Cavitation Technologies, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2025 AND 2024

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 ourNano Reactor® and*LPN™*liquid processing applications.

Patent assignment and license back agreement

On October 9, 2024, the Company has entered into an agreement with Desmet that monetized the Company by the assignment of certain of its U.S. and non-U.S. patents, technical information and related intellectual property (the “Assigned Patents”) that for several years have been licensed to Desmet for its use on a global basis in vegetable oil, fats and oleo applications (see Note 2).

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, 2025, the Company incurred net loss of $113,000, used cash in operations of $806,000 and as of June 30, 2025, the Company had an accumulated deficit of $26,960,000. In addition, the Company has had a history of operating losses. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from an inability of the Company to continue as a going concern.

As of June 30, 2025, the Company has cash in the amount of $249,000. The Company’s ability to continue as a going concern is dependent upon its ability to continue to implement its business plan. Currently, management’s plan is to increase revenues by continuing to license its technology globally. While the Company believes in the viability of its strategy to increase revenues, there can be no assurances to that effect. The Company believes it has enough cash to sustain operations through December, 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 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.

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 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.

For the license fee revenue, revenue is recognized when the Company satisfies the performance obligation based on the related license agreementand 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, 2025 and 2024, the Company hadno cash equivalents.

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, 2025, Company hadno deposits in excess of federally insured limit. 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. As of June 30, 2025 and 2024, the remaining de minimus value of its investments was $1,000, respectively.

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 4). Leases with an initial term of 12 months or less are not recorded on the balance sheet.

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.

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, 2025, and 2024, the carrying value of certain accounts such as accounts receivable, 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.

Advertising Costs

Advertising costs, including marketing expense, incurred in the normal course of operations are expensed as incurred. Advertising expenses amounted to $16,000 and $9,000 for the years ended June 30, 2025 and 2024 respectively and was reported as part of General and administrative expenses in the accompanying Consolidated Statements of Operations.

Research and Development Costs

Research and development expenses relate primarily to the development, design, testing of preproduction prototypes and models, compensation, and consulting fees related to the Company’s cold plasma technology, and are expensed as incurred. Total research and development costs recorded during the years ended June 30, 2025 and 2024 amounted to $95,000 and $61,000, respectively.

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 determinedno accrual for warranty reserve was necessary at June 30, 2025 and 2024.

Net Income (Loss) Per Share

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, 2025 and 2024 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.

Concentrations

During the year ended June 30, 2025 and 2024, we recorded 98% of our revenue from Desmet Belgium (Desmet) (see Note 2).

As of June 30, 2025, two vendors accounted for 18% and 7% of the Company’s accounts payable. As of June 30, 2024, three vendors accounted 19%,15% and 11% of the Company’s accounts payable.

At June 30, 2025, we had receivables of $10,000 from one customer.

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, impacted by the uncertainty of the implementation of recent tariffs and 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 2025. The implications of higher government deficits and debt, tighter monetary policy, implemented tariffs 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 November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03.

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.

On February 15, 2024, Desmet and the Company terminated the October 2021 TLA agreement and entered into a new three-year Technology License Agreement (“February 2024 TLA”). 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 during the year ended June 30, 2024 that were received and recorded under the October 2021 TLA agreement. As a result, the Company recognized licensing revenue of $498,000 to account for the extinguishment of these advances. As the TLA is the principal agreement between the Company and Desmet and the basis for revenue recognition, the Company has determined that the inherent characteristics of the waiver of the $498,000 are revenue related.

On October 9, 2024, the Company executed a Patent Assignment and License Back Agreement with Desmet with regards to the patents and intellectual property used in the production of reactors sold to Desmet. This agreement superseded certain terms of the February 2024 TLA, including, the termination of $25,000 monthly advances the Company used to receive from Desmet.

During the year ended June 30, 2025 and 2024, pursuant to these TLA agreements, the Company recognized revenues from sale of Nano Reactors to Desmet totaling $198,000 and $865,000, respectively.

Patent Assignment and License Back Agreement

On October 9, 2024, as disclosed in Note 1 above, the Company entered into a patent assignment and license back agreement with Desmet, whereby the Company assigned certain of its U.S. and non-U.S. patents, technical information and related intellectual property (the “Assigned Patents”) that for several years have been licensed to Desmet for its use on a global basis in vegetable oil, fats and oleo applications, effectively terminating the February 2024 TLA Agreement.

The Company also assigned to Desmet, ownership of two U.S. trademark registrations that it holds for its Nano Neutralization® and Nano Reactor® marks, respectively (the “Assigned Marks”). The consideration for the assignment of the patents amounted to $880,000, which was collected in full. The Company has also agreed to provide to Desmet any consultation, technical assistance and support services that Desmet may reasonably request in; (a) installing, operating or troubleshooting for any Nano Reactor® Device; (b) testing, startup or maintenance of any Nano Reactor® Device or any problems associated therewith; and (c) providing training to representatives, contractors or employees of Desmet or any Site User, to be charged at a rate of $1,000 per day, plus reimbursement of reasonable expenses.

Pursuant to the patent assignment and license back agreement, the Company reserved for itself, and received a Grant Back License (“Reserved Grant Back License”) of a worldwide, exclusive, transferable and royalty-free license and right to practice and use the Assigned Patents and associated technical information in businesses, activities, projects, uses and applications in the field of; (i) water and wastewater processing, recovery, recycling and purification (including oilfield wastewater) and; (ii) manufacture, distillation, brewing, enhancements, sale and marketing of alcoholic beverages, together the Licensed Fields (the “Licensed Fields”). Under the Reserved Grant Back License retained and received, the Company will have a worldwide, exclusive, transferable and royalty-free license and right to design, build, use, export, improve, sell and market Nano Reactor® devices and Nano Reactor® devices and systems (and products) that incorporate or utilize Nano Reactor® devices, in each case within the Licensed Fields, and to continue to use the Nano Reactor® trademark in connection with its business, systems and products within the Licensed Fields.

The Company has expensed costs associated with these patents in prior years and had no carrying value upon closing of this transaction. The Company followed the guidance of ASC 610, Other Income, to account for this transaction. As a result, the Company recognized the entire $880,000 as Gain on Patent Assignment in the accompanying statement of operations.

Note 3 –Segment Information

The Company operates and manages its business as one reportable and operating segment. The Company’s CODM reviews financial information presented and decides how to allocate resources based on net income (loss). Net income (loss) is used for evaluating financial performance.

Significant segment expenses include research and development, salaries, insurance, and stock-based compensation. Operating expenses include all remaining costs necessary to operate the business, which primarily include external professional services and other administrative expenses. The following table presents the significant segment expenses and other segment items regularly reviewed by our CODM:

Note 4 –Operating Lease

The Company leased certain warehouse and corporate office space under an operating lease agreement. We determined if the 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. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The operating lease agreement for the warehouse and corporate office space expired in January 2025 and now operates as a month to month lease, accordingly the Company no longer records a right of use asset or operating lease liability.

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:

In January 2025, the lease agreement expired and is currently on a month to month basis.

Note 5 –Related Party Transactions

Accrued Payroll and Payroll Taxes

The Company accrues salaries and estimated payroll taxes due to a former officer and current shareholder and current officer and director of the Company. As of June 30, 2024, the total accrued payroll and payroll related taxes amounted to $414,000.

During the year ended June 30, 2025, the Company accrued an additional $11,000 in payroll.

In February 2025, the Company settled with these former officer and current officer to extinguish the accrued payroll and payroll related taxes amounting to $425,000 and unpaid health insurance and cellphone reimbursements recorded in prior years totaling $36,000 for a total liability of $461,000. As part of the settlement, the Company issued 4,666,600 shares of common stock with a fair value of $90,000 and warrants to purchase 5,000,000 shares of common stock. The warrants are fully vested, exercisable at $0.016 per share and will expire in five years. The estimated fair value of these warrants amounted to $100,000 using the Black Scholes Option Pricing Model using the following inputs (i) stock price at the date of grant of $0.020; (ii) risk free interest rate of 4.37% based on rates established by the Federal Reserve Bank; (iii) expected volatility 290% based on historical volatility of the Company’s common stock commensurate with the expected life of the warrants; (iv) expected life of 5 years based on the contractual life; and (v) dividend yield of 0% based on no dividends paid or expected to be paid.

Pursuant to current accounting and SEC guidelines and regulations with regards to related party transactions, the Company accounted for the difference of $271,000 between the carrying amount of the accrued payroll and other liability of $461,000 and the fair value of the common stock and warrants issued of $190,000 as capital contribution.

Consulting Fees

The Company recognized consulting fees to a member of the Company’s Board of Directors amounting to $5,000 and $8,000 for the years ended June 30, 2025 and 2024, respectively.

Note 6 –Note Payable

In July 2020, the Company received a loan of $150,000 from the SBA under its Economic Injury Disaster Loan (EIDL) assistance program. The EIDL loan is payable over 30 years, bears interest at a rate of 3.75% per annum and secured by all tangible and intangible property of the Company. As of June 30, 2025 and 2024, the outstanding balance of the note payable was $135,000 and $139,000, respectively.

The expected future principal payment of note payable June 30, 2025, is as follows:

Note 7 -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, 2025, and 2024, there are no shares of Series A or Series B Preferred Stock issued and outstanding.

Common Stock

Year Ending June 30, 2025

In February 2025, the Company issued 4,666,600 shares of common stock with a fair value of $90,000 to settle accrued payroll and payroll taxes – related party (see Note 5).

On June 10, 2025, the Company issued 200,000 shares of common stock with a fair value of $6,000 for consulting services.

Year Ending June 30, 2024

There wasno common stock issued for the year ended June 30, 2024.

Stock Options

The Company has not adopted a formal stock option plan and doesnot have any stock options issued and outstanding as of and during the years ended June 30, 2025 and 2024.

Warrants

Year ended June 30, 2025

In November 2024 and February 2025 the Company granted 5 year warrants exercisable for 15,200,000 shares of common stock at an exercise prices ranging from $0.013 to $0.017 per share to employees and certain consultants for services rendered. The estimated fair value amounted to $195,000 and was derived using the Black Scholes Option Pricing Model using the following inputs (i) stock price at the date of grant ranging from $0.010 to $0.020; (ii) risk free interest rate of 4.24% to 4.37% based on rates established by the Federal Reserve Bank; (iii) expected volatility 283% to 290% based on historical volatility of the Company’s common stock commensurate with the expected life of the warrants; (iv) expected life of 5 years based on the contractual life; and (v) dividend yield of 0% based on no dividends paid or expected to be paid.

In February 2025, the Company issued warrants to purchase 5,000,000 shares of common stock with an estimated fair value of $100,000 to settle accrued payroll – related party (see Note 5).

A summary of the Company’s warrant activity and related information from as of June 30, 2025 and 2024 is as follows.

As of June 30, 2025, the intrinsic value of these stock purchase warrants amounted to $108,000.

The following table summarizes additional information concerning warrants outstanding and exercisable at June 30, 2025.

Note 8 -Income Taxes

For the year ended June 30, 2025 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, 2024 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:

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, 2025, the Company had available Federal NOL carryforwards of approximately $10.6 million that are available to reduce future taxable income. The Federal NOL carry forward of approximately $8.5 million expires through 2037, the remaining NOL of $2.1 million has no expiry date. The NOLs are subject to statutory limitations under Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carry forwards.

At June 30, 2025 and 2024, significant component of the Company’s deferred tax assets and liabilities are as follows:

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, 2025 and 2024, 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.

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, 2022 through June 30, 2025.

Note 9 –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, 2025 and 2024.

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, 2025, and 2024 no patents have been granted in which this person is the legally named inventor.

Note 10 –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.