Note 1 – Organization and Summary of Significant Accounting Policies

Cavitation Technologies, Inc. (“the Company,” “CTi,” “we,” “us,” “CVAT,” 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 October 2024, pursuant to a patent assignment and license back agreement.

On August 9, 2025, the Company incorporated a wholly owned subsidiary, Xyra Corp. (“Xyra”). Xyra will be focused on identifying and capitalizing on opportunities in the crypto technologies market. Xyra holds an exclusive license for Cavitation Technologies Inc. patented Cavitation Non-Thermal Plasma™ (CNTP) systems, developed initially for immersion cooling in crypto mining and high-density data centers.

Tender Offer

On August 14, 2026 the Company entered into a definitive tender offer agreement (the “Agreement”) with European Guarantee Services S.à.r.l. (“Purchaser”), pursuant to which the Purchaser agreed to acquire or seek to acquire all of the outstanding shares of common stock of Company (the “CTI Shares”) for a total purchase price of $35 million in cash (less certain indebtedness and accrued liabilities of the Company) (the “Net Price”). Under the Agreement, the Purchaser will commence an offer to purchase the CTI Shares (the “Offer”) within 10 business days after the TO has met the regulatory requirements of the SEC and will remain open during an offer period of at least 60 business days to give shareholders an opportunity to review this Agreement, the Offer and the offer documents.

Under the Agreement, the Offer will contain an Initial Offer Price per Share determined by dividing the Net Price by the total number of CTI Shares outstanding as of the date of the Agreement. However, the Initial Offer Price will be subject to adjustment and a Final Offer Price per Share will be determined based on the total number of CTI Shares outstanding as of a Record Date, a date that is 45 business days after the commencement of the Offer. The Final Offer Price will be included in an amended Offer and offer documents that will be filed with the SEC and disseminated to shareholders of the Company. Following a determination of the Final Offer Price and dissemination of the amended Offer to the Company’s shareholders, the Purchaser will extend the offer period as may be necessary in order to give shareholders at least 30 business days to review the amended Offer, the Final Offer Price, and a final recommendation issued by Company’s board of directors before the offer period during which shareholders may tender their Shares pursuant to the amended Offer (as extended) expires.

The Agreement contains both customary and special customary representations, and warranties of the parties and sets forth, in Annex I to the Agreement, a list of the conditions (the “Offer Conditions”) that must be satisfied or waived by Purchaser before the Purchaser becomes obligated to purchase Shares that are tendered pursuant to the amended Offer. These Offer Conditions may be summarized as follows:

Following the expiration of the offer period (as may be extended), and subject to the satisfaction, or waiver by Purchaser, of the Offer Conditions, the Agreement provides that Purchaser will acquire, at the Final Offer Price, all of the outstanding CTI Shares that are tendered pursuant to the amended Offer (and not validly withdrawn).

Neither this Agreement nor the cash tender offer for the CTI Shares that will be made by Purchaser under the terms of the Agreement will require the prior approval of the shareholders of Company. The proposed transaction remains subject to regulatory review and approval and has not yet been finalized or consummated.

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 year ended June 30, 2026, the Company incurred net loss of $1,404,000, used cash in operations of $755,000 and as of June 30, 2026, the Company had a stockholders’ deficit of $693,000. In addition, the Company has had a history of operating losses. These factors, among others, raise 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 its inability to continue as a going concern.

As of June 30, 2026, the Company has cash in the amount of $17,000. 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 has a worldwide, exclusive, transferable and royalty-free license and right to design, build, use, export, improve, sell and market 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; (iv) hydro plasma technology, and (v) non thermal plasma for immersion cooling in crypto mining and high-density data centers, in order to 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 does not believe it has enough cash and access to cash to sustain operations through June 2027.

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 subsidiaries Hydrodynamic Technology, Inc and Xyra Corp. 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 valuation of our equity method investments, and derivative liabilities, assumptions used in valuing our stock warrants and common stock issued for services and valuation allowance for our deferred tax asset, 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, revenue is recognized when the Company satisfies the performance obligation based on the related license agreement and collectability is certain.

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.

In addition, the Company also recognizes revenues from short term rental of nano reactors. Rental revenue is recognized over the term of the agreement and when collectability is certain. During the year ended June 30, 2026, the Company recognized revenues of $3,000 pursuant to a short-term rental agreement with a customer.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

The Company uses Level 3 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using a variable option pricing model. The Company’s derivative liabilities are adjusted to reflect fair value at each reporting date, with any increase or decrease in the fair value being recorded in the statement of operations.

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 June 30, 2026 and June 30, 2025, the carrying value of certain accounts such as accounts receivable, accounts payable, accrued expenses and accrued payroll approximate 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.

The Company’s derivative liabilities at June 30, 2026 were determined using level 3 inputs.

Cash and Cash Equivalents

The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. At June 30, 2026 and 2025, 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 June 30, 2026, Company had no deposits in excess of federally insured limits. The Company believes that no significant concentration of credit risk exists with respect to its cash balances because of its assessment of the creditworthiness and financial viability of its financial institutions.

Accounts receivable and allowance for credit losses

Trade accounts receivable are recorded at the invoiced amount, do not bear interest, and are generally unsecured with payment terms ranging from 30 to 60 days.

The allowance for credit losses is a valuation account deducted from the amortized cost basis of trade accounts receivable to present the net amount expected to be collected. Management estimates lifetime expected credit losses upon initial recognition of the receivable, rather than waiting for a loss event to occur. The allowance is updated at each reporting date, with changes recognized immediately in earnings as credit loss expense (within selling, general, and administrative expenses).

Write-Off Policy

Trade receivables are written off against the allowance when management determines that the balance is fully uncollectible. Indicators of uncollectability include the exhaustion of standard corporate collection efforts, a customer's cessation of business operations, or a formal legal determination. Subsequent recoveries of amounts previously written off are credited to the allowance.

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 June 30, 2026 and 2025, the remaining de minimus 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 as 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. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

In January 2025, the lease agreement expired and is currently on a month-to-month basis. Total lease expense recorded for the years ended June 30, 2026 and 2025 amounted to $36,000 and $29,000, respectively and is reported as part of General and administrative expenses in the accompanying Consolidated Statements of Operations.

Share-Based Compensation

We periodically issue stock options, warrants and common stock to employees and non-employees for services and capital raising transactions. We account for share-based payments under the guidance of FASB ASC 718, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. We estimate the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.

Advertising Costs

Advertising costs, including marketing expense, incurred in the normal course of operations are expensed as incurred. Advertising expenses amounted to $12,000 and $16,000 for the years ended June 30, 2026 and 2025 respectively and was reported as part of General and administrative expenses in the accompanying Consolidated Statements of Operations.

Research and Development Costs

Research and development expenses relate primarily to the development, design, testing of preproduction prototypes and models, compensation, and consulting fees related to the Company’s cold plasma technology, and are expensed as incurred. Total research and development costs recorded during the years ended June 30, 2026 and 2025 amounted to $11,000 and $95,000, respectively.

Warranty Policy

The Company provides a limited warranty with every set of reactors sold, typically 2 to 5 years. The Company has not experienced significant claims under its warranty policy, and management determined no accrual for warranty reserve was necessary at June 30, 2026 and 2025.

Net Loss Per Share

The Company’s computation of net 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 loss required for purposes of computing diluted earnings per share. At June 30, 2026 and 2025 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.

Concentrations

During the year ended June 30, 2026 we recorded 100% of our revenue from one rental customer and for the year ended June 30, 2025 we recorded 98% of our revenue from Desmet Ballestra (Desmet) (see Note 2).

As of June 30, 2026, two vendors accounted for 18% and 15% of the Company’s accounts payable. As of June 30, 2025, two vendors accounted for 18% and 7% of the Company’s accounts payable.

At June 30, 2026, we had no receivables. As of June 30, 2025, one customer accounted for 100% of the Company’s accounts receivable.

Segments

The Company operates in one segment for the development and distribution of our products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s Chief Operating Decision Maker (CODM) has been identified as the Chief Executive Officer, 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 and major customers. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base, single sales team, marketing department, customer service department, operations department, finance and accounting department to support its operations 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 Note 12.

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03.

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.

Reclassification of prior year presentation

As of June 30, 2026, the Company reclassified $15,000 of accrued interest, which was previously included in accounts payable and accrued expenses at June 30, 2025, to note payable – non-current. In addition, $3,000 of accrued interest that was previously included in accounts payable and accrued expenses was reclassified to accrued interest payable in the current-year presentation.

These reclassifications were made to conform the prior-year amounts to the current-year presentation and had no effect on total liabilities, net loss, or stockholders’ equity (deficit).