Clean Energy Technologies, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION FORWARD-LOOKING STATEMENTS This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements using the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Description of the Company 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 and biochar to the grid. Our principal executive offices are located at 1340 Reynolds Avenue, Irvine, CA 92614. Our telephone number is (949) 273-4990. 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. 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. We specialize in renewable energy & energy efficiency systems design, manufacturing and project implementation. 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. We have 24 full-time employees. 39 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 liquid natural gas trading company in China. 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 develop renewable energy products and solutions and establish partnerships in renewable energy that make environmental and economic sense. Our mission is to be a segment leader in the Zero Emission Revolution by offering recyclable energy solutions, clean energy fuels and alternative electric power for small and mid-sized projects in North America, Europe, and Asia. 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 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, Procurement and Construction (EPC) 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 two business ventures in mainland China:(i) our natural gas (“NG”) trading operations sourcing and suppling NG to industries and municipalities. Natural Gas 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 the market. We sell the NG to our customers at fixed prices or prevailing daily spot prices for the duration of the contracts. 40 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 and biochar to the grid. Summary of Operating Results the three months Ended March 31, 2026 Compared to the same period in March 31, 2025 (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 $7,030,646 and a working capital of $1,036,272 as of March 31, 2026, The company also had an accumulated deficit of $35,962,199 as of March 31, 2026 and used $836,618 in net cash from operating activities for the three months ended March 31, 2026. Therefore, there is substantial doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will achieve its goals and reach profitable operations and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations. For the three months ended March 31, 2026, total revenue was $783,705, compared to $441,940 for the same period in 2025. The increase was primarily attributable to higher revenue generated by our natural gas business in China. For the three months ended March 31, 2026, our gross profit was $(13,930), compared to $411,878 for the same period in 2025. The decrease in gross profit and gross margin was primarily attributable to a shift in our revenue mix, with a greater proportion of revenue generated by our lower-margin natural gas business, as well as the absence of higher-margin clean energy system sales during the period. For the three months ended March 31, 2026, our operating expenses were $705,354, compared to $824,656 for the same period in 2025. The decrease in operating expenses was primarily attributable to lower salary and related personnel costs as fewer resources were required for our Vermont Renewable Gas (“VRG”) projects, which are progressing into the final phase of the permitting process. For the three months ended March 31, 2026, we recorded a net loss of $662,200, compared to $660,007 for the same period in 2025. The net loss remained relatively steady year-over-year, reflecting reduced salary expenses, lower general, legal and accounting costs, the impact of financial results, the change in FV of the note receivable, and improved margins from our U.S.-based business activities. For the quarter ended March 31, 2026, stockholders’ equity increased to $7,030,646 compared to $6,246,597 as of December 31, 2025, primarily due to higher increase from investments and interest income. CETY has successfully repositioned itself as a diversified clean energy solutions provider by establishing four distinct business segments designed to support scalable, stable, and diversified revenue growth. These segments include: ● Clean Energy HRS (Heat Recovery Systems) ● Waste-to-Energy (via Pyrolysis Technology) ● Engineering, Procurement, and Consulting (EPC) ● CETY HK (Natural Gas Trading and Acquisitions) Revenue for the first quarter was primarily driven by the CETY HK natural gas trading business. Looking ahead, the company anticipates stronger revenue contributions from its Waste-to-Energy, Heat Recovery, and EPC segments with higher margins. CETY’s pilot Waste-to-Energy facility in Vermont, which integrates all of the company’s proprietary technologies and operational expertise into a unified, turnkey solution, is currently pending final approval from the Vermont Public Utility Commission. Meanwhile, demand for Heat Recovery solutions is accelerating across both the U.S. and Europe. In parallel, CETY is actively scaling its Engineering and project management operations to deliver comprehensive self-generation energy solutions on a global scale. 41 Management believes this 4-segment strategy has created many operational synergies and cross-selling opportunities across different markets. The main macro factor benefiting us is the global commitment to push renewable energy to the forefront from governments across the world. Another catalyst that will potentially help our Company, is a continuously improving our global supply chain and lowering our cost. CETY expects to and will continue to execute its corporate strategy to build sustained and profitable growth by providing end to end fully integrated solutions and technologies, expand our global sales and marketing, production, research & development, as well as search for synergistic acquisition opportunities. See note 1 to the notes to the financial statements for a discussion on critical accounting policies RELATED PARTY TRANSACTIONS See note 12 to the notes to the financial statements for a discussion on related party transaction Results of the three Ended March 31, 2026, Compared to the three ended March 31, 2025 (Restated) Net Sales For the three months ended March 31, 2026, our total revenue was $783,705 compared to $441,940 for the same period in 2025. The higher revenue was contributed to primarily due to our China natural gas business. Segment breakdown For the three months ended March 31, 2026, our revenue from the Heat Recovery Solutions (HRS) segment was $7,538, compared to $262,354 for the same period in 2025. The decrease was primarily driven by no product sales from our HRS business unit. We continue to work diligently on current requirements and engineering and design, which will enable us to execute contractual agreements and close additional opportunities. The sales cycle for these projects tends to be longer due to cost considerations and the integration complexity of our technology. We are also engaging with financial institutions to support project financing, as customers increasingly adopt Independent Power Producer (IPP) models. Additionally, general economic uncertainty and evolving federal clean-energy legislation, and investment tax credits have influenced the timing of certain project commitments. For the three months ended March 31, 2026, revenue from the CETY Renewables segment was $0, compared to $176,105 for the same period in 2025. The segment generated no revenue during the period as the related projects remain pending final review by the Vermont Public Utility Commission and issuance of the Certificate of Public Good. Revenue-generating construction activities are expected to commence following receipt of the required regulatory approvals. For the three months ended March 31, 2026, CETY reported 0 revenue from its Engineering and Manufacturing segments, compared to no for the same period in 2025. This segment is still in its early stages and much of the related activity is currently being integrated into the HRS and CETY Renewables segments. However, with a developing pipeline of opportunities, CETY expects to see gradual revenue growth from this segment. For the three months ended March 31, 2026, revenue from our natural gas (NG) business was $776,167 an increase from $3,481 for the same period in 2025. The increase primarily reflects higher revenue from our China natural gas business, despite the impact of macroeconomic conditions and our strategic decision to reduce our focus on lower-margin business activities. Gross Profit For the three months ended March 31, 2026, gross profit was $(13,930), compared to $411,878 for the same period in 2025. The decrease was primarily attributable to the absence of sales of our higher-margin clean energy systems during the period, combined with a greater proportion of revenue generated by our natural gas business in China, which operates at lower gross margins. Segment breakdown For the three months ended March 31, 2026, our gross profit from Engineering and Manufacturing amounted to $0, compared to $0 for the same period in 2025. 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 as CETY shifts its focus towards providing comprehensive end-to-end power generation and integrated solutions. 42 For the three months ended March 31, 2026, gross profit from our Heat Recovery Solutions (“HRS”) segment was $(25,223), compared to $235,658 for the same period in 2025. The decrease in gross profit was primarily attributable to the absence of product sales during the period, combined with higher freight costs. For the three months ended March 31, 2026, our gross profit from the CETY Renewables segment was $0, compared to $57,159 for the same period in 2025. The Company is working through the Certificate of Public Good (CPG) process and approach the final stages of permitting. For the three months ended March 31, 2026, our gross profit from our wholly owned subsidiary, JHJ, was $11,293, up from $115 for the same period in 2025. This increase was primarily due to increase business activity in China. Selling, General and Administrative (SG&A) Expenses For the three months ended March 31, 2026, our selling, general and administrative (SG&A) expenses totaled $147,729 compared to $222,557 for the same period in 2025. The decrease was primarily due to lower costs associated with a consulting agreement related to IR activities and Nasdaq subscription. Salaries Expense For the three months ended March 31, 2026, our salary expenses totaled $294,433 compared to $433,799 for the same period in 2025. The decrease was primarily due to reduced activity within our CETY Renewables business, while salary levels across other segments remained relatively stable. Travel Expense For the three months ended March 31, 2026, our travel expenses were $28,062, compared to $32,377 for the same period in 2025. This slight decrease reflects stable activity levels within our service and marketing operations. Professional fees legal and accounting For the three months ended March 31, 2026, our professional fees totaled $167,021, compared to $66,213 for the same period in 2025. The increase was primarily due to costs associated with a audit fees. Facility Lease and Maintenance Expense For the three months ended March 31, 2026, our facility lease and maintenance expenses totaled $65,140, compared to $66,741 for the same period in 2025. This slight decrease reflects normal fluctuations, with no significant changes in underlying operations. Depreciation and Amortization Expense For the three months ended March 31, 2026, our depreciation and amortization expense was $2,969, compared to $2,969 for the same period in 2025. There were no significant changes, as the majority of our equipment has already been fully depreciated. Change in Derivative Liability For the three months ended March 31, 2026 and 2025, we recorded derivative liabilities of $721,678 and $493,308, respectively. The increase in derivative liability was primarily due to the issuance of new convertible instruments and mark-to-market adjustments resulting from changes in our stock price and volatility. These fair value remeasurements are required each reporting period in accordance with ASC 815. Change in FV of warrant liability For the three months ended March 31, 2026 and 2025, we had $3,100 and $17,837 loss on warrant liability related to Equity Line of Credit Agreement entered December 5, 2024. Interest Income For the three months ended March 31, 2026, interest income from Florya associated with long-term financing receivable totaled $0 compared to $14,050 for the same period in 2025 (Restated). Interest income included in other income consists primarily of interest earned on the Company’s convertible note receivable. During the three months ended March 31, 2026, the Company recognized $64,110 of interest income related to the accrual of interest under the terms of the convertible note agreement. 43 Other Income Other income includes a gain of $584,613 resulting from the remeasurement of the Company’s investment in the Filled Converge convertible note to its estimated fair value of $435,053, recognition of forgiveness of debt of $85,558 and interest income of convertible note as of March 31, 2026, compared to 21,413 as of March 31, 2025. Interest and Finance Fees For the three months ended March 31, 2026, interest and finance fees totaled $515,128, compared to $348,186 for the same period in 2025. The increase was primarily due to two larger interim financings obtained to bridge the Company through the finalization of funding for the Vermont Renewable Gas Project and monetizing HRS projects. Net Loss For the three months ended March 31, 2026, our net loss was $662,200, compared to a net loss of $660,056 for the same period in 2025 (Restated). The increase in net loss was primarily attributable to the absence of higher-margin sales from our Heat Recovery Solutions (“HRS”) segment, a shift in revenue mix toward our lower-margin China natural gas business, changes in Fv convertible, and lower gross margins during the period, and interest and financing fee variations. Although operating expenses declined due to reduced personnel costs associated with our Vermont Renewable Gas (“VRG”) projects as they progressed through the final permitting phase, these savings were not sufficient to offset the decline in gross profit. Liquidity and Capital Resources Clean Energy Technologies, Inc. Condensed Consolidated Statements of Cash Flows for the three months ended March 31, (unaudited) 2026 2025 Net cash (used in) operating activities $ (833,538 ) $ (776,047 ) Net cash (used in) investing activities (702,746 ) (2,932 ) Net cash provided by financing activities 975,557 759,002 Foreign Currency Transaction 424 187 Net increase in cash and cash equivalents $ (560,303 ) $ (19,790 ) Net cash used in operating activities was $833,538 for the three months ended March 31, 2026, compared to $776,047 for the same period in 2025. The increase in cash used in operating activities was primarily attributable to the Company’s operating loss and increases in inventory, interest receivable, and other assets. These uses of cash were partially offset by non-cash items, including amortization of debt discount and the fair value gain recognized on the Company’s note receivable, as well as increases in accounts payable, accrued interest, customer deposits, and accrued expenses. Net cash used in investing activities was $702,746 for the three months ended March 31, 2026, compared to $2,932 for the same period in 2025. The increase in cash used in investing activities was primarily attributable to the Company’s $700,000 investment in a note receivable and a $2,746 investment in a long-term investment during the current period. Net cash provided by financing activities was $975,557 for the three months ended March 31, 2026, compared to $759,002 for the same period in 2025. The increase was primarily attributable to higher net proceeds from notes payable and lines of credit, partially offset by repayments of outstanding borrowings during the period. Capital Requirements for Long-Term Obligations 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. 44 Critical accounting estimates include the valuation of the Company’s convertible note receivable and derivative liabilities, both of which are measured at fair value using valuation techniques that incorporate significant unobservable inputs. Management, with the assistance of independent valuation specialists, exercises significant judgment in selecting key assumptions, including expected stock price volatility, risk-free interest rates, expected terms, stock prices, discount rates, and probability-weighted outcomes. Changes in these assumptions could materially affect the reported fair values of these instruments and the corresponding gains or losses recognized in the Company’s condensed consolidated financial statements. 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. 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 45 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. 46 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 its 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. 47 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%. 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. Issuance 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 Arrangements 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. The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , effective January 1, 2026. The adoption did not have a material impact on the Company’s condensed consolidated financial statements. The Company is currently evaluating the impact of recently issued accounting standards that have not yet been adopted, including ASU 2024-03, Disaggregation of Income Statement Expenses , ASU 2025-11, Accounting for Environmental Credit Programs , and ASU 2025-12, Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity . The Company does not currently expect the adoption of these standards to have a material impact on its condensed consolidated financial statements. Item 3. Quantitative and Qualitative Disclosure about Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.