CVAT 10-Q
Cavitation Technologies, Inc. (CVAT)
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 May 15, 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 | 16 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 25 |
| Item 4. | Controls and Procedures | 25 |
| PART II | OTHER INFORMATION | 26 |
| Item 1. | Legal Proceedings | 26 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 26 |
| Item 3. | Defaults Upon Senior Securities | 26 |
| Item 4. | Mine Safety Disclosures | 26 |
| Item 5. | Other Information | 26 |
| Item 6. | Exhibits | 27 |
| Signatures | 28 | |
| Certifications | ||
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2026 | June 30, 2025 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| 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 (Note 8) | ||||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of March 31, 2026 and June 30, 2025 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of March 31, 2026 and June 30, 2025, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders' equity (deficit) | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
| 3 |
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
AS OF MARCH 31, 2026 AND 2025
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ||||||||||||
| Gross profit | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (expense) | ||||||||||||||||
| Gain on patent assignment | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discount amortization | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Net income (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 MARCH 31, 2026 AND 2025
| Three Months Ended March 31, 2026 (unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Nine Months Ended March 31, 2026 (unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Proceeds from sale of common stock units | ||||||||||||||||||||
| Fair value of common stock issued for services | ||||||||||||||||||||
| Cashless exercise of warrants | ( | ) | ||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Three Months Ended March 31, 2025 (unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Fair value of warrants granted for services | – | |||||||||||||||||||
| Fair value of common stock issued to settle accrued payroll and payroll taxes – related parties | ||||||||||||||||||||
| Fair value of warrants issued to settle accrued payroll and payroll taxes – related parties | – | |||||||||||||||||||
| Extinguishment of accrued payroll and payroll taxes – related parties treated as contribution of capital | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Nine Months Ended March 31, 2025 (unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Fair value of warrants granted for services | – | |||||||||||||||||||
| Fair value of common stock issued to settle accrued payroll and payroll taxes – related parties | ||||||||||||||||||||
| Fair value of warrants issued to settle accrued payroll and payroll taxes – related parties | – | |||||||||||||||||||
| Extinguishment of accrued payroll and payroll taxes – related parties treated as contribution of capital | – | |||||||||||||||||||
| Net income | – | |||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to the condensed consolidated financial statements
| 5 |
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Nine Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Operating activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (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 | ||||||||
| Fair value of warrants granted for services | ||||||||
| Gain on patent assignment | ( | ) | ||||||
| Effect of changes in: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ||||||||
| Operating lease right of use asset | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued payroll and payroll taxes – related parties | ||||||||
| Operating lease liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Proceeds from patent assignment | ||||||||
| Net cash provided by investing activities | ||||||||
| Financing activities: | ||||||||
| Proceeds from convertible note payable | ||||||||
| Proceeds from common stock units | ||||||||
| Proceeds from note payable | ||||||||
| Repayment of note payable | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net (decrease) increase 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 | $ | $ | ||||||
| Supplemental disclosures of non-cash transactions: | ||||||||
| Conversion feature of convertible notes payable accounted as derivative liability | $ | $ | ||||||
| Fair value of common stock and warrants granted to settle accrued payroll and payroll taxes - related parties | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
| 6 |
CAVITATION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine months ended March 31, 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 Bio Energy, Inc. The Company had originally developed, patented, and commercialized proprietary technology, which has subsequently been sold to Desmet Ballestra in October 2024, pursuant to a patent assignment and license back agreement.
On August 9, 2025, the Company incorporated a wholly owned subsidiary, Xyra Corp. (“Xyra”). Xyra will be focused on identifying and capitalizing on opportunities in the crypto technologies market. Xyra holds an exclusive license for Cavitation Technologies Inc. patented Cavitation Non-Thermal Plasma™ (CNTP) systems, developed initially for immersion cooling in crypto mining and high-density data centers.
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.
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. During the nine months ended March 31, 2026, the Company
incurred loss from operations of $
As of March 31, 2026, the Company has cash in
the amount of $
| 7 |
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.
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 allowance for deferred tax assets, accruals of potential liabilities, calculations to derivative financial instruments and assumptions used in valuing our stock warrants, among other items. Actual results could differ from these estimates.
Revenue Recognition
The Company follows the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients. Revenue from sales of our Nano Reactors is recognized when products are shipped from our manufacturing facilities as this is our sole performance obligation under these contracts and we have no continuing obligation to the customer.
For the license fee revenue, and revenue from assignments of its patents, revenue is recognized when the Company satisfies the performance obligation based on the related agreements and collectability is certain.
The Company 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- and nine-month period ended March 31, 2026, the Company recognized revenues of $
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.
| 8 |
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 March 31, 2026 and June 30, 2025, the carrying value of certain accounts such as accounts receivable, accounts payable, accrued expenses and accrued payroll approximate their fair value due to the short-term nature of such instruments. The carrying value of our note payable approximate their fair value due to interest rate of the note.
The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of March 31, 2026:
| March 31, 2026 | ||||||||||||||||
| Liabilities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Derivative liability – convertible note conversion options | $ | $ | $ | $ | ||||||||||||
| 9 |
Advertising Costs
Advertising costs, including marketing
expense, incurred in the normal course of operations are expensed as incurred. Advertising expenses amounted to $
Research and Development Costs
Research and development expenses relate primarily
to the development, design, testing of preproduction prototypes and models, compensation, and consulting fees related to the Company’s
cold plasma technology and are expensed as incurred. Total research and development costs recorded during the nine months ended March
31, 2026 and 2025 amounted to $
The Company’s computation of net income (loss) per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted income per share, the treasury stock method assumes that outstanding options and warrants were exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
There were no adjustments to net income (loss) required for purposes of computing diluted earnings per share. At March 31, 2026 and 2025 the Company excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from its calculation of its diluted earnings per share, as their effect would have been anti-dilutive as the exercise price of these warrants were greater than the stock price of the Company common stock.
|
March 31, 2026 |
March 31, 2025 |
|||||||
| Warrants | ||||||||
| Convertible note | ||||||||
Concentrations
During the nine months ended March 31, 2025,
we recorded
As of March 31, 2026, three vendors
accounted for
At March 31, 2026 and June 30, 2025, we had receivables
of $
| 10 |
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 6.
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.
Note 2 – Promissory Notes payable – Related party
| March 31, | June 30, | |||||||
| 2026 | 2025 | |||||||
| 8% promissory note payable | $ | $ | ||||||
| Accrued interest | ||||||||
| Net | $ | $ | ||||||
Between January 9, 2026 and March 30, 2026,
the Company entered into four promissory note agreements with an entity associated with the Company’s CEO, wherein the entity
advanced the Company an aggregate of $
Note 3– Convertible Notes Payable
| March 31, | June 30, | |||||||
| 2026 | 2025 | |||||||
| 8% convertible note payable | $ | $ | ||||||
| Accrued interest | ||||||||
| Debt discount | ( | ) | ||||||
| Net | $ | $ | ||||||
| 11 |
On December 5, 2025, January 15, 2026 and January
30, 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. Xrya, 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 as a derivative liability since it does 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 $
Note 4 – Note Payable
| March 31, | June 30, | |||||||
| 2026 | 2025 | |||||||
| Note payable - EIDL | $ | $ | ||||||
In July 2020, the Company received a loan of
$
Note 5 – Derivative Liability
On December 2, 2025, January 15, 2026 and January
30, 2026, the Company issued convertible notes payable whose conversion options are being accounted as a derivative liability pursuant
to ASC 815, Derivatives and Hedging (see Note 2). 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 fair value of the derivative liability at December
31, 2025 and March 31, 2026 was $
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 March 31, 2026, as follows:
| Fair Value of Derivative Liability | ||||
| At issuance, December 5, 2025, January 15, 2026 and January 30, 2026 | $ | |||
| Change in fair value of derivative liability | ( | ) | ||
| March 31, 2026 | $ | |||
| 12 |
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 – Stockholders’ Deficit
Common stock
On
October 9, 2025, the Company entered into an agreement with two accredited investors whereby the investors subscribed for
units,
In October 2025, the Company issued an aggregate of shares of common stock to various consultants for consulting work to be performed for a one-year term. The common stock issued was valued at fair market value on the grant date at $.
On November 25, 2025, certain warrant holders, including the Company’s CEO exercised warrants for an aggregate of shares of common stock on a cashless basis in accordance with terms of the warrant agreements. As a result, the Company issued shares of common stock.
Warrants
See warrant activity under common stock above.
A summary of the Company’s warrant activity as of March 31, 2026 is as follows:
| Warrants | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Life (Years) | ||||||||||
| Outstanding at June 30, 2025 | $ | |||||||||||
| - Granted | ||||||||||||
| - Exercised | ( | ) | ||||||||||
| - Expired/retired | ( | ) | ||||||||||
| Outstanding at March 31, 2026 | $ | |||||||||||
As of March 31, 2026, the intrinsic value of these stock purchase warrants amounted to $.
| 13 |
The following table summarizes additional information concerning warrants outstanding and exercisable at March 31, 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 | |||||||||||||||||||||
| $ | 0.090 | |||||||||||||||||||||
| $ | ||||||||||||||||||||||
Note 7 – Segment Information
The Company operates and manages its business as reportable and operating segment. The Company’s Chief Operating Decision Maker or “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:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ||||||||||||
| Gross profit | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Salaries | ||||||||||||||||
| Share based compensation | ||||||||||||||||
| Consulting fees | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Rent expense | ||||||||||||||||
| Travel expense | ||||||||||||||||
| Other operating expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Net operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on patent assignment | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discount amortization | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Net Income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| 14 |
Note 8 – Commitment and Contingencies
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 9 – Subsequent Events
On March 30, 2026, the company received a Letter of Intent (“LOI”) from European Guarantee Services S.à.r.l. (“EGS”), a Luxembourg-based firm acting on behalf of a select group of high-net-worth individuals, family offices, and strategic capital partners, for the acquisition of all issued and outstanding shares of the Company and its partially-owned affiliates, Alchemy Beverages Inc. and XYRA Corp. The Company’s Board of Directors approved a resolution to countersign the LOI on March 30, 2026.
EGS proposes to acquire 100% of all issued and outstanding shares of CVAT and its affiliates in an all-cash transaction. The LOI defines a strategic valuation for CVAT in the range of $40–$42 million, which translates to an approximate price of $0.13 per share on a fully diluted basis. This valuation is subject to due diligence and the negotiation of certain terms and conditions, which will be incorporated in a definitive transaction agreement.
The proposed transaction is subject to several conditions, including: (i) the satisfactory completion of due diligence by EGS, which will include a thorough review of the Company's intellectual property, including all patents, copyrights, and licensing agreements; (ii) the negotiation and execution of a definitive transaction agreement; (iii) the Company’s Board of Directors obtaining a fairness opinion from an independent financial advisor to satisfy its fiduciary duty to the shareholders; (iv) the distribution of a proxy statement to the Company shareholders and the receipt of shareholder approval in accordance with Nevada Corporation Law; and (v) clearance by applicable U.S. federal and state regulatory authorities, which may include a review by the Committee on Foreign Investment in the United States (CFIUS).
As a binding condition of the LOI, EGS was required to deliver documentary proof of funds within ten (10) calendar days. Failing which the LOI would automatically lapse and expire. The LOI also includes a binding 60-day exclusivity period, during which the Company has agreed not to solicit or enter into discussions with third parties regarding any competing acquisition proposals. The LOI expires at 5:00 p.m. PST on August 1, 2026, unless extended by mutual written agreement or terminated earlier in accordance with its terms.
On April 8, 2026, the Company received documentary proof of funds from European Guarantee Services S.à.r.l. (“EGS”) in connection with the LOI for a proposed all-cash acquisition of the Company.
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.
| 15 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements and the related notes. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as its plans, objectives, expectations and intentions. Its actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.
Overview of our Business
Cavitation Technologies, Inc. (“CTi”), a Nevada corporation, was originally incorporated under the name Bio Energy, Inc. We design and engineer environmentally friendly technology-based systems that are designed to serve large, growing, global markets such as vegetable oil refining, renewable fuels, water treatment, algae oil extraction, biodiesel production, water-oil emulsions and crude oil yield enhancement. Our systems are designed to process industrial liquids at a lower cost and higher yield than conventional technology. We are a process and product development firm that has developed, patented, and commercialized proprietary technology.
CTi has developed, patented, and commercialized proprietary technology that can be used for processing of industrial fluids. CTi’s patented Nano Reactor® is the critical components of the CTi Nano Neutralization® System which is commercially proven to reduce operating costs and increase yields in processing oils and fats. CTi has two issued patents relating to our Nano Reactor® systems and has filed several national and international patents to employ its proprietary technology in applications including, vegetable oil refining, biodiesel production, wastewater treatment, algae oil extraction, and alcoholic beverage enhancement.
We were engaged in manufacturing our Nano-Reactors, which are designed to help refine vegetable oils, biodiesel transesterification and treatment of produced and frack water.
In prior years we have developed a number of new applications utilizing the core principle of our technology. Our low pressure non-reactors (LPN) can be utilized in multiple industries that process large volumes of fluids and we anticipate commercial sales in our fiscal 2026. Further, we have miniaturized our non-reactors to be utilized in various consumer-oriented products, such as, processing and enhancing spirits and wines, drinking water with infusion of vitamins, minerals and cannabidiol (CBD) oil.
We had agreements to license our technology globally through our strategic partners, Desmet Belgium Group (Desmet) and Enviro Watertek, LLC (EW) and Alchemy Beverages, Inc (ABI) and recently through our wholly owned subsidiary, Xyra Corp.
In October 2024, we entered into a Patent Assignment and License Back Agreement with Desmet to assign certain patents, intellectual property rights and trademarks related to vegetable oil refining to Desmet, as consideration for the patent assignments, Desmet paid the Company $880,000 in cash. This transaction provided capital for continuous operations and business development of our company.
Key points of the Agreement included:
| · | Reserved License: we retained a worldwide, exclusive, transferable, and royalty-free license to practice and use the Assigned Patents in the fields of water and wastewater processing, recovery, recycling, and purification (including oilfield wastewater), as well as the manufacture, distillation, brewing, enhancement, sale, and marketing of alcoholic beverages (the “Licensed Fields”). | |
| · | Grant-Back License: we received a worldwide, exclusive, transferable, and royalty-free license to practice and use the Assigned Patents and associated technical information, consistent with the scope of the Reserved License. | |
| · | Trademark Usage: we retained exclusive rights to use the “Nano Reactor®” mark for our businesses, systems, and products related to the Licensed Fields. |
| 16 |
Under both the Reserved License and the Grant-Back License, the Company will have a worldwide, exclusive, transferable, and royalty-free license and right to design, build, use, export, improve, sell, and market Nano Reactor® devices, as well as Nano Reactor® systems and products that incorporate or utilize Nano Reactor® devices, limited to uses and applications within one or more of the Licensed Fields.
As a result of this agreement, the Company expects that Desmet will start to manufacture the Nano reactors by itself and sale of Nano reactors to Desmet by the Company will significantly be reduced in future periods. We will continue to own and operate a large portfolio of patents and intellectual property rights in applications not related to vegetable oil refining. The following are Management’s plans going forward to generate revenues and sustain the operations of the Company and its current status:
| 1. | Water Treatment and Remediation in the Permian Basin | |
| 2. | Water Remediation and Disinfection in Agriculture | |
| 3. | Business Venture with Alchemy Beverages, Inc. | |
| 4. | New Technologies: Hydro-Plasma |
1. Water Treatment and Remediation in the Permian Basin
From 2020 to 2022, our joint venture with Enviro Watertek, LLC restarted water treatment operations in the Permian Basin. Although our technology demonstrated commercial viability (approximately 3 million barrels treated), our partner was unable to expand and attract new customers due to significant shifts in the oil & gas industry. It has taken several years to rearrange and adapt our technology to fit new customers’ operations.
Currently, we have installed our system at a major water remediation company in Texas, where it has been in place for over six months, with more testing required. We continue to pursue additional customers, primarily in the Permian Basin.
What differentiates us in the industry:
| · | No chemical usage in water remediation, significantly reducing operational costs. | |
| · | Integration into existing processes within 24 hours, without disrupting ongoing operations. | |
| · | Compact systems with minimal energy consumption. | |
| · | Post-treatment water can be either reused or safely disposed of. |
The Company anticipates that sales will be generated in the first half of fiscal 2026.
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.
| 17 |
The overall market for water treatment in Canada is valued at approximately $2.51 billion, with continuous expansion due to the demand for sustainable solutions in agriculture and industrial applications.
The outcome of the trials mentioned above, which we expect to be completed within the first calendar quarter of 2026, will determine the commercial viability of our product and the timeline for any potential revenue generation.
3. Business Venture with Alchemy Beverages, Inc.
In June 2018, the Company entered into an agreement to license its patented alcoholic beverage technology to Alchemy Beverages, Inc. (“ABI”). 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 final stages of completing its financial audit, which is estimated to be completed before the end of the first quarter of fiscal 2026, engaging focus groups for Barmuze acceptance, refining marketing and distribution strategies, and securing additional capital for production. The Company also plans on obtaining additional financing in early fiscal 2026.
The earliest sales and revenue for Barmuze are anticipated in the second half of 2026. Also, ABI is working on creating its own line of alcoholic beverages and licensing of the technology to other brands. For more information, www.alchemybeveragesinc.com and www.barmuze.com.
4. New Technologies: Hydro-Plasma
Along with improving our existing technologies, we have developed Hydroplasma, an innovative process combining cavitation and cold plasma technology to enhance our water treatment efficiency, which:
| · | Breaks down both organic and inorganic compounds. | |
| · | Is highly scalable – from 15 to 40 GPM. | |
| · | Eliminates microorganisms and diseases. | |
| · | Has multiple industrial applications. | |
| · | The technology is patent pending. |
This cutting-edge technology creates reactive agents, such as hydroxyl radicals and hydrogen peroxide, that break down pollutants, bacteria, and viruses in water more effectively than traditional methods. It’s an environmentally friendly and scalable solution, with applications in water treatment, agriculture, sulfur removal from bunker fuel, and more.
The global cold plasma market is projected to grow from $1.5 billion in 2021 to $3.1 billion by 2027, fueled by increasing demand for sustainable water solutions. Our technology has the potential to revolutionize water treatment on a global scale. To accelerate this development, we have established partnerships with New Mexico State University, the University of Guadalajara, and the Brackish Groundwater National Desalination Research Facility (BGNDRF), NM, to collaborate on water remediation programs.
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 2026.
| 18 |
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. 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.
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 Anit 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 fiscals 2026 and 2025, with interest rates in the US remaining at higher levels, although there have been some rate decreases, 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 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.
| 19 |
Results of Operations for the Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025
The following is a comparison of our results of operations for the three months ended March 31, 2026 and 2025.
| For the Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Revenue | $ | 3,000 | $ | 122,000 | $ | (119,000 | ) | (97.5)% | ||||||||
| Cost of revenue | – | (25,000 | ) | 25,000 | 100.0% | |||||||||||
| Gross profit | 3,000 | 97,000 | (94,000 | ) | (96.9)% | |||||||||||
| General and administrative expenses | 234,000 | 283,000 | (49,000 | ) | (17.3)% | |||||||||||
| Research and development expenses | – | 42,000 | (42,000 | ) | (100.0)% | |||||||||||
| Total operating expenses | 234,000 | 325,000 | (91,000 | ) | (28.0)% | |||||||||||
| Loss from operations | (231,000 | ) | (228,000 | ) | (3,000 | ) | 1.3% | |||||||||
| Interest expense | (3,000 | ) | (2,000 | ) | (1,000 | ) | 50.0% | |||||||||
| Discount amortization | (5,000 | ) | (5,000 | ) | (100.0)% | |||||||||||
Change in fair value of derivative liability | 20,000 | 20,000 | 100.0% | |||||||||||||
| Net loss | $ | (219,000 | ) | $ | (230,000 | ) | $ | 11,000 | (4.8)% | |||||||
Revenue
The Company generated revenues from the sale of the Nano Reactor® to customers/distributor. Additionally, the Company generates revenues from its equity method investment, specifically fees from usage of reactors or usage fees.
Revenue was $3,000 and $122,000 for the three months ended March 31, 2026, and 2025, respectively, a decrease of $119,000 or 97.5%. In the prior year, the Company delivered one purchase order placed prior to the assignment of our vegetable oil refining patents to Desmet.
Cost of revenue
Cost of revenue was $0 and $25,000 for the three months ended March 31, 2026 and 2025, respectively, a decrease of $25,000 or 100.0%. The decrease is directly related to the decrease in revenue, as discussed above.
General and administrative expenses
General and administrative expenses was $234,000 and $283,000 for the three months ended March 31, 2026, and 2025, respectively, a decrease of $49,000 or 17.3%. The decrease is primarily due to the following:
| · | Stock compensation decreased by $90,000. In the prior year warrants were issued to three consultants, | |
| · | Professional fees decreased by $6,000, primarily due to a decrease in legal related expenses, | |
| · | Travel expenses decreased by $3,000 primarily due to less promotional trips undertaken during the current year, | |
| · | Consulting fees increased by $38,000 primarily due to consulting fees incurred in Xyra Corporation during the current year, | |
| · | Payroll expenses increased by $4,000 due to slight salary increases to our employees, | |
| · | The aggregate of all other expenses increased by $8,000, the increase in these expenses are individually insignificant. |
| 20 |
Research and development expenses
Research and development expenses was $0 and $42,000 for the three months ended March 31, 2026 and 2025, respectively, a decrease of $42,000 or 100.0%. During the prior year, the Company began another R&D project consisting of the design and manufacture of an experimental installation for plasma activation of water by generating a plasma discharge in a water stream. The research and development expenditure is dependent on progress made on the development.
Interest expense
Interest expense was $3,000 and $2,000 for the three months ended March 31, 2026 and 2025, the increase is primarily related to interest incurred on convertible notes and related party notes advanced to the Company.
Discount amortization
Discount amortization was $5,000 and $0 for the three months ended March 31, 2026 and 2025, the increase is primarily related to the valuation of the derivative conversion feature on the convertible notes payable issued during the current year and the subsequent amortization of the value of the conversion feature over the life of the convertible notes. There was no similar transaction in the prior period.
Change in fair value of derivative liability
The change in fair value of derivative liability was $20,000 and $0 for the three months ended March 31, 2026 and 2025, the increase is primarily related to the valuation of the derivative conversion feature on the convertible notes payable issued during the current year and the subsequent mark-to-market of these derivative liabilities at our reporting period end. There was no similar transaction in the prior period.
Net loss
Net loss was $219,000 and $230,000 for the three months ended March 31, 2026 and 2025, respectively, a decrease in loss of $11,000. The decrease in net loss is primarily due to the decrease in gross profit, offset by a decrease in operating expenses, research and development expenses and the mark-to-market derivative liability movements, as discussed above.
Results of Operations for the Nine Months Ended March 31, 2026 compared to the Nine Months Ended March 31, 2025
The following is a comparison of our results of operations for the nine months ended March 31, 2026 and 2025.
| For the Nine Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Revenue | $ | 6,000 | $ | 198,000 | $ | (192,000 | ) | (97.0)% | ||||||||
| Cost of revenue | – | (38,000 | ) | 38,000 | 100.0% | |||||||||||
| Gross profit | 6,000 | 160,000 | (154,000 | ) | (96.3)% | |||||||||||
| General and administrative expenses | 949,000 | 847,000 | 102,000 | 12.0% | ||||||||||||
| Research and development expenses | 11,000 | 66,000 | (55,000 | ) | (83.3)% | |||||||||||
| Total operating expenses | 960,000 | 913,000 | 47,000 | 5.1% | ||||||||||||
| Loss from operations | (954,000 | ) | (753,000 | ) | (201,000 | ) | 26.7% | |||||||||
| Gain on patent assignment | – | 880,000 | (880,000 | ) | (100)% | |||||||||||
| Interest expense | (14,000 | ) | (5,000 | ) | (9,000 | ) | 180% | |||||||||
| Discount amortization | (5,000 | ) | – | (5,000 | ) | (100.0)% | ||||||||||
| Change in fair value of derivative liability | 20,000 | – | 20,000 | 100.0% | ||||||||||||
| Net income (loss) | $ | (953,000 | ) | $ | 122,000 | $ | (1,075,000 | ) | (881.1)% | |||||||
| 21 |
Revenue
The Company generated revenues from the sale of the Nano Reactor® to customers/distributor. Additionally, the Company generates revenues from its equity method investment, specifically fees from usage of reactors or usage fees.
Revenue was $6,000 and $198,000 for the nine months ended March 31, 2026, and 2025, respectively, a decrease of $192,000 or 97.0%. In the prior year, the Company delivered one purchase order placed prior to the assignment of our vegetable oil refining patents to Desmet.
Cost of revenue
Cost of revenue was $0 and $38,000 for the nine months ended March 31, 2026 and 2025, respectively, a decrease of $38,000 or 100.0%. The decrease is directly related to the decrease in revenue, as discussed above.
General and administrative expenses
General and administrative expenses was $949,000 and $847,000 for the nine months ended March 31, 2026, and 2025, respectively, an increase of $102,000 or 12.0%. The increase is primarily due to the following:
| · | Stock compensation increased by $49,000. The current year stock compensation related to the fair value of common stock issued to certain consultants. In the prior year warrants were issued to the Company’s employees and a consultant, | |
| · | Consulting fees increased by $63,000 primarily due to consulting fees incurred in our new subsidiary Xyra Corp and the development of our plasma technology, | |
| · | Payroll expenses increased by $16,000 due to slight inflation related payroll increases over the prior year, | |
| · | Professional fees decreased by $43,000, primarily due to a decrease in legal fees of $57,000 related to a reduction in patent attorney expenses, offset by an increase in audit fees of $14,000. | |
| · | The aggregate of all other expenses increased by $17,000, the increase in these expenses are individually insignificant. |
Research and development expenses
Research and development expenses was $11,000 and $66,000 for the nine months ended March 31, 2026 and 2025, respectively, a decrease of $55,000 or 83.3%. During the prior year, the Company began another R&D project consisting of the design and manufacture of an experimental installation for plasma activation of water by generating a plasma discharge in a water stream. The research and development expenditure is dependent on progress made on the development.
Gain on patent assignment
Gain on patent assignment was $0 and $880,000 for the nine months ended March 31, 2026 and 2025 as a result of the prior year sale and assignment of certain patents to Desmet. There was no similar transaction during the current year.
Interest expense
Interest expense was $14,000 and $5,000 for the nine months ended March 31, 2026 and 2025. The increase was due to issuance of notes payable during the current period with average interest rate of 8% per annum.
| 22 |
Discount amortization
Discount amortization was $5,000 and $0 for the nine months ended March 31, 2026 and 2025, the increase is primarily related to the valuation of the derivative conversion feature on the convertible notes payable issued during the current year and the subsequent amortization of the value of the conversion feature over the life of the convertible notes. There was no similar transaction in the prior period.
Change in fair value of derivative liability
Change in fair value of derivative liability was $20,000 and $0 for the nine months ended March 31, 2026 and 2025, the increase is primarily related to the valuation of the derivative conversion feature on the convertible notes payable issued during the current year and the subsequent mark-to-market of these derivative liabilities at our reporting period end. There was no similar transaction in the prior period.
Net income (loss)
Net loss was $953,000 and net income was $122,000 for the nine months ended March 31, 2026 and 2025, respectively, an increase in loss of $1,075,000. The increase in net loss is primarily due to the prior year gain on the patent assignment, the increase in operating expenses, an increase in interest expense and the decrease in revenue, offset by the mark-to-market derivative liability movement, as discussed above.
Liquidity and Capital Resource
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in accompanying condensed consolidated financial statements, during the nine months ended March 31, 2026, the Company incurred loss from operations of $954,000 and used cash in operations of $527,000. In addition, we had a stockholders’ deficit of $467,000 as of March 31, 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, 2025, 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 March 31, 2026, the Company has cash in the amount of $45,000. The Company’s ability to continue as a going concern is dependent upon its ability to continue to implement its business plan. Currently, management’s plan is to increase revenues by using its Reserved Grant Back License to apply the technology to; (i) water and wastewater processing, recovery, recycling and purification (including oilfield wastewater) and (ii) manufacture, distillation, brewing, enhancements, sale and marketing of alcoholic beverages, together the Licensed Fields. The Company will have a worldwide, exclusive, transferable and royalty-free license and right to design, build, use, export, improve, sell and market Nano Reactor® devices and Nano Reactor® devices and systems (and products) that incorporate or utilize Nano Reactor® devices, in each case within the Licensed Fields, and to continue to use the Nano Reactor® trademark in connection with its business, systems and products within the Licensed Fields. While the Company believes in the viability of its strategy to increase revenues, there can be no assurances to that effect. The Company believes it has enough cash to sustain operations through June 30, 2026.
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.
| 23 |
Cash Flow
Net cash used in operating activities was $527,000 for the nine months ended March 31, 2026 and net cash used in operating activities was $624,000 for the nine months ended March 31, 2026. The decrease in cash used in operating activities is primarily due to changes in working capital and stock based compensation expense.
Net cash provided by investing activities amounted to $0 and $880,000 as a result of the prior year proceeds received from the assignment of patents to Desmet. There was no similar transaction during the current year.
Net cash provided (used) by financing activities amounted to $323,000 and $(3,000). The increase was due to proceeds received from issuance of notes payable and common stock units during the current period with no similar transactions in the prior period.
Critical Accounting Policies
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. Significant estimates are used for allowance for impairment analysis for property and equipment, accrual of potential liabilities, valuation allowance for deferred tax assets, and assumption in valuing our stock options, warrants, and common stock issued for services, among other items. Actual results could differ from these estimates.
Revenue Recognition
The Company follows the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients. Revenue from sale of our Nano Reactors is recognized when products are shipped from our manufacturing facilities as this is our sole performance obligation under these contracts and we have no continuing obligation to the customer. In addition, the Company also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer.
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.
Recently Issued Accounting Standards
See Note 1 of the Condensed Consolidated Financial Statements for a discussion of recently issued accounting standards.
| 24 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable for smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In accordance with rule 13a-15(a), CTi management must maintain disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934, or the Exchange Act, to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Rule 13a-15(b) and (c), management must also evaluate the effectiveness of these disclosure control and procedures at the end of each fiscal year. As of March 31, 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 March 31, 2026.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the third quarter of fiscal 2026 that have materially affected or are reasonably likely to materially affect the company’s internal control over financial reporting.
| 25 |
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.
On October 9, 2025, we sold 5,769,400 units to accredited investors, each unit consisting of one share of common stock and one five-year warrant exercisable for a share of common stock at $0.06. Ther gross proceeds realized on the sale was $173,000.
Between October 25, 2025 and October 31, 2025, we issued an aggregate of 3,300,000 shares of common stock to various consultants for consulting work to be performed for a one-year term. The common stock issued was valued at fair market value on the grant date at $244,000.
On November 25, 2025, certain warrant holders exercised warrants on a cashless basis for 8,700,000 shares with an exercise price of $0.013 per share and warrants for a further 5,000,000 shares with an exercise price of $0.016 per share, resulting in the issue of 11,495,000 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 March 31, 2026, no director
or officer of the Company
| 26 |
Item 6. Exhibits, Financial Statement Schedules.
* 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 [email protected].
| 27 |
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 | May 20, 2026 | ||
| N. Voloshin | (Principal Executive Officer) | |||
| /s/ N. Voloshin | Chief Financial Officer | May 20, 2026 | ||
| N. Voloshin | (Principal Financial Officer) | |||
| 28 |