UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,December 31, 2023
Commission File Number: 000-53239
Cavitation Technologies, Inc.
(Exact name of Registrant as Specified in its Charter)
| Nevada | 20-4907818 |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
10019 CANOGA AVENUE, CHATSWORTH, CALIFORNIA 91311
(Address, including Zip Code, of Principal Executive Offices)
(818) 718-0905
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated Filer | ☒ | Small reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant by reference to the price at which the common equity was last sold, or of the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $5,465,000 as of December 31, 2023 based on the closing price of $0.02 per share and 273,239,850 shares outstanding.
As of October 31, 2023,February 10, 2024 the issuer had shares of common stock outstanding.
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements.
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | June 30, | |||||||
| 2023 | 2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 140,000 | $ | 18,000 | ||||
| Total current assets | 140,000 | 18,000 | ||||||
| Property and equipment, net | 1,000 | 1,000 | ||||||
| Equity method investment | 1,000 | 1,000 | ||||||
| Operating lease right of use asset, net | 95,000 | 113,000 | ||||||
| Other assets | 10,000 | 10,000 | ||||||
| Total assets | $ | 247,000 | $ | 143,000 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 144,000 | $ | 120,000 | ||||
| Accrued payroll and payroll taxes due to officers | 326,000 | 280,000 | ||||||
| Note payable | 5,000 | 5,000 | ||||||
| Operating lease liability, current portion | 68,000 | 68,000 | ||||||
| Advances from distributor | 695,000 | 391,000 | ||||||
| Total current liabilities | 1,238,000 | 864,000 | ||||||
| Note payable, non-current | 145,000 | 145,000 | ||||||
| Operating lease liability, non-current portion | 34,000 | 53,000 | ||||||
| Total liabilities | 1,417,000 | 1,062,000 | ||||||
| Commitments and contingencies | – | – | ||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of September 30, 2023 and June 30, 2023, respectively | – | – | ||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding as of September 30, 2023 and June 30, 2023 | 284,000 | 284,000 | ||||||
| Additional paid-in capital | 26,083,000 | 26,083,000 | ||||||
| Accumulated deficit | (27,537,000 | ) | (27,286,000 | ) | ||||
| Total stockholders' deficit | (1,170,000 | ) | (919,000 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 247,000 | $ | 143,000 | ||||
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 7,000 | $ | 18,000 | ||||
| Total current assets | 7,000 | 18,000 | ||||||
| Property and equipment, net | – | 1,000 | ||||||
| Equity method investment | 1,000 | 1,000 | ||||||
| Operating lease right of use asset, net | 78,000 | 113,000 | ||||||
| Other assets | 10,000 | 10,000 | ||||||
| Total assets | $ | 96,000 | $ | 143,000 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 121,000 | $ | 120,000 | ||||
| Accrued payroll and payroll taxes due to officers | 372,000 | 280,000 | ||||||
| Note payable | 5,000 | 5,000 | ||||||
| Operating lease liability, current portion | 71,000 | 68,000 | ||||||
| Advances from distributor | 555,000 | 391,000 | ||||||
| Total current liabilities | 1,124,000 | 864,000 | ||||||
| Note payable, non-current | 145,000 | 145,000 | ||||||
| Operating lease liability, non-current portion | 13,000 | 53,000 | ||||||
| Total liabilities | 1,282,000 | 1,062,000 | ||||||
| Commitments and contingencies | – | – | ||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of December 31, 2023 and June 30, 2023, respectively | – | – | ||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding as of December 31, 2023 and June 30, 2023 | 284,000 | 284,000 | ||||||
| Additional paid-in capital | 26,083,000 | 26,083,000 | ||||||
| Accumulated deficit | (27,553,000 | ) | (27,286,000 | ) | ||||
| Total stockholders' deficit | (1,186,000 | ) | (919,000 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 96,000 | $ | 143,000 | ||||
See accompanying notes to the condensed consolidated financial statements
| 3 |
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
AS OF SEPTEMBER 30,DECEMBER 31, 2023 AND 2022
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| (unaudited) | (unaudited) | |||||||
| Revenue | $ | – | $ | 244,000 | ||||
| Revenue from joint venture | – | 17,000 | ||||||
| Total revenue | – | 261,000 | ||||||
| Cost of revenue | – | (50,000 | ) | |||||
| Gross profit | – | 211,000 | ||||||
| General and administrative expenses | 214,000 | 265,000 | ||||||
| Research and development expenses | 36,000 | – | ||||||
| Total operating expenses | 250,000 | 265,000 | ||||||
| Loss from operations | (250,000 | ) | (54,000 | ) | ||||
| Other expense: | ||||||||
| Loss from equity method investment | – | (18,000 | ) | |||||
| Interest expense | (1,000 | ) | (1,000 | ) | ||||
| Net Loss | $ | (251,000 | ) | $ | (73,000 | ) | ||
| Net Loss per share, Basic and diluted | $ | ) | $ | ) | ||||
| Weighted average shares outstanding, Basic and diluted | ||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Revenue | $ | 192,000 | $ | 58,000 | $ | 192,000 | $ | 303,000 | ||||||||
| Revenue from joint venture | – | – | – | 17,000 | ||||||||||||
| Total revenue | 192,000 | 58,000 | 192,000 | 320,000 | ||||||||||||
| Cost of revenue | (34,000 | ) | (13,000 | ) | (34,000 | ) | (62,000 | ) | ||||||||
| Gross profit | 158,000 | 45,000 | 158,000 | 258,000 | ||||||||||||
| General and administrative expenses | 172,000 | 332,000 | 386,000 | 598,000 | ||||||||||||
| Research and development expenses | – | – | 36,000 | – | ||||||||||||
| Total operating expenses | 172,000 | 332,000 | 422,000 | 598,000 | ||||||||||||
| Loss from operations | (14,000 | ) | (287,000 | ) | (264,000 | ) | (340,000 | ) | ||||||||
| Other expense | ||||||||||||||||
| Loss from equity method investment | – | (11,000 | ) | – | (29,000 | ) | ||||||||||
| Interest expense | (2,000 | ) | (1,000 | ) | (3,000 | ) | (3,000 | ) | ||||||||
| Net Loss | $ | (16,000 | ) | $ | (299,000 | ) | $ | (267,000 | ) | $ | (372,000 | ) | ||||
| Net Loss per share, | ||||||||||||||||
| Basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average shares outstanding, | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
| 4 |
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (Unaudited)
AS OF SEPTEMBER 30,DECEMBER 31, 2023 AND 2022
| Three Months Ended September 30, 2023 (unaudited) | Three Months Ended December 31, 2023 (unaudited) | |||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 284,289,740 | $ | 284,000 | $ | 26,083,000 | $ | (27,286,000 | ) | $ | (919,000 | ) | |||||||||||||||||||||||||||||
| Balance at September 30, 2023 | 284,289,740 | $ | 284,000 | $ | 26,083,000 | $ | (27,537,000 | ) | $ | (1,170,000 | ) | |||||||||||||||||||||||||||||
| Net loss | – | – | – | (251,000 | ) | (251,000 | ) | – | – | – | (16,000 | ) | (16,000 | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2023 | 284,289,740 | $ | 284,000 | $ | 26,083,000 | $ | (27,537,000 | ) | $ | (1,170,000 | ) | |||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 284,289,740 | $ | 284,000 | $ | 26,083,000 | $ | (27,553,000 | ) | $ | (1,186,000 | ) | |||||||||||||||||||||||||||||
| Three Months Ended September 30, 2022 (unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at June 30, 2022 | 276,698,831 | $ | 277,000 | $ | 26,005,000 | $ | (25,246,000 | ) | $ | 1,036,000 | ||||||||||
| Net loss | – | – | – | (73,000 | ) | (73,000 | ) | |||||||||||||
| Balance at September 30, 2022 | 272,701,844 | $ | 272,000 | $ | 25,810,000 | $ | (25,319,000 | ) | $ | 963,000 | ||||||||||
| Six Months Ended December 31, 2023 (unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at June 30, 2023 | 284,289,740 | $ | 284,000 | $ | 26,083,000 | $ | (27,286,000 | ) | $ | (919,000 | ) | |||||||||
| Net loss | – | – | – | (267,000 | ) | (267,000 | ) | |||||||||||||
| Balance at December 31, 2023 | 284,289,740 | $ | 284,000 | $ | 26,083,000 | $ | (27,553,000 | ) | $ | (1,186,000 | ) | |||||||||
| Three Months Ended December 31, 2022 (unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at September 30, 2022 | 276,698,831 | $ | 277,000 | $ | 26,005,000 | $ | (25,319,000 | ) | $ | 963,000 | ||||||||||
| Net loss | – | – | – | (299,000 | ) | (299,000 | ) | |||||||||||||
| Balance at December 31, 2022 | 276,698,831 | $ | 277,000 | $ | 26,005,000 | $ | (25,618,000 | ) | $ | 664,000 | ||||||||||
| Six Months Ended December 31, 2022 (unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at June 30, 2022 | 276,698,831 | $ | 277,000 | $ | 26,005,000 | $ | (25,246,000 | ) | $ | 1,036,000 | ||||||||||
| Net loss | – | – | – | (372,000 | ) | (372,000 | ) | |||||||||||||
| Balance at December 31, 2022 | 276,698,831 | $ | 277,000 | $ | 26,005,000 | $ | (25,618,000 | ) | $ | 664,000 | ||||||||||
See accompanying notes to the condensed consolidated financial statements
| 5 |
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Three Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net loss | $ | (251,000 | ) | $ | (73,000 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Gain on forgiveness of note payable | – | 18,000 | ||||||
| Effect of changes in: | ||||||||
| Accounts receivable | – | (17,000 | ) | |||||
| Operating lease right of use asset | 18,000 | 17,000 | ||||||
| Accounts payable and accrued expenses | 24,000 | 4,000 | ||||||
| Accrued payroll and payroll taxes due to officers | 46,000 | – | ||||||
| Advances from distributor | 304,000 | (44,000 | ) | |||||
| Operating lease liability | (19,000 | ) | (17,000 | ) | ||||
| Prepaid expenses | – | 38,000 | ||||||
| Net cash provided by (used in) operating activities | 122,000 | (74,000 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | 122,000 | (74,000 | ) | |||||
| Cash and cash equivalents, beginning of period | 18,000 | 441,000 | ||||||
| Cash and cash equivalents, end of period | $ | 140,000 | $ | 367,000 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 2,000 | $ | – | ||||
| Cash paid for income taxes | $ | – | $ | – | ||||
| Six Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (267,000 | ) | $ | (372,000 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 1,000 | 1,000 | ||||||
| Loss from equity method of investment | – | 29,000 | ||||||
| Effect of changes in: | ||||||||
| Accounts receivable | – | 1,000 | ||||||
| Operating lease right of use asset | 35,000 | 33,000 | ||||||
| Accounts payable and accrued expenses | 92,000 | 29,000 | ||||||
| Advances from distributor, net | 164,000 | 177,000 | ||||||
| Operating lease liability | (36,000 | ) | (34,000 | ) | ||||
| Prepaid expenses | – | 38,000 | ||||||
| Net cash used in operating activities | (11,000 | ) | (98,000 | ) | ||||
| Net decrease in cash and cash equivalents | (11,000 | ) | (98,000 | ) | ||||
| Cash and cash equivalents, beginning of period | 18,000 | 441,000 | ||||||
| Cash and cash equivalents, end of period | $ | 7,000 | $ | 343,000 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 4,000 | $ | – | ||||
| Cash paid for income taxes | $ | – | $ | – | ||||
See accompanying notes to the condensed consolidated financial statements
| 6 |
CAVITATION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)ThreeSix months ended September 30,December 31, 2023 and 2022
Note 1 - Organization and Summary of Significant Accounting Policies
Cavitation Technologies, Inc. (referred to herein, unless otherwise indicated, as “the Company,” “CTi,” “we,” “us,” and “our”) is a Nevada corporation originally incorporated under the name Bio Energy, Inc. CTi has developed, patented, and commercialized proprietary technology that may be used in liquid processing applications.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) as promulgated in the United States of America (“U.S.”) and with instructions to Form 10-Q pursuant to the rules and regulations of Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and Article 8-03 of Regulation S-X under the Exchange Act. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, we have included all adjustments considered necessary (consisting of normal recurring adjustments) for a fair presentation. Operating results for the three and six months ended September 30,December 31, 2023 are not indicative of the results that may be expected for the fiscal year ending June 30, 2024. You should read these unaudited condensed consolidated financial statements in conjunction with the audited financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended June 30, 2023 filed on October 3, 2023. The condensed consolidated balance sheet as of June 30, 2023 has been derived from the audited financial statements included in the Form 10-K for that year.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in accompanying consolidated financial statements, during the threesix months ended September 30,December 31, 2023, the Company incurred a net loss of $251,000267,000 and had a stockholders’ deficit of $1,170,0001,186,000 as of September 30,December 31, 2023. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s June 30, 2023, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from an inability of the Company to continue as a going concern.
As of September 30,December 31, 2023, the Company has cash in the amount of $140,0007,000. The Company’s ability to continue as a going concern is dependent upon its ability to continue to implement its business plan. Currently, management’s plan is to increase revenues by continuing to license its technology globally. While the Company believes in the viability of its strategy to increase revenues, there can be no assurances to that effect. The Company believes it has access to enough cash resources to sustain operations through December, 2023.March 31, 2024.
The Company 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 the Company’s needs, that the Company will be able to achieve profitable operations or that the Company will be able to meet its future contractual obligations. Should management fail to obtain such financing, the Company may curtail its operations.
| 7 |
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. Significant estimates are used in impairment analysis for fixed assets, accrual of potential liabilities, deferred tax assets and valuing our stock options, warrants, and common stock issued for services, among other items. Actual results could differ from these estimates.
Revenue Recognition
The Company follows the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). 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 Reactors 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..customer. In addition, the Company also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer.
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. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If it is determined that a loss in value of the equity method investment is other than temporary, an impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on current plans, intended holding periods, and available information at the time the analysis is prepared. As of September 30,December 31, 2023 and June 30, 2023, the carrying value of its equity method investments was $1,000for both periods presented.
The Company’s computation of loss per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted income per share, the treasury stock method assumes that outstanding options and warrants were exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
| 8 |
There were no adjustments to net (loss) required for purposes of computing diluted earnings per share. At September 30,December 31, 2023 and September 30,December 31, 2022, the Company excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from its calculation of its diluted earnings per share, as their effect would have been anti-dilutive.
| Schedule of antidilutive shares | ||||||||
| September 30, 2023 | June 30, 2023 | |||||||
| Options | – | 1,250,000 | ||||||
| Warrants | 53,657,234 | 53,657,234 | ||||||
| Schedule of antidilutive shares | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Options | – | 1,250,000 | ||||||
| Warrants | 30,260,574 | 53,927,834 | ||||||
Concentrations
Cash - cash is deposited in one financial institution. The balances held at this financial institution at times may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits of up to $250,000.
Accounts Payable and Accrued Expenses – two vendors accounted for 2264% and 3019% of accounts payable and accrued expenses as of September 30,December 31, 2023, respectively. Two vendors accounted for 52% and 36% of accounts payable and accrued expenses as of June 30, 2023.
Revenues – during the three-monththree and six months period ended September 30, 2022,December 31, 2023, 93100% of revenues were from Desmet Ballestra (Desmet). During the three months and six months ended December 31, 2022, 100% and 95% of revenues, respectively was from Desmet.
Fair Value Measurement
FASB Accounting Standards Codification (“ASC”) 820-10 requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet for which it is practicable to estimate fair value. ASC 820-10 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
The three levels of the fair value hierarchy are as follows:
| · | Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. | |
| · | Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. | |
| · | Level 3 - Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
On September 30,December 31, 2023 and June 30, 2023, the fair values of cash and cash equivalents, accounts payable and accrued expenses, and accrued payroll and payroll taxes approximate their carrying values due to their short-term nature.
| 9 |
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning July 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
Note 2 - Contracts with Desmet Ballestra Group
In October 2021, the Company executed a three-year agreement with Desmet Ballestra (Desmet), a company located in Europe. This agreement is a continuation of the October 2018 agreement that expired also in October 2021. 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.
During the three and six months ended September 30, 2022,December 31, 2023, the Company recorded sales of $244,000 192,000from Nano Reactor® sales from Desmet.
During the three months ended September 30, 2023 there were no sales from Nano Reactor to Desmet.
During the three and six months ended December 31, 2022, the Company recorded total revenue from Desmet of $58,000 and $303,000 from reactor sales, respectively.
As part of the October 2021 agreement with Desmet, the Company also receives cash advances of $40,000 per month, subject to certain limitations, as advance payment for the sale of reactors. The Company initially records the advances received as “advances from distributor” a liability account, until such time revenue recognition is met. As of June 30, 2023, outstanding balance of customer advances amounted to $391,000.
During the threesix months ended September 30,December 31, 2023, advances received from Desmet amounted to $304,000356,000, reduced by revenues recognized of $192,000.
As of September 30,December 31, 2023, outstanding advances from Desmet amounted to $695,000555,000.
Note 3 - Investment in equity method investment
In April 2019, the Company and an unrelated entity, Delaware Water Company, LLC (Delaware) formed a limited liability company called Enviro WaterTek LLC (“Enviro”). Enviro is owned 50% by the Company and 50% by Delaware, and the Company accounts for its investment in Enviro under the equity method in accordance with ASC 323 as the Company’s investments in Enviro, an unconsolidated entity and for which it has the ability to exercise significant influence but not control. From inception up to June 30,December 31, 2023, Enviro had no operations.
| 10 |
In September 2021, the Company and Delaware entered into a separate agreement under Enviro for a specific project (referred to as “Ameredev”). Delaware has certain contracts in place to provide recycled water to operators of certain active oil and gas wells. Under the agreement, the Company contributed $1.2 million that was used by Ameredev to increase the capacity of certain pipelines and water treatment facilities operated by Delaware. Pursuant to the agreement, for each barrel of recycled water that Ameredev sells, Delaware will receive $0.10 per barrel, and the Company will receive $0.05 per barrel (referred to as usage fees), with the balance of net income (loss) from Ameredev being allocated 70% to Delaware and 30% to the Company. The Ameredev agreement will terminate the earlier of three years (unless extended by unanimous agreement of the Board and Members of Ameredev) from the date of the agreement or by unanimous agreement of the Board and Members of Ameredev.
As of September 30,December 31, 2023 and June 30, 2023, the balance of the equity method investment amounted to $1,000, for both periods presented.
During the three and six months ended September 30,December 31, 2022, the Company recognized a loss of $17,000 and $29,000related to the equity method investment.
There was no similar transactiontransactions during the periodthree months and six months ended September 30, 2023December 31, 2023.
Note 4 – Operating Lease
The Company leases certain warehouse and corporate office space under an operating lease agreement. We determine if an arrangement is a lease at inception. Lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as lease liabilities in our consolidated balance sheets.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in lease arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives.
The components of lease expense and supplemental cash flow information related to leases for the period are as follows:
| Schedule of lease expense | ||||||||||||||||
| September 30, | September 30, | December 31, | December 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Lease costs: | ||||||||||||||||
| Operating lease (included in general and administrative in the Company’s consolidated statement of operations) | $ | 19,000 | $ | 19,000 | $ | 38,000 | $ | 38,000 | ||||||||
| Other information: | ||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | 17,000 | $ | 19,000 | $ | 38,000 | $ | 38,000 | ||||||||
| Weighted average remaining lease term – operating leases (in years) | 1.3 | 2.3 | 1.0 | 2.0 | ||||||||||||
| Average discount rate – operating leases | 4% | 4% | 4% | 4% | ||||||||||||
| The supplemental balance sheet information related to leases for the period is as follows: | ||||||||||||||||
| Long-term right-of-use assets | $ | 95,000 | $ | 163,000 | ||||||||||||
| Short-term operating lease liabilities | $ | 68,000 | $ | 63,000 | ||||||||||||
| Long-term operating lease liabilities | 34,000 | 110,000 | ||||||||||||||
| Total operating lease liabilities | $ | 102,000 | $ | 173,000 | ||||||||||||
| The supplemental balance sheet information related to leases for the period is as follows: | ||||
| December 31, 2023 | ||||
| Long-term right-of-use assets | $ | 78,000 | ||
| Short-term operating lease liabilities | $ | 71,000 | ||
| Long-term operating lease liabilities | 13,000 | |||
| Total operating lease liabilities | $ | 84,000 | ||
| 11 |
Supplemental cash flow information related to the lease liabilities are as follows:
| Schedule of lease liabilities maturities | ||||||||
| Operating | Operating | |||||||
| Year Ending June 30: | Lease | Lease | ||||||
| 2024 (remaining 9 months) | $ | 59,000 | ||||||
| 2024 (remaining 6 months) | $ | 40,000 | ||||||
| 2025 | 47,000 | 47,000 | ||||||
| Total lease payments | 106,000 | 87,000 | ||||||
| Less: Imputed interest/present value | (4,000 | ) | (3,000 | ) | ||||
| Present value of lease liabilities | $ | 102,000 | $ | 84,000 | ||||
Note 5 – Related Party Transactions
Accrued Payroll and Payroll Taxes
In prior periods, the Company accrued salaries and estimated payroll taxes due to a former officer of the Company. As aof June 30, 2023, total accrued payroll and payroll taxes-related parties amounted $280,000.
During the threesix months ended September 30,December 31, 2023, the Company accrued the payroll of an officer of the Company amounting to $46,00092,000.
As of September 30,December 31, 2023, total accrued payroll and payroll taxes-related parties amounted to $326,000372,000.
Note 6 – Notes Payable
In July 2020, the Company received a loan of $150,000from the SBA under its Economic Injury Disaster Loan (EIDL) assistance program. The EIDL loan is payable over 30 years, bears interest at a rate of 3.75% per annum and secured by all tangible and intangible property of the Company.
Pursuant to the terms of the SBA EIDL loan agreement, the Company is required to make monthly installment payments of approximately $700 starting in July 2021. However, the Company was not able to pay the required monthly installment due from July 2021 to April 2023.
In May 2023, the Company was able to cure the payment delay with the SBA and started paying the monthly installment due of approximately $700. As part of the agreement, all payments will be first applied to accrued interest until the Company becomes current with the interest due. At Septemberdue, As of December 31, 2023 and June 30, 2023 and September 30, 2022 approximately $12,000 and $13,000, respectively, of accrued interest is included in accounts payable and accrued expenses.
As of September 30,December 31, 2023 and June 30, 2023, the outstanding loan balance amounted to $150,000, respectively.
| 12 |
Note 7 - Stockholders' Equity
Stock Warrants
A summary of the Company's warrant activity and related information for the threesix months ended on September 30,December 31, 2023 is as follows:
| Schedule of warrant activity | ||||||||||||||||||||||||
| Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (Years) | Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (Years) | |||||||||||||||||||
| Outstanding at June 30, 2023 | 53,657,234 | $ | 0.09 | 53,657,234 | $ | 0.09 | ||||||||||||||||||
| Granted | – | – | – | – | – | – | ||||||||||||||||||
| Exercised | – | – | – | – | – | – | ||||||||||||||||||
| Expired | – | – | – | (23,396,660 | ) | 0.10 | – | |||||||||||||||||
| Outstanding at September 30, 2023 vested and exercisable | 53,927,834 | $ | 0.09 | |||||||||||||||||||||
| Outstanding at December 31, 2023 vested and exercisable | 30,260,574 | $ | 0.08 | |||||||||||||||||||||
There was no intrinsic value of the outstanding warrants as of September 30,December 31, 2023, as the exercise price of these warrants were greater than the market price. The following table summarizes additional information concerning warrants outstanding and exercisable at September 30,December 31, 2023.
| Schedule of warrants outstanding and exercisable | |||||||||||||||||||
| Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||
| Weighted | Weighted | Weighted | |||||||||||||||||
| Average | Average | Average | |||||||||||||||||
| Exercise | Number | Remaining | Exercise | Number | Remaining | ||||||||||||||
| Price | of Shares | Life (Years) | Price | of Shares | Life (Years) | ||||||||||||||
| $ | 0.03 - 0.05 | 11,126,518 | $ | 0.03 | 11,126,518 | ||||||||||||||
| 0.09 | 23,841,323 | 0.09 | 23,841,323 | ||||||||||||||||
| $ | 0.12 | 18,959,993 | $ | 0.12 | 18,959,993 | ||||||||||||||
| 53,927,834 | 53,927,834 | ||||||||||||||||||
| Schedule of warrants outstanding and exercisable | |||||||||||||||||||
| Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||
| Weighted | Weighted | Weighted | |||||||||||||||||
| Average | Average | Average | |||||||||||||||||
| Exercise | Number | Remaining | Exercise | Number | Remaining | ||||||||||||||
| Price | of Shares | Life (Years) | Price | of Shares | Life (Years) | ||||||||||||||
| $ | 0.03 | 6,419,251 | $ | 0.03 | 6,419,251 | ||||||||||||||
| $ | 0.09 | 23,841,323 | 0.09 | 23,841,323 | |||||||||||||||
| 30,260,574 | 30,260,574 | ||||||||||||||||||
Note 8 - Commitments and Contingencies
Royalty Agreements
On July 1, 2008, the Company entered into Patent Assignment Agreements with two parties, our President and Technology Development Supervisor, where certain devices and methods involved in the hydrodynamic cavitation processes invented by the President and the Technology Development Supervisor have been assigned to the Subsidiary. In exchange, the Subsidiary agreed to pay a royalty of 5% of gross revenues to each of the President and Technology Development Supervisor for licensing of the technology and leasing of the related equipment embodying the technology. These agreements were subsequently assumed by Cavitation Technologies on May 13, 2010 from its subsidiary. The Company's President and Technology Development Supervisor both waived their rights to receive royalty payments that have accrued, or that may accrue, on any gross revenue generated through September 30,December 31, 2023.
On April 30, 2008 and as amended on November 22, 2010, our wholly owned subsidiary entered into an employment agreement with our former Director of Chemical and Analytical Department (the “Inventor”) to receive an amount equal to 5% of actual gross royalties received from the royalty stream in the first year in which the Company receives royalty payments from the patent which the Inventor was the legally named inventor, and 3% of actual gross royalties received by the Company resulting from the patent in each subsequent year. As of September 30,December 31, 2023 no patents have been granted in which this person is the legally named inventor.
ITEM 2. 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. Its actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.
Overview of our Business
Cavitation Technologies, Inc. ("CTi"), a Nevada corporation, was originally incorporated under the name Bio Energy, Inc. We design and engineer environmentally friendly technology-based systems that are designed to serve large, growing, global markets such as vegetable oil refining, renewable fuels, water treatment, algae oil extraction, biodiesel production, water-oil emulsions and crude oil yield enhancement. Our systems are designed to process industrial liquids at a lower cost and higher yield than conventional technology. We are a process and product development firm that has developed, patented, and commercialized proprietary technology.
CTi has developed, patented, and commercialized proprietary technology that can be used for processing of industrial fluids. CTi's patented Nano Reactor® is the critical components of the CTi Nano Neutralization® System which is commercially proven to reduce operating costs and increase yields in processing oils and fats. CTi has two issued patents relating to our Nano Reactor® systems and has filed several national and international patents to employ its proprietary technology in applications including, vegetable oil refining, biodiesel production, waste water treatment, algae oil extraction, and alcoholic beverage enhancement.
We are engaged in manufacturing our Nano-Reactors, which are designed to help refine vegetable oils, biodiesel transesterification and treatment of produced and frack water. Our near-term goal is to continue to sell our systems through our partners, Desmet Ballestra and EW.
During the past several years we have developed a number of new applications utilizing the core principal of our technology. Our low pressure non-reactors (LPN) can be utilized in multiple industries that process large volumes of fluids and we anticipate accelerated commercial sales in our fiscal 2020.2024. Further, we have miniaturized our non-reactors to be utilized in various consumer oriented products, such as, processing and enhancing spirits and wines, drinking water with infusion of vitamins, minerals and cannabidiol (CBD) oil.
We have agreements to license our technology globally through our strategic partners, Desmet Ballestra Group (Desmet) and Enviro Watertek, LLC (EW) and Alchemy Beverages, Inc (ABI). Desmet havehad been providing monthly advances of $50,000.$40,000. We may need additional funding, and may attempt to raise additional debt and/or equity financing to fund operations and additional working capital. However, there is no assurance that we will be successful in obtaining such financing or obtained sufficient amounts necessary to meet our business needs, or that we will be able to meet our future contractual obligations.
Inflation
Global inflation also increased during 2022 and in 2023. The Russia and Ukraine conflict and other geopolitical conflicts, as well as related international response, have exacerbated inflationary pressures, including causing increases in the price for goods and services and global supply chain disruptions, which have resulted and may continue to result in shortages in food products, materials and services. Such shortages have resulted and may continue to result in inflationary cost increases for labor, fuel, food products, materials and services, and could continue to cause costs to increase as well as result in the scarcity of certain materials. We cannot predict any future trends in the rate of inflation or other negative economic factors or associated increases in our operating costs and how that may impact our business. To the extent we and our customers we service are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our and their business, our revenues and gross profit could decrease, and our financial condition and results of operations could be adversely affected.
Results of Operations
Results of Operations for the Three Months Ended September 30,December 31, 2023 Compared to the Three Months Ended September 30,December 31, 2022
The following is a comparison of our results of operations for the three months ended September 30,December 31, 2023 and 2022.
| For the Three Months Ended | For the Three Months Ended | |||||||||||||||||||||||||||||||
| September 30, | December 31, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||||||||
| Revenue | $ | – | $ | 244,000 | $ | (244,000 | ) | (100 | )% | $ | 192,000 | $ | 58,000 | $ | 134,000 | 231.0% | ||||||||||||||||
| Revenue from related party | – | 17,000 | (17,000 | ) | (100 | )% | ||||||||||||||||||||||||||
| Cost of revenue | – | (50,000 | ) | 50,000 | (100 | )% | (34,000 | ) | (13,000 | ) | (21,000 | ) | 161.6% | |||||||||||||||||||
| Gross profit | – | 211,000 | (211,000 | ) | (100 | )% | 158,000 | 45,000 | 113,000 | 251.1% | ||||||||||||||||||||||
| General and administrative expenses | 214,000 | 265,000 | (51,000 | ) | (19 | )% | 172,000 | 332,000 | (160,000 | ) | (48.2 | )% | ||||||||||||||||||||
| Research and development expenses | 36,000 | – | 36,000 | 100 | % | – | – | – | – | |||||||||||||||||||||||
| Total operating expenses | 250,000 | 265,000 | (15,000 | ) | (6 | )% | 172,000 | 332,000 | (160,000 | ) | (48.2 | )% | ||||||||||||||||||||
| Loss from operations | (250,000 | ) | (54,000 | ) | (196,000 | ) | 363 | % | (14,000 | ) | (287,000 | ) | 273,000 | (95.1 | )% | |||||||||||||||||
| (Loss) Income from equity method investment | – | (18,000 | ) | 18,000 | (100 | )% | ||||||||||||||||||||||||||
| Loss from equity method investment | – | (11,000 | ) | 11,000 | (100.0 | )% | ||||||||||||||||||||||||||
| Interest expense | (1,000 | ) | (1,000 | ) | – | 0 | % | (2,000 | ) | (1,000 | ) | (1,000 | ) | (100.0 | )% | |||||||||||||||||
| Net loss | $ | (251,000 | ) | $ | (73,000 | ) | $ | (178,000 | ) | 244 | % | $ | (16,000 | ) | $ | (299,000 | ) | $ | 283,000 | (94.6 | )% | |||||||||||
Revenue
The Company generates revenues from the sale of the Nano Reactor® to customers/distributor. Additionally, the Company generates revenues from its equity method investment, specifically fees from usage of reactors or usage fees.
During the three months ended September 30,December 31, 2023 we recorded no revenues$192,000 in revenue compared to $244,000$58,000 for the three months ended September 30,December 31, 2022. Revenues decreased sinceincreased as the Company did not ship anydelivered on two purchase orders for Desmet during the current period compared to threeonly one purchase orders receivedorder in prior period. In addition, the Company also recognized usage fees of $17,000 during the prior period while none during the current period.
Cost of Revenue
During the three months ended September 30,December 31, 2023 and 2022, we recorded noour cost of sales comparedrevenue amounted to $50,000$34,000 and $13,000 respectively during the same period in prior year, which was the result of the revenue transactions described above.
Operating Expenses
Operating expenses for the three months ended September 30,December 31, 2023 amounted to $214,000$172,000 compared with $265,000$332,000 for the same period in 2022, a decrease of $51,000$160,000 or 19%48.2%. Decreasethe decrease in general and administrative expense are relatedis primarily due to salariesdecreases in salary expenses of $65,000, consulting fees of $27,000 and professional fees.expenses of $54,000.
| 15 |
Loss from equity method investment
For the three months ended December 31, 2022, the Company recognized a loss of $11,000 to account for its 30% share in the net loss from the equity method investment. There was no similar loss recognized for the three months ended December 31, 2023 as a result of the impairment of the equity method investment in prior year.
Interest expense
For the three months ended December 31, 2023 and 2022, interest expense amounted to $2,000 and $1,000. This represents interest expense on SBA loans.
Net loss
Net loss was $16,000 and $299,000 for the three months ended December 31, 2023 and 2022. The decrease in loss of $283,000 was due to the increase in revenues and the decrease in operating expenses, as discussed above.
Results of Operations for the Six Months Ended December 31, 2023 compared to the Six Months Ended December 31, 2022
The following is a comparison of our results of operations for the six months ended December 31, 2023 and 2022.
| For the Six Months Ended | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 192,000 | $ | 303,000 | $ | (111,000 | ) | (36.6 | )% | |||||||
| Revenue from related party | – | 17,000 | (17,000 | ) | (100.0 | )% | ||||||||||
| Cost of revenue | (34,000 | ) | (62,000 | ) | (28,000 | ) | 45.2% | |||||||||
| Gross profit | 158,000 | 258,000 | (100,000 | ) | (38.8 | )% | ||||||||||
| General and administrative expenses | 386,000 | 598,000 | (212,000 | ) | (35.5 | )% | ||||||||||
| Research and development expenses | 36,000 | – | 36,000 | 100.0% | ||||||||||||
| Total operating expenses | 422,000 | 598,000 | (176,000 | ) | (29.4 | )% | ||||||||||
| Loss from operations | (264,000 | ) | (340,000 | ) | (76,000 | ) | 22.4% | |||||||||
| Income from equity method investment | – | (29,000 | ) | (29,000 | ) | 100.0% | ||||||||||
| Interest expense | (3,000 | ) | (3,000 | ) | – | –% | ||||||||||
| Net loss | $ | (267,000 | ) | $ | (372,000 | ) | $ | (105,000 | ) | 28.2% | ||||||
| 16 |
Revenue
The Company generates revenues from the sale of the Nano Reactor® to customers/distributor as well as share in gross profit from the sale of such reactors by our distributors to their customers. Additionally, the Company generates revenues from its equity method investment.
During the six months ended December 31, 2023 we recorded $192,000 in revenue compared to $303,000 for the six months ended December 31, 2022. Revenues decreased since the Company received two purchase orders from Desmet during the current period compared to four purchase orders in the prior period. In addition, the Company also recognized usage fees of $0 during the current period compared to $17,000 during the prior period.
Cost of Revenue
During the six months ended December 31, 2023 and 2022, our cost of sales amounted to $34,000 and $62,000, respectively, which was the result of the revenue transactions described above.
Operating Expenses
Operating expenses for the six months ended December 31, 2023 amounted to $386,000 compared with $598,000 for the same period in 2022, a decrease of $212,000 or 35.8%. The decrease is primarily due to a decrease in salary expenses of $102,000, a decrease in professional fees of $56,000 and a decrease in consulting fees of $41,000.
Research and development (R&D) expenses for the threesix months ended September 30,December 31, 2023 and 2022 were $36,000 and $0, respectively. DuringR&D expenses were incurred on a new cold plasma technology.
Loss from equity method investment
For the threesix months ended September 30, 2023,December 31, 2022, the Company began another R&D project consistingrecognized a loss of $29,000, to account for its 30% share in the net loss from the equity method investment. There was no similar loss recognized for the six months ended December 31, 2023 as a result of the design and manufactureimpairment of an experimental installation for plasma activation of water by generating a plasma dischargethe equity method investment in a water stream.prior year.
Other income (expense)Interest expense
Other income (expense) for the three months ended September 30, 2023 amounted to $(1,000) of interest expense. For the three months ended September 30,December 31, 2023 and 2022, other income (expense)interest expense amounted to $(1,000) of$3,000 and $3,000. This represents interest expense on SBA loans.
Net loss
Net loss was $267,000 and $372,000 for the six months ended December 31, 2023 and 2022. The decrease in loss from equity method investment of $(18,000).$105,000 was due to the decrease in operating expenses, as discussed above.
| 17 |
Liquidity and Capital Resource
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplatesDuring the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in accompanying consolidated financial statements, during the threesix months ended September 30,December 31, 2023 the Company incurred a net loss of $251,000$267,000 and used cash from operations of $11,000 and had a stockholders’working capital deficit of $1,170,000$1,117,000 as of September 30,December 31, 2023. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.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 the Company’s June 30, 2023 financial statements, raisedhas expressed substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from an inability of the Company to continue as a going concern.
As of September 30,December 31, 2023 the Company haswe had cash in the amountand cash equivalents on hand of $140,000. The Company’s ability$7,000 and are not generating sufficient revenues to continue as a going concern is dependent upon its abilityfund operations. In addition, management believes we may require additional funds to continue to implement its business plan. Currently, management’soperate our business. Management's plan is to increase revenuesgenerate income from operations by continuing to license itsour technology globally. While the Company believes in the viabilityglobally through our strategic partners, Desmet Ballestra Group (Desmet), Enviro Watertek (EW) and Alchemy Beverages, Inc. (ABI). Pursuant to our contract with Desmet, Desmet has been providing us monthly advances of its strategy$40,000 through October 1, 2024 to increase revenues, there can be no assurances to that effect. The Company believes it has enough cash to sustain operations through December, 2023.applied against future reactor sales.
The CompanyWe may also attempt to raise additional debt and/or equity financing to fund operations and to provide additional working capital. ThereHowever, there is no assurance that such financing will be available in the futureconsummated or obtained in sufficient amounts necessary to meet the Company’sCompany's needs, that the Company will be able to achieve profitable operations or that the Company will be able to meet its future contractual obligations. Should management fail to obtain such financing, the Company may curtail its operations.
Cash Flow
Net cash provided byused in operating activities during the threesix months ended September 30,December 31, 2023 amounted to $122,000$11,000 compared to net cash used in operating activities of $74,000$98,000 for the same period in fiscal 2022. Funding for the operating activities was provided primarily by sales of our systems to Desmet, advances from distributor and cash reserve.reserves.
Critical Accounting Policies
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. Significant estimates are used for allowance for impairment analysis for property and equipment, accrual of potential liabilities, valuation allowance for deferred tax assets, and assumption in valuing our stock options, warrants, and common stock issued for services, among other items. Actual results could differ from these estimates.
Revenue Recognition
The Company follows the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). 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 Reactors 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. In addition, the Company also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer.
| 18 |
Recently Issued Accounting Standards
See Note 1 of the Condensed Consolidated Financial Statements for a discussion of recently issued accounting standards.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable for smaller reporting companies.
ITEM 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In accordance with rule 13a-15(a), CTi management must maintain disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934, or the Exchange Act, to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Rule 13a-15(b) and (c), management must also evaluate the effectiveness of these disclosure control and procedures at the end of each fiscal year. As of September 30,December 31, 2023 the Company carried out an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that these disclosure controls and procedures were not effective as of September 30,December 31, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the firstsecond quarter of fiscal 2023 that have materially affected or are reasonably likely to materially affect the company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We know of no material, existing or pending legal proceeding against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
None
Item 5. Other Information.
None
Item 6. Exhibits, Financial Statement Schedules.
* In accordance with Regulation S-K 406 of the Securities Act of 1934, we undertake to provide to any person without charge, upon request, a copy of our “Code of Business Conduct and Ethics”. A copy may be requested by sending an email to info@cavitationtechnologies.com.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED
| SIGNATURE | TITLE | DATE | ||
| /s/ N. Voloshin | President; Member of Board of Directors | |||
| N. Voloshin | (Principal Executive Officer) | |||
| /s/ N. Voloshin | Chief Financial Officer | |||
| N. Voloshin | (Principal Financial Officer) | |||