# Clean Energy Technologies, Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Clean Energy Technologies, Inc.](/companies/cety.md) (CIK 1329606)
- Form: 10-Q
- Filed: 2024-08-19
- Accepted by EDGAR: Aug 19, 2024, 14:56 ET
- Period: 2024-06-30
- Accession: 0001493152-24-033050
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1329606/000149315224033050/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1329606/000149315224033050/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $196.1k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $1.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $20.1k | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $1.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $176.0k | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $429.0k | us-gaap:GrossProfit |
| Research and development | 6 months, 2024-01-01 to 2024-06-30 | $0 | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$973.9k | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$1.8m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$831.9k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$2.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.06 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.06 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 43,086,707 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 41,618,349 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$1.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-06-30 | $387.9k | us-gaap:Cash |
| Current assets | at 2024-06-30 | $4.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $9.3m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $4.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $4.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-06-30 | $4.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,224 characters.

### 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.

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 CycleTM 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.

**Clean Energy Technologies (H.K.) Limited (“CETY HK”) –** our natural gas (“NG”) trading operations source and supply NG to industries and municipalities in mainland China. 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 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 for the Six Months Ended June 30, 2024 Compared to the Same Period in 2023

### 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 working capital of $300,071 as of June 30, 2024, The company also had an accumulated deficit of $25,429,293 as of June 30, 2024 and used $1,612,034 in net cash from operating activities for the six months ended June 30, 2024. 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, 2024, our total revenue was $1,709,151 compared to $3,274,001 for the same period in 2023. Our first half of 2024’s total revenue was lower than the same period in 2023 due to deconsolidation of our Shuya entity and substantially lower revenue from our NG business in general due to slow down of economy in China.

For the six months ended June 30, 2024, our gross profit was $429,035 compared to $444,018 for the same period in 2023. The increase in gross profit margin was due to higher-margin business from non-NG operations.

For the six months ended June 30, 2024, our operating expense was $2,221,990 compared to $1,498,702 for the same period in 2023. The increase in expenses contributed to salaries expenses and professional fees for legal & accounting.

For the six months ended June 30, 2024, we had a net loss of $2,251,278 compared to net loss of $1,868,163 for the same period in 2023 due to increased in salaries expense contributed to CETY Renewables new engineers and operational and technology directors, fees and marketing campaign expenses attributed to CETY’s expansion plans and loss from deconsolidation of Shuya.

For the quarter ended June 30, 2024, stockholder’s equity was $4,579,726, compared to $5,869,198 as of December 31, 2023. This decrease in stockholder’s equity can be attributed to net loss for the year-to-date results.

CETY has successfully repositioned itself and created 4 different business segments to create a larger, more stable, and more diversified revenue stream that could scale up. The 4 segments are Clean Energy HRS (Heat Recovery), Waste-to-Energy (Pyrolysis Plant), Engineering and manufacturing services, and CETY HK (NG trading and acquisitions). Revenue for the six months ended June 30, 2024 was mainly contributed by NG trading and waste to energy project. The revenue in this segment is expected to continue to stay stable which will help establish CETY as a player in the China market and allows cross-selling of CETY products and solutions and transfer of advanced clean energy with lower cost technologies. CETY expects larger revenue contribution from Waste-to-Energy, Heat Recovery, and EPC in the latter of this year which are higher gross margin segments. Our pilot Waste-to-Energy plant in Vermont which integrates all of CETY’s technologies and expertise into a single solution, is progressing steadily with updates coming soon. There is a growing market for Heat Recovery in the U.S. and Europe, and CETY HK has begun cross-selling Heat Recovery products in China. CETY is also gearing up for the EPC segment to implement holistic self-generation solutions globally.

Management believes this 4-segment strategy has created many operational synergies and cross-selling opportunities across different markets. The growth in the year ended in 2023 was a result of this strategy. CETY believes that it will continue to deliver growth on all segments this year due to our belief that there is an optimistic industry macro backdrop. The main macro factor benefiting us is the global commitment to push renewable energy to the forefront from governments across the world. This is evidenced by the Paris Agreement and COP26. The Inflation Reduction Act passed by Congress in August 2022 had specific provisions that can take advantage of CETY’s products and solutions. Another catalyst that will potentially help our Company, is a continuously improving global supply chain. The European energy crisis has given rise to the opportunity for CETY to sell more of its products and solutions as customers are in search of self-generation capabilities in renewable energy.

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, 2024, Compared to the Six Months Ended June 30, 2023

### Net Sales

For the six months ended June 30, 2024, our total revenue was $1,709,151 compared to $3,274,001 for the same period in 2023. The decrease in revenue was primarily due to the lower revenue form the NG business and delays in funding for the Vermont Renewable Gas project, which supports the $12 million backlog.

### Segment breakdown

For the six months ended June 30, 2024, our revenue from Engineering and Manufacturing was $9,341 compared to $36,332 for the same period in 2023. Our engineering team is in transition to establish the innovation center in Europe and has executed a master services agreement with RPG to support its fortune 500 customers with its sustainability goals. Additionally, our engineering team will be commencing work on the Vermont project starting in the second quarter of 2023. Additionally, some of our engineering revenue is rolled up into our waste heat to power and waste to energy contracts.

For the six months ended June 30, 2024, our revenue from HRS was $120,874 compared to $28,338 for the same period in 2023. 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 we increasingly move towards Independent Power Producer models.

For the six months ended June 30, 2024, our revenue from our waste to energy segment was $331,487 compared to $385,404 for the same period in 2023. We have a large $12M contract with Vermont Renewable Gas in this segment and are currently finalizing the engineering and design, and permitting to start the construction. We anticipate exponentially higher revenue driven from this segment.

For the six months ended June 30, 2024, our revenue from our natural gas (NG) business amounted to $1,219,629, down from $2,796,649 for the corresponding period in 2023. This decrease can be attributed to the deconsolidation of Shuya’s revenue, overall substantial lower revenue from China operations due to slow down in economy and our strategic decision to prioritize non-Chinese markets over expansion into the ASEAN region.

### Gross Profit

For the six months ended June 30, 2024, our gross profits totaled $429,035, marking higher margins compared to $444,018 recorded for the corresponding period in 2023. This higher gross profit can be attributed to higher revenue and margins from none Chinese NG business.

### Segment breakdown

For the six months ended June 30, 2024, our gross profit from Engineering and Manufacturing amounted to $7,806, compared to $18,355for the same period in 2023. This segment is a recent addition to CETY’s portfolio, currently serving as a support for our ongoing internal projects. Nevertheless, it is anticipated to expand notably as CETY shifts its focus towards providing comprehensive end-to-end integrated solutions.

For the six months ended June 30, 2024, our gross profit from HRS was $79,889, compared to $18,355 for the corresponding period in 2023. This increase in margins primarily stemmed from increased service activities, which did not include equipment sales.

For the six months ended June 30, 2024, our gross profit from waste to energyt was $331,487, compared to $385,404 for the corresponding period in 2023. Our waste to energy segment will be driving higher margins that our other segments.

During the six months ended June 30, 2024, our gross profit from our wholly owned subsidiary, JHJ, was $9,853, a decrease from $385,404 recorded for the corresponding period in 2023. It’s worth noting that our NG business typically operates on slim margins. Looking ahead, we intend to leverage our presence in China to foster synergistic partnerships and facilitate technology transfers, particularly in the growing EV charging sector. Additionally, we aim to explore cross-selling opportunities for our waste heat recovery and waste-to-energy products within the Chinese market.

### Selling, General and Administrative (SG&A) Expenses.

For the six months ended June 30, 2024, our SG&A expenses totaled $487,391, an increase from $267,062 for the same period in 2023. This increase can be attributed to increased spending in one-time JHJ misc. expense, IT, insurance expenditures particularly the D&O policy, and increased spending on repairs and maintenance, largely driven by the recent relocation of our HRS operations.

### Salaries Expense

For the six months ended June 30, 2024, our Salaries expense totaled $966,843, marking a significant increase from $535,237 recorded during the same period in 2023. This surge in expenses can be attributed to the inclusion of key personnel such as our CFO, director of operations, director of technology, and the recruitment of four additional engineers, and increased in work force in our NG operations. Our strategy involves fortifying our team from the ground up to establish a robust foundation for scalable growth, reinforced by cutting-edge technology and streamlined systems. We hold strong conviction in the capabilities of our assembled team, envisioning their collective efforts leading us to a position of leadership within the clean energy sector.

### Travel Expense

For the six months ended June 30, 2024, our travel expense was $81,224 compared to $200,139 for the same period in 2023. The decrease was due to lower travel expenses related to China NG business development.

### Professional fees legal and accounting

For the six months ended June 30, 2024, our Professional Fees expense totaled $353,065, marking an increase from $177,437 in the corresponding period of 2023. This rise in accounting fees can be attributed directly to engaging a new audit firm, which incurred higher costs.

### Facility Lease and Maintenance Expense

For the six months ended June 30, 2024, our Facility Lease and maintenance expenses totaled $150,883, marking a significant decrease from the $126,766 incurred during the same period in 2023. This increase in cost can be attributed to the NG operations increased in rent.

### Depreciation and Amortization Expense

For the six months ended June 30, 2024, our depreciation and amortization expense was $5,938 compared to $6,454 for the same period in 2023.

### Change in Derivative Liability

For the six months ended June 30, 2024, we had \[no\] derivative liability compared to a gain of $326,539 for the same period in 2023. The gain in derivative liability was from a favorable derivative calculation from several convertible notes in the three months ended March 31, 2023.

### Interest and Finance Fees

For the six months ended June 30, 2024, interest and finance fees amounted to $422,863, as opposed to $1,349,594 for the corresponding period in 2023. The decrease in interest and fees can be attributed to less number of notes and bridge financing aimed at facilitating the uplisting to Nasdaq. Despite the decrease in interest and fees for the June 30, 2024 period, we believe that the cost of capital for CETY remains elevated. The delay in securing affordable financing for our Vermont project resulted in our reliance on high-cost financing options. We are working diligently to finalize our financing in the third quarter of 2024.

### Net Loss

For the six months ended June 30, 2024, our loss amounted to $2,251,278, representing an increase from the loss of $1,868,163 incurred during the corresponding period in 2023. This increase is attributed to expenditures in salaries, IT, relocation, and legal and professional fees.

### Liquidity and Capital Resources

### Clean Energy Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

for the six months ended June 30,

(unaudited)

|  | 2024 | 2023 |
| --- | ---: | ---: |
| Net cash (used in) operating activities | $(1,612,034) | $(2,620,809) |
| Net cash provided by investing activities | 83,160 | 14,319 |
| Net cash provided by financing activities | 1,828,380 | 3,159,324 |
| Foreign Currency Transaction | (1,188) | - |
| Net increase in cash and cash equivalents | $298,318 | $583,899 |

### 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

#### Performance Obligations Satisfied at a Point in Time

#### FASB ASC 606-10-25-30

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

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

b. The customer has legal title to the asset

c. The entity has transferred physical possession of the asset

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

e. The customer has accepted the asset

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

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

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

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

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

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

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

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

a. A good or another asset from the other party which the entity then transfers to the customer. Note that momentary control before transfer to the customer may not qualify.

b. A right to a service to be performed by the other party, which gives the entity the ability to direct that party to provide the service to the customer on the entity’s behalf.

c. A good or service from the other party that it then combines with other goods or services in providing the specified good or service to the customer.

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

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

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

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

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

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

- The entities, together known as the Parties, approved the contract in writing, through signatures and commitment to the performance of permitting, design, procurement, construction, and commissioning.
- CETY’s work product includes permits, engineering designs, equipment, and full balance of plant specific to permitting, design, procurement, construction, and commissioning.
- CETY and customer agree to a total EPC Contract price.
- The contract has commercial substance. The risk associated with this EPC Agreement is that payment of the EPC contract price.
- Per the EPC Agreement, CETY expects to collect substantially all of the consideration for its goods and services.

Secondly, CETY identifies the performance obligations of the Parties in performance of the EPC Agreement in accordance with 606-10-25-14. At contract inception, CETY assesses the goods and services necessary to deliver the facility in accordance with the 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.

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, 2024 and December 31, 2023, we had $33,000 and $33,000 of deferred revenue, which is expected to be recognized in the fourth quarter of year 2024.

Also from time to time we require upfront deposits from our customers based on the contract. As of June 30,2024, and December 31, 2023, we had outstanding customer deposits of $41,462 and $210,310 respectively.

### Change from fair value or equity method to consolidation

Chengdu Xiangyueheng Enterprise Management Co., Ltd (the “Xiangyueheng”), which owns a 10% equity interest in Shuya, entered a three-party Concerted Action Agreement (the “CAA”), wherein the parties agreed to vote in unison at the shareholders’ meeting of Shuya to consolidate the controlling position of the three parties in Shuya. The three parties agreed that during the term of the CAA, before any of the three parties intends to propose motions to the shareholders’ meetings or the board of directors, or exercise their voting rights on any matter that shall be presented to and resolved through the shareholders’ meeting in accordance with the laws, regulations, Articles of Association of Shuya or any relevant shareholders’ agreements, the three parties 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 the CAA, the Company re-analyzed and determined that Shuya is the variable interest entity (the “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 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 into its consolidated financial statements effective on January 1, 2023.

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.

### 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.

## Market risk

As filed, 163 characters.

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.

## Controls and procedures

As filed, 2,256 characters.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2024, due to the material weaknesses resulting from the Board of Directors not currently having any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Please refer to our annual report on Form 10-K as filed with the SEC on April 17, 2024, for a complete discussion relating to the foregoing evaluation of Disclosures and Procedures.

### Changes in Internal Control over Financial Reporting

Our management has also evaluated our internal control over financial reporting, and there have been no significant changes during the six months ended June 30, 2024 in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.

## Risk factors

As filed, 208 characters.

There have been no material changes in the Company’s risk factors from those previously disclosed in our annual report on Form 10-K/A for the year ended December 31, 2024, filed with the SEC on June 20, 2024.

Filed Aug 19, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-033050. Last ingested by Listed: Nov 6, 2026, 18:28 ET. No prices; not investment advice.