Annual Report for Fiscal Year Ending June 30, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements and the related notes. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as its plans, objectives, expectations and intentions. Actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.

Overview of Our Business

We are a Nevada corporation originally incorporated under the name Bio Energy, Inc. On January 29, 2007, we incorporated a wholly owned subsidiary, Hydrodynamic Technology, Inc. as a California corporation.

We have developed, patented, and commercialized proprietary technology that can be used for processing of various industrial and consumer-oriented fluids, as discussed in detail above.

During the year ended June 30, 2025, we recorded revenue of $203,000 and a gain on the sale of our patents of $880,000 and incurred a net loss of $113,000.

Inflation and potential recession

We are, and our suppliers have experienced significant broad-based inflation of manufacturing and distribution costs as well as transportation challenges, partially as a result of the pandemic and there is uncertainty over the impact that recently implemented tariffs on various countries will have on the cost of our products or components used in our products. Although we do not believe that inflation has had a material effect on our business, financial condition or results of operations, it may in the future. We are monitoring cost structures and evaluating to what extent any such costs can be passed on to customers, taking into account the overall impact of increasing inflation and interest rate pressures on consumers. We expect input cost inflation to continue at least throughout 2026. If we are unable to successfully manage the effects of inflation, our business, operating results, cash flows and financial condition may be adversely affected. Additionally, there have been various economic indicators that the United States economy may be entering a recession in upcoming quarters. An economic recession could potentially impact the general business environment and the capital markets, which may have a material negative impact on our financial results.

Management's Plan of Operation

In October 2024, we assigned our patents relating to vegetable oil refining to Desmet Belgium for gross proceeds of $880,000, however, we retained a worldwide, exclusive, transferable, and royalty-free license to practice and use the Assigned Patents in the fields of water and wastewater processing, recovery, recycling, and purification (including oilfield wastewater), as well as the manufacture, distillation, brewing, enhancement, sale, and marketing of alcoholic beverages (the "Licensed Fields"), we also received a worldwide, exclusive, transferable, and royalty-free license to practice and use the Assigned Patents and associated technical information, consistent with the scope of the Reserved License, and additionally we retained exclusive rights to use the "Nano Reactor®" mark for our businesses, systems, and products related to the Licensed Fields.

Under both the Reserved License and the Grant-Back License, the Company will have a worldwide, exclusive, transferable, and royalty-free license and right to design, build, use, export, improve, sell, and market Nano Reactor® devices, as well as Nano Reactor® systems and products that incorporate or utilize Nano Reactor® devices, limited to uses and applications within one or more of the Licensed Fields.

As a result of this agreement, the Company expects that Desmet will start to manufacture the Nano reactors by itself and sale of Nano reactors to Desmet by the Company will significantly be reduced in future periods. We will continue to own and operate a large portfolio of patents and intellectual property rights in applications not related to vegetable oil refining. The following are Management's plans going forward to generate revenues and sustain the operations of the Company and its current status:

	1.	Water Treatment and Remediation in the Permian Basin
	2.	Water Remediation and Disinfection in Agriculture
	3.	Business Venture with Alchemy Beverages, Inc.
	4.	New Technologies: Hydro-Plasma

During the year ended June 30, 2025, we generated a net loss of $113,000 after a gain from the assignment of our patents to Desmet of $880,000 and utilized cash in our operations of $806,000. As of June 30, 2025, we have a working capital balance of $199,000 and a stockholders' equity of $69,000.

Management plans to generate revenues in future from the commercial applications of the new technologies discussed above.

Previously we generated revenues from licensing fees and from the sale of reactors from our previous agreements with Desmet Belgium (previously Desmet Ballestra).

During the year ended June 30, 2025, revenues recognized from sale of reactors amounted to $203,000. These funds are not sufficient to fund operational expenses on monthly basis. We generated an additional $880,000 in the assignment of our patents to Desmet and anticipate that we will generate revenues from the new technologies and additional markets identified above.

There was no revenue produced from our agreements with Enviro Watertek, LLC and Alchemy Beverages, Inc.

We anticipate that we may need additional funding, and we may attempt to raise additional debt and/or equity financing to fund operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet our needs, or that we will be able to meet our future contractual obligations. Should management fail to obtain such financing, we may curtail its operations.

Critical Accounting Policies and Revenue Recognition

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. The accounting policies and estimates described below are those we consider most critical in preparing its consolidated financial statements. The following is a review of the accounting policies and estimates that include significant judgments made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used instead.

Note 1 of the accompanying consolidated financial statements includes a summary of significant accounting policies, estimates, and methods used in the preparation of our financial statements. Accounting estimates are an integral part of the preparation of financial statements and are based on judgments by management using its knowledge and experience about the past and current events and assumptions regarding future events, all of which we consider to be reasonable. These judgments and estimates reflect the effects of matters that are inherently uncertain and that affect the carrying value of our assets and liabilities, the disclosure of contingent liabilities and reported amounts of expenses during the reporting period.

Revenue Recognition

The Company follows the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. 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 services it transfers to its clients.

Revenue from sale of our Nano Reactor® and LPN™ is recognized when products are shipped from our manufacturing facilities as this is our sole performance obligation under these contracts and we have no continuing obligation to the customer.

For the license fee revenue, revenue is recognized when the Company satisfies the performance obligation based on the related license agreement.

In addition, the Company also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer.

Leases

The Company accounts for leases under guidance of Accounting Standards Codification ("ASC") 842, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for the lease and non-lease components of its office lease as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.

Equity Method Investment

The Company accounts for investments in entities in which the Company has significant influence over the entity's financial and operating policies, but does not control, using the equity method of accounting. The equity method investments are initially recorded at cost, and subsequently increased for capital contributions and allocations of net income, and decreased for capital distributions and allocations of net loss. Equity in net income (loss) from the equity method investment is allocated based on the Company's economic interest. The Company assesses its investment in equity method investments for recoverability, and if it is determined that a loss in value of the investment is other than temporary, the Company writes down the investment to its fair value. Based on Management's assessment, the value of its equity method investment was impaired as of June 30, 2023 and as such, recorded an impairment charge of $1,112,000. As of June 30, 2025 and 2024, the remaining value of its investments amounted to a de minimus amount of $1,000, respectively.

Share-Based Compensation

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non- employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

Recent Accounting Pronouncements

See Note 1 of the financial statements for discussion of recent accounting pronouncements.

Results of Operations

Below is summary comparing fiscal 2025 and fiscal 2024.

		For the Years Ended
		June 30,
		2025				2024				$ Change				% Change
Revenue		$	203,000			$	1,363,000			$	(1,160,000	)			(85.1	)
Cost of revenue			(38,000	)			(156,000	)			118,000				(75.6	)
Gross profit			165,000				1,207,000				(1,042,000	)			(86.3	)
General and administrative expenses			1,057,000				708,000				349,000				49.3
Research and development expenses			95,000				61,000				34,000				55.7
Total operating expenses			1,152,000				769,000				383,000				49.8
Income (loss) from operations			(987,000	)			438,000				(1,425,000	)			325.3
Gain on patent assignment			880,000				-				880,000				100.0
Interest and other income (expense), net			(6,000	)			1,000				(7,000	)			(700.0	)
Net income (loss)		$	(113,000	)		$	439,000			$	(552,000	)			(125.7	)

Revenue

During the year ended June 30, 2025, revenue decreased by $1,160,000, as a result of the decrease in reactors purchased by Desmet, prior to the assignment of the patents to Desmet, which resulted in a decrease in revenues from reactor sales from $865,000 to $198,000 and a fee of $5,000 from the use of a reactor by a new customer. In addition, the Company also recognized $498,000 of license fee in 2024 pursuant to the termination of the October 2021 agreement with Desmet. There was no similar license fee revenue in fiscal 2025.

Cost of Sales

During the year ended June 30, 2025 and 2024, cost of sales was $38,000 and $156,000, respectively, a decrease of $118,000 or 76.0%. The decrease is directly attributable to the cost of the production of reactors which corresponds to the decrease in reactors revenues. In addition, in the prior year, the Company recognized license fee revenue of $498,000, with no associated cost of sales. After taking these items into account the cost of sales movement is in line with normal margins earned.

General and administrative expenses

General and administrative expenses increased by $349,000 or 49.0%. The Increase is primarily attributable to the following:

	·	Payroll expenses increased by $121,000 due to the employment of a previous officer of the Company to assist with product development,
	·	Stock based compensation increased by $201,000 due to stock purchase warrants granted to certain of the Company's employees and consultants and common stock issued to consultants for services rendered,
	·	Legal fees increased by $43,000 due to patent activity and the expenses incurred with the assignment of patents to Desmet.
	·	Travel expenses decreased by $20,000 due to a reduction in travel by our officers during the current year.

Research and development expenses

Research and development expenses increased by $34,000. During the current year, as in the prior year, management continued investing in research into cold plasma technology to be applied to new markets.

Gain on patent assignment

Gain on patent assignment was $880,000 for the year ended June 30, 2025 as a result of sale and assignment of certain patents to Desmet in October 2024. There was no similar transaction during the prior period.

Interest and other income (expense), net

Interest and other income (expense) increased by $7,000, this is primarily due to interest on the SBA loan. In the prior year an adjustment was made to the accrued interest on the SBA loan after reconciling to the balance reflected by the SBA noteholder.

Net Loss

Our net loss in fiscal 2025 was $113,000 and our net income in fiscal 2024 was $439,000, an increase in loss of $552,000 due primarily to a decrease in revenue, an increase in general and administrative expenses and research and development costs, offset by the gain realized on the patent assignment, discussed above.

Liquidity and Capital Resources

Our cash balance at June 30, 2025 and 2024 was $249,000 and $179,000, respectively, an increase of $70,000, primarily due to the proceeds realized on the assignment of patents to Desmet during October 2024.

We utilized cash of $806,000 to fund operating activities, due to a reduction in revenues and the increase in operating expenses discussed above.

We generated cash of $880,000 from the assignment of our patents to Desmet.

We utilized cash in financing activities of $4,000 for the year ended June 30, 2025, for the installment payment of notes payable.

Going concern

During the year ended June 30, 2025, the Company incurred net loss of $113,000 and used cash in operations of $806,000 and as of June 30, 2025, we had an accumulated deficit of $26,960,000. The Company has had a history of operating losses. These factors, among others, raise substantial doubt about our ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company's independent registered public accounting firm, in its report on our June 30, 2025 financial statements, has raised substantial doubt about the Company's ability to continue as a going concern. The Company's financial statements do not include any adjustments that might result from the outcome of this uncertainty be necessary should we be unable to continue as a going concern.

Management's plan is to generate income from the application of new technologies as discussed above.

We may also attempt to raise additional debt and/or equity financing to fund operations and to provide additional working capital. There is no assurance that such financing will be available in the future or obtained in sufficient amounts necessary to meet our needs, that we will be able to achieve profitable operations or that we will be able to meet our future contractual obligations. Should management fail to obtain such financing, the Company may curtail its operations.

Off-balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.