10-Q: Cavitation Technologies Faces Going Concern Amidst Losses

Cavitation Technologies, Inc. reported increased net losses and a significant cash burn, raising substantial doubt about its ability to continue as a going concern.

Summary

• Cavitation Technologies, Inc. (CTi) reported a net loss of $258,000 for the three months ended September 30, 2025, an increase from $227,000 in the prior year period.
• The company generated minimal revenue of $3,000 from a short-term equipment rental agreement, compared to no revenue in the same period last year.
• Cash and cash equivalents significantly decreased to $30,000 as of September 30, 2025, down from $249,000 on June 30, 2025.
• Operating expenses rose by 11.5% to $252,000, primarily due to increased travel expenses ($18,000) and technical consulting fees ($8,000).
• Interest expense surged by 800% to $9,000, mainly due to reconciliation and reinstatement of the SBA EIDL loan from delinquent status.
• The company's accumulated deficit grew to $27,218,000, and total stockholders' equity shifted to a deficit of $(189,000).
• Management believes current cash can sustain operations only through December 2025 and plans to seek additional debt or equity financing.
• Disclosure controls and procedures were deemed ineffective as of September 30, 2025.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by increasing losses, rapid cash depletion, a going concern warning, and ineffective disclosure controls. While there are multiple promising technology development initiatives, all are in early stages with no assured revenue in the near term, and the company's cash runway is extremely short, making its survival highly dependent on securing immediate and substantial financing.

Positives

• Generated $3,000 in revenue from a short-term rental agreement, compared to no revenue in the prior year period.
• Research and development expenses decreased slightly by $1,000 (12.5%) to $7,000.
• The company has a worldwide, exclusive, transferable, and royalty-free license for its Nano Reactor technology in water/wastewater processing and alcoholic beverage fields.
• Ongoing trials for water treatment in the Permian Basin and agriculture show potential for future revenue generation in H1 fiscal 2026.
• Development of Hydro-Plasma technology, which is patent pending, offers a scalable and environmentally friendly solution for water treatment with significant market potential.

Negatives

• Net loss increased by 13.7% to $258,000 for the quarter, compared to $227,000 in the prior year.
• Cash and cash equivalents plummeted from $249,000 to $30,000 within three months, indicating a rapid cash burn.
• The company's independent registered public accounting firm raised substantial doubt about its ability to continue as a going concern.
• Current cash is projected to sustain operations only through December 2025, necessitating immediate additional financing.
• Operating expenses increased by 11.5%, driven by higher general and administrative costs, including travel and consulting fees.
• Interest expense increased by 800% due to the reconciliation of a delinquent SBA loan.
• Total stockholders' equity moved into a deficit position of $(189,000) from a positive $69,000.
• Disclosure controls and procedures were evaluated as not effective as of September 30, 2025.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to recurring losses, negative cash flows from operations, and an accumulated deficit of $27,218,000.
• The company's ability to sustain operations beyond December 2025 is dependent on securing additional debt and/or equity financing, which is not assured.
• Failure to obtain sufficient financing could lead to the curtailment of operations.
• The company's business plan to increase revenues from its Licensed Fields (water/wastewater and alcoholic beverages) has no assurances of viability or success.
• Global inflation, high interest rates, trade tariffs, and geopolitical conflicts (Russia/Ukraine, Israel/Hamas) could exacerbate operating costs and supply chain disruptions, negatively impacting revenues and gross profit.
• The effectiveness of disclosure controls and procedures was deemed not effective, indicating potential weaknesses in financial reporting and internal controls.
• Future sales of Nano reactors to Desmet are expected to significantly decrease following the patent assignment agreement, impacting a historical revenue stream.
• Commercial viability and revenue generation from new initiatives (Permian Basin water treatment, agricultural water remediation, Alchemy Beverages, Hydro-Plasma) are subject to successful trials and market acceptance, with sales anticipated in H1/H2 fiscal 2026, beyond the current cash runway.

Future Outlook

The company's future outlook is highly dependent on its ability to successfully implement its business plan in the Licensed Fields (water/wastewater processing and alcoholic beverages) and secure additional financing. Management anticipates sales from Permian Basin water treatment and Hydro-Plasma technology in the first half of fiscal 2026, and earliest sales for the Barmuze appliance in the second half of 2026. However, there are no assurances that these initiatives will generate sufficient revenues or that necessary financing will be available.

Management Comments

• "Managements plan is to increase revenues by using its Reserved Grant Back License to apply the technology to water and wastewater processing, recovery, recycling and purification (including oilfield wastewater) and manufacture, distillation, brewing, enhancements, sale and marketing of alcoholic beverages."
• "While the Company believes in the viability of its strategy to increase revenues, there can be no assurances to that effect."
• "The Company believes it has enough cash to sustain operations through December, 2025."
• "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 Companys 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."

Industry Context

Cavitation Technologies operates in the niche but growing fields of advanced fluid processing, including water treatment, renewable fuels, and alcoholic beverage enhancement. The global cold plasma market, relevant to CTi's Hydro-Plasma technology, is projected to grow significantly from $1.5 billion in 2021 to $3.1 billion by 2027, driven by demand for sustainable water solutions. The Canadian water treatment market, where CTi has an agricultural trial, is valued at approximately $2.51 billion and is continuously expanding. The company's strategy to focus on these 'Licensed Fields' after divesting its vegetable oil refining patents to Desmet aligns with broader industry trends towards sustainable and efficient processing technologies. However, the company faces intense competition and the need for substantial capital to commercialize its innovations in these markets.

Comparison to Industry Standards

• The company's financial performance, characterized by minimal revenue ($3,000), significant net losses ($258,000), and a precarious cash position ($30,000), falls far below industry standards for sustainable operations and growth in the technology and industrial solutions sectors.
• The 'going concern' qualification from the independent auditor is a critical red flag, indicating severe financial distress, which is atypical for healthy, publicly traded companies.
• The ineffectiveness of disclosure controls and procedures is a significant corporate governance weakness, contrasting sharply with the robust internal control environments expected of public companies, regardless of size.
• While the company highlights innovative technologies like Hydro-Plasma and Nano Reactor applications, the lack of substantial commercial sales and the prolonged trial periods for key projects (e.g., Permian Basin, Hacienda Farms, Barmuze) suggest a slower-than-average path to market compared to well-funded competitors in the water treatment or food/beverage tech space.
• The reliance on a single customer for 98% of prior year revenue (Desmet Belgium) and significant vendor concentration (69% and 21% of accounts payable to two vendors) indicates a lack of diversification and increased business risk compared to industry best practices.

Corporate Governance

Related Party Transactions

• The company recorded $19,000 in accrued payroll and payroll taxes related to related parties for the three months ended September 30, 2024 (none for 2025).

Stakeholder Impact

• **Shareholders:** Face significant dilution risk if new equity financing is secured, or potential loss of investment if the company fails to secure funding and curtails operations. The 'going concern' warning and ineffective controls are major concerns.
• **Employees:** Potential job insecurity if operations are curtailed due to lack of funding.
• **Customers:** Potential disruption or inability to fulfill future orders if the company's financial situation deteriorates.
• **Suppliers/Creditors:** Increased risk of delayed or unpaid invoices due to the company's precarious liquidity position and going concern issues.
• **Management:** Under pressure to secure financing and successfully commercialize new technologies to ensure the company's survival.

Next Steps

• Increase revenues by applying Nano Reactor technology in water/wastewater processing and alcoholic beverages (Licensed Fields).
• Continue testing and pursue additional customers for water treatment and remediation in the Permian Basin, with anticipated sales in H1 fiscal 2026.
• Complete trials at Hacienda Farms for agricultural water remediation by Q1 calendar 2026 to determine commercial viability.
• Alchemy Beverages, Inc. (ABI) to complete its financial audit before the end of Q1 fiscal 2026.
• ABI to engage focus groups, refine marketing/distribution strategies, and secure additional capital for Barmuze production.
• CTi plans to obtain additional financing in early fiscal 2026.
• Continue testing and development of Hydro-Plasma technology, with anticipated sales in H1 fiscal 2026 if trials are successful.
• Attempt to raise additional debt and/or equity financing to fund operations and provide additional working capital.

Key Dates

Recommendation

The company is in a highly distressed financial state, evidenced by a 'going concern' warning from its auditors, a rapidly depleting cash balance ($30,000, sufficient only through December 2025), increasing net losses, and ineffective disclosure controls. While there are several promising technology development initiatives, all are in early stages with no guaranteed revenue in the near term, and the company's ability to fund these initiatives is severely constrained. The high risk of imminent capital raise, potential for significant dilution, or even cessation of operations, makes this stock a strong sell for any investor seeking capital preservation or growth. The fundamental financial health is severely compromised, outweighing any long-term technological potential at this juncture.

Keywords

Cavitation Technologies, CTi, Nano Reactor, Hydro-Plasma, Water Treatment, Wastewater Processing, Alcoholic Beverages, Permian Basin, Agriculture, Alchemy Beverages, Barmuze, Going Concern, SEC 10-Q, Financial Results, Technology Licensing, Environmental Technology, Industrial Fluids