UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period
ended
Commission File
Number:
(Exact name of Registrant as Specified in its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
(Address, including Zip Code, of Principal Executive Offices)
(
(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 |
| N/A | N/A | N/A |
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | 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
As of October 27, 2026, the issuer had shares of common stock outstanding.
TABLE OF CONTENTS
| Page | ||
| PART I. | FINANCIAL INFORMATION | 3 |
| Item 1. | Condensed Consolidated Financial Statements (unaudited) | 3 |
| Condensed Consolidated Balance Sheets | 3 | |
| Condensed Consolidated Statements of Operations | 4 | |
| Condensed Consolidated Statement of Stockholders’ Deficit | 5 | |
| Condensed Consolidated Statements of Cash Flows | 6 | |
| Notes to Condensed Consolidated Financial Statements | 7 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 29 |
| Item 4. | Controls and Procedures | 29 |
| PART II | OTHER INFORMATION | 30 |
| Item 1. | Legal Proceedings | 30 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 30 |
| Item 3. | Defaults Upon Senior Securities | 30 |
| Item 4. | Mine Safety Disclosures | 30 |
| Item 5. | Other Information | 30 |
| Item 6. | Exhibits | 31 |
| Signatures | 33 | |
| Certifications | ||
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2026 | June 30, 2026 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest | ||||||||
| Accrued payroll – related party | ||||||||
| Bridge notes payable, net of discount | ||||||||
| Promissory notes payable – related party | ||||||||
| Convertible notes payable, net of discount | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Note payable, non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of September 30, 2026 and June 30, 2026 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of September 30, 2026 and June 30, 2026, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ( | ) | |||||
| Total stockholders' deficit | ( | ) | ( | |||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
| 3 |
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
AS OF SEPTEMBER 30, 2026 AND 2025
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2026 | 2025 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses: | ||||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Interest and other expense, net | ( | ) | ( | ) | ||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share | ||||||||
| Basic and diluted | $ | ) | $ | ) | ||||
| Weighted average shares outstanding, | ||||||||
| Basic and diluted | ||||||||
See accompanying notes to the condensed consolidated financial statements
| 4 |
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2026 AND 2025
| Three Months Ended September 30, 2026 (unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at June 30, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Proceeds from sale of common stock | ||||||||||||||||||||
| Fair value of common stock issued for services | ||||||||||||||||||||
| Cashless exercise of warrants | ( | ) | ||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Three Months Ended September 30, 2025 (unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
See accompanying notes to the condensed consolidated financial statements
| 5 |
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Three Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Debt discount amortization | ||||||||
| Change in fair value of derivative liability | ||||||||
| Fair value of common stock issued for services | ||||||||
| Effect of changes in: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued payroll – related party | ||||||||
| Accrued interest | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Proceeds from common stock subscriptions | ||||||||
| Proceeds from bridge notes payable | ||||||||
| Cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
| 6 |
CAVITATION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three months ended September 30, 2026 and 2025
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 BioEnergy, 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.
Tender Offer
European Guarantee Services S.à.r.l
On August 14, 2026, the Company received a tender
offer agreement with European Guarantee Services S.à.r.l. (“EGS”), pursuant to which EGS agreed to acquire, or seek
to acquire, all outstanding shares of the Company’s common stock for $
In October 2026, the tender offer was terminated.
BrightFlixx Finance Luxembourg S.A
On October 9, 2026, the Company and Alchemy Beverages Inc., a privately held Delaware corporation in which the Company holds a 17% equity stake, entered into definitive tender offer agreements with BrightFlixx Finance Luxembourg S.A. (“BrightFlixx”), a Luxembourg société anonyme. One agreement relates to the Company (the “BF-CVAT Agreement”), and the other relates to Alchemy Beverages Inc. (the “BF-ABI Agreement”). Together, the agreements are referred to as the “BrightFlixx Agreements.” The BF-CVAT Agreement replaces the Company’s tender offer agreement dated August 14, 2026, with European Guarantee Services S.à r.l. (“EGS”), and the BF-ABI Agreement replaces the tender offer agreement dated August 19, 2026, between EGS and Alchemy.
Under the BF-CVAT Agreement, BrightFlixx intends to commence a cash tender offer to acquire all outstanding shares of the Company’s common stock for an aggregate purchase price of $35 million, less the Company’s outstanding liabilities. The purchase price per share will be determined based on the total number of outstanding shares as of a Record Date, which will be established 45 business days after commencement of the tender offer.
As of the date of this report, the tender offer has not commenced. The offer is initially scheduled to expire 60 business days after commencement, subject to extensions, including an extension to provide shareholders at least 30 business days to evaluate the final offer price. Completion of the transaction is subject to customary closing conditions, including the valid tender of at least 90% of the outstanding shares, CFIUS regulatory approval or a no-further-action determination, and the concurrent consummation of the Alchemy tender offer. The agreement also includes customary representations, warranties, covenants, and termination provisions.
The proposed tender offer remains subject to regulatory review and approval and has not yet been finalized or consummated.
| 7 |
Going Concern
The accompanying unaudited 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 the accompanying unaudited condensed consolidated financial statements,
during the three months ended September 30, 2026, the Company incurred a net loss of $
As of September 30, 2026, the Company has cash
in the amount of $
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.
Basis of Presentation
The unaudited condensed 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 unaudited condensed 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.
| 9 |
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 September 30, 2026 and June 30, 2026, 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 approximates its fair value due to the interest rate of the note.
The Company’s derivative liabilities at September 30, 2026 were determined using Level 3 inputs.
| 10 |
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 three months ended September 30, 2026, the Company recognized
We periodically issue 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.
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.
| 11 |
There were no adjustments to net loss required for purposes of computing diluted earnings per share. At September 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 was greater than the stock price of the Company’s common stock.
September 30, 2026 | September 30, 2025 | |||||||
| Warrants | ||||||||
| Convertible notes | ||||||||
Concentrations
During the three months ended September 30, 2025,
we recorded
As of September 30, 2026, three vendors accounted for %, % and % of the Company’s accounts payable. As of June 30, 2026, two vendors accounted for % and % of the Company’s accounts payable.
Segments
The Company operates in 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 9.
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.
| 12 |
Note 2 – Bridge Notes Payable
| September 30, | June 30, | |||||||
| 2026 | 2026 | |||||||
| Principal | ||||||||
| Bridge Note #1 | $ | $ | ||||||
| Bridge Note #2 | ||||||||
| Subtotal | ||||||||
| Debt Discount | ||||||||
| Bridge Note #1 | ( | ) | ( | ) | ||||
| Bridge Note #2 | ( | ) | ||||||
| Discount amortization | ||||||||
| Subtotal | ( | ) | ( | ) | ||||
| Bridge notes payable, Net | $ | $ | ||||||
On May 11, 2026, the Company entered into a bridge
note with a lender for $
The bridge note is repayable in five instalments,
$
On July 13, 2026, the Company entered into a similar
bridge note with the same lender for $
The bridge note is repayable in five instalments,
$
In the event of default, the principal balance of the notes will be increased by 150%, and after the expiry of 180 days, the notes may be converted into shares of common stock at the option of the lender, at a conversion price of 65% of the lowest closing bid price of the Company’s common stock during the ten-day trading period prior to conversion, with conversion limited to 4.99% of the total issued and outstanding common stock at the time of conversion.
The notes may be prepaid up to 180 days from date of issuance with prepayment discounts ranging from 95% to 98% of the total amount outstanding, including interest.
| 13 |
Note 3 – Promissory Notes Payable – Related Party
| September 30, | June 30, | |||||||
| 2026 | 2026 | |||||||
| Principal | ||||||||
| Promissory notes payable - related party | $ | $ | ||||||
Between January 9, 2026 and May 4, 2026, the Company
entered into five promissory note agreements with an entity associated with the Company’s CEO, wherein the entity advanced the Company
an aggregate of $
Note 4 – Convertible Notes Payable
| September 30, | June 30, | |||||||
| 2026 | 2026 | |||||||
| Principal | ||||||||
| Convertible note payable | $ | $ | ||||||
| Debt Discount | ||||||||
| Debt discount | ( | ) | ( | ) | ||||
| Discount amortization | ||||||||
| Subtotal | ( | ) | ( | ) | ||||
| Net | $ | $ | ||||||
In December 2025 and January 2026, Xyra
Corp., the Company’s wholly owned subsidiary, issued three one-year convertible notes, amounting to $
The holder has an option to convert the principal of the convertible note into Xyra common stock for a period of six months once notified by the Company, in writing, of a public listing on any recognized U.S. national or regional stock exchange or on any of the markets operated by the OTC Markets Group. The conversion price will be 50% of the 5-day average closing price immediately prior to conversion. Xyra, at its sole discretion, may allow the conversion of unpaid interest into Xyra common stock for the same period allowed for the conversion of the principal.
Should Xyra not achieve a public offering by December 5, 2026, the holder has the option to convert the principal outstanding into common shares of the Company for a period of six months from December 5, 2026. The conversion price will be the greater of 80% of $0.06 or the current CTI market price. The market price will be determined as the weighted average of the high and low trading prices of the Company stock over a 5-day period. The Company, at its sole discretion, may allow the conversion of interest at any time after the maturity date and during any extended period exercised by Xyra.
The Company analyzed the conversion options for
derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined that the conversion options should be accounted
for as a derivative liability since they do not have an explicit limit to the number of shares to be delivered upon settlement of the
conversion option (see Note 5). The cumulative fair value of the derivative liability upon issuance of the convertible notes payable at
issuance date amounted to $
| 14 |
Note 5 – Derivative Liability
In December 2025 and January 2026, the Company issued convertible notes payable whose conversion options are being accounted for as a derivative liability pursuant to ASC 815, Derivatives and Hedging (see Note 4). The derivative liability is remeasured to fair value at each reporting period, and the change in the fair value is recognized in earnings in the accompanying statements of operations. The Company estimated the fair value of the conversion option derivative liability using a variable option pricing model.
The following table provides a roll-forward of the derivative liability measured at fair value on a recurring basis using unobservable Level 3 inputs for the period ended September 30, 2026, as follows:
| September 30, | ||||
| 2026 | ||||
| Fair value of derivative liability at beginning of the period | $ | |||
| Change in fair value of derivative liability | ||||
| Fair value of derivative liability at period end | $ | |||
The following are the average inputs used by the Company in the valuation of the derivative liability:
| Stock price | $ | |||
| Risk free interest rate | ||||
| Expected volatility | ||||
| Expected life in months | ||||
| Number of common stock issuable |
Note 6 – Note Payable
| September 30, | June 30, | |||||||
| 2026 | 2026 | |||||||
| Principal | ||||||||
| Note payable - EIDL | $ | $ | ||||||
In July 2020, the Company received a loan of $
Pursuant to the Company’s agreement with
the SBA in the prior year that cured prior payment defaults and past due balances, monthly installment payments are first being applied
to accrued and unpaid interest. As of September 30, 2026 and June 30, 2026, the outstanding balance of the note payable was $
Note 7 – Stockholders’ Deficit
Common stock
During August
and September 2026, the Company entered into agreements with five accredited investors whereby the investors subscribed for
shares of common stock at a price of $0.03 per share for aggregate proceeds of $
| 15 |
In September 2026, the Company issued an aggregate
of shares of common stock to a consultant for services rendered. The common stock issued was valued at fair market value on the
grant date at $
On September 10, 2026, a warrant holder exercised warrants for an aggregate of shares of common stock on a cashless basis in accordance with the terms of the warrant agreements. As a result, the Company issued shares of common stock.
Warrants
A summary of the Company’s warrant activity as of September 30, 2026 is as follows:
| Warrants | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Life (Years) | ||||||||||
| Outstanding at June 30, 2026 | $ | |||||||||||
| - Granted | – | |||||||||||
| - Exercised | ( | ) | – | |||||||||
| - Forfeited | ( | ) | – | |||||||||
| - Expired/retired | ( | ) | – | |||||||||
| Outstanding at September 30, 2026 | $ | |||||||||||
As of September 30, 2026, the intrinsic value of these stock purchase warrants amounted to $.
The following table summarizes additional information concerning warrants outstanding and exercisable at September 30, 2026:
| 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) | |||||||||||||||
| $0.013 | $ | |||||||||||||||||||
| $0.017 | ||||||||||||||||||||
| $0.030 | ||||||||||||||||||||
| $0.060 | ||||||||||||||||||||
| $ | ||||||||||||||||||||
| 16 |
Note 8 – Related Party Transactions
Accrued Payroll and Payroll Taxes
The Company accrues salaries and estimated payroll
taxes due to a current shareholder and current officer and director of the Company. As of September 30, 2026 and June 30, 2026, the total
accrued payroll and payroll taxes amounted to $
Note 9 – Segment Information
The Company operates and manages its business as reportable and operating segment. The Company’s CODM reviews financial information presented and decides how to allocate resources based on net income (loss). Net income (loss) is used for evaluating financial performance.
Significant segment expenses include research and development, salaries, insurance, and stock-based compensation. Operating expenses include all remaining costs necessary to operate the business, which primarily include external professional services and other administrative expenses. The following table presents the significant segment expenses and other segment items regularly reviewed by our CODM:
| Three Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Revenue | $ | $ | ||||||
| Research and development | ( | ) | ||||||
| Salaries | ( | ) | ( | ) | ||||
| Consulting fees | ( | ) | ( | ) | ||||
| Professional fees | ( | ) | ( | ) | ||||
| Rent expense | ( | ) | ( | ) | ||||
| Travel expense | ( | ) | ||||||
| Stock-based compensation | ( | ) | ||||||
| Other operating expenses | ( | ) | ( | ) | ||||
| Total operating expenses | ( | ) | ( | ) | ||||
| Net operating loss | ( | ) | ( | ) | ||||
| Interest and other expense, net | ( | ) | ( | ) | ||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
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Note 10 – 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 September 30, 2026.
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 September 30, 2026 and June 30, 2026, no patents have been granted in which this person is the legally named inventor.
Other
From time to time the Company may be named in claims arising in the ordinary course of business. Currently, there are no such legal proceedings that are pending against the Company or that involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on the Company’s business or financial condition.
Note 11 – Subsequent Events
Other than disclosed above, the Company evaluated subsequent events for their potential impact on the condensed consolidated financial statements and disclosures through the date the condensed consolidated financial statements were issued and determined that no additional subsequent events occurred that were reasonably expected to impact the condensed consolidated financial statements presented herein.
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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 our plans, objectives, expectations and intentions. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.
Tender Offer
European Guarantee Services S.à.r.l
On August 14, 2026, the Company received a tender offer agreement with European Guarantee Services S.à.r.l. (“EGS”), pursuant to which EGS agreed to acquire, or seek to acquire, all outstanding shares of the Company’s common stock for $35 million in cash, less certain indebtedness and accrued liabilities (the “Net Purchase Price”). EGS is required to commence the tender offer within 10 business days after satisfying applicable SEC regulatory requirements. The offer will remain open for at least 60 business days to allow shareholders to evaluate the Agreement and related offer documents.
In October 2026, the tender offer was terminated.
BrightFlixx Finance Luxembourg S.A
On October 9, 2026, the Company and Alchemy Beverages Inc., a privately held Delaware corporation in which the Company holds a 17% equity stake, entered into definitive tender offer agreements with BrightFlixx Finance Luxembourg S.A. (“BrightFlixx”), a Luxembourg société anonyme. One agreement relates to the Company (the “BF-CVAT Agreement”), and the other relates to Alchemy Beverages Inc. (the “BF-ABI Agreement”). Together, the agreements are referred to as the “BrightFlixx Agreements.” The BF-CVAT Agreement replaces the Company’s tender offer agreement dated August 14, 2026, with European Guarantee Services S.à r.l. (“EGS”), and the BF-ABI Agreement replaces the tender offer agreement dated August 19, 2026, between EGS and Alchemy.
Under the BF-CVAT Agreement, BrightFlixx intends to commence a cash tender offer to acquire all outstanding shares of the Company’s common stock for an aggregate purchase price of $35 million, less the Company’s outstanding liabilities. The purchase price per share will be determined based on the total number of outstanding shares as of a Record Date, which will be established 45 business days after commencement of the tender offer.
As of the date of this report, the tender offer has not commenced. The offer is initially scheduled to expire 60 business days after commencement, subject to extensions, including an extension to provide shareholders at least 30 business days to evaluate the final offer price. Completion of the transaction is subject to customary closing conditions, including the valid tender of at least 90% of the outstanding shares, CFIUS regulatory approval or a no-further-action determination, and the concurrent consummation of the Alchemy tender offer. The agreement also includes customary representations, warranties, covenants, and termination provisions.
The proposed tender offer remains subject to regulatory review and approval and has not yet been finalized or consummated.
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Overview of our Business
Cavitation Technologies, Inc. (referred to herein, unless otherwise indicated, as “the Company,” “CTi,” “we,” “us,” and “our”) is a Nevada corporation originally incorporated under the name BioEnergy, Inc. We are a process and product development firm that has developed, patented, and commercialized environmentally friendly technology-based systems that are designed to serve large, growing, global markets such as renewable fuels, water treatment, wines and spirits enhancement, algae oil extraction, water-oil emulsions and crude oil yield improvement. Our systems are designed to process industrial liquids at a reduced processing time, lower operating cost, improved yield while operating in an environmentally friendly manner. Our patented Nano Reactor® and LPN™ were the critical components of our business and we have generated all of our previous revenue while utilizing these components.
Vegetable Oil Refining
Our first commercial application for our technology has been the CTi Nano Neutralization® System which has been utilized to improve the edible vegetable oil refining process. Our environmentally friendly process has been shown to reduce refining costs, increase oil yield, and limit the number of chemical additives used in chemical refining of vegetable oils. This patented process (US Patent # 7,762,715 and # 8,042,989) is designed to be incorporated into new and existing soybean, rapeseed, canola and palm vegetable oil refineries.
Desmet Belgium Group (previously Desmet Ballestra) Agreement
Desmet, together with its affiliates, is a global engineering and equipment supply firm engaged in the development, design and supply of process equipment for oils and fats processing facilities including vegetable oil refining, biofuel, oleo chemical, seed crushing, surfactant and detergent markets. Desmet supplies these markets with services based on the latest globally sourced technologies. Desmet has relationships with major refiners globally. A significant portion of global vegetable oil refineries include major refiners such as Archer Daniels Midland Company, Cargill, Inc. and Bunge Limited. Desmet has more than 40 sales representatives selling in North America, South America, Europe, and Asia. Since its founding in 1946, Desmet reports that it has built a global network that includes 1,300 employees, 17 global and 8 representative offices, and more than 6,000 lines in a variety of applications. Desmet operates a separate division for each of the above markets and the Desmet Oils & Fats division has supplied small and large plants to approximately 1,900 oil millers in 150 countries, covering over 6,300 process sections.
On May 14, 2012, we signed a global R&D, Marketing and Technology License Agreement with Desmet Ballestra Group s.a. (Desmet), a Belgian company that is actively marketing the NANO Neutralization® System, the key component of which is our Nano Reactor® to soybean and other vegetable oil refiners. The Agreement provided Desmet (licensee) a limited, exclusive license and right to develop, design and supply our NANO Neutralization® System which incorporates Nano Reactor® devices on a global basis for vegetable oils and fats and oleo chemical applications. The agreement expired in May 2015.
On January 22, 2016, Desmet and the Company executed a new three-year License Agreement on essentially the same terms with the May 2012 agreement that was effective August 1, 2015. As part of the agreement, Desmet provided, under certain conditions, limited monthly advance payments of $50,000 to be applied against gross profit share from future sales. The agreement expired in August 2018.
On October 1, 2018, Desmet and the Company executed a new three-year License Agreement on essentially the same terms with the January 2016 agreement. As part of the agreement, Desmet provided us, under certain conditions, limited monthly advances of $50,000 through October 1, 2021, to be applied against gross profit share from future sales. The agreement expired in October 2021.
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On October 1, 2021, Desmet and the Company executed a new three-year License Agreement on essentially the same terms with the October 2018 agreement. As part of the agreement, Desmet provided the Company monthly advances of $40,000 through November 1, 2024, that was applied as payment from reactor sales, however, the Company was no longer entitled to gross profit share from future sales. This agreement was terminated and replaced in February 2024.
On February 15, 2024, Desmet and the Company terminated the October 2021 agreement and executed a new but similar three-year agreement (“February 2024 agreement”). As part of the February 2024 agreement, Desmet will provide the Company monthly advances of $25,000 through February 2027, subject to limitations, that will be applied as payment from future reactor sales. In addition, Desmet also waived reimbursement right for the outstanding advances made pursuant to the October 2021 agreement in the aggregate and up to $498,000.
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. This agreement effectively superseded the February 2024 agreement with Desmet including the termination of the monthly advances of $25,000.
Key points of the October 2024 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 | |
| 5. | Non-thermal plasma (Xyra Corp.) |
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1. Water Treatment and Remediation in the Permian Basin
Enviro WaterTek, LLC
In April 2019, the Company and Delaware Water Company, LLC (Delaware) formed a limited liability company called Enviro WaterTek LLC (“Enviro”, “EW”). Enviro is owned 50% by the Company and 50% by Delaware, and the Company accounts for its investment in Enviro under the equity method of accounting. From 2019 to 2024, Enviro had insignificant operations. This agreement covers our first commercial entrance into industrial treatment of produced and frac water. The fracking industry has seen significant growth over the past ten years, reaching daily water consumption volume of over 58 million barrels per day. Our newly designed Low Pressure Nano Reactor (LPN™) was specifically developed to be integrated into produced water treatment system along with our proprietary chemical formulations and has depicted measurable and quantifiable advantages over industry standard processes and equipment. Our agreement with EW provides for sales on LPN™ plus recurring revenue stream based on processing of produced and frac water volumes and utilization. Our agreement with EW has a fifteen-year term.
In March 2020, the global pandemic of COVID-19 had a negative impact on the oil and gas industry worldwide and has consequently impaired our ability to rapidly accelerate LPN™ sales and recurring revenue stream. Our current operations are limited to system trials and have not produced any meaningful revenue. The system has the capacity to treat approximately 17,000 barrels of produced water per day (BPD).
In June 2023, the Company determined that investment in EW was impaired, and as a result, the Company recorded an impairment charge of approximately $1.1 million. There were no transactions during fiscal 2026 and 2025, from sale of reactors and usage fee.
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. |
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.
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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.
3. Business Venture with Alchemy Beverages, Inc.
In fiscal 2014, Roman Gordon, one of our shareholders and a former officer, formed a company, Cameo USA LLC (Cameo). Since its formation, Cameo has had no revenue, no operations, and has had no assets or liabilities. On June 4, 2018, Mr. Gordon contributed his 100% interest in Cameo to Cavitation Technologies, Inc. As Mr. Gordon had no reasonable and objectively supportable basis in the valuation of his investment in Cameo, there was no value assigned to the contribution of Cameo.
On June 29, 2018, we sold Cameo to Alchemy Beverages Inc. (“ABI”). In addition, we have agreed to provide certain licensing rights related to our miniature low pressure nano-reactor (MLPN) to be used in developing and manufacturing of small home appliances to enhance alcoholic beverages. In consideration for this, ABI has agreed to issue 19.9% of ABI’s outstanding common shares to us (limited to 20 million shares of ABI). ABI is a private company and in the business of producing and selling alcoholic beverages, equipment, and home appliances. Prior to this agreement, ABI was independent of CTI and had no relation to us nor to our management.
Pursuant to the licensing agreements, ABI will have the exclusive global marketing and distribution rights of Cameo and our patented and patent pending technologies for the processing of alcoholic beverages. We have agreed to assist in the installation and maintenance of the MLPN to ABI and will receive royalty payments ranging from 1% to 3% on all net revenues, as defined in our license agreement for the life of the applicable patents. In addition, we will receive leasing, consulting, and manufacturing fees as defined in the licensing agreement.
Over the past several years, we have worked closely with 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 process of completing its financial audit, which is estimated to be completed in fiscal 2027, 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 fiscal 2027.
As of September 30, 2026 and the date of this report, ABI has not generated any sales under the Cameo brand. The earliest sales and revenue for Barmuze are anticipated in the first half of 2027. 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.
During fiscal 2026 and 2025, there were no sales or royalties generated pertaining to our agreement with Alchemy Beverages, Inc. The investment in ABI has no value assigned to it, which approximates its fair value.
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4. New Technologies: Hydro-Plasma
Along with improving our existing technologies, we have developed Hydro Plasma, 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 fiscal 2027.
5. Xyra Corp: Non-Thermal Plasma
In August 2025, we incorporated a wholly owned subsidiary, Xyra Corp., and licensed our technology to Xyra Corp., our wholly owned subsidiary. Xyra is focused on identifying and capitalizing on opportunities in the crypto technologies market. Xyra holds an exclusive license for Cavitation Technologies Inc.’s patented Cavitation Non-Thermal Plasma™ (CNTP) systems, developed initially for immersion cooling in crypto mining and high-density data centers. This technology solves critical pain points such as fluid degradation, contamination, and system downtime in next-generation computing environments. That same technology now underpins Xyra’s infrastructure backbone, giving it a rare dual strength: precision fluid management to keep the physical computing layer efficient and secure, and to deliver AI-driven, quantum-secure remittances and tokenization rails at a global scale.
Xyra launched the first AI-driven, quantum-secure remittance and tokenization network designed for the global economy. The platform addresses the inefficiencies of today’s outdated cross-border systems, tapping into multi-trillion-dollar markets while introducing the first credit card issuance linked directly to remittance flows.
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Quantum-Secure Technology
At the core of Xyra’s vision is a unified ecosystem built on interconnected pillars:
| § | AI Intelligence Layer |
| Serves as the “brain,” monitoring remittance flows, detecting anomalies, automating Know Your Customer (“KYC”) and Anti- Money Laundering (“AML”) and transforming raw transactions into insights. | |
| § | Quantum Security Layer |
| Uses post-quantum cryptography (PQC) and decentralized infrastructure to protect every transaction, ensuring resilience against future quantum attacks. | |
| Stablecoin Network & Licensed Compliance | |
| Xyra is building its own regulated infrastructure, obtaining and operating under Money Transmitter Licenses (MTLs) across multiple jurisdictions. At the core of this framework is the issuance of fully asset-backed, quantum-secure stablecoins, creating instant, compliant fiat-to-stablecoin rails for remittances, cross-border B2B, and tokenized settlements. | |
| § | Rewards & Loyalty Engine |
| Every remittance becomes an engagement point, with AI delivering real-time rewards, loyalty features, and personalized incentives to boost retention. AI also optimizes margins and creates new revenue streams, turning loyalty into a direct driver of income for the ecosystem. | |
| § | Asset Tokenization Layer |
| Converts verified remittance and financial data into programmable, globally tradable tokens, turning information flows into yield-bearing digital assets. |
Inflation
Global inflation remains a factor in fiscal 2027 and 2026, with interest rates in the US remaining at higher levels and increasing. The current uncertainty in the global markets around the implementation of trade tariffs by the US government has resulted in market fluctuations. In addition, the impact of tariffs on all imported goods into the U.S. is expected to have a significant inflationary impact on all imports. The Iranian, Russia and Ukraine 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.
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Results of Operations for the Three Months Ended September 30, 2026 Compared to the Three Months Ended September 30, 2025
The following is a comparison of our results of operations for the three months ended September 30, 2026 and 2025.
| For the Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Revenue | $ | – | $ | 3,000 | $ | (3,000 | ) | (100.0)% | ||||||||
| General and administrative expenses | 165,000 | 245,000 | (80,000 | ) | (32.7)% | |||||||||||
| Research and development expenses | – | 7,000 | (7,000 | ) | (100.0)% | |||||||||||
| Total operating expenses | 165,000 | 252,000 | (87,000 | ) | (34.5)% | |||||||||||
| Loss from operations | (165,000 | ) | (249,000 | ) | 84,000 | (33.7)% | ||||||||||
| Interest and other expense, net | (40,000 | ) | (9,000 | ) | (31,000 | ) | 344.4% | |||||||||
| Change in fair value of derivative liability | (3,000 | ) | – | (3,000 | ) | 100.0% | ||||||||||
| Net loss | $ | (208,000 | ) | $ | (258,000 | ) | $ | 50,000 | (19.4)% | |||||||
Revenue
The Company generates revenues from the sale of the Nano Reactor® to customers/distributor. Additionally, the Company generates revenues from short-term rental of these Nano Reactors.
Revenue was $0 and $3,000 for the three months ended September 30, 2026 and 2025, respectively, a decrease of $3,000 or 100.0%. Revenue for the prior year represented income received for the rental of a Nano Reactor to one customer.
General and administrative expenses
General and administrative expenses were $165,000 and $245,000 for the three months ended September 30, 2026 and 2025, respectively, a decrease of $80,000 or 32.7%. The decrease is primarily due to the following:
| · | Salary expenses decreased by $57,000 due to the termination of employment by one of our employees, | |
| · | Travel expenses decreased by $18,000 primarily due to fewer promotional trips undertaken during the current year, | |
| · | Professional fees decreased by $16,000, primarily due to a decrease in legal related expenses, | |
| · | Consulting fees decreased by $11,000 primarily due to the decrease in consulting fees incurred in Xyra Corporation during the prior year, | |
| · | Rent expense decreased by $1,000 due to an increase in sub-lease income which is offset against rental expense. | |
| · | Stock compensation increased by $22,000 due to a share-based compensation agreement entered into with a consultant during the current year with no similar transaction in the prior period. | |
| · | The aggregate of all other expenses increased by $1,000; the increase in these expenses is individually insignificant. |
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Research and development expenses
Research and development expenses were $0 and $7,000 for the three months ended September 30, 2026 and 2025, respectively, a decrease of $7,000 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. There were no similar expenses during the current period and the research and development expenditure is dependent on progress made on the development.
Interest and other expense, net
Interest and other expense, net was $40,000 and $9,000 for the three months ended September 30, 2026 and 2025, respectively. The increase is primarily related to interest incurred and debt discount amortized on bridge notes, convertible notes and related party notes advanced to the Company during the current and prior year.
Change in fair value of derivative liability
The change in fair value of derivative liability was $3,000 and $0 for the three months ended September 30, 2026 and 2025, respectively. The increase is primarily related to the valuation of the conversion feature on the convertible notes payable issued during the prior year accounted for as derivative liabilities and the subsequent mark-to-market of these derivative liabilities at our reporting period end.
Net loss
Net loss was $208,000 and $258,000 for the three months ended September 30, 2026 and 2025, respectively, a decrease in loss of $50,000. The decrease in net loss is primarily due to the decrease in operating expenses, offset by a decrease in revenue, an increase in interest and other expense, net, and the movement in the fair value of derivative liabilities, as discussed above.
Liquidity and Capital Resources
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 the accompanying condensed consolidated financial statements, during the three months ended September 30, 2026, the Company incurred a loss from operations of $165,000 and used cash in operations of $128,000. In addition, we had a stockholders’ deficit of $739,000 as of September 30, 2026. 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, 2026, 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 September 30, 2026, the Company has cash in the amount of $94,000. 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 systems 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 does not have enough cash to sustain operations through September 2027.
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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 $128,000 and $219,000 for the three months ended September 30, 2026 and 2025, respectively. The decrease in cash used in operating activities is primarily due to a reduction in operating expenses and the movement in working capital during the current period.
Net cash provided by financing activities amounted to $205,000 and $0 for the three months ended September 30, 2026 and 2025, respectively. The increase was due to proceeds received from common stock subscriptions and bridge notes payable during the current period.
Critical Accounting Policies
Revenue Recognition
The Company follows the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. 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 Reactor® and LPN™ was recognized when products were shipped from our manufacturing facilities as this was our sole performance obligation under these contracts and we had 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.
The Company also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer.
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.
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.
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Certain convertible notes have a variable priced conversion feature which qualifies as a derivative liability which is valued using a variable option pricing model using Level 3 inputs. 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.
Share-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
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 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 controls and procedures at the end of each fiscal year. As of September 30, 2026, the Company carried out an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that these disclosure controls and procedures were not effective as of September 30, 2026.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the first quarter of fiscal 2027 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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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.
Between August 2026 and September 2026, we sold 4,666,665 shares of common stock for gross proceeds of $140,000.
During September 2026, we issued 500,000 shares of common stock to a consultant for consulting work rendered. The common stock issued was valued at fair market value on the grant date at $22,000.
During September 2026, a warrant holder exercised warrants on a cashless basis for 3,000,000 shares with an exercise price of $0.017 per share resulting in the issue of 1,933,055 shares of common stock.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
During the quarter ended September 30, 2026, no
director or officer of the Company
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Item 6. Exhibits, Financial Statement Schedules.
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| 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.
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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 | October 27, 2026 | ||
| N. Voloshin | (Principal Executive Officer) | |||
| /s/ N. Voloshin | Chief Financial Officer | October 27, 2026 | ||
| N. Voloshin | (Principal Financial Officer) | |||
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