Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the fair value of equity-based compensation and warrants issued with convertible notes, revenue recognition and the evaluation of the collectability of variable consideration, accrued loss provisions on onerous contracts, useful lives of long-lived assets, and the valuation allowance against deferred tax assets.

Accounts Receivable, Net

Accounts receivable due from customers are uncollateralized customer obligations due under normal and customary trade terms. Account receivables are stated at the amount billed to the customer, less an allowance for estimated credit losses.

Inventory, Net

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. The majority of our inventory is raw materials. Net realizable value is the value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal of the asset in question. Costs associated with fabrication, and other costs associated with the manufacturing of products, are recorded as inventory. We periodically evaluate the carrying value of our inventories in relation to estimated forecasts of product demand, which takes into consideration the life cycle of product releases. When quantities on hand exceed estimated sales or usage forecasts, we perform an analysis to determine if a write-down for such excess inventories is required. Once inventory has been written down, it creates a new cost basis for inventory. Inventories are classified as current assets in accordance with recognized industry practice. Based on our evaluation, we estimated an inventory allowance of $50,000 at both June 30, 2026 and December 31, 2025.

Property and Equipment

Property and Equipment is recorded at cost. Depreciation is computed using the straight-line method and the estimated useful life of the asset. Expenses for maintenance and repairs are charged to expense as incurred.

The following table presents property and equipment at June 30, 2026 and December 31, 2025:

At June 30, 2026, we were in the process of manufacturing an AirSCWO 1 (“AS1”) model that can process approximately 1 wet ton of waste per day. The AS1 is highly mobile and can be deployed quickly to provide on-site waste destruction services. At June 30, 2026 and December 31, 2025, these manufacturing costs were classified as equipment in-process until the AS1 was completed and placed in service. In July 2026, the AS1 was deployed to an on-site waste destruction facility and reclassified from equipment-in-process to equipment.

Depreciation expense is presented as follows in the unaudited condensed consolidated statement of operations:

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, and marketable securities. Deposits with financial institutions are insured, up to certain limits, by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s cash deposits often exceed the FDIC insurance limit; however, all deposits are maintained with high credit quality institutions and the Company has not experienced any losses in such accounts. The financial condition of financial institutions is periodically reassessed, and the Company believes the risk of any loss is minimal. Furthermore, we perform ongoing credit evaluations of our customers and generally do not require collateral.

Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues, purchases, accounts receivable and accounts payable.

For the three and six months ended June 30, 2026, we generated approximately 88% of our total consolidated revenues from one customer and two customers, respectively. For the three and six months ended June 30, 2025, we generated approximately 94% and 78% of our consolidated revenues with three customers, respectively.

At June 30, 2026, one customer comprised approximately 82% and 100% of our consolidated accounts receivable and unbilled accounts receivable, respectively. At December 31, 2025, our consolidated accounts receivable comprised approximately 74% and 10% outstanding with two customers, respectively.

Refer to Note 9 for information on a license agreement we have with Duke University for the SCWO technology used in our systems.

Revenue Recognition

The Company follows the revenue standards of Accounting Standards Codification (“ASC”) Topic 606: “Revenue from Contracts with Customers (Topic 606).” The core principle of this Topic is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contracts with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation using the input method.

The Company generates revenue from providing waste destruction services, including the completion of full-scale demonstrations and treatability studies, and the sale of equipment (AirSCWO units) to customers. In the case of equipment revenues, the Company’s performance obligations are satisfied over time as the equipment is being manufactured and are typically long-term fixed price contracts. Revenue is recognized over time by measuring the progress toward complete satisfaction of the performance obligation based on an input method. Equipment sale-related revenues are recognized in the proportion that contract costs incurred bear to total estimated costs to be incurred to complete the equipment contract. The estimated completed percentage is applied to the total transaction price of the fixed price contract. This method is used because management considers the input method to be the best available measure of progress on these contracts.

Changes in our overall expected cost estimates are recognized as a cumulative adjustment for the inception-to-date effect of such a change. If these changes in estimates result in a possible loss being incurred on the contract, we accrue for such a loss in the period such an outcome becomes probable.

Services revenues related to bench-scale treatability studies are recognized when all five revenue recognition criteria have been completed which is generally when we deliver a completed treatability study report to the customer.

Service revenues related to our full demonstrations, using our owned AirSCWO unit, may include multiple performance obligations, typically the demonstration itself and a technical report that summarizes the analysis of materials processed. Management estimates are required in allocating the transaction price between the performance obligations. However, other full-scale demonstrations may include one performance obligation, the demonstration itself. Revenues from such contracts are recognized over time as the demonstration is being completed.

Orlando Contract

In late 2024, we deployed our Demo System to the City of Orlando’s Iron Bridge Regional Water Reclamation Facility pursuant to a contract executed in March 2024 as part of a full-scale demonstration (the “Demo Contract”). Pursuant to the Demo Contract, the Company was responsible for system design, installation, commissioning and the start-up of the AirSCWO unit at the facility. Further, the Company was to operate and maintain the AirSCWO unit for the demonstration period. Lastly, the Company was to decommission, disassemble and demobilize the AirSCWO unit after the contract period. The Company will receive $812,000 as consideration for the full-scale demonstration.

In accordance with ASC 606-10-25-21, we concluded that the Demo Contract includes one performance obligation related to the full-scale demonstration. The system design, site preparation, installation, commissioning and decommissioning represent fulfillment activities versus separate performance obligations. During the three and six months ended June 30, 2026, we completed the full-scale demonstration period and have no further obligations under this Demo Contract. At December 31, 2025, we had a contract asset of $91,100 and unearned revenue of $90,667 related to this Demo Contract. During the three and six months ended June 30, 2026, we recognized service revenue of $0 and $482,405, respectively, including the unearned revenue at December 31, 2025 on this Demo Contract. During the three and six months ended June 30, 2026, we expensed $0 and $91,100, respectively, of a contract asset upon completing the Demo Contract. We did not recognize any revenue on this Demo Contract during the three and six months ended June 30, 2025.

On January 26, 2026, the Company executed a license agreement with the City of Orlando for use of their space at Iron Bridge Water Reclamation (the “Orlando License Agreement”) and on April 27, 2026, we executed a first amendment to the Orlando License Agreement to increase our leased space from 15,000 square feet to an additional 21,639 of square feet . Therefore, we will no longer demobilize our owned AirSCWO unit. See Note 9 for further information regarding the Orlando License Agreement.

Olathe Contract

On March 4, 2026, we entered into a purchase order with Garney Companies, Inc. (“Garney”) in connection with the Cedar Creek Wastewater Treatment Plant Expansion Phase II project in Olathe, Kansas. Under the purchase order, the Company will design, fabricate, deliver, install, and commission an AirSCWO 6 supercritical water oxidation unit and related pretreatment, dewatering, and water treatment equipment, and will provide startup, training, and warranty services.

The principal terms of the purchase order are as follows:

The purchase order also contains customary provisions regarding indemnification, insurance, change orders, and dispute resolution, and includes a buy-back provision under which the Company would offer a trade-in credit currently estimated at $1,000,000 if Garney elects to upgrade to an AirSCWO 30 unit.

During the six months ended June 30, 2026, we issued Garney an invoice totaling $2,296,250 upon the execution of the purchase order. We received payment, less retainage as described above, on this invoice in April 2026. During the three and six months ended June 30, 2026, no revenue has been recognized on the contract. Revenue will be recognized over the equipment manufacturing period which has not yet commenced. Therefore, we have classified the unearned revenue on this invoice within long-term liabilities due to the uncertainty of when the equipment will be completed and delivered.

OC San Contract and Change in Accounting Estimate

Our equipment revenue contract with the Orange County Sanitation District (“OC San”) is a fixed price contract that includes billings based on the achievement of deliverables or milestones. During the year ended December 31, 2025, we had experienced delays in completing the equipment due to design changes and upgrades preventing us from meeting the next contractual milestone. Due to these delays, we had been contractually unable to bill for certain costs incurred related to the OC San contract. At December 31, 2025, we incurred costs in excess of billings of approximately $1.9 million in connection with completing this contract.

Pursuant to the contract terms with OC San, we were unable to invoice and resume billing until the manufactured equipment passed a factory acceptance test (“FAT”) which is based on a continuous run time of the equipment and volume of materials processed. At contract inception, the variable consideration included in the contract price was not deemed to be constrained. We had anticipated delivering the equipment to OC San during the year ended December 31, 2025. Due to the unexpected delays, we had encountered in delivering the equipment, we reassessed the variable consideration at December 31, 2025. The changes in facts and circumstances resulted in us fully constraining the variable consideration at December 31, 2025 and ceasing revenue recognition on this contract after the nine months ended September 30, 2025. This resulted in the reduction of unbilled accounts receivable and a reduction in equipment revenue in the amount of approximately $1.9 million and $100,000 of revenue earned in the last quarter of 2025 not being recognized due to the constraints.

At June 30, 2026, OC San approved a change order which resulted in the modification of metrics required to pass the FAT. Specifically, the volume of materials to be processed was reduced from 6 tons per day to 3.25 tons per day. Upon the passing of the FAT, the Company invoiced OC San in the amount of $518,282, which was the next milestone billing. Further, this removed the constraints on variable consideration and resulted in the Company recognizing the previously reversed $1.9 million and the $100,000 of unrecognized revenue earned in the last quarter of 2025 during the three months ended June 30, 2026 as equipment revenue. Further, the unbilled accounts receivable remaining at June 30, 2026 have been reflected on the condensed consolidated balance sheet which will be billed in accordance with the contractual terms of the contract over the period of delivery, decommissioning and systems operations of up to six months, which is anticipated to start in the last quarter of 2026 and will continue through the first half of 2027.

See further revenue-related disclosures in Note 6.

Contract costs include all direct material, labor and subcontractor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation.

Research and Development Costs

The Company’s research and development costs are expensed in the period in which they are incurred. Such expenditures amounted to $284,589 and $531,170 for the three months ended June 30, 2026 and 2025, respectively, $734,423 and $1,064,757 for the six months ended June 30, 2026 and 2025, respectively.

Loss Per Share

Loss per share is computed in accordance with ASC Topic 260, “Earnings per Share.” Basic weighted-average number of shares of common stock outstanding for the three and six months ended June 30, 2026 and 2025 include the shares of the Company issued and outstanding during such periods, each on a weighted average basis. The basic weighted average number of shares of common stock outstanding excludes common stock equivalent incremental shares, while diluted weighted average number of shares outstanding includes such incremental shares. However, as the Company was in a loss position for all periods presented, basic and diluted weighted average shares outstanding are the same, as the inclusion of the incremental shares would be anti-dilutive. At June 30, 2026 and June 30, 2025, there were the following potentially dilutive securities that were excluded from diluted net loss per share because their effect would be antidilutive: options for 1,668,633 and 1,751,550 shares of common stock, respectively, 1,864,191 and 1,467,524, respectively, of outstanding common stock warrants and unvested restricted stock units of 513,370 and 621,282, respectively.

Recent Accounting Pronouncements - Not Yet Adopted

Accounting Standards Update 2024-03, Disaggregation of Income Statement Expenses (“DISE”). In November 2024, the FASB issued a new accounting standard to improve the disclosures about an entity’s expenses and address requests from investors for more detailed information about the types of expenses included in commonly presented expense captions. The new standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with retrospective application permitted. The Company is evaluating the disclosure requirements related to the new standard and its impact on our consolidated financial statements.

The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations.