NOTE 7 – CONVERTIBLE NOTE RECEIVABLE

Effective January 10, 2022, JHJ (the “Note Holder”) entered into a convertible loan agreement with Chengdu Rongjun Enterprise Consulting Co., Ltd. (“Rongjun” or the “Borrower”), pursuant to which JHJ advanced RMB 5,000,000 (approximately $0.69 million) to Rongjun. The loan originally bore interest at 12% per annum and had a maturity date of January 10, 2025. The note included a conversion feature allowing the Note Holder to convert the outstanding balance into an indirect equity interest representing approximately 15% of Heze Hongyuan Natural Gas Co., Ltd. (“Heze”), in which Rongjun holds a controlling interest.

In October 2022, the Company amended the terms of the loan by reducing the stated interest rate from 12% to 0% and extending the maturity date to January 10, 2027. The Company evaluated the modification under applicable U.S. GAAP and concluded that the revised terms were substantially different from the original terms. Accordingly, the modification was accounted for as an extinguishment of the original loan and the recognition of a new loan at its fair value on the modification date. The difference between the carrying value of the original loan and the fair value of the modified loan was recognized as a loss in earnings in 2022.

Following the modification, the loan is accounted for at amortized cost using the effective interest method. Although the modified loan bears no stated interest, interest income is recognized through the accretion of the initial discount, representing the difference between the fair value at recognition and the contractual principal amount, over the remaining term of the loan. As a result, the carrying value of the loan increases over time and is expected to accrete to its contractual principal amount at maturity.

The following table presents the accretion of the loan receivable:

Loan Receivable Accretion Schedule

 SCHEDULE OF LOAN RECEIVABLE ACCRETION SCHEDULE

The Company evaluated the collectability of the loan receivable in accordance with ASC 326, Financial Instruments – Credit Losses (CECL). Based on the Borrower’s financial condition, the underlying project economics, and forward-looking information, The Company evaluated the collectability of the loan receivable in accordance with ASC 326, Financial Instruments—Credit Losses (CECL). In estimating expected credit losses, management considered the borrower’s financial condition, the related-party nature of the investment, the status and expected economics of the underlying pipeline project, the remaining contractual term through January 2027, and other forward-looking information available as of December 31, 2025. Based on this assessment, the Company recorded an allowance for expected credit losses equal to approximately 20% of the amortized cost basis of the loan receivable.

The Company also evaluated the embedded conversion feature under ASC 815, Derivatives and Hedging, and concluded that bifurcation as a derivative is not required, as the underlying equity interests are not readily convertible to cash and the feature does not meet the criteria for derivative accounting.