Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Cavitation Technologies, Inc. | Financial_Report.xls |
| EX-32 - CFO 906 CERTIFICATE - Cavitation Technologies, Inc. | exh32-2.htm |
| EX-31 - CFO 302 CERTIFICATE - Cavitation Technologies, Inc. | exh31-2.htm |
| EX-31 - CEO 302 CERTIFICATE - Cavitation Technologies, Inc. | exh31-1.htm |
| EX-32 - CEO 906 CERTIFICATE - Cavitation Technologies, Inc. | exh32-1.htm |
| EX-10 - BOARD OF DIRECTOR AGREEMENT - JAMES FULLER - Cavitation Technologies, Inc. | exh10-12.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number: 0-29901
Cavitation Technologies, Inc.
(Exact name of Registrant as Specified in its Charter)
|
|
|
|
|
|
10019 CANOGA AVENUE
CHATSWORTH, CALIFORNIA 91311
(Address of Principal Executive Offices including Zip Code)
(818) 718-0905
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file 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 (§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 ¨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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
|
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).
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
as of November 8, 2011, the issuer had 158,455,035 shares of common stock outstanding.
TABLE OF CONTENTS Page Part I. FINANCIAL INFORMATION 2 Item 1. Consolidated Financial Statements 2 Consolidated Balance Sheets at September 30, 2011 (unaudited) and June 30, 2011 2 Consolidated Statements of Operations - Three Months Ended September 30, 2011 (unaudited) and September 30, 2010
2010 (unaudited), and the period from January 29, 2007 (Inception) through September 30, 2011 3 Consolidated Statement of Stockholders' Deficit - January 29, 2007 (Inception) through September 30, 2011 4 Consolidated Statements of Cash Flows - Three Months Ended September 30, 2011 (unaudited) and September 30, 2010
(unaudited), and the period from January 29, 2007 (Inception) through September 30, 2011 7 Notes to Consolidated Financial Statements (unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Item 4. Controls and Procedures 19 Part II. OTHER INFORMATION 20 Item 1. Legal Proceedings 20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 3. Defaults Upon Senior Securities 22 Item 4. (Removed and Reserved) 22 Item 5. Other Information 22 Item 6. Exhibits 23 Signatures 24
PART I - FINANCIAL INFORMATION ITEM 1 - Consolidated Financial Statements CAVITATION TECHNOLOGIES, INC. See accompanying notes, which are an integral part of these financial statements 2
CAVITATION TECHNOLOGIES, INC. See accompanying notes, which are an integral part of these financial statements 3
CAVITATION TECHNOLOGIES, INC. 4
CAVITATION TECHNOLOGIES, INC. See accompanying notes, which are an integral part of these financial statements 5
CAVITATION TECHNOLOGIES, INC. See accompanying notes, which are an integral part of these financial statements 6
CAVITATION TECHNOLOGIES, INC. See accompanying notes, which are an integral part of these financial statements 7
CAVITATION TECHNOLOGIES, INC. Note 1 - Nature of Operations and Basis of Presentation Hydrodynamic Technology, Inc. was incorporated January 29, 2007 as a California corporation. It is a
wholly owned subsidiary of Cavitation Technologies, Inc., a Nevada corporation originally incorporated under the name Bio Energy, Inc.
Cavitation Technologies, Inc. has developed, patented, and commercialized proprietary technology for processing soybean oil through
a device called the Nano Neutralization™ Reactor (the "Reactor"). The Reactor is the critical component of the
Nano Neutralization System which is designed to reduce operating costs and increase yields in the refining of vegetable oils. Basis of Presentation We have prepared the accompanying consolidated unaudited financial statements of the Company in
accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial statements and
with instructions to Form 10-Q pursuant to the rules and regulations of Securities and Exchange Act of 1934, as amended (the
"Exchange Act") and Article 8-03 of Regulation S-X under the Exchange Act. Accordingly, these financial statements do not include all
of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, we have included
all adjustments considered necessary (consisting of normal recurring adjustments) for a fair presentation. Operating results for the three
months ended September 30, 2011 are not indicative of the results that may be expected for the fiscal year ending June 30, 2012. You
should read these unaudited consolidated financial statements in conjunction with the audited financial statements and the notes
thereto included in the Company's annual report on Form 10-K for the year ended June 30, 2011. Note 2 - Going Concern Management's Plan Regarding Going Concern The accompanying financial statements have been prepared in conformity with generally accepted accounting
principles which contemplate continuation of the Company as a going concern. The Company has no significant operating history and,
from January 29, 2007, (inception), through September 30, 2011, generated a net loss of $17,031,948. To date, we recorded revenue
of $589,926 in fiscal 2011; we recorded no revenue in the first quarter of fiscal 2012. The Company also has negative cash flow from
operations and negative net equity. Cumulative net cash used in operating activities of $3,591,477 was funded largely with $3,300,900
in equity and $477,368 in a bank loan. These factors, among others, raise doubt about our ability to continue as a going concern. Management's plan is to generate income from operations by licensing our technology globally through our
strategic partner, the Desmet Ballestra Group. We will also attempt to raise additional debt and/or equity financing to fund future
operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or
obtained in sufficient amounts necessary to meet the Company's needs, or that the Company will be able to meet its future contractual
obligations. Should management fail to obtain such financing, the Company may curtail its operations. As a result of the aforementioned factors, our independent auditors, in their report on our audited financial
statements for the fiscal year ended June 30, 2011, expressed substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of
the Company to continue as a going concern. 8
Note 3 - Summary of Significant Accounting Policies Patents Capitalized patent costs represent legal fees associated with procuring and filing patent applications. The
Company accounts for patents in accordance with Accounting Standards Codification ("ASC") 350-30, General
Intangibles Other Than Goodwill. As of September, 30, 2011, the Company had incurred $102,892 in net patent costs which are
capitalized in the accompanying consolidated balance sheet. Amortization amounted to $522 and $569 for the three months ended
September 30, 2011 and 2010. Net Patents declined by $15,261 for the three months ending September 30, 201 as three patent
applications expired or were abandoned. On October 25, 2011, the Company had a patent granted for its Multi-Stage Cavitation
Device which will be amortized over an estimated useful life of 4 years. The Company has been issued two patents and has seven
US and six PCT/international applications pending. At September 30, 2011, future amortization of patent costs is estimated as follows: Related Party Advances The Company advanced Igor Gorodnitsky, President, and Roman Gordon, Chief Technology Officer, $15,000
each for operating expenditures that will be incurred on behalf of the Company subsequent to September 30, 2011. Deferred Revenue The Company received a license fee of $100,000 from the Desmet Ballestra Group ("Desmet")
during the three months ended September 30, 2011 for CTi Nano Reactors that are expected to be delivered to Desmet during
the three months ended December 31, 2011. Fair Value Measurement ASC 820-10 requires entities to disclose the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet for which it is practicable to estimate fair value. ASC 820-10 defines the fair value
of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As
of September 30, 2011, the carrying value of certain accounts such as inventory, accounts payable, accrued expenses, accrued payroll
and short-term loans approximates fair value due to the short-term nature of such instruments. 9
The following table presents information about the Company's assets and liabilities measured and reported in
the financial statements at fair value on a recurring basis as of September 30, 2011 and indicates the fair value hierarchy of the
valuation techniques utilized to determine such fair value. The three levels of the fair value hierarchy are as follows: Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that
the entity has the ability to access. Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not
active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or
liabilities. Level 3 - Valuations based on inputs that are unobservable, supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. The derivative liability attributed to the convertible notes' conversion feature is measured using the Black-Sholes
option valuation model. Refer to Note 8, "Convertible Notes Payable" for the inputs to the Black-Sholes option
valuation model. The following tables provide a reconciliation of the beginning and ending balances of our financial liabilities classified as Level 3: Advertising and Promotion Costs Advertising costs incurred in the normal course of operations are expensed as incurred. Advertising expenses
amounted to $0, $350, and $236,438 for the three months ended September 30, 2011 and 2010, and the period from January 29, 2007
(date of inception) through September 30, 2011, respectively. 10
Note 4 - Net Loss per Share - Basic and Diluted The Company computes the loss per common share using ASC 260, Earnings Per
Share. The net loss per common share, both basic and diluted, is computed based on the weighted average
number of shares outstanding for the period. The diluted loss per common share is computed by dividing the net loss
attributable to common stockholders by the weighted average shares outstanding assuming all potential dilutive common shares were
issued. On September 30, 2011, the Company had 1,810,957 stock options and 13,145,618 warrants outstanding to
purchase common stock that were not included in the diluted net loss per common share because their effect would be anti-dilutive.
In addition, the Company had 111,111 shares of Series A Preferred Stock outstanding which are convertible
into approximately 333,333 shares of common stock. The Company also had $125,610 of outstanding convertible notes payable,
before any discounts, which are convertible into 3,960,748 shares of common stock as of September 30, 2011. These items were also
not included in the calculation of diluted net loss per common share because their effect would be anti-dilutive. Note 5 - Property and Equipment Property and equipment consisted of the following as of September 30, 2011 and June 30, 2011. Depreciation expense amounted to$11,570, $4,541, and $59,321 for the three months ended September 30, 2011 and 2010, and
the period from January 29, 2007 (date of inception) through September 30, 2011, respectively. Note 6 -Bank Loan On November 1, 2010, we renewed our loan with National Bank of California until November 1, 2011 with 11 regular monthly
payment of $6,000 and a final payment of $474,171. The interest rate floor was increased from 7.0% to 7.5%. As of September 30,
2011, the outstanding balance on the loan was $477,368. The Company is in the process of negotiating a renewal of the terms of this
loan. We provided the National Bank of California a security interest in the assets of the Company as collateral for a loan. Note 7 - Short-Term Loans and Advances On October 26, 2010, the Company entered into a loan agreement with Desmet Ballestra North America,
Inc. under which the Company borrowed $75,000. The outstanding balance on September 30, 2011 was $60,000. Accrued interest on
the late payments amounted to $1,625 as of September 30, 2011. 11
On September 21, 2011, the Company received $100,000 from the Desmet Ballestra Group as an advance for
a Site User Nano Reactor license fee. CTi will repay this advance when proceeds from the Site User license fee are received by
CTi. Note 8 - Convertible Notes Payable On February 1, 2011, the Company issued convertible promissory notes to the Tripod Group, LLC, (the
"Tripod Notes") for an aggregate total amount of $61,212. During the quarter ended September 30, 2011, $5,000 of the
Tripod outstanding Notes was converted into 153,846 shares of common stock, and $3,462 of the beneficial conversion feature was
reclassified to additional paid in capital. As a result, the carrying value of the Tripod Notes as of September 30, 2011 amounted to
$13,357 consisting of outstanding principal of $25,610 less the discount of $12,253. On February 8, 2011, the Company issued a convertible promissory note payable to Asher Enterprises, Inc.,
(the "Asher Note"), in the amount of $42,500. During the quarter ended September 30, 2011, the entire $42,500 was
converted into 1,359,457 shares of common stock at a value of $91,258, and the $47,059 beneficial conversion feature was reclassified
to additional paid in capital. On June 6, 2011, the Company issued a convertible promissory note payable to Asher Enterprises, Inc., (the
"Second Asher Note") in the amount of $47,500. As of September 30, 2011,the carrying value of the Second Asher Note
amounted to $23,668 consisting of outstanding principal of $47,500 less the discount of $23,832. On June 24, 2011, we issued a convertible promissory note payable to GEL Properties, LLC, (the "GEL
Note") in the amount of $52,500. The Note is due June 24, 2012 and bears interest at a rate of six percent per annum. The Note
is convertible into shares of our common stock at a conversion price equal to 65% of the average day's lowest closing bid out of the 5
trading days prior to conversion. The transaction was funded July 12, 2011. The issuance of the GEL Note amounted in a beneficial
conversion feature of $28,269 on the issue date, which has been recorded as a discount to the carrying value of the note. As of
September 30, 2011, the remaining discount balance amounted to $20,700. By virtue of the variable conversion ratio, the conversion
feature is a derivative under ASC 815-40, Derivatives and Hedging, and is measured using the Black-Sholes option valuation model.
Accordingly, the value of the conversion feature has been classified as a derivative liability on the accompanying balance sheet. Refer
to the table below for the inputs used in the Black-Scholes option valuation model. On September 30, 2011, the outstanding balance as recorded on the balance sheet amounted $68,825
consisting of outstanding principal of $125,610 less discount of $56,784. By virtue of the variable conversion ratios of the Tripod, Asher,
and GEL Notes, the conversion feature of the above notes is a derivative under ASC 815-40, Derivatives and Hedging.
Accordingly, the value of the conversion feature has been classified as a derivative liability on the accompanying balance sheet. As of
September 30, 2011, the aggregate value of the conversion features associated with the above notes amounted to $57,733. The
beneficial conversion feature is measured using the Black-Scholes option valuation model. The inputs used for the Black-Scholes
option valuation model were as follows: 12
Note 9 - Stockholders' Equity Preferred Stock The Company has 5,000,000 shares of Series A Preferred Stock authorized and 111,111 shares outstanding.
Series A Preferred Stock is convertible into common stock at a rate of 3 shares of common stock per share of each Series A Preferred
Stock held at any time at the option of the preferred shareholders. In the event of any liquidation, dissolution or winding up of the
Company, the holders of Series A Preferred will have liquidation preferences prior to distributions made to any other class of
stockholder. The Series A Preferred Stock is not redeemable. On the third anniversary date of the issuance of the preferred shares, any
Series A Preferred shares outstanding are automatically converted into common stock, at a conversion rate of 3 shares for common to
1 share of Series A Preferred Stock. The holders of the Series A Preferred Stock are entitled to receive out of any funds legally available dividends at
the rate of 6% per annum payable on September 30 and March 30. Dividends shall accrue and be cumulative whether or not they have
been declared. Dividends may be paid in cash or through the issuance of additional shares of Series A Preferred Stock at the
Company's option. As of September 30, 2011, cumulative dividends amounted to $15,233. As of September 30, 2011, none of the
cumulative dividends have been paid and are recorded in accrued expenses on the accompanying consolidated balance sheet. The Company has authorized 5,000,000 shares of Preferred Stock as Series B Preferred Stock. The Board of
Directors can establish the rights, preferences and privileges of the Series B Preferred Stock. There are no shares of Series B
Preferred Stock outstanding. Stock Options A summary of the stock option activity for the three months ended September 30, 2011 is presented below. 13
The following table summarizes information about outstanding stock options as of September 30, 2011.
Warrants A summary of the warrant activity for the three months ended September 30, 2011is presented below. 14
The following table summarizes information about outstanding warrants as of September 30, 2011. Note 10 - Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Under ASC 270,
Interim Financial Reporting, the Company is required to adjust its effective tax rate each quarter to be consistent with the
estimated annual effective tax rate. The Company is also required to record the tax impact of certain discrete items, unusual or
infrequently occurring, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the
interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit
can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or
lower effective tax rate during a particular quarter based upon the mix and timing of actual earnings versus annual projections. The
Company has estimated its annual effective tax rate to be zero. This is based on an expectation that the Company will generate net
operating losses in the year ending June 30, 2012, and it is not more likely than not that those losses will be recovered using future
taxable income. Therefore, no provision for income tax or tax liability has been recorded as of and for the period
ended September 30, 2011. ASC 740-10, Accounting for Uncertainty in Income Taxes, indicates criteria that an individual tax position
must satisfy for some or all of the benefits of that position to be recognized in the financial statements. ASC 740-10 includes a higher
standard that tax benefits must meet before they can be recognized in a company's financial statements. As the Company has no
uncertain tax positions as defined in ASC 740, there are no corresponding unrecognized tax benefits. Any future changes in the
unrecognized tax benefit will have no impact on the Company's effective tax rate due to the existence of the valuation allowance. The
Company estimates that the unrecognized tax benefit will not change significantly within the next twelve months. It is the Company's
policy to classify income tax penalties and interest, if any, as part of general and administrative expense in its Statements of
Operations. The Company has not incurred any interest or penalties since inception. 15
Note 11 - Commitments and Contingencies Lease Agreements Total rent expense was $17,510, $12,750 and $264,681 for the three months ended September 30, 2011 and 2010, and for the
period from January 29, 2007 (date of inception) through September 30, 2011, respectively. The Company's lease agreement extends
through February 1, 2012 with monthly rental payments of $4,378. Royalty Agreements On July 1, 2008, our wholly owned subsidiary entered into Patent Assignment Agreements with our President and former CEO, and
current CTO, where certain devices and methods involved in the hydrodynamic cavitation processes invented by the President and
CTO have been assigned to the Company. In exchange, the Company agreed to pay a royalty of 5% of gross revenues to each of the
CTO and President for licensing of the technology and leasing of the related equipment embodying the technology. These agreements
were subsequently assigned to Cavitation Technologies on May 13, 2010. The Company's CTO and President both waived their rights
to receive royalty payments that have accrued, or that may accrue, on any gross revenue generated through June 30, 2011. The royalty
agreements with our CTO and President are in effect as of July 1, 2011. No royalties were accrued or paid during the three months
ended September 30, 2011 as the Company generated no revenue during the period. On April 30, 2008 (as amended November 22, 2010), our wholly owned subsidiary entered into an employment
agreement with Varvara Grichko who became a member of the Board of Directors in September 2010. Mrs. Grichko shall receive an
amount equal to 5% of actual gross royalties received from the royalty stream in the first year in which the Company receives royalty
payments from the patent which Mrs. Grichko was the legally named inventor, and 3% of actual gross royalties received by the
Company from the patent in each subsequent year. As of September 30, 2011, no patents have been granted in which Mrs. Grichko is
the legally named inventor. Note 12 - Subsequent Events In October 2011, the Company received an advance of $100,000 related to a Site User Nano Reactor license fee from the Desmet
Ballestra Group for a transaction in Argentina. In October 2011, the company's stock was delisted on the Frankfurt Stock Exchange because of new listing requirements. Our
stock will continue to be traded on the Stuttgart and Berlin Exchanges with symbol WTC. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with our financial statements and the related notes. This
discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as its plans,
objectives, expectations and intentions. Its actual results and the timing of certain events could differ materially from those anticipated in
these forward-looking statements. Overview Hydrodynamic Technology, Inc. was incorporated January 29, 2007 as a California corporation. It is a wholly
owned subsidiary of Cavitation Technologies, Inc. (referred to herein, unless otherwise indicated, as "the Company,"
"CTi," "we," "us," and "our") a Nevada corporation originally incorporated under the name
Bio Energy, Inc. Cavitation Technologies, Inc. has developed, patented, and commercialized proprietary technology for processing
soybean oil through a device called the Nano Neutralization™ Reactor (the "Reactor"). The Reactor is the critical
component of the Nano Neutralization System which is designed to reduce operating costs and increase yields in the refining of
vegetable oils. 16
The company is focused on merchandising our NANO Neutralization System - a vegetable oil refining
system that employs our proprietary continuous flow-through, hydrodynamic NANO Technology in the form of our multi-stage
NANO Series of reactors. The principle market for our systems includes global soybean oil refiners who process oils in order to
produce products that are used for human consumption and other uses. In fiscal 2011, we recognized revenue of $589,926. Management's Plan We are a development stage entity engaged in merchandising our NANO Neutralization System which is
designed to help refine vegetable oils such as soybean, canola, and rapeseed. Our near term goal is to successfully merchandise our
systems. We have no significant operating history and, from January 29, 2007, (inception), through September 30, 2011 generated a
net loss of $17,031,948. We also have negative cash flow from operations and negative net equity. The accompanying financial
statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the
Company as a going concern. Management's plan is to generate income from operations by licensing our technology globally through our
strategic partner, the Desmet Ballestra Group. We will also attempt to raise additional debt and/or equity financing to fund future
operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or
obtained in sufficient amounts necessary to meet the Company's needs, or that the Company will be able to meet its future contractual
obligations. Should management fail to obtain such financing, the Company may curtail its operations. Critical Accounting Policies CTi's critical accounting policies and estimates are included in its Annual Report on Form 10-K for the year ended June 30,
2011, and did not change for the three months ended September 30, 2011. Results of Operations The following is a comparison of our results of operations for the three months ended September 30, 2011 and 2010. Revenue We recorded no revenue in the first quarter of fiscal 2012 or fiscal 2011. 17
Operating Expenses Our operating expenses for the three months ended September 30, 2011 amounted to $351,374 compared with
$1,150,384 for the same period in 2010, a decrease of $799,010, or 69.5%. The decrease consisted of a decrease in general and
administrative (G&A) expenses of $585,821, or 64.4%. This decrease reflects reductions of $396,635 in a one-time bonus
expense and $163,658 in consulting fees. The remaining G&A expenses for the periods ending September 30, 2011 and 2010
consisted primarily of salaries and professional fees such as legal, audit, and accounting services. R&D expenses declined $213,189, or 88.4% for the three months ended September 30, 2011 largely
reflecting a one-time $190,000 share based payment to our principle research scientist during the quarter ending September 30, 2010.
Interest Expense Interest expense and other consists of interest expense on bank loans, the amortization of the discount on
convertible notes payable and changes in value of derivatives. Interest expense decreased $1,782, or 14.0%, for the three
months ended September 30, 2011 compared with 2010. As of September 30, 2011, the gross face value of convertible notes issued was $125,610. By virtue of the
variable conversion ratios contained in the provisions of the agreements, the conversion features of the notes are a derivative and
classified as a derivative liability on the accompanying balance sheet. During the three months ended September 30, 2011, CTi
recorded a non-cash gain on Change in Value of Derivative Liability of $41,695. The gain was offset by non-cash interest expense of
$39,243 attributed to the Amortization of Discounts on the issuance of convertible notes payable. There was no such expense during
the three months ended September 30, 2010. Interest expense paid in cash declined from $12,693 for the 3 months ending September 30, 2010 to $9,259 for
the 3 months ending September 30, 2011 as the principal amount on our bank loan declined from $511,875 on September 30, 2010 to
$477,368 on September 30, 2011. Liquidity and Capital Resources CTi's primary sources of liquidity have been issuances of restricted common stock to service providers, sale of
common stock for cash, issuances of convertible promissory notes, and short-term loans and advances from a strategic partner. See Note 7 "Short-Term Loans and Advances, Note 8 "Convertible Notes Payable," and Note
9, "Stockholder's Equity" for more information. CTi's ability to continue to issue restricted common stock in exchange for
services may be adversely affected by the performance of our stock price. Additionally, CTi's ability to issue long-term debt and obtain
short-term loans may be negatively impacted by domestic economic conditions that create a tight credit environment, particularly for
development stage companies. It is our intention to rely less on the issuance of stock as payment to service providers, and more on
cash generated from operations by licensing our technology globally through our strategic partner, Desmet Ballestra. Bank Loan On August 1, 2010 the Company renewed its loan with National Bank of California until November 1, 2010 for
$520,516. The terms and conditions remained the same with monthly payments of $7,396 and an interest rate of prime plus 2.75%. On
November 1, 2010, the loan was extended until November 1, 2011 with 11 regular monthly payment of $6,000 and a final payment of
$474,171. The interest rate floor was increased from 7.0% to 7.5%. As of September 30, 2011, the outstanding balance on the loan was $477,368. We are in the process of negotiating a renewal of the
terms of this loan. 18
Common Stock During the three months ended September 30, 2011, we issued 600,000 shares of common stock for $35,000
compared with 593,211 shares of common stock for $59,321 cash in the first quarter of fiscal 2011. Share-based Compensation During the three months ended September 30, 2011, we issued 1,175,252 shares of common stock valued at
$63,663 as payment to service providers. During the three months ended September 30, 2010, we issued 2,515,772 shares of common
stock valued at $451,525. Also during the three months ended September 30, 2010, we incurred $395,285 of expenses relating to the
amortization of restricted stock issued during the year ended June 30, 2010. Cash Flow Net cash used in operating activities during the three months ended September 30, 2011 amounted to $133,488
compared with $216,911 for the same period in fiscal 2011. During the three months ended September 30, 2011, our net loss
amounted to $362,285, including non-cash operating expenses of $90,127 arising primarily from $63,663 in common stock issued for
services. The remaining net cash of $272,158 from operations was used largely to pay salaries and related expenses, research and development,
interest expense and professional fees such as attorneys and accountants. During the three months ended September 30, 2010, our
net loss amounted to $1,163,077 including non-cash operating expenses of $851,920 arising primarily from common stock issued for
services. The remaining net cash of $311,157 was used largely to pay salaries and expenses associated with professional services.
Net cash used in investing activities during the three months ended September 30, 2011 amounted to $2,085
related to capitalized patent costs. During the three months ended September 30, 2010, our net cash used in investing activities
amounted to $89,441 spent on the customization of systems. Net cash provided by financing activities during the three months ended September 30, 2011 amounted to
$163,088 arising largely from the issuance of convertible notes of $52,500, $35,000 in common stock sold for cash and advances from
our strategic partner of $100,000, offset by $15,750 in payments of related party short-term loans. During the three months ended
September 30, 2010, net cash from financing activities amounted to $316,611 arising from the sale of stock of $59,321 and proceeds
from short-term loans of $270,165 offset by the payment of the bank loan of $12,875. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. Not applicable for smaller reporting companies. ITEM 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and
procedures as defined in Rules 13a-15(b)(e) and 15d-15(b)(e) of the Securities Exchange Act of 1934 as of the end of the period
covered by this report, and they have concluded that these controls and procedures are effective. Changes in Internal Control over Financial Reporting There were no changes in financial control over financial reporting during the first quarter of fiscal 2012 that
have materially affected or are reasonably likely to materially affect the company's internal control over financial reporting. 19
PART II - OTHER INFORMATION Item 1 Legal Proceedings We know of no material, existing or pending legal proceeding against our Company, nor are we involved as a
plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or
affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest. Item 2 Unregistered Sales of Equity Securities and Use of Proceeds The following is a listing of unregistered security activity during the three months ended September 30,
2011. Issuance of Common Stock On August 22, 2011, the Company issued 300,000 shares of common stock to for a total consideration of
$15,000 to Charles Collier, a non-affiliated accredited investor. The shares were issued in reliance on Section 4(2) of the Securities Act
of 1933, as amended. The shares were not offered via general solicitation to the public but solely to Charles Collier. The Company
issued restricted shares in connection with this issuance. No sales commissions or other remuneration was paid in connection with
these issuances. On August 22, 2011, the Company issued 300,000 shares of common stock to for a total consideration of
$20,000 to Catherine Shaw, a non-affiliated accredited investor. The shares were issued in reliance on Section 4(2) of the Securities
Act of 1933, as amended. The shares were not offered via general solicitation to the public but solely to Charles Collier. The Company
issued restricted shares in connection with this issuance. No sales commissions or other remuneration was paid in connection with
these issuances. Issuance of Restricted Common Stock for Services On July 13, 2011, we issued 110,342 shares of common stock with a recorded value of $7,662 to Michael
Psomas for accounting services. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. The
shares were not offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued
restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these
issuances. On July 13, 2011, we issued 13,075 shares of common stock with a recorded value of $908 to Silvio Nardoni for
legal services. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. The shares were not
offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued restricted shares in
connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances. On July 13, 2011, we issued 156,477 shares of common stock with a recorded value of $10,865 to New Venture
Attorneys for legal/SEC services. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. The
shares were not offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued
restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these
issuances. On July 13, 2011, we issued 35,000 shares of common stock with a recorded value of $2,430 to Varvara
Grichko for services as a member of the board of directors. The shares were issued in reliance on Section 4(2) of the Securities Act of
1933, as amended. The shares were not offered via general solicitation to the public but solely to the aforementioned service provider.
The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in
connection with these issuances. 20
On July 13, 2011, we issued 55,555 shares of common stock with a recorded value of $3,857 to Sonia Luna for
SOX consulting services. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. The shares
were not offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued restricted
shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these
issuances. On July 13, 2011, we issued 9,000 shares of common stock with a recorded value of $625 to Shannon Stokes
for office management services. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. The
shares were not offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued
restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these
issuances. On August 19, 2011, we issued 64,594 shares of common stock with a recorded value of $3,488 to Michael
Psomas for accounting services. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. The
shares were not offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued
restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these
issuances. On August 19, 2011, we issued 46,785 shares of common stock with a recorded value of $2,527 to New
Venture Attorneys PC for SEC/legal services. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as
amended. The shares were not offered via general solicitation to the public but solely to the aforementioned service provider. The
Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in
connection with these issuances. On August 19, 2011, we issued 50,000 shares of common stock with a recorded value of $2,700 to Kirk Wiggins
for marketing and sales services. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. The
shares were not offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued
restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these
issuances. On August 19, 2011, we issued 37,500 shares of common stock with a recorded value of $2,025 to James
Fuller for services as a member of the board of directors. The shares were issued in reliance on Section 4(2) of the Securities Act of
1933, as amended. The shares were not offered via general solicitation to the public but solely to the aforementioned service provider.
The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in
connection with these issuances. On August 22, 2011, we issued 230,000 shares of common stock with a recorded value of $12,421 to Pinnacle
Financial Group for investor relations and marketing services. The shares were issued in reliance on Section 4(2) of the Securities Act
of 1933, as amended. The shares were not offered via general solicitation to the public but solely to the aforementioned service
provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was
paid in connection with these issuances. On September 29, 2011, we issued 356,924 shares of common stock with a recorded value of $13,768 to Mike
Psomas for accounting services. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. The
shares were not offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued
restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these
issuances. On September 29, 2011, we issued 10,000 shares of common stock with a recorded value of $386 to Varvara
Grichko for services as member of the board of directors. The shares were issued in reliance on Section 4(2) of the Securities Act of
1933, as amended. The shares were not offered via general solicitation to the public but solely to the aforementioned service provider.
The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in
connection with these issuances. 21
With the exception of Varvara Grichko and Jim Fuller who are affiliates of the company, none of the
aforementioned service providers are affiliates of the Company. Issuance of Common Stock for Conversion of Indebtedness On August 16, 2011, we issued 287,356 shares of common stock to Asher Enterprises, Inc. as conversion of
$10,000 in outstanding convertible notes payable. On August 17, 2011, we issued 391,850 shares of common stock to Asher as
conversion of $12,500 in outstanding convertible notes payable. On August 19, 2011, we issued 391,850 shares of common stock to
Asher as conversion of $12,500 in outstanding convertible notes. On August 22, 2011, we issued 288,401 shares of common stock to
Asher as conversion of $7,500 in outstanding convertible notes payable and $1,700 in accrued interest. These shares were issued in
reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public
but solely to Asher Enterprises, Inc. The Company issued restricted shares in connection with these issuances. No sales commissions
or other remuneration was paid in connection with these issuances. On September 13, 2011, we issued 30,769 shares of common stock to Tripod Group, LLC as conversion of
$1,000 of outstanding convertible notes payable. On September 15, 2011, we issued an additional 46,154 shares of common stock to
Tripod Group, LLC as conversion of $1,500 of outstanding convertible notes. On September 16, 2011, we issued 76,923 shares of
common stock to Tripod Group, LLC as conversion of $2,500 of outstanding convertible notes payable. These shares were issued in
reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public
but solely to the aforementioned service provider. The Company issued restricted shares in connection with these issuances. No sales
commissions or other remuneration was paid in connection with these issuances. Item 3 - Defaults Upon Senior Securities None Item 4 - (Removed and Reserved) Item 5 - Other Information None 22
Item 6 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES 23
SIGNATURES Pursuant to the requirements of the securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized. SIGNATURE TITLE DATE /s/ Todd Zelek Chairman of the Board, Chief Executive Officer and Secretary November 10, 2011 Todd Zelek (Principal Executive Officer) /s/ R.L. Hartshorn Chief Financial Officer November 10, 2011 R.L. Hartshorn (Principal Financial Officer) /s/ Igor Gorodnitsky President and Director November 10, 2011 Igor Gorodnitsky 24
YES ¨
NO x
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
September 30,
June 30,
2011
2011
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
42,214
$
14,779
Inventory
92,475
92,475
Prepaid expenses and other current assets
23,865
3,337
Related party advances
30,000
-
Total current assets
188,554
110,591
Property and equipment, net
147,774
159,344
Patents, net
102,892
118,153
Other assets
9,500
9,500
Total assets
$
448,720
$
397,588
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
126,031
$
143,949
Accrued expenses
49,485
54,745
Accrued payroll
261,492
149,316
Advances
136,533
36,533
Deferred revenue
116,951
16,951
Convertible notes payable, net of discounts
68,825
52,852
Derivative liability
57,733
121,679
Related party short-term loan
-
15,750
Short-term loan
60,000
60,000
Bank loan
477,368
486,110
Total current liabilities
1,354,418
1,137,885
Commitments and contingencies, Note 11
Stockholders' deficit:
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
111,111 shares issued and outstanding as of September 30, 2011
and June 30, 2011.
111
111
Common stock, $0.001 par value, 1,000,000,000 shares
authorized, 157,088,270, shares and 153,799,715 shares are
issued and outstanding as of September 30, 2011 and
June 30, 2011, respectively
157,089
153,800
Additional paid-in capital
16,149,375
15,954,280
Deficit accumulated during the development stage
(17,212,273)
(16,848,488)
Total stockholders' deficit
(905,698)
(740,297)
Total liabilities and stockholders' deficit
$
448,720
$
397,588
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
January 29, 2007,
Inception,
For the Three Months Ended
Through
September 30,
September 30,
2011
2010
2011
Revenue
$
-
$
-
$
589,926
Cost of revenue
-
-
91,144
Gross profit
-
-
498,782
General and administrative expenses
323,310
909,131
11,615,592
Research and development expenses
28,064
241,253
5,316,458
Total operating expenses
351,374
1,150,384
16,932,050
Loss from operations
(351,374)
(1,150,384)
(16,433,268)
Interest expense and other
(10,911)
(12,693)
(598,680)
Loss before income taxes
(362,285)
(1,163,077)
(17,031,948)
Income taxes
-
-
-
Net loss
(362,285)
(1,163,077)
(17,031,948)
Deemed dividends to preferred stockholders
(1,500)
(1,500)
(180,325)
Net loss available to common stockholders
$
(363,785)
$
(1,164,577)
$
(17,212,273)
Net loss available to common shareholders per share:
Basic and Diluted
$
(0.00)
$
(0.01)
Weighted average shares outstanding:
Basic and Diluted
155,226,197
132,525,540
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (Unaudited)
Deficit
Accumulated
During the
Series A Preferred
Common Stock
Additional Paid-in
Development
Shares
Amount
Shares
Amount
Capital
Stage
Total
Balance at inception, January 29, 2007
-
$
-
-
$
-
$
-
$
-
$
-
Common stock issued as payment for services on January 29, 2007
42,993,630
42,994
(21,994)
21,000
Common stock issued as payment for services on March 31, 2008
6,428,904
6,429
1,123,971
1,130,400
Common stock issued as payment for services on April 16, 2008
51,180
51
8,949
9,000
Common stock issued as payment for services on April 22, 2008
102,360
102
17,898
18,000
Common stock issued as payment for services on June 18, 2008
3,787,320
3,788
662,212
666,000
Common stock sold for cash on June 30, 2008
2,047,200
2,047
497,953
500,000
Amortization of discount on convertible preferred stock
47,879
(47,879)
-
Net loss
(2,681,782)
(2,681,782)
Balance at June 30, 2008
-
$
-
55,410,594
$
55,411
$
2,336,868
$
(2,729,661)
$
(337,382)
Common stock sold in connection with reverse merger for cash on October 3, 2008
2,149,560
2,150
122,850
125,000
Preferred stock sold for cash on March 17, 2009
111,111
111
99,889
100,000
Preferred stock - beneficial conversion feature
11,111
(11,111)
-
Common stock sold for cash on April 22, 2009
499,998
500
99,500
100,000
Common stock sold for cash on June 4, 2009
499,998
500
99,500
100,000
Common stock sold for cash on June 22, 2009
300,000
300
49,700
50,000
Common stock sold for cash on June 30, 2009
300,000
300
49,700
50,000
Bio common stock outstanding before reverse merger on October 3, 2008
27,840,534
27,840
(27,840)
-
Common stock issued as payment for services on September 22, 2008
150,000
150
17,850
18,000
Common stock issued as payment for services on December 3, 2008
450,000
450
187,150
187,600
Common stock issued as payment for services on December 17, 2008
300,000
300
131,800
132,100
Common stock issued as payment for services on February 27, 2009
590,565
591
156,893
157,484
Common stock issued as payment for services on March 11, 2009
86,550
86
26,853
26,939
Common stock issued as payment for services on March 22, 2009
150,000
150
50,350
50,500
Common stock issued as payment for services on April 23, 2009
29,415
29
9,285
9,314
Common stock issued as payment for services on May 28, 2009
152,379
152
38,959
39,111
Common stock issued as payment for services on June 4, 2009
37,500
38
9,837
9,875
Common stock issued as payment for services on June 30, 2009
37,500
38
8,712
8,750
Warrants issued with convertible debt in December 2008, January 2009 and February 2009
49,245
49,245
Amortization of discount on convertible preferred stock
107,835
(107,835)
-
Warrants issued as payment for services on May 27, 2009
56,146
56,146
Warrants issued as payment for services on June 3, 2009
84,219
84,219
Warrants issued as payment for services on June 30, 2009
5,678
5,678
Issuance of stock options as payment for services on August 8, 2008
229,493
229,493
Issuance of stock options as payment for services on October 1, 2008
4,598
4,598
Issuance of stock options as payment for services on October 7, 2008
22,770
22,770
Issuance of stock options as payment for services on October 21, 2008
47
47
Issuance of stock options as payment for services on October 28, 2008
33
33
Issuance of stock options as payment for services on January 19, 2009
50,571
50,571
Net loss
(2,495,991)
(2,495,991)
Balance at June 30, 2009
111,111
$
111
88,984,593
$
88,985
$
4,089,602
$
(5,344,598)
$
(1,165,900)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (Unaudited) (Continued)
Deficit
Accumulated
During the
Series A Preferred
Common Stock
Additional Paid-in
Development
Shares
Amount
Shares
Amount
Capital
Stage
Total
Balance at June 30, 2009
111,111
$
111
88,984,593
$
88,985
$
4,089,602
$
(5,344,598)
$
(1,165,900)
Common stock issued as payment for services on July 27, 2009
17,358,000
17,358
3,886,279
3,903,637
Common stock issued as payment for services on August 5, 2009
165,000
165
44,935
45,100
Common stock issued as payment for services on September 16, 2009
190,011
190
42,209
42,399
Common stock issued as payment for services on October 7, 2009
130,500
131
42,500
42,631
Common stock issued as payment for services on October 16, 2009
100,911
101
34,209
34,310
Common stock issued as payment for services on October 23, 2009
30,000
30
9,270
9,300
Common stock issued as payment for services on October 29, 2009
37,500
38
13,463
13,501
Common stock issued as payment for services on November 3, 2009
37,500
37
13,464
13,501
Common stock issued as payment for services on November 10, 2009
35,102
35
12,251
12,286
Common stock issued as payment for services on November 16, 2009
1,505,000
1,505
405,944
407,449
Common stock issued as payment for services on November 30, 2009
60,000
60
17,340
17,400
Common stock issued as payment for services on December 4, 2009
49,157
49
12,240
12,289
Common stock issued as payment for services on January 11, 2010
121,286
121
30,200
30,321
Common stock issued as payment for services on February 1, 2010
5,125,102
5,125
1,071,146
1,076,271
Common stock issued as payment for services on February 11, 2010
500,000
500
109,500
110,000
Common stock issued as payment for services on February 15, 2010
127,500
128
26,648
26,776
Common stock issued as payment for services on February 23, 2010
135,000
135
26,865
27,000
Common stock issued as payment for services on March 5, 2010
346,098
346
82,897
83,243
Common stock issued as payment for services on March 12, 2010
70,000
70
13,455
13,525
Common stock issued as payment for services on March 22, 2010
50,000
50
8,450
8,500
Common stock issued as payment for services on April 12, 2010
127,282
127
16,420
16,547
Common stock issued as payment for services on April 19, 2010
100,000
100
16,900
17,000
Common stock issued as payment for services on April 29, 2010
1,700,000
1,700
253,300
255,000
Common stock issued as payment for services on May 10, 2010
773,750
774
115,288
116,062
Common stock issued as payment for services on May 24, 2010
219,092
219
43,599
43,818
Common stock issued as payment for services on June 1, 2010
163,794
164
29,319
29,483
Common stock issued as payment for services on June 9, 2010
333,333
333
59,667
60,000
Common stock issued as payment for services on June 14, 2010
46,544
47
8,331
8,378
Common stock issued for debt and accrued interest conversion on August 7, 2009
1,122,375
1,122
189,681
190,803
Conversion feature on convertible notes payable
63,601
63,601
Common stock sold for cash on October 13, 2009
208,104
208
34,156
34,364
Common stock sold for cash on October 16, 2009
2,980,734
2,981
493,808
496,789
Common stock sold for cash on November 4, 2009
217,117
217
36,183
36,400
Common stock sold for cash on November 17, 2009
421,529
422
71,748
72,170
Common stock sold for cash on December 4, 2009
352,451
352
59,565
59,917
Common stock sold for cash on January 6, 2010
58,058
58
9,812
9,870
Common stock sold for cash on February 4, 2010
888,235
888
150,112
151,000
Common stock sold for cash on March 2, 2010
743,746
744
125,693
126,437
Common stock sold for cash on March 12, 2010
352,941
353
59,647
60,000
Common stock sold for cash on April 19, 2010
125,000
125
14,875
15,000
Common stock sold for cash on June 1, 2010
700,000
700
69,300
70,000
Common stock issued for conversion of note payable on June 1, 2010
2,789,217
2,789
276,133
278,922
Common stock sold for cash on June 24, 2010
1,000,000
1,000
99,000
100,000
Warrants issued as payment for services on July 15, 2009
13,205
13,205
Warrants issued as payment for services on February 11, 2010
131,376
131,376
Conversion feature of note payable on June 1, 2010
223,137
223,137
Dividends on preferred stock
(6,000)
(6,000)
Net loss
(8,196,462)
(8,196,462)
Balance at June 30, 2010
111,111
$
111
130,581,562
$
130,582
$
12,656,723
$
(13,547,060)
$
(759,644)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (Unaudited) (Continued)
Deficit
Accumulated
During the
Series A Preferred
Common Stock
Additional Paid-in
Development
Shares
Amount
Shares
Amount
Capital
Stage
Total
Common stock issued as payment for services on July 8, 2010
349,571
350
52,086
52,436
Common stock issued as payment for services on August 3, 2010
1,854,009
1,854
350,406
352,260
Common stock issued as payment for services on August 30, 2010
75,000
75
11,175
11,250
Common stock issued as payment for services on September 8, 2010
237,192
237
35,342
35,579
Common stock issued as payment for services on October 1, 2010
473,517
474
70,554
71,028
Common stock issued as payment for services on November 1, 2010
1,020,482
1,020
131,643
132,663
Common stock issued as payment for services on November 22, 2010
100,000
100
11,900
12,000
Common stock issued as payment for services on December 7, 2010
459,056
459
50,037
50,496
Common stock issued as payment for services on January 10, 2011
116,916
117
13,913
14,030
Common stock issued as payment for services on February 14, 2011
1,264,883
1,265
137,872
139,137
Common stock issued as payment for services on March 10, 2011
219,767
220
21,757
21,977
Common stock issued as payment for services on March 22, 2011
510,000
510
50,490
51,000
Common stock issued as payment for services on April 1, 2011
816,145
816
80,799
81,615
Common stock issued as payment for services on May 17, 2011
276,203
276
27,343
27,619
Common stock issued as payment for services on June 13, 2011
333,924
334
33,058
33,392
Common stock issued as payment for services on June 14, 2011
8,096,990
8,097
689,603
697,700
Common stock sold for cash on August 3, 2010
593,211
593
58,728
59,321
Common stock sold for cash on October 1, 2010
661,000
661
78,659
79,320
Common stock sold for cash on November 1, 2010
1,400,000
1,400
142,600
144,000
Common stock sold for cash on November 22, 2010
350,000
350
41,650
42,000
Common stock sold for cash on January 10, 2011
110,000
110
11,990
12,100
Common stock sold for cash on February 14, 2011
1,920,000
1,920
190,080
192,000
Common stock sold for cash on March 2, 2011
290,000
290
28,710
29,000
Common stock sold for cash on March 10, 2011
176,923
177
14,823
15,000
Common stock issued as payment of short-term loan into stock on February 14, 2011
1,000,000
1,000
99,000
100,000
Warrants issued as payment for services on November 22, 2010
46,735
46,735
Common stock issued for conversion of note payable on February 8, 2011
30,769
31
1,967
1,998
Common stock issued for conversion of note payable on February 11, 2011
15,385
15
985
1,000
Common stock issued for conversion of note payable on February 16, 2011
26,154
26
1,674
1,700
Common stock issued for conversion of note payable on February 17, 2011
15,385
15
985
1,000
Common stock issued for conversion of note payable on February 22, 2011
21,927
22
1,475
1,497
Common stock issued for conversion of note payable on February 28, 2011
55,749
56
3,568
3,624
Common stock issued for conversion of note payable on March 7, 2011
24,796
25
1,506
1,531
Common stock issued for conversion of note payable on March 8, 2011
18,100
18
982
1,000
Common stock issued for conversion of note payable on March 14, 2011
109,783
110
5,956
6,066
Common stock issued for conversion of note payable on March 28, 2011
51,282
51
2,949
3,000
Common stock issued for conversion of note payable on March 30, 2011
59,829
60
3,440
3,500
Common stock issued for conversion of note payable on April 4, 2011
59,829
60
3,440
3,500
Common stock issued for conversion of note payable on April 5, 2011
24,376
24
1,402
1,426
Amortization of restricted stock issued for services
786,275
786,275
Dividends on preferred stock
(6,000)
(6,000)
Net loss
(3,295,428)
(3,295,428)
Balance at June 30, 2011
111,111
$
111
153,799,715
$
153,800
$
15,954,280
$
(16,848,488)
$
(740,297)
Common stock issued as payment for services on July 13, 2011
379,449
380
25,968
26,348
Common stock issued as payment for services on August 19, 2011
198,879
199
10,541
10,740
Common stock issued as payment for services on August 22, 2011
230,000
230
12,191
12,421
Common stock issued as payment for services on September 29, 2011
366,924
367
13,787
14,154
Common stock issued for conversion of note payable on August 16, 2011
287,356
287
20,786
21,073
Common stock issued for conversion of note payable on August 17, 2011
391,850
392
25,949
26,341
Common stock issued for conversion of note payable on August 19, 2011
391,850
392
25,949
26,341
Common stock issued for conversion of note payable on August 22, 2011
288,401
288
17,216
17,504
Common stock issued for conversion of note payable on September 13, 2011
30,769
31
1,508
1,539
Common stock issued for conversion of note payable on September 15, 2011
46,154
46
2,262
2,308
Common stock issued for conversion of note payable on September 16 2011
76,923
77
4,538
4,615
Common stock sold for cash on August 22, 2011
600,000
600
34,400
35,000
Dividends on preferred stock
(1,500)
(1,500)
Net loss
(362,285)
(362,285)
Balance at September 30, 2011
111,111
$
111
157,088,270
$
157,089
$
16,149,375
$
(17,212,273)
$
(905,698)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
January 29, 2007,
Inception,
For the Three Months Ended
Through
September 30,
September 30,
2011
2010
2011
Operating activities:
Net loss
$
(362,285)
$
(1,163,077)
$
(17,031,948)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization
12,092
5,110
62,802
Warrants issued in connection with convertible notes payable
-
-
49,245
Amortization of convertible loan discount
39,243
-
360,705
Common stock issued for services
63,663
846,810
11,594,264
Stock option compensation
-
-
307,512
Warrants issued for services
-
-
337,359
Change in value of derivatives
(41,694)
-
(22,497)
Equipment write-down
-
-
5,399
Patent write-down
16,823
-
30,323
Effect of changes in:
Inventory
-
-
(53,056)
Prepaid expenses and other current assets
(20,528)
423
(23,865)
Advances to related parties
(30,000)
-
(30,000)
Deposits
-
-
(9,500)
Bank overdraft, net
-
(2,747)
-
Accounts payable and accrued expenses
(22,978)
52,745
174,416
Accrued payroll
112,176
(9,898)
540,413
Deferred revenue
100,000
53,723
116,951
Net cash used in operating activities
(133,488)
(216,911)
(3,591,477)
Investing activities:
Purchase of property and equipment
-
-
(99,192)
Payments for systems
-
(89,441)
(152,721)
Payments for patents
(2,085)
-
(136,697)
Net cash used in investing activities
(2,085)
(89,441)
(388,610)
Financing activities:
Proceeds from (payments on) bank loan borrowings
(8,742)
(12,875)
477,368
Proceeds from sales of preferred stock
-
-
725,000
Proceeds from convertible notes payable
52,500
-
438,712
Payments on convertible notes payable
-
-
(55,000)
Proceeds from sales of common stock
35,000
59,321
2,139,688
Payments on related party short-term loans
(15,750)
-
(15,750)
Proceeds from related party short-term loans
-
-
15,750
Proceeds from short-term loans
-
270,165
160,000
Advances
100,000
-
136,533
Net cash provided by financing activities
163,008
316,611
4,022,301
Net increase in cash
27,435
10,259
42,214
Cash, beginning of period
14,779
270
-
Cash, end of period
$
42,214
$
10,529
$
42,214
Supplemental disclosures of cash flow information:
Cash paid for interest
$
9,259
$
12,693
$
202,851
Cash paid for income taxes
$
-
$
1,600
$
6,728
Supplemental disclosure of non-cash investing and financing activities:
Warrants issued in connection with preferred stock
$
-
$
-
$
155,714
Beneficial conversion feature on preferred stock
$
-
$
-
$
11,111
Conversion of preferred to common shares in reverse merger
$
-
$
-
$
625,000
Proceeds from sales of preferred shares used to purchase shares of Bio
$
-
$
-
$
400,000
Conversion of note payable to common stock
$
-
$
-
$
278,922
Conversion of short-term loan to common stock
$
-
$
-
$
100,000
Accrued dividends issued to preferred stockholders
$
1,500
$
1,500
$
15,233
Conversion of convertible notes payable and accrued interest to common stock
$
49,200
$
-
$
270,846
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2011
Year Ended
June 30,
Amount
2012
$
4,365
2013
11,431
2014
17,791
2015
19,762
2016
16,802
Thereafter
32,741
Total
$
102,892
Fair Value
Fair Value Measurements at September 30, 2011
as of
Using Fair Value Heirarchy
Financial Instruments
September 30, 2011
Level 1
Level 2
Level 3
Liabilities:
Derivative liability
57,733
-
-
57,733
Total
$
57,733
$
-
$
-
$
57,733
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Derivative Liability
Balance at June 30, 2011
$
121,679
Total (gains) losses included in interest expense and other
(41,694)
Creation - convertible note issuances
28,269
Settlements - note conversions
(50,521)
Balance at September 30, 2011
$
57,733
September 30,
June 30,
2011
2011
Leasehold improvement
$
2,475
$
2,475
Furniture
26,837
26,837
Office equipment
1,500
1,500
Equipment
68,380
68,380
Systems
112,474
112,474
211,666
211,666
Less: accumulated depreciation and amortization
(63,892)
(52,322)
$
147,774
$
159,344
Quarter Ended
September 30,
2011
Expected life in years
0.3 - 1.0
Stock price volatility
0.0%
Risk free interest rate
0.06% - 0.16%
Expected dividends
None
Forfeiture rate
0%
Weighted-
Average
Weighted-
Remaining
Average
Contractual
Exercise
Life
Options
Price
(Years)
Outstanding at June 30, 2011
1,810,957
$
0.55
5.73
Granted
-
Forfeited
-
Exercised
-
Outstanding at September 30, 2011
1,810,957
$
0.55
5.48
Vested and expected to vest
at September 30, 2011
1,810,957
$
0.55
5.48
Exercisable at September 30, 2011
1,810,957
$
0.55
5.48
Options Outstanding
Options Exercisable
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Number
Remaining
Exercise
Number
Exercise
Price
of Shares
Life (Years)
Price
of Shares
Price
$
0.33
637,297
5.10
$
0.33
637,297
$
0.33
0.67
1,173,660
5.74
0.67
1,173,660
0.67
1,810,957
1,810,957
Weighted-
Average
Weighted-
Remaining
Average
Contractual
Exercise
Life
Warrants
Price
(Years)
Outstanding at June 30, 2011
13,145,618
$
0.41
1.69
Granted
-
-
Exercised
-
-
Outstanding at September 30, 2011
13,145,618
$
0.41
1.44
Vested and expected to vest
at September 30, 2011
13,145,618
$
0.41
1.44
Exercisable at September 30, 2011
13,145,618
$
0.41
1.44
Warrants Outstanding
Warrants Exercisable
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Number
Remaining
Exercise
Number
Exercise
Price
of Shares
Life (Years)
Price
of Shares
Price
$
0.20 - 0.37
2,939,374
1.52
$
0.29
2,939,374
$
0.29
0.42 - 0.58
10,206,244
1.42
0.45
10,206,244
0.45
13,145,618
13,145,618
For the Three Months Ended
September 30,
2011
2010
$ Change
% Change
General and administrative expenses
$
323,310
$
909,131
$
(585,821)
-64.4%
Research and development expenses
28,064
241,253
(213,189)
-88.4%
Total operating expenses
351,374
1,150,384
(799,010)
-69.5%
Loss from operations
(351,374)
(1,150,384)
799,010
-69.5%
Interest expense and other
(10,911)
(12,693)
1,782
-14.0%
Loss before income taxes
(362,285)
(1,163,077)
800,792
-68.9%
Income tax expense
-
-
-
Net loss
$
(362,285)
$
(1,163,077)
800,792
-68.9%
Incorporated by Reference
Exhibit
Filed
Number
Exhibit Description
Herewith
Form
Pd. Ending
Exhibit
Filing Date
3(i)(a)
Articles of Incorporation - original name of Bioenergy, Inc.
SB-2
N/A
3.1
October 19, 2006
3(i)(b)
Articles of Incorporation - Amended and Restated
10-Q
December 31, 2008
3-1
February 17, 2009
3(i)( c )
Articles of Incorporation - Amended and Restated
10-Q
June 30, 2009
3-1
May 14, 2009
3(i)(d)
Articles of Incorporation - Amended; increase in authorized shares
8K
N/A
N/A
October 29, 2009
3(i)(e)
Articles of Incorporation - Certificate of Amendment; forward split
10Q
September 30, 2009
3-1
November 16, 2009
10.1
Patent Assignment Agreement between the Company and Roman Gordon dated July 1, 2008.
8K
June 30, 2009
10.1
May 18, 2010
10.2
Patent Assignment Agreement between the Company and Igor Gorodnitsky dated July 1, 2008.
8K
June 30, 2009
10.2
May 18, 2010
10.3
Assignment of Patent Assignment Agreement between the Company and Roman Gordon
8K
June 30, 2009
10.3
May 18, 2010
10.4
Assignment of Patent Assignment Agreement between the Company and Igor Gorodnitsky
8K
June 30, 2009
10.4
May 18, 2010
10,.5
Employment Agreement between the Company and Roman Gordon date March 17, 2008
10K/A
June 30, 2009
10.3
October 20, 2011
10.6
Employment Agreement between the Company and Igor Gorodnitsky dated March 17, 2008
10K/A
June 30, 2009
10.4
October 20, 2011
10.7
Consulting Agreement with R.L. Hartshorn dated September 22, 2009
10-Q
December 31, 2010
10.2
February 11, 2011
10.8
Employment and Confidentiality and Invention Assignment Agreement between the Company and Varvara Grichko dated April 30, 2008
10-Q
December 31, 2010
10.3
February 11, 2011
10.9
Revolving Line of Credit Agreement with National Bank of California dated Feb. 7, 2007
10K/A
June 30, 2009
10.7
October 20, 2011
10.10
Line of Credit Agreement from Nat. Bank of Ca. - amendment dated Aug 1, 2010
10K/A
June 30, 2010
10.10
October 20, 2011
10.11
Marketing and Collaboration Agreement with Desmet Ballestra Group - dated Nov. 1, 2010
10-Q
December 31, 2010
10.1
February 11, 2011
10.12
Board of Director Agreement - James Fuller
X
14.1
Code of Business Conduct and Ethics*
10-K
June 30, 2011
September 28, 2011
31.1
Certificat of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
X
31.2
Certificat of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
X
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted
X
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted
X
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**
XBRL Instance Document
X
101.SCH**
XBRL Taxonomy Extension Schema
X
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase
X
101.DEF**
XBRL Taxonomy Extension Definition Linkbase
X
101.LAB**
XBRL Taxonomy Extension Label Linkbase
X
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase
X
*
In accordance with Regulation S-K 406 of the Securities Act of 1934, we undertake to provide to any person
without charge, upon request, a copy of our "Code of Business Conduct and Ethics". A copy may be requested
by sending an email to info@cavitationtechnologies.com.
**
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934
and otherwise are not subject to liability.