Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Dec. 31, 2018 | Feb. 12, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | Cavitation Technologies, Inc. | |
Entity Central Index Key | 1,376,793 | |
Document Type | 10-Q | |
Document Period End Date | Dec. 31, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --06-30 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 196,997,906 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,019 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Dec. 31, 2018 | Jun. 30, 2018 |
Current assets | ||
Cash and cash equivalents | $ 699,000 | $ 945,000 |
Accounts receivable | 124,000 | 0 |
Inventory | 27,000 | 34,000 |
Total current assets | 850,000 | 979,000 |
Property and equipment, net | 84,000 | 90,000 |
Other assets | 10,000 | 10,000 |
Total assets | 944,000 | 1,079,000 |
Current liabilities: | ||
Accounts payable and accrued expenses | 269,000 | 307,000 |
Accrued payroll and payroll taxes due to officers | 889,000 | 889,000 |
Related party payable | 1,000 | 1,000 |
Advances from distributor | 577,000 | 427,000 |
Total current liabilities | 1,736,000 | 1,624,000 |
Commitments and contingencies | ||
Stockholders' deficit: | ||
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of December 31, 2018 and June 30, 2018, respectively | 0 | 0 |
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 196,997,906 shares issued and outstanding as of December 31, 2018 and June 30, 2018, respectively | 196,998 | 196,998 |
Additional paid-in capital | 23,090,002 | 22,641,002 |
Accumulated deficit | (24,079,000) | (23,383,000) |
Total stockholders' deficit | (792,000) | (545,000) |
Total liabilities and stockholders' deficit | $ 944,000 | $ 1,079,000 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Dec. 31, 2018 | Jun. 30, 2018 |
Statement of Financial Position [Abstract] | ||
Preferred Stock, par value | $ 0.001 | $ 0.001 |
Preferred Stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred Stock, shares issued | 0 | 0 |
Preferred Stock, shares outstanding | 0 | 0 |
Common Stock, par value | $ 0.001 | $ 0.001 |
Common Stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
Common Stock, shares issued | 196,997,906 | 196,997,906 |
Common Stock, shares outstanding | 196,997,906 | 196,997,906 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
Income Statement [Abstract] | ||||
Revenue | $ 353,000 | $ 338,000 | $ 408,000 | $ 678,000 |
Cost of revenue | 2,000 | 14,000 | 7,000 | 33,000 |
Gross profit | 351,000 | 324,000 | 401,000 | 645,000 |
General and administrative expenses | 785,000 | 343,000 | 1,089,000 | 803,000 |
Research and development expenses | 6,000 | 5,000 | 8,000 | 8,000 |
Total operating expenses | 791,000 | 348,000 | 1,097,000 | 811,000 |
Other income (expense) | ||||
Gain on settlement of debt | 0 | 100,000 | 0 | 100,000 |
Net Loss | $ (440,000) | $ 76,000 | $ (696,000) | $ (66,000) |
Net loss per share, Basic and Diluted | $ 0 | $ 0 | $ 0 | $ 0 |
Weighted average shares outstanding, Basic and Diluted | 196,997,906 | 196,997,906 | 196,997,906 | 197,195,735 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Changes in Stockholders' Deficit (Unaudited) - USD ($) | Common Stock | Additional Paid-In Capital | Retained Earnings / Accumulated Deficit | Total |
Beginning balance, shares at Jun. 30, 2017 | 196,797,906 | |||
Beginning balance, value at Jun. 30, 2017 | $ 196,798 | $ 22,625,202 | $ (23,133,000) | $ (311,000) |
Common stock issued for services, shares | 400,000 | |||
Common stock issued for services, value | $ 400 | 15,600 | 16,000 | |
Net income (loss) | (66,000) | (66,000) | ||
Ending balance, shares at Dec. 31, 2017 | 197,197,906 | |||
Ending balance, value at Dec. 31, 2017 | $ 197,198 | 22,640,802 | (23,199,000) | (361,000) |
Beginning balance, shares at Sep. 30, 2017 | 197,197,906 | |||
Beginning balance, value at Sep. 30, 2017 | $ 197,198 | 22,640,802 | (23,275,000) | (437,000) |
Net income (loss) | 76,000 | 76,000 | ||
Ending balance, shares at Dec. 31, 2017 | 197,197,906 | |||
Ending balance, value at Dec. 31, 2017 | $ 197,198 | 22,640,802 | (23,199,000) | (361,000) |
Beginning balance, shares at Jun. 30, 2018 | 196,997,906 | |||
Beginning balance, value at Jun. 30, 2018 | $ 196,998 | 22,641,002 | (23,383,000) | (545,000) |
Fair value of warrants issued for services | 115,000 | 115,000 | ||
Fair value of modified warrants | 334,000 | 334,000 | ||
Net income (loss) | (696,000) | (696,000) | ||
Ending balance, shares at Dec. 31, 2018 | 196,997,906 | |||
Ending balance, value at Dec. 31, 2018 | $ 196,998 | 23,090,002 | (24,079,000) | (792,000) |
Beginning balance, shares at Sep. 30, 2018 | 196,997,906 | |||
Beginning balance, value at Sep. 30, 2018 | $ 196,998 | 22,641,002 | (23,639,000) | (801,000) |
Fair value of warrants issued for services | 115,000 | 115,000 | ||
Fair value of modified warrants | 334,000 | 334,000 | ||
Net income (loss) | (440,000) | (440,000) | ||
Ending balance, shares at Dec. 31, 2018 | 196,997,906 | |||
Ending balance, value at Dec. 31, 2018 | $ 196,998 | $ 23,090,002 | $ (24,079,000) | $ (792,000) |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 6 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Operating activities: | ||
Net loss | $ (696,000) | $ (66,000) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 21,000 | 20,000 |
Fair value of warrants issued for services | 115,000 | 16,000 |
Fair value of modified warrants | 334,000 | 0 |
Gain on settlement of debt | 0 | (100,000) |
Effect of changes in: | ||
Accounts receivable | (124,000) | 85,000 |
Inventory | 7,000 | 24,000 |
Accounts payable and accrued expenses | (38,000) | 99,000 |
Accrued payroll and payroll taxes due to officers | 0 | (6,000) |
Advances from distributor | 150,000 | 240,000 |
Net cash provided by (used in) operating activities | (231,000) | 312,000 |
Investing activities: | ||
Purchase of property and equipment | (15,000) | 0 |
Net cash used in investing activities | (15,000) | 0 |
Net change in cash | (246,000) | 312,000 |
Cash, beginning of period | 945,000 | 549,000 |
Cash, end of period | 699,000 | 861,000 |
Supplemental disclosures of cash flow information: | ||
Cash paid for interest | 0 | 0 |
Cash paid for income taxes | $ 0 | $ 1,600 |
1. Organization and Summary of
1. Organization and Summary of Significant Accounting Policies | 6 Months Ended |
Dec. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Summary of Significant Accounting Policies | Note 1 - Organization and Summary of Significant Accounting Policies 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 Bio Energy, Inc. CTi has developed, patented, and commercialized proprietary technology that may be used in liquid processing applications. CTi's patented Nano Reactor® Nano Neutralization® System Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") as promulgated in the United States of America ("U.S.") and with instructions to Form 10-Q pursuant to the rules and regulations of Securities and Exchange Act of 1934, as amended (the "Exchange Act") and Article 8-03 of Regulation S-X under the Exchange Act. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, we have included all adjustments considered necessary (consisting of normal recurring adjustments) for a fair presentation. Operating results for the six months ended December 31, 2018 are not indicative of the results that may be expected for the fiscal year ending June 30, 2019. You should read these unaudited condensed consolidated financial statements in conjunction with the audited financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended June 30, 2018 filed on October 15, 2018. The condensed consolidated balance sheet as of June 30, 2018 has been derived from the audited financial statements included in the Form 10-K for that year. Management Plan Regarding Going Concerns The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going concern. During the six months ended December 31, 2018, the Company recorded a net loss of $696,000, used cash in operating activities of $231,000 had a working capital deficiency of $886,000 and a stockholders' deficit of $792,000. These factors, among others, raise doubt about the Company's ability to continue as a going concern. In addition, our independent registered public accounting firm, in their report on our audited financial statements for the fiscal year ended June 30, 2018, expressed doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of the Company to continue as a going concern. As of December 31, we had cash and cash equivalents on hand of $699,000 and are not generating sufficient funds to cover operations. In addition to the funds on hand, management believes we may require additional funds to continue to operate our business. Management's plan is to generate income from operations by continuing to license our technology globally through our strategic partners, Desmet Ballestra Group (Desmet) and GEA Westfalia, AG (GEA) and recent agreement with Alchemy Beverages, Inc (ABI). Desmet and the Company have renewed a three year License Agreement dated October 1, 2018 with essentially the same terms from the previous agreements, in which, Desmet agreed to provide us monthly advances of $50,000 through October 1, 2022 to be applied against the Company’s gross profit share from future sales. GEA has also agreed to provide us monthly advances of $25,000 through January 2020, to be applied against the Company’s gross profit share from future sales. In June 2018, we entered into two licensing agreements with ABI and anticipate to start receiving certain royalties payments and revenue stream from ABI in fiscal 2019. We may also attempt to raise additional debt and/or equity financing to fund operations and provide additional working capital. However, there is no assurance that such financing will be consummated 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. Inter-company transactions and balances have been eliminated in consolidation. Fair Value Measurement FASB Accounting Standards Codification ("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. The three levels of the fair value hierarchy are as follows: · Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. · Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. · Level 3 - Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the assets or liabilities. At December 31, 2018 and June 30, 2018, the fair values of cash and cash equivalents, inventory and accounts payable and accrued expenses approximate their carrying values due to their short-term nature. 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 are used in allowance for bad debts, reserve for inventory obsolescence, impairment analysis for fixed assets, accrual of potential liabilities, deferred tax assets and valuing our stock options, warrants, and common stock issued for services, among other items. Actual results could differ from these estimates. Revenue Recognition Revenues from sale of reactors and the corresponding share in gross profit is recognized in accordance with ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts. Sales revenue from the 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. Accordingly, the Company estimates and recognizes the corresponding gross profit at the time of shipment of the Nano reactor hardware, subject to variable consideration constraints, in accordance to ASC 606. Specifically, the Company has determined that the gross profit to be earned from its distributor as a variable consideration that requires estimation in determining the transaction price, and as such all or a portion can be recognized using the most likely amount approach (subject to the variable consideration constraint). 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 Company considered these as a variable revenue constraint that required consideration and as such, the amount of revenue recognized is being limited to the actual amount of cash received under the contract which the Company has determined as not refundable and has concluded that future revenue reversal of such amount is not probable. Share-Based Compensation The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non- employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date. The fair value of the Company's common stock options and warrants grant is estimated using the Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods. Earnings (Loss) Per Share The Company’s computation of earnings (loss) per share (EPS) includes basic and diluted EPS. Basic EPS is calculated by dividing the Company’s net income (loss) available to common stockholders by the weighted average number of common shares during the period. Shares of restricted stock subject to vesting are included in basic weighted average common shares outstanding from the time they vest. Diluted EPS 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 net income (loss) of the Company. In computing diluted EPS, the treasury stock method assumes that outstanding options and warrants are exercised, and the proceeds are used to purchase common stock at the average market price and there were no instruments that would result in issuance of additional shares during the period. As of December 31, 2018, the Company had 11,000,000 stock options and 80,263,176 stock warrants outstanding to purchase shares of common stock that were not included in the diluted net loss per common share because their effect would be anti-dilutive. Segments The Company operates in one segment, its nano reactor technology business. 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 and President, 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, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base 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 consolidated financial statements. Recent Accounting Pronouncements In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases Targeted Improvements 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. |
2. Agreement with Distributors
2. Agreement with Distributors | 6 Months Ended |
Dec. 31, 2018 | |
Agreement With Distributors | |
Agreement with Distributors | Note 2 - Agreement with Distributors Desmet Ballestra Agreement On January 22, 2016, the Company signed a three-year agreement with Desmet for the sale and marketing of the Company’s Nano reactor system. As part of the agreement, Desmet provided, under certain conditions, limited monthly advance payments of $50,000 against future gross profit share to the Company through August 2018. The agreement expired on October 1, 2018. On October 1, 2018, Desmet and the Company executed a new three year License Agreement with essentially the same terms with the January 2016 agreement. As part of the agreement, Desmet agreed to provide us monthly advances of $50,000 through October 1, 2022 to be applied against gross profit share from future sales. The Company recognizes revenue from sale of reactors upon shipment and acceptance by Desmet, as the Company has no further obligations to Desmet other than the reactor’s two-year standard warranty. In addition, Desmet pays for such reactors on credit terms and the amount of the sale is recorded as a receivable upon acceptance by Desmet. The Company also receives a share in gross margin or profit from the sale of Desmet’s integrated neutralization system to its customer of which the reactors are an integral component, however, such amount is subject to adjustment based on certain factors including costs over run. The Company recognizes the gross profit at the time of shipment of the Nano reactor hardware in accordance to ASC 606 as such shipment is deemed to be the only performance obligation and the Company has no more continuing obligation to Desmet. In addition, the Company has no control with regards to the sale and installation of Nano Neutralization System, between Desmet and the end customer. The Company has determined that the gross profit to be earned from Desmet as a variable consideration that requires estimation in determining the transaction price, and as such all or a portion can be recognized using the most likely amount approach (subject to the variable consideration constraint). Estimates are available from Desmet 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 Company considered these as a variable revenue constraint that required consideration. Thus, the amount of revenue recognized is being limited to the actual amount of cash received under the contract which the Company has determined as not refundable and preclude any probable of future revenue reversal. Further, Company has been able to develop an expectation of the actual collection based on its historical experience. During the six months ended December 31, 2018 and 2017, the Company recognized revenue of $408,000 and $353,000, respectively, related to the shipment and acceptance of reactors to Desmet and the corresponding share in gross profit. GEA Westfalia Agreement In January 2017 we entered into a global technology license, R&D and marketing agreement with GEA with respect to our patented Nano Reactor™ technology, processes and applications. Under the agreement, GEA has been granted a worldwide exclusive license to integrate our patented technology into water treatment application, milk and juice pasteurization, and certain food related processes. The license agreement between us and GEA has a three-year term and provides for the payment of $300,000 per year in advanced license fees or share in gross margin or profit to us. Revenues from sale of reactors to GEA and share in gross profit is being recognized in accordance with current accounting guidelines as previously discussed in the Desmet Ballestra Agreement. As of June 30, 2018, outstanding advances from GEA to be applied to share in gross profit in future period amounted to $427,000. During the period ended December 31, 2018, we received additional advances totaling $150,000 from GEA. As of December 31, 2018, outstanding advance from GEA amounted to $577,000. There were no reactor sales or gross profit or margin revenue recognized during the period ended December 31, 2018, or 2017. Alchemy Beverages, Inc. Agreement In June 2018, the Company entered into licensing agreements with Alchemy Beverages Inc. (ABI). Pursuant to the licensing agreements, ABI has the exclusive global distribution rights for the Company’s patented and patent pending technology for the processing of alcoholic beverages. The Company has agreed to assist in the installation and maintenance of the nano reactor systems for ABI and will receive royalty payments ranging from 1% to 3% on all net revenues, as defined, of ABI for the life of the applicable patents. In addition, the Company will receive leasing, consulting, and manufacturing fees as defined. In addition, on a future transaction involving the sale of ABI, the Company will receive approximately 10% of the transaction price (with a minimum of $5 million) and in the event ABI becomes a public entity, the Company will receive approximately 10% of ABI’s shares. There was no revenue recognized during the period ended December 31, 2018 pursuant to these agreements. At December 31, 2018, the Company owns 19.9% of ABI. The investment in ABI has no value assigned to it, which approximates its fair value. |
3. Stockholders' Deficit
3. Stockholders' Deficit | 6 Months Ended |
Dec. 31, 2018 | |
Equity [Abstract] | |
Stockholders' Deficit | Note 3 - Stockholders' Deficit Stock Options The Company has not adopted a formal stock option plan. However, it has assumed outstanding stock options resulting from the acquisition of its wholly-owned subsidiary, Hydrodynamic Technology, Inc. In addition, the Company has made periodic non- plan grants. A summary of the stock option activity during the six months ended December 31, 2018 is as follows: Weighted- Average Weighted- Remaining Average Contractual Exercise Life Options Price (Years) Outstanding at June 30, 2018 11,378,754 $ 0.31 2.23 - Granted - - - - Forfeited (378,754 ) - - - Exercised - - - - Expired - - - Outstanding at December 31, 2018, vested and exercisable 11,000,000 $ 0.03 3.86 There was no intrinsic value of the outstanding options as of December 31, 2018 as the exercise price of these options were greater than the market price. The following table summarizes additional information concerning options outstanding and exercisable at December 31, 2018. Options Outstanding Options Exercisable Weighted Weighted Weighted Average Average Average Exercise Number Remaining Exercise Number Remaining Price of Shares Life (Years) Price of Shares Life (Years) $ 0.03 11,000,000 3.86 $ 0.03 11,000,000 3.86 Warrants A summary of the Company's warrant activity and related information for the six months ended on December 31, 2018 is as follows: Weighted- Average Weighted- Remaining Average Contractual Exercise Life Warrants Price (Years) Outstanding at June 30, 2018 75,926,510 $ 0.06 3.81 Granted 4,336,667 - - Exercised - Expired - Outstanding at December 31, 2018, vested and exercisable 80,263,176 $ 0.07 4.95 During the period ended December 31, 2018, the Company granted consultants warrants to purchase 4,336,667 shares of common stock for services rendered. The warrants are fully vested, exercisable at $0.03 per share, and will expire in five years. Total fair value of these warrants amounted to $115,000 based upon a Black-Scholes Option Pricing model. During the period ended December 31, 2018, the Company also amended certain warrants granted in prior years to purchase approximately 19 million common shares in order to extend the term or life to five years. As a result of this modification, the Company recorded stock compensation expense of $334,000 to account the incremental change in fair value of these warrants before and after the modification based upon a Black-Scholes Option Pricing model. The fair value of the share option awards was estimated using the Black-Scholes method based on the following weighted-average assumptions: December 31, 2018 Risk-free interest rate 2.60 % Expected term (years) 4.82 Expected volatility 138 % Expected dividend yield 0 % The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected term of the award; the expected term represents the weighted-average period of time the awards granted are expected to be outstanding giving consideration to vesting schedules, contractual terms, and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s Common Stock; and the expected dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future. There was no intrinsic value of the outstanding warrants as of December 31, 2018 as the exercise price of these warrants were greater than the market price. The following table summarizes additional information concerning warrants outstanding and exercisable at December 31, 2018. Warrants Outstanding Warrants Exercisable Weighted Weighted Weighted Average Average Average Exercise Number Remaining Exercise Number Exercise Price of Shares Life (Years) Price of Shares Price $ 0.03 - 0.08 59,936,518 6.00 $ 0.04 59,936,518 $ 0.04 $ 0.12 20,326,658 4.00 $ 0.12 20,326,658 $ 0.12 80,263,176 80,263,176 |
4. Commitments and Contingencie
4. Commitments and Contingencies | 6 Months Ended |
Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Note 4 - Commitments and Contingencies Royalty Agreements On July 1, 2008, the Company entered into Patent Assignment Agreements with two parties, our President and Technology Development Supervisor, where certain devices and methods involved in the hydrodynamic cavitation processes invented by the President and the Technology Development Supervisor have been assigned to the Subsidiary. In exchange, the Subsidiary agreed to pay a royalty of 5% of gross revenues to each of the President and Technology Development Supervisor for licensing of the technology and leasing of the related equipment embodying the technology. These agreements were subsequently assumed by Cavitation Technologies on May 13, 2010 from its subsidiary. The Company's President and Technology Development Supervisor both waived their rights to receive royalty payments that have accrued, or that may accrue, on any gross revenue generated through December 31, 2018. On April 30, 2008 and as amended on November 22, 2010, our wholly owned subsidiary entered into an employment agreement with our former Director of Chemical and Analytical Department (the "Inventor") to 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 December 31, 2018, no patents have been granted in which this person is the legally named inventor. Litigation The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. Except for income tax contingencies (commencing April 1, 2009), the Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. There are no legal proceedings involving the company or its employees at this time. |
1. Organization and Summary o_2
1. Organization and Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Dec. 31, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") as promulgated in the United States of America ("U.S.") and with instructions to Form 10-Q pursuant to the rules and regulations of Securities and Exchange Act of 1934, as amended (the "Exchange Act") and Article 8-03 of Regulation S-X under the Exchange Act. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, we have included all adjustments considered necessary (consisting of normal recurring adjustments) for a fair presentation. Operating results for the six months ended December 31, 2018 are not indicative of the results that may be expected for the fiscal year ending June 30, 2019. You should read these unaudited condensed consolidated financial statements in conjunction with the audited financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended June 30, 2018 filed on October 15, 2018. The condensed consolidated balance sheet as of June 30, 2018 has been derived from the audited financial statements included in the Form 10-K for that year. |
Management Plan Regarding Going Concerns | Management Plan Regarding Going Concerns The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going concern. During the six months ended December 31, 2018, the Company recorded a net loss of $696,000, used cash in operating activities of $231,000 had a working capital deficiency of $886,000 and a stockholders' deficit of $792,000. These factors, among others, raise doubt about the Company's ability to continue as a going concern. In addition, our independent registered public accounting firm, in their report on our audited financial statements for the fiscal year ended June 30, 2018, expressed doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of the Company to continue as a going concern. As of December 31, we had cash and cash equivalents on hand of $699,000 and are not generating sufficient funds to cover operations. In addition to the funds on hand, management believes we may require additional funds to continue to operate our business. Management's plan is to generate income from operations by continuing to license our technology globally through our strategic partners, Desmet Ballestra Group (Desmet) and GEA Westfalia, AG (GEA) and recent agreement with Alchemy Beverages, Inc (ABI). Desmet and the Company have renewed a three year License Agreement dated October 1, 2018 with essentially the same terms from the previous agreements, in which, Desmet agreed to provide us monthly advances of $50,000 through October 1, 2022 to be applied against the Company’s gross profit share from future sales. GEA has also agreed to provide us monthly advances of $25,000 through January 2020, to be applied against the Company’s gross profit share from future sales. In June 2018, we entered into two licensing agreements with ABI and anticipate to start receiving certain royalties payments and revenue stream from ABI in fiscal 2019. We may also attempt to raise additional debt and/or equity financing to fund operations and provide additional working capital. However, there is no assurance that such financing will be consummated 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 | Principles of Consolidation The consolidated financial statements include the accounts of Cavitation Technologies, Inc. and its wholly owned subsidiary Hydrodynamic Technology, Inc. Inter-company transactions and balances have been eliminated in consolidation. |
Fair Value Measurement | Fair Value Measurement FASB Accounting Standards Codification ("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. The three levels of the fair value hierarchy are as follows: · Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. · Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. · Level 3 - Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the assets or liabilities. At December 31, 2018 and June 30, 2018, the fair values of cash and cash equivalents, inventory and accounts payable and accrued expenses approximate their carrying values due to their short-term nature. |
Use of Estimates | 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 are used in allowance for bad debts, reserve for inventory obsolescence, impairment analysis for fixed assets, accrual of potential liabilities, deferred tax assets and valuing our stock options, warrants, and common stock issued for services, among other items. Actual results could differ from these estimates. |
Revenue Recognition | Revenue Recognition Revenues from sale of reactors and the corresponding share in gross profit is recognized in accordance with ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts. Sales revenue from the 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. Accordingly, the Company estimates and recognizes the corresponding gross profit at the time of shipment of the Nano reactor hardware, subject to variable consideration constraints, in accordance to ASC 606. Specifically, the Company has determined that the gross profit to be earned from its distributor as a variable consideration that requires estimation in determining the transaction price, and as such all or a portion can be recognized using the most likely amount approach (subject to the variable consideration constraint). 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 Company considered these as a variable revenue constraint that required consideration and as such, the amount of revenue recognized is being limited to the actual amount of cash received under the contract which the Company has determined as not refundable and has concluded that future revenue reversal of such amount is not probable. |
Share-Based Compensation | Share-Based Compensation The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non- employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date. The fair value of the Company's common stock options and warrants grant is estimated using the Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods. |
Earnings (Loss) Per Share | Earnings (Loss) Per Share The Company’s computation of earnings (loss) per share (EPS) includes basic and diluted EPS. Basic EPS is calculated by dividing the Company’s net income (loss) available to common stockholders by the weighted average number of common shares during the period. Shares of restricted stock subject to vesting are included in basic weighted average common shares outstanding from the time they vest. Diluted EPS 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 net income (loss) of the Company. In computing diluted EPS, the treasury stock method assumes that outstanding options and warrants are exercised, and the proceeds are used to purchase common stock at the average market price and there were no instruments that would result in issuance of additional shares during the period. As of December 31, 2018, the Company had 11,000,000 stock options and 80,263,176 stock warrants outstanding to purchase shares of common stock that were not included in the diluted net loss per common share because their effect would be anti-dilutive. |
Segments | Segments The Company operates in one segment, its nano reactor technology business. 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 and President, 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, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base 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 consolidated financial statements. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases Targeted Improvements 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. |
3. Stockholders' Deficit (Table
3. Stockholders' Deficit (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
Equity [Abstract] | |
Stock Option activity table | Weighted- Average Weighted- Remaining Average Contractual Exercise Life Options Price (Years) Outstanding at June 30, 2018 11,378,754 $ 0.31 2.23 - Granted - - - - Forfeited (378,754 ) - - - Exercised - - - - Expired - - - Outstanding at December 31, 2018, vested and exercisable 11,000,000 $ 0.03 3.86 |
Schedule of options outstanding and exercisable | Options Outstanding Options Exercisable Weighted Weighted Weighted Average Average Average Exercise Number Remaining Exercise Number Remaining Price of Shares Life (Years) Price of Shares Life (Years) $ 0.03 11,000,000 3.86 $ 0.03 11,000,000 3.86 |
Schedule of warrant activity | Weighted- Average Weighted- Remaining Average Contractual Exercise Life Warrants Price (Years) Outstanding at June 30, 2018 75,926,510 $ 0.06 3.81 Granted 4,336,667 - - Exercised - Expired - Outstanding at December 31, 2018, vested and exercisable 80,263,176 $ 0.07 4.95 |
Assumptions | December 31, 2018 Risk-free interest rate 2.60 % Expected term (years) 4.82 Expected volatility 138 % Expected dividend yield 0 % |
Schedule of warrants outstanding and exercisable | Warrants Outstanding Warrants Exercisable Weighted Weighted Weighted Average Average Average Exercise Number Remaining Exercise Number Exercise Price of Shares Life (Years) Price of Shares Price $ 0.03 - 0.08 59,936,518 6.00 $ 0.04 59,936,518 $ 0.04 $ 0.12 20,326,658 4.00 $ 0.12 20,326,658 $ 0.12 80,263,176 80,263,176 |
5. Property and Equipment (Tabl
5. Property and Equipment (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property and equipment | December 31, June 30, 2018 2018 Leasehold improvement $ 2,000 $ 2,000 Furniture 27,000 27,000 Office equipment 2,000 2,000 Equipment 305,000 290,000 Systems 187,000 187,000 523,000 508,000 Less: accumulated depreciation and amortization (439,000 ) (418,000 ) Property and Equipment, net $ 84,000 $ 90,000 |
1. Organization and Summary o_3
1. Organization and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||||||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Sep. 30, 2018 | Jun. 30, 2018 | Sep. 30, 2017 | Jun. 30, 2017 | |
Net loss | $ (440,000) | $ 76,000 | $ (696,000) | $ (66,000) | ||||
Net cash used in operating activities | (231,000) | 312,000 | ||||||
Stockholders deficit | (792,000) | (361,000) | (792,000) | (361,000) | $ (801,000) | $ (545,000) | $ (437,000) | $ (311,000) |
Cash and cash equivalents | $ 699,000 | $ 861,000 | $ 699,000 | $ 861,000 | $ 945,000 | $ 549,000 | ||
Options [Member] | ||||||||
Antidilutive shares outstanding | 11,000,000 | |||||||
Warrants [Member] | ||||||||
Antidilutive shares outstanding | 80,263,176 |
2. Agreement with Distributors
2. Agreement with Distributors (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Jun. 30, 2018 | |
Revenues | $ 353,000 | $ 338,000 | $ 408,000 | $ 678,000 | |
Outstanding advances | 577,000 | 577,000 | $ 427,000 | ||
Proceeds from advances | 150,000 | 240,000 | |||
Desmet Ballestra [Member] | |||||
Revenues | 408,000 | 353,000 | |||
GEA Westfalia [Member] | |||||
Revenues | 0 | $ 0 | |||
Outstanding advances | $ 577,000 | 577,000 | $ 427,000 | ||
Proceeds from advances | 150,000 | ||||
Alchemy Beverages [Member] | |||||
Revenues | $ 0 | ||||
Ownership percentage | 19.90% |
3. Stockholders' Deficit (Detai
3. Stockholders' Deficit (Details - Option activity) - $ / shares | 6 Months Ended | 12 Months Ended |
Dec. 31, 2018 | Jun. 30, 2018 | |
Weighted Average Remaining Contractual Life (Years) | ||
Weighted average remaining contractual life, options outstanding | 2 years 2 months 23 days | |
Options [Member] | ||
Options | ||
Options outstanding, beginning balance | 11,378,754 | |
Options granted | 0 | |
Options forfeited | (378,754) | |
Options exercised | 0 | |
Options expired | 0 | |
Options outstanding, ending balance | 11,000,000 | 11,378,754 |
Options exercisable | 11,000,000 | 11,378,754 |
Weighted Average Exercise Price | ||
Weighted average exercise price, options outstanding, beginning price | $ 0.31 | |
Weighted average exercise price, options granted | ||
Weighted average exercise price, options forfeited | ||
Weighted average exercise price, options exercised | ||
Weighted average exercise price, options expired | ||
Weighted average exercise price, options outstanding, ending price | 0.03 | $ 0.31 |
Weighted average exercise price, options exercisable | $ 0.03 | |
Weighted Average Remaining Contractual Life (Years) | ||
Weighted average remaining contractual life, options outstanding | 3 years 10 months 10 days | |
Weighted average remaining contractual life, options exercisable | 3 years 10 months 10 days |
3. Stockholders' Deficit (Det_2
3. Stockholders' Deficit (Details - Options by exercise price) - $ / shares | 6 Months Ended | 12 Months Ended |
Dec. 31, 2018 | Jun. 30, 2018 | |
Weighted average remaining life options outstanding | 2 years 2 months 23 days | |
$0.03 Exercise Price [Member] | ||
Weighted average remaining life options outstanding | 3 years 10 months 10 days | |
Weighted average exercise price options outstanding | $ 0.03 | |
Weighted average remaining life options exercisable | 3 years 10 months 10 days | |
Options [Member] | ||
Number of shares outstanding | 11,000,000 | 11,378,754 |
Weighted average remaining life options outstanding | 3 years 10 months 10 days | |
Weighted average exercise price options outstanding | $ 0.03 | $ 0.31 |
Number of shares exercisable | 11,000,000 | 11,378,754 |
3. Stockholders' Deficit (Det_3
3. Stockholders' Deficit (Details - Warrant activity) - Warrants [Member] - $ / shares | 6 Months Ended | 12 Months Ended |
Dec. 31, 2018 | Jun. 30, 2018 | |
Warrants | ||
Warrants outstanding, beginning balance | 75,926,510 | 75,926,510 |
Warrants granted | 4,336,667 | 0 |
Warrants exercised | 0 | |
Warrants expired | 0 | |
Warrants outstanding, ending balance | 80,263,176 | 75,926,510 |
Warrants exercisable | 80,263,176 | |
Weighted Average Exercise Price | ||
Weighted average exercise price, warrants outstanding, beginning price | $ 0.06 | $ 0.06 |
Weighted average exercise price, warrants outstanding, ending price | $ 0.06 | |
Weighted Average Remaining Contractual Life | ||
Weighted average remaining contractual life | 4 years 11 months 12 days | 3 years 9 months 22 days |
3. Stockholders' Deficit (Det_4
3. Stockholders' Deficit (Details - Assumptions) - Warrants [Member] | 6 Months Ended |
Dec. 31, 2018 | |
Risk free interest rate | 2.60% |
Expected term (years) | 4 years 9 months 25 days |
Expected volatility | 138.00% |
Expected dividend yield | 0.00% |
3. Stockholders' Deficit (Det_5
3. Stockholders' Deficit (Details - Warrants by exercise price) - $ / shares | 6 Months Ended | 12 Months Ended | |
Dec. 31, 2018 | Jun. 30, 2018 | Jun. 30, 2017 | |
$0.03-$0.08 [Member] | |||
Number of warrant shares outstanding | 59,936,518 | ||
Weighted average remaining life warrants outstanding | 6 years | ||
Weighted average exercise price warrants outstanding | $ 0.04 | ||
Number of warrant shares exercisable | 59,936,518 | ||
Weighted average exercise price warrants exercisable | $ 0.04 | ||
$0.12 [Member] | |||
Number of warrant shares outstanding | 20,326,658 | ||
Weighted average remaining life warrants outstanding | 4 years | ||
Weighted average exercise price warrants outstanding | $ 0.12 | ||
Number of warrant shares exercisable | 20,326,658 | ||
Weighted average exercise price warrants exercisable | $ 0.12 | ||
Warrants [Member] | |||
Number of warrant shares outstanding | 80,263,176 | 75,926,510 | 75,926,510 |
Weighted average remaining life warrants outstanding | 4 years 11 months 12 days | 3 years 9 months 22 days | |
Weighted average exercise price warrants outstanding | $ 0.06 | $ 0.06 | |
Number of warrant shares exercisable | 80,263,176 |
3. Stockholders' Deficit (Det_6
3. Stockholders' Deficit (Details Narrative) - USD ($) | 6 Months Ended | ||
Dec. 31, 2018 | Jun. 30, 2018 | Jun. 30, 2017 | |
Warrants [Member] | |||
Warrant exercisable price per share | $ 0.06 | $ 0.06 | |
Change in fair value of warrants | $ 334,000 | ||
Intrinsic value of warrants | $ 0 | ||
Warrants [Member] | Consultants [Member] | |||
Warrants granted to purchase common stock | 4,336,667 | ||
Warrant exercisable price per share | $ 0.03 | ||
Warrant term | 5 years | ||
Fair value of warrants issued | $ 115,000 | ||
Options [Member] | |||
Intrinsic value of options outstanding | $ 0 |