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 $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.

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 $208,000, used cash in operations of $128,000 and as of September 30, 2026, the Company had a stockholders’ deficit of $739,000. 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 unaudited condensed consolidated financial statements do not include any adjustments that may result from its inability 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 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. Management estimates that the Company’s existing cash will not be sufficient to sustain its operations for the twelve months following the issuance of these financial statements.

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.

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.

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 no revenue.

Share-Based Compensation

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.

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 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.

Concentrations

During the three months ended September 30, 2025, we recorded 100% of our revenue from one rental customer. We recognized no rental income for the three months ended September 30, 2026.

As of September 30, 2026, three vendors accounted for 22%, 14% and 12% of the Company’s accounts payable. As of June 30, 2026, two vendors accounted for 18% and 15% of the Company’s accounts payable.

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 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.