Clean Energy Technologies, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read this section together with our consolidated financial statements and related notes thereto included elsewhere in this report. Restatement of Previously Issued Financial Statements The following discussion and analysis of our financial condition and results of operations reflects the restatement of our previously issued consolidated financial statements as of and for the year ended December 31, 2024. As described in Note 19 to the consolidated financial statements included in Item 8 of this Annual Report, and as previously disclosed in Amendment No. 3 to our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission on June 4, 2026 (the “2024 Form 10-K/A”), we identified historical accounting errors during the preparation of our consolidated financial statements for the year ended December 31, 2025 relating primarily to the classification, valuation, and collectability of long-term financing receivables and contract assets; the timing of revenue recognition and recognition of related interest income; and the accounting for warrant transactions. The Company concluded, in accordance with Staff Accounting Bulletin No. 99 and No. 108, that the errors were material to its previously issued consolidated financial statements for the years ended December 31, 2024 and 2023, and accordingly restated those financial statements. All references in this Management’s Discussion and Analysis to financial information for the year ended December 31, 2024 are to the restated amounts. The Company also amended its Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2025, June 30, 2025, and September 30, 2025 to restate the financial statements included in those Quarterly Reports. This Item 7 should be read in conjunction with the restated consolidated financial statements and related notes included in Item 8, and with Note 19. 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. 37 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 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. 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 dispose of its Shuya interests in China. 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. We offer turnkey energy solutions leveraging our technologies and solutions to provide green energy solutions, clean energy fuels and alternative electricity. We provide 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 they 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. 38 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 stored 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 biochar 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. 39 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, 2025, compared to the year ended December 31, 2024 (Restated) 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 equity of $6,246,597 and a working capital of $260,863 and an accumulated deficit of $35,299,999 as of December 31, 2025 and used $7,922,347 in net cash from operating activities for the year ended December 31, 2025. Management’s plans to alleviate the conditions raising substantial doubt about the Company’s ability to continue as a going concern include obtaining additional debt and equity financing, including efforts to restructure certain existing debt obligations through capital raising activities in the equity markets. The Company is also pursuing strategic partnerships, joint ventures, and other business opportunities, including collaborations with parties such as Exergy and Metis Power, to support project development, execution, and access to capital. In addition, management continues to pursue project-level financing for development projects, including the Vermont Renewable Gas project and other clean energy initiatives. The Company is also implementing cost-reduction initiatives within its Heat Recovery Solutions business, including utilizing Sagacity as a supply chain partner to improve operating efficiencies and reduce procurement and manufacturing costs. Management continues to focus on generating revenue and cash flow from existing operations, project development activities, and strategic growth opportunities while preserving liquidity and managing operating expenses. While management believes these plans are achievable, there can be no assurance that such plans will be successfully implemented or that the Company will attain profitable operations and positive cash flows. The company reported a net loss of $6,808,895, for the year ended December 31, 2025, compared to a net loss of $4,550,296 for the same period in 2024 (Restated) before non-controlling interest and tax we achieved during the equivalent period in 2024 (Restated). The increase in net loss was primarily attributable to the write-off of the LWL-related asset in China, as well as substantial interest and financing expenses associated with convertible notes during the period. 40 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, 2025, compared to the year ended December 31, 2024 (Restated). Net Sales For the year ending December 31, 2025, our total revenue was $2,161,626 compared to $2,424,659 for the same period in 2024. The Company has four reportable segments: CETY Renewables division, Clean Energy HRS (HRS), the engineering and integrated solutions division, and CETY HK. Segment Breakdown For the fiscal year ended December 31, 2025, the Company reported engineering services revenue of $0. During the year, the Company integrated its engineering services into its Heat Recovery Solutions (HRS) and Waste-to-Energy business segments, compared to 2024 when such services were reported separately as $9,341. Going forward, engineering services will be recognized within each respective operating segment and reported accordingly. For the year ended December 31, 2025, our revenue from HRS was $503,878 compared to $158,141 for the same period in 2024. The increase in revenue for Heat Recovery Solutions (HRS) and ORC systems in 2025 compared to 2024 was primarily due to higher project activity, including the advancement and execution of customer projects, as well as improved timing of revenue recognition on engineering and system delivery milestones. For the fiscal year ending December 31, 2025, our revenue from CETY Renewables, our newly launched waste-to-energy business, amounted to $484,955 compared to $1,064,757 for the same period in 2024. The decrease in revenue from CETY Renewables in 2025 compared to 2024 was primarily attributable to the timing of project execution and revenue recognition, including a longer-than-anticipated review process by the Public Utility Commission (PUC) for the VRG project, which delayed the advancement of certain project milestones. The Company continues to make progress on its development pipeline and expects activity to increase as projects move forward. For the fiscal year ending December 31, 2025, our revenue from the NG business reached $1,172,793, compared to $1,192,420 in the corresponding period of 2024. The variance reflects relatively consistent performance year over year. Gross Profit For the year ending December 31, 2025, our gross profit increased to $595,568 compared to $846,555 for the same period in 2024. The increase was primarily driven by the sale of systems with higher margins, as well as improved cost efficiencies. Segment Breakdown For the year ended December 31, 2025, our gross profit from Engineering and Manufacturing amounted to $0, compared to $7,806 for the same period in 2024. 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. For the year ended December 31, 2025, our gross profit from HRS was $386,069 compared to $15,160 for the same period in 2024; The increase was primarily driven by higher revenue volumes and improved margins on system sales, reflecting a more favorable project mix and execution during the year. 41 For the year ended December 31, 2025, our gross profit from CETY Renewables decreased to $157,405, compared to $829,784 for the same period in 2024. Gross profit in both periods reflects work performed during the engineering and development phase of projects, which typically carries higher margins relative to later-stage execution activities. For the year ended December 31, 2025, our gross profit from CETY HK improved to $52,094, compared to $(6,195) for the same period in 2024. The improvement was primarily attributable to more stable operations and improved margins within the natural gas trading business in China. Selling, General and Administrative (SG&A) Expenses For the year ending December 31, 2025, our Selling, General, and Administrative (SG&A) expenses decreased to $3,096,780, compared to $4,176,986 in 2024 (Restated). The decrease was primarily driven by reductions in salaries and general and administrative expenses. General & Administrative expense For the fiscal year ended December 31, 2025, our total General and administrative expense decreased to $553,522, compared to $1,015,102 in 2024 (Restated). Salary Expense For the fiscal year ended December 31, 2025, our total salaries decreased to $1,399,073, compared to $1,906,701 in 2024, primarily reflecting reductions in headcount and personnel-related costs. Travel Expense For the year ending December 31, 2025, our travel expenses totaled $198,122, compared to $185,876 for the same period in 2024. The increase was not significant and reflects normal variations in business activity. Facility Lease Expense For the fiscal year ending December 31, 2025, our Facility Lease expense amounted to $216,812 a decrease from $285,823 in 2024. 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, 2025, our total expenses for Investor Relations (IR), marketing, and contractors related to the VRG project were $10,597, compared to $195,640 for the same period in 2024. The decrease was primarily due to reduced activity and spending associated with the VRG project during the period. Depreciation and Amortization Expense For the year ended December 31, 2025, our depreciation and amortization expense was $11,876 compared to $8,907 for the same period in 2024. 42 Professional fees legal and accounting For the fiscal year ending December 31, 2025, our Professional Fees expense amounted to $706,778, up from $578,937 in the same period of 2024. For the fiscal year ended December 31, 2025, The increase was primarily attributable to higher legal and advisory costs related to the Company’s S-3 registration and increased expenses associated with being a Nasdaq-listed company. Net (Loss) from operations For the fiscal year ending December 31, 2025, our net loss from operations totaled $2,501,212, a decrease compared to the net loss of $3,330,431 for the same period in 2024 (Restated). The decrease in net loss reflects improved operating performance during the period. Other income/expense For the year ended December 31, 2025, the Company recorded a loss of $179,983, compared to a gain of $12,583 for the same period in 2024. The decrease was primarily driven by the discount recognized on the modified Heze loan receivable and the recognition of a CECL allowance based on amortized cost. Change in Derivative Liability For the year ended December 31, 2025, the Company recorded a gain of $370,707 from changes in derivative liabilities, compared to no such gain or loss in 2024. Change in FV of warrant liability For the years ended December 31, 2025 and 2024 (Restated), we had $57,674 and $26,596 gain on warrant liability related to Equity Line of Credit Agreement entered December 5, 2024. Investment from Shuya For the year ended December 31, 2025, we recorded a gain of $318,426 from investment from Shuya compared to $125,148 in losses in year ended in December 31, 2024. This gain is because of the disposition of the Shuya assets. Gain on debt settlement and write off For the year ended December 31, 2025, we recorded a loss of 1,573,939 compared to a gain of $8,135 for the same period in 2024. The loss in 2025 was primarily attributable to the write-off related to the LWL investment in China. Interest and Finance Fees For the year ended December 31, 2025, interest and finance fees totaled $3,300,520, compared to $1,142,031 for the year ended December 31, 2024 (Restated), representing an increase of $2,158,489, or 189%. The increase was primarily attributable to higher financing costs associated with the Company’s convertible notes and bridge financing activities, including increased interest expense, amortization of original issue discounts (“OID”), amortization of debt discounts associated with derivative liabilities, and other financing-related charges recognized during 2025. In addition, the Company incurred higher costs related to the issuance, modification, and settlement of financing instruments compared to the prior year. Management believes the increase reflects the Company’s greater reliance on short-term and convertible financing arrangements to fund operations, project development activities, and working capital requirements during 2025. Liquidity and Capital Resources Cash Flow Summary For the years ended December 31, 2025 2025 2024 Net Cash used in operating activities $ (7,922,347 ) $ (3,560,951 ) Cash flows used in investing activities 245,748 161,240 Cash flows provided by financing activities 8,215,547 3,373,903 Net decrease in cash and cash equivalents $ 540,360 $ (27,525 ) Capital Requirements for long-term obligations The following table presents the Company’s material contractual obligations as of December 31, 2025: Contractual Obligations Total Less than 1 year 1–3 years Operating lease obligations $ 337,573 $ 154,805 $ 182,768 $ 337,573 $ 154,805 $ 182,768 43 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). 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 44 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. For the VRG project, management considered the contractual arrangements, commercial substance of the transaction, probability of collection, expected project financing sources, and anticipated economic benefits associated with the project when determining the appropriateness of revenue recognition under ASC 606. Although VRG is an equity-method investee of the Company and project financing has experienced delays, management concluded that the project remained commercially viable and that the applicable criteria for revenue recognition over time were satisfied. Management continues to evaluate these assumptions and will adjust its estimates as facts and circumstances evolve. Management evaluated the criteria under ASC 606, including commercial substance and collectability, throughout the term of the EPC Agreement. Although VRG is a related-party entity in which the Company holds a 49% ownership interest, VRG is a separate legal entity with independent contractual obligations under the EPC Agreement. The contract was entered into for the development, design, permitting, construction, and delivery of the VRG-Lyndon facility and management concluded that the arrangement has commercial substance. Although VRG is a related-party customer, management evaluated the material terms of the EPC Agreement, including the scope of work, contract price, payment provisions, project deliverables, and enforceable rights and obligations. Based on this evaluation, management concluded that the agreement has commercial substance and was entered into for a substantive business purpose related to the development, design, permitting, construction, and delivery of the VRG-Lyndon facility. Revenue is recognized over time using a cost-to-cost input method based on costs incurred relative to total estimated project costs. As of December 31, 2025, the project continued to advance through the Vermont Section 248 permitting process and management continued to pursue multiple financing sources for the project. Although one potential financing source subsequently failed to fund as expected, management determined that the project was not dependent on a single financing source and concluded that collection of substantially all consideration under the contract remained probable. No amounts due under the EPC Agreement were considered past due as of December 31, 2025. CETY Renewables currently has $2,431,485 of accounts receivable from Vermont Renewable Gas. The projected costs of the VRG project are 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. 45 Additionally, the following five steps are applied to achieve the 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 EPC Agreement has commercial substance because it establishes enforceable rights and obligations between the parties for the permitting, design, procurement, construction, commissioning, and delivery of a biomass power generation facility. The agreement provides for a defined contract price, milestone-based billing provisions, and the transfer of goods and services that are expected to result in future economic benefits to the customer. ● In assessing collectability under ASC 606-10-25-1(e), management considers the customer’s ability and intent to satisfy its payment obligations. For the VRG EPC Agreement, management considered the continued advancement of the project through the Vermont Section 248 permitting process, the existence of a long-term power purchase framework, selection of the project for Quantified Ventures’ GGRF pipeline, ongoing discussions with multiple potential financing sources, including infrastructure and climate-focused investors, and the availability of grant funding opportunities, including investment tax credits, Wood Innovation Grant Award, and USDA grant agreement. Although one potential financing source subsequently failed to fund as expected, management determined that the project was not dependent upon a single financing source and concluded that collection of substantially all consideration under the contract remained probable as of the reporting date. 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, reviews measurement of the performance obligations. There is 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 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. 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. 46 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, 2025 and 2024 we had $33,000 and $33,000 of deferred revenue. Also, from time-to-time, we require upfront deposits from our customers based on the contract. As of December 31, 2025 and 2024 (Restated), we had outstanding customer deposits of $759,611 and $172,061, 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”), JHJ owns 20% of Shuya. In August 2022, JHJ purchased 100% ownership of Sichuan Shunengwei Energy Technology Limited (“SSET”) for $0, which owns 29% of Shuya; Shunengwei is a holding company and did not have any operations nor make any capital contribution into Shuya as of the ownership purchase date by JHJ; right after the ownership purchase of SSET by JHJ, 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 Shuya 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 an 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) guaranteed 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 agreed 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. 47 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. 48 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. During the year ended December 31, 2025, the Company completed the disposal of its investment in Shuya through a series of equity transfer transactions, as evidenced by executed equity transfer agreements and shareholder resolutions. Pursuant to these transactions, the Company transferred its ownership interest in Shuya and no longer retains any equity interest, control, or significant influence over the entity. Accordingly, the Company determined that Shuya no longer meets the criteria for recognition under the equity method or fair value method. As a result, the Company derecognized its investment in Shuya and recognized the resulting gain or loss on disposal in the consolidated statements of operations in accordance with U.S. GAAP. 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. During 2025, the Company entered into a consulting and business development arrangement with Linkage, pursuant to which approximately HKD 30 million (approximately US$3.2 million) was advanced under the agreement. Linkage also participated as an investor in the Company’s May 2025 private placement financing. Management evaluated the substance of the arrangement and determined that the amounts advanced should be recorded as a refundable deposit and other receivable rather than as a current period expense, based on the contractual terms of the agreement and the Company’s expectation of recovery. Management periodically assesses the recoverability of the receivable by considering the financial condition of the counterparty, contractual rights, subsequent events, and other available evidence. Based on management’s evaluation as of December 31, 2025, the Company believes the recorded balance is recoverable. Item 7A. Quantitative and Qualitative Disclosures 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. 49