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. 44 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. 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. 45 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. 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 Six months Ended June 30, 2025 Compared to the same period in 2024 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 $7,755,688 and a working capital of 2,267,817 as of June 30, 2025, The company also had an accumulated deficit of $28,820,537 as of June 30, 2025 and used 1,556,984 in net cash from operating activities for the six months ended June 30, 2025. 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 six months ended June 30, 2025, our total revenue was $1,028,215 compared to $1,709,151 for the same period in 2024. Our total revenue for the first half of 2025 was lower compared to the same period in 2024, primarily due to minimal contributions less than 3% from our China natural gas business. For the six months ended June 30, 2025, our gross profit was $952,210 compared to $429,035 for the same period in 2024. Gross profit margins improved due to greater contributions from CETY’s non-NG business in China, where our operations and technologies yield substantially higher margins compared to our NG segment. For the six months ended June 30, 2025, our operating expense was $830,935 compared to $1,792,955 for the same period in 2024. The decrease in expenses was primarily driven by lower salary costs from our China operations and a reduction in for general and administration expenses, which were elevated in the prior period due to costs associated with our S-3 registration. For the six months ended June 30, 2025, we had a net loss of $1,420,021 compared to $2,251,278 for the same period in 2024. The improvement was largely attributable to reduced salary expenses in our China operations, lower legal and accounting costs, and stronger margins generated by our U.S.-based businesses. For the quarter ended June 30, 2025, stockholders’ equity increased to $7,755,688, compared to $2,938,502 as of December 31, 2024, primarily due to higher increase from investments. 46 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 Clean Energy HRS and CETY Renewables segments. Looking ahead, the company anticipates stronger revenue contributions from its Waste-to-Energy, Heat Recovery, and EPC segments in the latter half of the year, segments which are expected to deliver higher gross 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. Management believes this 4-segment strategy has created many operational synergies and cross-selling opportunities across different markets. The growth in the non-China operations in the six months ended of 2025 vs. same period in 2024 was a result of this strategy. CETY believes that it will continue to deliver growth on these segments this year. 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 13 to the notes to the financial statements for a discussion on related party transaction Results of the Six Months Ended June 30, 2025, Compared to the Six Months Ended June 30, 2024 Net Sales For the six months ended June 30, 2025, our total revenue was $1,028,215 compared to 1,709,151 for the same period in 2024. The lower revenue was contributed to primarily due to minimal contributions from our China natural gas business. Segment breakdown For the six months ended June 30, 2025, our revenue from HRS was $689,488 compared to $120,874 for the same period in 2024. We have a large pipeline of opportunities in this segment and are working diligently to complete the engineering and design, enabling us to execute contractual agreements and close these opportunities. The sales cycle for these types of opportunities is long due to cost factors and the integration of the technology. We are also working with financial institutions to assist in financing the projects as customers are increasingly moving towards Independent Power Producer models. There were also uncertainties surrounding the economy and the new, one big beautiful bill, as well as its potential impact on clean energy technologies. 47 For the six months ended June 30, 2025, our gross profit from CETY Renewables was For the six months ended June 30, 2025, revenue from the CETY Renewables segment was $331,597, compared to $ 359,307 for the same period in 2024. This segment is expected to remain relatively stable until construction activities commence later this year. For the six months ended June 30, 2025, CETY reported 0 revenue from its Engineering and Manufacturing segments, compared to $9,341 for the same period in 2024. 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 over the coming quarters. For the Six months ended June 30, 2025, revenue from our natural gas (NG) business was $7,130, a decrease from $1,219,629 for the same period in 2024. This decline is primarily due to macroeconomic factors and our strategic decision to reduce focus on lower-margin business activities. Gross Profit For the six months ended June 30, 2024, our gross profits totaled $952,210 marking a favorable increase compared to $429,035 recorded for the corresponding period in 2024. Gross profit margins improved due to greater contributions from CETY’s non-NG business in China, where our operations and technologies yield substantially higher margins compared to our NG segment. Segment breakdown For the six months ended June 30, 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 six months ended June 30, 2025, our gross profit from the HRS segment was $620,374, compared to $79,889 for the same period in 2024. This significant increase in gross profit was primarily driven by higher revenues, which included equipment sales and the sale of products with lower costs, along with engineering services. For the six months ended June 30, 2025, our gross profit from the CETY Renewables segment was $331,597, compared to $331,487 for the same period in 2024. The Company’s operations have remained steady as we progress toward the final stages of the permitting process. For the six months ended June 30, 2025, our gross profit from our wholly owned subsidiary, JHJ, was $239, down from $9,853 for the same period in 2024. This decrease was primarily due to minimal business activity in China, which was partly a result of our strategic decision to reduce focus on lower-margin businesses in the region. Selling, General and Administrative (SG&A) Expenses For the six months ended June 30, 2025, our SG&A expenses totaled $1,783,145, compared to $2,221,990 for the same period in 2024. This decrease was as a result lower cost of China operations, lower salaries, and lower SG& expenses. Salaries Expense For the six months ended June 30, 2025, our salaries expense totaled $873,268, compared to $966,843 for the same period in 2024. The decrease was primarily due to reduced activity in our China natural gas business, while salary levels in other areas remained stable. Travel Expense For the six months ended June 30, 2025, our travel expenses were $79,737, compared to $81,224 for the same period in 2024. This slight decrease reflects stable activity levels within our service and marketing operations. 48 Professional fees legal and accounting For the six months ended June 30, 2025, our professional fees totalled $333,319, compared to $353,065 for the same period in 2024. The decrease was primarily due to reduced legal and consulting activity, as the Six months ended 2024 included higher costs related to our S-3 registration process. Facility Lease and Maintenance Expense For the six months ended June 30, 2025, our facility lease and maintenance expenses totalled $133,399, compared to $150,883 for the same period in 2024. This slight decrease reflects normal fluctuations, with no significant changes in underlying operations. Depreciation and Amortization Expense For the six months ended June 30, 2025, our depreciation and amortization expense was $5,938, compared to $5,938 for the same period in 2024. There were no significant changes, as the majority of our equipment has already been fully depreciated. Change in Derivative Liability The Six months ended June 30, 2025 and 2024; we had a $112,672 and $0 derivative liability. The increase in derivative liability is due to the issuance of new convertible instruments and the mark-to-market adjustment based on changes in our stock price and volatility. These fair value remeasurements are required each reporting period under ASC 815. Interest and Finance Fees For the six months ended June 30, 2025, interest and finance fees totalled $843,859, compared to $424,743 for the same period in 2024. The increase was primarily due to two larger interim financings secured to bridge the company through the finalization of funding for the Vermont Renewable Project, aimed at addressing approximately $1.7 million in accounts receivable, and to support the completion of the S-3 registration. Net Loss For the six months ended June 30, 2025, our net loss was $1,420,021, compared to a net loss of $2,251,278 for the same period in 2024. This significant decrease is primarily attributable to higher-margin revenue from the HRS segment—driven by equipment and technical sales—as well as stable contributions from CETY Renewables in support of the Vermont Renewable Gas Project. Additionally, reduced activity in the lower-margin China NG business contributed to improved overall financial performance. Liquidity and Capital Resources Clean Energy Technologies, Inc. Condensed Consolidated Statements of Cash Flows for the six months ended June 30, (unaudited) 2025 2024 Net cash (used in) operating activities $ (1,556,984 ) $ (1,612,034 ) Net cash provided by investing activities - 83,160 Net cash provided by financing activities 5,903,311 1,828,380 Foreign Currency Transaction 459 (1,188 ) Net increase in cash and cash equivalents $ 4,346,786 $ 298,318 49 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. 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 50 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. 51 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 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. 52 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 June 30, 2025 and December 31, 2024 we had $33,000 and 33,000 of deferred revenue, which is expected to be recognized in the fourth quarter of year 2025. Also from time to time we require upfront deposits from our customers based on the contract. As of June 30, 2025, and December 31, 2024, we had outstanding customer deposits of $82,510 and $30,061 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”), 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 Shuya have large supply relationships. 53 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. 54 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 ASC 805-10-50-2(h) and Rule 3-05 of Regulation S-X. 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. 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. 55 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. 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.