Cavitation Technologies, Inc.

Previous wording

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. Its actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.

Current wording

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 our plans, objectives, expectations and intentions. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.

Previous wording

Cavitation Technologies, Inc. (“CTi”), a Nevada corporation, was originally incorporated under the name Bio Energy, Inc. We design and engineer environmentally friendly technology-based systems that are designed to serve large, growing, global markets such as vegetable oil refining, renewable fuels, water treatment, algae oil extraction, biodiesel production, water-oil emulsions and crude oil yield enhancement. Our systems are designed to process industrial liquids at a lower cost and higher yield than conventional technology. We are a process and product development firm that has developed, patented, and commercialized proprietary technology.

Current wording

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 BioEnergy, 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 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 an environmentally friendly manner. Our patentedNano Reactor® andLPN™ were the critical components of our business and we have generated all of our previous revenue while utilizing these components.

Previous wording

In October 2024, we entered into a Patent Assignment and License Back Agreement with Desmet to assign certain patents, intellectual property rights and trademarks related to vegetable oil refining to Desmet, as consideration for the patent assignments, Desmet paid the Company $880,000 in cash. This transaction provided capital for continuous operations and business development of our company.

Current wording

In October 2024, we entered into a Patent Assignment and License Back Agreement with Desmet to assign certain patents, intellectual property rights and trademarks related to vegetable oil refining to Desmet. As consideration for the patent assignments, Desmet paid the Company $880,000 in cash. This transaction provided capital for continuous operations and business development of our company. This agreement effectively superseded the February 2024 agreement with Desmet including the termination of the monthly advances of $25,000.

Previous wording

Key points of the Agreement included:

Current wording

Key points of the October 2024 Agreement included:

Previous wording

In June 2018, the Company entered into an agreement to license its patented alcoholic beverage technology to Alchemy Beverages, Inc. (“ABI”). Over the past several years, we have worked closely with ABI to develop the smart home kitchen appliance Barmuze and alcoholic beverages. Significant work has been done on Barmuze branding, including launching a new website and creating animations throughout the year to showcase how the appliance works. ABI is actively pursuing the commercial production of Barmuze, licensing the technology to third parties, and considering the opportunity to develop its own alcohol brands, leveraging our cutting-edge technology to transform any alcohol into a smooth, top-shelf experience.

Current wording

Over the past several years, we have worked closely with ABI to develop the smart home kitchen appliance Barmuze and alcoholic beverages. Significant work has been done on Barmuze branding, including launching a new website and creating animations throughout the year to showcase how the appliance works. ABI is actively pursuing the commercial production of Barmuze, licensing the technology to third parties, and considering the opportunity to develop its own alcohol brands, leveraging our cutting-edge technology to transform any alcohol into a smooth, top-shelf experience.

Previous wording

ABI is in the final stages of completing its financial audit, which is estimated to be completed before the end of the first quarter of fiscal 2026, engaging focus groups for Barmuze acceptance, refining marketing and distribution strategies, and securing additional capital for production. The Company also plans on obtaining additional financing in early fiscal 2026.

Current wording

ABI is in the process of completing its financial audit, which is estimated to be completed in fiscal 2027, engaging focus groups for Barmuze acceptance, refining marketing and distribution strategies, and securing additional capital for production. The Company also plans on obtaining additional financing in fiscal 2027.

Previous wording

The earliest sales and revenue for Barmuze are anticipated in the second half of 2026. Also, ABI is working on creating its own line of alcoholic beverages and licensing of the technology to other brands. For more information, www.alchemybeveragesinc.com and www.barmuze.com.

Current wording

As of September 30, 2026 and the date of this report, ABI has not generated any sales under the Cameo brand. The earliest sales and revenue for Barmuze are anticipated in the first half of 2027. Also, ABI is working on creating its own line of alcoholic beverages and licensing of the technology to other brands. For more information, www.alchemybeveragesinc.com and www.barmuze.com.

Previous wording

Along with improving our existing technologies, we have developed Hydroplasma, an innovative process combining cavitation and cold plasma technology to enhance our water treatment efficiency, which:

Current wording

Along with improving our existing technologies, we have developed Hydro Plasma, an innovative process combining cavitation and cold plasma technology to enhance our water treatment efficiency, which:

Previous wording

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.

Current wording

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.

Previous wording

In August 2025, we incorporated a wholly owned subsidiary, Xyra Corp, and licensed our technology to Xyra Corp., our wholly owned subsidiary. Xyra is focused on identifying and capitalizing on opportunities in the crypto technologies market. Xyra holds an exclusive license for Cavitation Technologies Inc. patented Cavitation Non-Thermal Plasma™ (CNTP) systems, developed initially for immersion cooling in crypto mining and high-density data centers. This technology solves critical pain points such as fluid degradation, contamination, and system downtime in next-generation computing environments. That same technology now underpins Xyra’s infrastructure backbone, giving it a rare dual strength: precision fluid management to keep the physical computing layer efficient and secure, and to deliver AI-driven, quantum-secure remittances and tokenization rails at a global scale.

Current wording

In August 2025, we incorporated a wholly owned subsidiary, Xyra Corp., and licensed our technology to Xyra Corp., our wholly owned subsidiary. Xyra is focused on identifying and capitalizing on opportunities in the crypto technologies market. Xyra holds an exclusive license for Cavitation Technologies Inc.’s patented Cavitation Non-Thermal Plasma™ (CNTP) systems, developed initially for immersion cooling in crypto mining and high-density data centers. This technology solves critical pain points such as fluid degradation, contamination, and system downtime in next-generation computing environments. That same technology now underpins Xyra’s infrastructure backbone, giving it a rare dual strength: precision fluid management to keep the physical computing layer efficient and secure, and to deliver AI-driven, quantum-secure remittances and tokenization rails at a global scale.

Previous wording

Global inflation remains a factor in fiscals 2026 and 2025, with interest rates in the US remaining at higher levels, although there have been some rate decreases, the current uncertainty in the global markets around the implementation of trade tariffs by the US government has resulted in market fluctuations. In addition, the impact of tariffs on all imported goods into the U.S. is expected to have a significant inflationary impact on all imports. The Russia and Ukraine and other geopolitical conflicts, as well as related international response, have exacerbated inflationary pressures, including causing increases in the price for goods and services and global supply chain disruptions, which have resulted and may continue to result in shortages in food products, materials and services. Such shortages have resulted and may continue to result in inflationary cost increases for labor, fuel, food products, materials and services, and could continue to cause costs to increase as well as result in the scarcity of certain materials. We cannot predict any future trends in the rate of inflation or other negative economic factors or associated increases in our operating costs and how that may impact our business. To the extent we and our customers we service are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our and their business, our revenues and gross profit could decrease, and our financial condition and results of operations could be adversely affected.

Current wording

Global inflation remains a factor in fiscal 2027 and 2026, with interest rates in the US remaining at higher levels and increasing. The current uncertainty in the global markets around the implementation of trade tariffs by the US government has resulted in market fluctuations. In addition, the impact of tariffs on all imported goods into the U.S. is expected to have a significant inflationary impact on all imports. The Iranian, Russia and Ukraine and other geopolitical conflicts, as well as related international response, have exacerbated inflationary pressures, including causing increases in the price for goods and services and global supply chain disruptions, which have resulted and may continue to result in shortages in food products, materials and services. Such shortages have resulted and may continue to result in inflationary cost increases for labor, fuel, food products, materials and services, and could continue to cause costs to increase as well as result in the scarcity of certain materials. We cannot predict any future trends in the rate of inflation or other negative economic factors or associated increases in our operating costs and how that may impact our business. To the extent we and our customers we service are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our and their business, our revenues and gross profit could decrease, and our financial condition and results of operations could be adversely affected.

Previous wording

The Company generated revenues from the sale of theNano Reactor® to customers/distributor. Additionally, the Company generates revenues from its equity method investment, specifically fees from usage of reactors or usage fees.

Current wording

The Company generates revenues from the sale of theNano Reactor® to customers/distributor. Additionally, the Company generates revenues from short-term rental of these Nano Reactors.

Previous wording

General and administrative expenses was $234,000 and $283,000 for the three months ended March 31, 2026, and 2025, respectively, a decrease of $49,000 or 17.3%. The decrease is primarily due to the following:

Current wording

General and administrative expenses were $165,000 and $245,000 for the three months ended September 30, 2026 and 2025, respectively, a decrease of $80,000 or 32.7%. The decrease is primarily due to the following:

Previous wording

Research and development expenses was $0 and $42,000 for the three months ended March 31, 2026 and 2025, respectively, a decrease of $42,000 or 100.0%. During the prior year, the Company began another R&D project consisting of the design and manufacture of an experimental installation for plasma activation of water by generating a plasma discharge in a water stream. The research and development expenditure is dependent on progress made on the development.

Current wording

Research and development expenses were $0 and $7,000 for the three months ended September 30, 2026 and 2025, respectively, a decrease of $7,000 or 100.0%. During the prior year, the Company began another R&D project consisting of the design and manufacture of an experimental installation for plasma activation of water by generating a plasma discharge in a water stream. There were no similar expenses during the current period and the research and development expenditure is dependent on progress made on the development.

Previous wording

Interest expense was $3,000 and $2,000 for the three months ended March 31, 2026 and 2025, the increase is primarily related to interest incurred on convertible notes and related party notes advanced to the Company.

Current wording

Interest and other expense, net was $40,000 and $9,000 for the three months ended September 30, 2026 and 2025, respectively. The increase is primarily related to interest incurred and debt discount amortized on bridge notes, convertible notes and related party notes advanced to the Company during the current and prior year.

Previous wording

The change in fair value of derivative liability was $20,000 and $0 for the three months ended March 31, 2026 and 2025, the increase is primarily related to the valuation of the derivative conversion feature on the convertible notes payable issued during the current year and the subsequent mark-to-market of these derivative liabilities at our reporting period end. There was no similar transaction in the prior period.

Current wording

The change in fair value of derivative liability was $3,000 and $0 for the three months ended September 30, 2026 and 2025, respectively. The increase is primarily related to the valuation of the conversion feature on the convertible notes payable issued during the prior year accounted for as derivative liabilities and the subsequent mark-to-market of these derivative liabilities at our reporting period end.

Previous wording

Net loss was $219,000 and $230,000 for the three months ended March 31, 2026 and 2025, respectively, a decrease in loss of $11,000. The decrease in net loss is primarily due to the decrease in gross profit, offset by a decrease in operating expenses, research and development expenses and the mark-to-market derivative liability movements, as discussed above.

Current wording

Net loss was $208,000 and $258,000 for the three months ended September 30, 2026 and 2025, respectively, a decrease in loss of $50,000. The decrease in net loss is primarily due to the decrease in operating expenses, offset by a decrease in revenue, an increase in interest and other expense, net, and the movement in the fair value of derivative liabilities, as discussed above.

Previous wording

The accompanying condensed 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 condensed consolidated financial statements, during the nine months ended March 31, 2026, the Company incurred loss from operations of $954,000 and used cash in operations of $527,000. In addition, we had a stockholders’ deficit of $467,000 as of March 31, 2026. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s June 30, 2025, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the inability of the Company to continue as a going concern.

Current wording

The accompanying condensed 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 the accompanying condensed consolidated financial statements, during the three months ended September 30, 2026, the Company incurred a loss from operations of $165,000 and used cash in operations of $128,000. In addition, we had a stockholders’ deficit of $739,000 as of September 30, 2026. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s June 30, 2026, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the inability of the Company to continue as a going concern.

Previous wording

As of March 31, 2026, the Company has cash in the amount of $45,000. 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 using its Reserved Grant Back License to apply the technology to; (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 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. 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 June 30, 2026.

Current wording

As of September 30, 2026, the Company has cash in the amount of $94,000. 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 using its Reserved Grant Back License to apply the technology to: (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 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 systems 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. 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 does not have enough cash to sustain operations through September 2027.

Previous wording

Net cash used in operating activities was $527,000 for the nine months ended March 31, 2026 and net cash used in operating activities was $624,000 for the nine months ended March 31, 2026. The decrease in cash used in operating activities is primarily due to changes in working capital and stock based compensation expense.

Current wording

Net cash used in operating activities was $128,000 and $219,000 for the three months ended September 30, 2026 and 2025, respectively. The decrease in cash used in operating activities is primarily due to a reduction in operating expenses and the movement in working capital during the current period.

Previous wording

Net cash provided (used) by financing activities amounted to $323,000 and $(3,000). The increase was due to proceeds received from issuance of notes payable and common stock units during the current period with no similar transactions in the prior period.

Current wording

Net cash provided by financing activities amounted to $205,000 and $0 for the three months ended September 30, 2026 and 2025, respectively. The increase was due to proceeds received from common stock subscriptions and bridge notes payable during the current period.

Previous wording

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. In addition, the Company also recognizes revenues from usage fees of certain reactors. Usage fees are recognized based on actual usage by the customer.

Current wording

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.