| Organization and Summary of Significant Accounting Policies | 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® LPN™ Going Concern The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. As reflected in accompanying consolidated financial statements, during
the year ended June 30, 2023, the Company incurred a net loss of $ 2,040,000 423,000 919,000 As of June 30, 2023, the Company has cash in the
amount of $ 18,000 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, 2023, 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. 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. The Company also recognizes
revenue from its share of gross profit to be earned from distributors, as defined, which we treat as variable consideration and recognize
using the most likely amount method. Estimates are available from our distributor which are considered in the determination of the most
likely amount. However, given the lack of control over the sale to the end customer and the lack of history of prior sales, the amount
of gross profit revenue recognized is limited to the actual amount of cash received under the contract which the Company has determined
is not refundable and that a significant future reversal of cumulative revenue under the contract will not occur. In addition, the Company
also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer. 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, 2023 and 2022, the Company had no 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, 2023, 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. Accounts Receivable Accounts receivable are generally recorded at
the invoiced amounts net of an allowance for expected losses. The Company evaluates the collectability of our trade accounts receivable
based on a number of factors. In circumstances where it becomes aware of a specific customer’s inability to meet its financial obligations
to us, a specific reserve for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount that
management believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges
are recorded based on our historical losses and an overall assessment of past due trade accounts receivable outstanding. At June 30, 2023
and 2022, management determined no reserve for uncollectible accounts receivable was necessary. Inventory Inventory is stated at the lower of cost or
net realizable value. Cost is determined on a specific item basis. Inventory is composed of finished goods and represents costs
incurred to manufacture the Company’s Nano Reactor® LPN 48,000 no Property and Equipment Property and equipment is stated at cost. Depreciation
is provided using the straight-line method over the estimated useful lives of the assets. Betterments, renewals, and extraordinary repairs
that extend the life of the assets are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to retired assets are removed from the Company’s accounts, and the gain or loss on dispositions,
if any, is recognized in the consolidated statements of operations. Property and equipment are recorded at cost and
depreciated using the straight-line method over the following estimated useful lives.
Property and equipment useful life
Leasehold improvements Shorter of the life of the asset or lease term
Furniture 5-7 Years
Office equipment 5 Years
Lab equipment 4 Years
Skid systems 4 Years Management assesses the carrying value of property
and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication
of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition.
If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated
fair value. 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 $ 1,112,000 1,000 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. 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 3). 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, 2023, and 2022, the carrying value
of certain accounts such as accounts receivable, inventory, accounts payable, accrued expenses and accrued payroll approximates their
fair value due to the short-term nature of such instruments. Share-Based Compensation 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. Advertising Costs Advertising costs, including marketing expense,
incurred in the normal course of operations are expensed as incurred. Advertising expenses amounted to $ 44,000 106,000 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, 2023 and 2022 amounted to $ 3,000 17,000 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 no Net (Loss) Per Share The Company’s computation of loss per share
(“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the
weighted average common shares outstanding for the period. Diluted income per share reflects the potential dilution, using the treasury
stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the income of the Company as if they had been converted at the beginning
of the periods presented, or issuance date, if later. In computing diluted income per share, the treasury stock method assumes that outstanding
options and warrants were exercised and the proceeds are used to purchase common stock at the average market price during the period.
Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock
during the period exceeds the exercise price of the options and warrants. Potential common shares that have an anti-dilutive effect (i.e.,
those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There were no adjustments to net (loss) required
for purposes of computing diluted earnings per share. At June 30, 2023 and 2022, the Company excluded the outstanding securities summarized
below, which entitle the holders thereof to acquire shares of common stock, from its calculation of its diluted earnings per share, as
their effect would have been anti-dilutive.
Schedule of antidilutive shares
June 30, 2023 June 30, 2022
Options – 1,250,000
Warrants 53,657,234 61,427,834 Concentrations During the year ended June 30, 2023, we recorded
95 5 During the year ended June 30, 2022, we recorded
97 3 At June 30, 2023 and 2022, 0 100 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. Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards
Board (the "FASB") issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASU
2016-13”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”)
to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition
of allowances for losses. ASU 2016-13 is effective for the Company beginning July 1, 2023, and early adoption is permitted. The Company
does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position,
results of operations and cash flows. Other recent accounting pronouncements issued
by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and
Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated
financial statements. |
