| Organization and Summary of Significant Accounting Policies | Note 1 - Organization and Summary of
Significant Accounting Policies Cavitation Technologies, Inc. (the Company,"
"CTi," "we," "us," and "our") is a Nevada corporation originally incorporated under the
name Bio Energy, Inc. The Company 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 months ended September 30,
2019 are not indicative of the results that may be expected for the fiscal year ending June 30, 2020. 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, 2019 filed with the SEC on October 15, 2019. The condensed
consolidated balance sheet as of June 30, 2019 has been derived from the audited financial statements included in the Form 10-K
for that year. Going Concern The accompanying condensed consolidated
financial statements have been prepared in conformity with generally accepted accounting principles which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course of business. As of September 30, 2019, the Company
had a stockholders’ deficit of $781,000 and a working capital deficit of $886,000. The Company has also been dependent on
certain aspects of its funding from technology and license agreements with its distributors, Desmet Ballestra (Desmet) and GEA
Westfalia (GEA). These factors, among others, raise doubt about the Company's ability to continue as a going concern. In addition,
our independent registered public accounting firm, in their report on our audited financial statements for the fiscal year ended
June 30, 2019, expressed doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial
statements do not include adjustments that might be necessary if the Company is unable to continue as a going concern. Management’s plan is to generate
income from operations by continuing to license its technology globally. Currently, we have a Research and Development (R&D)
Marketing and Technology License agreements with two customers, Desmet and GEA, in which Desmet and GEA provide monthly advances
to be applied to future gross profit revenues. Desmet provides advance of $50,000 per month through October 2021, and GEA provides
advances to the Company of $25,000 per month through January 2020. We may also attempt to raise additional
debt and/or equity financing to fund operations and provide additional working capital. However, there is no assurance that such
financing will be consummated 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. Principles of Consolidation The condensed consolidated financial statements
include the accounts of Cavitation Technologies, Inc. and its wholly owned subsidiary Hydrodynamic Technology, Inc. Inter-company
transactions and balances have been eliminated in consolidation. 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 include the in reserve for
inventory obsolescence, impairment analysis for fixed assets, accrual of potential liabilities, valuation of deferred tax assets
and assumptions used 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 Accounting
Standards Codification (ASC) 606, Revenue from Contracts with Customers 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 recognizes revenue
from its share of gross profit to be earned from distributors, as defined, which we treat as variable consideration and recognize
using the most likely amount method. Estimates are available from our distributor which are 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 amount of gross profit revenue recognized is limited to the actual amount of cash received under the contract which the Company
has determined is not refundable and it is probable that a significant revenue reversal of cumulative product revenue under the
contract will not occur. Lease Prior to July 1, 2019, start of our fiscal
year, the Company accounted for leases under Accounting Standards Codification (“ASC”) 840, Accounting for Leases.
Effective July 1, 2019, the Company adopted the guidance of ASC 842, Leases (“ASC 842”), which requires an entity to
recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective
approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date
of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. 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. The adoption of ASC 842 on July 1, 2019 resulted in the initial recognition of operating lease right-of-use assets of $325,000,
lease liabilities for operating leases of $325,000, and a zero cumulative-effect adjustment to accumulated deficit (see Note 3). Fair Value Measurement The Company follows the guidance of ASC
820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and
liabilities that are measured at fair value. 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. ASC 820-10 establishes a three-tier fair
value hierarchy that prioritizes the inputs used in measuring fair value 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, 2019 and June 30, 2019,
the fair values of cash and cash equivalents, accounts receivable, inventory and accounts payable and accrued expenses approximate
their carrying values due to their short-term nature. Concentrations 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. The Company’s revenue was mainly
derived from sales of its Nano Reactor® and Nano Neutralization® System At September 30, 2019 and June 30, 2019,
100% of accounts receivable, respectively, were due from Desmet. As of September 30, 2019, three vendors
and/or professional consultants accounted for 58%, 22% and 17%, respectively, of accounts payable. As of June 30, 2019, three
vendors and/or professional consultants accounted for 49%, 33% and 11%, respectively, of accounts payable. Earnings (Loss) Per Share The Company’s computation of earnings
(loss) per share (EPS) includes basic and diluted EPS. Basic EPS is calculated by dividing the Company’s net income (loss)
available to common stockholders by the weighted average number of common shares outstanding during the period. Shares of restricted
stock subject to vesting are included in basic weighted average common shares outstanding from the time they vest. Diluted EPS
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 net income
(loss) of the Company. In computing diluted loss per share, the treasury stock method assumes that outstanding options, and warrants
are 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. As of September 30, 2019, the Company had
11,000,000 stock options and 79,263,176 stock warrants outstanding to purchase shares of common stock that were not included in
the diluted net income per common share because their effect would be anti-dilutive. As of September 30, 2018, the Company had
11,000,000 stock options and 75,926,510 stock warrants outstanding to purchase shares of common stock that were not included in
the diluted net loss per common share because their effect would be anti-dilutive. Segments The Company operates in one segment, its
nano reactor technology business. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s
chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results
to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based
on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to
report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds
material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting”
due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement,
manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment
Reporting” can be found in the accompanying consolidated financial statements. Recent Accounting Pronouncements In September 2016, the FASB issued ASU
2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred-loss impairment methodology
and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables.
Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited
to the amount by which fair value is below amortized cost. 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. |
