UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2012

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File No. 333-147367

 

AQUALIV TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		38-3767357
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

 

4550 NW Newberry Hill Road, Suite 202

Silverdale, WA 98383

(Address of principal executive offices)

 

(360) 473-1160

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes ¨ No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	S

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of May 14, 2012, there were 479,605,319 shares outstanding of the registrant’s common stock.

 

 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION
		PAGE
Item 1.	Financial Statements	2-4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	11
Item 4.	Controls and Procedures	11
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	12
Item 1A.	Risk Factors.	12
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds.	12
Item 3	Defaults Upon Senior Securities.	12
Item 4.	Mine Safety Disclosures.	12
Item 5.	Other Information.	12
Item 6.	Exhibits.	12
Signatures		13

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AQUALIV TECHNOLOGIES, INC.

AND ITS’ SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

		March 31,2012 (Unaudited)			September 30, 2011
ASSETS
CURRENT ASSETS:
Cash	$	36,942		$	3,732
Accounts receivable		3,848			1,968
Total Current Assets		40,789			5,700
PROPERTY AND EQUIPMENT, net		7,027			8,427
INVENTORY		5,523			723
TOTAL ASSETS	$	53,339		$	14,850
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	120,579		$	107,438
Credit cards payable		18,557			17,187
Notes payable		149,354			189,179
Derivative liability		186,912			111,111
Other liabilities		8,845			20,746
Total Current Liabilities		484,247			445,661
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 991,618 and 991,618 shares issued and outstanding		992			912
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 414,024,625 and 291,617,428 shares issued and outstanding, respectively		414,024			291,617
Capital in excess of par value		2,006,128			1,907,365
Retained earnings (deficit)		(2,815,560	)		(2,612,390	)
Noncontrolling interest		(36,493	)		(18,315	)
Total Stockholders' (Deficit)		(430,908	)		(430,811	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	53,339		$	14,850

 

See accompanying notes

 

 

AQUALIV TECHNOLOGIES, INC.

AND ITS’ SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

 

		For the Three Months								For the Six Months
		Ended March 31,								Ended March 31,
		2012				2011				2012				2011
REVENUES:
Sales		$	117,134			$	119,993			$	246,318			$	234,210
Service			7,313				10,255				17,849				22,018
Royalty			—				28,800				—				46,400
Total Revenues			124,448				159,048				264,168				302,628
COST OF GOODS SOLD			38,138				59,522				71,809				106,046
GROSS PROFIT			86,309				99,527				192,358				196,583
OPERATING EXPENSES:
Consulting fees			19,655				7,053				30,485				22,128
Management fees			30,000				24,030				60,000				44,920
Payroll expense			47,930				28,730				91,714				53,503
Professional fees			25,233				27,261				37,315				58,918
Research and development			68				4,663				987				7,097
Travel, meals, and entertainment			11,613				3,453				16,787				6,840
Loss on goodwill impairment,
AquaLiv			—				—				—				315,484
Other general and administrative			64,435				92,804				146,554				146,302
Total Operating Expenses			198,933				187,994				383,842				655,192
LOSS FROM OPERATIONS			(112,624	)			(88,467	)			(191,484	)			(458,609	)
OTHER INCOME (EXPENSE):
Recapture prior expense			884				19,400				12,522				19,400
Interest expense			(20,917	)			(3,767	)			(42,386	)			(6,344	)
LOSS BEFORE INCOME TAX PROVISION			(132,657	)			(72,834	)			(221,347	)			(445,553	)
PROVISION FOR INCOME TAXES			—				—				—				—
CONSOLIDATED NET LOSS			(132,657	)			(72,834	)			(221,347	)			(445,553	)
Add: Net loss attributable to
noncontrolling interest,
AquaLiv			8,031				10,111				18,177				7,606
NET LOSS ATTRIBUTABLE TO COMPANY		$	(124,626	)		$	(62,723	)			(203,170	)		$	(437,947	)
BASIC AND DILUTED LOSS PER SHARE		$	(0.00	)		$	—			$	—			$	—
WEIGHTED AVERAGE SHARES OUTSTANDING			379,418,249				200,493,870				352,774,805				200,493,870

 

See accompanying notes.

 

 

AQUALIV TECHNOLOGIES, INC.

AND ITS’ SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

SIX MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

 

		For the Six Months
		Ended March 31,
			2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(203,170	)		$	(437,947	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities
Noncontrolling interest in income (loss) of consolidated subsidiary
			(18,177	)			(7,606	)
Depreciation			1,400				2,046
Recapture prior expense			(12,522	)			(19,400	)
Issuance of stock for services received			15,000				—
Loss on goodwill impairment, AquaLiv			—				315,484
Loss on derivative liability, net			32,801				—
Net (increase) decrease in operating assets:
Accounts receivable			(1,880	)			8,375
Inventory			(4,800	)			(17,328	)
Net increase (decrease) in operating liabilities:
Accounts payable			13,141				(3,257	)
Credit cards payable			1,370				(2,428	)
Other liabilities			(11,901	)			(12,723	)
Net Cash Provided (Used) by Operating Activities			(188,738	)			(174,784	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment			—				(5,516	)
Cash received from AquaLiv investment			—				79,000
Net Cash Provided (Used) by Investing Activities			—				73,484
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes, net			15,737				48,125
Proceeds of capital stock issuance			206,210				105,000
Net Cash Provided by Financing Activities			221,947				153,125
NET INCREASE (DECREASE) IN CASH			33,210				51,825
CASH AT BEGINNING OF PERIOD			3,732				1,034
CASH AT END OF PERIOD		$	36,942			$	52,859
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	—			$	—
Income taxes		$	—			$	—
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of stock to retire notes payable and accrued interest		$	95,750			$	5,000
Issuance of preferred stock for acquisition		$	—			$	400,000

See accompanying notes

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying financial statements have been prepared by the Company in accordance with Article 8 of U.S. Securities and Exchange Commission Regulation S-X. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2012 and 2011 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s September 30, 2011 audited financial statements. The results of operations for the periods ended March 31, 2012 and 2011 are not necessarily indicative of the operating results for the full year.

 

NOTE 2 – GOING CONCERN

 

The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2012, the Company had a retained deficit of $2,815,560 and current liabilities in excess of current assets by $430,908.  During the six months ended March 31, 2012, the Company incurred a net loss of $221,347 and negative cash flows from operations of $188,738. These factors create an uncertainty about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

The Company’s continuation as a going concern is dependent upon its ability to increase revenues, decrease or contain costs, and achieve profitable operations.  In this regard, Company management is focused on the development and expansion of the Company’s technology, including water filtration and purification, bioinformation and life sciences, the deployment of its technology platform in the agricultural and medical fields, the licensing of patents, remote desktop and cloud computing, and VoIP telephony, as well as exploring strategic acquisitions in the technology field. Should the Company’s financial resources prove inadequate to meet the Company’s needs before additional revenue sources can be realized, the Company may raise additional funds through loans or through sales of common or preferred stock. There is no assurance that the Company will be successful in achieving profitable operations or in raising any additional capital.

 

NOTE 3 – RELATED PARTY TRANSACTIONS

 

Shareholder Loans - During the three months ended March 31, 2012, the Company’s officer extended an additional use of credit in the amount of $713.62. The credit carries an interest rate of 15.24%.

 

Management Compensation - During the three months ended March 31, 2012 and 2011, respectively, the Company and its subsidiaries paid or accrued salary and management fees of $61,154 and $42,705 to its officers.

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

Estimated Useful Lives						March 31, 2012
Optical equipment			5 years			$	39,386
Office equipment			3 - 10 years				8,231
Computers and peripherals			5 years				16,000
Furniture and fixtures			5 years				6,873
							70,490
Less accumulated depreciation							(63,463)
Net property and equipment						$	7,027

 

Depreciation expense for the three months ended March 31, 2012 and 2011 was $1,400 and $1,346, respectively.

 

NOTE 5 – AQUALIV ACQUISITION

 

		December 31, 2010
Acquisition value
Preferred shares (per contract)		$	400,000
Total Acquisition value		$	400,000
Valuation classification
Physical assets		$	5,516
Cash			79,000
Goodwill			315,484
Impairment of Goodwill			(315,484	)
Goodwill, net			—
Net value		$	84,516

 

We have concluded, pursuant to the guidance in FASB ASC 810-10-25-38 (previously FIN 46R) that AquaLiv, Inc. is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, Inc. and we are required to consolidate its financials accordingly. Additionally, the acquisition was recorded at its fair market value in that the cash, computer equipment, and inventory were recorded at their fair market value on the date of the acquisition. Impairment of goodwill from the date of acquisition was written off to its net realizable value in the accompanying statements of operations.

 

NOTE 6 – INVENTORY

 

		March 31, 2012
Inventory - beginning of period		$	764
Change in inventory			4,759
Inventory - end of period		$	5,523

 

NOTE 7 - CONCENTRATIONS

 

At March 31, 2012, 39% of the Company’s accounts receivable was due from a single customer. During the three months ended March 31, 2012, 31% of the Company’s service revenue was generated from a single customer, and less than 2% of sales revenue was generated from a single customer. Compared to total revenue, less than 2% was generated from a single customer during the three months ended March 31, 2012, compared to the three months ended March 31, 2011, where 18% of the Company’s revenues were generated from a single customer.

 

 

NOTE 8 – INCOME TAXES

 

At March 31, 2012, the Company has federal net operating loss carryovers of approximately $1,172,000 available to offset future taxable income and expiring as follows: $2,320 in 2026, $12,616 in 2027, $127,675 in 2028, $37,465 in 2029, and $428,000 in 2030 and $564,000 in 2031. The Company also has a federal contribution carryover of $150 that expires in 2029. At March 31, 2012, the Company had experienced losses since inception and had not yet generated any taxable income; therefore, the Company established a valuation allowance to offset the net deferred tax assets. The income tax provision consists of the following components for the three months ended March 31, 2012 and 2011:

 

			2012				2011
Current income tax expense (benefit)		$	—			$	—
Deferred income tax expense (benefit)			—				—
Net income tax expense (benefit) charged to operations		$	—			$	—

 

The income tax provision differs from the amounts that would be obtained by applying the federal statutory income tax rate to loss before income tax provision as follows for the six months ended March 31, 2011 and 2010:

 

		2012				2011
Loss before income tax provision		$	(221,347)			$	(445,553)
Expected federal income tax rate			15.0	%			15.0	%
Expected income tax expense (benefit) at statutory rate		$	(33,202)			$	(66,833)
Tax effect of:
Meals and entertainment			2,518				1,026
Change in valuation allowance			30,684				65,807
Net income tax expense (benefit)		$	—			$	—

 

The Company’s deferred tax assets, deferred tax liabilities, and valuation allowance are as follows:

 

		March 31, 2012
Deferred tax assets:
Organization costs		$	60
Contribution carryover			23
Net operating loss carryovers			33,220
Total deferred tax assets		$	33,303
Deferred tax liabilities:
Book basis of patent application		$	(5,246	)
Tax depreciation in excess of book			(498	)
Total deferred tax liabilities		$	(5,744	)
Total deferred tax assets		$	33,303
Total deferred tax liabilities			(5,744	)
Valuation allowance			(27,559	)
Net deferred tax asset (liability)		$	—

 

These amounts have been presented in the financial statements as follows:

 

			March 31, 2012
Current deferred tax asset (liability)		$	—
Non-current deferred tax asset (liability)			—
		$	—

 

 

NOTE 9 – SUBSEQUENT EVENTS

 

On May 3, 2012, the Company filed Form 8-K with the Securities and Exchange Commission. On April 27, 2012, the Company finalized an equity facility (the “Equity Facility”) with Auctus Private Equity Fund, LLC, a Massachusetts corporation (“Auctus”), whereby the parties entered into (i) a drawdown equity financing agreement (the “Equity Agreement”) and (ii) a registration rights agreement (the “Registration Rights Agreement”).

 

Drawdown Equity Financing Agreement

 

On April 27, 2012, the Company entered into the Equity Agreement with Auctus. Pursuant to the terms of the Equity Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of the Registration Statement (as defined below), Auctus shall commit to purchase up to $3,500,000 of the Company’s common stock, par value $0.001 per share (the “Shares”), pursuant to an Advance Request (as defined below) contained in a drawdown notice (“Drawdown Notice”), covering the Registrable Securities (as defined below). The purchase price of the Shares under the Equity Agreement is equal to ninety-three percent (93%) of the average daily bid prices of the Company’s common stock during the five (5) consecutive trading days immediately following the day on which an estimated amount of advance shares have been deposited into Auctus’s brokerage account pursuant to the delivery by the Company of a Drawdown Notice to Auctus in accordance with the terms of the Equity Agreement.

 

The “Registrable Securities” include (i) the Shares; and (ii) any securities issued or issuable with respect to the Shares by way of exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise.

 

As further consideration for Auctus entering into and structuring the Equity Facility, the Company shall pay to Auctus the following fees: (i) five percent (5%) of the Advance Request amount specified in each Drawdown Notice; (ii) a non-refundable origination fee equal to $7,500; (iii) that number of shares of the Company’s common stock that is equal to $57,500.

 

Registration Rights Agreement

 

On April 27, 2012, the Company entered into the Registration Rights Agreement with Auctus. Pursuant to the terms of the Registration Rights Agreement, the Company is obligated to file a registration statement (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC’) to cover the Registrable Securities within 45 days of closing. The Company must use its commercially reasonable efforts to cause the Registration Statement to be declared effective by the SEC by a date that is no later than 180 days following closing.

 

On May 3, 2012, the Company filed Form 8-K with the Securities and Exchange Commission. On April 27, 2012, Company entered into a securities purchase agreement (the “Purchase Agreement”) with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”), pursuant to which TCA purchased from the Company a two hundred thousand dollar ($200,000) senior secured redeemable debenture (the “Debenture”). As consideration for entering into the Purchase Agreement, the Company paid to TCA (i) a transaction advisory fee in the amount of six thousand dollars ($6,000), (ii) a due diligence fee equal to four thousand dollars ($4,000), and (iii) document review and legal fees in the amount of ten thousand dollars ($10,000).

 

As further consideration, the Company agreed to issue to TCA that number of shares of the Company’s common stock that equals twenty five thousand dollars ($25,000) (the “Incentive Shares”). It is the intention of the Company and TCA that the value of the Incentive Shares shall equal $25,000. In the event the value of the Incentive Shares issued to TCA does not equal $25,000 after a nine month evaluation date, the Purchase Agreement provides for an adjustment provision allowing for necessary action (either the issuance of additional shares to TCA or the return of shares previously issued to TCA to the Company’s treasury) to adjust the number of Incentive Shares issued.

 

First Pledge and Escrow Agreement

 

On April 27, 2012, in connection with the Purchase Agreement, the Company entered into a pledge and escrow agreement (the “First P&E Agreement”), by and among the Company, TCA and David Kahan, P.A., as escrow agent (the “Escrow Agent”). Pursuant to the terms of the First P&E Agreement, and in order to secure the full and prompt payment when due of all of the Company’s obligations to TCA under the Debenture, the Purchase Agreement and any other transaction documents, the Company agreed to issue and irrevocably pledge to TCA the lesser of (i) 4.99% of the Company’s common stock and (ii) 200% of the outstanding amount under the Debenture, subject to adjustment pursuant to the terms of the Purchase Agreement. Upon timely payment in full of all obligations under the transaction documents, TCA will notify the Escrow Agent in writing and the Escrow Agent shall return the pledged materials to the Company and all of TCA’s rights in and to the pledged materials and other collateral shall be terminated.

 

Second Pledge and Escrow Agreement

 

On April 27, 2012, in connection with the Purchase Agreement, the Company entered into a pledge and escrow agreement (the “Second P&E Agreement”), by and among the Company, TCA and the Escrow Agent. Pursuant to the terms of the Second P&E Agreement, and in order to secure the full and prompt payment when due of all of the Company’s obligations to TCA under the Debenture, the Purchase Agreement and any other transaction documents, the Company agreed to irrevocably pledge to TCA its entire ownership in Aqualiv, Inc., a Washington corporation (“Aqua Sub”), consisting of 50,000 shares of Aqua Sub’s common stock. Upon timely payment in full of all obligations under the transaction documents, TCA will notify the Escrow Agent in writing and the Escrow Agent shall return the pledged materials to the Company and all of TCA’s rights in and to the pledged materials and other collateral shall be terminated.

 

First Security Agreement

 

On April 27, 2012, the Company entered into a security agreement (the “First Security Agreement”) with TCA, related to the issuance of the Debenture. As security for the Company’s obligations to TCA under the Debenture, the Purchase Agreement and any other transaction document, the First Security Agreement grants to TCA a continuing, first priority security interest in all of the Company’s assets, wheresoever located and whether now existing or hereafter arising or acquired.

 

Second Security Agreement

 

On April 27, 2012, Focus Systems, Inc., a Washington corporation and wholly-owned subsidiary of the Company (“Focus”) entered into a security agreement (the “Second Security Agreement”) with TCA, related to the issuance of the Debenture. As security for the Company’s obligations to TCA under the Debenture, the Purchase Agreement and any other transaction document, the Second Security Agreement grants to TCA a continuing, first priority security interest in all of the Focus’s assets, wheresoever located and whether now existing or hereafter arising or acquired.

 

Guaranty Agreement

 

On April 27, 2012, Focus entered into a guaranty agreement (the “Guaranty Agreement”) with TCA, in connection with the Company’s issuance of the Debenture. Pursuant to the terms of the Guaranty Agreement, Focus has guaranteed and is to act as surety to TCA for the payment of the Liabilities (as defined below) when they become due. The “Liabilities” includes, collectively, (i) the repayment of all sums due under the Debenture and other transaction documents and (ii) the performance and observance of all terms, conditions, covenants, representations and warranties set forth in the transaction documents.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

This quarterly report on Form 10-Q and other reports filed by AquaLiv Technologies, Inc. (the “Company”) from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

 

Overview

 

Our research has revealed that all substances have an inherent information signature. Biological systems naturally understand this information and respond to it. While science has not previously detected this powerful aspect of our natural world, AquaLiv’s technology can already record, catalog, and mix this bioinformation into unique composites. These composites are designed for specific applications and then programmed into water for delivery to biological systems.

 

With direct applications in the industries of water purification, environmental science, agriculture, animal husbandry, personal use products, and medicine, AquaLiv is poised to provide innovative ingredient-free solutions to the world’s problems.

 

AquaLiv Water System

 

The AquaLiv water system addresses every aspect of water to make it whole and full of vital nutrients. The system requires no electicity, is eco-friendly, removes most impurities (including harmful sodium fluoride), and creates a healthful and stable alkaline pH. Users of the AquaLiv Water System have reported stabilized blood sugar, improvements in both high and low blood pressure, reduced allergy symptoms, less headaches, better digestion, and healthy glowing skin. Some diabetics have even reported that AquaLiv helped them decrease their insulin requirements.

 

Infotone Face Mist

 

Infotone Face Mist contains a non-toxic and 100% natural mineral clay ceramic ball that features AquaLiv’s BioT™ Bioinformation Technology. This revolutionary technology turns regular water into a powerful tonic that when misted over the face encourages optimal hydration and clear, youthful, glowing skin. Researchers observed improved hydration, suppleness, firmness, and texture and reduced dryness, oxidation, wrinkles, skin pigmentation, and blemishes. Infotone Face Mist stands apart from other facial water misters because it isn’t just a typical water mister. In fact, no other water mister on the market today utilizes AquaLiv’s BioT™ Bioinformation Technology. Infotone is the first cosmetic of its kind.

 

AgSmart™ Rice

 

AgSmart™ Rice has demonstrated over 100% crop yield increase over test control yield (same seeds, same practices, adjacent parcel) while decreasing duration before harvest by one month. It is also more resistant to pests, disease, and storms. All AgSmart™ products are 100% natural and organic standards compliant. Based on our experience, we do not expect all farms to achieve a 100% yield increase, but rather a 30-60% increase will be average.

 

NatuRx™ Medication Alternatives

 

Based on AquaLiv’s BioT™ Bioinformation Technology, NatuRx™ formulations utilize novel wave-based information composites in lieu of active-molecules for treatment. Physics-based medicine, not chemistry. NatuRx™ formulations are non-toxic and have no contraindications. NatuRx™ formulations are in development and not yet available to the general public.

 

Focus Systems, Inc.

 

Remote Desktop and Cloud Computing

 

A remote device runs the client software that implements the chosen protocol(s) and allows the user to access an entire desktop environment that is being projected from a remote server or group of servers. Although the remote device may be a personal computer running an agent, the remote device, sometimes called a “Thin Client,” does not need to have a large amount of memory or storage. In fact, it may offer no local storage at all. The remote device does not need to be based upon the same hardware architecture or operating system as used by the remote servers. It is quite possible for a small, hand held device based upon an X-scale processor running some embedded operating system to display Linux, Windows, UNIX or even Z/OS applications.

 

The Company believes that there are inherent benefits of operating in a completely portable desktop office environment. Remote desktop users can access their same computer desktop from the office, at home, a mobile device, or virtually anywhere in the world. Access to central data and shared recourses will increase productivity and reduce cost for businesses. The remote environment is controlled, managed and updated by the Company from a centralized location, further reducing operating costs for its customers.

 

VOIP Phone Service

 

VoIP phone service is a method for taking analog audio signals (similar to the kind you hear when you talk on the phone) and turning them into digital data that can be transmitted over the Internet. This allows VoIP service to replace traditional landline service for business and residential customers. Since VoIP phone service is digital, companies can run both data and voice over the same network infrastructure greatly reducing costs. This reduction in cost is experienced in both the initial start-up phase, as well as the ongoing maintenance and services fees associated with phone service. Company management believes that the trend away from traditional phone service to digital VoIP services will continue to grow.

 

 

 

 

Plan of Operation

 

Recent advancements in AquaLiv’s technology uncovered a new field of biological information science. With direct applications in the industries of water purification, environmental science, agriculture, animal husbandry, personal use products, and medicine, AquaLiv is ready to expand its innovative product offering. While the economy has slowed in recent years, recent sales campaigns have produced positive results for AquaLiv.

 

The technology industry, especially as it applies to the small business sector, has slowed drastically during the recession. New service orders for both remote desktop and VoIP products have been slow since acquisition. Management is working on increasing exposure for its remote desktop product and is working to expand its VoIP phone service from the small business market into the residential market as well. Additionally, management is investigating possible acquisitions that would be accretive to the core business and enable the growth of its revenues both locally and abroad.

 

Results of Operations

 

For the Three and Six Months Ended March 31, 2012 Compared with the Three and Six Months Ended March 31, 2011

 

Revenues

 

The revenues for the three months ending March 31, 2012 were $124,448 as compared to $159,018 in the quarter ending March 31, 2011. Revenues were $264,168 for the six months ended March 31, 2012, as compared to $302,628 for the six months ended March 31, 2011.  Sales revenue comprised of 94.1% and 93.2% of our revenue for the three and six months ending March 31, 2012, respectively, compared to the same three and six month periods in 2011, where sales revenue accounted for 75.4% and 77.4% of overall revenue, respectively. Service revenue accounted for 5.9% and 6.8% of our revenues for the three and six months ending March 31, 2012, respectively, compared to the same three and six month periods in 2011, where service revenue accounted for 6.4% and 7.3% of overall revenue, respectively. The Company stopped receiving royalty revenue on June 22, 2011 in conjunction with the distribution of Infrared Applications, Inc., therefore, royalty revenues were $0 for the three and six months ended March 31, 2012, compared to $28,800 and $46,400 for the three and six months ended March 31, 2011, respectively. Royalty revenue accounted for 0% of revenues for the three and six months ended March 31, 2012, compared to the same three and six month periods in 2011, where royalty revenue accounted for 18.1% and 15.3 of overall revenue, respectively. Revenue recognition is accounted for as follow: Sales revenue is billed, paid, and shipped in the same period each month; Service revenue is billed in advance on the first day of the month that service is rendered; and royalty revenue is recorded as earned in the month it is received.

 

Cost of Goods Sold

 

Cost of goods sold for the three and six months ending March 31, 2012 were $38,138 (30.6% of total revenues) and $71,809 (27.2% of total revenues), respectively, compared to $59,522 (37.4% of total revenues) and $106,046 (35% of total revenues), respectively, for the same three and six month periods ending March 31, 2011. The improvement in cost of goods sold is associated with outsourcing changes made to operations related to Focus Systems.

 

Operating Expenses

 

Operating expenses for the three months ending March 31, 2012 were $198,933 as compared to $187,994 for the quarter ending March 31, 2011. The increase of $12,602 in consulting fees, increase of $5,970 in management fees, increase of $19,200 in payroll expense, decrease of $2,028 in professional fees, increase of $4,595 in research and development, increase of $8,160 in travel expense, and decrease of $28,369 in general and administrative fees is due in part to the increased costs of running the businesses compared to the quarter ending March 31, 2011. The operation expenses for the six months ending March 31, 2012, were $383,842 as compared to $655,192 for the six months ending March 31, 2011. The increase of $8,357 in consulting fees, increase of $15,080 in management fees, increase of $38,211 in payroll expense, decrease of $21,603 in professional fees, decrease of $6,110 in research and development, increase of $9,947 in travel expense, and increase of $252 in general and administrative fees is due in part to the increased costs of running the businesses compared to the six months ending March 31, 2011. The decrease of $315,484 in loss on goodwill impairment, AquaLiv, was due to the one time write down of goodwill attributed to the acquisition of that business during the six months ending March 31, 2011.  The Company expects operating expenses to remain higher that previously comparable periods as the Company expands its services.

 

Other Income and Expense

 

Interest expense for the three months ended March 31, 2012 was $20,917 as compared to $3,767 for the three months ended March 31, 2011, and was $42,386 for the six months ended March 31, 2012 as compared to $6,344 for the six months ended March 31, 2011. The increase in interest expense is due to an increase in loss on derivative liability.

 

Net (Loss) Before Provision for Income Taxes

 

The net loss for the three months ended March 31, 2012 was $124,626 as compared to $62,723 for the three months ended March 31, 2011.  The increase in net loss is attributed to the increase in our operating expenses due to the subsidiary changes and business additions to the Company. The net loss for the six months ended March 31, 2012 was $203,170 as compared to $437,947 for the six months ended March 31, 2011.  The one time write off of goodwill attributed to the AquaLiv acquisition during the six months ended March 31, 2011 accounted for the decrease in net loss between then and the same period ending March 31, 2012. Had that one time event not occurred, the company would have reported an increase in our operating expenses for the six months ended March 31, 2012, as compared to the six months ended March 31, 2011. The increase in normal operating expenses is due to the subsidiary changes and business additions to the Company.

 

Liquidity and Capital Resources

 

Operating expenses for the six months ended March 31, 2012 and 2011, was $383,842 and $655,192, respectively. The net loss for the six months ended March 31, 2012 and 2011, was $(203,170) and $(437,947), respectively.

 

As of March 31, 2012, the Company did not have and continues to not have sufficient cash on hand to pay present obligations as they become due. In addition, due to current economic conditions and the Company’s related risks and uncertainties, there is no assurance that we will be able to raise additional capital on acceptable terms, if at all, to meet our current obligation over the next 12 months. Because of the foregoing, the Company’s auditors have expressed substantial doubt about our ability to continue as a going concern.

 

If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy. Our estimated working capital requirement for the next 12 months is $500,000, with an estimated burn rate of $35,000 per month.

 

On April 27, 2012, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”), pursuant to which TCA purchased from the Company a two hundred thousand dollar ($200,000) senior secured redeemable debenture (the “Debenture”). The maturity date of the Debenture is April 24, 2013, subject to adjustment (the “Maturity Date”). The Debenture bears interest at a rate of twelve percent (12%) per annum.

 

Further, on April 27, 2012, the Company entered into an Equity Facility Agreement (the “Equity Agreement”) with Auctus Private Equity Fund, LLC, a Massachusetts corporation (“Auctus”). Pursuant to the terms of the Equity Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of the a registration statement, Auctus has committed to purchase up to $3,500,000 of the Company’s common stock, par value $0.001 per share.

 

The Company expects the current resources from the Debenture, as well as the resources available from the Equity Agreement once the registration statement is declared effective, will be sufficient for a period of approximately 24 months, depending upon certain funding conditions contained herein, unless significant additional financing is received. Management has determined that general expenditures must be reduced and additional capital will be required in the form of equity or debt securities. In addition, if we cannot raise additional short term capital we will be forced to continue to further accrue liabilities due to our limited cash reserves. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.

 

Going Concern

 

We have limited working capital and limited revenues from sales of products, services, or licensing. During the three months ended March 31, 2012, our operating expenses continued to be greater than our revenues. These factors have caused our accountants to express substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

 

Our ability to continue as a going concern has caused the Board of Directors to continue to look for sources of investment capital, and investigate merger and acquisition opportunities. We will look to further diversify our holdings and sources of cash flow.

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures.

 

Pursuant to Rule 13a- 15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s PEO and PFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.

  

(b) Changes in Internal Control over Financial Reporting.

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that material weaknesses exist due to a lack of segregation of duties, resulting from the Company's limited resources.

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors.

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K/A for the year ended September 30, 2011, filed with the SEC on March 14, 2012.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

There were no unregistered sales of the Company’s equity securities during the quarter ended March 31, 2012, other than those previously reported in a Current Report on Form 8-K.

 

Item 3. Defaults Upon Senior Securities.

 

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

There is no other information required to be disclosed under this item which was not previously disclosed.

 

Item 6. Exhibits.

 

Exhibit No.		Description
31.1		Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
31.2		Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
32.1		Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2		Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

 

* Filed herewith

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

			AQUALIV TECHNOLOGIES, INC.
Date: May 14, 2012			By:	/s/ William Wright
				Name: William Wright
				Title: Chief Executive Officer
				(Principal Executive Officer)
				(Principal Financial Officer)
				(Principal Accounting Officer)