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 December 31, 2011

OR

 

{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

 

THE EXCHANGE ACT

 

For transition period from _______________ to _______________

 

Commission File Number: 0-17953

 

AquaLiv Technologies, Inc.

 

(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

(Issuer's telephone Number)

 

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 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 Act.

 

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}

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of February 15, 2011, there were 367,503,792 shares of common stock outstanding.

 

 

AQUALIV TECHNOLOGIES, INC. – QUARTERLY REPORT ON FORM 10-Q

 

Table of Contents

 

		PAGE
PART I
Item 1.  Financial Statements			3
Balance Sheets			3
Statement of Operations			4
Statement of Cash Flow			5
Notes			6-8
Item 2.  Management's Discussion and Analysis of financial condition and results of Operations			9
Item 3.  Quantitative and Qualitative Disclosures about Market Risk			13
Item 4.  Controls and Procedures			13
PART II
Item 1.  Legal Proceedings			14
Item 1A.  Risk Factors			14
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds			14
Item 3.  Defaults Upon Senior Security			14
Item 4.  Submission of Matters to a Vote of Securities Holders			14
Item 5.  Other Information			14
Item 6.  Exhibits			14
Signatures			15

 

 

PART I Financial Information

 

ITEM 1.  FINANCIAL STATEMENTS

 

AQUALIV TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

ASSETS
		December 31,				September 30,
		2011				2011
		(unaudited)
CURRENT ASSETS:
Cash		$	32,048			$	3,732
Accounts receivable			2,138				1,968
Total Current Assets			34,186				5,700
PROPERTY AND EQUIPMENT, net			7,727				8,427
INVENTORY			764				723
TOTAL ASSETS		$	42,677			$	14,850
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable		$	121,811			$	107,438
Credit cards payable			17,843				17,187
Notes payable			172,808				189,179
Derivative liability			164,245				111,111
Other liabilities			8,721				20,746
Total Current Liabilities			485,428				445,661
STOCKHOLDERS' DEFICIT:
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 991,618 and 911,618 shares issued and outstanding, respectively			992				912
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 342,117,428 and 291,617,428 shares issued and outstanding, respectively			342,117				291,617
Capital in excess of par value			1,933,535				1,907,365
Retained earnings (Deficit)			(2,690,934	)			(2,612,390	)
Noncontrolling interest			(28,461	)			(18,315	)
Total Stockholders' (Deficit)			(442,751	)			(430,811	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	42,677			$	14,850

 

See accompanying notes.

 

 

AQUALIV TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010 (Unaudited)

 

		December 31, 2011				December 31, 2010
REVENUES:
Sales		$	129,184			$	114,217
Service			10,536				11,763
Royalty			—				17,600
Total Revenues			139,720				143,580
COST OF GOODS SOLD			33,671				46,524
GROSS PROFIT			106,049				97,056
OPERATING EXPENSES:
Consulting fees			10,830				15,075
Management fees			30,000				20,890
Payroll expense			43,785				24,773
Professional fees			12,082				31,657
Research and development			918				2,434
Travel, meals, and entertainment			5,174				3,387
Loss on goodwill impairment, AquaLiv			—				315,484
Other general and administrative			82,120				53,498
Total Operating Expenses			184,909				467,198
LOSS FROM OPERATIONS			(78,860	)			(370,142	)
OTHER INCOME (EXPENSE):
Interest expense			(21,469	)			(2,577	)
Recapture prior expense			11,638				—
LOSS BEFORE INCOME TAX PROVISION			(88,690	)			(372,718	)
PROVISION FOR INCOME TAXES			—				—
CONSOLIDATED NET LOSS			(88,690	)			(372,718	)
Net loss (income) attributable to non-controlling interest, AquaLiv			10,146				(2,505	)
NET LOSS ATTRIBUTABLE TO COMPANY		$	(78,544	)		$	(375,223	)
BASIC AND DILUTED LOSS PER SHARE		$	(0.00	)		$	(0.00	)
WEIGHTED AVERAGE SHARES OUTSTANDING			342,117,428				200,493,870

 

See accompanying notes.

 

 

AQUALIV TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010 (UNAUDITED)

 

		December 31, 2011				December 31 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(78,544	)		$	(375,223	)
Adjustments to reconcile net loss to net cash by operating activities:
Noncontrolling interest in income of consolidated subsidiary			(10,146	)			2,505
Depreciation			700				700
Loss on goodwill impairment, AquaLiv			—				315,484
Loss on derivative liability			16,667				—
Recapture prior expense			(11,638	)			—
Net (increase) decrease in operating assets:
Accounts receivable			(170	)			6,601
Inventory			(41	)			(6,742	)
Net increase (decrease) in operating liabilities:
Accounts payable			14,373				21,114
Credit cards payable			656				803
Other liabilities			(12,078	)			(1,485	)
Net Cash Provided (Used) by Operating Activities			(80,221	)			(36,243	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment			—				(5,516	)
Net Cash Provided (Used) by Investing Activities			—				(5,516	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes, net			31,787				43,793
Proceeds of capital stock issuance			76,750				79,000
Net Cash Provided by Financing Activities			108,537				122,793
NET INCREASE (DECREASE) IN CASH			28,316				81,034
CASH AT BEGINNING OF PERIOD			3,732				1,040
CASH AT END OF PERIOD		$	32,048			$	82,074
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	—			$	—
Income taxes		$	—			$	—
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of stock to retire notes payable and accrued interest		$	16,750			$	5,000
Issuance of preferred stock for acquisition		$	—			$	400,000

 

See accompanying notes.

 

 

AQUALIV TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO THE CONSILIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying financial statements have been prepared by the Company in accordance with Article 8 of U.S. Securities and Exchange Commission Regulation S-X.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at December 31, 2011 and 2010 and for the periods then ended have been made.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s September 30, 2011 audited financial statements.  The results of operations for the periods ended December 31, 2011 and 2010 are not necessarily indicative of the operating results for the full year.

 

NOTE 2 - GOING CONCERN

 

The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  At December 31, 2011, the Company had a retained deficit of $2,690,934 and current liabilities in excess of current assets by $442,751.  During the three months ended December 31, 2011, the Company incurred a net loss of $88,690 and negative cash flows from operations of $80,221.  These factors create an uncertainty about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

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

 

NOTE 3 - RELATED PARTY TRANSACTIONS

 

Shareholder Loans - During the three months ended December 31, 2010, the Company’s officer extended an additional use of credit in the amount of $656.11. The credit carries an interest rate of 15.24%.

 

Management Compensation - During the three months ended December 31, 2011 and 2010, respectively, the Company and its subsidiaries paid or accrued salary and management fees of $73,785 and $20,890 to its officers.

 

 

AQUALIV TECHNOLOGIES, INC.
AND ITS’ SUBSIDIARIES

NOTES TO THE CONSILIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

NOTE 4 - PROPERTY AND EQUIPMENT

 

Estimated Useful Lives						December 31, 2011
Optical equipment			5 years			$	39,386
Office equipment			3 - 10 years				8,231
Computers and peripherals			5 years				16,000
Furniture and fixtures			5 years				6,873
							70,490
Less accumulated depreciation							(62,763	)
Net property and equipment						$	7,727

 

Depreciation expense for the three months ended December 31, 2011 and 2010 was $700 and $700, respectively.

 

NOTE 5 – AQUALIV ACQUISITION

 

		December 31, 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, Inc. is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, Inc. and we are required to consolidate its financials accordingly. Additionally, the acquisition was recorded at its fair market value in that the cash, computer equipment, and inventory were recorded at their fair market value on the date of the acquisition. Impairment of goodwill from the date of acquisition was written off to its net realizable value in the accompanying statements of operations.

 

NOTE 6 – INVENTORY

 

		December 31, 2011
Inventory - beginning of period		$	723
Change in inventory			41
Inventory - end of period		$	764

 

 

AQUALIV TECHNOLOGIES, INC.
AND ITS’ SUBSIDIARIES

NOTES TO THE CONSILIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 7 - CONCENTRATIONS

 

At December 31, 2011, 51% of the Company's accounts receivable was due from a single customer.  During the three months ended December 31, 2011, 30% of the Company’s service revenue was generated from a single customer, and less than 2% of sales revenue was generated from a single customer. Compared to total revenue, less than 2% was generated from a single customer during the three months ended December 31, 2011, compared to the three months ended December 31, 2010, where 12% of the Company's revenues were generated from a single customer.

 

NOTE 8 – INCOME TAXES

 

At December 31, 2011, the Company has federal net operating loss carryovers of approximately $1,172,000 available to offset future taxable income and expiring as follows: $2,320 in 2026, $12,616 in 2027, $127,675 in 2028, $37,465 in 2029, and $428,000 in 2030 and $564,000 in 2031. The Company also has a federal contribution carryover of $150 that expires in 2029. At December 31, 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 three months ended December 31, 2010 and 2009:

 

 

			2011				2010
Current income tax expense (benefit)		$	—			$	—
Deferred income tax expense (benefit)			—				—
Net income tax expense (benefit) charged to operations		$	—			$	—

 

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

 

		2011				2010
Loss before income tax provision		$	(88,690	)		$	(372,718	)
Expected federal income tax rate			15.0	%			15.0	%
Expected income tax expense (benefit) at statutory rate		$	(13,304	)		$	(55,908	)
Tax effect of:
Meals and entertainment			91				508
Change in valuation allowance			13,213				55,400
Net income tax expense (benefit)		$	—			$	—

 

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

 

		December 31, 2011
Deferred tax assets:
Organization costs		$	60
Contribution carryover			23
Net operating loss carryovers			33,220
Total deferred tax assets		$	33,303
Deferred tax liabilities:
Book basis of patent application		$	(5,246	)
Tax depreciation in excess of book			(498	)
Total deferred tax liabilities		$	(5,744	)
Total deferred tax assets		$	33,303
Total deferred tax liabilities			(5,744	)
Valuation allowance			(27,559	)
Net deferred tax asset (liability)		$	—

 

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

 

			December 31, 2011
Current deferred tax asset (liability)		$	—
Non-current deferred tax asset (liability)			—
		$	—

 

NOTE 9 - SUBSEQUENT EVENTS

 

None.

 

  

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The management discussions contain certain forward-looking statements and information that are based on the beliefs of management as well as assumptions made by and information currently available to management. When used in this document, the words "anticipate," "believe," "estimate," "expect," "intend," "will," "plan," "should," "seek," and similar expressions, are intended to identify forward-looking statements. Such statements reflect the current view of management regarding future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual actions or results may vary materially from those described herein as anticipated, believed, estimated, expected or intended.  The following discussion and analysis should be read in conjunction with the company's consolidated financial statements and related footnotes for the year ended September 30, 2009. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future.

 

Overview

 

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. From 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).   IAI continued to operate the previous business of ISI under this newly created company until June 22, 2011, when, in accordance with a Management and Distribution Agreement dated March 24, 2010, all of the outstanding stock of IAI was transferred to Gary Ball, the former CEO. 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.

 

On April 12, 2010, the 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 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 (which was completed on June 22, 2011).

 

On April 19, 2010, the 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 the company. Focus was formed in August of 2007 as a technology company providing remote desktop – cloud computing – services and Voice over Internet Protocol (VoIP) phone services to small and mid-sized businesses.  For the calendar year 2008, Focus operated a regional Internet Service Provider (ISP) business under a management agreement with a third party.

 

 On December 16, 2010 the company 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 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

 

  

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

 

AquaLiv Water System

 

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

   

Infotone Face Mist

 

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

 

AgSmart™ Rice

 

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

 

NatuRx™ Medication Alternatives

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

FOCUS SYSTEMS, INC.

 

Remote Desktop and Cloud Computing

 

A remote device runs the client software that implements the chosen protocol(s) and allows the user to access an entire desktop environment that is being projected from a remote server or group of servers. Although the remote device may be a personal computer running an agent, the remote device, 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.

 

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.

 

  

Overview of Operations

 

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

 

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

 

 

Liquidity and Capital Resources

 

Recent national and global economic conditions have been challenging and unprecedented, particularly in the investment, credit and financial markets. Concerns continue about the impact and the effect the Federal government’s stimulus packages, inflation, volatile energy costs, availability and expenses of credit, stock market swings and the ever increasing national unemployment will play a role in our future. Businesses today are at risk due to limited credit, illiquid credit markets, and an increasingly cautious finance community, all of which leads many institutional investors and private investors to reduce and/or cease funding to borrowers. If the current economic and credit market conditions continue in this manner, more businesses will close and consumer’s confidence will wane even further. Our company is experiencing a direct impact of the above mentioned economic conditions because certain private investors, although optimistic of our industry’s long-term outlook and our business model/plan, are not willing at this time to commit funds until they see an upward trend in the national economy. In addition, many individuals across the nation are facing uncertainties with their continued employment, coupled with higher living costs, are curtailing or eliminating their spending habits and refraining from making changes in their operations.

 

Results of Operations for the Three Months Ended December 31, 2011 compared with the Three Months Ended December 31, 2010.  

 

Revenues

 

The revenues for the three months ending December 31, 2011 were $139,720 as compared to $143,580 in the quarter ending December 31, 2010.  Sales revenue as a direct result of AquaLiv comprised of 92.5% of our revenue for the three months ending December 31, 2010, compared to 79.5% of our revenue for the same three months period in 2010. Service revenue, attributed to Focus Systems, accounted for the other 7.5% and 8% of our revenues for the three months ending December 31, 2011 and 2010, respectively.  The Company stopped receiving royalty revenue on June 22, 2011 in conjunction with the distribution of Infrared Applications, Inc., therefore, royalty revenue accounted for 0% of revenues for the three months ending December 31, 2011. Royalty revenue accounted for 12% of total revenues during the three months ending December 31, 2009. Revenue recognition is accounted for as follow: Sales revenue is billed, paid, and shipped in the same period each month; service revenue is bill in advance on the first day of the month that service is rendered; and royalty revenue was recorded as earned in the month it is received.

 

Cost of Goods Sold

 

Cost of goods sold for the three months ending December 31, 2011 and 2010 were $33,671 (24.1% of total revenues) and $46,524 (32% of total revenues), respectively.  

 

Operating Expenses

 

Operating expenses for the three months ending December 31, 2010 were $184,909 as compared to $467,198 for the quarter ending December 31, 2009.  The decrease of $4,245 in consulting fees, increase of $9,110 in management fees, increase of $19,012 in payroll expense, decrease of $19,575 in professional fees, decrease of $1,516 in research and development, increase of $3,303 in travel expense, and increase of $28,622 in general and administrative fees is due in part to the increased costs of running multiple businesses in expansion compared to the quarter ending December 31, 2010.  The decrease of $315,484 in loss on goodwill impairment, AquaLiv, was due to the one time write down of goodwill attributed to the acquisition of that business during the quarter ending December 31, 2010.  The Company expects operating expenses to remain higher that previously comparable quarters as the Company expands its services.

 

Other Income and Expense

 

Interest expense for the three months ended December 31, 2011 was $18,892, as compared to $2,577 for the three months ended December 31, 2010.  The increase in interest expense was due to an increase net borrowing and the accounting for a derivative liability of the Company.

 

Recapture prior expense for the three months ended December 31, 2011 was $11,638, as compared to $0 for the three months ended December 31, 2010. The credit was due to a one time settlement of tax liabilities for Focus Systems. The Company does not expect further credits.

 

Net (Loss) Before Provision for Income Taxes

 

The net loss for the three months ended December 31, 2011 was $78,544 as compared to $375,223 for the three months ended December 31, 2010.  The decrease in net loss is primarily attributed to the decrease in our operating expenses due to the one time write off of goodwill attributed to the AquaLiv acquisition for the three months ended December 31, 2010.

 

Going Concern

 

We have limited working capital and limited revenues from sales of products, services, or licensing.  During 2011, our operating expenses continued to be greater than our revenues. These factors have caused our accountants to express substantial doubt about our ability to continue as a going concern.  The accompanying financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

 

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

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements.

 

  

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined in Item 10 of Regulation S-K and are not required to report the quantitative and qualitative measures of market risk specified in Item 305 of Regulation S-K.  

 

ITEM 4.  CONTROLS AND PROCEDURES

  

As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our Company's disclosure controls and procedures as of the end of the period covered by this quarterly report, ending December 31, 2011.  This evaluation was carried out under the supervision and with the participation of our Company's management, including our Company's president and chief executive officer.  Based upon that evaluation, our Company's president and chief executive officer concluded that our Company's disclosure controls and procedures are effective as of the end of the period covered by this report.  There have been no significant changes in our Company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our Company's reports filed or submitted under 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 ensure that information required to be disclosed in our Company's reports filed under the Exchange Act is accumulated and communicated to management, including our Company's president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure. 

There have been no changes in our internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

  

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

 

  

PART II - OTHER INFORMATION 

 

ITEM 1.  LEGAL PROCEEDINGS

 

None.

 

ITEM 1A.  RISK FACTORS

 

As a smaller reporting company, the Company is not required to provide disclosure under this Part II, Item 1A.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. (REMOVED AND RESERVED)

 

ITEM 5. OTHER INFORMATION

 

None

    

ITEM 6. EXHIBITS

 

Exhibit List

 

3.1

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.

 

31.1

Rule 13a-14(a) Certification

 

32.1

Section 906 Certification

  

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date:	February 21, 2012		AQUALIV TECHNOLOGIES, INC.
			(Registrant)
		By:	/s/ William M. Wright
			William M. Wright, President, Principal Financial Officer and Director

 

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