Table of Contents
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 December 31, 2024
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, 2024 based on the closing price of $0.02 per share and 273,239,850 shares outstanding.
As of February 12, 2025 the issuer had 284,289,740 shares of common stock outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | |
| | | December 31, 2024 | | | June 30, 2024 | |
| | | (unaudited) | | | | |
| ASSETS | | | | | | | | |
| | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 681,000 | | | $ | 179,000 | |
| Inventory | | | 11,000 | | | | – | |
| Prepaid expenses | | | 9,000 | | | | 16,000 | |
| Total current assets | | | 701,000 | | | | 195,000 | |
| | | | | | | | | |
| Equity method investment | | | 1,000 | | | | 1,000 | |
| Operating lease right-of-use asset | | | 6,000 | | | | 42,000 | |
| Other assets | | | 10,000 | | | | 10,000 | |
| Total assets | | $ | 718,000 | | | $ | 248,000 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 164,000 | | | $ | 129,000 | |
| Accrued payroll and payroll taxes – related parties | | | 434,000 | | | | 414,000 | |
| Note payable | | | 9,000 | | | | 9,000 | |
| Operating lease liability, current portion | | | 6,000 | | | | 46,000 | |
| Total current liabilities | | | 613,000 | | | | 598,000 | |
| | | | | | | | | |
| Note payable, non-current | | | 128,000 | | | | 130,000 | |
| Total liabilities | | | 741,000 | | | | 728,000 | |
| | | | | | | | | |
| Commitments and contingencies | | | – | | | | – | |
| | | | | | | | | |
| Stockholders’ deficit: | | | | | | | | |
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of December 31, 2024 and June 30, 2024 | | | – | | | | – | |
| Common stock, $0.001 par value, 1,000,000,000 shares authorized, 284,289,740 shares issued and outstanding as of December 31, 2024 and June 30, 2024 | | | 284,000 | | | | 284,000 | |
| Additional paid-in capital | | | 26,188,000 | | | | 26,083,000 | |
| Accumulated deficit | | | (26,495,000 | ) | | | (26,847,000 | ) |
| Total stockholders’ deficit | | | (23,000 | ) | | | (480,000 | ) |
| Total liabilities and stockholders’ deficit | | $ | 718,000 | | | $ | 248,000 | |
See accompanying notes to the condensed consolidated financial statements
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
AS OF DECEMBER 31, 2024 AND 2023
| | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | | For the Six Months Ended | |
| | | December 31, | | | December 31, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | |
| | | | | | | | | | | | | |
| Revenue | | $ | 76,000 | | | $ | 192,000 | | | $ | 76,000 | | | $ | 192,000 | |
| | | | | | | | | | | | | | | | | |
| Cost of revenue | | | (13,000 | ) | | | (34,000 | ) | | | (13,000 | ) | | | (34,000 | ) |
| Gross profit | | | 63,000 | | | | 158,000 | | | | 63,000 | | | | 158,000 | |
| | | | | | | | | | | | | | | | | |
| General and administrative expenses | | | 346,000 | | | | 172,000 | | | | 564,000 | | | | 386,000 | |
| Research and development expenses | | | 16,000 | | | | – | | | | 24,000 | | | | 36,000 | |
| Total operating expenses | | | 362,000 | | | | 172,000 | | | | 588,000 | | | | 422,000 | |
| | | | | | | | | | | | | | | | | |
| Loss from operations | | | (299,000 | ) | | | (14,000 | ) | | | (525,000 | ) | | | (264,000 | ) |
| | | | | | | | | | | | | | | | | |
| Other Income (expense) | | | | | | | | | | | | | | | | |
| Gain on patent assignment | | | 880,000 | | | | – | | | | 880,000 | | | | – | |
| Interest expense | | | (2,000 | ) | | | (2,000 | ) | | | (3,000 | ) | | | (3,000 | ) |
| | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 579,000 | | | $ | (16,000 | ) | | $ | 352,000 | | | $ | (267,000 | ) |
| | | | | | | | | | | | | | | | | |
| Net income (loss) per share, Basic and diluted | | $ | 0.00 | | | $ | (0.00 | ) | | $ | 0.00 | | | $ | (0.00 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding, Basic and diluted | | | 284,289,740 | | | | 284,289,740 | | | | 284,289,740 | | | | 284,289,740 | |
See accompanying notes to the condensed consolidated financial statements
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (Unaudited)
AS OF DECEMBER 31, 2024 AND 2023
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended December 31, 2024 (unaudited) | |
| | | Common Stock | | | Additional Paid-in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| Balance at September 30, 2024 | | | 284,289,740 | | | $ | 284,000 | | | $ | 26,083,000 | | | $ | (27,074,000 | ) | | $ | (707,000 | ) |
| Fair value of warrants granted for services | | | – | | | | – | | | | 105,000 | | | | | | | | 105,000 | |
| Net income | | | – | | | | – | | | | – | | | | 579,000 | | | | 579,000 | |
| Balance at December 31, 2024 | | | 284,289,740 | | | $ | 284,000 | | | $ | 26,188,000 | | | $ | (26,495,000 | ) | | $ | (23,000 | ) |
| | | Six Months Ended December 31, 2024 (unaudited) | |
| | | Common Stock | | | Additional Paid-in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| Balance at June 30, 2024 | | | 284,289,740 | | | $ | 284,000 | | | $ | 26,083,000 | | | $ | (26,847,000 | ) | | $ | (480,000 | ) |
| Fair value of warrants granted for services | | | – | | | | – | | | | 105,000 | | | | | | | | 105,000 | |
| Net income | | | – | | | | – | | | | – | | | | 352,000 | | | | 352,000 | |
| Balance at December 31, 2024 | | | 284,289,740 | | | $ | 284,000 | | | $ | 26,188,000 | | | $ | (26,495,000 | ) | | $ | (23,000 | ) |
| | | Three Months Ended December 31, 2023 (unaudited) | |
| | | Common Stock | | | Additional Paid-in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| Balance at September 30, 2023 | | | 284,289,740 | | | $ | 284,000 | | | $ | 26,083,000 | | | $ | (27,537,000 | ) | | $ | (1,170,000 | ) |
| Net loss | | | – | | | | – | | | | – | | | | (16,000 | ) | | | (16,000 | ) |
| Balance at December 31, 2023 | | | 284,289,740 | | | $ | 284,000 | | | $ | 26,083,000 | | | $ | (27,553,000 | ) | | $ | (1,186,000 | ) |
| | | 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 | ) |
See accompanying notes to the condensed consolidated financial statements
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | | | | | | | |
| | | Six Months Ended December 31, | |
| | | 2024 | | | 2023 | |
| | | | | | | |
| Operating activities: | | | | | | | | |
| Net income (loss) | | $ | 352,000 | | | $ | (267,000 | ) |
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | | | | | | | | |
| Depreciation | | | – | | | | 1,000 | |
| Fair value of warrants | | | 105,000 | | | | – | |
| Gain on patent assignment | | | (880,000 | ) | | | – | |
| Effect of changes in: | | | | | | | | |
| Inventory | | | (11,000 | ) | | | – | |
| Operating lease right of use asset | | | 36,000 | | | | 35,000 | |
| Accounts payable and accrued expenses | | | 55,000 | | | | 92,000 | |
| Advances from distributor, net | | | – | | | | 164,000 | |
| Operating lease liability | | | (40,000 | ) | | | (36,000 | ) |
| Prepaid expenses | | | 7,000 | | | | – | |
| Net cash used in operating activities | | | (376,000 | ) | | | (11,000 | ) |
| | | | | | | | | |
| Investing activities: | | | | | | | | |
| Proceeds from patent assignment | | | 880,000 | | | | – | |
| Net cash provided by investing activities | | | 880,000 | | | | – | |
| | | | | | | | | |
| Financing activities: | | | | | | | | |
| Repayment of note payable | | | (2,000 | ) | | | – | |
| Net cash used in financing activities | | | (2,000 | ) | | | – | |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 502,000 | | | | (11,000 | ) |
| | | | | | | | | |
| Cash and cash equivalents, beginning of period | | | 179,000 | | | | 18,000 | |
| Cash and cash equivalents, end of period | | $ | 681,000 | | | $ | 7,000 | |
| | | | | | | | | |
| Supplemental disclosures of cash flow information: | | | | | | | | |
| Cash paid for interest | | $ | 1,000 | | | $ | 4,000 | |
| Cash paid for income taxes | | $ | – | | | $ | – | |
See accompanying notes to the condensed consolidated financial statements
CAVITATION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Six months ended December 31, 2024 and 2023
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 in January 2007 under the name Bio Energy, Inc. The Company had originally developed, patented, and commercialized proprietary technology, which has subsequently been sold to Desmet Ballestra in the patent assignment and license back agreement disclosed below.
Patent assignment and license back agreement
On October 9, 2024, the Company has entered into an agreement with Desmet that monetized the Company by the assignment of certain of its U.S. and non-U.S. patents, technical information and related intellectual property (the “Assigned Patents”) that for several years have been licensed to Desmet for its use on a global basis in vegetable oil, fats and oleo applications (see Note 2).
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 December 31, 2024 are not indicative of the results that may be expected for the fiscal year ending June 30, 2025. 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, 2024 filed on September 30, 2024. The condensed consolidated balance sheet as of June 30, 2024 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. During the six months ended December 31, 2024, the Company incurred loss from operations of $525,000 and stockholders’ deficit of $23,000 as of December 31, 2024. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s June 30, 2024, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. 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.
In October 2024, the Company assigned certain of its patents used in the production of the Nano reactor to Desmet in exchange for cash of $880,000. As a result of this transaction, the Company expect a reduction in the sale of Nano reactors to Desmet in future periods. However, the Company was able to retain certain patent rights in the production and sale of its Nano reactors thru the Reserved Grant Back License agreement, for which, the Company will utilize to generate future revenues.
As of December 31, 2024, the Company has cash in the amount of $681,000. 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 using its Reserved Grant Back License to apply the technology to; (i) water and wastewater processing, recovery, recycling and purification (including oilfield wastewater) and; (ii) manufacture, distillation, brewing, enhancements, sale and marketing of alcoholic beverages, together the Licensed Fields. The Company will have a worldwide, exclusive, transferable and royalty-free license and right to design, build, use, export, improve, sell and market Nano Reactor® devices and Nano Reactor® devices and systems (and products) that incorporate or utilize Nano Reactor® devices, in each case within the Licensed Fields, and to continue to use the Nano Reactor® trademark in connection with its business, systems and products within the Licensed Fields. In addition, the Company will continue to develop its (i) water treatment and remediation in the Permian Basin; (ii) water remediation and disinfection in agriculture; (iii) business venture with Alchemy Beverages, Inc. to develop a smart home kitchen appliance for alcoholic beverages; and (iv) hydro plasma technology in order generate revenues and sustain operations. 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 enough cash to sustain operations through June 30, 2025.
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.
Principles of Consolidation
The consolidated financial statements include the accounts of Cavitation Technologies, Inc. and its wholly owned subsidiary Hydrodynamic Technology, Inc. Intercompany 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 estimates for reserves for valuation of our equity method investments, assumptions used in valuing our stock options, stock warrants and common stock issued for services and valuation allowance for our deferred tax assets, 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.
For the license fee revenue, and revenue from assignments of its patents, revenue is recognized when the Company satisfies the performance obligation based on the related agreements and collectability is certain.
In addition, the Company also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer and collectability is certain.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2024 and June 30, 2024, the Company had no cash equivalents.
The Company maintains its cash with one domestic financial institution. From time to time, cash balances in this domestic bank may exceed federally insured limits provided by the Federal Deposit Insurance Corporation (“FDIC”) of up to $250,000.
As of December 31, 2024, Company had deposits in excess of federally insured limit of $431,000 with one bank. The Company believes that no significant concentration of credit risk exists with respect to this cash balance because of its assessment of the creditworthiness and financial viability of this financial institution.
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. Based on Management’s assessment, the value of its equity method investment was impaired as of June 30, 2023. As of December 31, 2024 and June 30, 2024, the remaining de minimis value of its investments was $1,000, respectively.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes. The Company recognizes deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at anticipated future tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
Leases
The Company accounts for its leases in accordance with the guidance of FASB ASC 842, Leases. The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments.
In January 2025, the Company’s lease expired and is currently on a month-to-month basis.
Fair Value Measurement
FASB 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.
In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 - inputs are based upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
As of December 31, 2024, and June 30, 2024, the carrying value of certain accounts such as inventory, accounts payable, accrued expenses and accrued payroll approximates their fair value due to the short-term nature of such instruments. The carrying value of our note payable approximate their fair value due to interest rate of the note.
Research and Development Costs
Research and development expenses relate primarily to the development, design, testing of preproduction prototypes and models, compensation, and consulting fees, and are expensed as incurred. Total research and development costs recorded during the six months ended December 31, 2024 and 2023 amounted to $24,000 and $36,000, respectively.
Net Income (Loss) Per Share
The Company’s computation of net income (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.
There were no adjustments to net income (loss) required for purposes of computing diluted earnings per share. At December 31, 2024 and 2023 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 as the exercise price of these warrants were greater than the stock price of the Company common stock.
| Schedule of anti-dilutive shares | | | | | | | | |
| | | December 31, 2024 | | | December 31, 2023 | |
| Warrants | | | 39,541,323 | | | | 30,360,574 | |
Concentrations
During the six months ended December 31, 2024 and 2023, we recorded 100% of our revenues from Desmet.
As of December 31, 2024, three vendors accounted for 19%, 13% and 11% of the Company’s accounts payable. As of June 30, 2024, three vendors accounted for 19%, 15% and 11% of the Company’s accounts payable.
At December 31, 2024 and June 30, 2024, we had no receivables from our customers.
Recent Accounting Pronouncements
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
Technology License Agreements
In October 2021, the Company signed a three-year global Research and Development, Marketing and Technology License Agreement (“TLA”) with Desmet Ballestra (“Desmet”) for the sale and licensing of the Company’s nano reactors. This agreement was a continuation of the similar TLA agreements the Company signed with Desmet in fiscals 2012, 2016 and 2018.
As part of the agreement, Desmet provided the Company monthly advances, subject to certain limitations, of $40,000 to be applied against future sales of reactors.
In February 2024, Desmet and the Company terminated the October 2021 TLA agreement and entered into a new three-year Technology License Agreement (“February 2024 TLA”). The February 2024 TLA provides for a worldwide limited exclusive license to market, sell, supply and assistance to customers of Nano reactor systems and nano reactor devices for the treatment of certain oil and fats, oleochemicals, biodiesels, fatty acids and fatty alcohols. The February 2024 TLA may be terminated by Desmet on March 15 each year on at least one month’s written notice if the licensee and its affiliates failed to sell a minimum of 6 nano reactor systems during the preceding 12 month period. As part of the February 2024 TLA, Desmet also agreed to provide advances of $25,000 per month, subject to limitations. The advances will then be applied as payment against future sales of reactors to Desmet. The TLA is the principal agreement between the Company and Desmet and the basis for revenue recognition for the Company.
In accordance with ASC 606, the Company recognizes revenue from the sale of reactors to Desmet 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. Monthly advances received from Desmet are initially recorded as advances from distributor (i.e. deferred revenues) and will only be recognized as revenues once the Company has completed its performance obligation to Desmet.
During the three and six months ended December 31, 2024 and 2023,pursuant to these TLA agreements, the Company recorded sales of $76,000 and $192,000 from Nano Reactor® sales from Desmet, respectively,
During the six months ended December 31, 2024, no advances were received from Desmet. As of December 31, 2024 there were no outstanding advances owed to Desmet.
During the six months ended December 31, 2023, advances received from Desmet amounted to $356,000, reduced by revenues recognized of $192,000. As of December 31, 2023, outstanding advances from Desmet amounted to $555,000.
Patent Assignment and License Back Agreement
On October 9, 2024, as disclosed in Note 1 above, the Company entered into a patent assignment and license back agreement with Desmet, whereby the Company assigned certain of its U.S. and non-U.S. patents, technical information and related intellectual property (the “Assigned Patents”) that for several years have been licensed to Desmet for its use on a global basis in vegetable oil, fats and oleo applications, effectively terminating the February 2024 TLA Agreement.
The Company also assigned to Desmet, ownership of two U.S. trademark registrations that it holds for its Nano Neutralization® and Nano Reactor® marks, respectively (the “Assigned Marks”). The consideration for the assignment of the patents amounted to $880,000, which was collected in full. The Company has also agreed to provide to Desmet any consultation, technical assistance and support services that Desmet may reasonably request in; (a) installing, operating or troubleshooting for any Nano Reactor® Device; (b) testing, startup or maintenance of any Nano Reactor® Device or any problems associated therewith; and (c) providing training to representatives, contractors or employees of Desmet or any Site User, to be charged at a rate of $1,000 per day, plus reimbursement of reasonable expenses.
Pursuant to the patent assignment and license back agreement, the Company reserved for itself, and received a Grant Back License (“Reserved Grant Back License”) of a worldwide, exclusive, transferable and royalty-free license and right to practice and use the Assigned Patents and associated technical information in businesses, activities, projects, uses and applications in the field of; (i) water and wastewater processing, recovery, recycling and purification (including oilfield wastewater) and; (ii) manufacture, distillation, brewing, enhancements, sale and marketing of alcoholic beverages, together the Licensed Fields (the “Licensed Fields”). Under the Reserved Grant Back License retained and received, the Company will have a worldwide, exclusive, transferable and royalty-free license and right to design, build, use, export, improve, sell and market Nano Reactor® devices and Nano Reactor® devices and systems (and products) that incorporate or utilize Nano Reactor® devices, in each case within the Licensed Fields, and to continue to use the Nano Reactor® trademark in connection with its business, systems and products within the Licensed Fields.
The Company has expensed costs associated with these patents in prior years and has no carrying value upon closing of this transaction. The Company followed the guidance of ASC 610, Other Income, to account for this transaction. As a result, the Company recognized the entire $880,000 as Gain on Patent Assignment in the accompanying statement of operations.
Note 3 – Related Party Transactions
Accrued Payroll and Payroll Taxes
The Company accrues salaries and estimated payroll taxes due to employees, a former officer and current officer and director of the Company. As of June 30, 2024, accrued payroll and payroll taxes amounted to $414,000, respectively.
During the six months ended December 31, 2024, the Company recorded an additional $20,000 in accrued salaries and related payroll taxes for an employee and the current officer and director of the Company.
As of December 31, 2024, total accrued payroll and payroll related taxes due to related parties amounted to $434,000.
Note 4 – Notes Payable
| Schedule of notes payable | | | | | | | | |
| | | December 31, | | | June 30, | |
| | | 2024 | | | 2024 | |
| Note payable – EIDL | | $ | 137,000 | | | $ | 139,000 | |
| Short-term note payable | | | (9,000 | ) | | | (9,000 | ) |
| Long-term note payable | | $ | 128,000 | | | $ | 130,000 | |
In July 2020, the Company received a loan of $150,000 from 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.
Note 5 – Stockholders’ Equity
Stock Warrants
A summary of the Company’s warrant activity and related information for the three months ended December 31, 2024 is as follows:
| Schedule of warrant activity | | | | | | | | | | | | |
| | | Warrants | | | Weighted- Average Exercise Price | | | Weighted-
Average
Remaining
Contractual
Life
(Years) | |
| | | | | | | | | | |
| Outstanding at June 30, 2024 | | | 28,841,323 | | | $ | 0.080 | | | | 2.61 | |
| Granted | | | 10,700,000 | | | | 0.013 | | | | 0.28 | |
| Exercised | | | – | | | | – | | | | – | |
| Expired | | | – | | | | – | | | | – | |
| Outstanding at December 31, 2024 vested and exercisable | | | 39,541,323 | | | $ | 0.08 | | | | 1.91 | |
There was no intrinsic value of the outstanding warrants as of December 31, 2024, as the exercise price of these warrants were greater than the market price.
In November 2024, the Company granted stock warrants to employees and non-employee to purchase 10.7 million shares of common stock. The stock warrants are fully vested upon grant, exercisable at $0.013 per share and will expire in five years. The estimated fair value of these warrants for employees and non-employee amounted to $105,000.
The fair value of a stock warrants award is calculated on the grant date using the Black-Scholes option-pricing model. The risk-free interest rate is based on the U.S. Treasury yield curve in effect as of the grant date. The expected dividend yield assumption is based on the Company’s expectation of dividend payouts and is assumed to be zero. The expected volatility is based on the historical volatility of the Company’s common stock, calculated utilizing a look-back period approximately equal to the expected life of the stock warrants granted. For warrants granted to employees, the expected life of the stock warrants is calculated as the mid-point between the vesting period and the contractual term (the “simplified method”), while the full contractual life for warrants granted to non-employee. The fair market value of the common stock is determined by reference to the quoted market price of the common stock on the grant date.
The following table summarizes additional information concerning warrants outstanding and exercisable at December 31, 2024.
| 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) | |
| | | | | | | | | | | | | | | | | |
| $ | 0.030 | | | | 5,000,000 | | | | 5.00 | | | $ | 0.030 | | | | 5,000,000 | | | | 5.00 | |
| $ | 0.090 | | | | 23,841,323 | | | | 1.50 | | | $ | 0.090 | | | | 23,841,323 | | | | 1.50 | |
| $ | 0.013 | | | | 10,700,000 | | | | 0.28 | | | $ | 0.013 | | | | 10,700,000 | | | | 0.28 | |
| | | | | | 39,541,323 | | | | | | | | | | | | 39,541,323 | | | | | |
Note 6 – Commitments and Contingencies
Royalty Agreements
On July 1, 2008, the Company’s wholly owned subsidiary entered into Patent Assignment Agreements with two parties, its President as well as its former Chief Executive Officer (CEO) and current Technology Senior Manager, where certain devices and methods involved in the hydrodynamic cavitation processes invented by the President and former CEO/ current Technology Senior Manager have been assigned to the Company. In exchange, the Company agreed to pay a royalty of 5% of gross revenues to each of the President and former CEO/ current Technology Senior Manager for licensing of the technology and leasing of the related equipment embodying the technology. These agreements were subsequently assigned to Cavitation Technologies on May 13, 2010. The Company’s former CEO/ current Technology Senior Manager and President both waived their rights to receive royalty payments that have accrued, or that may accrue, on any gross revenue generated through December 31, 2024 and 2023.
On April 30, 2008 (as amended November 22, 2010), the Company’s wholly owned subsidiary entered into an employment agreement with the Director of Chemical and Analytical Department (the “Inventor”) providing that the Inventor shall 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 December 31, 2024, no patents have been granted in which this person is the legally named inventor.
Note 7 – Subsequent events
The Company has evaluated subsequent events through the date the financial statements were issued and did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
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 were engaged in manufacturing our Nano-Reactors, which are designed to help refine vegetable oils, biodiesel transesterification and treatment of produced and frack water.
In prior 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 2025. 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 had agreements to license our technology globally through our strategic partners, Desmet Belgium Group (Desmet) and Enviro Watertek, LLC (EW) and Alchemy Beverages, Inc (ABI).
In October 2024, we entered into a Patent Assignment and License Back Agreement with Desmet to assign certain patents, intellectual property rights and trademarks related to vegetable oil refining to Desmet, as consideration for the patent assignments, Desmet paid the Company $880,000 in cash. This transaction provided capital for continuous operations and business development of our company.
Key points of the Agreement included:
| | · | Reserved License: we retained a worldwide, exclusive, transferable, and royalty-free license to practice and use the Assigned Patents in the fields of water and wastewater processing, recovery, recycling, and purification (including oilfield wastewater), as well as the manufacture, distillation, brewing, enhancement, sale, and marketing of alcoholic beverages (the “Licensed Fields”). |
| | | |
| | · | Grant-Back License: we received a worldwide, exclusive, transferable, and royalty-free license to practice and use the Assigned Patents and associated technical information, consistent with the scope of the Reserved License. |
| | | |
| | · | Trademark Usage: we retained exclusive rights to use the “Nano Reactor®” mark for our businesses, systems, and products related to the Licensed Fields. |
Under both the Reserved License and the Grant-Back License, the Company will have a worldwide, exclusive, transferable, and royalty-free license and right to design, build, use, export, improve, sell, and market Nano Reactor® devices, as well as Nano Reactor® systems and products that incorporate or utilize Nano Reactor® devices, limited to uses and applications within one or more of the Licensed Fields.
As a result of this agreement, the Company expects that Desmet will start to manufacture the Nano reactors by itself and sale of Nano reactors to Desmet by the Company will significantly be reduced in future periods. We will continue to own and operate a large portfolio of patents and intellectual property rights in applications not related to vegetable oil refining. The following are Management’s plans going forward to generate revenues and sustain the operations of the Company and its current status:
| | 1. | Water Treatment and Remediation in the Permian Basin |
| | 2. | Water Remediation and Disinfection in Agriculture |
| | 3. | Business Venture with Alchemy Beverages, Inc. |
| | 4. | New Technologies: Hydro-Plasma |
1. Water Treatment and Remediation in the Permian Basin
From 2020 to 2022, our joint venture with Enviro Watertek, LLC restarted water treatment operations in the Permian Basin. Although our technology demonstrated commercial viability (approximately 3 million barrels treated), our partner was unable to expand and attract new customers due to significant shifts in the oil & gas industry. It has taken several years to rearrange and adapt our technology to fit new customers’ operations.
Currently, we have installed our system at a major water remediation company in Texas, where it has been in place for over six months, with more testing required. We continue to pursue additional customers, primarily in the Permian Basin.
What differentiates us in the industry:
| | · | No chemical usage in water remediation, significantly reducing operational costs. |
| | · | Integration into existing processes within 24 hours, without disrupting ongoing operations. |
| | · | Compact systems with minimal energy consumption. |
| | · | Post-treatment water can be either reused or safely disposed of. |
The Company anticipates that sales will be generated in the first half of fiscal 2025.
2. Water Remediation and Disinfection in Agriculture
In 2024, we installed our first system at Hacienda Farms (B&F Greenhouse Services, Inc.) in Canada. The system is currently undergoing trials to increase oxygen levels in the water, eliminate algae, and control bacterial growth, all without the use of harsh chemicals. This innovative technology is designed to improve water quality and promote healthier crop growth.
Hacienda Farms, relies heavily on water from Lake Erie, which poses significant water remediation challenges due to issues like algae and bacterial contamination. Additionally, Hacienda Farms has been dealing with high sodium levels in the water, which affect calcium absorption in plants, and fungal issues that harm root health, ultimately reducing crop yields. These water quality challenges necessitate advanced remediation solutions to ensure the sustainability and productivity of their greenhouse operations. Our technology addresses these problems by controlling microorganisms, accelerating vegetative and root growth, and increasing overall plant biomass. This not only improves crop production but also supports sustainable farming practices.
The overall market for water treatment in Canada is valued at approximately $2.51 billion, with continuous expansion due to the demand for sustainable solutions in agriculture and industrial applications.
The outcome of the trials mentioned above, which we expect to be completed within the first calendar quarter of 2025, will determine the commercial viability of our product and the timeline for any potential revenue generation.
3. Business Venture with Alchemy Beverages, Inc.
Over the past several years, we have worked closely with Alchemy Beverages, Inc. (“ABI”) to develop the smart home kitchen appliance Barmuze and alcoholic beverages. Significant work has been done on Barmuze branding, including launching a new website and creating animations throughout the year to showcase how the appliance works. ABI is actively pursuing the commercial production of Barmuze, licensing the technology to third parties, and considering the opportunity to develop its own alcohol brands, leveraging our cutting-edge technology to transform any alcohol into a smooth, top-shelf experience.
ABI is in the final stages of completing its financial audit, which is estimated to be completed before the end of the first quarter of 2025, engaging focus groups for Barmuze acceptance, refining marketing and distribution strategies, and securing additional capital for production. The Company also plans on obtaining additional financing in early 2025.
The earliest sales and revenue for Barmuze are anticipated in the second half of 2025. Also, ABI is working on creating its own line of alcoholic beverages and licensing of the technology to other brands. For more information, www.alchemybeveragesinc.com and www.barmuze.com.
4. New Technologies: Hydro-Plasma
Along with improving our existing technologies, we have developed Hydroplasma, an innovative process combining cavitation and cold plasma technology to enhance our water treatment efficiency, which:
| | · | Breaks down both organic and inorganic compounds. |
| | · | Is highly scalable – from 15 to 40 GPM. |
| | · | Eliminates microorganisms and diseases. |
| | · | Has multiple industrial applications. |
| | · | The technology is patent pending. |
This cutting-edge technology creates reactive agents, such as hydroxyl radicals and hydrogen peroxide, that break down pollutants, bacteria, and viruses in water more effectively than traditional methods. It’s an environmentally friendly and scalable solution, with applications in water treatment, agriculture, sulfur removal from bunker fuel, and more.
The global cold plasma market is projected to grow from $1.5 billion in 2021 to $3.1 billion by 2027, fueled by increasing demand for sustainable water solutions. Our technology has the potential to revolutionize water treatment on a global scale. To accelerate this development, we have established partnerships with New Mexico State University, the University of Guadalajara, and the Brackish Groundwater National Desalination Research Facility (BGNDRF), NM, to collaborate on water remediation programs.
In order to develop these markets 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 obtain sufficient amounts necessary to meet our business needs, or that we will be able to meet our future contractual obligations.
Testing of the technology is currently underway. Upon completion of multiple trials, if successful, sales and revenue are anticipated in the first half of 2025.
Inflation
Global inflation remains a factor in fiscals 2024 and 2025, with interest rates in the US remaining at higher levels, although there have been some indication from the federal reserve that these rates may decrease, inflationary indicators remain above expectations, delaying any interest rate decreases. The recent indications by the current U.S government to implement tariffs on significant trading partners may result in increased costs for consumers, resulting in inflationary pressure. The Russia and Ukraine and now the Israeli and Hamas 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 December 31, 2024 Compared to the Three Months Ended December 31, 2023
The following is a comparison of our results of operations for the three months ended December 31, 2024 and 2023.
| | | For the Three Months Ended | | | | | | | |
| | | December 31, | | | | | | | |
| | | 2024 | | | 2023 | | | $ Change | | | % Change | |
| | | | | | | | | | | | | |
| Revenue | | $ | 76,000 | | | $ | 192,000 | | | $ | (116,000 | ) | | | (60.4)% | |
| Cost of revenue | | | (13,000 | ) | | | (34,000 | ) | | | 21,000 | | | | (61.8)% | |
| Gross profit | | | 63,000 | | | | 158,000 | | | | (95,000 | ) | | | (60.1)% | |
| | | | | | | | | | | | | | | | | |
| General and administrative expenses | | | 346,000 | | | | 172,000 | | | | 174,000 | | | | 101.2% | |
| Research and development expenses | | | 16,000 | | | | – | | | | 16,000 | | | | 100.0% | |
| Total operating expenses | | | 362,000 | | | | 172,000 | | | | 190,000 | | | | 110.5% | |
| Loss from operations | | | (299,000 | ) | | | (14,000 | ) | | | (285,000 | ) | | | 2,035.7% | |
| Gain on patent assignment | | | 880,000 | | | | – | | | | 880,000 | | | | 100.0% | |
| Interest expense | | | (2,000 | ) | | | (2,000 | ) | | | – | | | | – | |
| Net income (loss) | | $ | 579,000 | | | $ | (16,000 | ) | | $ | 595,000 | | | | 3,718.8% | |
Revenue
The Company generated 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.
Revenue was $76,000 and $192,000 for the three months ended December 31, 2024, and 2023, respectively, a decrease of $116,000 or 60.4%. The Company delivered one purchase order placed prior to the assignment of our vegetable oil refining patents to Desmet. In the prior year we delivered on two purchase orders.
Cost of revenue
Cost of revenue was $13,000 and $34,000 for the three months ended December 31, 2024 and 2023, respectively, a decrease of $21,000 or 61.8%. The decrease is directly related to the decrease in revenue, as discussed above.
General and administrative expenses
General and administrative expenses was $346,000 and $172,000 for the three months ended December 31, 2024, and 2023, respectively, an increase of $174,000 or 101.2%. The increase is primarily due to the following:
| · | Stock compensation increased by $105,000 due to the stock purchase warrants issued to the Company’s employees and consultant, |
| · | Patent attorney legal fees increased by $28,000 due to patent fees in Europe, |
| · | Payroll expenses increased by $23,000 due to the employment of a previous officer of the company to assist with product development, |
| · | Consulting fees increased by $16,000 primarily related to new market and product development, |
| · | Professional fees increased by $20,000 primarily due to patent activity related to new product development and the timing of other professional services rendered, |
| · | Reduction in rent expense by $13,000 due to proceeds from sub lease of unutilized warehouse space to a third party, |
| · | Travel expenses decreased by $12,000 due to a reduction in travel by our officers during the current year, |
| · | The aggregate of all other expenses increased by $7,000, the increase in these expenses are individually insignificant. |
Research and development expenses
Research and development expenses was $16,000 and $0 for the three months ended December 31, 2024 and 2023, respectively, an increase of $16,000 or 100.0%. During the prior year, the Company began another R&D project consisting of the design and manufacture of an experimental installation for plasma activation of water by generating a plasma discharge in a water stream. The research and development expenditure is dependent on progress made on the development.
Gain on patent assignment
Gain on patent assignment was $880,000 for the three months ended December 31, 2024 as a result of sale and assignment of certain patents to Desmet. There was no similar transaction during the prior period.
Interest expense
Interest expense was $2,000 and $2,000 for the three months ended December 31, 2024 and 2023, interest expense is primarily related to the SBA loan.
Net income (loss)
Net income was $579,000 for the three months ended December 31, 2024 and net loss was $16,000 for the three months ended December 31, 2023, an increase in income of $595,000. The increase in net income is primarily due to the gain on the patent assignment offset by the decrease in revenue and the increase in general and administrative expenses, as discussed above.
Results of Operations for the Six Months Ended December 31, 2024 compared to the Six Months Ended December 31, 2023
The following is a comparison of our results of operations for the six months ended December 31, 2024 and 2023.
| | | For the Six Months Ended | | | | | | | |
| | | December 31, | | | | | | | |
| | | 2024 | | | 2023 | | | $ Change | | | % Change | |
| | | | | | | | | | | | | |
| Revenue | | $ | 76,000 | | | $ | 192,000 | | | $ | (116,000 | ) | | | (60.4)% | |
| Cost of revenue | | | (13,000 | ) | | | (34,000 | ) | | | 21,000 | | | | (61.8)% | |
| Gross profit | | | 63,000 | | | | 158,000 | | | | (95,000 | ) | | | (60.1)% | |
| | | | | | | | | | | | | | | | | |
| General and administrative expenses | | | 564,000 | | | | 386,000 | | | | 178,000 | | | | 46.1% | |
| Research and development expenses | | | 24,000 | | | | 36,000 | | | | (12,000 | ) | | | (33.3)% | |
| Total operating expenses | | | 588,000 | | | | 422,000 | | | | 166,000 | | | | 39.3% | |
| Loss from operations | | | (525,000 | ) | | | (264,000 | ) | | | (261,000 | ) | | | 98.9% | |
| Gain on patent assignment | | | 880,000 | | | | – | | | | 880,000 | | | | 100.0% | |
| Interest expense | | | (3,000 | ) | | | (3,000 | ) | | | – | | | | –% | |
| Net income (loss) | | $ | 352,000 | | | $ | (267,000 | ) | | $ | 619,000 | | | | (231.8)% | |
Revenue
The Company generated 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.
Revenue was $76,000 and $192,000 for the six months ended December 31, 2024, and 2023, respectively, a decrease of $116,000 or 60.4%. The Company delivered one purchase order placed prior to the assignment of our vegetable oil refining patents to Desmet. In the prior year we delivered on two purchase orders.
Cost of revenue
Cost of revenue was $13,000 and $34,000 for the six months ended December 31, 2024 and 2023, respectively, a decrease of $21,000 or 61.8%. The decrease is directly related to the decrease in revenue, as discussed above.
General and administrative expenses
General and administrative expenses was $564,000 and $386,000 for the six months ended December 31, 2024, and 2023, respectively, an increase of $178,000 or 46.1%. The increase is primarily due to the following:
| · | Stock compensation increased by $105,000 due to the stock purchase warrants issued to the Company’s employees and consultant, |
| · | Patent attorney legal fees increased by $28,000 due to the patent fees in Europe, |
| · | Payroll expenses increased by $42,000 due to the employment of a previous officer of the company to assist with product development, |
| · | Consulting fees increased by $29,000 primarily related to new market and product development, |
| · | Professional fees increased by $29,000 primarily due to patent activity related to new product development and an increase in other professional services rendered, |
| · | Reduction in rent expense by $26,000 due to proceeds from sub lease of unutilized warehouse space to a third party, |
| · | Travel expenses decreased by $29,000 due to a reduction in travel by our officers during the current year, |
Research and development expenses
Research and development expenses was $24,000 and $36,000 for the six months ended December 31, 2024 and 2023, respectively, an increase of $12,000 or 33.3%. During the prior year, the Company began another R&D project consisting of the design and manufacture of an experimental installation for plasma activation of water by generating a plasma discharge in a water stream. The research and development expenditure is dependent on progress made on the development.
Gain on patent assignment
Gain on patent assignment was $880,000 for the six months ended December 31, 2024 as a result of sale and assignment of certain patents to Desmet. There was no similar transaction during the prior period.
Interest expense
Interest expense was $3,000 and $3,000 for the six months ended December 31, 2024 and 2023, interest expense is primarily related to the SBA loan.
Net income (loss)
Net income was $352,000 for the six months ended December 31, 2024 and net loss was $267,000 for the six months ended December 31, 2023, an increase in income of $619,000. The increase in net income is primarily due to the gain on the patent assignment offset by the decrease in revenue and the increase in general and administrative expenses, as discussed above.
Liquidity and Capital Resource
The accompanying condensed 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 condensed consolidated financial statements, during the six months ended December 31, 2024, the Company incurred loss from operations of $525,000. In addition, we had an stockholders’ deficit of $23,000 as of December 31, 2024. 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, 2024, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the inability of the Company to continue as a going concern.
As of December 31, 2024, the Company has cash in the amount of $681,000. 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 using its Reserved Grant Back License to apply the technology to; (i) water and wastewater processing, recovery, recycling and purification (including oilfield wastewater) and; (ii) manufacture, distillation, brewing, enhancements, sale and marketing of alcoholic beverages, together the Licensed Fields. The Company will have a worldwide, exclusive, transferable and royalty-free license and right to design, build, use, export, improve, sell and market Nano Reactor® devices and Nano Reactor® devices and systems (and products) that incorporate or utilize Nano Reactor® devices, in each case within the Licensed Fields, and to continue to use the Nano Reactor® trademark in connection with its business, systems and products within the Licensed Fields. 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 enough cash to sustain operations through June 30, 2025.
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.
Cash Flow
Net cash used in operating activities was $376,000 for the six months ended December 31, 2024 and net cash used in operating activities was $11,000 for the six months ended December 31, 2023. The increase in cash used in operating activities is primarily due operating expenses and changes in working capital. In the prior year we also received net advances from Desmet amounting to $164,000 with no similar advances received in the current period.
Net cash provided by investing activities amounted to $880,000 as a result of the proceeds received from the assignment of patents to Desmet. There were no similar transactions in the prior period.
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.
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 December 31, 2024 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 December 31, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the second quarter of fiscal 2025 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 proceedings 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.
During the quarter ended December 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits, Financial Statement Schedules.
| | | | Incorporated by Reference |
| Exhibit | | Filed | | | | |
| Number | Exhibit Description | Herewith | Form | Pd. Ending | Exhibit | Filing Date |
| | | | | | | |
| 3(i)(a) | Articles of Incorporation - original name of Bioenergy, Inc. | | SB-2 | N/A | 3.1 | October 19, 2006 |
| 3(i)(b) | Articles of Incorporation - Amended and Restated | | 10-Q | December 31, 2008 | 3-1 | February 17, 2009 |
| 3(i)(c) | Articles of Incorporation - Amended and Restated | | 10-Q | June 30, 2009 | 3-1 | May 14, 2009 |
| 3(i)(d) | Articles of Incorporation - Amended; increase in authorized shares | | 8-K | N/A | N/A | October 29, 2009 |
| 3(i)(e) | Articles of Incorporation - Certificate of Amendment; forward split | | 10-Q | December 31, 2009 | 3-1 | November 16, 2009 |
| 10.1 | Patent Assignment Agreement between the Company and Roman Gordon dated July 1, 2008 | | 8-K | June 30, 2009 | 10.1 | May 18, 2010 |
| 10.2 | Patent Assignment Agreement between the Company and Igor Gorodnitsky dated July 1, 2008 | | 8-K | June 30, 2009 | 10.2 | May 18, 2010 |
| 10.3 | Assignment of Patent Assignment Agreement between the Company and Roman Gordon | | 8-K | June 30, 2009 | 10.3 | May 18, 2010 |
| 10.4 | Assignment of Patent Assignment Agreement between the Company and Igor Gorodnitsky | | 8-K | June 30, 2009 | 10.4 | May 18, 2010 |
| 10.5 | Employment Agreement between the Company and Roman Gordon date March 17, 2008 | | 10K/A | June 30, 2009 | 10.3 | October 20, 2011 |
| 10.6 | Employment Agreement between the Company and Igor Gorodnitsky dated March 17, 2008 | | 10K/A | June 30, 2009 | 10.4 | October 20, 2011 |
| 10.7 | Employment and Confidentiality and Invention Assignment Agreement between the Company and Varvara Grichko dated April 30, 2008 | | 10-Q | December 31, 2010 | 10.3 | February 11, 2011 |
| 10.8 | Board of Director Agreement - James Fuller | | 10-Q | December 31, 2011 | 10.12 | October 20, 2011 |
| 10.9 | Technology and License Agreement with Desmet Ballestra dated 14 May 2012 | | 10-K | June 30, 2012 | 10.1 | October 15, 2012 |
| 10.10 | Short Term Loan Agreement - CEO | | 10-K | June 30, 2012 | 10.11 | October 15, 2012 |
| 10.11 | Loan Agreement - Desmet Ballestra - Oct. 26, 2010 | | | | | |
| 14.1 | Code of Business Conduct and Ethics* | | 10-K | June 30, 2011 | 14.1 | September 28, 2011 |
| 31.1 | Certificate of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | X | | | | |
| 31.2 | Certificate of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | X | | | | |
| 32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | | | | |
| 32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | | | | |
| | | | | | | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | X | | | | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | | | | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | | | | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | | | | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | | | | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | | | | |
| 104 | Cover Page Interactive Data File (formatted in inline XBRL, and included in exhibit 101) | | | | | |
* 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 | | February 14, 2025 |
| N. Voloshin | | (Principal Executive Officer) | | |
| | | | | |
| /s/ N. Voloshin | | Chief Financial Officer | | February 14, 2025 |
| N. Voloshin | | (Principal Financial Officer) | | |
| | | | | |
