WASHINGTON, D. C. 20549
FORM 10-K
AMENDMENT NO. 1
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended SEPTEMBER 30, 2010
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL
AND ITS’ SUBSIDIARIES
(Exact name of registrant as specified in its Charter)
| Nevada | 38-3767357 | |
| (State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| 4550 NW Newberry Hill Road, Suite 202, Silverdale WA | 98383 |
|---|---|
| (Address of Principal Executive Offices) | (zip code) |
(360) 473-1160
Registrant's Telephone Number (including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
Securities registered pursuant to section 12(g) of the Act:
Title of Class
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [ ] No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act:
Yes [ ] No |X|
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), 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 (ss. 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 [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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 Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.
Yes [ ] No |X|
The aggregate market value of the approximately 51,400,982155,774,540, shares of the registrant's Common Stock held by nonaffiliates on September 30, 20102011 was approximately $514,000$732,140 based on the average bid and asked price of such Common Stock on September 30, 2010.2011. For purposes of this computation all officers, directors and 5% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors and beneficial owners are, in fact, affiliates of the registrant.
Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 187,243,870342,117,428 shares of Common Stock and 285,618911,618 shares of Series A Preferred Stock as of September 30, 2010.
DOCUMENTS INCORPORATED BY REFERENCE: None
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FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE GENERALLY IDENTIFIABLE BY USE OF THE WORDS "BELIEVES," "EXPECTS," "INTENDS," "ANTICIPATES," "PLANS TO," "ESTIMATES," "PROJECTS," OR SIMILAR EXPRESSIONS. THESE FORWARD-LOOKING STATEMENTS REPRESENT MANAGEMENT'S BELIEF AS TO THE FUTURE OF INFRARED SYSTEMS INTERNATIONAL. WHETHER THOSE BELIEFS BECOME REALITY WILL DEPEND ON MANY FACTORS THAT ARE NOT UNDER MANAGEMENT'S CONTROL. MANY RISKS AND UNCERTAINTIES EXIST THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--RISK FACTORS THAT MAY AFFECT FUTURE RESULTS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO REVISE OR PUBLICLY RELEASE THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS.
The Company is amending this report, Form 10-K/A, to included the following added and/or corrected Notes to the Consolidated Financial Statements. Financial Statements contained in our original Form 10-K are unchanged, with the execption of Depreciation in our Statements of Cash Flows, which was misreported as $2,800. Depreciation should have been reported as $3,446.
Additionally, due to restrictions with the newly required XBRL filing format, certain items have been consolidated for that filing format, including Loss Impairments in our Statements of Cash Flows and EQuity issuance in our Stockholders’ Equity section.
Note 7 - Notes Payable has been corrected and updated to include information related to the derivative liability.
Note 8 - Stockholders' Deficit has been updated to include information related to transactions between October 1, 2010 and September 30, 2011.
Note 10 - Contingencies has been added to provide additional disclosure.
Note 11 - Loss Per Share has been added to provide additional disclosure.
Note 12 - Segments has been added to provide additional disclosure.
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ITEM 1. BUSINESS
BUSINESS
BACKGROUND
AquaLiv Technologies, Inc (ALTI) was formed under the laws of the State of Nevada on April 11, 2006 originally under the name of Infrared Systems International (ISI) as a wholly-owned subsidiary of CSBI (then known as Advance Technologies, Inc.) to pursue a narrowly defined business objective called infrared security systems.
On July 11, 2007, CSBI acquired American SXAN Biotech, Inc. a Delaware Corporation doing business exclusively in the People's Republic of China under a registered capital corporation, Tieli XiaoXingAnling Forest Frog Breeding Co, Ltd. As a result of the acquisition, the stockholders of American SXAN Biotech, Inc. acquired control of CSBI.
Pursuant to one of the terms of the acquisition, all of the assets and liabilities of CSBI as of the date of the acquisition were transferred into ISI. SinceFrom that time and until June 22, 2011, ISI had conducted not only the infrared security systems development for which it was formed but also the other prior activities of CSBI.
In March 2010, ISI transferred all of the assets and liabilities of ISI into a newly created wholly-owned subsidiary, Infrared Applications, Inc. (IAI). Since that time, IAI continuescontinued to operate the previous business of ISI under this newly created company.
On April 12, 2010, ISIthe company sold a majority interest in its common stock to Take Flight Equities, Inc (TFE). As part of the agreement, a change in control took place and William Wright was appointed CEO of ISI.the company. Also included in the agreement were provisions for the future distribution of the IAI assets to the ISI shareholders of record on March 23, 2010 within 15 months of the agreement.
On April 19, 2010, ISIthe company purchased 100% of the outstanding common stock of Focus Systems, Inc. (Focus) from ProPalms, Inc. Focus is held and operated as a wholly-owned subsidiary of ISI.
On December 16, 2010 the past three yearscompany purchased a 50% interest in AquaLiv, Inc. 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. The remaining 50% non-controlling interest is owned by Craig Hoffman, AquaLiv, Inc’s President and CEO. AquaLiv, Inc. is a life sciences research and development company creating novel products for numerous industries. The company's technology alters the behavior of organisms, including plants and humans, without chemical interaction. From increased crop yields to drug-free medicine, AquaLiv is providing innovative, ingredient-free solutions to the world's largest problems.
On June 22, 2011, in accordance with Management and Distribution Agreement (“Agreement”) dated March 24, 2010, we completed the distribution of substantially all of the assets of Infrared Applications, Inc. (“IAI”), a Texas corporation. All of the outstanding stock of IAI has been derivedtransferred to Gary Ball (“Ball”) in accordance with the Agreement. Subsequent to this event, Ball shall be responsible to make, if any, a Subsidiary Stock Distribution to the Company’s shareholders of record as of March 23, 2010, upon the earlier of the foregoing occurrence: (i) the net proceeds from only two sources:the sale of substantially all of the assets of IAI or (ii) Ball elects to make a 1997 license agreement relating to proprietary technology utilized by Kollsman Instruments for its Enhanced Visions System for commercial aviation; and acting on behalf of a Taiwanese companySubsidiary Stock Distribution. Any cost incurred in connection with a Subsidiary Distribution shall be the acquisitionresponsibility of Ball. There is no certainty as to when or if a Subsidiary Stock Distribution will occur.
On September 6, 2011, the company filed its Articles of Amendment with the State of Nevada to effect a name change to AquaLiv Technologies, Inc. and modificationto increase its authorized common shares to 1,000,000,000. FINRA declared the corporate action effective on September 19, 2011. The name change was effected to more closely align the name with the future direction of infrared camerathe company
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AQUALIV, INC.
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 U.S.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. Revenues generated from AquaLiv, Inc. products for thermal imagingfiscal year ended September 30, 2011 were $446,085.
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 human bodyAquaLiv 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 medical purposestreatment. Physics-based medicine, not chemistry. NatuRx™ formulations are non-toxic and exporting the modified productshave no contraindications. NatuRx™ formulations are in development and not yet available to the Taiwanese company. The services renderedgeneral public.
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COMPETITION
AquaLiv’s AgSmart™ can be used in conjunction with other technologies, e.g. hybridization, agrochemicals, and/or GMOs, while delivering its yield increases and other benefits. For this reason, other technologies currently available in agriculture do not compete directly with AgSmart™. This statement is particularly true in the case of organic production methods that forbid the use of agrochemicals or GMOs. Other competition comes directly from pharmaceutical and biotech companies providing traditional active-molecule based treatments. In order to compete against traditional treatments for the Taiwanese corporation are commercial laborspecific conditions, we will need to deliver better results, fewer side effects, a lower toxicity, and/or a lower cost. Our early studies and transportation,observed results indicated this to be possible on all accounts.
FOCUS SYSTEMS
Remote Desktop and no technology of ISI is involved.
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, some times 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. Revenues generated from remote desktop and other services for fiscal year ending September 30, 20102011 were $29,163.
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. Revenues generated from VoIP services for the fiscal year ending Se ptemberSeptember 30, 20102011 were $31,435.
COMPETITION
The remote desktop and cloud computing environment is still relatively in its infancy. While the advent of computers saw large uses of thin client applications, the PC age saw companies bringing servers and applications both in-house and distributed to the desktops. Today, as companies struggle with IT cost and look for ways to reduce overhead and speed up deliver of changing software, they are beginning to look again at outsourcing of their IT and utilize the expanding power of cloud computing. There are several large service providers servicing the commercial market, such as IBM, Hewlett Packard, VMware, and a number of others. They are betting big on this trend and will capture a large segment of the market related to large business. However, providers of the service to small business have yet to make a large mark in the market space. Buying decisions with small business remain more local, and with the consolidation of the ISP market over recent years, there are less IT businesses in these communities to roll out and support this type of initiative.
VoIP competition is a bit fiercer when it comes to the residential market. Companies such as Vonage and Magic Jack (heavy marketer in the residential market) have made great inroads into the homes of Americans and those abroad. However, when it comes to small businesses making decisions, they have been less eager (either due to familiarity or lack of knowledge) to move away from the traditional Telco provider and utilize VoIP. The trend towards a VoIP solution is inevitable as companies continue to consolidate their IT solutions and take advantage of cost savings initiatives, both for initial capital outlay as well as ongoing monthly cost. Focus is poised to take advantage of the technology decisions that these small business will make in the coming years, either as a provider of remote desktop sol utions,solutions, VoIP, or both.
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EMPLOYEES
We previously were engaged inhave four (4) current employees between the development of an infrared imaging camera system for commercial aircraft to allow civilian pilots to land their aircraft under conditions of low or reduced visibility. The infrared camera system is especially designed to enhance the performance of the imager by proprietary techniques of selective wavelength enhancement. An exclusive license for this system was granted to Kollsman Instruments in 1997. The licensing agreement with Kollsman grants to Kollsman a worldwide, exclusive license under ISI proprietary data to make, sell, maintain and repair products utilizing such data for use on any aircraft licensed to operate by the Federal Aviation Administration or by equivalent foreign regulatory agencies. Royalty payments are required for each EVS system sold utilizing a licensed product, based upon the number of units sold. Pursuant to the license agreement, the royalty is $800 per unit for units 201 through 2,000 (the first 20 units were prepaid and no payment was required for units 21 through 200), $1,400 per unit for units 2,001 through 5,000, $3,800 per unit for units 5,001 through 10,000, and $200 per unit thereafter. Through September 30, 2010, a total of 751 units have been sold. The license continues until terminated by the mutual consent of the parties, or at the written election of a party in the event of an uncured default by the other party, or by us if Kollsman fails to sell an EVS system containing our licensed rights for 24 months.
PLAN OF OPERATION IN THE NEXT TWELVE MONTHS
Most of our programs are dependent on capital in excess of that which is derived from current sales for us to be able to execute on large marketing initiatives. Based on this need, we are focused on raising capital through various means, including, but not limited to, private investment, the selling of equity, convertible notes, and other acceptable means. Additionally, we continue to explore opportunities to acquire and/or merge with other entities that bring synergy to the company and its subsidiaries, are engaged in emerging markets, offer new technologies, or bring other benefits to the company and its shareholders.
To date, extensive research, development, and testing have been conducted in both agriculture and medicine under AquaLiv, Inc. Numerous products in our pipeline are nearing marketability including AgSmart™ Potato and several varieties of NatuRx™ medicinal treatments. Because AquaLiv has been primarily focused on research and development, significant infrastructure needs to be built in order to service the tremendous size of our target markets.
Our goals and objectives over the next twelve months include, the hiring of industry veteran Vice Presidents in Agriculture and Medicine, expand offices and laboratory in Seattle and Tokyo, build a manufacturing and warehousing facility in Seattle, launch clinical HIV/AIDS study, and train sales staff to sell AgSmart™.
Recent changes with our VoIP distribution has enabled us to reduce expenses and allow for quicker product deployment. With the reduction in fixed IT expense, we will look to increase our deployment of our VoIP service to small business and hope to launch our resale marketing program during the fiscal year.
The nature of remote desktop computing (the customer outsourcing of IT), requires that we have access to IT professionals with certain qualifications. Since the reduction in our internal IT staffing, we continue to work with vendors to assist in supporting aspects of our remote desktop service. However, lacking our own engineer reduces our ability to control and quickly deploy remote desktop sessions to new customers. Additionally, as customers increase, so does our need to purchase additional hardware or seek an outsourcing partner suitable to provide these services. Similar to our VoIP outsourcing, we hope to completely (or as near as possible) outsource the physical aspects of our remote desktop service.
EXPENSES
We estimate that we will require between $100,000 and $150,000 over the next twelve months in order to maintain operations.
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IF WE DO NOT GENERATE ADEQUATE REVENUES TO FINANCE OUR OPERATIONS, OUR BUSINESS
MAY FAIL.
We were incorporated on April 11, 2006. Our business primarily involves marketing activities. As of September 30, 2010,2011, we had a retained deficit of $2,024,455.$2,612,390. During the years ended September 30, 20102011 and 2009,2010, respectively, we had net losses of $1,008,604$564,294 and $23,278.$1,008,604. We expect our revenues during the next twelve months from our existing licenseeproducts and service customers to remain flat depending upon the US economic recovery.recovery and our ability to create market awareness with our AquaLiv brand. Our expected revenue generation and expenses are difficult to predict, and there can be no assurance that revenues will be sufficient to cover operating costs for the foreseeable future. It may be necessary to raise additional funds. If we are unable to raise funds to cover any operating deficit and our sales decrease in 20112012 our business may fail.
BECAUSE WE HAD INCURRED A LOSS AND HAVE NOT FULLY COMMENCED OUR PLANNED PRINCIPAL OPERATIONS, OUR ACCOUNTANTS HAVE EXPRESSED DOUBTS ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
For the fiscal year ended September 30, 2010,2011, our accountants have expressed doubt about our ability to continue as a going concern as a result of operating losses since inception, the failure to yet commence planned principal operations, and current liabilities in excess of current assets. Our ability to achieve and maintain profitability and positive cash flow is dependent on such factors as our ability to sell AquaLiv Water Systems and Infotone Face Mist, generate new sales for AquaLiv’s AgSmart™ and NatuRx™ product lines, and to capture and retain new remote desktop and VoIP customers, enter into license agreements, and our licensees' ability to sell products utilizing our technology.customers. Based upon current plans, we expect our operating costs to range between $100,000 and $150,000 for the fiscal year ending September 30, 2011.2012. We cannot guarantee that we will be successful in generating sufficient revenues or other funds in the future to cover these oper atingoperating costs. Failure to generate sufficient revenues will cause us to go out of business or take draconian actions.
TRADING IN OUR SHARES IS SUBJECT TO RULES GOVERNING "PENNY STOCKS," WHICH WILL IMPAIR TRADING ACTIVITY IN OUR SHARES.
We have been listed on the OTC:BB since August 11, 2009, our symbol is IFRS.AQLV. The IFRSAQLV common stock has been trading at either very low or inconsistent volumes. Penny stocks trading at low volumes are extremely volatile and investors should exercise care in any trading activities.
Our stock is subject to rules adopted by the Securities and Exchange Commission regulating broker dealer practices in connection with transactions in "penny stocks." Those disclosure rules applicable to "penny stocks" require a broker dealer, prior to a transaction in a "penny stock" not otherwise exempt from the rules, to deliver a standardized list disclosure document prepared by the Commission. That disclosure document advises an investor that investment in "penny stocks" can be very risky and that the investor's salesperson or broker is not an impartial advisor but rather paid to sell the shares. The disclosure contains further warnings for the investor to exercise caution in connection with an investment in "penny stocks," to independently investigate the security, as well as the salesperson with which the investor is working and to understand the risky nature of an investment in this security. The broker dealer must also provide the customer with certain other information and must make a special written determination that the "penny stock" is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. Further, the rules require that, following the proposed transaction, the broker provide the customer with monthly account statements containing market information about the prices of the securities.
Many brokers may be unwilling to engage in transactions in our common stock because of the added disclosure requirements, thereby making it more difficult for stockholders to dispose of their shares. You will also find it difficult to obtain accurate information about, and/or quotations as to the price of, our common stock.
ISSUANCES OF OUR STOCK COULD DILUTE CURRENT STOCKHOLDERS AND ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK, IF A PUBLIC TRADING MARKET DEVELOPS.
We have the authority to issue up to 500,000,0001,000,000,000 shares of common stock, 50,000,000 shares of preferred stock, and to issue options and warrants to purchase shares of our common stock without stockholder approval. We are currently working on financing plans for future growth and acquisitions, product and service development, and we may need to raise additional capital to fund operations. If we raise funds by issuing equity securities, our existing stockholders who receive shares in the spin-off may experience substantial dilution. In addition, we could issue large blocks of our common stock to fend off unwanted tender offers or hostile takeovers without further stockholder approval, or in connection with one or more acquisitions. No such transactions currently are planned.
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The issuance of preferred stock by our board of directors could adversely affect the rights of the holders of our common stock. An issuance of preferred stock could result in a class of outstanding securities that would have preferences with respect to voting rights and dividends and in liquidation over the common stock and could, upon conversion or otherwise, have all of the rights of our common stock. Our board of directors' authority to issue preferred stock could discourage potential takeover attempts or could delay or prevent a change in control through merger, tender offer, proxy contest or otherwise by making these attempts more difficult or costly to achieve.
OUR ARTICLES OF INCORPORATION PROTECT OUR DIRECTORS FROM CERTAIN TYPES OF LAWSUITS, WHICH COULD MAKE IT DIFFICULT FOR US TO RECOVER DAMAGES FROM THEM IN THE EVENT OF A LAWSUIT.
Our Articles of Incorporation eliminate the liability of our directors for monetary damages to the fullest extent permissible under Nevada law. Nevada law permits the elimination of the personal liability of a director or officer for damages for breach of fiduciary duty as a director or officer, although such a provision must not eliminate the liability of a director or officer for (a) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (b) the payment of distributions in violation of Nevada Revised Statutes Section 78.300. This exculpatory provision may have the effect of preventing stockholders from recovering damages against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require our company to use our assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.
COMPETITION IN THE LIFE SCIENCES AND INFORMATION TECHNOLOGY AND INFRARED PRODUCTS INDUSTRY IS INTENSE.
Our business plan involves deployment of technology services, and developing, deploying, and licensing infrared products. These businesses are highly competitive. There are numerous similar companies providing such services and products in the United States. Our competitors will have greater financial resources and more expertise in these businesses. Our ability to deploy our AgSmart™ and NatuRx™ products under AquaLiv, Inc., as well as our remote desktop and VoIP phone services and to develop our infrared products businessunder Focus Systems, Inc. will depend on our ability to successfully market our products in this highly competitive environment. We cannot guarantee that we will be able to do so successfully.
OUR INTELLECTUAL PROPERTY MAY NOT BE ADEQUATELY PROTECTED.
While we have a patent,exclusive use of certain patents, we cannot assurebe assured that it will be sufficiently broad enough to protect our technology. In addition, we cannot assure that any patents issued to us will not be challenged, invalidated, or circumvented. In order to safeguard our unpatented proprietary know-how, trade secrets, and technology, we rely primarily upon trade secret protection and nondisclosure provisions in agreements with employees and others having access to confidential information. We cannot assure that these measures will adequately protect us from improper disclosure or misappropriation of our proprietary information.
ENFORCING AND PROTECTING OUR PROPRIETARY INFORMATION CAN BE COSTLY.
If we are not able to adequately protect or enforce our proprietary information or if we become subject to infringement claims by others, our business, results of operations and financial condition may be materially adversely affected. We may need to engage in future litigation to enforce our intellectual property rights or the rights of our customers, to protect our trade secrets or to determine the validity and scope of proprietary rights of others, including our customers. We also may need to engage in litigation in the future to enforce any patent rights. In addition, we may receive in the future communications from third parties asserting that our products infringe the proprietary rights of third parties. We cannot assure you that any such claims would not result in protracted and costly litigation. Such litigation could resu ltresult in substantial costs and diversion of our resources and could materially and adversely affect our business, financial condition and results of operations. Furthermore, we cannot assure you that we will have the financial resources to vigorously defend or enforce our proprietary technology.
THE SHARE CONTROL POSITION OF GARY BALL MAY LIMIT THE ABILITY OF OTHER STOCKHOLDERS TO INFLUENCE CORPORATE ACTIONS.
With the default of the note receivable by Take Flight Equities, Inc., Gary Ball assumedretains voting control of the 115,572,170106,572,170 common shares issued, and held in escrow, and associated with the April 2010 agreement, thereby making Gary Ball the largest shareholder with control of approximately 62%37% of our outstanding shares. Because Gary Ball controls such a significant percentage of the outstanding shares, other stockholders, individually or as a group, will be at a disadvantage in their ability to effectively influence the election or removal of our directors, the supervision and management of the business or a change in control of or the sale of our company, even if he believed such changes were in the best interest of our stockholders generally.
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OUR FUTURE SUCCESS DEPENDS, IN LARGE PART, ON THE CONTINUED SERVICE OF OUR PRESIDENT.
We depend almost entirely on the efforts and continued employment of Mr. William Wright, our President and Secretary-Treasurer. Mr. Wright currently is our sole employee of the parent company, and we will depend on him for nearly all aspects of our operations. We do not have an employment contract with Mr. Wright, and we do not carry key person insurance on his life. Mr. Wright currently is able to devote substantially all of his time on our behalf. The loss of the services of Mr. Wright, through incapacity or otherwise, would have a material adverse effect on our business. It would be very difficult to find and retain qualified personnel such as Mr. Wright.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
ITEM 2. PROPERTIES
Since 2010, and in conjunction with the change of control, no property is owned or lease by the company from ourany current President.Officer or Director. We lease an office space for corporate purposes and pay the landlord $500 per month for the use of the space. We own no real estate nor have plans to acquire any real estate.
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
A REGISTRANT THAT QUALIFIES AS A SMALLER REPORTING COMPANY IS NOT REQUIRED TO PROVIDE THE PERFORMANCE GRAPH REQUIRED IN PARAGRAPH (E) OF ITEM 201 OF REGULATION S-K.
MARKET INFORMATION
Our common stock is currently quoted on the OTCBB under the symbol "IFRS.OB""AQLV.OB". There is a limited trading market for our common stock. The following table sets forth the range of high and low bid quotations for each quarter since August 11, 2009, when our common stock became listed on the OTCBB.September 30, 2010. These quotations as reported by the OTCBB reflect inter-dealer prices without retail mark-up, mark-down, or commissions and may not necessarily represent actual transactions.
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| Quarter Ending | High | Low | ||||||
| September 30, 2009* | $ | 0.05 | $ | 0.002 | ||||
| December 31, 2009 | $ | 0.05 | $ | 0.002 | ||||
| March, 31, 2010 | $ | 0.05 | $ | 0.002 | ||||
| June 30, 2010 | $ | 0.04 | $ | 0.001 | ||||
| September 30, 2010 | $ | 0.02 | $ | 0.001 | ||||
| Quarter Ending | High | Low | ||||||
| September 30, 2010 | $ | 0.0200 | $ | 0.0010 | ||||
| December 31, 2010 | $ | 0.0180 | $ | 0.0022 | ||||
| March, 31, 2011 | $ | 0.0128 | $ | 0.0030 | ||||
| June 30, 2011 | $ | 0.0160 | $ | 0.0027 | ||||
| September 30, 2011 | $ | 0.0070 | $ | 0.0028 | ||||
SECURITY HOLDERS
EQUITY COMPENSATION PLANS
The following table provides information as of September 30, 2010,2011, with respect to the shares of the Company's common stock that may be issued under the Company's existing equity compensation plan, “2010 Incentive Compensation Plan”.
| A | B | C | |||||
| PLAN CATEGORY | |||||||
NUMBER OF SECURITIES TO BE ISSUED UPON EXERCUSE OF OUTSTANDING OPTIONS | WEIGHTED AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS | NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING COLUM A) | |||||
Equity Compensation Plans Not Approved by Stockholders (1) | 0 | N/A | 15,000,000 | ||||
| Total | 0 | $ | N/A | 15,000,000 | |||
| A | B | C | ||||||||||
| PLAN CATEGORY | ||||||||||||
| NUMBER OF SECURITIES TO BE ISSUED UPON EXERCUSE OF OUTSTANDING OPTIONS | WEIGHTED AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS | NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING COLUMN A) | ||||||||||
| Equity Compensation Plans Not Approved by Stockholders (1) | 0 | N/A | 15,000,000 | |||||||||
| Total | 0 | $ | N/A | 15,000,000 | ||||||||
(1) Consists of the 2010 Incentive Compensation Plan filed on Form S-8, July 9, 2010.
ITEM 6. SELECTED FINANCIAL DATA
A REGISTRANT THAT QUALIFIES AS A SMALLER REPORTING COMPANY IS NOT REQUIRED
TO PROVIDE THE INFORMATION REQUIRED BY THIS ITEM.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
AquaLiv Technologies, Inc. ("the Company") is a corporation organized under the laws of the State of Nevada on April 11, 2006, originally under the name of Infrared Systems International, as a wholly-owned subsidiary of China SXAN Biotech, Inc. (formerly Advance Technologies, Inc.) ("CSBI"). CSBI was organized under the laws of the State of Delaware on June 16, 1969. In July 2007, CSBI transferred the assets, liabilities, and operations of its technology licensing business to the Company. Because CSBI's operations are considered to be the Company's predecessor business, the financial statements include CSBI's operations from the inception of the business. In December 2008, the Company completed its spin-off by dividend to stockholders of CSBI.
In March 2010, the Company transferred the assets, liabilities, and operations of its technology licensing business to a wholly-owned s ubsidiary,subsidiary, Infrared Applications, Inc (“IAI”). IAI was organized under the laws of the state of Texas on March 26, 2010. On April 14, 2010, the Company sold a majority interest in its Common stock to Take Flight Equities, Inc. (“TFE”), a corporation organized under the laws of the State of Washington, and control of the Company was transferred to William Wright, its current CEO. Under the terms of the Agreement, IAI will continuecontinued to operate for up to 15 months as a wholly owned. This 15 month time period will be useowned subsidiary until June 22, 2011, when IAI was distributed to transition the Gary Ball, the companies former companyCEO, under a Management and its’ business units into a form best suited for the particular cultural and business needs of the units. Under considerations are selling off of equities with cash distribution to shareholders of record (March 23, 2010), the privatizing of certain assets, or reforming a public company for certain units. The diverse nature of our business units, Royalty contract, USA Patent security system, and the export medical product business, will likely result in tailored divestments fitted for each of the business units. Distribution Agreement dated March 24, 2010.
Also in April 2010, the Company acquired 100% of the outstanding common stock of Focus Systems, Inc. (“Focus”), a company organized under the laws of the state of Washington on August 8, 2007, from ProPalms, Inc., for 3,000,000 shares of Common stock, and 250,000 shares of Preferred stock.stock, and the assumption of $283,639 in liabilities. Focus is operated as a wholly-owned subsidiary of the Company. In addition to this agreement, the Company agreed to issue ProPalms 500,000 Preferred shares for an Investment Receivable of $250,000. Under the terms of the agreement, ProPalms was to make the investment over the course of 4 months or return the unvested stock within 1 year. Over the course of the 4 months, ProPalms invested $17,809. ProPalms has returned the unvested portion of the stock (amounting to 464,382 Preferred shares) and the Company has accounted for it on its Change in Stockholders ’Stockholders’ Deficit. On May 14, 2010, the Company completed a 10:1 forward split of its Common stock.
On December 16, 2010 the company purchased a 50% interest in AquaLiv, Inc. from Craig Hoffman for $400,000 paid in the form of 400,000 shares of Preferred stock valued at $1.00 per share. 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. The remaining 50% non-controlling interest is owned by Craig Hoffman, AquaLiv, Inc’s President and CEO. AquaLiv, Inc. is a life sciences research and development company creating novel products for numerous industries. The company's technology alters the behavior of organisms, including plants and humans, without chemical interaction. From increased crop yields to drug-free medicine, AquaLiv is providing innovative, ingredient-free solutions to the world's largest problems.
On June 22, 2011, in accordance with Management and Distribution Agreement (“Agreement”) dated March 24, 2010, we completed the distribution of substantially all of the assets of Infrared Applications, Inc. (“IAI”), a Texas corporation. All of the outstanding stock of IAI has been transferred to Gary Ball (“Ball”) in accordance with the Agreement. Subsequent to this event, Ball shall be responsible to make, if any, a Subsidiary Stock Distribution to the Company’s shareholders of record as of March 23, 2010, upon the earlier of the foregoing occurrence: (i) the net proceeds from the sale of substantially all of the assets of IAI or (ii) Ball elects to make a Subsidiary Stock Distribution. Any cost incurred in connection with a Subsidiary Distribution shall be the responsibility of Ball. There is no certainty as to when or if a Subsidiary Stock Distribution will occur.
On September 6, 2011, the company filed its Articles of Amendment with the State of Nevada to effect a name change to AquaLiv Technologies, Inc. and to increase its authorized common shares to 1,000,000,000. FINRA declared the corporate action effective on September 19, 2011. The name change was effected to more closely align the name with the future direction of the company.
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CRITICAL ACCOUNTING POLICIES
We have identified the following policies below as critical to our business and results of operations. For further discussion on the application of these and other accounting policies, see Note 1 to the accompanying consolidated audited financial statements for the fiscal year ended September 30, 20102011 included elsewhere in this Annual Report.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company records accounts receivable at cost less allowance for doubtful accounts. The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses. Due to the aging of severalSince our subsidiary AquaLiv, Inc. does not currently operate with accounts receivable, the Company’s subsidiary, Focus Systems, recorded a bad debts expense of $140,000 during the fiscal year to account for these. Since all accounts receivable from our subsidiary, IAI, are from one licensee, Kollsman, Inc., which has timely paid all royalties to us, we have concluded that no allowance for doubtful accounts is necessary.necessary related to AquaLiv, Inc. products and services. Appropriate allowances have been made related to the accounts receivable balance of Focus Systems, Inc. Management has estimated that no additional allowance for doubtful accounts is necessary after reviewing the remaining accounts receivable.
PROPERTY, PLANT AND EQUIPMENT
The Company records property and equipment at cost and uses straight-line depreciation methods. Maintenance, repairs, and expenditures for renewals and betterments not determined to extend the useful lives or to materially increase the productivity of the assets are expensed as incurred. Other renewals and betterments are capitalized. During the course of restructuring and moving assets to our subsidiary, IAI, the Company determined that the remaining Property and Equipment on the Balance Sheet associated with IAI should be fully expensed. This included the impairmentis that of assets associated with an intercompany transfer of assets to IAI in the amount $6,802,our subsidiaries, AquaLiv, Inc. and the full impairment of Definite-Life Intangible Assets in the amount of $34,970 ($33,970 as of September 30, 2009, plus $1,000 credited to that account during the fiscal year)Focus Systems, Inc., which we have been recorded at actual cost and estimated net book value, less depreciation, which was recorded under Other Expenses on our Consolidated Statements of Operations. The remaining Property and Equipment is that of our subsidiary, Focus, which we have recorded at its estimated net book value.
REVENUE RECOGNITION
SALES REVENUE
Sales revenue is derived from AquaLiv, Inc. The sales revenues are billed, paid, and shipped in the same period each month. Current sales revenue for individual accounts range from $35 to $1,695.
SERVICE REVENUE
Revenue derived from services from our Focus Systems subsidiary comes from several smaller accounts and is billed on a monthly basis. The monthly billing for these accounts range from $72$35 to $1,087. Service revenue is billed at the beginning of the service period and accrued until paid.
ROYALTY REVENUE
We stopped receiving Royalty revenue primarily comes from royalties derived through licensing our technology to a single customer, Kollsman. The licensing agreement with Kollsman grants to Kollsman a worldwide, exclusive license under ISI proprietary data to make, sell, maintain and repair products utilizing such data or patents for use on any aircraft licensed to operate by the Federal Aviation Administration or by equivalent foreign regulatory agencies. Royalty payments are required for each Enhanced Vision System (EVS) unit sold utilizing a licensed product, based upon the number of units sold. Pursuant to the license agreement, the royalty is $800 per unit for units 201 through 2,000 (The first 20 units were prepaidJune 22, 2011 in 1997; no payment was required for units 21 through 200, all of which were sold prior to December 2004), $1,400 per unit for units 2,001 through 5,000, $3,800 per unit for units 5,001 through 10,000, and $200 per unit thereafter. Pursuant to the license agreement, advance royalty payments were made to ISI by Kollsman between 1997 and 1999 in an aggregate amount of $105,000. As a result, as each of units 201 through 410 were sold, Kollsman was required to pay only $300 in cash per unit, and the remaining $500 otherwise payable reduced the balance of the prior advance royalty payments. For accounting purposes, the $105,000 in advance royalty payments were deferred and recognized as the units were sold; therefore, $800 per unit in revenues was recognized as each of units 201 through 410 was sold. Through September 30, 2010, a total of 751 units have been sold. The license continues until terminated by the mutual consent of the parties, or at the written election of a party in the event of an uncured default by the other party, or by us if Kollsman fails to sell an EVS system containing our licensed rights for 24 months. We recognize our royalty revenues as Kollsman sells aircraft systems that include our technology. At that time, in accordanceconjunction with the license agreement, the royalty fee has been earned by us, there is an agreed upon amount for the royalty fee, and collectiondistribution of the royalty is reasonably assured because the customer has timely made all payments required under the license agreement since it was signed in July 1997.
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PLAN OF OPERATION IN THE NEXT TWELVE MONTHS
Most of our programs are dependent on capital in excess of that which is derived from current sales for us to be able to execute on large marketing initiatives. Based on this need, we are focused on raising capital through various means, including, but not limited to, private investment, the selling of equity, convertible notes, and other acceptable means. Additionally, we continue to explore opportunities to acquire and/or merge with other entities that bring synergy to the company and its subsidiaries, are engaged in emerging markets, offer new technologies, or bring other benefits to the company and its shareholders.
To date, extensive research, development, and testing have been conducted in both agriculture and medicine under AquaLiv, Inc. Numerous products in our pipeline are nearing marketability including AgSmart™ Potato and several varieties of NatuRx™ medicinal treatments. Because AquaLiv has been primarily focused on research and development, significant infrastructure needs to be built in order to service the tremendous size of our target markets.
Our goals and objectives over the next twelve months include, the hiring of industry veteran Vice Presidents in Agriculture and Medicine, expand offices and laboratory in Seattle and Tokyo, build a manufacturing and warehousing facility in Seattle, launch clinical HIV/AIDS study, and train sales staff to sell AgSmart™.
Recent changes with our VoIP distribution has enabled us to reduce expenses and allow for quicker product deployment. With the reduction in fixed IT expense, we will look to increase our deployment of our VoIP service to small business and hope to launch our resale marketing program during the fiscal year.
The nature of remote desktop computing (the customer outsourcing of IT), requires that we have access to IT professionals with certain qualifications. Since the reduction in our internal IT staffing, we continue to work with vendors to assist in supporting aspects of our remote desktop service. However, lacking our own engineer reduces our ability to control and quickly deploy remote desktop sessions to new customers. Additionally, as customers increase, so does our need to purchase additional hardware or seek an outsourcing partner suitable to provide these services. Similar to our VoIP outsourcing, we hope to completely (or as near as possible) outsource the physical aspects of our remote desktop service.
The EVS project continues with ongoing sales by Kollsman to Gulfstream. These sales closely track the new aircraft deliveries by Gulfstream. The retrofit market for Gulfstream continues at a slow rate, but is projected to improve now that a modified form of the EVS, designated by Kollsman as the Enhanced Vision System II (EVS II), has been certified by the FAA and is in production. Gulfstream is heavily engaged in the introduction of their new G-650 luxury model, and their G-150/G-250 lower end economy models. The phasing out of older "G" series models, normal delays in the introduction of new models we believe will adversely affect sales of EVS to Gulfstream. The slow down in the US economy has caused some number of business jet users to postpone, cancel, or push out deliveries of new aircraft. This will similarly affect sales in 2011, causing us great concern over future sales and income.
REVENUES
Revenues were approximately $184,482$590,138 for the fiscal year ended September 30, 20102011 as compared to approximately $114,400$139,298 for the prior fiscal year. Net saleRevenue was comprised of sales revenue, service revenue, and royalty revenue and service revenue. Royalty(stopped receiving June 22, 2011). Sales revenue for the fiscal year ended September 30, 20102011 and 20092010 amounted to $109,190$446,053 and $114,400,$0, respectively. RoyaltySales revenue accounted for 59%76% of the revenue for the fiscal year ended September 30, 20102011 and 100%0% of the revenue for the prior fiscal year. Service revenue amounted to $75,292, or 41%$44,085 for the fiscal year ended September 30, 2011 compared to $30,108 for the fiscal year ended September 30, 2010. Service revenue accounted for 7% of the total revenue, for the fiscal year ended September 30, 2010,2011, and $022% for the prior fiscal year.year ended September 30, 2010. Royalty revenue for the fiscal year ended September 30, 2011 and 2010 amounted to $100,000 and $109,190, respectively. Royalty revenue accounted for 17% of the revenue for the fiscal year ended September 30, 2011(stopped receiving June 22, 2011) and 78% of the revenue for the fiscal year ended September 30, 2010. The increase in total revenue was due to the acquisition of Focus Systems.AquaLiv, Inc. in December 2010. The decrease in revenues related to royalty revenue is a reflection of a decrease in the numberdistribution of EVS units sold by Kollsman from 143 in fiscal 2009 to 113 in fiscal 2010.
COST OF SALES
Cost of sales for the fiscal year ended September 30, 20102011 was $50,171$193,430 as compared to $0$5,834 for the prior fiscal year, a result of the cost of goods used in the production and delivery of servicesproducts by Focus Systems, and accounting for 67% of the services they produced.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating expense for the fiscal year ended September 30, 20102011 was $1,118,738$1,020,310 as compared to $134,951$1,138,018 for the prior fiscal year, an increasea decrease of 829%10.3%. The increasedecrease was due to an increase in several expense categories. Bad debts increased from $0 in 2009 to $140,726 in 2010, a resultthe elimination of several aged accounts with our subsidiary Focus being written down and expensed. Consulting fees increasedonetime expenses from $0 in 2009 to $78,369 in 2010, a result of the company utilizing outside vendors to perform services for us during our restructuring and acquisitions, and as a result of our decreasing our employee fixed cost throughout the fiscal year. Professional fees increased from $54,604 in 2009 to $97,698 in 2010, an increase of 79%, primarily attributed to the increase in legal and accounting fees during the fiscal year. Travel, meals, an d entertainment decreased from $24,423 in 2009 to $8,439 in 2010, a 189% decrease and a result of management’s efforts to reduce expenses. Management fees increased from $20,413 in 2009 to $55,802 in 2010, an increase of 173%, and a result of fees paid to our acting President(s) throughout the fiscal year. Research and development decreased from $2,596 in 2009 to $595 in 2010, a decrease of 77%, and a result of our awaiting patent approval during the fiscal year. Payroll expense increased from $0 in 2009 to $86,374, attributed to the Focus subsidiary prior to staffing reductions. Other general and administrative increased from $32,915 in 2009 to $140,765 in 2010, an increase of 328%, and primarily attributed to an increase in utilities, rent, and taxes. The following expenses were one time expenses for the company in fiscal year, ending September 30, 2010 and had a material effect on the operations of the company, accounting for approximately 46% of theincluding loss during the f iscal year. Loss on goodwill impairment for Focus in the amountSystems of $305,000,$583,301, a result of the company fully impairing the goodwill received in the Focus Systems acquisition. Lossacquisition in the prior fiscal year; loss on goodwill impairment of assets, IAI, in the amountInfrared Applications, Inc. of $34,970,34,970, which included the full impairment of patent cost during the prior fiscal year. Lossyear; and loss on impairment of note receivable in the amount of $170,000, which included the impairment of the full amount of the note receivable that defaulted during the prior fiscal year. Additionally, consulting fees decreased from $72,361 in 2010 to $60,819 in 2011, a decrease of 16%, and a result of the company continuing to utilize outside vendors to perform services for us. Professional fees decreased from $93,302 in 2010 to $88,683 in 2011, a decrease of 5%, attributed to the decrease in legal fees during the fiscal year. The note is stillreductions in effect, however, until principal isoperating expenses were offset by increases in several areas, including and increase in management fees from $55,802 in 2010 to $105,900 in 2011, an increase of 90%, and a result of fees paid towardsto our acting President and one of our subsidiaries President throughout the note,fiscal year. Payroll expense increased from $126 in 2010 to $127,455 in 2011, attributed to the employees acquired in with the acquisition of AquaLiv, Inc. Research and development increased from $595 in 2010 to $9,936 in 2011, a result of our increased research work on AquaLiv, Inc. technologies during the fiscal year. Travel, meals, and entertainment increased from $5,070 in 2010, to $20,333 in 2011, a 301% increase and a result of management’s need to travel to meetings throughout the fiscal year. Other general and administrative increased from $122,509 in 2010 to $287,412, an increase of 135%, and primarily attributed to an increase in utilities, rent, and taxes associated with the AquaLiv, Inc. acquisition. There was a onetime loss on goodwill impairment associated with the AquaLiv, Inc. acquisition in the amount of $315,484, a result of the company has eliminated it as an asset.
OTHER INCOME AND EXPENSE
For the fiscal year ended September 30, 2010,2011, the expense was $24,177$17,352 compared to $2,727$4,050 for the prior fiscal year, an increase of 787%328%. The increase in expense resulted from a gain of $19,400 due to the recapture of prior loss impairment of a note receivable; a gain of $74,353 due to the distribution of Infrared Applications, Inc.; a loss of $61,111 due to the account of a derivative liability; and an increase in interest from $4,050 in 2010 to $15,290 in 2011 due to the increase in corporate debt.
NET LOSS BEFORE PROVISION FOR INCOME TAXES
The net loss for the fiscal year ended September 30, 20102011 was $1,008,604$606,250 versus $23,278$1,008,604 for the prior fiscal year. The increasedecrease in the loss $985,326of $402,354 was due to a large increasenet decrease in one time impairment losses totaling $509,970, additions$788,271. The decreases to expenses were primarily offset by a onetime increase of bad debts expense$315,484 from loss on goodwill impairment of $140,726, consulting fees of $78,369, and payroll expense of $86,374,AquaLiv, Inc., and net increases in professional fees of $43,094, management fees of $35,389,$50,098, payroll expenses of $127,329, and other general and administrative expenses of $107,850. The increases to expenses were offset by net decreases in travel, meals, and entertainment of $15,984, and research and development of $2,001.
LIQUIDITY AND CAPITAL RESOURCES
Based upon our anticipated monthly expenses, we may not have sufficient capital resources to maintain our business position. Our major priority in 20112012 will be to secure the necessary funds to meet our obligations and grow our businesses.
GOING CONCERN
We have limited working capital and limited revenues from sales of products or licenses. During 2010, a large percentage of our revenues were generated from a single licensee.services.. 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 is dependent on our attaining future profitable operations. Management's plans include strict restrictions on the cost of ongoing operations, such as providing minimal compensation to management, and limiting professional, travel and other operating expenses in order to remain within our budget.
OFF-BALANCE SHEET ARRANGEMENTS
The company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of its operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is a smaller reporting company as defined by Rule 12b-2 under the Exchange Act and is not required to provide the information required under this item.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AQUALIV TECHNOLOGIES, INC.
(F/K/A INRARED SYSTEMS INTERNATIONAL
AND IT’S SUBSIDIARIES
SEPTEMBER 30, 20102011 CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
| Page | |
| Reports of Independent Registered Public Accounting Firm | |
| Consolidated Balance Sheets, September 30, | |
| Consolidated Statements of Operations, For the Years Ended September 30, 2011 and 2010 | |
| Consolidated Statements of Changes in Stockholders' (Deficit), For the Years Ended September 30, | |
| Consolidated Statements of Cash Flows, For the Years Ended September 30, | |
| Notes to the Consolidated Financial Statements |
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BONGIOVANNI & ASSOCIATES, C.P.A.’s
19720 Jetton Road, 3rd Floor
rd Floor
To the Board of Directors and Stockholders of
AquaLiv Technologies, Inc. (FKA Infrared Systems International
We have audited the accompanying consolidated balance sheets of AquaLiv Technologies, Inc. (FKA Infrared Systems InternationalInternational) and itits wholly owned subsidiaries (“The Company”) as of September 30, 2011 and 2010, and the consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the yearyears then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness for the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosur esdisclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AquaLiv Technologies, Inc. (FKA Infrared Systems InternationalInternational) and its wholly owned subsidiaries as of September 30, 2011 and 2010, and the consolidated results of its operations and its consolidated cash flows for the yearyears then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred recurring incurred losses from operations, has a liquidity problem, and requires funds for its operational activities. These factors raise substantial doubt that the Company will be able to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Bongiovanni & Associates, C.P.A.’s
Bongiovanni & Associates, C.P.A.’s
Cornelius, North Carolina
January 12, 2011
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| AQUALIV TECHNOLOGIES, INC. | ||||||||||
| (F/K/A INFRARED SYSTEMS INTERNATIONAL) | ||||||||||
| AND ITS’ SUBSIDIARIES | ||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||
| ASSETS | ||||||||||
| September 30, 2011 | September 30, 2010 | |||||||||
| CURRENT ASSETS: | ||||||||||
| Cash | $ | 3,732 | $ | 1,034 | ||||||
| Accounts receivable | 1,968 | 16,008 | ||||||||
| Total Current Assets | 5,700 | 17,042 | ||||||||
| PROPERTY AND EQUIPMENT, net | 8,427 | 5,000 | ||||||||
| INVENTORY | 723 | — | ||||||||
| TOTAL ASSETS | $ | 14,850 | $ | 22,042 | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||
| CURRENT LIABILITIES: | ||||||||||
| Accounts payable | $ | 107,438 | $ | 100,513 | ||||||
| Credit cards payable | 17,187 | 46,262 | ||||||||
| Notes payable | 189,179 | 260,695 | ||||||||
| Derivative liability | 111,111 | — | ||||||||
| Other liabilities | 20,746 | 36,599 | ||||||||
| Total Current Liabilities | 445,661 | 444,069 | ||||||||
| STOCKHOLDERS' DEFICIT: | ||||||||||
| Preferred stock, $0.001 par value, 50,000,000 | ||||||||||
| shares authorized, | ||||||||||
| 911,618 and 285,618 shares issued and | 912 | 286 | ||||||||
| outstanding, respectively | ||||||||||
| Common stock, $0.001 par value, 1,000,000,000 | ||||||||||
| shares authorized, | ||||||||||
| 291,617,428 and 187,243,870 shares issued and | 291,617 | 187,244 | ||||||||
| outstanding, respectively | ||||||||||
| Additional paid in capital | 1,907,365 | 1,414,898 | ||||||||
| Retained (deficit) | (2,612,390 | ) | (2,024,455 | |||||||
| Noncontrolling interest | (18,315) | — | ||||||||
| Total Stockholders' (Deficit) | (430,811) | (422,027) | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) | $ | 14,850 | $ | 22,042 | ||||||
See accompanying consolidated notes and reports of independent registered public accounting firm.
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| AQUALIV TECHNOLOGIES, INC. | |||||||
| (F/K/A INFRARED SYSTEMS INTERNATIONAL) | |||||||
| AND ITS’ SUBSIDIARIES | |||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
| For the Years | |||||||
| Ended September 30, | |||||||
| 2011 | 2010 | ||||||
| REVENUES: | |||||||
| Royalty | $ | 100,000 | $ | 109,190 | |||
| Sales | 446,053 | — | |||||
| Service | 44,085 | 30,108 | |||||
| Total Revenues | 590,138 | 139,298 | |||||
| COST OF GOODS SOLD | 193,430 | 5,834 | |||||
| GROSS PROFIT | 396,708 | 133,464 | |||||
| OPERATING EXPENSES: | |||||||
| Bad Debts | 4,289 | ||||||
| Consulting fees | 60,819 | 72,361 | |||||
| Management fees | 105,900 | 55,802 | |||||
| Payroll expense | 127,455 | 126 | |||||
| Professional fees | 88,683 | 93,302 | |||||
| Research and development | 9,936 | 577 | |||||
| Travel, meals, and entertainment | 20,333 | 5,070 | |||||
| Loss on goodwill impairment, AquaLiv | 315,484 | — | |||||
| Loss on goodwill impairment, Focus | — | 583,301 | |||||
| Loss on goodwill impairment, IAI | — | 34,970 | |||||
| Loss on impairment of note receivable | — | 170,000 | |||||
| Other selling general and administrative | 287,412 | 122,509 | |||||
| Total Operating Expenses | 1,020,310 | 1,138,018 | |||||
| LOSS FROM OPERATIONS | (623,602 | ) | (1,004,554 | ) | |||
| OTHER INCOME (EXPENSE): | |||||||
| Recapture of loss on impairment of | |||||||
| note receivable | 19,400 | — | |||||
| Gain on distribution of IAI, net | 74,353 | — | |||||
| Loss on derivative liability | (61,111 | ) | — | ||||
| Interest expense | (15,290 | ) | (4,050 | ) | |||
| NET (LOSS) BEFORE INCOME TAX PROVISION | (606,250 | ) | (1,008,604 | ) | |||
| PROVISION FOR INCOME TAXES | — | — | |||||
| CONSOLIDATED NET (LOSS) | (606,250 | ) | (1,008,604 | ) | |||
| Add: Net loss attributable to noncontrolling interest, AquaLiv, Inc. | 41,956 | — | |||||
| NET (LOSS) ATTRIBUTABLE TO COMPANY | $ | (564,294 | ) | $ | (1,008,604 | ) | |
| BASIC AND DILUTED NET (LOSS) PER SHARE | $ | * | $ | (0.01 | ) | ||
| WEIGHTED AVERAGE SHARES | |||||||
| OUTSTANDING | 228,052,093 | 91,957,785 | |||||
* = less than $.01
See accompanying consolidated notes and reports of independent registered public accounting firm.
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AQUALIV TECHNOLOGIES, INC.
(F/K/A 5/F
INFRARED SYSTEMS INTERNATIONAL AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS | ||||||||
| ASSETS | ||||||||
| September 30, 2010 | September 30, 2009 | |||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 1,034 | $ | 1,015 | ||||
| Accounts receivable | 16,008 | 30,400 | ||||||
| Prepaid expenses | - | 8,174 | ||||||
| Total Current Assets | 17,042 | 39,589 | ||||||
| PROPERTY AND EQUIPMENT, NET | 5,000 | 6,802 | ||||||
| DEFINITE-LIFE INTANGIBLE ASSETS | - | 33,970 | ||||||
| TOTAL ASSETS | $ | 22,042 | $ | 80,361 | ||||
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 100,513 | $ | 25,425 | ||||
| Credit cards payable | 46,262 | - | ||||||
| Customer deposits | - | 66,168 | ||||||
| Notes payable | 260,695 | - | ||||||
| Other liabilities | 36,599 | - | ||||||
| Total Current Liabilities | 444,069 | 91,593 | ||||||
| STOCKHOLDERS' (DEFICIT) | ||||||||
| Preferred stock, $0.001 par value, 50,000,000 shares authorized, | 286 | - | ||||||
| 285,618 and -0- shares issued and outstanding, respectively | ||||||||
| Common stock, $0.001 par value, 500,000,000 shares authorized, | 187,244 | 11,672 | ||||||
| 187,243,870 and 11,671,700 shares issued and outstanding, | ||||||||
| respectively | ||||||||
| Additional paid in capital | 1,414,898 | 992,947 | ||||||
| Retained (deficit) | (2,024,455 | ) | (1,015,851 | ) | ||||
| Total Stockholders' (Deficit) | (422,027 | ) | (11,232 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 22,042 | $ | 80,361 | ||||
AND ITS’ SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT)
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Additional | Total | |||||||||||||||||||||||||||||||
| paid in | Retained | Noncontrolling | Stockholders | |||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | (Deficit) | interest | (Deficit) | |||||||||||||||||||||||||
| BALANCES, | ||||||||||||||||||||||||||||||||
| September 30, 2009 | — | — | 11,671,700 | 11,672 | $ | 992,947 | $ | (1,015,851 | ) | $ | — | $ | (11,232 | ) | ||||||||||||||||||
| Issuance of common stock for cash and a promissory note | — | — | 115,572,170 | 115,572 | 84,428 | — | — | 200,000 | ||||||||||||||||||||||||
| Issuance of common stock for services received | — | — | 30,000,000 | 30,000 | 40,000 | — | — | 70,000 | ||||||||||||||||||||||||
| Issuance of common and preferred stock for purchase of Focus Systems, Inc. | 250,000 | 250 | 30,000,000 | 30,000 | 279,750 | — | — | 310,000 | ||||||||||||||||||||||||
| Issuance of preferred stock for an investment receivable | 500,000 | 500 | — | — | 249,500 | — | — | 250,000 | ||||||||||||||||||||||||
| Cancellation of unexercised preferred stock investment | (464,382 | ) | (464 | ) | — | — | (231,727 | ) | — | — | (232,191 | ) | ||||||||||||||||||||
| Net loss of the year ended September 30, 2010 | — | — | — | — | — | (1,008,604 | ) | — | (1,008,604 | ) | ||||||||||||||||||||||
| BALANCES, | ||||||||||||||||||||||||||||||||
| September 30, 2010 | 285,618 | $ | 286 | 187,243,870 | $ | 187,244 | $ | 1,414,898 | $ | (2,024,455 | ) | $ | — | $ | (422,027 | ) | ||||||||||||||||
| Issuance of common stock to repay debt | — | — | 100,623,558 | 100,623 | (15,273 | ) | — | — | 85,350 | |||||||||||||||||||||||
| Issuance of preferre stock for 50% purchase of AquaLiv, Inc. | 400,000 | 400 | — | — | 399,600 | (23,641 | ) | 23,641 | 400,000 | |||||||||||||||||||||||
| Issuance of common stock | — | — | 3,750,000 | 3,750 | 20,250 | — | 24,000 | |||||||||||||||||||||||||
| Preferred stock returned for common stock | (24,000 | ) | (24 | ) | — | — | (23,976 | ) | — | (24,000 | ) | |||||||||||||||||||||
| Issuance of preferred stock for cash | 240,000 | 240 | — | — | 119,760 | — | 120,000 | |||||||||||||||||||||||||
| Issuance of preferred stock for sevices | 10,000 | 10 | — | — | 4,990 | — | 5,000 | |||||||||||||||||||||||||
| Distribution of IAI assets, net | — | — | — | — | (18,298 | ) | — | (18,298 | ) | |||||||||||||||||||||||
| Other capital contribution | — | — | — | — | 5,414 | — | 5,414 | |||||||||||||||||||||||||
| Net loss of the year ended September 30, 2011 | — | — | — | — | — | (564,294 | ) | (41,956 | ) | (606,250 | ) | |||||||||||||||||||||
| BALANCES, | ||||||||||||||||||||||||||||||||
| September 30, 2011 | 911,618 | $ | 912 | 291,617,428 | $ | 291,617 | $ | 1,907,365 | $ | (2,612,390 | ) | $ | (18,315 | ) | $ | (430,811 | ) | |||||||||||||||
See accompanying notes and auditors reports.
| (20) |
| AQUALIV TECHNOLOGIES, INC. | ||||||||
| (F/K/A INFRARED SYSTEMS INTERNATIONAL) | ||||||||
| AND ITS’ SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| For the Years | ||||||||
| Ended September 30, | ||||||||
| Restated2011 | 2010 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (564,294) | $ | (1,008,604) | ||||
| Adjustments to reconcile net loss to net cash | ||||||||
| provided by | ||||||||
| (used in) operating activities: | ||||||||
| Noncontrolling interest in income of consolidated subsidiary | 41,956 | — | ||||||
| Depreciation | 3,446 | 1,802 | ||||||
| Amount reserved due to doubtful accounts | 4,289 | (180) | ||||||
| Loss on goodwill impairment, Focus | — | 583,301 | ||||||
| Loss on impairment of assets, IAI | — | 34,970 | ||||||
| Loss (recapture) on impairment of note receivable | (19,400) | 170,000 | ||||||
| Issuance of Preferred stock for services received | 5,000 | 70,000 | ||||||
| Loss on goodwill impairment, Aqualiv | 315,484 | — | ||||||
| Loss on derivative liability | 61,111 | |||||||
| Gain on distribution of IAI, net of intercompany | (18,298) | — | ||||||
| transfers | ||||||||
| Net (increase) decrease in operating assets: | ||||||||
| Accounts receivable | 14,040 | 14,392 | ||||||
| Prepaid expenses | — | 8,174 | ||||||
| Net increase (decrease) in operating liabilities: | ||||||||
| Accounts payable | 6,925 | 75,088 | ||||||
| Credit cards payable | (29,075) | 46,262 | ||||||
| Customer deposits | — | (66,168) | ||||||
| Other liabilities | (15,853) | 36,599 | ||||||
| Net Cash (Used in) Operating Activities | (195,393) | (34,202) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Payments for definite-life intangible assets | — | (1,000) | ||||||
| Payments for property and equipment | (6,873) | — | ||||||
| Net Cash (Used in) Investing Activities | (6,873) | (1,000) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | 101,800 | 39,638 | ||||||
| Payments for notes payable | (22,250) | (22,226) | ||||||
| Proceeds of capital stock issuance | 125,414 | 17,809 | ||||||
| Net Cash Provided by Financing Activities | 204,964 | 35,221 | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 2,698 | 19 | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 1,034 | 1,015 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 3,732 | $ | 1,034 | ||||
| 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 related | $ | 85,350 | $ | — | ||||
| accrued interest | ||||||||
| Debt acquired from acquisition | $ | — | $ | 221,057 | ||||
| Issuance of preferred stock for acquisition | $ | 400,000 | $ | — | ||||
| (21) |
| INFRARED SYSTEMS INTERNATIONAL | ||||||||
| AND ITS WHOLLY OWNED SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| For the Years | ||||||||
| Ended September 30, | ||||||||
| 2010 | 2009 | |||||||
| REVENUES: | ||||||||
| Royalty | $ | 109,190 | $ | 114,400 | ||||
| Service | 75,292 | - | ||||||
| Total Revenue | 184,482 | 114,400 | ||||||
| COST OF GOODS SOLD | 50,171 | - | ||||||
| GROSS PROFIT | 134,312 | 114,400 | ||||||
| OPERATING EXPENSES: | ||||||||
| Bad debts | 140,726 | - | ||||||
| Consulting fees | 78,369 | - | ||||||
| Professional fees | 97,698 | 54,604 | ||||||
| Travel, meals, and entertainment | 8,439 | 24,423 | ||||||
| Management fees – related parties | 55,802 | 20,413 | ||||||
| Research and development | 595 | 2,596 | ||||||
| Payroll expense | 86,374 | - | ||||||
| Loss on goodwill impairment, Focus | 305,000 | - | ||||||
| Loss on impairment of assets, IAI | 34,970 | - | ||||||
| Loss on impairment of note receivable | 170,000 | - | ||||||
| Other general and administrative | 140,765 | 32,915 | ||||||
| Total Operating Expenses | 1,118,738 | 134,951 | ||||||
| (LOSS) FROM OPERATIONS | (984,426 | ) | (20,551 | ) | ||||
| OTHER (EXPENSE): | ||||||||
| Interest expense | (24,177 | ) | (2,727 | ) | ||||
| (LOSS) BEFORE INCOME TAX PROVISION | (1,008,604 | ) | (23,278 | ) | ||||
| PROVISION FOR INCOME TAX | - | - | ||||||
| NET (LOSS) | (1,008,604 | ) | (23,278 | ) | ||||
| FULLY DILUTED (LOSS) PER SHARE | (0.01 | ) | * | |||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 91,957,785 | 22,662,270 | ||||||
| * equals less than $0.01 | ||||||||
| INFRARED SYSTEMS INTERNATIONAL | ||||||||||||||||||||||||||||
| AND ITS WHOLLY OWNED SUBSIDIARIES | ||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF | ||||||||||||||||||||||||||||
| CHANGES IN STOCKHOLDERS' (DEFICIT) | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional paid in capital | Retained (Deficit) | Total Stockholders (Deficit) | ||||||||||||||||||||||
| BALANCES, September 30, 2008 | - | $ | - | 60,000,000 | $ | 60,000 | $ | 944,619 | $ | (992,573 | ) | $ | 12,046 | |||||||||||||||
| Cancellation of 48,328,300 | ||||||||||||||||||||||||||||
| common shares, December 2008 | - | - | (48,328,300 | ) | (48,328 | ) | 48,328 | - | - | |||||||||||||||||||
| Net Loss for the year ended | ||||||||||||||||||||||||||||
| September 30, 2009 | - | - | - | - | - | (23,278 | ) | (23,278 | ) | |||||||||||||||||||
| BALANCES, September 30, 2009 | - | - | 11,671,700 | 11,672 | 992,947 | (1,015,851 | ) | (11,232 | ) | |||||||||||||||||||
| Issuance of common stock for | ||||||||||||||||||||||||||||
| cash and a promissory note | - | - | 115,572,170 | 115,572 | 84,428 | - | 200,000 | |||||||||||||||||||||
| Issuance of common stock for | ||||||||||||||||||||||||||||
| services received | - | - | 20,000,000 | 20,000 | - | - | 20,000 | |||||||||||||||||||||
| Issuance of common and | ||||||||||||||||||||||||||||
| preferred stock for purchase of | ||||||||||||||||||||||||||||
| Focus Systems, Inc. | 250,000 | 250 | 30,000,000 | 30,000 | 279,750 | - | 310,000 | |||||||||||||||||||||
| Issuance of preferred shares for | ||||||||||||||||||||||||||||
| an investment receivable | 500,000 | 500 | - | - | 249,500 | - | 250,000 | |||||||||||||||||||||
| Issuance of common stock for | ||||||||||||||||||||||||||||
| services received | - | - | 5,000,000 | 5,000 | 25,000 | - | 30,000 | |||||||||||||||||||||
| Issuance of common stock for | ||||||||||||||||||||||||||||
| Services received | - | - | 5,000,000 | 5,000 | 15,000 | - | 20,000 | |||||||||||||||||||||
| Cancellation of unexercised | ||||||||||||||||||||||||||||
| preferred stock investment | (464,382 | ) | (464 | ) | - | - | (231,727 | ) | - | (232,191 | ) | |||||||||||||||||
| Net Loss for the year ended | ||||||||||||||||||||||||||||
| September 30, 2010 | - | - | - | - | - | (1,008,604 | ) | (1,008,604 | ) | |||||||||||||||||||
| BALANCES, September 30, 2010 | 285,618 | 286 | 187,243,870 | 187,244 | 1,414,898 | (2,024,455 | ) | (422,027 | ) | |||||||||||||||||||
| * Year ending balances for September 30, 2008 and 2009, have been retroactively adjusted for a 10:1 forward split on 05/14/2010. | ||||||||||||||||||||||||||||
| INFRARED SYSTEMS INTERNATIONAL | ||||||||
| AND ITS WHOLLY OWNED SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| For the Years | ||||||||
| Ended September 30, | ||||||||
| 2010 | 2009 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss | $ | (1,008,604 | ) | $ | (23,278 | ) | ||
| Adjustments to reconcile net (loss) to net cash (used in) | ||||||||
| operating activities: | ||||||||
| Depreciation | 17,802 | 802 | ||||||
| Amount reserved due to doubtful accounts | 140,726 | - | ||||||
| Loss on goodwill impairment, Focus | 305,000 | - | ||||||
| Loss on impairment of assets, IAI | 34,970 | - | ||||||
| Loss on impairment of note receivable | 170,000 | - | ||||||
| Issuance of common stock for services received | 70,000 | - | ||||||
| Net (increase) decrease in operating assets: | ||||||||
| Accounts receivable | 14,392 | (16,800 | ) | |||||
| Prepaid expenses | 8,174 | (6,400 | ) | |||||
| Net increase (decrease) in operating liabilities: | ||||||||
| Accounts payable | 75,088 | 975 | ||||||
| Credit cards payable | 46,262 | - | ||||||
| Customer deposits | (66,168 | ) | (26,497 | ) | ||||
| Other Liabilities | 36,599 | - | ||||||
| Net Cash (Used) in Operating Activities | (155,759 | ) | (71,198 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Payments for property and equipment | - | (5,109 | ) | |||||
| Payments for definite-life intangible assets | (1,000 | ) | (16,005 | ) | ||||
| Net Cash (Used) by Investing Activities | (1,000 | ) | (21,114 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | 126,778 | - | ||||||
| Proceeds of common stock issuance | 30,000 | - | ||||||
| Net Cash Provided in Financing Activities | 156,788 | - | ||||||
| NET INCREASE (DECREASE) IN CASH | 19 | (92,312 | ) | |||||
| CASH AT BEGINNING OF PERIOD | 1,015 | 93,327 | ||||||
| CASH AT END OF PERIOD | $ | 1,034 | $ | 1,015 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 24,177 | $ | 2,727 | ||||
| Income taxes | $ | - | $ | - | ||||
| SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND | ||||||||
| FINANCING ACTIVITIES: | ||||||||
| In December 2008, the Company cancelled 48,328,300 common | $ | - | $ | 48,328 | ||||
| stock shares previously owned by CSBI | ||||||||
(F/K/A INFRARED SYSTEMS INTERNATIONAL
AND ITS’ SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AquaLiv Technologies, Inc. ("the Company") is a corporation organized under the laws of the State of Nevada on April 11, 2006, originally under the name of Infrared Systems International,as a wholly-owned subsidiary of China SXAN Biotech, Inc. (formerly Advance Technologies, Inc.) ("CSBI"). CSBI was organized under the laws of the State of Delaware on June 16, 1969. In July 2007, CSBI transferred the needs a space before “as” assets, liabilities, and operations of its technology licensing business to the Company. Because CSBI's operations are considered to be the Company's predecessor business, the consolidated financial statements include CSBI's operations from the inception of the business. In December 2008, the Company completed its spin-off by dividend to stockholders of CSBI.
In March 2010, the Company transferred the assets, liabilities, and operations of its technology licensing business to a wholly-owned s ubsidiary,subsidiary, Infrared Applications, Inc (“IAI”). IAI was organized under the laws of the state of Texas on March 26, 2010. On April 14, 2010, the Company sold a majority interest in its Common stock to Take Flight Equities, Inc. (“TFE”), a corporation organized under the laws of the State of Washington, and control of the Company was transferred to William Wright, its current CEO. Under the terms of the Agreement, IAI will continuecontinued to operate for up to 15 months as a wholly owned subsidiary. This 15 month time period will be usedsubsidiary until June 22, 2011, when IAI was distributed to transition the Gary Ball, the companies former companyCEO, under a Management and its’ business units into a form best suited for the particular cultural and business needs of the units. Under considerations are selling off of equities with cash distribution to shareholders of record (March 23, 2010), the privatizing of certain assets, or reforming a public company for certain units. The diverse nature of our business units, Royalty contract, USA Patent security syst em, and the export medical product business, will likely result in tailored divestments fitted for each of the business units. Distribution Agreement dated March 24, 2010.
Also in April 2010, the Company acquired 100% of the outstanding common stock of Focus Systems, Inc. (“Focus”), a company organized under the laws of the state of Washington on August 8, 2007, from ProPalms, Inc., for 3,000,000 shares of Common stock, and 250,000 shares of Preferred stock.stock, and the assumption of $283,639 in liabilities. Focus is operated as a wholly-owned subsidiary of the Company. In addition to this agreement, the Company agreed to issue ProPalms 500,000 Preferred shares for an Investment Receivable of $250,000. Under the terms of the agreement, ProPalms was to make the investment over the course of 4 months or return the unvested stock within 1 year. Over the course of the 4 months, ProPalms invested $17,809. ProPalms has returned the unvested portion of the stock (amounting to 464,382 Preferred shares) and the Company has accounted for it on its Change in Stockholders’ Deficit. On May 14, 2010, the Company completed a 10:1 forward split of its Common stock. These consolidated
On December 16, 2010 the company purchased a 50% interest in AquaLiv, Inc. from Craig Hoffman for $400,000 paid in the form of 400,000 shares of Preferred stock valued at $1.00 per share. 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 statements haveinterest in AquaLiv, Inc. and we are required to consolidate its financials accordingly. The remaining 50% non-controlling interest is owned by Craig Hoffman, AquaLiv, Inc’s President and CEO. AquaLiv, Inc. is a life sciences research and development company creating novel products for numerous industries. The company's technology alters the behavior of organisms, including plants and humans, without chemical interaction. From increased crop yields to drug-free medicine, AquaLiv is providing innovative, ingredient-free solutions to the world's largest problems.
On June 22, 2011, in accordance with Management and Distribution Agreement (“Agreement”) dated March 24, 2010, we completed the distribution of substantially all of the assets of Infrared Applications, Inc. (“IAI”), a Texas corporation. All of the outstanding stock of IAI has been retroactively restated accordingly.
On September 6, 2011, the company filed its Articles of Amendment with the State of Nevada to effect a name change to AquaLiv Technologies, Inc. and to increase its authorized common shares to 1,000,000,000. FINRA declared the corporate action effective on September 19, 2011. The name change was effected to more closely align the name with the future direction of the company.
Nature of Operations - The Company’s wholly-owned subsidiary, IAI, licenses rights to use internally-developed opticalAquaLiv, Inc.,is a life sciences research and development company based in Seattle, Washington. The Company’s technology including patented infrared systems usedtaps into a previously undiscovered natural phenomenon that gives us significant competitive advantages in the aviation industryindustries of agriculture and a patent for use in security systems. The subsidiary also plansmedicine. This technology represents an entirely new way to develop a night vision systems with applications for both militaryaffect the health and civil aircraft.behavior of plants and animals, including human beings.. The Company’s wholly-owned subsidiary, Focus Systems, provides remote desktop and cloud computing solutions to small businesses. Additionally, Focus provides Voice over Internet Protocol (VoIP) phone solutions to small businesses and can deliver the service to households as well. The Company has not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factor s.
Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly-liquid debt investments purchased with a maturity of three months or less to be cash equivalents.
Accounts Receivable - The Company records accounts receivable at cost less allowance for doubtful accounts. The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses. Due to the aging of several accounts receivable, the Company’s subsidiary, Focus Systems, recorded a bad debts expense of approximately $140,000 during the fiscal year to account for these. Management has estimated that no allowance$4,289 is necessary for doubtful accounts is necessary after reviewing the remaining accounts receivable.
Property and Equipment - The Company records property and equipment at cost and uses straight-line depreciation methods.methods over three to ten years. Maintenance, repairs, and expenditures for renewals and betterments not determined to extend the useful lives or to materially increase the productivity of the assets are expensed as incurred. Other renewals and betterments are capitalized. During the course of restructuring and moving assets to our subsidiary, IAI, the Company determined that the remaining Property and Equipment on the Balance Sheet associated with IAI should be fully expensed. This included the impairmentis that of assets associated with an intercompany transfer of assets to IAI in the amount $6,802,our subsidiaries, AquaLiv, Inc. and the full impairment of Definite-Life Intangible Assets in the amount of $34,970 ($33,970 as of September 30, 2009, plus $1,000 credited to that account during the fiscal year)Focus Systems, Inc., which we have been recorded at actual cost and estimated net book value, less depreciation, which was recorded under Other Expenses on our Consolidated Statements of Operations. The remaining Property and Equipment is that of our subsidiary, Focus, which we have recorded at its estimated net book value.
| (22) |
AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL
AND ITS’ SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition - The Company's revenue is derived through its wholly-owned subsidiaries. AquaLiv, Inc.’s revenue come primarily from the sales of AquaLiv Water Systems and Infotone Face Mist. The products are sold though the subsidiary’s website portal, www.aqualiv.com. Revenue is derived from AquaLiv, Inc from several smaller purchases ranging from $35 to $1,695. Revenue derived from Focus Systems comes from several smaller accounts and is billed on a monthly basis. The monthly billing for these accounts range from $72 to $1,087. IAI’s revenue primarily comescame from royalties derived through licensing its technology to a single customer. The licensing agreement allowsallowed the customer exclusively to use the Company'ssubsidiary’s technology in aircraft systems manufactured by the customer in exchange for a royalty fee for each system that includes the Company's technology sold by the customer for commercial sales . The royalty fee iswas payable quarterly and amounts to $800 per aircraft system for systems 201 through 2,000. There are provisions for the royalty fee to increase to $1,400 per system after 2,000 cumulative systems have sold, to increase to $3,800 per system after 5,000 cumulative systems have sold, and to decrease to $200 per system after 10,000 cumulative systems ha ve sold.system. As of September 30, 2010, the customer had sold a total of 751 cumulative aircraft systems since the licensing agreement was signed in 1997. The licensing agreement continues in effect as long as the customer continues to use the Company's technology in aircraft systems it manufactures. The Company recognizes itsJune 22, 2011, royalty revenues as the customer sells aircraft systems that include the Company's technology for the FAA commercial market. At that time, in accordancerevenue has been discontinued along with the license agreement, the royalty fee has been earned by the Company, there is an agreed upon amount for the royalty fee, and collectiondistribution of the royalty is reasonably assured becauseIAI assets per the customer has timely made all payments required under the license agreement since it was signed in 1997. The Company has also generated some revenues from consulting arrangements where the Company has assembled existing equipmentManagement and readied the assembled equipment for shipment in accordance with customer specifications. Consulting revenue is recognized when the equipment has been assembled, there is an agreed upon price for the services, and collection of the revenue is reasonably assured. Revenue derived from Focus Systems comes from several smaller accounts and is billed on a monthly basis. The monthly billing for these accounts range from $72 to $1,087.
Research and Development - The Company expenses research and development costs as incurred.
The Company adopts the ASC Topic 740, “Income Taxes” regarding accounting for uncertainty in income taxes which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, classification, penalties and interest, accounting in interim periods and disclosure.
For the years ended September 30, 2011 and 2010, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2011 and 2010, the Company did not have any significant unrecognized uncertain tax positions.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
Comprehensive income
The Company adopted FASB Accounting Standards Codification 220 “Comprehensive Income” (formerly SFAS No. 130, “Reporting Comprehensive income”, which establishes standards for reporting and display of comprehensive income, and its components in the consolidated financial statements. Components of comprehensive income include net income and foreign currency translation adjustments. The Company has presented consolidated statements of income which includes other comprehensive income or loss.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, trade accounts and other receivables, inventories, prepaid expenses, accounts payable, other payables and accrued liabilities, deposits received in advance, taxes payable, deferred tax liabilities, and short term borrowings approximate their fair values because of the short maturity of these instruments. The Company’s short term borrowings approximate the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at September 30, 2011 and 2010.
The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value atSeptember 30, 2011 and 2010, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the year endedSeptember 30, 2011 and 2010.
Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources, if applicable, are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Off-balance sheet arrangements
The Company does not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.
Fair Value Measurements and Disclosures
In January 2010, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance regarding fair value measures and disclosures. The guidance requires disclosure of significant transfers between level 1 and level 2 fair value measurements along with the reason for the transfer. An entity must also separately report purchases, sales, issuances and settlements within the level 3 fair value rollforward. The guidance further provides clarification of the level of disaggregation to be used within the fair value measurement disclosures for each class of assets and liabilities and clarified the disclosures required for the valuation techniques and inputs used to measure level 2 or level 3 fair value measurements. This new authoritative guidance is effective for the Company in fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this guidance will not impact the Company’s consolidated results of operations or financial position.
Variable Interest Entities (VIEs)
In June 2009, the FASB issued authoritative guidance changing the approach to determine a VIE’s primary beneficiary and requiring ongoing assessments of whether an enterprise is the primary beneficiary of a VIE. This guidance also requires additional disclosures about a company’s involvement with VIEs and any significant changes in risk exposure due to that involvement. This guidance was adopted January 1, 2010, and did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.
Basis of presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America under the accrual basis of accounting. All intercompany accounts and transactions have been eliminated.
Inventories – The Company’s inventories (finished goods, work in process, raw materials and packaging materials) are stated at the lower of cost or market. Cost is determined on a first in first out basis. In addition, the Company estimates net realizable value based on intended use, current market value and contract terms. The Company writes down the inventories for estimated obsolescence, slow moving or unmarketable inventories equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions.
Impairment of long-lived assets
The Company evaluated the recoverability of its property, plant, equipment, and other long-lived assets in accordance with FASB Accounting Standards Codification 360 “Property, Plant and Equipment” (formerly SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”), which requires recognition of impairment of long-lived assets in the event the net book value of such assets exceed the estimated future undiscounted cash flows attributable to such assets or the business to which such intangible assets relate. Impairments of these types of assets were recognized during the years ended September 30, 2011 and 2010.
Loss per share
The Company reports loss per share in accordance with FASB Accounting Standards Codification 260 “Earnings per Share” (formerly SFAS 128, “Earnings per Share”). This statement requires dual presentation of basic and diluted earnings (loss) with a reconciliation of the numerator and denominator of the loss per share computations. Basic earnings per share amounts are based on the weighted average shares of common outstanding. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Accordingly, this presentation has been adopted for the periods presented. There were no adjustments required to net income for the period presented in the computation of diluted earnings per share. There were no common stock equivalents (CSE) necessary for the computation of diluted loss per share.
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 September 30, 2010,2011, the Company had a retained deficit of $2,024,455$2,612,390 and current liabilities in excess of current assets by $427,027.$439,961. During the year ended September 30, 2010,2011, the Company incurred a net loss of $1,008,604$564,294 and negative cash flows from operations of $155,759.$195,316. 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, our ability to continue as a going concern has caused the Board of Directors to continue investigating merger and acquisition opportunities. We will look to further diversify our holdings and sources of cash flow. 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
Revenues - Service – The Company, through its wholly owned subsidiary, Focus, received $3,672$1,303 in service revenues from parties related to our CEO during the fiscal year ended September 30, 2010.2011. The revenue was booked at the same rate as that of non-affiliated customers.
Management compensation - During the years ended September 30, 20102011 and 2009,2010, respectively, the Company paid management fees of $55,802$105,900 and $20,413$55,802 to its officers.
Consulting - During the years ended September 30, 20102011 and 2009,2010, respectively, the Company paid $0$30,000 and $1,938$0 for consulting services to officers and directors or entities related to or under the control of an officer or director of the Company.
Credit cards payable – During the years ended September 30, 20102011 and 2009,2010, the Company’s current and former officers extended credit to the Company and/or its subsidiaries in the form of personal credit card usage in the amount of $17,187 and $46,262, and $0, respectively.
Notes payable – During the fiscal year ended September 30, 2011 and 2010, a company closely held by an officer of the company, loaned the Company $35,588.$23,388 and $35,588, respectively. The loan is due on demand and carries no interest. Imputed interest is included in the accompanying Consolidated Statements of Operations. The Company did not borrow any funds from officers in fiscal year ended September 30, 2009.
| (23) |
AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL
AND ITS’ SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY ANDPROPERTYAND EQUIPMENT
| Estimated Useful Lives | September 30, 2011 | September 30, 2010 | ||||
| Optical equipment | 5 years | $ 39,386 | $ 39,386 | |||
| Office equipment | 3 - 10 years | $8,231 | $8,231 | |||
| Computers and peripherals | 5 years | 7,000 | 16,000 | |||
| Furniture and fixtures | 5 years | 6,873 | - | |||
| 70,490 | 63,617 | |||||
| Less accumulated depreciation | (62,063) | (58,617) | ||||
| Net property and equipment | $8,427 | $5,000 |
Depreciation expense for the years ended September 30, 2011and 2010 was $2,800 and 2009 was $17,802 and $802,$1,802, respectively.
NOTE 5 - DEFINITE-LIFE INTANGIBLE ASSETS
| Estimated Useful | September 30, 2011 | September 30, 2010 | ||||
| Pending patent application | Not | $ - | $ 33,970 | |||
| Addition to | - | 1,000 | ||||
| Less accumulated amortization | - | 34,970 | ||||
| Less impairment of asset | - | (34,970) | ||||
| Net definite-life intangible assets | $ - | $ | ||||
The Company's definite-life intangibleintangile assets consistconsisted only of a pending patent application. The Company subsidiary received patent approval in fiscal year ended September 30, 2010. Since the patent iswas the property of the Company’s subsidiary, IAI, and the determination of value is deemed worthless with no probably future economic benefit, the Company has expensed the asset in its entirety, rather than amortize it over an undeterminable amount of time.
| Focus Systems Acquisition | September 30, 2010 | |
| Acquisition value | ||
| Common shares (per closing stock price) | $ | 60,000 |
| Preferred shares (per contract) | 250,000 | |
| Total Acquisition value | $ | 310,000 |
| Valuation classification | ||
| Physical Assets | $ | 5,000 |
| Goodwill | 305,000 | |
| Impairment of Goodwill | (305,000 | |
| Goodwill, net | - | |
| Net value | $ | 5,000 |
| Focus Systems Acquisition | September 30, 2010 | |||
| Acquisition value | ||||
| Capital in excess of par | $ | 279,750 | ||
| Common shares 3,000,000 shares | 30,000 | |||
| Preferred shares 250,000 shares | 250 | |||
| Total Acquisition value | $ | 310,000 | ||
| Valuation classification | ||||
| Physical Assets | $ | 10,338 | ||
| Liabilities Assumed | $ | 283,639 | ||
| Goodwill | 583,301 | |||
| Impairment of Goodwill | (583,301 | ) | ||
| Goodwill, net | — | |||
| Net value | $ | 0 | ||
The Company recorded a one-time impairment of goodwill under operating expenses in the amount of $305,000$583,301 in conjunction with the acquisition of Focus Systems due to there being no probable future economic benefit and no certainty of any future cash flows.
| Note receivable to IAI | ||||
| Face value of note | $ | 170,000 | ||
| Less impairment of note | (170,000 | ) | ||
| Note receivable remaining | $ | - | ||
| Note receivable to IAI | September 30, 2010 | |||
| Face value of note | $ | 170,000 | ||
| Less impairment of note | (170,000 | ) | ||
| Note receivable remaining | $ | — | ||
The Company recorded a one-time impairment of the note receivable to IAI under operating expenses in the amount of $170,000 due to the total uncollectability thereof.
AquaLiv, Inc. Acquisition
| September 30, 2011 | ||||
| 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 is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, 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.
| (24) |
AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL
AND ITS’ SUBSIDIARIES
NOTES TO THE CONSOLIDATAED FINANCIAL STATEMENTS
NOTE 6 - CUSTOMER DEPOSITS
| Inventories are comprised of the following amounts at the respective dates: | ||||
| September 30, 2011 | ||||
| Raw materials | $ | 4,340 | ||
| Work in process | 1,447 | |||
| Finished goods | 3,858 | |||
| Provision for inventory liquidations | (8,921 | ) | ||
| Inventory - end of period | $ | 723 | ||
There was no inventory as of September 30, 2009 because the earnings process was incomplete. The project required additional research and testing and the funds paid to the Company have been used to pay those costs. The Company had $0 customer deposits at2010.
NOTE 7 - NOTES PAYABLE AND DERIVATIVE LIABILITY
At fiscal year ended September 30, 2010.
The third note payable is to an unaffiliated party in the amount of $50,000, is not secured by collateral of the company, carries interest of 8%, is due May 3, 2012, and is convertible into common stock at a 45% discount to market. The Company recognizes the third note payable as a derivative liability and has accounted for it as defined below.
Derivative Liability
ASC Topic 815 (“ASC 815”) requires that all derivative financial instruments be recorded on the balance sheet at fair value. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
The Company issued convertible notes and has evaluated the terms and conditions of the conversion features contained in the notes and warrants to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features contained in the notes and warrants represent freestanding derivative instruments that meet the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instruments in the notes is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instruments of the convertible notes and warrants was measured at the inception date of the notes and warrants and each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.
The Company valued the conversion features in its convertible notes using the Black-Scholes model. The Black-Scholes model values the embedded derivatives based on a risk-free rate of return ranging from 0.29% to 0.30%, grant dates at 8/1/2011 and 9/30/2011 of stock warrants, the term of convertible note, conversion prices is 55% of stock bid price at date of note conversion, current stock prices on the measurement date ranging from $0.0028 to $0.0051, and the computed measure of the Company’s stock volatility, ranging from 2,342.87% to 2,242.33%.
Included in the September 30, 2011 financial statements is a derivative liability in the amount of $111,111 to account for this transaction. There were no balances in prior periods since this liability arose in 2011. It will be revalued quarterly henceforth and adjusted as a gain or loss to the consolidated statements of operations depending on its value at that time.
Included in our Consolidated Statements of Operations for the year ended September 30, 2011 are $0 in change of fair value of derivative and $61,111 of debt discount amortization in non-cash charges pertaining to the derivative liability as it pertains to the gain on derivative liability and debt discount, respectively.
| 30-Sep-11 | 30-Sep-10 | |
|---|---|---|
| Loss on goodwill impairment, AquaLiv | $315,484 | $ - |
| Loss on goodwill impairment, Focus | 583,301 | |
| Loss on goodwill impairment, IAI | 34,970 | |
| Loss on impairment of note receivable | _________ | 170,000_ |
| Net loss on impairments | $315,484 | $788,271 |
| (25) |
AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL)
AND ITS’ SUBSIDIARIES
NOTES TO THE CONSOLIDATAED FINANCIAL STATEMENTS
In December 2008, the Company completed its spin-off by distributing 1,167,170 common stock shares to stockholders of CSBI. The remaining 4,832,830 common stock shares previously owned by CSBI were returned and cancelled.
On April 12, 2010, the Company issued 115,572,170 post-split shares of Common stock for $30,000 in cash and a note receivable to the Company’s subsidiary, IAI, in the amount of $170,000. The transaction resulted in a change of control of the Company and was identified in the 8-K filed on April 16, 2010.
On May 7, 2010, the Company issued 20,000,000 post-split shares of Common stock for $20,000 in consulting services.
On May 7, 2010, the Company issued 30,000,000 post-split shares of Common stock and 250,000 shares of Preferred stock as part of an acquisition agreement for Focus Systems, Inc. from Propalms, Inc. The transaction was recorded on the Company’s books at $310,000. The transaction was reported in the Company’s 8-K filed April 21, 2010.
On May 7, 2010, and in conjunction with the Focus acquisition agreement, the Company issued 500,000 shares of Preferred stock for an investment receivable in the amount of $250,000.
On May 14, 2010, the Company completed a 10:1 forward split of its Common stock.
On August 2, 2010, the Company issued 5,000,000 shares of Common stock for $30,000 in consulting services.
On August 2, 2010, the Company issued 5,000,000 shares of Common stock for $20,000 in consulting services.
At September 30, 2010, the Company recorded the impairment of the unexercised investment receivable from the Preferred stock issued May 7, 2010. 464,352 shares of Preferred stock were returned to the Company.
In October 2010 the Company issued 9,500,000 shares of Common stock to repay $5,000 in debt.
In December 2010 the Company issued 400,000 shares of Preferred stock for the purchase of 50% interests in AquaLiv, Inc.
In December 2010 the Company issued 3,750,000 shares of Common stock in exchange for 24,000 shares of Preferred stock valued at $24,000.
In January 2011, the Company issued 90,000 shares of Preferred stock for $45,000 in cash.
I n January 2011, the Company issued 100,000 shares of Preferred stock for $50,000 in cash.
In April 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.
In May 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.
In May 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.
In June 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.
In June 2011 the Company issued 3,947,368 shares of Common stock to repay $15,000 in debt.
In June 2011 the Company issued 2,380,952 shares of Common stock to repay $10,000 in debt.
In July 2011 the Company issued 3,200,000 shares of Common stock to repay $8,000 in debt.
In July 2011 the Company issued 11,500,000 shares of Common stock to repay $5,750 in debt.
In July 2011 the Company issued 4,095,238 shares of Common stock to repay $8,600 in debt.
In August 2011 the Company issued 12,000,000 shares of Common stock to repay $6,000 in debt.
In September 2011 the Company issued 6,500,000 shares of Common stock to repay $3,250 in debt.
In September 2011 the Company issued 7,500,000 shares of Common stock to repay $3,750 in debt.
In September 2011 the Company issued 10,000 shares of Preferred stock for $5,000 in management fees.
In September 2011 the Company issued 50,000 shares of Preferred stock for $25,000 in cash.
In September 2011 the Company’s subsidiary received $5,414 in cash in exchange for previously issued Preferred stock related to the AquaLiv, Inc. acquisition.
NOTE 9 - CONCENTRATIONS
At September 30, 2010, 59%2011, 92% of the Company's accounts receivable was due from three (3)custom of which two (2) customers, with each accountingaccounted for 25%, 20%,55% and 14%37%, respectively. During the years ended September 30, 2011 and 2010, 17% and 2009, 59% and 100% of the Company's royalty revenues were generated through a single licensee, respectively.
NOTE 10 - CONTINGENCIES
The Company had no contingencies existing as of September 30, 2011 and 2010.
NOTE 11 - LOSS PER SHARE
The basic loss per share was calculated using the net loss and the weighted average number of shares outstanding during the reporting periods. All share and per share data have been adjusted to reflect the forward stock split.
NOTE 12 - SEGMENTS
The Company determined that it do not operate in any material, separately reportable operating segments as of September 30, 2011 and 2010.
NOTE 13 - INCOME TAXES
At September 30, 2009,2011, the Company has federal net operating loss carryovers of approximately $608,000$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 2030.2030 and $564,00 in 2031. The Company also has a federal contribution carryover of $150 that expires in 2029. At September 30, 2010,2011, 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 years ended September 30, 20102011 and 2009:
| 2011 | 2010 | |||||||
| Current income tax expense (benefit) | $ | — | $ | — | ||||
| Deferred income tax expense (benefit) | — | — | ||||||
| Net income tax expense (benefit) charged to operations | $ | — | $ | — | ||||
| (26) |
AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL
AND ITS’ SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 years ended September 30, 20102011 and 2009:
| 2011 | 2010 | |||||||
| Loss before income tax provision | $ | (564,294 | ) | (1,008,604 | ) | |||
| Expected federal income tax rate | 15.0 | % | 15.0 | % | ||||
| Expected income tax expense (benefit at statutory rate | $ | (84,644 | ) | $ | (115,291 | ) | ||
| Tax effect of | - | |||||||
| Meals and entertainment | 632 | |||||||
| Change in valuation allowance | 84,644 | 150,659 | ||||||
| Net income tax expense (benefit) | $ | — | $ | — | ||||
The Company's deferred tax assets, deferred tax liabilities, and valuation allowance are as follows:
| September 30, 2011 | September 30, 2010 | |||||||
| Deferred tax assets: | ||||||||
| Organization costs | $ | — | $ | — | ||||
| Contribution carryover | — | — | ||||||
| Net operating loss carryovers | 175,800 | 91,200 | ||||||
| Total deferred tax assets | $ | 175,800 | $ | 91,200 | ||||
| Deferred tax liabilities: | ||||||||
| Book basis of patent application | $ | — | $ | — | ||||
| Tax depreciation in excess of book | — | — | ||||||
| Total deferred tax liabilities | $ | — | $ | — | ||||
| Total deferred tax assets | $ | 175,800 | $ | 91,200 | ||||
| Total deferred tax liabilities | — | — | ||||||
| Valuation allowance | (175,800 | ) | (91,200 | ) | ||||
| Net deferred tax asset (liability) | $ | — | $ | — | ||||
These amounts have been presented in the financial statements as follows:
| September 30, 2011 | September 30, 2010 | |||||||
| Current deferred tax asset (liability) | $ | — | $ | — | ||||
| Non-current deferred tax asset (liability) | — | — | ||||||
| $ | — | $ | — | |||||
NOTE 1214 - SUBSEQUENT EVENTS
The Company evaluated events subsequent to September 30, 20102011 through January 14, 2011,13, 2012, which is the date that the September 30, 20102011 consolidated financial statements were available to be issued. Previously, the Company evaluated events subsequent to September 30, 20092010 through December 16, 2009,January 14, 2011, which iswas the date that the September 30, 20092010 consolidated financial statements were issued.
On December 15, 2010,1, 2011, the Company closed onCompany’s independent accountant and management identified that the consolidated financial statements prepared following the Company’s merger with Focus Systems, Inc. had material errors and should no longer be relied upon. Errors in the consolidated financial statements included the incorrect accounting of the purchase of 50%Focus Systems, Inc., incorrect classification in its statement of cash flows, and accounting for the non-controlling interest of AquaLiv, Inc. The audit committee or equivalent has informed the independent auditor of these errors. The Company immediately commenced preparation of amendments to the effected reports, which would contain the revised financials upon which the public could rely. The net effect of the outstanding common stockchanges on net loss were in material, taken as a whole. Following is a list of AquaLiv, Inc.,quarterly and annual reports that should no longer be relied upon and which will be amended and refiled:
Quarterly report for period ended June 30, 2010
Annual report for period ended September 30, 2010
Quarterly report for period ended December 31, 2010
Quarterly report for period ended March 31, 2011
Quarterly report for period ended June 30, 2011
The Company has instituted an amended internal procedure that includes a Washington state corporation, in exchange for 400,000 sharesreview by an independent accountant, management, and directors, or a combination thereof, to approve and authorize the filing of any report to the Company’s Preferred stock. The transaction was valued at $400,000 and was reported in our 8-K dated December 20, 2010.Commission
| (27) |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
| (a) | Evaluation of Disclosure Controls and Procedures. |
Disclosure controls and procedures are the controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
We have carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the fiscal year covered by this Annual Report.
Based on that evaluation, our principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures were not effective as of the end of the fiscal year covered by this Annual Report on Form 10-K for the reasons noted below in our management's report.
(b) Changes in internal controls.
The term "internal control over financial reporting" (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's management, with the participation of the Chief Executive Officer and Principal Financial Officer, has evaluated any changes in the Company's internal control over financial reporting that occurred during the fourth quarter of the year covered by this annual report, and they have concluded that there was a change to the Company's internal control over financial reporting that may have materially affected, or is reasonably likely to materially affect, the Company's internal contr olcontrol over financial reporting. The changes in internal controls were in correlation with the change in control of the Company’s management.
(c) Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. With the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and proceduresinternal control over financial reporting as of September 30, 20092011 based on the criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as well as criteria established in Items 307 and 308T of Regulation S-K.
The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements .
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's report in this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS ANDCORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THEEXCHANGE ACT.
| NAME | AGE | POSITION WITH THE COMPANY | DIRECTOR SINCE | |
| William M. Wright | 46 | Chairman, Chief Executive Officer, Chief Financial Officer, Secretary | 2010 | |
| Tracy D. Bushnell | 46 | Director | 2010 | |
Each director serves until his or her successor is elected. There are no arrangements or understandings between any director and any other person pursuant to which he or she was selected as a director or nominee.
Each officer serves until he or she is replaced by the Board of Directors. There are no arrangements or understandings between any officer of the Company and any other person pursuant to which he or she was selected as an officer.
WILLIAM M. WRIGHT has been ISI'sAquaLiv Technologies, Inc.’s Chief Executive Officer, President, Secretary-Treasurer, and a director since April 2010. Mr. Wrighthas been the President and CEO of Focus Systems, Inc., a Washington corporation, since its formation in 2008. Focus Systems, Inc. provides Desktop Virtualization which can perform all of the networking functions that can be utilized on standard in-house networks at a fraction of costs, and also Voice over Internet Protocol phone service to its customer base. From July 2006 to July 2007, Mr. Wright was the Chief Operating Officer and a Director of Gottaplay Interactive, Inc., a Nevada corporation involved in the internet connectivity business and the video game subscription and rental business. Mr. Wright has over 20 years of experience and knowledge in financial management and business operations. His experience includes the start up of DONOBi, Inc., an internet Service Provider that specialized in the acquisition and rollup of numerous rural service providers, and the eventual taking of the company public in 2004. Mr. Wright served as both Chief Executive Officer and Chairman of the Board during his six year tenure with DONOBi, leading to the merger with Gottaplay in 2006. Prior to his work in the technology field, Mr. Wright was a Real Estate Broker in both California and Washington, and including the position of President and minority owner of a local property management company. Mr. Wright received his Bachelors of Science in Business Administration with an emphasis in Financial Services from San Diego State University.
TRACY D. BUSHNELL has been a director of ISIAquaLiv Technologies, Inc. since April 2010. Mr. Bushnell is the President of Trak Management Group, Inc., a construction consulting firm in the state of Washington. Previous to that, Mr. Bushnell was the President and Chief Executive Officer of the Bushnell Group, which provided construction related services and consulting services, for the previous nine years.
DIRECTOR INDEPENDENCE
Our board of directors consists of William M. Wright and Tracy D. Bushnell. Mr. Bushnell is an "independent director" as such term is defined in Section 4200(a) (15) of the NASDAQ Marketplace Rules.
COMMITTEES OF THE BOARD OF DIRECTORS
Currently, we do not have any committees of the Board of Directors, and none are planned at this time. Our Board of Directors has determined that none of our directors is an audit committee financial expert.
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INDEMNIFICATION AND LIMITATION ON LIABILITY OF DIRECTORS
Our Articles of Incorporation eliminate the liability of our directors for monetary damages to the fullest extent permissible under Nevada law. Under the Nevada Revised Statutes, director immunity from liability to a company or its stockholders for monetary liabilities applies automatically unless it is specifically limited by a company's Articles of Incorporation. Excepted from that immunity are: (a) a willful failure to deal fairly with the company or its stockholders in connection with a matter in which the director has a material conflict of interest; (b) a violation of criminal law, unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (c) a transaction from which the director derived an improper personal profit; and (d) w illfulwillful misconduct.
Our bylaws provide that we will indemnify our directors and officers to the fullest extent not prohibited by Nevada law; provided, however, that we may modify the extent of such indemnification by individual contracts with our directors and officers; and, provided, further, that we shall not be required to indemnify any director or officer in connection with any proceeding, or part thereof, initiated by such person unless such indemnification: (a) is expressly required to be made by law, (b) the proceeding was authorized by our board of directors, (c) is provided by us, in our sole discretion, pursuant to the powers vested in us under Nevada law or (d) is required to be made pursuant to the bylaws.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
CODE OF ETHICS
The Company does not have a written code of ethics applicable to its executive officers. The Board of Directors has not adopted a written code of ethics since the Company has only one officer who is also a director of the Company and due to the small size and limited funds of the Company.
FAMILY RELATIONSHIPS
None.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
To the best of our knowledge, during the past five years, none of the following occurred, except as noted, with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time, except that Mr. Bushnell was the President of a construction company that filed for Chapter 7 bankruptcy during 2010; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, , suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each of our officers and directors filed his report on Form 3 on a timely basis during the fiscal year ended September 30, 2010.2011. There are no other known failures to file reports required by Section 16(a) of the Exchange Act.
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ITEM 11. EXECUTIVE COMPENSATION
GENERAL
At the present time, we do not pay any compensation to our directors or officers, other than a management fee paid to our President and Chief Financial Officer, William M. Wright. Mr. Wright is also a director, and participated in the deliberations of the Board in determining his executive officer compensation. There is no separate compensation committee of the Board. We anticipate that we will begin to compensate our directors at some time in the future. At the present time, Nono pension benefits are provided to an officer or director of the Company.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for services rendered to us by certain executive officers in all capacities, other than as directors, during the last two fiscal years. No executive officer's salary and bonus exceeded $100,000 in any of the applicable years. The following information includes the dollar value of base salaries, bonus awards, the number of stock options granted, and certain other compensation, if any, whether paid or deferred.
| NAME AND PRINCIPAL POSITION | FISCAL YEAR | SALARY | STOCK BONUS | NON-EQUITY INCENTIVE OPTION AWARDS | PLAN AWARDS | ALL OTHER COMPENSATION | COMPENSATION | TOTAL | ||||||||||||||||||||||||
| Willian M. Wright, Chief Executive Officer (current) | 2011 | $ | 0 | 0 | 0 | 0 | 0 | $ | 80,000 | (1) | $ | 80,000 | (1) | |||||||||||||||||||
| 2010 | $ | 40,000 | (2) | 0 | 0 | 0 | 0 | $ | 30,000 | (2) | $ | 70,000 | (1)(2) | |||||||||||||||||||
| Craig Hoffman President (AquaLiv,Inc.) | 2011 | $ | 44,000 | 0 | 0 | 0 | 0 | 0 | $ | 44,000 | ||||||||||||||||||||||
| 2010 | 32,954 | 0 | 0 | 0 | 0 | 0 | $ | 32,954 | ||||||||||||||||||||||||
| Alma Hoffman Vice President (AquaLiv, Inc.) | 2011 | $ | 38,200 | 0 | 0 | 0 | 0 | 0 | $ | 38,000 | ||||||||||||||||||||||
| 2010 | $ | 13,500 | 0 | 0 | 0 | 0 | 0 | $ | 13,500 | |||||||||||||||||||||||
(1) Consist of a salary received as President of Focus Systems, Inc.
(2) Consist of a salary received as President of Focus Systems, Inc.
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COMPENSATION DISCUSSION AND ANALYSIS
As indicated in the Summary Compensation Table, the only compensation paid to an officer is the salary and management fee payable to our current President and Treasurer, William M. Wright,Wright; the President of our subsidiary, AquaLiv, Inc., Craig Hoffman; and the Vice President of our former President and Treasurer, Gary E. Ball, which commenced in fiscal 2009. Such fee schedule was equal to 15% of certain third party fees incurred by the Company under the former officer, and has been fixed at $5,000 per month by the Company for the current officer.subsidiary, AquaLiv, Inc., Alma Hoffman. The total salary and management fee paid to our officers, both immediately preceding their role as President of the Company, and subsequent to presiding over the Company, but in the capacity of President of one of our subsidiaries, was $110,810$162,200 in fiscal year 2010.
EMPLOYMENT AGREEMENTS
We do not have a written employment agreement with William M. Wright, our sole executive officer.
EQUITY INCENTIVE PLAN
No stock options or similar instruments have been granted to any of our officers or directors.
LACK OF COMPENSATION COMMITTEE
We do not have a separate compensation committee due to the fact that there is currently only one employee of the Company and since no compensation currently is paid to directors of the Company. The entire Board of Directors participates in the consideration of executive officer and director compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William M. Wright, the sole paid employee of the Company, also is a director of the Company, and participates in determining the amount of his compensation.
COMPENSATION COMMITTEE REPORT
The Board of Directors of the Company has reviewed and discussed the Compensation Discussion and Analysis provided above with management and, based on such review and discussions, has recommended that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.
The members of the Board of Directors are:
William M. Wright
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth, as of September 30, 2010,2011, information regarding the ownership of common stock:
o Persons who own more than 5% of our common stock;
o Each of our directors and each of our executive officers; and
o All directors and executive officers as a group.
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Each person will have sole voting and investment power with respect to the shares shown, except as noted.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2) Includes 250,0009,250,000 common shares held by Take Flight Equities, Inc., of which William Wright is President, received in a dividend distribution by Propalms, Inc.
(3) Includes the voting rights to 115,572,170106,572,170 common shares held in escrow due to a default in a promissory note from Take Flight Equities, Inc.
None known.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following table sets forth the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Company's annual financial statements and review of financial statements included in the Company's Form 10-Q quarterly reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.
| 2011 | 2010 | |||||||
| Audit Fees | $ | 19,200 | $ | 17,500 | ||||
| Audit-Related Fees | $ | 20,500 | $ | — | ||||
| Tax Fees | $ | — | $ | — | ||||
| All Other Fees | $ | 3,000 | $ | — | ||||
| TOTAL | $ | 42,700 | $ | 17,500 | ||||
AUDIT COMMITTEE
Our auditor has not provided any non-audit services in the past and does not anticipate providing any non-audit services to the Company. In the event non-audit services are contemplated in the future, our Board of Directors, which functions in the capacity of an audit committee, will consider whether the non-audit services provided by our auditors to us would be compatible with maintaining the independence of our auditors and whether the independence of our auditors would be compromised by the provision of such services. Our Board of Directors pre-approves all auditing services and would approve any permitted non-audit services contemplated in the future, including the fees and terms of those services, to be performed for us by our independent auditor prior to engagement.
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ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(A) CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets -- September 30, 20102011 and 2009
Consolidated Statements of Operation -- Years ended September 30, 20102011 and 2009
Consolidated Statements of Changes in Stockholders' Equity (Deficit) -- Years ended September 30, 20102011 and 2009
ConsolidatedStatements of Cash Flows -- Years ended September 30, 20102011 and 2009
(B) EXHIBIT LIST
3.1.1 Articles of Incorporation. - filed as an exhibit to the Company's Registration Statement on Form SB-2 (33-147367) and incorporated herein by reference.
3.2. By-laws. - filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed on September 2, 2008, and incorporated herein by reference.
10.1 Infrared Systems International 2010 Incentive Compensation Plan - filed as Exhibit 10.1 to the Company's Current Report on Form S-8 filed on July 9, 2010, and incorporated herein by reference.
32.1 Section 906 Certification
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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: January 24, 2012 By: /s/William M. Wright William M. Wright, Chief Executive Officer, and Principal Financial Officer |
In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated.
/s/WILLIAM M. WRIGHT William M. Wright Chief Executive Officer, President, Principal Financial Officer, and Director /s/TRACY D. BUSHNELL Tracy D. Bushnell Director January |