10-Q
Cavitation Technologies, Inc. (CVAT)
Table of Contents
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,2023
### Commission File Number: 000-53239
****
Cavitation Technologies, Inc. ****
(Exact name of Registrant as Specified in its Charter)
| Nevada | 20-4907818 |
|---|---|
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
10019 CANOGA AVENUE, CHATSWORTH, CALIFORNIA
91311
(Address, including Zip Code, of Principal Executive Offices)
(818) 718-0905
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
|---|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
|---|---|---|---|
| Non-accelerated Filer | ☒ | Small reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2023, the issuer had 284,289,740
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 | 15 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 18 |
| Item 4. | Controls and Procedures | 18 |
| PART II | OTHER INFORMATION | 19 |
| Item 1. | Legal Proceedings | 19 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 19 |
| Item 3. | Defaults Upon Senior Securities | 19 |
| Item 4. | Mine Safety Disclosure | 19 |
| Item 5. | Other Information | 19 |
| Item 6. | Exhibits | 20 |
| Signatures | 21 | |
| Certifications |
| 2 |
| --- |
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated FinancialStatements.
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | |||||
|---|---|---|---|---|---|
| 2023 | |||||
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | 140,000 | $ | 18,000 | ||
| Total current assets | 140,000 | 18,000 | |||
| Property and equipment, net | 1,000 | 1,000 | |||
| Equity method investment | 1,000 | 1,000 | |||
| Operating lease right of use asset, net | 95,000 | 113,000 | |||
| Other assets | 10,000 | 10,000 | |||
| Total assets | 247,000 | $ | 143,000 | ||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||
| Current liabilities: | |||||
| Accounts payable and accrued expenses | 144,000 | $ | 120,000 | ||
| Accrued payroll and payroll taxes due to officers | 326,000 | 280,000 | |||
| Note payable | 5,000 | 5,000 | |||
| Operating lease liability, current portion | 68,000 | 68,000 | |||
| Advances from distributor | 695,000 | 391,000 | |||
| Total current liabilities | 1,238,000 | 864,000 | |||
| Note payable, non-current | 145,000 | 145,000 | |||
| Operating lease liability, non-current portion | 34,000 | 53,000 | |||
| Total liabilities | 1,417,000 | 1,062,000 | |||
| Commitments and contingencies | – | – | |||
| Stockholders' deficit: | |||||
| Preferred stock, 0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2023 and June 30, 2023, respectively | – | – | |||
| Common stock, 0.001 par value, 1,000,000,000 shares authorized, 284,289,740 shares issued and outstanding as of September 30, 2023 and June 30, 2023 | 284,000 | 284,000 | |||
| Additional paid-in capital | 26,083,000 | 26,083,000 | |||
| Accumulated deficit | (27,537,000 | ) | (27,286,000 | ) | |
| Total stockholders' deficit | (1,170,000 | ) | (919,000 | ) | |
| Total liabilities and stockholders' deficit | 247,000 | $ | 143,000 |
All values are in US Dollars.
See accompanying notes to the condensed consolidated financial statements
| 3 |
| --- |
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)
AS OF SEPTEMBER 30, 2023 AND 2022
| For the Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| September 30, | ||||||
| 2023 | 2022 | |||||
| (unaudited) | (unaudited) | |||||
| Revenue | $ | – | $ | 244,000 | ||
| Revenue from joint venture | – | 17,000 | ||||
| Total revenue | – | 261,000 | ||||
| Cost of revenue | – | (50,000 | ) | |||
| Gross profit | – | 211,000 | ||||
| General and administrative expenses | 214,000 | 265,000 | ||||
| Research and development expenses | 36,000 | – | ||||
| Total operating expenses | 250,000 | 265,000 | ||||
| Loss from operations | (250,000 | ) | (54,000 | ) | ||
| Other expense: | ||||||
| Loss from equity method investment | – | (18,000 | ) | |||
| Interest expense | (1,000 | ) | (1,000 | ) | ||
| Net Loss | $ | (251,000 | ) | $ | (73,000 | ) |
| Net Loss per share, Basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) |
| Weighted average shares outstanding, Basic and diluted | 284,289,740 | 276,698,831 |
See accompanying notes to the condensed consolidated financial statements
| 4 |
| --- |
CAVITATION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGESIN STOCKHOLDERS' DEFICIT (Unaudited)AS OF SEPTEMBER 30, 2023 AND 2022
| Three Months Ended September 30, 2023 (unaudited) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Common Stock | Additional<br> <br>Paid-in | Accumulated | ||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||
| Balance at June 30, 2023 | 284,289,740 | $ | 284,000 | $ | 26,083,000 | $ | (27,286,000 | ) | $ | (919,000 | ) | |
| Net loss | – | – | – | (251,000 | ) | (251,000 | ) | |||||
| Balance at September 30, 2023 | 284,289,740 | $ | 284,000 | $ | 26,083,000 | $ | (27,537,000 | ) | $ | (1,170,000 | ) | |
| Three Months Ended September 30, 2022 (unaudited) | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Common Stock | Additional<br> <br>Paid-in | Accumulated | ||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||
| Balance at June 30, 2022 | 276,698,831 | $ | 277,000 | $ | 26,005,000 | $ | (25,246,000 | ) | $ | 1,036,000 | ||
| Net loss | – | – | – | (73,000 | ) | (73,000 | ) | |||||
| Balance at September 30, 2022 | 272,701,844 | $ | 272,000 | $ | 25,810,000 | $ | (25,319,000 | ) | $ | 963,000 |
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, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Net loss | $ | (251,000 | ) | $ | (73,000 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||
| Gain on forgiveness of note payable | – | 18,000 | ||||
| Effect of changes in: | ||||||
| Accounts receivable | – | (17,000 | ) | |||
| Operating lease right of use asset | 18,000 | 17,000 | ||||
| Accounts payable and accrued expenses | 24,000 | 4,000 | ||||
| Accrued payroll and payroll taxes due to officers | 46,000 | – | ||||
| Advances from distributor | 304,000 | (44,000 | ) | |||
| Operating lease liability | (19,000 | ) | (17,000 | ) | ||
| Prepaid expenses | – | 38,000 | ||||
| Net cash provided by (used in) operating activities | 122,000 | (74,000 | ) | |||
| Net increase (decrease) in cash and cash equivalents | 122,000 | (74,000 | ) | |||
| Cash and cash equivalents, beginning of period | 18,000 | 441,000 | ||||
| Cash and cash equivalents, end of period | $ | 140,000 | $ | 367,000 | ||
| Supplemental disclosures of cash flow information: | ||||||
| Cash paid for interest | $ | 2,000 | $ | – | ||
| 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, 2023 and 2022
Note 1 - Organization and Summary of Significant Accounting Policies
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 Bio Energy, Inc. CTi has developed, patented, and commercialized proprietary technology that may be used in liquid processing applications.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) as promulgated in the United States of America (“U.S.”) and with instructions to Form 10-Q pursuant to the rules and regulations of Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and Article 8-03 of Regulation S-X under the Exchange Act. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, we have included all adjustments considered necessary (consisting of normal recurring adjustments) for a fair presentation. Operating results for the three months ended September 30, 2023 are not indicative of the results that may be expected for the fiscal year ending June 30, 2024. You should read these unaudited condensed consolidated financial statements in conjunction with the audited financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended June 30, 2023 filed on October 3, 2023. The condensed consolidated balance sheet as of June 30, 2023 has been derived from the audited financial statements included in the Form 10-K for that year.
Going Concern
The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in accompanying consolidated financial statements, during the three months ended September 30, 2023, the Company incurred a net loss of $251,000 and had a stockholders’ deficit of $1,170,000 as of September 30, 2023. 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, 2023, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from an inability of the Company to continue as a going concern.
As of September 30, 2023, the Company has cash
in the amount of $140,000. 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 continuing to license its technology globally. 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 December, 2023.
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.
| 7 |
| --- |
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 in impairment analysis for fixed assets, accrual of potential liabilities, deferred tax assets and 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.
Equity Method Investment
The Company accounts for investments in
entities in which the Company has significant influence over the entity’s financial and operating policies, but does not control, using the equity method of accounting. The equity method investments are initially recorded at cost, and subsequently increased for capital contributions and allocations of net income, and decreased for capital distributions and allocations of net loss. Equity in net income (loss) from the equity method investment is allocated based on the Company’s economic interest. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If it is determined that a loss in value of the equity method investment is other than temporary, an impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on current plans, intended holding periods, and available information at the time the analysis is prepared. As of September 30, 2023 and June 30, 2023, the carrying value of its equity method investments was $1,000 for both periods presented.
Net (Loss) Per Share
The Company’s computation of 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.
| 8 |
| --- |
There were no adjustments to net (loss) required for purposes of computing diluted earnings per share. At September 30, 2023 and September 30, 2022, 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.
| Schedule of antidilutive shares | ||||
|---|---|---|---|---|
| September 30, 2023 | June 30, 2023 | |||
| Options | – | 1,250,000 | ||
| Warrants | 53,657,234 | 53,657,234 |
Concentrations
Cash - cash is deposited in one financial institution. The balances held at this financial institution at times may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits of up to $250,000.
Accounts Payable and Accrued Expenses – two vendors accounted for 22% and 30% of accounts payable and accrued expenses as of September 30, 2023, respectively. Two vendors accounted for 52% and 36% of accounts payable and accrued expenses as of June 30, 2023.
Revenues – during the three-month period ended September 30, 2022, 93% of revenues were from Desmet.
Fair Value Measurement
FASB Accounting Standards Codification (“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.
The three levels of the fair value hierarchy are as follows:
| · | Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. |
|---|---|
| · | Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. |
| · | Level 3 - Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
On September 30, 2023 and June 30, 2023, the fair values of cash and cash equivalents, accounts payable and accrued expenses, and accrued payroll and payroll taxes approximate their carrying values due to their short-term nature.
| 9 |
| --- |
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning July 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
Note 2 - Contracts with Desmet Ballestra Group
October 2021, the Company executed a three-year agreement with Desmet Ballestra (Desmet), a company located in Europe. This agreement is a continuation of the October 2018 agreement that expired also in October 2021. In accordance with ASC 606, the Company recognizes revenue from the sale of reactors at the time of shipment of the Nano reactor hardware as shipment is deemed to be the Company’s only performance obligation and the Company had no more continuing obligation other than the reactor’s two-year standard warranty. Desmet pays for such reactors on credit terms and the amount of a sale is recorded as a receivable upon acceptance by Desmet.
During the three months ended September 30, 2022, the Company
recorded sales of $244,000 from Nano Reactor® sales from Desmet.
During the three months ended September 30, 2023 there were no sales from Nano Reactor to Desmet.
As part of the October 2021 agreement with Desmet,
the Company also receives cash advances of $40,000 per month, subject to certain limitations, as advance payment for the sale of reactors. The Company initially records the advances received as “advances from distributor” a liability account, until such time revenue recognition is met. As of June 30, 2023, outstanding balance of customer advances amounted to $391,000.
During the three months ended September 30, 2023,
advances received from Desmet amounted to $304,000.
As of September 30, 2023, outstanding advances
from Desmet amounted to $695,000.
Note 3 - Investment in equity method investment
In April 2019, the Company and an unrelated entity, Delaware Water Company, LLC (Delaware) formed a limited liability company called Enviro WaterTek LLC (“Enviro”). Enviro is owned 50% by the Company and 50% by Delaware, and the Company accounts for its investment in Enviro under the equity method in accordance with ASC 323 as the Company’s investments in Enviro, an unconsolidated entity and for which it has the ability to exercise significant influence but not control. From inception up to June 30, 2023, Enviro had no operations.
In September 2021, the Company and Delaware entered into a separate agreement under Enviro for a specific project (referred to as “Ameredev”). Delaware has certain contracts in place to provide recycled water to operators of certain active oil and gas wells. Under the agreement, the Company contributed $1.2 million that was used by Ameredev to increase the capacity of certain pipelines and water treatment facilities operated by Delaware. Pursuant to the agreement, for each barrel of recycled water that Ameredev sells, Delaware will receive $0.10 per barrel, and the Company will receive $0.05 per barrel (referred to as usage fees), with the balance of net income (loss) from Ameredev being allocated 70% to Delaware and 30% to the Company. The Ameredev agreement will terminate the earlier of three years (unless extended by unanimous agreement of the Board and Members of Ameredev) from the date of the agreement or by unanimous agreement of the Board and Members of Ameredev.
| 10 |
| --- |
As of September 30, 2023 and June 30, 2023,
the balance of the equity method investment amounted to $1,000, for both periods presented.
During the three months ended September 30, 2022,
the Company recognized a loss of $17,000 related to the equity method investment. There was no similar transaction during the period ended September 30, 2023
Note 4 – Operating Lease
The Company leases certain warehouse and corporate office space under an operating lease agreement. We determine if an arrangement is a lease at inception. Lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as lease liabilities in our consolidated balance sheets.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in lease arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives.
The components of lease expense and supplemental cash flow information related to leases for the period are as follows:
| Schedule of lease expense | ||||
|---|---|---|---|---|
| September 30, | September 30, | |||
| 2023 | 2022 | |||
| Lease costs: | ||||
| Operating lease (included in general and administrative in the Company’s consolidated statement of operations) | $ | 19,000 | $ | 19,000 |
| Other information: | ||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | 17,000 | $ | 19,000 |
| Weighted average remaining lease term – operating leases (in years) | 1.3 | 2.3 | ||
| Average discount rate – operating leases | 4% | 4% | ||
| The supplemental balance sheet information related to leases for the period is as follows: | ||||
| Long-term right-of-use assets | $ | 95,000 | $ | 163,000 |
| Short-term operating lease liabilities | $ | 68,000 | $ | 63,000 |
| Long-term operating lease liabilities | 34,000 | 110,000 | ||
| Total operating lease liabilities | $ | 102,000 | $ | 173,000 |
| 11 |
| --- |
Supplemental cash flow information related to the lease liabilities are as follows:
| Schedule of lease liabilities maturities | |||
|---|---|---|---|
| Operating | |||
| Year Ending June 30: | Lease | ||
| 2024 (remaining 9 months) | $ | 59,000 | |
| 2025 | 47,000 | ||
| Total lease payments | 106,000 | ||
| Less: Imputed interest/present value | (4,000 | ) | |
| Present value of lease liabilities | $ | 102,000 |
Note 5 – Related Party Transactions
Accrued Payroll and Payroll Taxes
In prior periods, the Company accrued salaries
and estimated payroll taxes due to a former officer of the Company. As a June 30, 2023, total accrued payroll and payroll taxes-related parties amounted $280,000.
During the three months ended September 30, 2023,
the Company accrued the payroll of an officer of the Company amounting to $46,000.
As of September 30, 2023, total accrued payroll
and payroll taxes-related parties amounted to $326,000.
Note 6 – Notes Payable
In
July 2020, the Company received a loan of $150,000
from the SBA under its Economic Injury Disaster
Loan (EIDL) assistance program. The EIDL loan is payable over 30 years, bears interest at a rate of 3.75 % per annum and secured by all tangible and intangible property of the Company.
Pursuant to the terms of the SBA EIDL loan agreement, the Company is required to make monthly installment payments of approximately $700 starting in July 2021. However, the Company was not able to pay the required monthly installment due from July 2021 to April 2023.
In May 2023, the Company was able to cure the payment delay with the
SBA and started paying the monthly installment due of approximately $700. As part of the agreement, all payments will be first applied to accrued interest until the Company becomes current with the interest due. At September 30, 2023 and September 30, 2022 approximately $13,000 of accrued interest is included in accounts payable and accrued expenses.
As of September 30, 2023 and June 30, 2023, the outstanding loan balance amounted to $150,000
, respectively.
| 12 |
| --- |
Note 7 - Stockholders' Equity
Stock Warrants
A summary of the Company's warrant activity and related information for the three months ended on September 30, 2023 is as follows:
| Schedule of warrant activity | ||||||
|---|---|---|---|---|---|---|
| Warrants | Weighted-<br> <br>Average<br> <br>Exercise<br> <br>Price | Weighted- <br> Average <br> Remaining <br> Contractual <br> Life <br> (Years) | ||||
| Outstanding at June 30, 2023 | 53,657,234 | $ | 0.09 | 1.82 | ||
| Granted | – | – | – | |||
| Exercised | – | – | – | |||
| Expired | – | – | – | |||
| Outstanding at September 30, 2023 vested and exercisable | 53,927,834 | $ | 0.09 | 1.57 |
There was no intrinsic value of the outstanding warrants as of September 30, 2023, as the exercise price of these warrants were greater than the market price. The following table summarizes additional information concerning warrants outstanding and exercisable at September 30, 2023.
| Schedule of warrants outstanding and exercisable | ||||||||
|---|---|---|---|---|---|---|---|---|
| Warrants Outstanding | Warrants Exercisable | |||||||
| Weighted | Weighted | Weighted | ||||||
| Average | Average | Average | ||||||
| Exercise | Number | Remaining | Exercise | Number | Remaining | |||
| Price | of Shares | Life (Years) | Price | of Shares | Life (Years) | |||
| $ | 0.03 - 0.05 | 11,126,518 | 3.04 | $ | 0.03 | 11,126,518 | 3.04 | |
| 0.09 | 23,841,323 | 2.76 | 0.09 | 23,841,323 | 2.76 | |||
| $ | 0.12 | 18,959,993 | 0.24 | $ | 0.12 | 18,959,993 | 0.24 | |
| 53,927,834 | 53,927,834 |
| 13 |
| --- |
Note 8 - Commitments and Contingencies
Royalty Agreements
On July 1, 2008, the Company entered into Patent Assignment Agreements with two parties, our President and Technology Development Supervisor, where certain devices and methods involved in the hydrodynamic cavitation processes invented by the President and the Technology Development Supervisor have been assigned to the Subsidiary. In exchange, the Subsidiary agreed to pay a royalty of 5% of gross revenues to each of the President and Technology Development Supervisor for licensing of the technology and leasing of the related equipment embodying the technology. These agreements were subsequently assumed by Cavitation Technologies on May 13, 2010 from its subsidiary. The Company's President and Technology Development Supervisor both waived their rights to receive royalty payments that have accrued, or that may accrue, on any gross revenue generated through September 30, 2023.
On April 30, 2008 and as amended on November 22, 2010, our wholly owned subsidiary entered into an employment agreement with our former Director of Chemical and Analytical Department (the “Inventor”) to 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, 2023 no patents have been granted in which this person is the legally named inventor.
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ITEM 2. Management's Discussionand Analysis of Financial Condition and Results of Operations.
The following discussion and analysis shouldbe read in conjunction with our financial statements and the related notes. This discussion contains forward-looking statements basedupon current expectations that involve risks and uncertainties, such as its plans, objectives, expectations and intentions. Its actualresults and the timing of certain events could differ materially from those anticipated in these forward-looking statements.
Overview of our Business
Cavitation Technologies, Inc. ("CTi"), a Nevada corporation, was originally incorporated under the name Bio Energy, Inc. We design and engineer environmentally friendly technology-based systems that are designed to serve large, growing, global markets such as vegetable oil refining, renewable fuels, water treatment, algae oil extraction, biodiesel production, water-oil emulsions and crude oil yield enhancement. Our systems are designed to process industrial liquids at a lower cost and higher yield than conventional technology. We are a process and product development firm that has developed, patented, and commercialized proprietary technology.
CTi has developed, patented, and commercialized proprietary technology that can be used for processing of industrial fluids. CTi's patented Nano Reactor® is the critical components of the CTi Nano Neutralization® System which is commercially proven to reduce operating costs and increase yields in processing oils and fats. CTi has two issued patents relating to our Nano Reactor® systems and has filed several national and international patents to employ its proprietary technology in applications including, vegetable oil refining, biodiesel production, waste water treatment, algae oil extraction, and alcoholic beverage enhancement.
We are engaged in manufacturing our Nano-Reactors, which are designed to help refine vegetable oils, biodiesel transesterification and treatment of produced and frack water. Our near-term goal is to continue to sell our systems through our partners, Desmet Ballestra and EW.
During the past several years we have developed a number of new applications utilizing the core principal of our technology. Our low pressure non-reactors (LPN) can be utilized in multiple industries that process large volumes of fluids and we anticipate accelerated commercial sales in our fiscal 2020. 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 have agreements to license our technology globally through our strategic partners, Desmet Ballestra Group (Desmet) and Enviro Watertek, LLC (EW) and Alchemy Beverages, Inc (ABI). Desmet have been providing monthly advances of $50,000. 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 obtained sufficient amounts necessary to meet our business needs, or that we will be able to meet our future contractual obligations.
Inflation
Global inflation also increased during 2022 and in 2023. The Russia and Ukraine conflict and other geopolitical conflicts, as well as related international response, have exacerbated inflationary pressures, including causing increases in the price for goods and services and global supply chain disruptions, which have resulted and may continue to result in shortages in food products, materials and services. Such shortages have resulted and may continue to result in inflationary cost increases for labor, fuel, food products, materials and services, and could continue to cause costs to increase as well as result in the scarcity of certain materials. We cannot predict any future trends in the rate of inflation or other negative economic factors or associated increases in our operating costs and how that may impact our business. To the extent we and our customers we service are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our and their business, our revenues and gross profit could decrease, and our financial condition and results of operations could be adversely affected.
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Results of Operations
Results of Operations for the Three Months Ended September 30, 2023Compared to the Three Months Ended September 30, 2022
The following is a comparison of our results of operations for the three months ended September 30, 2023 and 2022.
| For the Three Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | |||||||||||
| 2023 | 2022 | Change | % Change | ||||||||
| Revenue | $ | – | $ | 244,000 | ) | (100 | )% | ||||
| Revenue from related party | – | 17,000 | ) | (100 | )% | ||||||
| Cost of revenue | – | (50,000 | ) | (100 | )% | ||||||
| Gross profit | – | 211,000 | ) | (100 | )% | ||||||
| General and administrative expenses | 214,000 | 265,000 | ) | (19 | )% | ||||||
| Research and development expenses | 36,000 | – | 100 | % | |||||||
| Total operating expenses | 250,000 | 265,000 | ) | (6 | )% | ||||||
| Loss from operations | (250,000 | ) | (54,000 | ) | ) | 363 | % | ||||
| (Loss) Income from equity method investment | – | (18,000 | ) | (100 | )% | ||||||
| Interest expense | (1,000 | ) | (1,000 | ) | 0 | % | |||||
| Net loss | $ | (251,000 | ) | $ | (73,000 | ) | ) | 244 | % |
All values are in US Dollars.
Revenue
The Company generates 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.
During the three months ended September 30, 2023 we recorded no revenues compared to $244,000 for the three months ended September 30, 2022. Revenues decreased since the Company did not ship any purchase orders for Desmet during the current period compared to three purchase orders received in prior period. In addition, the Company also recognized usage fees of $17,000 during the prior period while none during the current period.
Cost of Revenue
During the three months ended September 30, 2023 and 2022, we recorded no cost of sales compared to $50,000 during the same period in prior year, which was the result of the revenue transactions described above.
Operating Expenses
Operating expenses for the three months ended September 30, 2023 amounted to $214,000 compared with $265,000 for the same period in 2022, a decrease of $51,000 or 19%. Decrease in general and administrative expense are related to salaries and professional fees.
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Research and development (R&D) expenses for the three months ended September 30, 2023 and 2022 were $36,000 and $0, respectively. During the three months ended September 30, 2023, 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.
Other income (expense)
Other income (expense) for the three months ended September 30, 2023 amounted to $(1,000) of interest expense. For the three months ended September 30, 2022 other income (expense) amounted to $(1,000) of interest expense and loss from equity method investment of $(18,000).
Liquidity and Capital Resource
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in accompanying consolidated financial statements, during the three months ended September 30, 2023, the Company incurred a net loss of $251,000 and had a stockholders’ deficit of $1,170,000 as of September 30, 2023. 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, 2023, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from an inability of the Company to continue as a going concern.
As of September 30, 2023, the Company has cash in the amount of $140,000. 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 continuing to license its technology globally. 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 December, 2023.
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 provided by operating activities during the three months ended September 30, 2023 amounted to $122,000 compared to net cash used in operating activities of $74,000 for the same period in fiscal 2022. Funding for the operating activities was provided primarily by sales of our systems to Desmet, advances from distributor and cash reserve.
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.
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Revenue Recognition
The Company follows the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients. Revenue from sale of our Nano Reactors is recognized when products are shipped from our manufacturing facilities as this is our sole performance obligation under these contracts and we have no continuing obligation to the customer. In addition, the Company also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer.
Recently Issued Accounting Standards
See Note 1 of the Condensed Consolidated Financial Statements for a discussion of recently issued accounting standards.
ITEM 3. Quantitative and QualitativeDisclosures 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 September 30, 2023 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, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the first quarter of fiscal 2023 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 proceeding 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 EquitySecurities and Use of Proceeds.
None
Item 3. Defaults Upon SeniorSecurities.
None
Item 4. Mine Safety Disclosures.
None
Item 5. Other Information.
None
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Item 6. Exhibits, Financial StatementSchedules.
* 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 | November 1, 2023 |
| N. Voloshin | (Principal Executive Officer) | |
| /s/ N. Voloshin | Chief Financial Officer | November 1, 2023 |
| N. Voloshin | (Principal Financial Officer) |
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Exhibit 31.1
Certification
I, N. Voloshin, certify that:
I have reviewed this quarterly report for the period ending September 30, 2023 on Form 10-Q of Cavitation Technologies, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
- The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: November 1, 2023 | /s/ N. VOLOSHIN |
|---|---|
| Name: N. Voloshin | |
| Title: Chief Executive Officer |
Exhibit 31.2
Certification
I, N. Voloshin, certify that:
I have reviewed this quarterly report for the period ending September 30, 2023 on Form 10-Q of Cavitation Technologies, Inc.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
- The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: November 1, 2023 | /s/ N. VOLOSHIN |
|---|---|
| Name: N. Voloshin | |
| Title: Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
I, N. Voloshin, Chief Executive Officer of Cavitation Technologies, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 1, 2023 | /s/ N. VOLOSHIN |
|---|---|
| Name: N. Voloshin | |
| Title: Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION
I, N. Voloshin, Principal Financial Officer of Cavitation Technologies, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 1, 2023 | /s/ N. VOLOSHIN |
|---|---|
| Name: N. Voloshin | |
| Title: Principal Financial Officer |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.