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EX-21.1 - Verity Corp.ex23_1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 

FORM S-1/A

(Amendment No. 2)

 

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

AQUALIV TECHNOLOGIES, INC.

(Name of registrant as specified in its charter)

 

Nevada   8731   38-3767357
(State or other jurisdiction of incorporation or organization)   (Primary Standard Industrial Classification Code Number)   (I.R.S. Employer Identification No.)

 

 

4550 NW Newberry Hill Road, Suite 202

Silverdale, WA 98383

(360) 473-1160

(Address, including zip code, and telephone number,

including area code, or registrant’s principal executive offices)

 

Paracorp Incorporated

318 N Carson Street, Suite 208

Carson City, NV 89701

888-972-7273

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

Copies to:

 

 Lucosky Brookman LLP

Attn: Joseph M. Lucosky, Esq. 

33 Wood Avenue South, 6th Floor

Iselin, New Jersey 08830

Fax: (732) 395-4401

 

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. S

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

 

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 £   Non-accelerated filer £
         
Accelerated filer £   Smaller reporting company S

 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
CALCULATION OF REGISTRATION FEE

 

Title of Class of Securities to be Registered   Amount To Be Registered (1)    Proposed Maximum Aggregate Price Per Share (2)    Proposed Maximum Aggregate Offering Price   Amount of Registration Fee
                   
Common Stock, $0.001 par value per share, issuable pursuant to Equity Agreement   128,927,716   $0.0014   $180,498.80   $24.62 (3)
                   

 

(1)   We are registering 128,927,716 shares of our common stock (the “Shares”) that we will put to Auctus Private Equity Fund, LLC, a Massachusetts limited liability company (“Auctus” or the “Selling Security Holder”), pursuant to a drawdown equity facility agreement between the Selling Security Holder and the registrant entered into on April 27, 2012 (the “Equity Agreement”). In the event of stock splits, stock dividends, or similar transactions involving the registrant’s common stock, the number of shares of common stock registered shall, unless otherwise expressly provided, automatically be deemed to cover the additional securities to be offered or issued pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). In the event that adjustment provisions of the Equity Agreement require the registrant to issue more shares than are being registered in this registration statement, for reasons other than those stated in Rule 416 of the Securities Act, the registrant will file a new registration statement to register those additional shares.

 

 

(2)   Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act, using the closing price as reported on the OTC Markets OTCQB (the "OTCQB") on November 15, 2012 , which was $0.0014 per share.

 

 

(3)   Such fee has already been paid by the registrant.

 

 

(1)
 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

 

SUBJECT TO COMPLETION, DATED NOVEMBER 27, 2012

 

AQUALIV TECHNOLOGIES, INC.

 

128,927,716 Shares of Common Stock

 

This prospectus relates to the resale of up to 128,927,716 shares of our common stock, par value $0.001 per share (the “Shares”), by Auctus, which are Shares that we will put to Auctus by delivering an advance notice pursuant to the Equity Agreement.

 

The Equity Agreement with Auctus provides that, for a period of twenty-four (24) months commencing on the effective date of the registration statement, Auctus is committed to purchase up to $3,500,000 of our common stock. We may draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Equity Agreement. The 128,927,716 Shares included in this prospectus represent a portion of the Shares issuable to the Selling Security Holder under the Equity Agreement.

 

Auctus is an “underwriter” within the meaning of the Securities Act in connection with the resale of our common stock under the Equity Agreement. No other underwriter or person has been engaged to facilitate the sale of shares of our common stock in this offering. Auctus will pay us ninety-three percent (93%) of the average bid prices of the Company’s common stock for the five (5) consecutive trading days after the Company delivers to Auctus an advance request in a written drawdown notice requiring Auctus to advance funds (an “Advance”) to the Company, subject to the terms of the Equity Agreement.

 

We will not receive any proceeds from the sale of these Shares offered by the Selling Security Holder. However, we will receive proceeds from the sale of our Shares under the Equity Agreement. Half of the proceeds will be used for working capital or general corporate purposes and the other half will be used to repay an amount owed under a debenture. We will bear all costs associated with this registration. See “Use of Proceeds” on page 17.

 

We are currently only listed on the OTCQB. Our common stock is quoted on the OTCQB under the symbol “AQLV.” The Shares registered hereunder are being offered for sale by the Selling Security Holder at prices established on the OTCQB during the term of this offering. On November 15, 2012 , the closing price as reported on the OTCQB was $0.0014 per share. These prices will fluctuate based on the demand for our common stock.

 

This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss. See “Risk Factors” beginning on page 10.

 

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is_________, 2012

 

(2)
 

 

TABLE OF CONTENTS

 

   
  Page 
   
Prospectus Summary  4
Summary Financial Data  9
Risk Factors  10
Forward-Looking Statements  17
Use of Proceeds  17
Determination of Offering Price  17
Selling Security Holders  17
Plan of Distribution  20
Description of Securities to be Registered  22
Description of Business  23
Description of Property  27
Legal Proceedings  27
Management’s Discussion and Analysis of Financial Condition and Results of Operations  28
Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters  34
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  36
Directors, Executive Officers, Promoters and Control Persons  36
Executive Compensation  39
Security Ownership of Certain Beneficial Owners and Management  40
Transactions with Related Persons, Promoters, and Certain Control Persons  42
Indemnification for Securities Act Liabilities  42
Legal Matters  43
Experts  43
Additional Information  43

 

You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the common stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus is correct as of any time after its date.

 

(3)
 

 

PROSPECTUS SUMMARY

 

The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the “risk factors” section, the financial statements and the notes to the financial statements. References to the “Company,” “we,” “us,” “our” and similar words refer to AquaLiv Technologies, Inc.

 

AQUALIV TECHNOLOGIES, INC.

 

Our Company

 

AquaLiv Technologies, Inc. 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.

 

AquaLiv Technologies, Inc., a Nevada corporation, is the parent company of AquaLiv, Inc. and Focus Systems, Inc. AquaLiv, Inc.’s technology alters the behavior of organisms, including plants and humans, without chemical interaction. From increased crop yields to drug-free medicine, AquaLiv, Inc. is providing innovative, ingredient-free solutions to the world's largest problems. The company’s platform technology influences biological processes naturally and without chemical interaction. To date, AquaLiv, Inc. has released products in the industries of water treatment, skincare, and agriculture. The company is primarily known for the AquaLiv, Water System product which also produces the majority of the company’s revenue. Focus Systems, Inc. is a technology company providing customers with remote desktop services and Voice over Internet Protocol (VoIP) phone services. Focus Systems, Inc. maintains servers that house data and applications that its customers can access remotely without the need for the customers to maintain a server. The company’s VoIP service utilizes the internet for phone service rather than through a traditional telecommunications company.

  

As of June 30, 2012, we had a retained deficit of $2,987,585. During the years ended September 30, 2011 and 2010, respectively, we had net losses of $564,294 and $1,008,604. For the fiscal year ended September 30, 2011, our accountants have expressed doubt about our ability to continue as a going concern as a result of operating losses since inception, the failure to yet commence planned principal operations, and current liabilities in excess of current assets.

 

Our executive offices are located at 4550 NW Newberry Hill Road, Suite 202, Silverdale, WA 98383, and our telephone number at such office is (360) 473-1160.

 

(4)
 

 

Recent Developments

 

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

 

As further consideration, the Company issued to TCA 5,555,556 shares of the Company’s common stock on May 1, 2012, totaling an aggregate amount of twenty five thousand dollars ($25,000) (the “Incentive Shares”). In the event the value of the Incentive Shares issued to TCA does not equal $25,000 after a nine month evaluation date, the Purchase Agreement provides for an adjustment provision allowing for necessary action (either the issuance of additional shares to TCA or the return of shares previously issued to TCA to the Company’s treasury) to adjust the number of Incentive Shares issued. The Incentive Shares are not being registered for resale in this registration statement.

 

Debenture

 

On April 27, 2012, the Company issued the Debenture in favor of TCA. The maturity date of the Debenture is April 24, 2013, subject to adjustment (the “Maturity Date”). The Debenture bears interest at a rate of twelve percent (12%) per annum. The Company, at its option, may repay the principal, interest, fees and expenses due under the Debenture with no penalty or premium and in full and for cash, at any time prior to the Maturity Date, with three (3) business days advance written notice to the holder. At any time while the Debenture is outstanding, the holder may convert may convert all or any portion of the outstanding principal, accrued and unpaid interest, and any other sums due and payable under the Debenture or any other transaction document (such total amount, the “Conversion Amount”) into shares of the Company’s common stock at a price equal to (i) the Conversion Amount divided by (ii) ninety percent (90%) of the lowest daily volume weighted average of the Company’s common stock during the five (5) trading days immediately prior to the date of conversion. The Debenture also contains a standard blocker provision whereby TCA may not own more than 4.99% of the Company’s common stock at any one time.

 

First Pledge and Escrow Agreement

 

On April 27, 2012, in connection with the Purchase Agreement, the Company entered into a pledge and escrow agreement (the “First P&E Agreement”), by and among the Company, TCA and David Kahan, P.A., as escrow agent (the “Escrow Agent”). Pursuant to the terms of the First P&E Agreement, the Company agreed to issue and irrevocably pledge to TCA the lesser of (i) 4.99% of the Company’s common stock and (ii) 200% of the outstanding amount under the Debenture, subject to adjustment pursuant to the terms of the Purchase Agreement. On May 1, 2012, the Company issued 11,516,104 shares of common stock to TCA in escrow. Upon timely payment in full of all obligations under the transaction documents, TCA will notify the Escrow Agent in writing and the Escrow Agent shall return the pledged materials to the Company and all of TCA’s rights in and to the pledged materials and other collateral shall be terminated.

 

Second Pledge and Escrow Agreement

 

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

 

(5)
 

 

First Security Agreement

 

On April 27, 2012, the Company entered into a security agreement (the “First Security Agreement”) with TCA, related to the issuance of the Debenture, whereby the Company granted to TCA a continuing, first priority security interest in all of the Company’s assets, wheresoever located and whether now existing or hereafter arising or acquired.

 

Second Security Agreement

 

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

 

Guaranty Agreement

 

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

 

About This Offering

 

This offering relates to the resale of up to 128,927,716 shares of our common stock by the Selling Security Holder, which are the Shares that we will put to Auctus pursuant to the Equity Agreement. The 128,927,716 shares included in this prospectus represent a portion of the aggregate shares issuable to the Selling Security Holder under the Equity Agreement. Pursuant to the Equity Agreement:

 

  • Auctus agreed to purchase from the Company, from time to time, in the Company’s discretion (subject to the conditions set forth therein), for a period of twenty-four (24) months, commencing on the effective date of the registration statement filed by the Company for resale of the Shares issuable under the Equity Agreement, up to $3,500,000 of the Company’s common stock;

  • Pursuant to a registration rights agreement between the Company and Auctus entered into in connection with the Equity Agreement, the Company agreed to file a registration statement with the U.S. Securities and Exchange Commission (the “SEC”) for the resale of not less than the maximum number of shares of common stock allowable pursuant to Rule 415 under the Securities Act, of shares of common stock issuable under the Equity Agreement;
  •  

  • The purchase price for the shares of common stock sold under the Equity Agreement will be equal to ninety-three percent (93%) of the average daily bid prices of the Company’s common stock for the five (5) consecutive trading days (the “Pricing Period”) immediately following the clearing date associated with the applicable Advance request in writing (the “Market Price”) requiring Auctus to Advance funds to the Company, subject to the terms of the Equity Agreement.
  •  

  • The maximum amount of common stock that Auctus shall be obligated to purchase with respect to any single Advance under the Equity Agreement shall not exceed the lesser of (a) One Hundred Fifty Thousand Dollars ($150,000) or (b) two hundred (200%) percent of the average daily volume of the common stock for the ten (10) trading days immediately preceding the applicable Advance request date, multiplied by the average of the bid prices for the ten (10) trading days immediately preceding the applicable Advance request date, rounded down to the nearest hundred dollars.
  •  

  • The “Floor Price” shall be the lowest price per share of common stock provided by the Company in the applicable Advance request at which Auctus may sell shares of common stock in connection with an Advance request must be equal to or less than the bid price of the common stock one trading day immediately preceding the Advance request date and greater than sixty-five percent (65%) of the average bid price over the ten (10) trading days immediately preceding the Advance request date.  If the Company does not specify a Floor Price in the applicable Advance request, then the “Floor Price” shall be deemed to equal sixty-five percent (65%) of the average bid price over the ten (10) trading days immediately preceding the Advance request.  In all circumstances the specified Floor Price must be above par value.

  • As further consideration for Auctus entering into and structuring the equity facility, the Company shall pay to Auctus (i) five percent (5%) of the Advance request specified in each drawdown notice delivered by the Company to Auctus; (ii) a one-time non-refundable origination fee equal to $7,500 (which the Company has already paid); and (iii) a fee by issuing to Auctus that number of shares of the Company’s common stock that equal a dollar amount of fifty-seven thousand and five hundred dollars ($57,500) (the “Commitment Shares”), payable in three separate installments in accordance with the terms of the Equity Agreement. As of the date hereof, the Company has issued a total of 29,120,652 shares to Auctus Private Equity Management, Inc. (“Auctus Management”), an affiliate of Auctus, pursuant to the Equity Agreement. If the Equity Agreement is terminated prior to the issuance of the full amount of the Commitment Shares then all remaining Commitment Shares then due shall be immediately issuable to Auctus by the Company within three (3) trading days.

 

(6)
 

 

We relied on an exemption from the registration requirements of the Securities Act. The transaction does not involve a public offering. Auctus is an “accredited investor” and/or qualified institutional buyer and Auctus has access to information about the Company and its investment.

 

At an assumed purchase price under the Equity Agreement of $0.0013 (equal to 93% of the closing price of our common stock of $0.0014 on November 15, 2012 ), we will be able to receive up to $167,606.08 in gross proceeds, assuming the sale of the entire 128,927,716 Shares being registered hereunder pursuant to the Equity Agreement and subject to the other payment obligations of the Company (See “Use of Proceeds”). At an assumed purchase price of $0.0013 under the Equity Agreement, we would be required to register approximately 2,563,379,938 additional shares to obtain the balance of $3,500,000 under the Equity Agreement. The Company is currently authorized to issue 1,000,000,000 shares of its common stock. Auctus has agreed, subject to certain exceptions listed in the Equity Agreement, to refrain from holding an amount of shares which would result in Auctus or its affiliates from owning more than 4.99% of the then-outstanding shares of the Company’s common stock at any one time. If at any time the Company’s common stock is bid below its par value then no Advance Request shall be permitted, and no Drawdown Notice shall be delivered to Auctus if the Company’s common stock is trading at or below its par value.

 

We will bear the expenses of this offering, which we estimate to be approximately $55,000, including legal expenses of approximately $25,000, accounting expenses of approximately $25,000, and miscellaneous expenses, including printer costs, of approximately $5,000.

 

There are substantial risks to investors as a result of the issuance of shares of our common stock under the Equity Agreement. These risks include dilution of stockholders, significant decline in our stock price and our inability to draw sufficient funds when needed.

 

Auctus will periodically purchase our common stock under the Equity Agreement and will, in turn, sell such shares to investors in the market at the market price. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to Auctus to raise the same amount of funds, as our stock price declines. Neither the Equity Agreement nor any rights of the parties under the Equity Agreement may be assigned or delegated to any other person.

 

(7)
 

 

Summary of the Shares Offered by the Selling Security Holder

 

Common stock Offered by the Selling Security Holder   128,927,716 shares of common stock.
     
Common Stock Outstanding Before the Offering   620,646,125 as of November 26, 2012 .
     
Common Stock Outstanding After the Offering   749,573,841 shares, assuming the sale of all of the shares being registered in this Registration Statement (1).
     
Percentage of Outstanding Common Stock Represented by the Registered Shares   17.2% , assuming the sale of all shares being registered in the Registration Statement (1).
     
Terms of the Offering   The Selling Security Holder will determine when and how it will sell the common stock offered in this prospectus.
     
Termination of the Offering   Pursuant to the Equity Agreement, this offering will terminate twenty-four (24) months after the registration statement to which this prospectus is made a part is declared effective by the SEC.
     
Use of Proceeds   We will not receive any proceeds from the sale of the shares of common stock offered by the Selling Security Holder.  However, we will receive proceeds from the sale of our common stock under the Equity Agreement.  The proceeds from the offering will be used for working capital and general corporate purpose and to repay an amount owed to a debenture holder.  See “Use of Proceeds.”
     
Risk Factors   The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 10.
     
OTCQB Symbol   AQLV

 

(1) Does not take into account the 4.99% Auctus ownership limitation required by the Equity Agreement.

 

(8)
 

 

SUMMARY FINANCIAL DATA

 

The following selected financial information is derived from the Company’s financial statements appearing elsewhere in this Prospectus and should be read in conjunction with the Company’s financial statements, including the notes thereto, appearing elsewhere in this Prospectus.

 

Summary of Operations

 

For the Years Ended September 30,

   2011  2010
Total Revenue  $590,138   $139,298 
Loss from operations  $(623,602)  $(1,004,554)
Net loss  $(564,294)  $(1,008,604)
Net loss per common share (basic and diluted)  $(0.00)  $(0.01)
Weighted average common shares outstanding   228,052,093    91,957,785 

 

Statement of Financial Position

 

For the Years Ended September 30,

   2011  2010
Cash and cash equivalents  $5,700   $17,042 
Total assets  $14,850   $22,042 
Working Capital  $3,732   $1,034 
Long term debt  $300,290   $260,695 
Stockholders’ equity ( deficit )  $(430,811)  $(422,027)

 

Summary of Operations

 

For the Nine Months Ended June 30,

    2012   2011
Total Revenue   $ 371,685     $ 471,478  
Loss from operations   $ (365,847 )   $ (512,239 )
Net loss   $ (375,196 )   $ (413,701 )
Net loss per common share (basic and diluted)   $ (0.00 )   $ (0.00 )
Weighted average common shares outstanding     412,789,200       209,253,370  

 

Statement of Financial Position

 

   

June 30,

2012

  September 30, 2011
Cash and cash equivalents   $ 76,079     $ 5,700  
Total assets   $ 110,154     $ 14,850  
Working Capital   $ 72,467     $ 3,732  
Long term debt   $ 460,536     $ 300,290  
Stockholders’ equity ( deficit )   $ (509,125 )   $ (430,811 )

  

(9)
 

 

RISK FACTORS

 

An investment in the Company’s common stock involves a high degree of risk. You should carefully consider the risks described below as well as other information provided to you in this prospectus, including information in the section of this document entitled “Forward Looking Statements.” If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our common stock could decline, and you may lose all or part of your investment.

 

IF WE DO NOT GENERATE ADEQUATE REVENUES TO FINANCE OUR OPERATIONS, OUR BUSINESS MAY FAIL.

 

We were incorporated on April 11, 2006. As of June 30, 2012, we had a retained deficit of $2,987,585. During the years ended September 30, 2011 and 2010, respectively, we had net losses of $564,294 and $1,008,604. We expect our revenues during the next twelve months from our existing products and service customers to remain flat depending upon the US economic recovery and our ability to create market awareness with our AquaLiv brand. Our expected revenue generation and expenses are difficult to predict, and there can be no assurance that revenues will be sufficient to cover operating costs for the foreseeable future. It may be necessary to raise additional funds. If we are unable to raise funds to cover any operating deficit and our sales decrease in 2012 our business may fail.

 

BECAUSE WE HAD INCURRED A LOSS AND HAVE NOT FULLY COMMENCED OUR PLANNED PRINCIPAL OPERATIONS, OUR ACCOUNTANTS HAVE EXPRESSED DOUBTS ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

 

For the fiscal year ended September 30, 2011, our accountants have expressed doubt about our ability to continue as a going concern as a result of operating losses since inception, the failure to yet commence planned principal operations, and current liabilities in excess of current assets. Our ability to achieve and maintain profitability and positive cash flow is dependent on such factors as our ability to sell AquaLiv Water Systems and Infotone Face Mist, generate new sales for AquaLiv’s AgSmart and NatuRx product lines, and to capture and retain new remote desktop and VoIP customers. Based upon current plans, we expect our operating costs to range between $100,000 and $150,000 for the fiscal year ending September 30, 2012. We cannot guarantee that we will be successful in generating sufficient revenues or other funds in the future to cover these operating costs. Failure to generate sufficient revenues will cause us to go out of business or take draconian actions.

 

ISSUANCES OF OUR STOCK COULD DILUTE CURRENT STOCKHOLDERS AND ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK, IF A PUBLIC TRADING MARKET DEVELOPS.

 

We have the authority to issue up to 1,000,000,000 shares of common stock, 50,000,000 shares of preferred stock, and to issue options and warrants to purchase shares of our common stock without stockholder approval. We are currently working on financing plans for future growth and acquisitions, product and service development, and we may need to raise additional capital to fund operations. If we raise funds by issuing equity securities, our existing stockholders may experience substantial dilution. In addition, we could issue large blocks of our common stock to fend off unwanted tender offers or hostile takeovers without further stockholder approval, or in connection with one or more acquisitions. No such transactions currently are planned.

 

The issuance of preferred stock by our board of directors could adversely affect the rights of the holders of our common stock. An issuance of preferred stock could result in a class of outstanding securities that would have preferences with respect to voting rights and dividends and in liquidation over the common stock and could, upon conversion or otherwise, have all of the rights of our common stock. Our board of directors' authority to issue preferred stock could discourage potential takeover attempts or could delay or prevent a change in control through merger, tender offer, proxy contest or otherwise by making these attempts more difficult or costly to achieve.

 

(10)
 

 

OUR ARTICLES OF INCORPORATION PROTECT OUR DIRECTORS FROM CERTAIN TYPES OF LAWSUITS, WHICH COULD MAKE IT DIFFICULT FOR US TO RECOVER DAMAGES FROM THEM IN THE EVENT OF A LAWSUIT.

 

Our Articles of Incorporation eliminate the liability of our directors for monetary damages to the fullest extent permissible under Nevada law. Nevada law permits the elimination of the personal liability of a director or officer for damages for breach of fiduciary duty as a director or officer, although such a provision must not eliminate the liability of a director or officer for (a) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (b) the payment of distributions in violation of Nevada Revised Statutes Section 78.300. This exculpatory provision may have the effect of preventing stockholders from recovering damages against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require our company to use our assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.

 

INTENSE COMPETITION IN THE LIFE SCIENCES AND INFORMATION TECHNOLOGY COULD AFFECT OUR ABILITY TO SUCCESSFULLY MARKET OUT PRODUCTS.

 

Our business plan involves deployment of technology services, and developing, deploying, and licensing products. These businesses are highly competitive. There are numerous similar companies providing such services and products in the United States. Our competitors will have greater financial resources and more expertise in these businesses. Our ability to deploy our AgSmart and NatuRx products under AquaLiv, Inc., as well as our remote desktop and VoIP phone services under Focus Systems, Inc. will depend on our ability to successfully market our products in this highly competitive environment. We cannot guarantee that we will be able to do so successfully.

 

FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD ADVERSELY AFFECT OUR BUSINESS.

 

While we have exclusive use of the patent personally owned by AquaLiv, Inc’s Chief Science Officer Dr. Ichimura, we cannot be assured that it will be sufficiently broad enough to protect our technology. In addition, we cannot assure that any patents issued to us in the future will not be challenged, invalidated, or circumvented. In order to safeguard our unpatented proprietary know-how, trade secrets, and technology, we rely primarily upon trade secret protection and nondisclosure provisions in agreements with employees and others having access to confidential information. We cannot assure that these measures will adequately protect us from improper disclosure or misappropriation of our proprietary information.

 

ENFORCING AND PROTECTING OUR PROPRIETARY INFORMATION CAN BE COSTLY AND ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

If we are not able to adequately protect or enforce our proprietary information or if we become subject to infringement claims by others, our business, results of operations and financial condition may be materially adversely affected. We may need to engage in future litigation to enforce our intellectual property rights or the rights of our customers, to protect our trade secrets or to determine the validity and scope of proprietary rights of others, including our customers. We also may need to engage in litigation in the future to enforce any patent rights. In addition, we may receive in the future communications from third parties asserting that our products infringe the proprietary rights of third parties. We cannot assure you that any such claims would not result in protracted and costly litigation. Such litigation could result in substantial costs and diversion of our resources and could materially and adversely affect our business, financial condition and results of operations. Furthermore, we cannot assure you that we will have the financial resources to vigorously defend or enforce our proprietary technology.

 

THE SHARE CONTROL POSITION OF GARY BALL MAY LIMIT THE ABILITY OF OTHER STOCKHOLDERS TO INFLUENCE CORPORATE ACTIONS.

 

In April 2010, pursuant to the agreement, the Company sold 11,557,217 (pre-split) shares of authorized and previously unissued shares of common stock, representing at that time 89.9% of the outstanding stock of the Company immediately after the transaction, to Take Flight Equities, Inc. for a purchase price of $200,000, consisting of $30,000 cash and a promissory note for $170,000. Pursuant to the agreement, the shares were placed in escrow at closing.  As payments were made on the note, a portion of the shares were to be released from escrow.  In the event that a promissory note payment was not made when due and not cured within the time provided in the escrow agreement, or if an event default occurs under the note, then the shares held in escrow along with promissory note will be transferred to Gary Ball, and Gary Ball will assume responsibility for the payment of the note. In July 2010, Take Flight Equities defaulted on its note obligations and the responsibility for the note payment along with voting rights to the stock remaining in escrow reverted to Gary Ball. As a result, Gary Ball retains voting control of the 88,572,170 common shares issued and held in escrow, thereby making Gary Ball the largest shareholder with control of approximately 16% of our outstanding shares. Because Gary Ball controls such a significant percentage of the outstanding shares, other stockholders, individually or as a group, will be at a disadvantage in their ability to effectively influence the election or removal of our directors, the supervision and management of the business or a change in control of or the sale of our company, even if he believed such changes were in the best interest of our stockholders generally.

 

OUR FUTURE SUCCESS DEPENDS, IN LARGE PART, ON THE CONTINUED SERVICE OF OUR PRESIDENT.

 

We depend almost entirely on the efforts and continued employment of Mr. William Wright, our President and Secretary-Treasurer. Mr. Wright currently is our sole independent contractor of the parent company, and we will depend on him for nearly all aspects of our operations. We do not have an employment contract with Mr. Wright, and we do not carry key person insurance on his life. Mr. Wright currently is able to devote substantially all of his time on our behalf. The loss of the services of Mr. Wright, through incapacity or otherwise, would have a material adverse effect on our business. It would be very difficult to find and retain qualified personnel such as Mr. Wright.

 

THE COMPANY’S FAILURE TO COMPLY WITH THE OBLIGATIONS SET FORTH IN THE AGREEMENTS ENTERED INTO WITH TCA GLOBAL CREDIT MASTER FUND, LP MAY RESULT IN THE FORECLOSURE OF THE COMPANY’S OR ITS SUBSIDIARIES’ PLEDGED ASSETS AND OTHER ADVERSE CONSEQUENCES

On April 27 2012, the Company entered into that certain securities and purchase agreement (“Purchase Agreement”) with TCA Global Credit Master Fund, LP (“TCA”). To secure the performance of the Company’s obligations under the Purchase Agreement, the Company and its subsidiaries were required to enter into security agreements, pledge and escrow agreements and a guaranty agreement. Pursuant to a security agreement, the Company granted a continuing, first priority security interest in all of our assets to TCA (the “First Security Agreement”). In addition, our subsidiary, Focus Systems, Inc. (“Focus”), pursuant to a security agreement, granted a continuing, first priority security interest in all of Focus’s assets to TCA (“Second Security Agreement”). Further, pursuant to a pledge and escrow agreement, the Company pledged 11,516,104 of the Company’s common stock to TCA in escrow (the “First P&E Agreement”). Pursuant to a second pledge and escrow agreement, the Company pledged its entire interest in its subsidiary, AquaLiv, Inc., to TCA in escrow (the “Second P&E Agreement”). Lastly, pursuant to a guaranty agreement, Focus has guaranteed and is to act as surety to TCA for the payment of the Company’s liabilities when they become due (the “Guaranty”, together with the Purchase Agreement, First Security Agreement, Second Security Agreement, First P&E Agreement and Second P&E Agreement, collectively, the “TCA Agreements”). The Company’s failure to comply with the obligations in the TCA Agreements or the occurrence of certain other specified events could result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our debt, potential foreclosure on our assets and other adverse consequences.

 

(11)
 

 

RISKS RELATED TO OUR COMMON STOCK AND THIS OFFERING

 

AT THIS TIME, WE ARE NOT LISTED ON THE OTCBB WHICH COULD LIMIT THE ABILITY OF BROKER-DEALERS TO SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN THE SECONDARY MARKET.

 

At this time, we are not listed on the OTCBB. We plan to begin the relisting process for the OTCBB this quarter. Currently, we are solely listed on the OTC Markets OTCQB. As a result, the market liquidity for our securities could be adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. In addition, we may be unable to get re-listed on the OTCBB, which may have an adverse material effect on our company.

 

BECAUSE THE PUBLIC MARKET FOR SHARES OF OUR COMMON STOCK IS LIMITED, INVESTORS MAY BE UNABLE TO RESELL THEIR SHARES OF COMMON STOCK.

 

Currently, there is only a limited public market for our common stock on the OTCQB in the United States. Thus, investors may be unable to resell their shares of our common stock. The development of an active public trading market depends upon the existence of willing buyers and sellers who are able to sell their shares as well as market makers willing to create a market in such shares. Under these circumstances, the market bid and ask prices for the shares may be significantly influenced by the decisions of the market makers to buy or sell the shares for their own account. Such decisions of the market makers may be critical for the establishment and maintenance of a liquid public market in our common stock. Market makers are not required to maintain a continuous two-sided market and are free to withdraw firm quotations at any time. We cannot give you any assurance that an active public trading market for the shares will develop or be sustained.

 

THE APPLICATION OF THE “PENNY STOCK” RULES COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON SHARES AND INCREASE YOUR TRANSACTION COSTS TO SELL THOSE SHARES.

 

The U.S. Securities and Exchange Commission (the “SEC”) has adopted rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

 

  • that a broker or dealer approve a person’s account for transactions in penny stocks; and

 

  • the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

  • obtain financial information and investment experience objectives of the person; and

 

  • make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

 

  • sets forth the basis on which the broker or dealer made the suitability determination; and

 

  • that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

(12)
 

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

 

AS AN ISSUER OF “PENNY STOCK,” THE PROTECTION PROVIDED BY THE FEDERAL SECURITIES LAWS RELATING TO FORWARD LOOKING STATEMENTS DOES NOT APPLY TO US.

 

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, the Company will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by the Company contained a material misstatement of fact or was misleading in any material respect because of the Company’s failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

 

COMPLIANCE AND CONTINUED MONITORING IN CONNECTION WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE MAY RESULT IN ADDITIONAL EXPENSES.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance matters. New or changed laws, regulations and standards are subject to varying interpretations in many cases. As a result, their application in practice may evolve over time. We are committed to maintaining high standards of corporate governance and public disclosure. Complying with evolving interpretations of new or changed legal requirements may cause us to incur higher costs as we revise current practices, policies and procedures, and may divert management time and attention from the achievement of revenue generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to uncertainties related to practice, our reputation might be harmed which would could have a significant impact on our stock price and our business. In addition, the ongoing maintenance of these procedures to be in compliance with these laws, regulations and standards could result in significant increase in costs.

 

THE MARKET PRICE FOR OUR COMMON SHARES IS PARTICULARLY VOLATILE GIVEN OUR STATUS AS A RELATIVELY UNKNOWN COMPANY WITH A SMALL AND THINLY TRADED PUBLIC FLOAT, LIMITED OPERATING HISTORY AND LACK OF PROFITS WHICH COULD LEAD TO WIDE FLUCTUATIONS IN OUR SHARE PRICE. YOU MAY BE UNABLE TO SELL YOUR COMMON SHARES AT OR ABOVE YOUR PURCHASE PRICE, WHICH MAY RESULT IN SUBSTANTIAL LOSSES TO YOU.

 

The market for our common shares is characterized by significant price volatility when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats, and we expect that our share price will continue to be more volatile than the shares of such larger, more established companies for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are, compared to the shares of such larger, more established companies, sporadically and thinly traded. As a consequence of this limited liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products.  As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that trades on a national securities exchange and has a large public float.  Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance.  We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

 

(13)
 

 

WE ARE REGISTERING AN AGGREGATE OF 128,927,716 SHARES OF COMMON STOCK TO BE ISSUED UNDER THE EQUITY AGREEMENT. THE SALE OF SUCH SHARES COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

 

We are registering an aggregate of 128,927,716 Shares of common stock under the registration statement of which this prospectus forms a part for issuance pursuant to the Equity Agreement. Notwithstanding Auctus’s ownership limitation, the 128,927,716 Shares would represent approximately 17.2% of our shares of common stock outstanding immediately after our exercise of the put right under the Equity Agreement. The sale of these Shares into the public market by Auctus could depress the market price of our common stock. At the assumed offering price of $0.0013 per share, we will be able to receive up to $167,606.08 in gross proceeds, subject to 50% of the net proceeds, up to $25,000 per month, being paid by Auctus directly to TCA pursuant to the terms of the TCA Debenture, assuming the sale of the entire 128,927,716 Shares being registered hereunder pursuant to the Equity Agreement. We would be required to register approximately 2,563,379,938 additional shares to obtain the balance of $3,500,000 under the Equity Agreement at the assumed offering price of $0.0013. Due to the floating offering price, we are not able to determine the exact number of shares that we will issue under the Equity Agreement. However, to obtain the balance of the $3,500,000 under the Equity Agreement we will likely amend our Articles of Incorporation to increase our authorized shares.

 

THE COMPANY MAY NOT HAVE ACCESS TO THE FULL AMOUNT AVAILABLE UNDER THE EQUITY AGREEMENT.

 

We have not drawn down funds and have not issued shares of our common stock under the Equity Agreement with Auctus. Our ability to draw down funds and sell shares under the Equity Agreement requires that the registration statement, of which this prospectus is a part, be declared effective by the SEC, and that this registration statement continue to be effective.  In addition, the registration statement of which this prospectus is a part registers 128,927,716 Shares issuable under the Equity Agreement, and our ability to access the Equity Agreement to sell any remaining shares issuable under the Equity Agreement is subject to our ability to prepare and file one or more additional registration statements registering the resale of these shares.  These subsequent registration statements may be subject to review and comment by the staff of the SEC, and will require the consent of our independent registered public accounting firm.  Therefore, the timing of effectiveness of these subsequent registration statements cannot be assured.  The effectiveness of these subsequent registration statements is a condition precedent to our ability to sell the shares of common stock subject to these subsequent registration statements to Auctus under the Equity Agreement.  Even if we are successful in causing one or more registration statements registering the resale of some or all of the shares issuable under the Equity Agreement to be declared effective by the SEC in a timely manner, we will not be able to sell shares under the Equity Agreement unless certain other conditions are met. Accordingly, because our ability to draw down amounts under the Equity Agreement is subject to a number of conditions, there is no guarantee that we will be able to draw down any portion or all of the $3,500,000 available to us under the Equity Agreement.

 

CERTAIN RESTRICTIONS ON THE EXTENT OF PUTS AND THE DELIVERY OF ADVANCE NOTICES MAY HAVE LITTLE, IF ANY, EFFECT ON THE ADVERSE IMPACT OF OUR ISSUANCE OF SHARES IN CONNECTION WITH THE EQUITY AGREEMENT, AND AS SUCH, AUCTUS MAY SELL A LARGE NUMBER OF SHARES, RESULTING IN SUBSTANTIAL DILUTION TO THE VALUE OF SHARES HELD BY EXISTING SHAREHOLDERS.

 

Auctus has agreed, subject to certain exceptions listed in the Equity Agreement, to refrain from holding an amount of shares which would result in Auctus or its affiliates owning more than 4.99% of the then-outstanding shares of the Company’s common stock at any one time.  These restrictions, however, do not prevent Auctus from selling shares of common stock received in connection with a put, and then receiving additional shares of common stock in connection with a subsequent put.  In this way, Auctus could sell more than 4.99% of the outstanding common stock in a relatively short time frame while never holding more than 4.99% at one time.

 

(14)
 

 

ASSUMING WE UTILIZE THE MAXIMUM AMOUNT AVAILABLE UNDER THE EQUITY LINE OF CREDIT, EXISTING SHAREHOLDERS COULD EXPERIENCE SUBSTANTIAL DILUTION UPON THE ISSUANCE OF COMMON STOCK.

 

Our Equity Agreement with Auctus contemplates the potential future issuance and sale of up to $3,500,000 of our common stock to Auctus subject to certain restrictions and obligations.  The following table is an example of the number of shares that could be issued at various prices assuming we utilize the maximum amount remaining available under the Equity Agreement.  These examples assume issuances at a market price of $0.0013 per share and at 10%, 25%, 50%, and 75% below $0.0013 per share, taking into account Auctus’s 7% discount.

 

The following table should be read in conjunction with the footnotes immediately following the table. 

 

Percent below Current market price (5)   Price per share (1)  Number of shares issuable (2)  Shares outstanding (3)(2)  Percent of outstanding shares (4)
             
             
 10%  $0.00117    2,991,452,991     3,612,099,116       82.81 %
                       
 25%  $0.000975    3,589,743,589     4,210,389,714      85.26 %
                       
 50%  $0.00065    5,384,615,385     6,005,261,510      89.66 %
                       
 75%  $0.000325    10,769,230,769     11,389,876,894      94.55 %

 

(1)Represents purchase prices equal to 93% of $0.0014 and potential reductions thereof of 10%, 25%, 50% and 75%.

 

(2)Represents the number of shares issuable if the entire $3,500,000 under the Equity Agreement were drawn down at the indicated purchase prices.  Our Articles of Incorporation currently authorizes 1,000,000,000 shares of common stock. The Company does not believe it is likely it will draw down on the entire $3,500,000 under the Equity Agreement.

 

(3)Based on 620,646,125 shares of common stock outstanding at November 26, 2012 . Our Articles of Incorporation currently authorizes 1,000,000,000 shares of common stock. We may in the future need to amend our Articles of Incorporation in order to increase our authorized shares of common stock.

 

(4)Percentage of the total outstanding shares of common stock after the issuance of the shares indicated, without considering any contractual restriction on the number of shares the selling shareholder may own at any point in time or other restrictions on the number of shares we may issue.

 

  (5) If at any time the Company’s common stock is bid below its par value then no Advance Request shall be permitted, and no Drawdown Notice shall be delivered to Auctus if the Company’s common stock is trading at or below its par value.

 

AUCTUS WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE FOR OUR COMMON STOCK.

 

The common stock to be issued to Auctus pursuant to the Equity Agreement will be purchased at a 7% discount to the average of the bid prices of the common stock during the five consecutive trading days immediately following the date of our advance notice to Auctus of our election to put shares pursuant to the Equity Agreement. Auctus has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If Auctus sells the shares, the price of our common stock could decrease.

 

If our stock price decreases, Auctus may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further impact on our stock price.

 

(15)
 

 

YOUR OWNERSHIP INTEREST MAY BE DILUTED AND THE VALUE OF OUR COMMON STOCK MAY DECLINE BY EXERCISING THE PUT RIGHT PURSUANT TO OUR EQUITY AGREEMENT.

 

Effective April 27, 2012, we entered into a $3,500,000 Equity Agreement with Auctus. Pursuant to the Equity Agreement, when we deem it necessary, we may raise capital through the private sale of our common stock to Auctus at a price equal to ninety-three percent (93%) of the average bid price of the Company’s common stock for the five trading days immediately following the date our advance notice is delivered. Because the put price is lower than the prevailing market price of our common stock, to the extent that the put right is exercised, your ownership interest may be diluted.

 

WE DO NOT INTEND TO PAY DIVIDENDS.

 

We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

AS A PUBLIC COMPANY, WE ARE SUBJECT TO COMPLEX LEGAL AND ACCOUNTING REQUIREMENTS THAT WILL REQUIRE US TO INCUR SIGNIFICANT EXPENSES AND WILL EXPOSE US TO RISK OF NON-COMPLIANCE.

 

As a public company, we are subject to numerous legal and accounting requirements that do not apply to private companies. The cost of compliance with many of these requirements is material, not only in absolute terms but, more importantly, in relation to the overall scope of the operations of a small company. Our relative inexperience with these requirements may increase the cost of compliance and may also increase the risk that we will fail to comply.

 

Failure to comply with these requirements can have numerous adverse consequences including, but not limited to, our inability to file required periodic reports on a timely basis, loss of market confidence and/or governmental or private actions against us. We cannot assure you that we will be able to comply with all of these requirements or that the cost of such compliance will not prove to be a substantial competitive disadvantage vis-à-vis our privately held and larger public competitors.

 

WE MAY BE SUBJECT TO SHAREHOLDER LITIGATION, THEREBY DIVERTING OUR RESOURCES THAT MAY HAVE A MATERIAL EFFECT ON OUR PROFITABILITY AND RESULTS OF OPERATIONS.

 

As discussed in the preceding risk factors, the market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future.  In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities.  We may become the target of similar litigation. Securities litigation will result in substantial costs and liabilities and will divert management’s attention and resources.

 

COMPLIANCE WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE WILL RESULT IN ADDITIONAL EXPENSES AND POSE CHALLENGES FOR OUR MANAGEMENT.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets.  Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

  

(16)
 

 

FORWARD-LOOKING STATEMENTS

 

Statements in this prospectus may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions.  These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management.  These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this prospectus, including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus and in other documents which we file with the SEC. In addition, such statements could be affected by risks and uncertainties related to our ability to raise any financing which we may require for our operations, competition, government regulations and requirements, pricing and development difficulties, our ability to make acquisitions and successfully integrate those acquisitions with our business, as well as general industry and market conditions and growth rates, and general economic conditions.  Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this prospectus, except as may be required under applicable securities laws.

 

USE OF PROCEEDS

 

The Selling Security Holder is selling all of the shares of our common stock covered by this prospectus for its own account. Accordingly, we will not receive any proceeds from the resale of our common stock. However, we will receive proceeds from any sale of the common stock to Auctus under the Equity Agreement. We intend to use 50% of the net proceeds received for working capital or general corporate needs. Pursuant to the terms of that certain Senior Secured Convertible Reedemable Debenture (the “TCA Debenture”), issued on April 27, 2012, in favor of TCA Global Credit Master Fund LP (“TCA”), the Company shall cause Auctus to pay directly to TCA, for each advance taken by the Company under the Equity Agreement, 50% of any net proceeds otherwise payable to the Company, up to $25,000 per month.

 

DETERMINATION OF OFFERING PRICE

 

Our common stock currently trades on the OTCQB under the symbol “AQLV”. The proposed offering price of the Shares is $0.0014 and has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(c) of the Securities Act of 1933, on the basis of the closing bid price of common stock of the Company as reported on the OTCQB on November 15, 2012 .

 

SELLING SECURITY HOLDERS

 

We agreed to register for resale 128,927,716 Shares that we will put to Auctus pursuant to the Equity Agreement. The Equity Agreement with Auctus provides that Auctus is committed to purchase up to $3,500,000 of our common stock. We may draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Equity Agreement.

 

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Selling Security Holder Pursuant to the Equity Agreement

 

Auctus is the potential purchaser of our common stock under the Equity Agreement. The 128,927,716 Shares offered in this prospectus are based on the Equity Agreement between Auctus and us. Auctus may from time to time offer and sell any or all of the Shares that are registered under this prospectus. The purchase price is ninety-three percent (93%) of the average bid price of the Company’s common stock for the five trading days immediately following the date on which the Company is deemed to provide an advance notice under the Equity Agreement.

 

We are unable to determine the exact number of Shares that will actually be sold by Auctus according to this prospectus due to:

 

  • the ability of Auctus to determine when and whether it will sell any of the Shares under this prospectus; and

 

  • the uncertainty as to the number of Shares that will be issued upon exercise of our put options through the delivery of an Advance notice under the Equity Agreement.

 

The following information contains a description of how Auctus acquired (or shall acquire) the shares to be sold in this offering. Auctus has not held a position or office, or had any other material relationship with us, except as follows.

 

Auctus is a limited liability company organized and existing under the laws of the Commonwealth of Massachusetts. Al Sollami is the principal of Auctus and Auctus Management , and has voting and investment power over the shares beneficially owned by Auctus Management and Auctus.  Auctus acquired, or will acquire, all shares being registered in this offering in the financing transaction with us.

 

Auctus intends to sell up to 128,927,716 Shares of our common stock pursuant to the Equity Agreement under this prospectus. On April 27, 2012, the Company and Auctus entered into the Equity Agreement pursuant to which:

 

  • Auctus agreed to purchase from the Company, from time to time, in the Company’s discretion (subject to the conditions set forth therein), for a period of twenty-four (24) months, commencing on the effective date of the registration statement filed by the Company for resale of the Shares issuable under the Equity Agreement, up to $3,500,000 of the Company’s common stock;

  • Pursuant to a registration rights agreement between the Company and Auctus entered into in connection with the Equity Agreement, the Company agreed to file a registration statement with the U.S. Securities and Exchange Commission (the “SEC”) for the resale of not less than the maximum number of shares of common stock allowable pursuant to Rule 415 under the Securities Act, of shares of common stock issuable under the Equity Agreement;

  • The purchase price for the shares of common stock sold under the Equity Agreement will be equal to ninety-three percent (93%) of the average daily bid prices of the Company’s common stock for the five (5) consecutive trading days (the “Pricing Period”) immediately following the clearing date associated with the applicable Advance request in writing (the “Market Price”) requiring Auctus to Advance funds to the Company, subject to the terms of the Equity Agreement.

  • The maximum amount of common stock that Auctus shall be obligated to purchase with respect to any single Advance under the Equity Agreement shall not exceed the lesser of (a) One Hundred Fifty Thousand Dollars ($150,000) or (b) two hundred (200%) percent of the average daily volume of the common stock for the ten (10) trading days immediately preceding the applicable Advance request date, multiplied by the average of the bid prices for the ten (10) trading days immediately preceding the applicable Advance request date, rounded down to the nearest hundred dollars.

  • The “Floor Price” shall be the lowest price per share of common stock provided by the Company in the applicable Advance request at which Auctus may sell shares of common stock in connection with an Advance request must be equal to or less than the bid price of the common stock one trading day immediately preceding the Advance request date and greater than sixty-five percent (65%) of the average bid price over the ten (10) trading days immediately preceding the Advance request date.  If the Company does not specify a Floor Price in the applicable Advance request, then the “Floor Price” shall be deemed to equal sixty-five percent (65%) of the average bid price over the ten (10) trading days immediately preceding the Advance request.  In all circumstances the specified Floor Price must be above par value.

  • As further consideration for Auctus entering into and structuring the equity facility, the Company shall pay to Auctus (i) five percent (5%) of the Advance request specified in each drawdown notice delivered by the Company to Auctus; (ii) a one-time non-refundable origination fee equal to $7,500 (which the Company has already paid); and (iii) a fee by issuing to Auctus that number of shares of the Company’s common stock that equal a dollar amount of fifty-seven thousand and five hundred dollars ($57,500) (the “Commitment Shares”), payable in three separate installments in accordance with the terms of the Equity Agreement. As of the date hereof, the Company has issued a total of 29,120,652 shares to Auctus Management, an affiliate of Auctus, pursuant to the Equity Agreement. If the Equity Agreement is terminated prior to the issuance of the full amount of the Commitment Shares then all remaining Commitment Shares then due shall be immediately issuable to Auctus by the Company within three (3) trading days.
  •  

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We relied on an exemption from the registration requirements of the Securities Act. The transaction does not does involve a public offering. Auctus is an “accredited investor” and/or qualified institutional buyer and Auctus has access to information about the Company and its investment. Further, Auctus may not assign or transfer its obligations under the Equity Agreement. 

 

At an assumed purchase price under the Equity Agreement of $0.0013 (equal to 93% of the average bid price of our common stock of $0.0014 on November 15, 2012 ), we will be able to receive up to $167,606.08 in gross proceeds, assuming the sale of the entire 128,927,716 Shares being registered hereunder pursuant to the Equity Agreement. However, 50% of the net proceeds shall be paid by Auctus directly to TCA pursuant to the terms of the TCA Debenture, up to $25,000 per month. If at any time the Company’s common stock is bid below its par value then no Advance Request shall be permitted, and no Drawdown Notice shall be delivered to Auctus if the Company’s common stock is trading at or below its par value.

 

At an assumed purchase price of $0.0013 under the Equity Agreement, we would be required to register approximately 2,563,379,938 additional shares to obtain the balance of $3,500,000 under the Equity Agreement. The Company is currently authorized to issue 1,000,000,000 shares of its common stock. Auctus has agreed, subject to certain exceptions listed in the Equity Agreement, to refrain from holding an amount of shares which would result in Auctus or its affiliates from owning more than 4.99% of the then-outstanding shares of the Company’s common stock at any one time.

 

There are substantial risks to investors as a result of the issuance of shares of our common stock under the Equity Agreement.  These risks include dilution of stockholders and significant decline in our stock price.

 

Auctus will periodically purchase shares of our common stock under the Equity Agreement and will in turn, sell such shares to investors in the market at the prevailing market price.  This may cause our stock price to decline, which will require us to issue increasing numbers of shares to Auctus to raise the same amount of funds, as our stock price declines.

 

Auctus and any participating broker-dealers are “underwriters” within the meaning of the Securities Act. All expenses incurred with respect to the registration of the common stock will be borne by us, but we will not be obligated to pay any underwriting fees, discounts, commission or other expenses incurred by the Selling Security Holder in connection with the sale of such shares.

 

Except as indicated below, neither the Selling Security Holder nor any of its associates or affiliates has held any position, office, or other material relationship with us in the past three years.

 

The following table sets forth the name of the Selling Security Holder, the number of shares of common stock beneficially owned by the Selling Security Holder as of the date hereof and the number of share of common stock being offered by the Selling Security Holder. The shares being offered hereby are being registered to permit public secondary trading, and the Selling Security Holder may offer all or part of the shares for resale from time to time. However, the Selling Security Holder is under no obligation to sell all or any portion of such shares nor is the Selling Security Holder obligated to sell any shares immediately upon effectiveness of this prospectus. All information with respect to share ownership has been furnished by the Selling Security Holder. The column entitled “Amount Beneficially Owned After the Offering” assumes the sale of all shares offered.

 

Name   Shares Beneficially Owned Prior to Offering   Shares to Be Offered   Amount Beneficially Owned After Offering (1)   Percent Beneficially Owned After Offering
                 
Auctus Private Equity Management, Inc. (2)   29,120,652 (3)   128,927,716 (4)   29,120,652 (3)   4.99%

 

(1) Pursuant to the Equity Agreement, the Company shall issue Commitment Shares to Auctus in the aggregate amount of $57,500. As of the date hereof, the Company has only issued two installments of the Commitment Shares in the aggregate amount of $35,494.30. Therefore, Auctus is entitled to receive Commitment Shares in the aggregate amount of $22,005.70 payable in two or more separate installments; provided, however, pursuant to the Equity Agreement, Auctus or its affiliates is refrained from owning more than 4.99% of the then-outstanding shares of the Company’s common stock at any one time. Upon termination of the Equity Agreement, any outstanding but unissued Commitment Shares shall be immediately issued to Auctus within three (3) trading days. The number assumes the Selling Security Holder sells all of its shares being offered pursuant to this prospectus.

 

(2)Auctus Private Equity Management, Inc. (“Auctus Management”), an affiliate of Auctus Prvate Eqiuty Fund, LLC (“Auctus”), is a corporation incorporated under the laws of the Commonwealth of Massachusetts. Al Sollami is the principal and has voting and investment power over the shares beneficially owned by Auctus Management and Auctus .

 

(3)These shares represent the first installment of Commitment Shares issued to Auctus pursuant to the Equity Agreement.  Notwithstanding the provisions of the Equity Agreement, we are not registering the Commitment Shares for resale. Auctus owns approximately 4.99 % prior to the offering.

 

(4)These shares represent only a portion of the shares that may be issued to Auctus pursuant to the Equity Agreement. At an assumed purchase price of $0.0013 under the Equity Agreement, we would be required to register approximately 2,563,379,938 additional shares to obtain the balance of $3,500,000. It is not likely we will exercise our right to obtain the balance of $3,500,000 under the Equity Agreement. The principal balance of $3,500,000 was chosen by the parties as an amount Auctus was willing to provide to the Company for its working capital and general corporate needs.

 

The above table assumes that Auctus purchases the maximum amount of registrable Shares in this registration statement.

 

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PLAN OF DISTRIBUTION

 

This prospectus relates to the resale of up to 128,927,716 Shares issued pursuant to the Equity Agreement held by the Selling Security Holder.

 

The Selling Security Holder may, from time to time, sell any or all of their shares of our common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions.  The Selling Security Holder may use any one or more of the following methods when selling shares:

 

  • ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

  • block trades in which the broker-dealer will sell the shares as agent;

  • purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

  • privately negotiated transactions;

  • broker-dealers may agree with the Selling Stock Holder to sell a specified number of such shares at a stipulated price per share;

  • through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

  • a combination of any such methods of sale; or

  • any other method permitted pursuant to applicable law.

The Selling Security Holder is an underwriter. Pursuant to the terms of the Equity Agreement, the Selling Security Holder may not engage in any short sizes of the Company’s common stock or other hedging activities. The Selling Security Holder may sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for itself or its customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Security Holder and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that the Selling Security Holder will attempt to sell shares of the Company’s common stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. The Selling Security Holder cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the Selling Security Holder. In addition, any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus are “underwriters” as that term is defined under the Securities Act or the Exchange Act, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

 

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Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the Selling Security Holder. The Selling Security Holder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

The Selling Security Holder may from time to time pledge or grant a security interest in some or all of the shares of our common stock owned by it and, if it defaults in the performance of its secured obligations, the pledgee or secured parties may offer and sell such the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or any other applicable provision of the Securities Act amending the list of selling security holders to include the pledgee or transferee as selling security holders under this prospectus.

 

The Selling Security Holder also may transfer the shares of common stock in other circumstances, in which case the transferees or pledgees will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling security holders to include the pledgee or transferee as selling security holders under this prospectus.

 

We are required to pay all fees and expenses incident to the registration of the shares of common stock.  Otherwise, all discounts, commissions or fees incurred in connection with the sale of our common stock offered hereby will be paid by the Selling Security Holder.

 

The Selling Security Holder acquired the securities offered hereby in the ordinary course of business and has advised us that it has not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of its shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by the Selling Security Holder. We will file a supplement to this prospectus if the Selling Security Holder enters into a material arrangement with a broker-dealer for sale of common stock being registered.  If the Selling Security Holder uses this prospectus for any sale of the shares of common stock, it will be subject to the prospectus delivery requirements of the Securities Act.

 

Pursuant to a requirement by the Financial Industry Regulatory Authority, or FINRA, the maximum commission or discount to be received by any FINRA member or independent broker/dealer may not be greater than eight percent (8%) of the gross proceeds received by us for the sale of any securities being registered pursuant to SEC Rule 415 under the Securities Act.

 

The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of our common stock and activities of the Selling Security Holder.  The Selling Security Holder will act independently of us in making decisions with respect to the timing, manner and size of each sale.

 

Auctus is an “underwriter” within the meaning of the Securities Act in connection with the sale of our common stock under the Equity Agreement. As further consideration for Auctus entering into and structuring the equity facility, the Company shall pay to Auctus (i) five percent (5%) of the Advance request specified in each drawdown notice; (ii) a non-refundable origination fee equal to $7,500; and (iii) the Commitment Shares.

 

We will pay all expenses incident to the registration, offering and sale of the shares of our common stock to the public hereunder other than commissions, fees and discounts of underwriters, brokers, dealers and agents. If any of these other expenses exists, we expect Auctus to pay these expenses. We have agreed to indemnify Auctus and its controlling persons against certain liabilities, including liabilities under the Securities Act.  We estimate that the expenses of the offering to be borne by us will be approximately $55,000. We will not receive any proceeds from the resale of any of the shares of our common stock by Auctus. We may, however, receive proceeds from the sale of our common stock under the Equity Agreement. Neither the Equity Agreement nor any rights of the parties under the Equity Agreement may be assigned or delegated to any other person.

 

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DESCRIPTION OF SECURITIES TO BE REGISTERED

 

This prospectus includes 128,927,716 Shares of our common stock offered by the Selling Security Holder. The following description of our common stock is only a summary. You should also refer to our certificate of incorporation and bylaws, which have been incorporated by reference as exhibits to the registration statement of which this prospectus forms a part.

 

The Company is authorized to issue 1,000,000,000 shares of $0.001 par value common stock, and 50,000,000 shares of preferred stock, $0.001 par value. As of November 26, 2012, the Company had 620,646,125 shares of common stock outstanding and 923,618 shares of preferred stock outstanding.

 

Common Stock

 

As of November 26, 2012 , we had 620,646,125 shares of common stock outstanding. The shares of our common stock presently outstanding, and any shares of our common stock issues upon exercise of stock options and/or warrants, will be fully paid and non-assessable. Each holder of common stock is entitled to one vote for each share owned on all matters voted upon by shareholders, and a majority vote is required for all actions to be taken by shareholders. In the event we liquidate, dissolve or wind-up our operations, the holders of the common stock are entitled to share equally and ratably in our assets, if any, remaining after the payment of all our debts and liabilities and the liquidation preference of any shares of preferred stock that may then be outstanding. The common stock has no preemptive rights, no cumulative voting rights, and no redemption, sinking fund, or conversion provisions. Since the holders of common stock do not have cumulative voting rights, holders of more than 50% of the outstanding shares can elect all of our Directors, and the holders of the remaining shares by themselves cannot elect any Directors. Holders of common stock are entitled to receive dividends, if and when declared by the Board of Directors, out of funds legally available for such purpose, subject to the dividend and liquidation rights of any preferred stock that may then be outstanding.

 

Voting Rights

 

Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders.

 

Dividends

 

Subject to preferences that may be applicable to any then-outstanding shares of preferred stock, if any, and any other restrictions, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the Company’s board of directors out of legally available funds. The Company and its predecessors have not declared any dividends in the past. Further, the Company does not presently contemplate that there will be any future payment of any dividends on common stock.

 

Anti-Takeover Provisions

 

Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws contain provisions that may make it more difficult for a third party to acquire or may discourage acquisition bids for us. Our Board of Directors may, without action of our stockholders, issue authorized but unissued common stock and preferred stock. The issuance of additional shares to certain persons allied with our management could have the effect of making it more difficult to remove our current management by diluting the stock ownership or voting rights of persons seeking to cause such removal. The existence of unissued preferred stock may enable the Board of Directors, without further action by the stockholders, to issue such stock to persons friendly to current management or to issue such stock with terms that could render more difficult or discourage an attempt to obtain control of us, thereby protecting the continuity of our management. Our shares of preferred stock could therefore be issued quickly with terms that could delay, defer, or prevent a change in control of us, or make removal of management more difficult.

 

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DESCRIPTION OF BUSINESS

 

BACKGROUND

 

AquaLiv Technologies, Inc., (“ALTI”) was formed under the laws of the State of Nevada on April 11, 2006 originally under the name of Infrared Systems International “ISI” as a wholly-owned subsidiary of China Sxan Biotech, Inc. (“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 (“American SXAN”) doing business exclusively in the People's Republic of China under a registered capital corporation, Tieli XiaoXingAnling Forest Frog Breeding Co, Ltd. Tieli XiaoXingSnling engaged in the business of manufacturing and marketing wines and tonics derived from domesticated forest frogs.  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.

 

Due to American SXAN’s disinterest in continuing the infrared visions business of CSBI, the parties agreed that the business and assets of CSBI would be transferred to CSBI’s wholly-owned subsidiary, ISI, and that the common stock of CSBI would be distributed to the persons who were shareholders of CSBI prior to the July 2007 merger, and any subsequent purchasers of their shares. The shares of ISI owned by CSBI were subsequently distributed to shareholders upon the effectiveness of Form S-1 registration statement filed with the United States Securities and Exchange Commission. The Notice of Effectiveness was issued on July 11, 2008 and filed on July 14, 2008. 

 

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.

 

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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, Inc. 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 IAI. 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 Stock 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.

 

CURRENT CORPORATE STRUCTURE

 

 

AquaLiv Technologies, Inc.

Significant Ownership:

·       16% Gary Ball

·       5% Take Flight Equities

 
     
     

AquaLiv, Inc.

Ownership:

·       50% AquaLiv Technologies, Inc.

·       50% Craig Hoffman

 

Focus Systems, Inc.

Ownership:

·       100% AquaLiv Technologies, Inc.

 

 

 

AQUALIV, INC.

 

AquaLiv, Inc.’s scientists discovered that most substances and compounds have a unique information signature that influences biological processes via a magnetic cellular mechanism (non-chemical). The company’s technology records this biologically significant magnetic information (bioinformation) from a compound or substance and allows for the manipulation, combining, and subsequent transmittal to an organism. Bioinformation from a variety of sources are combined and/or altered to produce a bioinformation composite designed to influence specific biological processes. The composite can be transmitted to an organism via a variety of methods, including mineralized water, electromagnetic wave, or magnetic field.

 

The technology, while still at an early stage of development, already has direct applications in the industries of water purification, environmental science, agriculture, animal husbandry, personal use products, and medicine. Revenues generated from AquaLiv, Inc. products for the nine months ended June 30, 2012 were $345,130.

 

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AquaLiv Water System

 

The AquaLiv Water System is a water purification and enhancement apparatus available since 2008 that produces a high-quality drinking water. A variety of technologies are utilized in the system to remove impurities from the water, add minerals to the water, alter the molecule to molecule bonding structure of the water molecules, reduce the surface tension, improve the Oxidation Reduction Potential, and increase the pH, dissolved oxygen, and dissolved hydrogen content in the water. Additionally, the water’s bioinformation is altered to resemble spring water before processing and treatment. 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 the AquaLiv Water System helped them decrease their insulin requirements. AquaLiv Water System testimonials are validated by a 3rd party. The AquaLiv Water System has approximately 400 users and produces 99% of the revenues.

   

Infotone Hydrating Mist

 

Infotone Hydrating Mist is a skincare product designed to clear blemishes, fade wrinkles, and even skin tone. The product has been available since 2010. Each mister contains a ceramic bead infused with AquaLiv Inc.'s bioinformation technology. The technology allows simple spring water to activate skin's natural healing ability resulting in clear, youthful, and glowing skin. Infotone Hydrating Mist is refillable for a full year making it an economical and sustainable skincare product. The mist is 100% natural and hypoallergenic and contains no parabens, additives, chemicals, GMOs, fragrances or artificial ingredients. The benefits of using the product are primarily derived through the elimination of a common skin parasite responsible for irritation (found on 50% of all adults), decreasing the production of melanin in cells that are overproducing, and increasing skin hydration. The Infortone Hydrating Mist has approximately 850 users and produces 1% of the revenues.

 

AgSmart Rice

 

AgSmart Rice is a combined service and product offering that increases rice yields by 30-60% on average (data from actual commercial usage) while decreasing the duration before harvest by approximately one month. Treated rice crops are more resistant to pests, diseases, and wind/hail damage. AgSmart Rice is 100% natural and organic standards compliant and uses no chemical fertilizers, herbicides, or pesticides. AgSmart Rice benefits rice plants by encouraging greater root growth and photosynthesis ability. AgSMart Rice has been available since 2011 and is currently used by 2 farms at no charge for their aid in AgSmart Rice’s development. AgSmart Rice is not marketed due to a lack of financial resources and personnel. As of today, AgSmart Rice does not produce any revenue.

 

AgSmart Potato

 

AgSmart Potato is a combined service and product offering that has shown increases in potato yields by over 100% in market value (calculated using recent size/weight values coupled with average test results between treated and untreated test plots) under initial company testing. Treated potato crops have a consistent number of potatoes compared to untreated crops, however, the average size and weight are significantly increased while the normal counts of waste-sized potatoes are greatly reduced. Treated crops have also shown to be more resistant to pests and diseases caused by bacteria and viruses. AgSmart Potato is 100% natural and organic standards compliant and uses no chemical fertilizers, herbicides, or pesticides. AgSmart Potato benefits potato plants by encouraging greater root growth and photosynthesis ability while controlling bacterial and fungal activity.  The Company plans on performing further third party commercial tests of the product prior to commercial distribution. The product is still under development and not yet available to the general public.

 

NatuRx Medication Alternatives

 

Based on AquaLiv Inc.'s bioinformation technology, NatuRx formulations utilize bioinformation composites in lieu of active-molecules (drugs) for treatment. NatuRx formulations are still under development waiting the necessary funding to begin clinical trials and not yet available to the general public.

 

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COMPETITION

 

The Company competes directly with other companies offering similar products and services. 

AquaLiv Water System

The AquaLiv Water System competes with all consumer drinking water purification and enhancement systems priced between $350 and $4000. Direct competition comes from so-called water ionizing machines. However, the AquaLiv Water System has many advantages over them including the ability to remove sodium fluoride and alkalize water naturally and without electricity. The AquaLiv Water System is further differentiated in the marketplace by an industry leading 90-Day Unconditional Money Back Guarantee and a 15-Year warranty against defects.

Infotone Hydrating Mist

Infotone Hydrating Mist competes against all cosmetic water misters often sold by popular bottled water brands. When the water is used up in competing products, consumers must purchase a new mister. However, integrated technology in the Infotone Hydrating Mist apparatus enhances ordinary water with skin enhancing effects while also allowing consumers to refill the mister with ordinary water. While the initial cost of Infotone Hydrating Mist is slightly higher than competing products, the ability to refill it greatly increases its value to consumers, making it a unique product in the marketplace. 

AgSmart Rice

Because no other available yield enhancing agriculture product exploits the same natural phenomenon, AgSmart Rice can be used in conjunction with other technologies, e.g. hybridization, agrochemicals, and/or GMOs, while still delivering yield increases and other benefits. For this reason, other technologies currently available in rice agriculture do not compete directly with AgSmart Rice as most customers will combine many available technologies to realize even greater increases yields.

FOCUS SYSTEMS

 

Remote Desktop and Cloud Computing

 

Focus System’s Remote Desktop services provide authorized remote users the ability to connect to resources on an external network owned and managed by Focus Systems from any Internet-connected device. The remote user may access their account from their own device or one leased or purchased from Focus Systems. Once connected, the remote user has access to a number of software packages made available through Focus Systems as a Microsoft product reseller for a monthly fee. The remote user may also request that other software packages be installed to the user’s virtual server and maintained by Focus Systems. The Company believes that there are inherent benefits of operating in a completely portable desktop office environment. Access to central data and shared recourses can increase productivity and reduce cost for businesses.  The remote environment is controlled, managed and updated by Focus Systems from a centralized location, further reducing operating costs for its customers. Revenues generated from remote desktop and other services for the nine months ending June 30, 2012 were $14,148 and included service to approximately 20 users.

 

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 the VoIP phone service is digital, companies are able to run both data and voice over the same network infrastructure thereby greatly reducing costs. This reduction in cost is experienced in both the initial start-up phase, as well as the ongoing maintenance and services fees associated with phone service. Company management believes that the trend away from traditional phone service to digital VoIP services will continue to grow.  Revenues generated from VoIP services for the nine months ending June 30, 2012 were $5,904.

 

COMPETITION

 

 

The remote desktop and cloud computing environment is still relatively in its infancy.  While the advent of computers saw large uses of thin client applications, the PC age saw companies bringing servers and applications both in-house and distributed to the desktops.  Today, as companies struggle with IT cost and look for ways to reduce overhead and speed up deliver of changing software, they are beginning to look again at outsourcing of their IT and utilize the expanding power of cloud computing.  There are several large service providers servicing the commercial market, such as IBM, Hewlett Packard, VMware, and a number of others. They are betting big on this trend and will capture a large segment of the market related to large business.  However, providers of the service to small business have yet to make a large mark in the market space. Buying decisions with small business remain more local, and with the consolidation of the ISP market over recent years, there are less IT businesses in these communities to roll out and support this type of initiative.

 

 

VoIP competition is a bit fiercer when it comes to the residential market. Companies such as Vonage and Magic Jack (heavy marketer in the residential market) have made great inroads into the homes of Americans and those abroad.  However, when it comes to small businesses making decisions, they have been less eager (either due to familiarity or lack of knowledge) to move away from the traditional Telco provider and utilize VoIP.  The trend towards a VoIP solution is inevitable as companies continue to consolidate their IT solutions and take advantage of cost savings initiatives, both for initial capital outlay as well as ongoing monthly cost.  Focus is poised to take advantage of the technology decisions that these small business will make in the coming years, either as a provider of remote desktop solutions, VoIP, or both.

 

 

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

 

For the three months ended June 30, 2011, 31.7% of our revenue was attributable to a single customer from the subsidiary Infrared Applications, Inc. (“IAI”). Since that time, such revenue attributable to IAI has been discontinued. Further, during the three month period ending June 30, 2012, 49% of the Company’s accounts receivable was due from a single customer. However, the Company’s accounts receivable total was $3,613, or less than 2% of the Company’s total revenue for that quarter. Therefore, the Company no longer anticipates being dependent on any one or few major customers.

 

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PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR LABOR CONTRACTS

 

AquaLiv® is a registered trademark belonging to AquaLiv, Inc. The trademark’s duration is perpetual while in use.

 

The Japanese patent personally owned by Dr. Ichimura, AquaLiv Inc.’s Chief Science Officer, covers some aspects of the AquaLiv, Inc.’s technology and was granted in 2008 for a term of 20 years. Dr. Ichimura, in his discretion, allows AcquaLiv, Inc. the exclusive use of such patent. The Company currently has no other patents or patent applications pending relating to AquaLiv, Inc. or Focus Systems, Inc.  

 

RESEARCH AND DEVELOPMENT ACTIVITIES

 

For the fiscal years ending September 30, 2011 and 2010, the Company and its subsidiaries have spent approximately $9,936 and $577 on research and development costs, respectively.

 

EMPLOYEES

 

We have three (3) current employees and one (1) independent contractor between the Company and its subsidiaries, with William Wright being the sole independent contractor at AquaLiv Technologies, Inc. Additional work is performed by subcontractors.

 

EXPENSES 

 

We estimate that we will require approximately $500,000, in addition to our gross revenues, over the next twelve months in order to maintain operations. While our operating expenses for each of our prior fiscal years have exceeded this amount, a portion of those expenses have been non-cash expenses.

 

DESCRIPTION OF PROPERTY 

 

The Company’s corporate office is currently located at 4550 NW Newberry Hill Road, Suite 202, Silverdale Washington, 98383. The corporate office is shared by Focus Systems, Inc. We currently rent on a month to month basis and pay rent of $1,000 per month. We own no real estate nor have plans to acquire any real estate.

 

LEGAL PROCEEDINGS

 

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

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Some of the statements contained in this prospectus that are not historical facts are “forward-looking statements” which can be identified by the use of terminology such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative or other variations, or by discussions of strategy that involve risks and uncertainties.  We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this prospectus, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.  All written and oral forward-looking statements made are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.  Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.

 

Overview 

 

The Company is the parent of AquaLiv, Inc. and Focus Systems, Inc. (“Focus Systems”). AquaLiv, Inc.’s technology alters the behavior of organisms, including plants and humans, without chemical interaction. From increased crop yields to drug-free medicine, AquaLiv, Inc. is providing innovative, ingredient-free solutions to the world's largest problems. The company’s platform technology influences biological processes naturally and without chemical interaction. To date, AquaLiv, Inc. has released products in the industries of water treatment, skincare, and agriculture. The company is primarily known for the AquaLiv Water System product which also produces the majority of the company’s revenue. Focus Systems, Inc. is a technology company providing customers with remote desktop services and Voice over Internet Protocol (VoIP) phone services. Focus Systems maintains servers that house data and applications that its customers can access remotely without the need for the customers to maintain a server. The company’s VoIP service utilizes the internet for phone service rather than through a traditional telecommunications company.

 

The Company continues to struggle with liquidity and capital resources sufficient to be able to fully execute on its business plan. Previously we have issued press releases regarding the potential for a $50 million capital infusion. While the Company has continued to work with the funding group towards this goal, we have yet to receive any funds from this effort. Subsequently, our ability to execute on planned initiatives, such as the acquisition of certain Japanese operations owned by our Chief Science Officer, have been suspended until such time that adequate capital resources are obtained and business initiatives can be reevaluated. Additionally, the lack of funding has hampered our ability to properly market our existing products and services. Our AquaLiv, Inc. retail product lines, AquaLiv Water System and Infotone Hydrating Mist, each suffer from our inability to market the products to greater numbers of people, and such the sales of each have remained relatively stagnate over the course of the past year. Our Focus Systems services, Remote Desktop and VoIP phones service, have also been impacted by our inability to hire sales personnel and properly market these service lines, which has resulted in declining numbers of customers for each service line. Without an increase in liquidity and capital resources, these trends may continue, which could greatly impact the ability for these subsidiaries to thrive.

 

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Plan of Operation

 

Recent advancements in AquaLiv, Inc.’s technology have created opportunities in the industries of water purification, environmental science, agriculture, animal husbandry, personal use products, and medicine. AquaLiv, Inc. is ready to expand its innovative product offering.

 

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

 

Results of Operations

 

For the Three and Nine Months Ended June 30, 2012 Compared with the Three and Nine Months Ended June 30, 2011

 

Revenues

 

The revenues for the three months ending June 30, 2012 were $107,518 as compared to $168,850 in the quarter ending June 30, 2011. Revenues were $371,685 for the nine months ended June 30, 2012, as compared to $471,478 for the nine months ended June 30, 2011.  Sales revenue comprised of 91.9% and 92.9% of our revenue for the three and nine months ending June 30, 2012, respectively, compared to the same three and nine month periods in 2011, where sales revenue accounted for 61.4% and 71.7% of overall revenue, respectively. Service revenue accounted for 5.9% and 6.8% of our revenues for the three and nine months ending June 30, 2012, respectively, compared to the same three and nine month periods in 2011, where service revenue accounted for 6.8% and 7.1% of overall revenue, respectively. The Company stopped receiving royalty revenue on June 22, 2011 in conjunction with the distribution of Infrared Applications, Inc., therefore, royalty revenues were $0 for the three and nine months ended June 30, 2012, compared to $53,600 and $100,000 for the three and nine months ended June 30, 2011, respectively. Royalty revenue accounted for 0% of revenues for the three and nine months ended June 30, 2012, compared to the same three and nine month periods in 2011, where royalty revenue accounted for 31.7% and 21.1% of overall revenue, respectively. Sales revenues are a reflection of the revenues generated by AquaLiv, Inc. The Company accounts for revenues generated by Focus Systems as service revenue, which includes fees for remote desktop and VoIP services provided by Focus Systems. Royalty revenue is reflective of the revenue generated by Infrared Applications, Inc. Revenue recognition is accounted for as follow: Sales revenue is billed, paid, and shipped in the same period each month; Service revenue is billed in advance on the first day of the month that service is rendered; and royalty revenue is recorded as earned in the month it is received.

 

Cost of Goods Sold

 

Cost of goods sold for the three and nine months ending June 30, 2012 were $20,722 (19.2% of total revenues) and $92,531 (24.9% of total revenues), respectively, compared to $45,756 (27.1% of total revenues) and $151,802 (32.2% of total revenues), respectively, for the same three and nine month periods ending June 30, 2011. The improvement in cost of goods sold is associated with outsourcing changes made to operations related to Focus Systems.

 

Operating Expenses

 

Operating expenses for the three months ending June 30, 2012 were $261,159 as compared to $176,724 for the quarter ending June 30, 2011. The decrease of $31,720 in consulting fees, increase of $3,810 in management fees, increase of $6,681 in payroll expense, increase of $109,069 in professional fees, decrease of $985 in research and development, decrease of $1,187 in travel expense, and decrease of $1,268 in general and administrative fees is due in part to the increased costs of running the businesses compared to the quarter ending June 30, 2011. The operation expenses for the nine months ending June 30, 2012, were $365,847 as compared to $512,239 for the nine months ending June 30, 2011. The decrease of $23,363 in consulting fees, increase of $18,890 in management fees, increase of $44,892 in payroll expense, increase of $87,466 in professional fees, decrease of $7,068 in research and development, increase of $8,769 in travel expense, and decrease of $1,016 in general and administrative fees is due in part to the increased costs of running the businesses compared to the nine months ending June 31, 2011. The decrease of $315,484 in loss on goodwill impairment, AquaLiv, Inc., was due to the one time write down of goodwill attributed to the acquisition of that business during the nine months ending June 30, 2011.  The Company expects operating expenses to remain higher that previously comparable periods as the Company expands its services.

 

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Other Income and Expense

 

Interest expense for the three months ended June 30, 2012 was $2,354 as compared to $4,551 for the three months ended June 30, 2011, and was $44,740 for the nine months ended June 30, 2012 as compared to $10,895 for the nine months ended June 30, 2011. The change in interest expense is due to adjustments in loss on derivative liability.

 

Net (Loss) Before Provision for Income Taxes

 

The net loss for the three months ended June 30, 2012 was $172,026 as compared to a net gain of $24,246 for the three months ended June 30, 2011.  The increase in net loss is attributed to the increase in our operating expenses due to the subsidiary changes and business additions to the Company, and increased professional fees for the quarter associated with our current financing. The net loss for the nine months ended June 30, 2012 was $375,196 as compared to $413,710 for the nine months ended June 30, 2011.  The one time write off of goodwill attributed to the AquaLiv, Inc. acquisition during the nine months ended June 30, 2011 accounted for the decrease in net loss between then and the same period ending June 30, 2012. Had that one time event not occurred, the company would have reported an increase in our operating expenses for the nine months ended June 31, 2012, as compared to the nine months ended June 30, 2011. The increase in normal operating expenses is due to the subsidiary changes and business additions to the Company, and increased professional fees during the period associated with our current financing.

 

For the Fiscal Year Ended September 30, 2011 Compared with the Fiscal Year Ended September 30, 2010

 

Revenues

 

Revenues were approximately $590,138 for the fiscal year ended September 30, 2011 as compared to approximately $139,298 for the prior fiscal year. Revenue was comprised of sales revenue, service revenue, and royalty revenue (stopped receiving June 22, 2011).  Sales revenue, the revenue generated by AquaLiv, Inc., for the fiscal year ended September 30, 2011 and 2010 amounted to $446,053 and $0, respectively. Sales revenue accounted for 76% of the revenue for the fiscal year ended September 30, 2011 and 0% of the revenue for the prior fiscal year.  Service revenue is the revenue generated by Focus Systems, Inc. and includes fees for remote desktop and VoIP services provided by Focus Systems Inc. Service revenue amounted to $44,085 for the fiscal year ended September 30, 2011 compared to $30,108 for the fiscal year ended September 30, 2010. Service revenue accounted for 7% of the total revenue, for the fiscal year ended September 30, 2011, and 22% for the fiscal year ended September 30, 2010. Royalty revenue for the fiscal year ended September 30, 2011 and 2010 amounted to $100,000 and $109,190, respectively. Royalty revenue accounted for 17% of the revenue for the fiscal year ended September 30, 2011(stopped receiving June 22, 2011) and 78% of the revenue for the fiscal year ended September 30, 2010.  The increase in total revenue was due to the acquisition of AquaLiv, Inc. in December 2010.  The decrease in revenues related to royalty revenue is a reflection of the distribution of the assets of Infrared Applications, Inc. on June 22, 2011, as which time the Company ceased recognizing royalty revenue.

 

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Cost of Sales

 

Cost of sales for the fiscal year ended September 30, 2011 was $193,430 as compared to $5,834 for the prior fiscal year, a result of the cost of goods used in the production and delivery of products by AquaLiv, Inc.

 

Selling, General and Administrative Expenses

 

Operating expense for the fiscal year ended September 30, 2011 was $1,020,310 as compared to $1,138,018 for the prior fiscal year, a decrease of 10.3%. The decrease was due to the elimination of several onetime expenses from the prior fiscal year, including loss on goodwill impairment for Focus Systems of $583,301, a result of the company fully impairing the goodwill received in the Focus Systems acquisition in the prior fiscal year; loss on goodwill impairment of Infrared Applications, Inc. of $34,970, which included the full impairment of patent cost during the prior fiscal year; and loss on impairment of note receivable in the amount of $170,000, which included the impairment of the full amount of the note receivable that defaulted during the prior fiscal year. Additionally, consulting fees decreased from $72,361 in 2010 to $60,819 in 2011, a decrease of 16%, and a result of the company continuing to utilize outside vendors to perform services for us. Professional fees decreased from $93,302 in 2010 to $88,683 in 2011, a decrease of 5%, attributed to the decrease in legal fees during the fiscal year. The reductions in operating expenses were offset by increases in several areas, including and increase in management fees from $55,802 in 2010 to $105,900 in 2011, an increase of 90%, and a result of fees paid to our acting President and one of our subsidiaries President throughout the fiscal year. Payroll expense increased from $126 in 2010 to $127,455 in 2011, attributed to the employees acquired in with the acquisition of AquaLiv, Inc. Research and development increased from $595 in 2010 to $9,936 in 2011, a result of our increased research work on AquaLiv, Inc. technologies during the fiscal year. Travel, meals, and entertainment increased from $5,070 in 2010, to $20,333 in 2011, a 301% increase and a result of management’s need to travel to meetings throughout the fiscal year. Other general and administrative increased from $122,509 in 2010 to $287,412, an increase of 135%, and primarily attributed to an increase in utilities, rent, and taxes associated with the AquaLiv, Inc. acquisition. There was a onetime loss on goodwill impairment associated with the AquaLiv, Inc. acquisition in the amount of $315,484, a result of the company fully impairing the goodwill received in the AquaLiv, Inc. acquisition.  

  

Other Income and Expense

 

For the fiscal year ended September 30, 2011, the expense was $17,352 compared to $4,050 for the prior fiscal year, an increase of 328%. The increase in expense resulted from a gain of $19,400 due to the recapture of prior loss impairment of a note receivable; a gain of $74,353 due to the distribution of Infrared Applications, Inc.; a loss of $61,111 due to the account of a derivative liability; and an increase in interest from $4,050 in 2010 to $15,290 in 2011 due to the increase in corporate debt.

 

Net (Loss) Before Provision for Income Taxes

 

The net loss for the fiscal year ended September 30, 2011 was $606,250 versus $1,008,604 for the prior fiscal year. The decrease in the loss of $402,354 was due to a large net decrease in one time impairment losses totaling $788,271. The decreases to expenses were primarily offset by a onetime increase of $315,484 from loss on goodwill impairment of AquaLiv, Inc., and net increases in management fees of $50,098, payroll expenses of $127,329, and other general and administrative expenses of $164,903.

 

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Liquidity and Capital Resources

 

Operating expenses for the nine months ended June 30, 2012 and 2011, were $365,487 and $512,239, respectively. The net loss for the nine months ended June 30, 2012 and 2011 was $(375,196) and $(413,701), respectively.

 

As of November 20, 2012 , the Company did not have and continues to not have sufficient cash on hand to pay present obligations as they become due. In addition, due to current economic conditions and the Company’s related risks and uncertainties, there is no assurance that we will be able to raise additional capital on acceptable terms, if at all, to meet our current obligation over the next 12 months. In the beginning of 2012, the Company was in negotiations to potentially receive a $50,000,000 capital infusion, but as of today such investment has not come to fruition. Because of the foregoing, the Company’s auditors have expressed substantial doubt about our ability to continue as a going concern.

 

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

 

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

 

As further consideration, the Company issued to TCA 5,555,556 shares of the Company’s common stock on May 1, 2012 totaling an aggregate amount of twenty five thousand dollars ($25,000) (the “Incentive Shares”). In the event the value of the Incentive Shares issued to TCA does not equal $25,000 after a nine month evaluation date, the Purchase Agreement provides for an adjustment provision allowing for necessary action (either the issuance of additional shares to TCA or the return of shares previously issued to TCA to the Company’s treasury) to adjust the number of Incentive Shares issued. The Incentive Shares are not being registered for resale in this registration statement.

 

First Pledge and Escrow Agreement

 

On April 27, 2012, in connection with the Purchase Agreement, the Company entered into a pledge and escrow agreement (the “First P&E Agreement”), by and among the Company, TCA and David Kahan, P.A., as escrow agent (the “Escrow Agent”). Pursuant to the terms of the First P&E Agreement, the Company agreed to issue and irrevocably pledge to TCA the lesser of (i) 4.99% of the Company’s common stock and (ii) 200% of the outstanding amount under the Debenture, subject to adjustment pursuant to the terms of the Purchase Agreement. On May 1, 2012, the Company issued 11,516,104 shares of common stock to TCA in escrow. Upon timely payment in full of all obligations under the transaction documents, TCA will notify the Escrow Agent in writing and the Escrow Agent shall return the pledged materials to the Company and all of TCA’s rights in and to the pledged materials and other collateral shall be terminated.

 

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Second Pledge and Escrow Agreement

 

On April 27, 2012, in connection with the Purchase Agreement, the Company entered into a pledge and escrow agreement (the “Second P&E Agreement”), by and among the Company, TCA and the Escrow Agent. Pursuant to the terms of the Second P&E Agreement, the Company agreed to irrevocably pledge to TCA its entire ownership in Aqualiv, Inc., a Washington corporation (“Aqua Sub”), consisting of 50,000 shares of Aqua Sub’s common stock..

 

First Security Agreement

 

On April 27, 2012, the Company entered into a security agreement (the “First Security Agreement”) with TCA, related to the issuance of the Debenture, whereby the Company granted to TCA a continuing, first priority security interest in all of the Company’s assets, wheresoever located and whether now existing or hereafter arising or acquired.

 

Second Security Agreement

 

On April 27, 2012, Focus Systems, Inc., a Washington corporation and wholly-owned subsidiary of the Company (“Focus Systems”) entered into a security agreement (the “Second Security Agreement”) with TCA, related to the issuance of the Debenture, whereby Focus Systems granted to TCA a continuing, first priority security interest in all of the Focus Systems assets, wheresoever located and whether now existing or hereafter arising or acquired.

 

Guaranty Agreement

 

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

 

Further, on April 27, 2012, the Company entered into an Equity Facility Agreement (the “Equity Agreement”) with Auctus Private Equity Fund, LLC, a Massachusetts corporation (“Auctus”). Pursuant to the terms of the Equity Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of the a registration statement, Auctus has committed to purchase up to $3,500,000 of the Company’s common stock, par value $0.001 per share. Pursuant to the terms of the Debenture issued by the Company in favor of TCA, the Company shall cause Auctus to pay directly to TCA, for each advance taken by the Company under the Equity Agreement, 50% of any net proceeds otherwise payable to the Company, up to $25,000 per month .

 

Management has determined that general expenditures must be reduced and additional capital will be required in the form of equity or debt securities. In addition, if we cannot raise additional short term capital we will be forced to continue to further accrue liabilities due to our limited cash reserves. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.

 

Going Concern

 

We have limited working capital and limited revenues from sales of products, services, or licensing. During the three months ended June 30, 2012, our operating expenses continued to be greater than our revenues. These factors have caused our accountants to express substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

 

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

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements.

 

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MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY

AND RELATED STOCKHOLDER MATTERS

 

(a) Market Information

 

Our common stock is currently quoted on the OTCQB under the symbol “ AQLV .” There is a limited trading market for our common stock. The following table sets forth the range of high and low bid quotations for each quarter since September 30, 2010. These quotations as reported by the OTCQB reflect inter-dealer prices without retail mark-up, mark-down, or commissions and may not necessarily represent actual transactions.

 

Quarter Ending  High  Low
       
 September 30, 2010   $0.0200   $0.0010 
             
 December 31, 2010   $0.0180   $0.0022 
             
 March, 31, 2011   $0.0128   $0.0030 
             
 June 30, 2011   $0.0160   $0.0027 
             
 September 30, 2011   $0.0070   $0.0028 
             
 December 21, 2011   $0.0055   $0.0050 
             
 March 31, 2012   $0.0059   $0.0051 
             
 June 30, 2012   $0.0060   $0.0019 
             
September 30, 2012     $ 0.0045     $ 0.0013  

 

(b) Holders

 

As of November 26, 2012 , a total of 620,646,125 shares of the Company’s common stock are currently outstanding held by approximately 1,402 shareholders of record.

 

(c) Dividends

 

We have not declared or paid any dividends on our common stock and intend to retain any future earnings to fund the development and growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. There are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by Nevada law.

 

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(d) Securities Authorized for Issuance under Equity Compensation Plans

 

The following table provides information as of September 30, 2011, with respect to the shares of the Company's common stock that may be issued under the Company's existing equity compensation plan, “2010 Incentive Compensation Plan”. 

 

   A  B  C
PLAN CATEGORY         
   NUMBER OF SECURITIES TO BE ISSUED UPON EXERCUSE OF OUTSTANDING OPTIONS  WEIGHTED AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS 

NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION

PLANS (EXCLUDING COLUMN A)

Equity Compensation Plans Not Approved by Stockholders (1)

   0    N/A    15,000,000      
                     
   Total   0    $    N/A    15,000,000 

 

(1) Consists of the 2010 Incentive Compensation Plan filed on Form S-8, July 9, 2010.

 

Rule 10B-18 Transactions

 

During the years ended September 30, 2011, there were no repurchases of the Company’s common stock by the Company.

 

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

 

We have no changes in and/or disagreements with our accountants on accounting and financial disclosure.

 

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

 

Directors and Executive Officers

 

The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers as of November 26, 2012 . There is no familial relationship between or among the nominees, directors or executive officers of the Company.

   

NAME   AGE POSITION WITH THE COMPANY DIRECTOR SINCE
         
William M. Wright    47 Chairman, Chief Executive Officer, Chief Financial Officer, Secretary 2010
         
Tracy D. Bushnell   46 Director 2010
         

 

Each director serves until his or her successor is elected. There are no arrangements or understandings between any director and any other person pursuant to which he or she was selected as a director or nominee.

 

Each officer serves until he or she is replaced by the Board of Directors. There are no arrangements or understandings between any officer of the Company and any other person pursuant to which he or she was selected as an officer.

 

WILLIAM M. WRIGHT has been AquaLiv Technologies, Inc.’s Chief Executive Officer, President, Secretary-Treasurer, and a director since April 2010. Mr. Wright has been the President and CEO of Focus Systems, Inc., a Washington corporation, since its formation in 2008.  Focus Systems, Inc. provides Desktop Virtualization which can perform all of the networking functions that can be utilized on standard in-house networks at a fraction of costs, and also Voice over Internet Protocol phone service to its customer base.  From July 2006 to July 2007, Mr. Wright was the Chief Operating Officer and a Director of Gottaplay Interactive, Inc., a Nevada corporation involved in the internet connectivity business and the video game subscription and rental business. Mr. Wright has over 20 years of experience and knowledge in financial management and business operations. His experience includes the startup of DONOBi, Inc., an internet Service Provider that specialized in the acquisition and rollup of numerous rural service providers, and the eventual taking of the company public in 2004. Mr. Wright served as both Chief Executive Officer and Chairman of the Board during his six year tenure with DONOBi, leading to the merger with Gottaplay in 2006. Prior to his work in the technology field, Mr. Wright was a Real Estate Broker in both California and Washington, and including the position of President and minority owner of a local property management company. Mr. Wright received his Bachelors of Science in Business Administration with an emphasis in Financial Services from San Diego State University.

 

(36)
 

 

TRACY D. BUSHNELL has been a director of AquaLiv Technologies, Inc. since April 2010.  Mr. Bushnell is the President of Trak Management Group, Inc., a construction consulting firm in the state of Washington.  Previous to that, Mr. Bushnell was the President and Chief Executive Officer of the Bushnell Group, which provided construction related services and consulting services, for the previous nine years.

 

DIRECTOR INDEPENDENCE

 

Our board of directors consists of William M. Wright and Tracy D. Bushnell. Mr. Bushnell is an "independent director" as such term is defined in Section 4200(a) (15) of the NASDAQ Marketplace Rules.

 

COMMITTEES OF THE BOARD OF DIRECTORS

 

Currently, we do not have any committees of the Board of Directors, and none are planned at this time. Our Board of Directors has determined that none of our directors is an audit committee financial expert.

 

INDEMNIFICATION AND LIMITATION ON LIABILITY OF DIRECTORS

 

Our Articles of Incorporation eliminate the liability of our directors for monetary damages to the fullest extent permissible under Nevada law. Under the Nevada Revised Statutes, director immunity from liability to a company or its stockholders for monetary liabilities applies automatically unless it is specifically limited by a company's Articles of Incorporation. Excepted from that immunity are: (a) a willful failure to deal fairly with the company or its stockholders in connection with a matter in which the director has a material conflict of interest; (b) a violation of criminal law, unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (c) a transaction from which the director derived an improper personal profit; and (d) willful misconduct.

 

Our bylaws provide that we will indemnify our directors and officers to the fullest extent not prohibited by Nevada law; provided, however, that we may modify the extent of such indemnification by individual contracts with our directors and officers; and, provided, further, that we shall not be required to indemnify any director or officer in connection with any proceeding, or part thereof, initiated by such person unless such indemnification: (a) is expressly required to be made by law, (b) the proceeding was authorized by our board of directors, (c) is provided by us, in our sole discretion, pursuant to the powers vested in us under Nevada law or (d) is required to be made pursuant to the bylaws.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

 

(37)
 

 

CODE OF ETHICS

 

The Company does not have a written code of ethics applicable to its executive officers. The Board of Directors has not adopted a written code of ethics since the Company has only one officer who is also a director of the Company and due to the small size and limited funds of the Company.

 

FAMILY RELATIONSHIPS

 

There are no family relationships between any of our officers, directors or affiliates.

 

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

 

To the best of our knowledge, during the past ten years, none of the following occurred, except as noted, with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time, except that Mr. Bushnell was the President of a construction company that filed for Chapter 7 bankruptcy during 2010; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Each of our officers and directors filed his report on Form 3 or Form 4 on a timely basis during the fiscal year ended September 30, 2011. There are no other known failures to file reports required by Section 16(a) of the Exchange Act.

 

(38)
 

 

EXECUTIVE COMPENSATION

 

GENERAL

 

At the present time, we do not pay any compensation to our directors or officers, other than a management fee paid to our President and Chief Financial Officer, William M. Wright.  Mr. Wright is also a director, and participated in the deliberations of the Board in determining his executive officer compensation. There is no separate compensation committee of the Board. We anticipate that we will begin to compensate our directors at some time in the future. At the present time, no pension benefits are provided to an officer or director of the Company.

 

SUMMARY COMPENSATION TABLE

 

The following table sets forth compensation information for services rendered to us by certain executive officers in all capacities, other than as directors, during the last two fiscal years. No executive officer's salary and bonus exceeded $100,000 in any of the applicable years. The following information includes the dollar value of base salaries, bonus awards, the number of stock options granted, and certain other compensation, if any, whether paid or deferred.

  

NAME AND PRINCIPAL POSITION Fiscal Year Salary  Bonus  Stock Awards  Option Awards  NONEQUITY INCENTIVE PLAN COMPENSATION  NONQUALIFIED DEFERRED COMPENSATION EARNINGS  ALL OTHER COMPENSATION     TOTAL     
                         
William M. Wright, Chief Executive Officer(current) 2011  $0  $ 80,000  (1)  $80,000  (1)   
  2010   $40,000(2)            $ 30,000 (2) $70,000  (1) (2)
                         

 

 (1) Consists of management fees paid as Chief Executive Officer of the Company. The Company determined to pay Mr. Wright a consistent fixed fee of $5,000 to $10,000 per month for his services as Chief Executive Officer of the Company. Prior to July 2011, Mr. Wright received $5,000 per month and currently receives $10,000 per month for services rendered.

 

(2) Consists of a salary received as President of Focus Systems, Inc.

 

COMPENSATION DISCUSSION AND ANALYSIS 

 

As indicated in the Summary Compensation Table, the only compensation paid to an officer is the salary and management fee payable to our current President and Treasurer, William M. Wright. The total salary and management fee paid to Mr. Wright was $80,000 in fiscal year 2011.

 

EMPLOYMENT AGREEMENTS

 

We do not have a written employment agreement with William M. Wright, our sole executive officer. Mr. Wright is an independent contractor of the Company.

 

EQUITY INCENTIVE PLAN

 

No stock options or similar instruments have been granted to any of our officers or directors.

  

LACK OF COMPENSATION COMMITTEE

 

We do not have a separate compensation committee due to the fact that there is currently only one employee of the Company and since no compensation currently is paid to directors of the Company. The entire Board of Directors participates in the consideration of executive officer and director compensation.

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

William M. Wright, the sole paid independent contractor of the Company, also is a director of the Company, and participates in determining the amount of his compensation.

 

COMPENSATION COMMITTEE REPORT

 

The Board of Directors of the Company has reviewed and discussed the Compensation Discussion and Analysis provided above with management and, based on such review and discussions, has recommended that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

 

The members of the Board of Directors are:

 

(39)
 

 

William M. Wright

 

Tracy D. Bushnell

 

 

DIRECTOR COMPENSATION

 



Name Fees earned or paid in cash
($)
Stock awards
($)
Option awards
($)
Non-equity incentive plan
compensation
($)
Nonqualified deferred
compensation earnings
($)
All other compensation
($)
Total
($)
               
William M. Wright 0 0 0 0 0 0 0
Tracy D. Bushnell 0 0 0 0 0 0 0

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

As of November 26, 2012, our authorized capitalization was 1,050,000,000 shares of capital stock, consisting of 1,000,000,000 shares of common stock, $0.001 par value per share and 50,000,000 shares of preferred stock, $0.001 par value per share. As of November 26, 2012, there were 620,646,125 shares of our common stock outstanding, all of which were fully paid, non-assessable and entitled to vote. Each share of our common stock entitles its holder to one vote on each matter submitted to the stockholders.

 

The following table sets forth, as of November 26, 2012 , the number of shares of our common stock owned by (i) each person who is known by us to own of record or beneficially five percent (5%) or more of our outstanding shares, (ii) each of our directors, (iii) each of our executive officers and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, each of the persons listed below has sole voting and investment power with respect to the shares of our common stock beneficially owned.

 

Executive Officers, Directors, and More than 5% Beneficial Owners

 

NAME OF BENEFICIAL OWNER  AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP  PERCENTAGE OF CLASS
       
       
William M. Wright     (1)   27,250,000(2)    4.39 %
Tracy D. Bushnell (1)   0    0.00%
Gary E. Ball   88,572,170(3)    14.27% (3)
           
All directors and executive officers as a group (2 persons)   27,250,000(2)    4.39 %

 

 

(1) The business address for such persons is c/o Aqualiv Technologies, Inc., 4550 NW Newberry Hill Rd, Suite 202, Silverdale, WA 98383.

 

(2) Includes 27,250,000 common shares held by Take Flight Equities, Inc., of which William Wright is President.

 

(3) Includes the voting rights to 88,572,170 common shares held in escrow due to a default in a promissory note from Take Flight Equities, Inc.

 

Disclosure of Commission Position on Indemnification for Securities Act Liabilities

 

The Company’s Amended and Restated Bylaws provide for indemnification of directors and officers against certain liabilities. Officers and directors of the Company are indemnified generally for any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, has no reasonable cause to believe his conduct was unlawful.

 

(40)
 

 

The Company’s Amended and Restated Articles of Incorporation further provides the following indemnifications:

 

(a) a director of the Company shall not be personally liable to the Company or to its shareholders for damages for breach of fiduciary duty as a director of the Company or to its shareholders for damages otherwise existing for (i) any breach of the director’s duty of loyalty to the Company or to its shareholders; (ii) acts or omission not in good faith or which involve intentional misconduct or a knowing violation of the law; (iii) acts revolving around any unlawful distribution or contribution; or (iv) any transaction from which the director directly or indirectly derived any improper personal benefit. If Nevada Law is hereafter amended to eliminate or limit further liability of a director, then, in addition to the elimination and limitation of liability provided by the foregoing, the liability of each director shall be eliminated or limited to the fullest extent permitted under the provisions of Nevada Law as so amended. Any repeal or modification of the indemnification provided in these Articles shall not adversely affect any right or protection of a director of the Company under these Articles, as in effect immediately prior to such repeal or modification, with respect to any liability that would have accrued, but for this limitation of liability, prior to such repeal or modification.

 

(b) the Company shall indemnify, to the fullest extent permitted by applicable law in effect from time to time, any person, and the estate and personal representative of any such person, against all liability and expense (including, but not limited to attorney’s fees) incurred by reason of the fact that he is or was a director or officer of the Company, he is or was serving at the request of the Company as a director, officer, partner, trustee, employee, fiduciary, or agent of, or in any similar managerial or fiduciary position of, another domestic or foreign corporation or other individual or entity of an employee benefit plan. The Company shall also indemnify any person who is serving or has served the Company as a director, officer, employee, fiduciary, or agent and that person’s estate and personal representative to the extent and in the manner provided in any bylaw, resolution of the shareholders or directors, contract, or otherwise, so long as such provision is legally permissible.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our directors, officers or controlling persons in the successful defense of any action, suit or proceedings) is asserted by such director, officer, or controlling person in connection with any securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issues.

 

(41)
 

 

TRANSACTIONS WITH RELATED PERSONS, PROMOTERS, AND CERTAIN CONTROL PERSONS 

 

The Company, through its wholly owned subsidiary Focus Systems, Inc., received $1,303 in service revenues from parties related to William Wright, the Company’s Chief Executive Officer, during the fiscal year ended September 30, 2011. The revenue was booked at the same rate as that of non-affiliated customers.

 

During the years ended September 30, 2011 and 2010, respectively, the Company paid management fees of $24,900 and $21,710 to Gary Ball. Additionally, Mr. Ball received a total of $4,000 as a rent payment for office space.

 

During the years ended September 30, 2011 and 2010, respectively, the Company paid or accrued management fees of $81,000 and $34,092 to one of its officers, William Wright, or a company in his control. Additionally, Mr. Wright has received or accrued a total of $90,000 in management fees for the 9 months ended June 30, 2012.

 

During the fiscal year ended September 30, 2011, the Company paid $10,000 for consulting services to Trak Management Group, Inc., a company under the control of Tracy Bushnell , a director of the Company.

 

During the years ended September 30, 2011 and 2010, the Company’s current and former officers, William Wright and Gary Ball, extended credit to the Company and/or its subsidiaries in the form of personal credit card usage which carried year end balances in the amount of $17,187 and $46,262, respectively. Mr. Wright’s credit cards carried an interest rate of 15% and total balances as high as $22,601 and $21,525, respectively, for the fiscal years. Mr. Ball did not accrue interest against his credit card balances which were $24,737 during the fiscal years. No credit card payable was due to Mr. Ball at the end of fiscal year September 30, 2011, since the liabilities were assumed by Infrared Applications, Inc. upon distribution of that company.  

 

During the fiscal year ended September 30, 2011 and 2010, Take Flight Equities, Inc. a company under the control of William Wright, loaned the Company through an open line of credit of $30,588 and $35,588, respectively. The balances at fiscal year-end 2011 and 2010 were $23,388 and $35,588, respectively. As of October 25, 2012, the total outstanding due is $28,456. The loan is due on demand and carries no interest.

 

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Our Articles of Incorporation provide that it will indemnify its officers and directors to the full extent permitted by Nevada state law. Our By-laws provide that we will indemnify and hold harmless our officers and directors for any liability including reasonable costs of defense arising out of any act or omission taken on our behalf, to the full extent allowed by Nevada law, if the officer or director acted in good faith and in a manner the officer or director reasonably believed to be in, or not opposed to, the best interests of the corporation.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act” or “Securities Act”) may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

 

(42)
 

 

LEGAL MATTERS

 

The validity of the shares of our common stock offered by the Selling Stock Holders has been passed upon by the law firm of Lucosky Brookman LLP.

 

EXPERTS

 

The consolidated financial statements of AquaLiv Technologies, Inc. as of September 30, 2011 and 2010, and for the years then ended, appearing in the prospectus and registration statement have been audited by Bongiovanni & Associates, C.P.A.’s, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report on the authority of such firm as experts in accounting and auditing.

 

ADDITIONAL INFORMATION

 

We have filed a registration statement on Form S-1 under the Securities Act of 1933, as amended, relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of AquaLiv Technologies, Inc. filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the SEC.

 

We are subject to the informational requirements of the Securities Exchange Act of 1934, which requires us to file reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be inspected at public reference facilities of the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC’s Internet website at http://www.sec.gov.

 

(43)
 

 

 

128,927,716 Shares of

Common Stock

 

PROSPECTUS

 

Dealer Prospectus Delivery Obligation

 

Until ________, 2012, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus.  This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

You should rely only on the information contained in this prospectus.  We have not authorized anyone to provide you with information different from that which is set forth in this prospectus.  We are offering to sell shares of our common stock and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted.  The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of these securities.  Our business, financial condition, results of operation and prospects may have changed after the date of this prospectus.

 

 

, 2012

 

(44)
 

 

 AQUALIV TECHNOLOGIES, INC.

(F/K/A INRARED SYSTEMS INTERNATIONAL)

AND ITS SUBSIDIARIES 

 

SEPTEMBER 30, 2011 CONSOLIDATED FINANCIAL STATEMENTS

 

TABLE OF CONTENTS

 

  Page
Report of Independent Registered Public Accounting Firm 48
   
Consolidated Balance Sheets, September 30, 2011 and 2010 49
   
Consolidated Statements of Operations, For the Years Ended September 30, 2011 and 2010  50
   
Consolidated Statements of Changes in Stockholders' (Deficit), For the Years Ended September 30, 2011 and 2010 51
   
Consolidated Statements of Cash Flows, For the Years Ended September 30, 2011 and 2010 52
   
Notes to the Consolidated Financial Statements 53

  

(45)
 

 

Bongiovanni&

Associates, CPA’s

 

FL Office

7951 SW 6th St., Suite. 216

Plantation, FL 33324

Tel: 954-424-2345

Fax: 954-424-2230

 

NC Office

19720 Jetton Road, 3rd Floor

Cornelius, NC 28031

Tel: 704-892-8733

Fax: 704-892-6487

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

AquaLiv Technologies, Inc. (FKA Infrared Systems International)

 

We have audited the accompanying consolidated balance sheets of AquaLiv Technologies, Inc. (FKA Infrared Systems International) and its wholly owned subsidiaries (“The Company”) as of September 30, 2011 and 2010, and the consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness for the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AquaLiv Technologies, Inc. (FKA Infrared Systems International) and its wholly owned subsidiaries as of September 30, 2011 and 2010, and the consolidated results of its operations and its consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has recurring incurred losses from operations, has a liquidity problem, and requires funds for its operational activities. These factors raise substantial doubt that the Company will be able to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ Bongiovanni & Associates

Bongiovanni & Associates

Certified Public Accountants

Cornelius, North Carolina

January 13, 2012, except for Notes 7, 14 and the

Statement of Cash Flows which the date is March 14, 2012

 

(46)
 

  

AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL)
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
ASSETS      
   September 30, 2011  September 30, 2010
       
CURRENT ASSETS:      
Cash  $3,732   $1,034 
Accounts receivable   1,968    16,008 
           
Total Current Assets   5,700    17,042 
           
PROPERTY AND EQUIPMENT, net   8,427    5,000 
           
INVENTORY   723    —   
           
TOTAL ASSETS  $14,850   $22,042 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
CURRENT LIABILITIES:          
Accounts payable  $107,438   $100,513 
Credit cards payable   17,187    46,262 
Notes payable   189,179    260,695 
Derivative liability   111,111    —   
Other liabilities   20,746    36,599 
           
Total Current Liabilities   445,661    444,069 
           
STOCKHOLDERS' DEFICIT:          
Preferred stock, $0.001 par value, 50,000,000          
shares authorized,          
911,618 and 285,618 shares issued and   912    286 
outstanding, respectively          
Common stock, $0.001 par value, 1,000,000,000          
shares authorized,          
291,617,428 and 187,243,870 shares issued and   291,617    187,244 
outstanding, respectively          
Additional paid in capital   1,907,365    1,414,898 
Retained (deficit)   (2,612,390)   (2,024,455 
Noncontrolling interest   (18,315)   —   
           
Total Stockholders' (Deficit)   (430,811)   (422,027)
           
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)  $14,850   $22,042 
           

 

See accompanying consolidated notes and reports of independent registered public accounting firm.

 

(47)
 

   

AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL)
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
       
       For the Years 
       Ended September 30, 
              
       2011    2010 
              
REVENUES:             
              
Royalty     $100,000   $109,190 
Sales      446,053    —   
Service      44,085    30,108 
              
Total Revenues      590,138    139,298 
              
COST OF GOODS SOLD      193,430    5,834 
              
GROSS PROFIT      396,708    133,464 
              
OPERATING EXPENSES:             
Bad Debts      4,289      
Consulting fees      60,819    72,361 
Management fees      105,900    55,802 
Payroll expense      127,455    126 
Professional fees      88,683    93,302 
Research and development      9,936    577 
Travel, meals, and entertainment      20,333    5,070 
Loss on goodwill impairment, AquaLiv      315,484    —   
Loss on goodwill impairment, Focus      —      583,301 
Loss on goodwill impairment, IAI      —      34,970 
Loss on impairment of note receivable      —      170,000 
Other selling general and administrative      287,412    122,509 
              
Total Operating Expenses      1,020,310    1,138,018 
              
LOSS FROM OPERATIONS      (623,602)   (1,004,554)
              
OTHER INCOME (EXPENSE):             
Recapture of loss on impairment of             
note receivable      19,400    —   
Gain on distribution of IAI, net      74,353    —   
Loss on derivative liability      (61,111)   —   
Interest expense      (15,290)   (4,050)
              
NET (LOSS) BEFORE INCOME TAX PROVISION      (606,250)   (1,008,604)
              
PROVISION FOR INCOME TAXES      —      —   
              
CONSOLIDATED NET (LOSS)      (606,250)   (1,008,604)
              
Add: Net loss attributable to noncontrolling interest, AquaLiv, Inc.      41,956    —   
              
NET (LOSS) ATTRIBUTABLE TO COMPANY     $(564,294)  $(1,008,604)
              
BASIC AND DILUTED NET (LOSS) PER SHARE  $   *   $(0.01)
              
WEIGHTED AVERAGE SHARES             
OUTSTANDING      228,052,093    91,957,785 
              

 * = less than $.01

See accompanying consolidated notes and reports of independent registered public accounting firm.

 

(48)
 

 

 AQUALIV TECHNOLOGIES, INC.

(F/K/A INFRARED SYSTEMS INTERNATIONAL)

 AND ITS SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT)

  

   Preferred Stock     Common Stock               
               Additional        Total
               paid in  Retained  Noncontrolling  Stockholders
   Shares  Amount  Shares  Amount  capital  (Deficit)  interest  (Deficit)
                         
BALANCES,                        
September 30, 2009   —      —      11,671,700    11,672   $992,947   $(1,015,851)  $—     $(11,232)
                                         
Issuance of common stock for cash and a promissory note   —      —      115,572,170    115,572    84,428    —      —      200,000 
                                         
Issuance of common stock for services received   —      —      30,000,000    30,000    40,000    —      —      70,000 
                                         
Issuance of common and preferred stock for purchase of Focus Systems, Inc.   250,000    250    30,000,000    30,000    279,750    —      —      310,000 
                                         
Issuance of preferred stock for an investment receivable   500,000    500    —      —      249,500    —      —      250,000 
                                         
Cancellation of unexercised preferred stock investment   (464,382)   (464)   —      —      (231,727)   —      —      (232,191)
                                         
Net loss of the year ended September 30, 2010   —      —      —      —      —      (1,008,604)   —      (1,008,604)
                                         
BALANCES,                                        
September 30, 2010   285,618   $286    187,243,870   $187,244   $1,414,898   $(2,024,455)  $—     $(422,027)
                                         
Issuance of common stock to repay debt   —      —      100,623,558    100,623    (15,273)   —      —      85,350 
                                         
Issuance of preferre stock for 50% purchase of AquaLiv, Inc.   400,000    400    —      —      399,600    (23,641)   23,641    400,000 
                                         
Issuance of common stock   —      —      3,750,000    3,750    20,250    —           24,000 
                                         
Preferred stock returned for common stock   (24,000)   (24)   —      —      (23,976)   —           (24,000)
                                         
Issuance of preferred stock for cash   240,000    240    —      —      119,760    —           120,000 
                                         
Issuance of preferred stock for sevices   10,000    10    —      —      4,990    —           5,000 
                                         
Distribution of IAI assets, net   —      —      —      —      (18,298)   —           (18,298)
                                         
Other capital contribution   —      —      —      —      5,414    —           5,414 
                                         
Net loss of the year ended September 30, 2011   —      —      —      —      —      (564,294)   (41,956)   (606,250)
                                         
BALANCES,                                        
September 30, 2011   911,618   $912    291,617,428   $291,617   $1,907,365   $(2,612,390)  $(18,315)  $(430,811)
                                         

  

See accompanying notes and auditors reports.

 

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AQUALIV TECHNOLOGIES, INC.
 (F/K/A INFRARED SYSTEMS INTERNATIONAL)
 AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
       
       
   For the Years
   Ended September 30,
       
    Restated 2011    2010 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(564,294)  $(1,008,604)
Adjustments to reconcile net loss to net cash          
provided by          
(used in)  operating activities:          
Noncontrolling interest in income of consolidated subsidiary   (41,956)    —   
Depreciation   3,446    1,802 
Amount reserved due to doubtful accounts   4,289    (180)
Loss on goodwill impairment, Focus   —      583,301 
Loss on impairment of assets, IAI   —      34,970 
Loss (recapture) on impairment of note receivable   (19,400)   170,000 
Issuance of Preferred stock for services received   5,000    70,000 
Loss on goodwill impairment, Aqualiv   315,484    —   
Loss on derivative liability   61,111      
Gain on distribution of IAI, net of intercompany   (18,298)   —   
transfers          
Net (increase) decrease in operating assets:          
Accounts receivable   14,040    14,392 
Prepaid expenses   —      8,174 
Net increase (decrease) in operating liabilities:          
Accounts payable   6,925    75,088 
Credit cards payable   (29,075)   46,262 
Customer deposits   —      (66,168)
Other liabilities   (15,853)   36,599 
           
Net Cash  (Used in) Operating Activities   (279,035)   (34,202)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Payments for definite-life intangible assets   —      (1,000)
Payments for property and equipment   (6,873)   —   
           
Net Cash (Used in) Investing Activities   (6,873)   (1,000)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from notes payable   106,712    39,638 
Payments for notes payable   (22,250)   (22,226)
Proceeds of capital stock issuance   204,414    17,809 
           
Net Cash Provided by Financing Activities   288,876    35,221 
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   2,698    19 
           
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   1,034    1,015 
           
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $3,732   $1,034 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:          
Cash paid during the period for:          
Interest  $—     $—   
Income taxes  $—     $—   
           
NON-CASH INVESTING AND FINANCING ACTIVITIES          
Issuance of stock to retire notes payable and related  $85,350   $—   
accrued interest          
Debt acquired from acquisition  $—     $221,057 
Issuance of preferred stock for acquisition  $400,000   $—   
           

 

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AQUALIV TECHNOLOGIES, INC.

(F/K/A INFRARED SYSTEMS INTERNATIONAL) 

AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

AquaLiv Technologies, Inc. ("the Company") is a corporation organized under the laws of the State of Nevada on April 11, 2006, originally under the name of Infrared Systems International,as a wholly-owned subsidiary of China SXAN Biotech, Inc. (formerly Advance Technologies, Inc.) ("CSBI"). CSBI was organized under the laws of the State of Delaware on June 16, 1969. In July 2007, CSBI transferred the needs a space before “as” assets, liabilities, and operations of its technology licensing business to the Company. Because CSBI's operations are considered to be the Company's predecessor business, the consolidated financial statements include CSBI's operations from the inception of the business. In December 2008, the Company completed its spin-off by dividend to stockholders of CSBI.  

 

In March 2010, the Company transferred the assets, liabilities, and operations of its technology licensing business to a wholly-owned subsidiary, Infrared Applications, Inc (“IAI”).  IAI was organized under the laws of the state of Texas on March 26, 2010. On April 14, 2010, the Company sold a majority interest in its Common stock to Take Flight Equities, Inc. (“TFE”), a corporation organized under the laws of the State of Washington, and control of the Company was transferred to William Wright, its current CEO. Under the terms of the Agreement, continued to operate as a wholly owned subsidiary until June 22, 2011, when IAI was distributed to the Gary Ball, the compa