Executive Summary / Key Takeaways

• Cavitation Technologies, Inc. (CVAT) is undergoing a significant strategic pivot, leveraging its proprietary Nano Reactor and Hydro-Plasma nanotechnology to target high-growth markets in water treatment, agriculture, alcoholic beverage enhancement, and cryptocurrency mining cooling.
• The company recently divested its vegetable oil refining patents for an $880,000 cash infusion, marking a shift away from its historical primary revenue source and providing capital for new ventures.
• Despite a substantial 85.10% revenue decline to $203,000 and a net loss of $113,000 in fiscal year 2025, CVAT anticipates initial sales and revenue from its new water treatment and Hydro-Plasma technologies in the first half of fiscal 2026, with alcoholic beverage sales projected for the second half of 2026.
• CVAT's core competitive advantage lies in its chemical-free, energy-efficient, and scalable cavitation and cold plasma technologies, offering superior performance in targeted fluid processing applications compared to traditional methods.
• The company faces a "going concern" warning due to historical operating losses and current cash burn, necessitating successful commercialization of its new technologies and securing additional financing to fund future operations.

Setting the Scene: Cavitation Technologies' Core and Strategic Reorientation

Cavitation Technologies, Inc. (CVAT) operates as an ESG-focused process and product development firm, specializing in environmentally friendly flow-through nanotechnology systems for diverse fluid processing applications. The company's overarching strategy centers on leveraging its patented Nano Reactor and Low Pressure Nano Reactor (LPN) technologies to address critical industrial and consumer needs. This strategy is unfolding against a backdrop of significant market opportunities, including the fracking industry's daily water consumption exceeding 58 million barrels, a Canadian water treatment market valued at approximately $2.51 billion and continuously expanding, and a global cold plasma market projected to grow from $1.50 billion in 2021 to $3.10 billion by 2027.

Historically, CVAT's primary revenue stream stemmed from its CTi Nano Neutralization System, which improved edible vegetable oil refining. This led to a long-standing partnership with Desmet Ballestra Group, a global engineering firm. However, a pivotal strategic reorientation occurred in October 2024, when CVAT assigned its vegetable oil refining patents to Desmet for an $880,000 cash consideration. This transaction marked a deliberate shift, as CVAT expects Desmet to begin manufacturing Nano reactors independently, significantly reducing future reactor sales from CVAT.

In the competitive landscape, CVAT positions itself as a niche innovator, offering specialized cavitation technology against larger, more diversified industrial players like Alfa Laval AB (ALFVY) and Veolia Environnement (VEOEY), as well as specialized filtration companies such as Pall Corporation (a subsidiary of Danaher Corporation ). While these larger entities benefit from extensive global reach and diversified portfolios, CVAT's Low Pressure Nano Reactor (LPN) is considered a conceptually new technology in water treatment. It has demonstrated exceptional results in treating produced and frac water commercially, notably reducing the usage of hazardous chemicals, integrating into existing processes within 24 hours, and operating with minimal energy consumption. Similarly, its Hydro-Plasma technology creates reactive agents that break down pollutants, bacteria, and viruses more effectively than traditional methods, providing a distinct technological edge in targeted applications.

Technological Edge: The Power of Cavitation and Plasma

At the heart of Cavitation Technologies' investment thesis lies its proprietary and patented nanotechnology, which forms a robust competitive moat. The company's core technologies, including the Nano Reactor, Low Pressure Nano Reactor (LPN), and the emerging Hydro-Plasma and Cavitation Non-Thermal Plasma (CNTP) systems, offer tangible benefits over conventional fluid processing methods.

The LPN, specifically developed for produced and frac water treatment, enables chemical-free water remediation, significantly reducing operational costs for industrial users. Its design allows for integration into existing processes within 24 hours without disrupting ongoing operations, and it features compact systems with minimal energy consumption. The post-treatment water can be either reused or safely disposed of, addressing critical environmental and economic concerns in the Permian Basin. A single LPN system has the capacity to treat approximately 17,000 barrels of produced water per day (BPD).

Building on this foundation, CVAT's patent-pending Hydro-Plasma technology represents an innovative leap, combining cavitation and cold plasma to enhance water treatment efficiency. This cutting-edge system breaks down both organic and inorganic compounds, is highly scalable from 15 to 40 GPM, and eliminates microorganisms and diseases. It achieves this by creating reactive agents, such as hydroxyl radicals and hydrogen peroxide, that break down pollutants, bacteria, and viruses more effectively than traditional methods. The company is actively pursuing R&D in this area, establishing partnerships with New Mexico State University, the University of Guadalajara, and the Brackish Groundwater National Desalination Research Facility.

Most recently, CVAT expanded its technological reach into the burgeoning cryptocurrency mining sector through its newly established subsidiary, XYRA Corp. An exclusive licensing agreement grants XYRA Corp. the right to apply CVAT's proprietary Cavitation Non-Thermal Plasma™ (CNTP) technology to submerged fluids used in cryptocurrency mining cooling systems. This application aims to enhance cooling efficiency and system performance in a rapidly growing industry.

For investors, these technological differentiators are paramount. They underpin CVAT's strategy to penetrate new markets by offering solutions that are not only environmentally superior but also promise operational efficiencies and cost savings. This technological leadership is expected to contribute to higher average selling prices, lower operational costs for customers, and ultimately, improved margins and a stronger market position for CVAT in its targeted growth areas.

Strategic Transformation and New Market Ventures

The October 2024 Patent Assignment and License Back Agreement with Desmet marked a definitive strategic shift for Cavitation Technologies. While the $880,000 cash consideration provided crucial capital for continuous operations and business development, it also signaled a reduced reliance on the vegetable oil refining segment for future revenue. Crucially, CVAT retained a worldwide, exclusive, transferable, and royalty-free license to practice the assigned patents in the fields of water and wastewater processing, recovery, recycling, and purification (including oilfield wastewater), as well as the manufacture, distillation, brewing, enhancement, sale, and marketing of alcoholic beverages. This strategic move has propelled the company into several new, high-potential market ventures.

In water treatment and remediation, CVAT is actively pursuing opportunities in the Permian Basin through its 50/50 joint venture, Enviro WaterTek LLC (EW). This initiative focuses on industrial treatment of produced and frac water using the LPN technology. While current operations are limited to system trials and have not yet generated meaningful revenue, the company anticipates sales will commence in the first half of fiscal 2026. Simultaneously, CVAT is addressing agricultural water challenges, having installed its first system at Hacienda Farms in Canada in 2024. Trials are underway to increase water oxygen levels, eliminate algae, and control bacterial growth without harsh chemicals, with results expected in the first calendar quarter of 2026 to determine commercial viability.

Beyond industrial and agricultural water, CVAT has ventured into the alcoholic beverage market through a licensing agreement with Alchemy Beverages Inc. (ABI). This partnership involves the application of CVAT's miniature low-pressure nano-reactor (MLPN) in ABI's "Barmuze" smart home kitchen appliance, designed to enhance alcoholic beverages. CVAT holds a 19.90% equity stake in ABI and expects royalty payments from future sales. ABI is actively pursuing commercial production, with the earliest sales and revenue for Barmuze anticipated in the second half of 2026.

The development of the Hydro-Plasma technology further diversifies CVAT's portfolio. This patent-pending system, which combines cavitation and cold plasma, is undergoing testing, with sales and revenue anticipated in the first half of fiscal 2026 upon successful completion of multiple trials. Most recently, the establishment of XYRA Corp. and the exclusive licensing of Cavitation Non-Thermal Plasma™ (CNTP) technology for cryptocurrency mining cooling systems represent a strategic entry into the blockchain infrastructure technology market, supported by the appointment of a VP of Blockchain Infrastructure Technology. These initiatives collectively underscore CVAT's commitment to leveraging its core nanotechnology across a spectrum of high-growth, environmentally conscious applications.

Financial Performance: A Pivotal Year of Transition

Cavitation Technologies' financial performance for the fiscal year ended June 30, 2025, reflects a company in a significant transitional phase, marked by strategic shifts and investments in new growth areas. Total revenue for fiscal 2025 decreased by $1.16 million, or 85.10%, to $203,000, down from $1.36 million in fiscal 2024. This substantial decline was primarily driven by a reduction in reactor purchases by Desmet, with sales dropping from $865,000 in fiscal 2024 to $198,000 in fiscal 2025. Additionally, fiscal 2024 included a $498,000 license fee revenue from the termination of a previous agreement with Desmet, which did not recur in the current period.

The company reported a net loss of $113,000 in fiscal 2025, a notable increase in loss of $552,000 compared to a net income of $439,000 in fiscal 2024. This shift was largely attributed to the decrease in revenue and an increase in operating expenses, partially offset by an $880,000 gain from the patent assignment to Desmet. Cost of sales decreased by $118,000, or 76%, to $38,000, directly correlating with the reduced production of reactors. However, general and administrative expenses rose by $349,000, or 49%, to $1.06 million, primarily due to increased payroll, stock-based compensation, and legal fees associated with patent activities. Research and development expenses also increased by $34,000, or 55.7%, to $95,000, reflecting continued investment in cold plasma technology.

As of June 30, 2025, CVAT's cash balance stood at $249,000, an increase of $70,000 from the prior year, primarily bolstered by the $880,000 proceeds from the patent assignment. However, the company utilized $806,000 in cash for operating activities during fiscal 2025, highlighting its ongoing cash burn.

Working capital was $199,000, and stockholders' equity was $69,000. The company's TTM Gross Profit Margin was 82.00%, while its TTM Operating Profit Margin was -45.18%, underscoring the impact of increased operating expenses relative to declining revenue. While the TTM Net Profit Margin of 58.47% and EBITDA Margin of 58.35% appear strong, these figures are significantly influenced by the one-time $880,000 gain on patent assignment, masking the underlying operational losses.

In comparison to larger, more established competitors, CVAT's financial profile indicates a higher-risk, earlier-stage investment. Companies like Danaher (DHR) (parent to Pall Corporation) and MYR Group Inc. (MYRG) exhibit P/E ratios of 44.39 and 40.58, respectively, reflecting market confidence in their consistent profitability and scale. CVAT's TTM P/E ratio of 28.82 and P/S ratio of 17.01 suggest a market valuation that anticipates future growth from its new ventures, despite current operational challenges. The company's smaller scale and reliance on successful commercialization of new technologies present a stark contrast to the robust, diversified revenue streams and established profitability of its larger rivals.

Outlook and Risks: A Path Forward with Challenges

Cavitation Technologies stands at a critical juncture, with its future performance heavily reliant on the successful commercialization of its new technology applications. Management anticipates sales from its water treatment and Hydro-Plasma technologies in the Permian Basin to commence in the first half of fiscal 2026. The outcome of agricultural water remediation trials at Hacienda Farms, expected by the first calendar quarter of 2026, will be crucial in determining commercial viability and revenue timelines for that segment. Furthermore, the earliest sales and revenue from the Alchemy Beverages "Barmuze" appliance are projected for the second half of 2026. These forward-looking statements underscore a period of anticipated revenue generation from new initiatives, a necessary offset to the expected reduction in sales from the former Desmet partnership.

Despite these promising outlooks, significant risks and challenges persist. The company's net loss of $113,000, coupled with $806,000 in cash utilized for operations and an accumulated deficit of $26.96 million as of June 30, 2025, has led to a "going concern" warning from its independent registered public accounting firm. This raises substantial doubt about CVAT's ability to continue operations within the next year. Management explicitly states the need for additional funding, acknowledging there is no assurance such debt or equity financing will be available in sufficient amounts, and that failure to obtain it may lead to a curtailment of operations.

The strategic shift away from the primary revenue source with Desmet creates a critical dependency on the timely and successful commercialization of the new ventures. Any delays or underperformance in these nascent markets could severely impact the company's financial stability. Moreover, CVAT is not immune to broader economic pressures; management expects input cost inflation to continue through at least 2026, and a potential economic recession could negatively impact its financial results. The slow acceptance of LPN technology in the water treatment field, despite its demonstrated advantages, also highlights the inherent challenges in market penetration for innovative solutions.

Conclusion

Cavitation Technologies, Inc. is a nanotechnology innovator undergoing a profound strategic transformation. By divesting its legacy vegetable oil refining patents and securing capital, CVAT has pivoted towards high-growth, environmentally critical sectors such as water treatment, agricultural remediation, alcoholic beverage enhancement, and cryptocurrency mining cooling. The company's proprietary Nano Reactor, LPN, Hydro-Plasma, and CNTP technologies represent its core strength, offering chemical-free, energy-efficient, and scalable solutions with demonstrable advantages over traditional methods.

While the fiscal year 2025 reflected the financial strains of this transition, marked by a significant revenue decline and net loss, the outlook is anchored in the anticipated commercialization of these new ventures in fiscal 2026. The success of these initiatives, particularly in the Permian Basin water treatment, agricultural applications, and the Barmuze appliance, will be paramount. Investors considering CVAT must weigh the substantial potential of its differentiated nanotechnology in expanding markets against the immediate financial challenges, including the "going concern" warning and the critical need for additional financing. The company's ability to translate its technological leadership into sustained revenue and profitability will ultimately determine its long-term investment viability in this high-stakes transformation.