CVAT 10-K
Cavitation Technologies, Inc. (CVAT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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DOCUMENTS INCORPORATED BY REFERENCE:
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CAVITATION TECHNOLOGIES, INC.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED JUNE 30, 2023
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K and the exhibits attached hereto contain “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concern our anticipated results and developments in our operations in future periods, planned exploration and development of our properties, plans related to our business and matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. We use words like “expects,” “believes,” “intends,” “anticipates,” “plans,” “targets,” “projects” or “estimates” in this annual report. When used, these words and other, similar words and phrases or statements that an event, action or result “will,” “may,” “could,” or “should” result, occur, be taken or be achieved, identify “forward-looking” statements. Such forward-looking statements are subject to certain risks and uncertainties, both known and unknown, and assumptions.
Management has included projections and estimates in this annual report, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the Securities and Exchange Commission or otherwise publicly available. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as required by law. We qualify all of the forward-looking statements contained in this annual report by the foregoing cautionary statements.
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PART I
ITEM 1. BUSINESS
Cavitation Technologies, Inc. (referred to herein, unless otherwise indicated, as “the Company,” “CTi,” “we,” “us,” and “our”) is a Nevada corporation originally incorporated under the name Bio Energy, Inc. We are a process and product development firm that has developed, patented, and commercialized environmentally friendly technology-based systems that are designed to serve large, growing, global markets such as vegetable oil refining, renewable fuels, water treatment, wines and spirits enhancement, algae oil extraction, water-oil emulsions and crude oil yield improvement. Our systems are designed to process industrial liquids at a reduced processing time, lower operating cost, improved yield while operating in environmentally friendly manner. Our patented Nano Reactor® and LPN™ are the critical components of our business and we have generated all of our revenue while utilizing these components.
Vegetable Oil Refining
Our first commercial application for our technology has been the CTi Nano Neutralization® System which has been utilized to improve edible vegetable oil refining process. Our environment friendly process has been shown to reduce refining costs, increase oil yield, and limit the number of chemical additives used in chemical refining of vegetables oils. This patented process (US Patent # 7,762,715 and # 8,042,989) is designed to be incorporated into new and existing soybean, rapeseed, canola and palm vegetable oil refineries.
Our first pilot test of our CTi NANO Neutralization® System was conducted in 2010 at Carolina Soya, a 200-metric ton/day crude soy oil refining plant in Estill, South Carolina. Our second system, which became operational in fiscal 2011, has been continuously utilized since 2011 at the plant that processes approximately 450 metric tons per day of soy oil. Further, we have successfully shipped over 200 systems domestically and internationally. We also continuously focus on developing additional Nano Reactor® applications and managing the intellectual property issues associated with new processes and applications.
Desmet Ballestra Agreement
On May 14, 2012, we signed a global R&D, Marketing and Technology License Agreement with Desmet Ballestra Group s.a. (Desmet), a Belgian company that is actively marketing the NANO Neutralization® System, the key component of which is our Nano Reactor® to soybean and other vegetable oil refiners. The Agreement provided Desmet (licensee) a limited, exclusive license and right to develop, design and supply our NANO Neutralization® System which incorporates Nano Reactor® devices on a global basis tools and fats and oleo chemical applications. The agreement expired in May 2015.
On January 22, 2016, Desmet and the Company executed a new three year License Agreement with essentially the same terms with the May 2012 agreement that was effective August 1, 2015. As part of the agreement, Desmet provided, under certain conditions, limited monthly advance payments of $50,000 to be applied against gross profit share from future sales. The agreement expired in August 2018.
On October 1, 2018, Desmet and the Company executed a new three year License Agreement with essentially the same terms with the January 2016 agreement. As part of the agreement, Desmet provided us under certain conditions, limited monthly advances of $50,000 through October 1, 2021, to be applied against gross profit share from future sales. The agreement expired in October 2021.
On October 1, 2021, Desmet and the Company executed a new three-year License Agreement with essentially the same terms with the October 2018 agreement. As part of the agreement, Desmet provided the Company monthly advances of $40,000 through November 1, 2024, that was applied as payment from reactor sales, however, the Company was no longer entitled to gross profit share from future sales.
On February 15, 2024, Desmet and the Company terminated the October 2021 agreement and executed a new but similar three year agreement (“February 2024 agreement”). As part of the February 2024 Agreement, Desmet will provide the Company monthly advances of $25,000 through February 2027, subject to limitations, that will be applied as payment from future reactor sales. In addition, Desmet also waived reimbursement right for the outstanding advances made pursuant to the October 2021 agreement in the aggregate and up to $554,000 except for $56,000, which was accounted as a credit memo that Desmet used as payment in subsequent sale of reactors.
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Desmet, together with its affiliates, is a global engineering and equipment supply firm engaged in the development, design and supply of process equipment for oils and fats processing facilities including vegetable oil refining, biofuel, oleo chemical, seed crushing, surfactant and detergent markets. Desmet supplies these markets with services based on the latest globally sourced technologies. Desmet has relationships with major refiners globally. A significant portion of global vegetable oil refineries include major refiners such as Archer Daniels Midland Company, Cargill, Inc. and Bunge Limited. Desmet has more than 40 sales representatives selling in North America, South America, Europe, and Asia. Since its founding in 1946, Desmet reports that it has built a global network that includes 1,300 employees, 17 global and 8 representative offices, and more than 6,000 lines in a variety of applications. Desmet operates a separate division for each of the above markets and the Desmet Oils & Fats division has supplied small and large plants to approximately 1,900 oil millers in 150 countries, covering over 6,300 process sections.
Along with Desmet, we have been working together to accelerate appropriate sales goals and installation process. Our CTi Nano Neutralization® Systems is designed to be used as an add-on process to an existing neutralization system within soybean and other vegetable oil refineries. Desmet’s focus has been on marketing our CTi Nano Neutralization® Systems to vegetable oil refiners to help them increase profits through cost savings and improved oil yields. Desmet purchases our CTi Nano Neutralization® Systems from us and installs them at the refinery as part of an integrated neutralization system. Based on successful commercial implementations, Desmet guarantees minimum economic benefits to a facility that installs our CTi Nano Neutralization® Systems. We are therefore substantially dependent on Desmet to identify prospects, complete sales contracts, install the system and manage relationships with end-users.
Additionally, in fiscal 2017 Desmet installed our first Nano Reactor® at a bio-diesel production plant in South America. Bio-diesel industry has been under pricing pressure for a considerable period of time and slow to adopt to newer technologies. We are continuously working with Desmet pursuing additional sales opportunities in Asia and South America, however, the acceptance of our technology has been slow and there were no sales generated in our Fiscal 2024 and 2023.
Enviro Watertek, LLC
In April 2019, the Company and Delaware Water Company, LLC (Delaware) formed a limited liability company called Enviro WaterTek LLC (“Enviro” ,“EW”). Enviro is owned 50% by the Company and 50% by Delaware, and the Company accounts for its investment in Enviro under the equity method of accounting. From 2019 to 2024, Enviro had insignificant operations. This agreement covers our first commercial entrance into industrial treatment of produced and frac water. Fracking industry has seen a significant growth over the past ten years, reaching daily water consumption volume of over 58 million barrels per day. Our newly designed Low Pressure Nano Reactor (LPN™) was specifically developed to be integrated into produced water treatment system along with our proprietary chemical formulations, and has depicted measurable and quantifiable advantages over industry standard processes and equipment. Our agreement with EW provides for sales on LPN™ plus recurring revenue stream based on processing of produced and frac water volumes and utilization. Our agreement with EW has a fifteen-year term.
In March 2020, the global pandemic of COVID-19 had a negative impact on the oil and gas industry worldwide, and has consequently impaired our ability to rapidly accelerate LPN™ sales and recurring revenue stream. Our current operations are limited to system trials and have not produced any meaningful revenue. The system has the capacity to treat approximately 17,000 barrels of produced water per day (BPD).
In June 2023, the Company determined that investment in EW was impaired, and as a result, the Company recorded an impairment charge of approximately $1.1 million. In Fiscal 2024 and 2023, the Company received $0 and $20,000, respectively, from sale of reactors and usage fee.
Alchemy Beverages, Inc
In fiscal 2014, Roman Gordon, one of our shareholders and a former officer, formed a company, Cameo USA LLC (Cameo). Since its formation, Cameo has had no revenue, no operations, and has had no assets or liabilities. On June 4, 2018, Mr. Gordon contributed his 100% interest in Cameo to Cavitation Technologies, Inc. As Mr. Gordon had no reasonable and objectively supportable basis in the valuation of his investment in Cameo, there was no value assigned to the contribution of Cameo.
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On June 29, 2018, we agreed to license Cameo to Alchemy Beverages Inc. (“ABI”). In addition, we have agreed to provide certain licensing rights related to our miniature low pressure nano-reactor (MLPN) to be used in developing and manufacturing of small home appliances to enhance alcoholic beverages. In consideration for these ABI has agreed to issue 19.9% of ABI’s outstanding common shares to us (limited to 20 million shares of ABI). ABI is a private company and in the business of producing and selling alcoholic beverages, equipment, and home appliances. Prior to this agreement, ABI was independent of CTI and had no relation to us nor to our management.
Pursuant to the licensing agreements, ABI will have the exclusive global marketing and distribution rights of Cameo and our patented and patent pending technologies for the processing of alcoholic beverages. We have agreed to assist in the installation and maintenance of the MLPN to ABI and will receive royalty payments ranging from 1% to 3% on all net revenues, as defined in our license agreement for the life of the applicable patents. In addition, we will receive leasing, consulting, and manufacturing fees as defined in the licensing agreement.
As of June 30, 2024 and the date of this report, ABI has not generated any sales under Cameo brand. Since June 2018, the Company and ABI have developed a small table top home appliance unit, Barmuze®, utilizing MLPN , allowing consumers to experience a new way of enjoying wines and spirits, utilizing CTi’s patented and patent pending technologies to molecularly restructure alcohol, convert harsh acids to pleasant tasting esters, and reduce levels of certain impurities commonly present in alcohol.
During fiscals 2024 and 2023, there were no sales or royalties generated pertaining to our agreement with Alchemy Beverages, Inc. The investment in ABI has no value assigned to it, which approximates its fair value.
Customers Dependence
We continue to sell our industrial capacity Nano Reactor® and Nano Neutralization® System through our strategic partner Desmet and most of our revenue for the fiscal years ended June 30, 2024 and 2023, was derived from sales of reactors to Desmet. We have generated no revenue pertaining to our licensing agreement with EW in our fiscal 2024. We had no revenue of LPN™ whereas oil production in US had negative impact on oil & gas industry. Oil and gas industry has seen a recovery, while price of oil has been volatile trading between $69 to $90 per barrel for the last twelve months, and we foresee a great opportunity for our technology providing a significant upside potential both at the point of sale and recurring revenue stream.
Sources and availability of raw materials and the names of principal suppliers
We have historically sourced reactor components from various domestic and international suppliers. We do not have any long-term contracts, agreements, or commitments with any supplier. We believe it would take approximately 30 days to find a new supplier, if necessary.
Competition
Our competitors who sell equipment and engineering services for the vegetable oil refining business are a myriad of companies both large and small that provide equipment and technology to oil refiners. These include known companies that have longer operating histories, more experience, and stronger financial capabilities. Competitors include Alfa Laval, and Crown Iron Works as well as many firms that provide advice and services to small and regional firms. In addition, Arisdyne Systems, a designer of cavitation devices, is marketing a system using similar technology. The vegetable oil refining business is a highly competitive commodity market in which the lowest-cost producer has the advantage. We intend to compete by offering solutions that help our clients remain or become a low-cost producer. Because the industry in which we compete has had limited new technology introduced in the last 50 years, we believe our CTi Nano Neutralization® Systems provide a unique opportunity for refiners to increase margins. We seek to differentiate ourselves by offering solutions based on our proprietary and patented designs, processes, and applications to help our clients described in our issued and patent pending applications. We compete by offering solutions that we believe can reduce operating expenses and increase oil yield vs currently applied technologies.
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In addition, our competitors in produced and frac water treatment application range from local service providers to multi-national global corporations with considerable financial resources, engineering expertise, established and proven technologies. We believe that LPN™ is a conceptually new technology that has not been introduced in the field of water treatment applications. LPN™ has demonstrated exceptional results in treating produced and frac water commercially, significantly reducing the usage of hazards chemicals during the process, meanwhile, achieving desirable water quality for industrial re-use or disposal, although, the acceptance of the technology has been slow.
Patents
As of June 30, 2024, our portfolio of patents included 16 issued patents in the United States and 11 issued patents internationally. Our patents cover multiple process and applications of our technology in vegetable oil refining, production of biodiesel, treatment of process and industrial water, upgrade of hydrocarbons and enhancing of alcoholic beverages. We continuously develop new technologies and applications, as we have filed patent applications for Low Pressure Nano-Reactors LPN™. LPN™ is a highly efficient homogenizer and emulsifier that can be utilized in multiple fluids processing applications.
We plan on continuing to invest in research and development and file for new and improved patents.
Royalty Agreements
On July 1, 2008, our wholly owned subsidiary entered into Patent Assignment Agreements with two parties, our former President as well as former Chief Executive Officer (CEO) who currently serves as our Technology Senior Manager, where certain devices and methods involved in our hydrodynamic cavitation processes invented by the former President and former CEO/current Technology Senior Manager have been assigned to the subsidiary. In exchange, that subsidiary agreed to pay a royalty of 5% of gross revenues to each of the former President and former CEO/current Technology Senior Manager for licensing of the technology and leasing of the related equipment embodying the technology. These agreements were subsequently assumed by us on May 13, 2010, from our subsidiary. Our former CEO/current Technology Senior Manager and former President both waived their rights to receive royalty payments that have accrued, or that may accrue, on any gross revenue generated through June 30, 2024.
On April 30, 2008 and as amended on November 22, 2010, our wholly owned subsidiary entered into an employment agreement with its former Director of Chemical and Analytical Department (the “Inventor”) to pay, in the first year, an amount equal to 5% of actual gross revenue received by us on any patent for which the Inventor was a legally named inventor, and, in each subsequent year, 3% of actual gross revenue received by us on any such patent. Since entering into that employment agreement, and during the term of this employment agreement, we have not recognized any revenue on any patents for which the Inventor was a legally named inventor.
Governmental Approval and Regulations and Environmental Compliance
Due to the nature of our products, we have incurred no costs with respect to environmental compliance with federal, state, and local laws. To our knowledge, our products do not require governmental approval, and we do not foresee that governmental regulations will have a material impact on our business.
Employees
As of June 30, 2024, we had two full-time employees and had engaged several consultants and independent contractors over the past year. Members of our technical team are comprised of experienced professionals who are chemists, civil, chemical, and mechanical engineers with expertise in hydrodynamic cavitation, nano technology and water treatment. These individuals hold degrees in Civil, Chemical, and Mechanical Engineering.
Research and Development Expenditures
During the fiscal years ended June 30, 2024 and 2023, we spent $61,00 and $3,000, respectively, on research and development activities.
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ITEM 1A. RISK FACTORS
Not applicable for smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
The manner in which we store and/or transmit sensitive data in connection with our research and development and our day-to-day operations. We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of Regulation S-K. These risks include, among other things: operational risks, intellectual property theft, fraud, extortion, harm to employees and violation of data privacy or security laws.
Identifying and assessing cybersecurity risk is integrated into our overall risk management systems and processes. Cybersecurity risks related to our business, technical operations, privacy and compliance issues are identified through review by our internal information technology governance, risk and compliance policies. To defend, detect and respond to cybersecurity incidents, we, among other things: may conduct proactive privacy and cybersecurity reviews of systems and applications, audit applicable data, conduct employee training, monitor emerging laws and regulations related to data protection and information security and implement appropriate changes.
Our risk management program also assesses third party risks, and we perform third-party risk management to identify and mitigate risks from our vendors, suppliers, and other business partners associated with our use of third-party service providers. Cybersecurity risks are evaluated when determining the selection and oversight of applicable third-party service providers and potential fourth-party risks when handling and/or processing our employee, business or customer data.
ITEM 2. PROPERTIES
Our corporate headquarter is located in Chatsworth, California, with an area of approximately 5,000 square foot facility, which includes office space and an area to conduct research and development. Our lease agreement for this space will end in February 2025. Our monthly rent payments approximate $7,000. We do not anticipate any material difficulties with the renewal of our rental agreement when it expires or in securing replacement facilities on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. The Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred.
The Company is not aware of any pending litigations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our Common Stock is traded on the OTCQB Market under the symbol CVAT.
Holders
As of September 26, 2024, there were 99 holders of record of our common stock. This does not reflect the number of persons or entities who hold stock in nominee or “street” name through various brokerage firms.
Dividend Policy
We have neither declared nor paid any dividends on our Common Stock in the preceding two fiscal years. We currently intend to retain future earnings, if any, to fund ongoing operations and finance the growth and development of our business and, therefore, do not anticipate declaring or paying cash dividends on our Common Stock for the foreseeable future. Any future decision to declare or pay dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deems relevant.
Issuance of unregistered Securities
None.
Issuer Purchase of Equity Securities
None.
ITEM 6. [RESERVED]
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ITEM 7. 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. Actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.
Overview of Our Business
We are a Nevada corporation originally incorporated under the name Bio Energy, Inc. On January 29, 2007, we incorporated a wholly owned subsidiary, Hydrodynamic Technology, Inc. as a California corporation.
We have developed, patented, and commercialized proprietary technology that can be used for processing of various industrial and consumer-oriented fluids. Our patented Nano Reactor® is the critical components of the CTi Nano Neutralization® System which has been shown to reduce operating costs and increase yields in processing oils and fats. CTi holds and applied for numerous patents covering technology and various processes in US and Internationally, covering vegetable and crude oil refining, processed and frac water treatment, algae oil extraction, and alcoholic beverage enhancement. During our Fiscal 2022, we had continuously worked on developing additional technologies and products related to low pressure nano reactor (LPN™). LPN™ is designed to become a highly efficient mixer and homogenizer. We believe that LPN™ has a great commercial utilization opportunity by providing efficient and cost-effective solution in multiple fluid processing industries. LPN™ has a number of advantages over current mechanically operated mixers and homogenizers. Industrial application of our technology in produced and frac water treatment system, LPN™ along with our proprietary chemical formulations have depicted measurable and quantifiable advantages over industry standard processes and equipment. Additionally, our miniature low pressure nano reactor MLPN has become an integral part of Barmuze®, a small home appliance device for enhancing taste and extracting unwanted impurities typically present in alcoholic beverages.
During the year ended June 30, 2024, we recorded revenue of $1,363,000 and generated net income of $439,000.
Inflation and potential recession
We are, and our suppliers have experienced significant broad-based inflation of manufacturing and distribution costs as well as transportation challenges, partially as a result of the pandemic. Although we do not believe that inflation has had a material effect on our business, financial condition or results of operations, it may in the future. We are monitoring cost structures and evaluating to what extent any such costs can be passed on to customers, taking into account the overall impact of increasing inflation and interest rate pressures on consumers. We expect input cost inflation to continue at least throughout 2024. If we are unable to successfully manage the effects of inflation, our business, operating results, cash flows and financial condition may be adversely affected. Additionally, there have been various economic indicators that the United States economy may be entering a recession in upcoming quarters. An economic recession could potentially impact the general business environment and the capital markets, which may have a material negative impact on our financial results.
Management’s Plan of Operation
We are continuously engaged in manufacturing of our Nano Reactor® and Nano Neutralization® Systems which are designed to help refine vegetable oils such as soybean, canola and rapeseed. Additionally, we have developed LPN™’s that provide commercial opportunity in industrial water treatment, enhancement of alcoholic beverages, and MLPN being utilized in a consumer small home appliance.
During the year ended June 30, 2024, we generated net income of $439,000, including license fee from Desmet of $498,000 and generated cash from operations of $170,000. As of June 30, 2024, we have a working capital deficiency of $403,000 and a stockholders’ deficit of $480,000.
Management’s plan is to generate income from operations by licensing our technology globally through Desmet Ballestra Group (Desmet), agreements with Enviro WaterTek and Alchemy Beverages, Inc.
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In October 2018, we signed a three-year global R and D, Marketing and Technology License Agreement (“TLA”) with Desmet for the sale and licensing of our Nano Reactor® and Nano Neutralization® Systems. This agreement was a continuation of the original agreement we signed with Desmet in May 2012. On October 1, 2021, we executed a new three-year License Agreement with essentially the same terms of the October 2018 agreement. This agreement was terminated early and on February 15, 2024, we entered into a new three-year TLA with Desmet. The TLA provides for a worldwide limited exclusive license to market, sell, supply and assistance to customers of Nano reactor systems and nano reactor devices for the treatment of certain oil and fats, oleochemicals, biodiesels, fatty acids and fatty alcohols. The TLA may be terminated by Desmet on March 15 each year on at least one month’s written notice if the licensee and its affiliates failed to sell a minimum of 6 nano reactor systems during the preceding 12 month period. As part of the TLA, Desmet agreed to provide advances of $25,000 per month, subject to limitations. The advances will then be applied as payment from future sales of reactors to Desmet.
During the year ended June 30, 2024, advances received from Desmet amounted to $972,000 and revenues recognized from sale of reactors and licensing fee amounted to $1,363,000. These funds service operational expenses on monthly basis.
There was no revenue produced from our agreements with Enviro Watertek, LLC and Alchemy Beverages, Inc.
We anticipate that we may need additional funding, and we may attempt to raise additional debt and/or equity financing to fund operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet our needs, or that we will be able to meet our future contractual obligations. Should management fail to obtain such financing, we may curtail its operations.
Critical Accounting Policies and Revenue Recognition
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. The accounting policies and estimates described below are those we consider most critical in preparing its consolidated financial statements. The following is a review of the accounting policies and estimates that include significant judgments made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used instead.
Note 1 of the accompanying consolidated financial statements includes a summary of significant accounting policies, estimates, and methods used in the preparation of our financial statements. Accounting estimates are an integral part of the preparation of financial statements and are based on judgments by management using its knowledge and experience about the past and current events and assumptions regarding future events, all of which we consider to be reasonable. These judgments and estimates reflect the effects of matters that are inherently uncertain and that affect the carrying value of our assets and liabilities, the disclosure of contingent liabilities and reported amounts of expenses during the reporting period.
Revenue Recognition
The Company follows the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
Revenue from sale of our Nano Reactor® and LPN™ 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.
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For the license fee revenue, revenue is recognized when the Company satisfies the performance obligation based on the related license agreement.
In addition, the Company also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer.
Leases
The Company accounts for leases under guidance of Accounting Standards Codification (“ASC”) 842, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for the lease and non-lease components of its office lease as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.
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. The Company assesses its investment in equity method investments for recoverability, and if it is determined that a loss in value of the investment is other than temporary, the Company writes down the investment to its fair value. Based on Management’s assessment, the value of its equity method investment was impaired as of June 30, 2023 and as such, recorded an impairment charge of $1,112,000. As of June 30, 2024 and 2023, the remaining value of its investments amounted to a de minimus amount of $1,000, respectively.
Share-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non- employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
Recent Accounting Pronouncements
See Note 1 of the financial statements for discussion of recent accounting pronouncements.
| 9 |
Results of Operations
Below is summary comparing fiscal 2024 and fiscal 2023.
| For the Years Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Revenue | $ | 1,363,000 | $ | 413,000 | $ | 950,000 | 230.0% | |||||||||
| Revenue-related party | – | 20,000 | (20,000 | ) | (100.0)% | |||||||||||
| Cost of revenue | (156,000 | ) | (121,000 | ) | (35,000 | ) | 28.9% | |||||||||
| Gross profit | 1,207,000 | 312,000 | 895,000 | 286.9% | ||||||||||||
| General and administrative expenses | 708,000 | 1,195,000 | (487,000 | ) | (40.8)% | |||||||||||
| Research and development expenses | 61,000 | 3,000 | 58,000 | 1933.3% | ||||||||||||
| Total operating expenses | 769,000 | 1,198,000 | (429,000 | ) | (35.8)% | |||||||||||
| Income (loss) from operations | 438,000 | (886,000 | ) | 1,324,000 | 149.4% | |||||||||||
| Loss from equity method investment | – | (1,148,000 | ) | 1,148,000 | 100% | |||||||||||
| Interest income (expense), net | 1,000 | (6,000 | ) | 7,000 | 116.7% | |||||||||||
| Net income (loss) | $ | 439,000 | $ | (2,040,000 | ) | $ | 2,479,000 | 121.5% | ||||||||
Revenue
During the year ended June 30, 2024, revenue increased by $950,000, as a result of the increase in reactors purchased by Desmet which resulted in an increase in revenues from reactor sales from $413,000 to $865,000. In addition, the Company also recognized $498,000 of license fee pursuant to the termination of the October 2021 agreement with Desmet. There was no similar license fee revenue in fiscal 2023.
During the year ended June 30, 2024, revenue- related party decreased by $20,000. In the prior year we recorded an aggregate revenue of $20,000 from water processing usage fees to Enviro Watertek, LLC. There was no similar water processing usage fees recognized in fiscal 2024.
Cost of Sales
During the year ended June 30, 2024 and 2023, cost of sales was $156,000 and $121,000, respectively, an overall increase of $35,000 or 28.9%. Cost of sales from the production of reactors increased from $73,000 to $156,000, which corresponds to the increase in reactors revenues. Costs of sales in fiscal 2023 also included inventory write off of $48,000, with no similar transaction in fiscal 2024. In addition, during the current year, the Company recognized license fee revenue of $498,000, with no associated cost of sales. After taking these items into account the cost of sales movement is in line with normal margins earned.
General and administrative expenses
General and administrative expenses decreased by $487,000 or 40.8%. The decrease is primarily related to a decrease in headcount and payroll expenses of $272,000 in a concerted effort to reduce operating expenses. In addition stock based compensation reduced by $85,000, since there were no equity awards granted during the current year. Advertising expenditure was reduced by $35,000, audit fees were reduced by $32,000 and consulting fees were reduced by $32,000, all reductions in line with our concerted effort to reduce operating expenses. The balance of the decrease of $31,000 is made up of several individually insignificant expense reductions.
Research and development expenses
Research and development expenses increased by $58,000. During the current year management invested in research into a new cold plasma technology to applied to new markets.
| 10 |
Loss from equity method investment
The loss from equity method investment decreased by $1,148,000, in the prior year, we determined that the value of the Ameredev joint venture that we had entered into in September 2021 no longer supported the investment that we had made due to unfavorable result of operations of Ameredev and the oil and gas industry in which it operates in. As such, we recorded an equity method investment loss of $1,148,000 in fiscal 2023. There was no similar loss in fiscal 2024.
Interest income (expense), net
Interest income (expense) increased by $7,000, this is primarily due to an adjustment made to accrued interest by the noteholder.
Net Loss
Our reporting net income in fiscal 2024 was $439,000 and our net loss in fiscal 2023 was $2,040,000, an increase in income of $2,479,000 due to an increase in revenue, a decrease in general and administrative expenses and a decrease in the loss of equity method investment, offset by an increase in research and development expenditure, discussed above.
Liquidity and Capital Resources
Our cash balance at June 30, 2024 and 2023 was $179,000 and $18,000, respectively, an increase of $161,000, primarily due to the increase in revenue and the reduction in operating expenses during the current year.
We generated cash from operating activities of $172,000 for the year ended June 30, 2024 due to the increase in revenues and reduced operating expenses.
For the year ended June 30, 2023 cash used in operating activities was $423,000.
We utilized cash in financing activities of $11,000 for the year ended June 30, 2024, for the repayment of notes payable.
Going concern
As of June 30, 2024, we had a working capital deficit of $403,000, an accumulated deficit of $26,847,000 and stockholders’ deficit of $480,000 and the Company has had a history of operating losses. These factors, among others, raise substantial doubt about our ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on our June 30, 2024 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty be necessary should we be unable to continue as a going concern.
Management’s plan is to generate income from operations by continuing to license its technology globally, including our agreements with EW and ABI.
We 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 our needs, that we will be able to achieve profitable operations or that we will be able to meet our future contractual obligations. Should management fail to obtain such financing, we may curtail its operations.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for Smaller Reporting Companies.
| 11 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| 12 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Cavitation Technologies, Inc.
Chatsworth, CA
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cavitation Technologies, Inc. (the “Company”) as of June 30, 2024 and 2023, the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has incurred recurring operating losses and used cash in operations since inception, and has a stockholders’ deficit at June 30, 2024. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
We have served as the Company’s auditor since 2013.
/s/
September 30, 2024
| 13 |
CAVITATION TECHNOLOGIES,
INC.
CONSOLIDATED BALANCE SHEETS
| June 30, 2024 | June 30, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Equity method investment | ||||||||
| Operating lease right-of-use asset | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll and payroll taxes – related parties | ||||||||
| Notes payable | ||||||||
| Advances from distributor | ||||||||
| Operating lease liability, current portion | ||||||||
| Total current liabilities | ||||||||
| Notes payable, non-current | ||||||||
| Operating lease liability, non-current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of June 30, 2024 and 2023. | ||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding as June 30, 2024 and 2023. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
See accompanying notes to the consolidated financial statements
| 14 |
CAVITATION TECHNOLOGIES,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Years Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenue – Nano reactors | $ | $ | ||||||
| Revenue – license fee | ||||||||
| Revenue – related party | ||||||||
| Total revenue | ||||||||
| Cost of revenue | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Total operating expenses | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| Other Income (Expense) | ||||||||
| Loss from equity method investment | ( | ) | ||||||
| Interest income (expense), net | ( | ) | ||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Net income (loss) per share | ||||||||
| Basic and diluted | $ | $ | ) | |||||
| Weighted average shares outstanding, | ||||||||
| Basic and diluted | ||||||||
See accompanying notes to the consolidated financial statements
| 15 |
CAVITATION TECHNOLOGIES,
INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 2024 AND 2023
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Cashless exercise of warrants | ( | ) | ||||||||||||||||||
| Fair value of common stock issued for services | ||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||
| Net income | – | |||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
See accompanying notes to the consolidated financial statements
| 16 |
CAVITATION TECHNOLOGIES,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash generated by (used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Fair value of common stock issued for services | ||||||||
| Inventory reserve | ||||||||
| Loss from equity method investment | ||||||||
| Effect of changes in: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Operating lease right-of-use assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued payroll and payroll taxes – related parties | ||||||||
| Customer advances | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash generated by (used in) operating activities | ( | ) | ||||||
| Financing activities: | ||||||||
| Repayment of notes payable | ( | ) | ||||||
| Cash used in financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
See accompanying notes to the consolidated financial statements
| 17 |
CAVITATION TECHNOLOGIES,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2024 AND 2023
Note 1 – Organization and Summary of Significant Accounting Policies
Cavitation Technologies, Inc. (“the Company,” “CTi,” “we,” “us,” and “our”) is a Nevada corporation originally incorporated in January 2007 under the name Bio Energy, Inc. The Company has developed, patented, and commercialized proprietary technology used in our Nano Reactor® and LPN™ liquid processing applications.
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, as of
June 30, 2024, the Company had a stockholders’ deficit of $
As of June
30, 2024, the Company has cash in the amount of $
The Company may also attempt to raise additional debt and/or equity financing to fund operations and to provide additional working capital. There is no assurance that such financing will be available in the future or obtained in sufficient amounts necessary to meet the Company’s needs, that the Company will be able to achieve profitable operations or that the Company will be able to meet its future contractual obligations. Should management fail to obtain such financing, the Company may curtail its operations.
During the year ended June 30, 2024, the COVID-19 pandemic did not have a material net impact on our operating results. The Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations, financial condition, or liquidity.
Principles of Consolidation
The consolidated financial statements include the accounts of Cavitation Technologies, Inc. and its wholly owned subsidiary Hydrodynamic Technology, Inc. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period. Significant estimates include estimates for reserves for inventory obsolescence, valuation of our equity method investments, assumptions used in valuing our stock options, stock warrants and common stock issued for services and valuation allowance for our deferred tax asset, among other items. Actual results could differ from these estimates.
| 18 |
Advances from Distributor
Advances from distributor are contract liabilities and represent consideration received from Desmet, customer and distributor, under revenue contracts for which the Company has not yet delivered or completed its performance obligation to the customer. Contract liabilities are recognized over the contract period.
Revenue Recognition
The Company follows the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients. Revenue from sale of our Nano Reactors is recognized when products are shipped from our manufacturing facilities as this is our sole performance obligation under these contracts and we have no continuing obligation to the customer.
For the license fee revenue, revenue is recognized when the Company satisfies the performance obligation based on the related license agreement and collectability is certain.
In addition, the Company also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer and collectability is certain.
Cash and Cash Equivalents
The
Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. At June 30,
2024 and 2023, the Company had
The Company maintains its cash with one domestic financial institution. From time to time, cash balances in this domestic bank may exceed federally insured limits provided by the Federal Deposit Insurance Corporation (“FDIC”) of up to $250,000.
As of June 30, 2024, Company had no deposits in excess of federally insured limit with one bank. The Company believes that no significant concentration of credit risk exists with respect to this cash balances because of its assessment of the creditworthiness and financial viability of this financial institution.
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. Based on Management’s assessment, the value of its equity method investment was impaired as of
June 30, 2023 and as such, recorded an impairment charge of $
Income Taxes
The Company follows the asset and liability method of accounting for income taxes. The Company recognizes deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at anticipated future tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
| 19 |
Leases
The Company accounts for its leases in accordance with the guidance of FASB ASC 842, Leases. The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments (see Note 4).
Fair Value Measurement
FASB ASC 820-10 requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet for which it is practicable to estimate fair value. ASC 820-10 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 - inputs are based upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
As of June 30, 2024, and 2023, the carrying value of certain accounts such as accounts payable, accrued expenses and accrued payroll approximates 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.
We periodically issue stock options, warrants and common stock to employees and non-employees for services and capital raising transactions. We account for share-based payments under the guidance of FASB ASC 718, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. We estimate the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.
Under ASC 718, the amount of cash or other assets transferred (or liabilities incurred) to repurchase an equity award shall be charged to equity, to the extent that the amount paid does not exceed the fair value of the equity instruments repurchased at the repurchase date. Any excess of the repurchase price over the fair value of the instruments repurchased shall be recognized as additional compensation cost.
| 20 |
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, and are expensed as incurred. Total research and development costs recorded during the years ended June 30, 2024 and 2023 amounted
to $
Warranty Policy
The Company provides a limited warranty
with every set of reactors sold, typically 2 to 5 years. The Company has not experienced significant claims under its warranty
policy, and management determined
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 June 30, 2024 and 2023 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.
| June 30, 2024 | June 30, 2023 | |||||||
| Warrants | ||||||||
Concentrations
During the year ended June 30, 2024, we
recorded
As of June 30, 2024, three vendors accounted
At June 30, 2024 and 2023, we had
| 21 |
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 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 the accompanying financial statements.
Inflation
The continuing impact of higher inflation, the actions by the Federal Reserve to address inflation, create uncertainty about the future economic environment which will continue to evolve and, we believe, has not materially impacted the Company’s business in fiscal 2024. The implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for the business and an increase in the Company’s operating expenses.
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 became effective for the Company beginning July 1, 2023. The adoption of this guidance was not material to its financial position, results of operations and cash flows of the Company.
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
In October 2021, the Company signed a three-year global Research and Development, Marketing and Technology License Agreement (“TLA”) with Desmet Ballestra (“Desmet”) for the sale and licensing of the Company’s nano reactors. This agreement was a continuation of the similar TLA agreements the Company signed with Desmet in fiscals 2012, 2016 and 2018.
As part of the agreement, Desmet provided the Company monthly advances, subject to certain
limitations, of $40,000 to be applied against future sales of reactors. As of June 30, 2022, outstanding advances from Desmet
amounted to $
During the year ended June 30, 2023, pursuant to this October 2021 TLA agreement, the Company received
advances from Desmet totaling $
On
February 15, 2024, the Desmet and the Company terminated the October 2021 TLA agreement and entered into a new three-year Technology
License Agreement (“February 2024 TLA”) with Desmet. The February 2024 TLA provides for a worldwide limited exclusive
license to market, sell, supply and assistance to customers of Nano reactor systems and nano reactor devices for the treatment of
certain oil and fats, oleochemicals, biodiesels, fatty acids and fatty alcohols. The February 2024 TLA may be terminated by Desmet
on March 15 each year on at least one month’s written notice if the licensee and its affiliates failed to sell a minimum of 6
nano reactor systems during the preceding 12 month period. As part of the February 2024 TLA, Desmet also agreed to provide advances
of $25,000 per month, subject to limitations. The advances will then be applied as payment against future sales of reactors to
Desmet. In addition, Desmet also waived its right to collect certain outstanding advances of $498,000 that were then waived under
the October 2021 TLA agreement and as result, the Company recognized licensing revenue of $
During the year ended June 30, 2024, pursuant
to these TLA agreements, the Company received advances from Desmet totaling $
| 22 |
Note 3 - Investment in Equity Method Investments
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, 2024, 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.
During the
year ended June 30, 2023, the Company recorded total revenues from Ameredev of $
Based upon
the operations of Ameredev and the facts and circumstance of the industry it operates, due to a number of factors, Management has
concluded that it was no longer possible to determine reasonable and objectively supportable projections and estimates with regards
to the recoverability of the equity method investment. As such, at June 30, 2023, the Company determined the equity method
investment was impaired and recorded an additional $
During the year ended June 30, 2024, Ameredev’s operation was limited and Company had no revenues from Ameredev.
The following table summarizes the activity of the Company’s equity method investment:
| Amount | ||||
| Balance at June 30, 2022 | $ | |||
| Contributions to equity method investment | ||||
| Loss from Company’s 30% share in the net loss of Ameredev | ( | ) | ||
| Impairment of equity method investment | ( | ) | ||
| Distribution from equity method investment | ||||
| Balance at June 30, 2023 | ||||
| Contributions to equity method investment | ||||
| Loss from Company’s 30% share in the net loss of Ameredev | ||||
| Impairment of equity method investment | ||||
| Distribution from equity method investment | ||||
| Balance at June 30, 2024 | $ | |||
| 23 |
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:
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Lease costs: | ||||||||
| Operating lease (included in general and administrative in the Company’s consolidated statement of operations) | $ | $ | ||||||
| Other information: | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term – operating leases (in years) | ||||||||
| Average discount rate – operating leases | ||||||||
| The supplemental balance sheet information related to leases for the period is as follows: | ||||||||
| Long-term right-of-use assets | $ | $ | ||||||
| Short-term operating lease liabilities | $ | $ | ||||||
| Long-term operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
Supplemental cash flow information related to the lease liabilities are as follows:
| Amount | ||||
| Year Ending June 30: | ||||
| 2025 | $ | |||
| Total lease payments | ||||
| Less: Imputed interest/present value | ( | ) | ||
| Present value of lease liabilities | $ | |||
| 24 |
Note 5 - Property and Equipment
Property and equipment consist of the following:
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Leasehold improvement | $ | $ | ||||||
| Furniture | ||||||||
| Office equipment | ||||||||
| Equipment | ||||||||
| Systems | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the years ended June 30, 2024 and 2023 amounted to $
Note 6 – 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 of June 30, 2023, total accrued payroll and payroll taxes-related parties
amounted $
During the year ended June 30, 2024, the Company accrued
the payroll of an officer of the Company amounting to $
As of June 30, 2024, total accrued payroll and payroll
taxes-related parties amounted to $
Consulting Fees
The Company recognized consulting fees to a member
of the Company’s Board of Directors amounting to $
Note 7 – Note Payable
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Note payable - EIDL | $ | $ | ||||||
| Disclosed as: | ||||||||
| Short-term note payable | ||||||||
| Long-term note payable | ||||||||
| Total note payable | $ | $ | ||||||
| 25 |
In July 2020, the Company received a loan of $
The expected future principal payment of note payable June 30, 2024, is as follows:
| Future minimum payments on note payable | ||||
| Year Ending | Amount | |||
| June 30, 2025 | $ | |||
| June 30, 2026 | ||||
| June 30, 2027 | ||||
| June 30, 2028 | ||||
| June 30, 2029 and thereafter | ||||
| Total | $ | |||
Note 8 - Stockholders’ Deficit
Preferred Stock
On March 17, 2009, the Company filed an Amended and Restated Articles of Incorporation and created two new series of preferred stock, the first of which is designated Series A Preferred Stock and the second of which is designated as Series B Preferred Stock. The total number of shares of Common Stock which this corporation has authority to issue is 1,000,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock of which 5,000,000 shares are designated as Series A Preferred Stock, and 5,000,000 shares are designated as Series B Preferred Stock, with the rights, preferences and privileges of the Series B Preferred Stock to be designated by the Board of Directors. Each share of Common Stock and Preferred Stock has a par value of $0.001. As of June 30, 2024, and 2023, there are no shares of Series A or Series B Preferred Stock issued and outstanding.
Common Stock
Year Ending June 30, 2024
There was no common stock issued for the year ended June 30, 2024.
Year Ending June 30, 2023
During the
year ended June 30, 2023, the Company issued
shares of common stock with a fair value of $
During the year ended June 30, 2023, the Company issued shares of common stock upon cashless exercise of warrants.
| 27 |
Stock Options
The Company has not adopted a formal stock option plan and does t have any stock options outstanding at June 30, 2024 and 2023.
Warrants
A summary of the Company’s warrant activity and related information from as of June 30, 2024 and 2023 is as follows.
| Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (Years) | ||||||||||
| Outstanding at June 30, 2022 | $ | |||||||||||
| - Granted | – | |||||||||||
| - Exercised | ( | ) | – | |||||||||
| - Expired | ( | ) | – | |||||||||
| Outstanding at June 30, 2023 | $ | |||||||||||
| - Granted | – | |||||||||||
| - Exercised | – | |||||||||||
| - Expired | ( | ) | – | |||||||||
| Outstanding at June 30, 2024 | $ | |||||||||||
There was no intrinsic value of the outstanding warrants as of June 30, 2024, 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 June 30, 2024.
| 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 | |||||||||||||||||||||
| $ | 0.09 | |||||||||||||||||||||
| $ | ||||||||||||||||||||||
| 28 |
Note 9 - Income Taxes
For the year ended June 30, 2024 the Company recorded no provision for income taxes due to the application of the Company’s available Federal and State net operating loss (NOL) carryforwards that are available to reduce taxable income. For the year ended June 30, 2023 the Company recorded no provision for income taxes due to the Company’s taxable net loss position.
A reconciliation of the effective income tax to statutory US federal income tax is as follows:
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Federal statutory rate | ( | |||||||
| State income taxes, net of Federal benefit | ( | |||||||
| Net operating loss utilized | ( | |||||||
| Prior year net operating loss true up | ( | |||||||
| Valuation allowance | ||||||||
| Income tax provision | ||||||||
Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The components of deferred tax assets are presented below.
At June 30,
2024, the Company had available Federal NOL carryforwards of approximately $
At June 30, 2024 and 2023, significant component of the Company’s deferred tax assets and liabilities are as follows:
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Net Operating loss carryforwards | $ | $ | ||||||
| Stock compensation expense | ||||||||
| Total net deferred tax assets | ||||||||
| Less valuation discount | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
The provisions
of ASC Topic 740, Accounting for Income Taxes, require an assessment of both positive and negative evidence when determining whether it
is more likely than not that deferred tax assets are recoverable. For the years ended June 30, 2024 and 2023, based on all available objective
evidence, including the existence of cumulative losses, the Company determined that it was more likely than not that the net deferred
tax assets were not fully realizable. Accordingly, the Company established a full valuation allowance against its net deferred tax assets.
The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support
reversal of the valuation allowance. During the year ended June 30, 2024 the valuation allowance decreased by $
Accounting rules prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. The Company classifies interest and penalties as a component of interest and other expenses. To date, there have been no interest or penalties assessed or paid.
The Company measures and records uncertain tax positions by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized.
Our income tax filings are periodically examined by various U.S. federal and state jurisdictions. There are no open examinations by federal and state income tax jurisdictions. The Company’s U.S. federal income tax return remains open to examination for the years ended June 30, 2021 through June 30, 2024.
| 29 |
Note 10 – Commitments and Contingencies
Royalty Agreements
On July 1, 2008, the Company’s wholly owned subsidiary entered into Patent Assignment Agreements with two parties, its President as well as its former Chief Executive Officer (CEO) and current Technology Senior Manager, where certain devices and methods involved in the hydrodynamic cavitation processes invented by the President and former CEO/ current Technology Senior Manager have been assigned to the Company. In exchange, the Company agreed to pay a royalty of 5% of gross revenues to each of the President and former CEO/ current Technology Senior Manager for licensing of the technology and leasing of the related equipment embodying the technology. These agreements were subsequently assigned to Cavitation Technologies on May 13, 2010. The Company’s former CEO/ current Technology Senior Manager and President both waived their rights to receive royalty payments that have accrued, or that may accrue, on any gross revenue generated through June 30, 2024 and 2023.
On April 30, 2008 (as amended November 22, 2010), the Company’s wholly owned subsidiary entered into an employment agreement with the Director of Chemical and Analytical Department (the “Inventor”) providing that the Inventor shall receive an amount equal to 5% of actual gross royalties received from the royalty stream in the first year in which the Company receives royalty payments from the patent which the Inventor was the legally named inventor, and 3% of actual gross royalties received by the Company resulting from the patent in each subsequent year. As of June 30, 2024, and 2023 no patents have been granted in which this person is the legally named inventor.
Note 11 – Subsequent events
The Company has evaluated subsequent events through the date the financial statements were issued and did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
| 30 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
In accordance with rule 13a-15(a), our 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 us in reports that we file or submit 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 our management, including our 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 June 30, 2024, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were not effective as of June 30, 2024.
Report of Management on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed under the supervision of our principal executive and principal financial officer, and effected by our board of directors, management and other personnel, 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 and includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal controls and procedures, (as defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the year ended June 30, 2024. Management conducted as assessment of our internal control over financial reporting based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Our management concluded that as of June 30, 2024, our internal control over financial reporting was not effective, and that material weaknesses existed in the following areas as of June 30, 2024:
| 1. | We do not employ full time in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding certain complex or non-routine transactions. With respect to material, complex and non-routine transactions, management has and will continue to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions; | |
| 2. | We have ineffective controls over segregation of duties due to limited resources and number of employees; and | |
| 3. | The Company did not maintain a functioning independent audit committee. |
| 31 |
We are in the continuous process of improving our internal control over financial reporting in an effort to eliminate these material weaknesses through improved supervision and training of our staff, but additional effort is needed to fully remedy these deficiencies. We intend to hire the necessary staff to address the weaknesses once additional capital is obtained which will allow full operations to commence. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the year ended June 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation
Pursuant to Item 308(b) of Regulation S-K, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Wall Street Reform Act), this report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. The Wall Street Reform Act permanently exempts small public companies from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls.
ITEM 9B. OTHER INFORMATION
During the quarter
ended June 30, 2024, no director or officer
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
| 32 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
| Person | Age | Position | ||
| Naum Voloshin | 61 | President, PEO, Principal Accounting Officer Secretary and Director | ||
| Peter N. Christos | 67 | Director | ||
| James Fuller | 84 | Director | ||
| Jerry Bailey PhD | 84 | Director |
James Fuller. Mr. Fuller is an independent director and has been Chairman of our Audit Committee and Independent Financial Expert since February 2010. He was formerly a Vice President of the New York Stock Exchange and director of the Securities Investor Protection Corporation. In addition to his over 30 years of experience in the securities markets, Mr. Fuller sat on the Board of Trustees of the University of California, Santa Cruz and previously served as Chairman of their Audit Committee and Independent Financial Expert. Mr. Fuller is a partner at Baytree Capital Associates, LLC. He received his BS in Political Science from San Jose State University and his MBA from California State University - Fresno. Mr. Fuller also served as a Director of Propell Technologies Group, Inc (OTCQB: Propell), a public company engaged in oil and gas exploration from October 14, 2011 until February 17, 2015. Based on Mr. Fuller’s extensive experience in finance as well as his prior public company experience it was determined that Mr. Fuller should serve on the Company’s Board.
Mr. Fuller resigned as a director and as the chairman of our audit Committee with effect on August 22, 2024.
Naum Voloshin. Mr. Voloshin has over 30 years of experience in investment banking, business operations and marketing. Prior to joining CTi, Mr. Voloshin has worked for several developmental stage companies in US, Europe and Asia. The scope of his duties was to provide management, financial reporting, funding, and marketing expertise.
Jerry Bailey PhD. Mr. Bailey has over 50 years of experience in the international petroleum industry. He is a former President of Exxon - Arabian Gulf and prior to that, served in various operating capacities for major oil producers throughout the Middle East and in the U.S. onshore and offshore sectors. Dr. Bailey is currently the Chairman of Bailey Petroleum, LLC, a consulting firm for major oil and gas exploration and development corporations. In addition, during his extensive career, Dr. Bailey has served in a variety of C-Suite and Board capacities for several oil & gas enterprises. Dr. Bailey holds a BS Degree in Chemical Engineering from the University of Houston, an MS Degree in Chemical Engineering from the New Jersey Institute of Technology, a PhD Degree from Columbia Pacific University and is a graduate of Engineering Doctoral Studies from Lamar University.
Peter N. Christos. Mr. Christos has over 30 years of Wall Street experience in corporate finance, serving on the boards of numerous private and listed companies, managing, and advising large scale enterprises as well as early-stage start-ups.
Family Relationships
Roman Gordon is a founder and current Global Technology Manager of the Company. He was a former member of the Company’s Board of Directors and Chief Technology Officer up to July 15, 2016. He is also the brother of Mr. Igor Gorodnitsky, our former President, Principal Executive Officer and member of the Company’s Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors, persons who own more than 10% of our common stock, and immediate family members living in the same household to file an Initial Statement of Beneficial Ownership on Form 3 and changes in ownership on Form 4 with the Securities and Exchange Commission (the "SEC"). Such "insiders" are required by SEC rules to furnish us with copies of all Section 16(a) forms they file.
Based on a review of Forms 3, 4, and 5 and amendments thereto furnished to us during fiscal 2020 updated forms were filed, ended June 30, 2024, there were no delinquent forms filed during the year.
| 33 |
Director Independence
Although our common stock is not listed on a national securities exchange, for purposes of independence we use the definition of independence applied by the NASDAQ stock market. The Board has determined that Mr. Fuller, Mr. Bailey and Mr. Christos are all ” independent” in accordance with such definition. Mr. Voloshin is not independent due to his current positions with the Company.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees. A copy may also be obtained free of charge by mailing a request in writing to: Cavitation Technologies, Inc., 10019 Canoga Ave., Chatsworth, CA 91311 USA. If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waiver from a provision of the Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver in a current report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth a summary of cash and non-cash compensation awarded, earned or paid for services rendered to us during the years ended June 30, 2024 and 2023 by our “named executive officers,” consisting of (i) each individual serving as principal executive officer, and (ii) our Chief Financial Officer/Chief Operating Officer, our other executive officer.
| Year | Salary | Bonus | Stock Awards (1) | Warrant Awards | Non-Equity Incentive Plan Compensation |
Changes in Pension Value and Non-Qualified Deferred Compensation |
All Other Compensation |
Totals | |||||||||||||||||||
| Naum Voloshin | 2024 | $ | 166,305 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 166,305 | ||||||||||
| Principal Executive & Principal Accounting Officer | 2023 | $ | 203,140 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 203,140 | ||||||||||
| James W. Creamer | 2024 | $ | 20,000 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 20,000 | ||||||||||
| Chief Financial Officer (1) | 2023 | $ | 32,645 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 32,645 | ||||||||||
| (1) | Mr. Creamer was named the Company’s Chief Financial Officer on October 21, 2022 and resigned from that position on September 14, 2023. |
| 34 |
Outstanding Equity Awards at Fiscal Year-End
The table below reflects all outstanding equity awards made to each of the named executive officers that are outstanding as of June 30, 2024.
| Restricted Stock Awards | ||||||||||||||
| Name | Restricted Stock grant date | Number of securities Underlying Restricted Stock Awards # Exercisable | Number of securities Underlying Restricted Stock Awards # Unexercisable | Restricted Stock Awards Grant Price | ||||||||||
| Naum Voloshin | 6/21/2022 | 4,000,000 | – | 0.05 | ||||||||||
| Principal Accounting Officer | ||||||||||||||
The fair value of each restricted stock grant is the market value of the stock on the grant date.
Employment Agreements
Our executive officers work as at-will employees.
Code Section 162(m) Provisions
Section 162(m) of the U.S. Internal Revenue Code, or the Code, generally disallows a tax deduction to public companies for compensation in excess of $1 million paid to the Chief Executive Officer or any of the four most highly compensated officers. Performance-based compensation arrangements may qualify for an exemption from the deduction limit if they satisfy various requirements under Section 162(m). Although we consider the impact of this rule when developing and implementing our executive compensation programs, we believe it is important to preserve flexibility in designing compensation programs. Accordingly, we have not adopted a policy that all compensation must qualify as deductible under Section 162(m) of the Code. While our stock options are intended to qualify as “performance-based compensation” (as defined by the Code), amounts paid under our other compensation programs may not qualify as such.
2023 Director Compensation
The following table sets forth information for the fiscal year ended June 30, 2024 regarding the compensation of our directors who at June 30, 2024 were not also named executive officers.
| Fees | Non-equity | |||||||||||||||||||||
| Earned | inventive | Non-qualified | All | |||||||||||||||||||
| or paid | Stock | Option | plan | deferred | other | |||||||||||||||||
| in cash | Awards | Awards | compensation | compensation | compensation | Total | ||||||||||||||||
| Name | ($) | ($) | ($) | ($) | Earnings | ($) | ($) | |||||||||||||||
| James Fuller | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||
| Jerry Bailey | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||
| Peter Christos | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||
| 35 |
As of June 30, 2024, the following table sets forth the number of aggregate outstanding option awards held by each of our directors who were not also named executive officers:
| Aggregate | ||||
| Number of | ||||
| Name | Option Awards | |||
| – |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information regarding the beneficial ownership of our common stock as of September 26, 2024, (the “Evaluation Date”) by: (i) each of our current directors, (ii) each of our named executive officers, and (iii) all such directors and executive officers as a group. We know of no other person or group of affiliated persons who beneficially own more than five percent of our common stock. The table is based upon information supplied by our officers, directors and principal stockholders and a review of Schedules 13D and 13G, if any, filed with the SEC. Unless otherwise indicated in the footnotes to the table and subject to community property laws where applicable, we believe that each of the stockholders named in the table has sole voting and investment power with respect to the shares indicated as beneficially owned.
Applicable percentages are based on 284,289,740 shares outstanding as of the Evaluation Date, adjusted as required by rules promulgated by the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of our common stock issuable pursuant to the exercise of stock options or warrants that are either immediately exercisable or exercisable within 60 days of the Evaluation Date. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
| Amount and | ||||||||
| Nature of | ||||||||
| Beneficial | Percent of | |||||||
| Name of Beneficial Owner | Ownership | Class (1) | ||||||
| Naum Voloshin | (2) | 10, 212,390 | 3.6 | % | ||||
| President, Principal Executive Officer, Principal Accounting Officer and Director | ||||||||
| James Fuller | (3) | 2,337,500 | * | |||||
| Chairman of Audit Committee, Director (Resigned effective August 22, 2024) | ||||||||
| Dr. Gerald Bailey | (4) | 400,000 | * | |||||
| Director | ||||||||
| Directors and Officers | 12,949,890 | 4.5 | % | |||||
| (as a group, four individuals) | ||||||||
| * | Less than 1% |
| (1) | Unless otherwise set forth below, the mailing address of Executive Officers, Directors and 5% or greater holders is in care of the Company. |
| (2) | Consists of 10,212,390 shares of common stock, including 4,000,000 restricted shares granted to Mr. Voloshin on June 21, 2022. |
| (3) | Consists of 837,500 shares of common stock and warrants exercisable for 1,000,000 shares of common stock, all of which are vested. |
| (4) | Consists of warrants exercisable for 400,000 shares of common stock. |
| 36 |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Related Party Transactions
Since the beginning of our last fiscal year , there has not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years and in which any of our directors, executive officers, holders of more than five percent of any class of our voting securities or any member of the immediate family of the foregoing persons had or will have a direct or indirect material interest.
Accrued Payroll and Payroll Taxes
As of June 30, 2024, and 2023, the Company had accrued unpaid salaries to officers and former officers amounting to $414,000 and $247,000, respectively.
Cameo USA LLC
In fiscal 2014, Roman Gordon, one of the Company’s shareholders and a former officer, formed a company called Cameo USA LLC (Cameo). Since its formation, Cameo has had no revenue, no operations, and has had no assets or liabilities. On June 4, 2018, Mr. Gordon contributed his 100% interest in Cameo to the Company. As Mr. Gordon had no basis in his investment in Cameo, there was no value assigned to the contribution of Cameo. Subsequent to the contribution of Cameo to the Company, Cameo was sold to Alchemy Beverages Inc.
Director Independence
As our common stock is currently traded on the OTC Bulletin Board, we are not subject to the rules of any national securities exchange which require that a majority of a listed company's directors and specified committees of the board of directors meet independence standards prescribed by such rules. For the purpose of preparing the disclosures in this Report on Form 10-K regarding director independence, we have used the definition of "independent director" set forth in the Marketplace Rules of The NASDAQ, which defines an "independent director" generally as a person other than an executive officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Consistent with these standards, we believe that James Fuller is an Independent Financial Expert.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Independent Registered Public Accounting Firm’s Fee Summary
The following table provides information regarding the fees billed to us by Weinberg & Company, P.A. for the years ended June 30, 2024 and 2023. All fees described below were approved by the Board:
June 30, 2024 | June 30, 2023 | |||||||
| Audit Fees and Expenses (1) | $ | 86,000 | $ | 87,000 | ||||
| All Other Fees | $ | 9,000 | $ | 20,000 | ||||
| (1) | Audit fees and expenses were for professional services rendered for the audit and reviews of the consolidated financial statements of the Company, professional services rendered for issuance of consents and assistance with review of documents filed with the SEC. |
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Pre-Approval Policies and Procedures
Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm.
Prior to the engagement of the independent registered public accounting firm for the next year’s audit, management will submit a list of services and related fees expected to be rendered during that year for audit services, audit-related services, tax services and other fees to the Audit Committee for approval.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this annual report on Form 10-K:
1. Financial Statements
The financial statements are filed as part of this report under Item 8 “Financial Statements and Supplementary Data”.
2. Financial Statement Schedules
All other schedules are omitted because they are not applicable or the required information is presented in the financial statements and notes thereto.
3. Exhibits
The exhibits required by Item 601 of Regulation S-K are included in Item 15(b) below.
(b) - Exhibits.
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| Incorporated by Reference | ||||||||||||
| Exhibit | Filed | Period | Filing | |||||||||
| Number | Exhibit Description | Herewith | Form | Ending | Exhibit | Date | ||||||
| 10.1 | Technology and License Agreement with Desmet Ballestra dated 14 May 2012 | 10-K | June 30, 2012 | 10.1 | October 15, 2012 | |||||||
| 10.11 | Convertible Note Payable - Prolific Group LLC - $25,000 | 10-Q | December 31, 2011 | 10.4 | February 10, 2012 | |||||||
| 10.12 | Convertible Note Payable - Tripod Group LLC - $30,000 | 10-Q | December 31, 2011 | 10.41 | February 10, 2012 | |||||||
| 14.1 | Code of Business Conduct and Ethics* | 10-K | June 30, 2011 | 14.1 | September 28, 2011 | |||||||
| 31.1 | Certificate of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 31.2 | Certificate of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | X | ||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | X | ||||||||||
| * | 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]. |
(c) - Financial Statement Schedules
See Item (a) 2 above.
ITEM 16. SUMMARY. FORM 10-K SUMMARY
Not applicable
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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 | September 30, 2024 | ||
| N. Voloshin | (Principal Executive Officer) | |||
| /s/ N. Voloshin | Chief Financial Officer | September 30, 2024 | ||
| N. Voloshin | (Principal Financial Officer) | |||
| /s/ James Fuller | Audit Committee Chairman, | September 30, 2024 | ||
| James Fuller | Independent Financial Expert | |||
| /s/ Dr. Gerald Bailey | Independent Director | September 30, 2024 | ||
| Dr. Gerald Bailey | ||||
| /s/ Peter N Christos | Independent Director | September 30, 2024 | ||
| Peter N. Christos |
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