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Contracts with Desmet Ballestra

12 Months Ended

Jun. 30, 2023

Note 2 – Contracts with Desmet Ballestra

The Company has the following agreements with Desmet Ballestra (Desmet), a company located in Europe:

		October 2018 Agreement. The Company signed a three-year global Research and Development (R&D), Marketing and Technology License Agreement with Desmet for the sale and licensing of the Company’s reactors. This agreement was a continuation of an original agreement the Company signed with Desmet in fiscal 2012 and amended in fiscal 2016.

		As part of the October 2018 agreement, Desmet provided the Company monthly advances of $50,000 through October 1, 2021, to be applied against the Company’s gross profit share from future sales. In accordance with ASC 606, the Company determined that the gross profit to be earned from Desmet was a variable consideration and evaluated the amount of the potential payments and the likelihood that the payments would be received using the most likely amount approach (subject to the variable consideration constraint). Estimates were available from our distributor which were considered in the determination of the most likely amount. However, given the lack of control over the sale to the end customer and the lack of history of prior sales, the Company considered these as variable revenue constraints, and as such, the amount of gross profit share revenue recognized was limited to the actual amount of cash received under the contract which the Company had determined was not refundable and probable that a significant revenue reversal would not occur. Further, the Company had not been able to develop an expectation of the actual collection based on its historical experience. The Company also had no control with regards to the sale and installation of Nano Reactor® and CTi Nano Neutralization® System, between Desmet and the end customer. This agreement expired in October 2021 and was replaced by the October 2021 agreement, for which, the Company is no longer entitled to revenue from a share of gross profit to be earned from distributors.

		In October 2021, the Company executed a three-year agreement with Desmet that is a continuation of the October 2018 agreement. In accordance with ASC 606, the Company recognizes revenue from the sale of reactors at the time of shipment of the Nano reactor hardware as shipment is deemed to be the Company’s only performance obligation and the Company had no more continuing obligation other than the reactor’s two-year standard warranty. Desmet pays for such reactors on credit terms and the amount of a sale is recorded as a receivable upon acceptance by Desmet. In addition, Desmet agreed to provide the Company monthly advances, subject to certain limitations, of $40,000 through October 1, 2024 to be applied against future sales of reactors.

During the year ended June 30, 2023, the Company recorded sales of $413,000 from Nano Reactor® sales from Desmet.

During the year ended June 30, 2022, the Company recorded sales of $592,000 from Nano Reactor® sales from Desmet, and $1,027,000 from gross profit share for a total revenue of $1,619,000 from Desmet.

As part of the Company’s agreement with Desmet, the Company receives cash advances from Desmet for the Company’s share in gross profit from the sale of reactors as well as advance payment for the sale of reactors. The Company initially records the advances received as “customer advances” a liability account, until such time revenue recognition is met. As of June 30, 2021, outstanding balance of customer advances amounted to $727,000.

During the year ended June 30, 2022, advances received from Desmet amounted to $972,000 and revenues totaled $1,619,000. As of June 30, 2022, outstanding advances from Desmet amounted to $80,000.

During the year ended June 30, 2023, advances received from Desmet amounted to $724,000 and revenues totaled $413,000. As of June 30, 2023, outstanding advances from Desmet amounted to $391,000.