 2024, and effective on the same date, JHJ, SSET and Xiangyueheng entered into the Agreement on the Termination of the Concerted Action Agreement (the “Termination Agreement”), pursuant to which the parties released each other from any and all obligations under the CAA. Due to the Termination Agreement, the Company now holds less than 50% of the voting rights in Shuya. The Company analyzed whether Shuya should be consolidated under ASC 810 and determined Shuya is no longer required to be consolidated on January 1, 2024 after the execution of the Termination Agreement. Accordingly, the Company will not consolidate Shuya into its consolidated financial statements on or after January 1, 2024.

 

Series E Valuation

 

Additionally, the inputs for the valuation of the Series E preferred shares were also based on estimates and comparable data selected by the Company and fair value measurements, furthermore, the purchase price allocation was based on estimates of fair market values.

 

Future Financing

 

We will continue to rely on equity sales of our common shares to continue to fund our business operations. Issuances of additional shares will 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 planned acquisitions and exploration activities.

 

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.

 

Recently Issued Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial position or results of operations upon adoption.