10-K: Cavitation Technologies Reports FY25 Loss Amid Strategic Pivot

Cavitation Technologies, Inc. reported a net loss of $113,000 for fiscal year 2025, a significant decline from the prior year's profit, as it shifts focus to new ventures in water treatment and alcoholic beverages.

Summary

• Reported a net loss of $113,000 for the fiscal year ended June 30, 2025, a significant decline from the net income of $439,000 in fiscal 2024.
• Revenue decreased by 85.1% to $203,000 in fiscal 2025 from $1,363,000 in fiscal 2024, primarily due to reduced reactor sales to Desmet and no comparable license fee revenue.
• Generated an $880,000 gain from the assignment of certain vegetable oil refining patents to Desmet in October 2024, providing capital for continuous operations and business development.
• Cash used in operating activities increased substantially to $806,000 in fiscal 2025 from $172,000 in fiscal 2024.
• The independent auditor raised substantial doubt about the company's ability to continue as a going concern.
• Management is pursuing new revenue streams in water treatment (Permian Basin and agriculture), alcoholic beverage enhancement (Barmuze with Alchemy Beverages), and Hydro-Plasma technology.
• Disclosure controls and internal control over financial reporting were deemed ineffective as of June 30, 2025, due to identified material weaknesses.

Sentiment

Score: 3

Explanation: The company reported a significant net loss and revenue decline, coupled with a substantial increase in cash burn and a going concern warning from its auditor. While the patent sale provided a cash infusion and new ventures are being pursued, these are still in early stages with uncertain revenue timelines. The identified material weaknesses in internal controls further dampen sentiment.

Positives

• Secured $880,000 in cash from the patent assignment to Desmet, providing capital for continuous operations and business development.
• Retained exclusive, royalty-free licenses for Nano Reactor technology in water/wastewater processing and alcoholic beverage enhancement, allowing pursuit of new markets.
• Improved stockholders' equity from a deficit of $(480,000) in fiscal 2024 to a positive $69,000 in fiscal 2025, partly due to the patent sale and related party debt settlement treated as capital contribution.
• Developed new Hydro-Plasma technology with patent-pending status and established partnerships with New Mexico State University, University of Guadalajara, and BGNDRF for water remediation programs.
• Installed a water remediation system at Hacienda Farms in Canada for trials to increase oxygen levels, eliminate algae, and control bacterial growth without harsh chemicals.

Negatives

• Reported a net loss of $113,000 in fiscal 2025, a significant decline from a net income of $439,000 in fiscal 2024.
• Revenue plummeted by 85.1% to $203,000 in fiscal 2025, primarily due to the expected reduction in Nano Reactor sales to Desmet following the patent assignment.
• Cash used in operating activities increased significantly to $806,000 in fiscal 2025, indicating a higher cash burn rate.
• The company has a history of operating losses and an accumulated deficit of $26,960,000 as of June 30, 2025.
• The independent auditor raised substantial doubt about the company's ability to continue as a going concern.
• Disclosure controls and internal control over financial reporting were deemed ineffective, with material weaknesses identified.
• New business ventures (Enviro WaterTek, Alchemy Beverages, Hydro-Plasma) have not yet generated meaningful revenue, with sales anticipated in fiscal 2026 or later.
• Investment in Enviro WaterTek was impaired by $1.1 million in June 2023, and the investment in Alchemy Beverages has no assigned value.

Risks

• Going Concern Doubt: The company's history of operating losses, net loss of $113,000, and cash used in operations of $806,000 in fiscal 2025 raise substantial doubt about its ability to continue as a going concern.
• Funding Uncertainty: There is no assurance that the company will obtain additional debt and/or equity financing necessary to fund operations and provide additional working capital, or meet future contractual obligations.
• Reliance on New Technologies: Future revenue generation is dependent on the successful commercialization and market acceptance of new technologies in water treatment, agriculture, and alcoholic beverage enhancement, which are currently in trial or development phases.
• Reduced Desmet Sales: The patent assignment to Desmet means Desmet is expected to manufacture Nano reactors itself, significantly reducing future sales of Nano reactors from the company.
• Slow Technology Acceptance: The acceptance of the LPN technology in water treatment applications has been slow despite demonstrated exceptional results.
• Inflation and Recession: Ongoing inflation, potential tariffs, and a possible economic recession could adversely impact manufacturing and distribution costs, as well as the general business environment and capital markets.
• Cybersecurity Threats: Risks include operational disruptions, intellectual property theft, fraud, extortion, harm to employees, and violation of data privacy or security laws.
• Internal Control Weaknesses: Material weaknesses exist in internal control over financial reporting, including a lack of in-house technical personnel for complex transactions, ineffective segregation of duties, and the absence of a functioning independent audit committee.
• No Insider Trading Policies: The company does not maintain insider trading policies and procedures, which could expose it to compliance risks.

Future Outlook

The company anticipates generating revenue in the first half of fiscal 2026 from its water treatment and Hydro-Plasma technologies, assuming successful trials. Earliest sales and revenue for the Barmuze appliance from Alchemy Beverages Inc. are expected in the second half of 2026. The company plans to obtain additional financing in early fiscal 2026 to fund operations and provide working capital, but there is no assurance such financing will be secured. Management expects input cost inflation to continue at least throughout 2026.

Management Comments

• "We expect that Desmet will start to manufacture the Nano reactors by itself and sale of Nano reactors to Desmet by the Company will significantly be reduced in future periods."
• "We will continue to own and operate a large portfolio of patents and intellectual property rights in applications not related to vegetable oil refining."
• "The Company anticipates that sales will be generated in the first half of fiscal 2026 [for water treatment in Permian Basin]."
• "The outcome of the trials mentioned above, which we expect to be completed within the first calendar quarter of 2026, will determine the commercial viability of our product and the timeline for any potential revenue generation [for water remediation in agriculture]."
• "The earliest sales and revenue for Barmuze are anticipated in the second half of 2026."
• "In order to develop these markets we may need additional funding, and may attempt to raise additional debt and/or equity financing to fund operations and additional working capital. However, there is no assurance that we will be successful in obtaining such financing or obtain sufficient amounts necessary to meet our business needs, or that we will be able to meet our future contractual obligations."
• "Management plans to generate revenues in future from the commercial applications of the new technologies discussed above."
• "The Company believes it has enough cash to sustain operations through December, 2025."

Industry Context

The company is pivoting from its traditional vegetable oil refining technology, where its main partner Desmet will now self-manufacture, to emerging markets. These include industrial water treatment (Permian Basin fracking water), agricultural water remediation (addressing algae, bacteria, sodium issues), and consumer alcoholic beverage enhancement (smart home appliances). The global cold plasma market, relevant to its Hydro-Plasma technology, is projected to grow significantly from $1.5 billion in 2021 to $3.1 billion by 2027, indicating a strong demand for sustainable water solutions. The Canadian water treatment market is also expanding, valued at approximately $2.51 billion. This strategic shift positions the company in high-growth, environmentally conscious sectors, but it faces competition from established players with considerable resources in these new fields.

Comparison to Industry Standards

• The company's LPN technology for produced and frac water treatment claims "measurable and quantifiable advantages over industry standard processes and equipment," specifically "no chemical usage," "integration into existing processes within 24 hours," "compact systems with minimal energy consumption," and "post-treatment water can be either reused or safely disposed of." However, the filing notes that "acceptance of the technology has been slow."
• For its Hydro-Plasma technology, the filing states it "breaks down both organic and inorganic compounds," "eliminates microorganisms and diseases," and is "highly scalable," claiming it "has the potential to revolutionize water treatment on a global scale." It mentions the global cold plasma market is projected to grow from $1.5 billion in 2021 to $3.1 billion by 2027, but does not provide specific benchmarks against competitors within this market.
• The company's internal control over financial reporting and disclosure controls were deemed ineffective, with material weaknesses, which is below industry best practices and regulatory expectations for public companies.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not aware of any pending litigations.

Related Party Transactions

• In February 2025, the company settled $461,000 in accrued payroll, payroll taxes, and unpaid health insurance/cellphone reimbursements due to a former officer and current officer/director. The settlement involved issuing 4,666,600 shares of common stock (fair value $90,000) and warrants to purchase 5,000,000 shares of common stock (fair value $100,000). The difference of $271,000 was treated as a capital contribution.
• Consulting fees of $5,000 were recognized to a member of the Board of Directors in fiscal 2025 ($8,000 in fiscal 2024).
• Roman Gordon, a shareholder and former officer, contributed Cameo USA LLC to the company in June 2018, which was subsequently licensed to Alchemy Beverages Inc. No value was assigned to the contribution of Cameo.

Stakeholder Impact

• Shareholders face significant dilution risk from potential future capital raises and warrant exercises. The going concern doubt and ineffective internal controls pose substantial risks to investment value. The shift to new, unproven ventures introduces high uncertainty.
• Employees and consultants received warrants, providing potential equity upside. However, the company's financial instability and need for additional funding could impact job security or compensation.
• Existing customers (like Desmet) will see a change in their relationship, with Desmet now manufacturing Nano reactors. New customers in water treatment and alcoholic beverages will be impacted by the success or failure of the company's new technologies and commercialization efforts.
• Creditors face increased risk due to the going concern doubt and history of operating losses. The EIDL loan is secured by all tangible and intangible property.

Next Steps

• Generate sales in the first half of fiscal 2026 for water treatment in the Permian Basin.
• Complete trials for water remediation and disinfection in agriculture within the first calendar quarter of 2026.
• Alchemy Beverages Inc. (ABI) to complete its financial audit before the end of the first quarter of fiscal 2026.
• ABI to engage focus groups for Barmuze acceptance, refine marketing and distribution strategies, and secure additional capital for production.
• Anticipate earliest sales and revenue for Barmuze in the second half of 2026.
• Continue testing of Hydro-Plasma technology, with anticipated sales and revenue in the first half of fiscal 2026 if successful.
• Attempt to raise additional debt and/or equity financing in early fiscal 2026 to fund operations and provide additional working capital.
• Improve internal control over financial reporting by hiring necessary staff once additional capital is obtained.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a net loss, drastically reduced revenue, and a significant increase in cash burn. The independent auditor's 'going concern' warning is a critical red flag. While the patent sale provided a temporary cash infusion, it also eliminated the primary historical revenue source. New ventures are highly speculative, in early stages, and have not generated meaningful revenue, with commercialization timelines extending into fiscal 2026 and beyond. Furthermore, the identified material weaknesses in internal controls and disclosure procedures indicate significant operational and governance deficiencies. The combination of financial instability, high operational risk, and governance issues makes this a high-risk investment with a strong likelihood of further share price depreciation.

Keywords

Cavitation Technologies, Nano Reactor, Water Treatment, Hydro-Plasma, Alcoholic Beverages, SEC Filing, 10-K, Financial Results, Patent Assignment, Going Concern, Environmental Technology, Renewable Fuels, Vegetable Oil Refining, Alchemy Beverages, Enviro WaterTek, Barmuze, LPN, Corporate Governance, Risk Management