UNITED STATES
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
(Mark One)
For the fiscal year ended June 30, 2011
Commission File Number:file number 0-29901
Cavitation Technologies, Inc.
Incorporation or Organization) | Identification No.) |
10019 CANOGA AVENUE, CHATSWORTH, CALIFORNIA 91311
(818) 718-0905
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Each Class: | Name of Each Exchange on Which Registered: | |
Common Stock, $0.001 par value | Over the Counter (Bulletin Board) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YesYES ¨ No NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YesYES ¨ No þ NO x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesYES þ Nox NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesYES ¨x NO No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.101 of this chapter) is not contained herein, and will not be contained, to the best of registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. þ¨
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"large accelerated filer,” “accelerated filer”" "accelerated filer" and “smaller"smaller reporting company”company" in Rule 12b-2 of the Exchange Act. (Check one):
Large | Accelerated | |
Non-accelerated filer ¨ | Smaller |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
YES ¨ No þ NO x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant by reference to the price at which the common equity was last sold, or of the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completely second fiscal quarter: $13,979,640$4,849,113 as of December 31, 20102011 based on the closing price of $0.15$0.04 per share and 93,197,601121,227,836 non-affiliate shares outstanding.
The registrant had 156,945,858168,782,063 shares of common stock outstanding on September 20, 2011.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
CAVITATION TECHNOLOGIES, INC.
Page | ||
PART I | ||
Item 1. Business | ||
Item 1A. Risk Factors | ||
Item 1B. Unresolved Staff Comments | ||
Item 2. Properties | ||
Item 3. Legal Proceedings | 7 | |
Item 4. | 7 | |
PART II | ||
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | ||
Item 6. Selected Financial Data | ||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | ||
Item 7A. Quantitative and Qualitative Disclosures About Market Risk | ||
Item 8. Financial Statements and Supplementary Data | 15 | |
Item 9 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure | ||
Item 9A. Controls and Procedures | ||
Item 9B. Other Information | ||
PART III | ||
Item 10 Directors, Executive Officers and Corporate Governance | ||
Item 11 Executive Compensation | ||
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | ||
Item 13 Certain Relationships and Related Transactions, and Director Independence | ||
Item 14 Principal Accounting Fees and Services | ||
PART IV | ||
Item 15 Exhibits, Financial Statement Schedules | ||
Signatures |
3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K and the exhibits attached hereto contain “forward-looking”"forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concern our anticipated results and developments in our operations in future periods, planned exploration and development of our properties, plans related to our business and matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. We use words like “expects,” “believes,” “intends,” “anticipates,” “plans,” “targets,” “projects”"expects," "believes," "intends," "anticipates," "plans," "targets," "projects" or “estimates”"estimates" in this annual report. When used, these words and other, similar words and phrases or statements that an event, action or result “will,” “may,” “could,”"will," "may," "could," or “should”"should" result, occur, be taken or be achieved, identify “forward-looking”"forward-looking" statements. Such forward-looking statements are subject to certain risks and uncertainties, both known and unknown, and assumptions.
Management has included projections and estimates in this annual report, which are based primarily on management’smanagement's experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the Securities and Exchange Commission or otherwise publicly available. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as required by law.
PART I
ITEM 1. BUSINESS
Hydrodynamic Technology, Inc. was incorporated January 29, 2007 as a California corporation. It is a wholly owned subsidiary of Cavitation Technologies, Inc. (referred to herein, unless otherwise indicated, as “the Company,” “CTi,” “we,” “us,”the "Company," "CTi," "we," "us," and “our”"our") a Nevada corporation originally incorporated under the name Bio Energy, Inc. Cavitation Technologies, Inc.The Company engineers and designs environmentally friendly Nano technology based systems that have potential applications in industrial liquid processing.CTi is a California-based development stage company that has designed, developed, and patented and commercializedtwo proprietary technologyNano Reactors (Nano Reactor®). In addition, the company has filed a number of process patent applications incorporating these patented devices for processing soybeanfluids in vegetable oil through a device called the Nano Neutralization™ Reactor (the “Reactor”). The Reactor is the critical component of the Nano Neutralization System which is designed to reduce operating costsrefining, waste water treatment, algae oil extraction, and increase yields in the refining of vegetable oils.
Our investment in research and development (“("R&D”&D") since inception on January 29, 2007 through June 30, 2012 is $5,440,396 in total and $152,002 and $664,994 for fiscal years 2012 and 2011 is $5,288,394 including $4,308,803 paid in restricted stock primarily to service providers.respectively. This investment in R&D has led to potential commercial products includingtwo device patents issued for the NANO Neutralization SystemCompany'sNano Reactor®. In addition, the Company has filed fluid process patents and the Bioforce 9000 NANO Reactor System which performs transesterification during the production of crude biodiesel. The NANO Neutralization system accounted for 96% of total annual revenue of $589,926 recorded in fiscal 2011. Both the NANO Neutralization System and the Bioforce 9000 employ our proprietary, patented and patents pending, continuous flow-through, hydrodynamic NANO Technology has commercializedCTi Nano Neutralization®in the form of our NANO Reactor (the “Reactor”). Our reactor process can create particles smaller than one micron (nano particles) and bonds these particles at the molecular level. The Reactor has no moving parts, operates continuously, and is easily scalable to high volumes.
Vegetable Oil Refining
The Company's first commercial application for its technology isCTi Nano Neutralization®. Our environmentally friendly Reactorprocess has proven to significantly reduce refining costs, increase oil yield, and limit the amount of chemical additives used in certain liquidchemical refining vegetables oils. This patent pending process applications.is designed to be incorporated into new and existing soybean, rapeseed, and canola oil chemical refineries. The Company’sglobal demand for vegetable oils has grown consistently at a rate of about 5.5% p.a. from 84.5 million metric tons in 1999 to 150.8 million metric tons in 2011.
The Company's first pilot test of ourNANO Neutralization System was conducted between May and November of 2010 at Carolina Soya, a 200 metric ton/day crude soy oil refining plant in Estill, South Carolina. TheOur second system was successfulwhich became operational in reducing the amount of chemicals used in the refining process and in increasing oil yield. The system operated 7 months during which we received monthly rental payments totaling $35,000 whichfiscal 2011 is reflected in Revenue for the year ended June 30, 2011. This plant was subsequently sold to another owner who no longer operates the plant as a soybean oil refinery.
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Desmet Ballestra Agreement
On May 14, 2012 we signed a memorandum of understanding with a vegetable oil refining plant located in Minnesota for pilot testing a 40 GPM NANO System on a production line that processes 200 ton/day of de-gummed oil. As of September 2011, we have completed testing with this prospect,globalR and are awaiting their decision whether or not to buy the system. No revenue has been recognized on this transaction.
Desmet, purchases the Reactor from the Company and installs it as part of an integrated neutralization system. Based on extensive lab testing and successful commercial implementation, Desmet is guaranteeing the Reactor’s performance and ROI to any facility that purchases and installs it. We are therefore substantially dependent on Desmet to identify prospects, complete sales contracts, install the system and manage relationshipstogether with end-users. CTi will focus on developing additional Nano Reactor applications and managing the intellectual property issues associated with new developments.
The Company and Desmet have worked together to determine the appropriate sales approach and installation process. The Company's Nano Neutralization is designed to be used as an add-on process to an existing neutralization system within soybean and other vegetable oil refineries. Desmet is now focused on marketing CTi's Nano Neutralization® to vegetable oil refiners to help them increase profits through cost savings and improved oil yields. Desmet purchases Nano Reactor Systems from the Company and installs them at the refinery as part of an integrated neutralization system. Based on successful commercial implementations, Desmet guarantees minimum economic benefits to a facility that installs CTi Nano Neutralization®. We are therefore substantially dependent on Desmet to identify prospects, complete sales contracts, install the system and manage relationships with end-users. CTi focuses on developing additional Nano Reactor® applications and managing the intellectual property issues associated with new developments.
Desmet has relationships with major refiners and is initially marketing the Reactor to soybean oil refineries in the U.S., South America and Europe with the goal of ultimately making the NANO Neutralization System™ a standard for new refineries.globally A significant portion of global soybeanvegetable oil refineries include major refiners such as Archer Daniels Midland Company, Cargill, Inc. and Bunge Limited. Desmet has several seniormore than 40 sales representatives dedicated to selling the Reactor in North America, South America, Europe, and Europe. In orderAsia.
Customers
We have an exclusive sales and marketing agreement with on our strategic partner, Desmet Ballestra, to retain the exclusivity grantedmarketCTi Nano Neutralization®. and other applications to them by our Agreement, Desmet has committed to installing a specified number of Reactors by June 30, 2012, June 30, 2013, and June 30, 2014.
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Sources and availability of raw materials and the names of principal suppliers
We have historically sourced reactor components from various domestic and international suppliers including Canyon Engineering and Strategic IR with whom we have no long term contracts, agreements, or commitments. They provide parts as directed. We believe it would take approximately 60 days to find a new supplier, if necessary.
Competition
Our competitors inwho sell equipment and engineering services for the soybeanvegetable oil refining business are a myriad of companies both large and small that provide equipment and technology to oil refiners. These include 4 or 5 known companies that have longer operating histories, more experience, and stronger financial capabilities. Competitors include Westfalia, Alfa Laval, and Crown Iron Works as well as many firms that provide advice and services to small and regional firms. In addition, Arisdyne Systems, a designer of cavitation devices, is marketing a system using similar technology. The soybeanvegetable oil refining business is a highly competitive commodity market where the low-cost producer has the advantage. We intend to compete by offering solutions that help our clients remain or become a low-cost producer. WithBecause the industry in which we compete has limited new technology introduced in the last 50 years, we believe the ReactorCTi Nano Neutralization® provides a unique opportunity for refiners to increase margins. We differentiate ourselves by the designs, processes, and applications described in our issued and allowed patents, and in our patent pending applications. We compete by offering solutions that we believe can reduce operating expenses and increase yield vis-à-vis current technology.
Patents
OurCavitation Generator patent was issued during fiscal 2011, and is being amortized over an estimated useful life of four years. The patent has2011. In addition, we have a duration through February 27, 2029. We also have an allowed patent for ourMulti-State Cavitation Device that was issued August 22, 2011. In addition, we
We also have eight US and fiveeight PCT/ international patent applications pending which apply to the design of the Company’s ReactorCompany's reactor and the processes related thereto. Based on lab tests,The Company filed a number of process patent applications incorporating these patented devices for processing fluids in vegetable oil refining, waste water treatment, algae oil extraction, and alcoholic beverage enhancement. We received comments from the USPTO with regard to our Method for Cavitation-Assisted Refining, Degumming, and Dewaxing of Oil and Fat, and we responded. We also received a second round of comments and are responding to those as well. There is no assurance that our patents pending will be ultimately issued.
The Company believes its proprietary technology can be applied to other liquid processing industries where there is a need to solve environmental problems, reduce operating costs, and/or improve quality and yield. The Company’sCompany's issued and allowed patents and pending patents support potential applications of the Company’sCompany's proprietary technology in markets which include, but are not limited to, vegetable oils refining, renewable fuel production, alcoholic beverage enhancement, water purification, and algae oil extraction. extraction. In addition, we believe our proprietary technology canmay also be applied to fuel mixing and crude oil refining. During fiscal 2011, we received the “CE Marking”"CE Marking" certification which allows us to market our systems in the European Union.
Our success will depend in part on our ability to obtain patents, maintain trade secrets, and operate without infringing on the proprietary rights of others both in the United States and other countries. There can be no assurances that patents issued to CTi will not be challenged, invalidated, or circumvented, or that the rights granted hereunder will provide proprietary protection or competitive advantage to CTi. We plan to continue to invest in R&D and file for new and improved patents on a regular basis.
Royalty Agreements
On July 1, 2008, our wholly owned subsidiary entered into Patent Assignment Agreements with two individuals, our President andas well as our former CEO, and CEO/current CTO, where certain devices and methods involved in the hydrodynamic cavitation processes invented by the President and CTO have beenthese two individuals were assigned to the Company. In exchange, the Company agreed to pay a royalty of 5% of gross revenues to each of the CTO and Presidentthese two individuals for licensing of the technology and leasing of the related equipment embodying the technology. These agreements were subsequently assigned to Cavitation Technologies on May 13, 2010. The Company’sCompany's CTO and President both waived their rights to receive royalty payments that have accrued, or that may accrue, on any gross revenue generated through June 30, 2011.
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On April 30, 2008 (as amended November 22, 2010), our wholly owned subsidiary entered into an employment agreement with Varvara Grichkothe Director of Chemical and Analytical Department ("Inventor") who became a member of the Board of Directors in September 2010. Mrs. Grichko shall receive an amount equal to 5% of actual gross royalties received from the royalty stream in the first year in which the Company receives royalty payments from the patent which Mrs. Grichkothe Inventor was the legally named inventor and 3% of actual gross royalties received by the Company resulting from the patent in each subsequent year.
Governmental Approval and Regulations and Environmental Compliance
Due to the nature of our products, we have incurred no costs with respect to environmental compliance with federal, state, and local laws.
New Partner
In August 2012 the Company entered into aTechnology and Licensing Agreement with the GEA Group AG - Westfalia Separator Group GmbH, Oelde, Germany (GEA Westfalia). The companies have fouragreed to jointly develop and patent new process applications for CTi's Nano Reactor® ®. As part of the Agreement, GEA Westfalia will assemble a complete commercial system incorporating CTi technology in their facility. This will facilitate the testing of existing processes that have been developed by CTi and the joint development of new process applications. GEA Westfalia is a leading worldwide supplier of process equipment to industries including dairy and beverage.
Employees
On June 30, 2012 we had six total and full-time employees and havehad engaged approximately 405 consultants and independent contractors over the past two years. We work closely with employeesyear. Members of our staff and consultantstechnical team are comprised of experienced professionals who are chemists, civil, chemical,civil-, chemical-, and mechanical engineers with expertise in hydrodynamic cavitation, nano technology, water treatment, and biotechnology. These individuals hold Ph.Ds in Chemistry and Biology as well as degrees in Civil, Chemical, and Mechanical Engineering.
ITEM 1A. RISK FACTORS
Not applicable for smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located in Chatsworth, California. This approximate 5,000 square foot facility includes office space and an area to conduct research and development. We extended our lease agreement for office space for a period of two years effectiveuntil February 1, 2010.2013. We do not anticipate any material difficulties with the renewal of our rental agreement when it expires or in securing replacement facilities on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceeding against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings known to us in which any of our directors, officers or affiliates or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our Common Stock is traded on the Over the Counter Bulletin Board under the symbol CVAT. The following table sets forth the high and low price per share based on the closing price of our Common Stock for the periods indicated.
HIGH | LOW | |||||||||
Fiscal 2010 | First Quarter | $ | 0.31 | 0.21 | ||||||
Second Quarter | 0.38 | 0.22 | ||||||||
Third Quarter | 0.26 | 0.16 | ||||||||
Fourth Quarter | 0.21 | 0.13 | ||||||||
HIGH | LOW | |||||||||
Fiscal 2011 | First Quarter | $ | 0.19 | 0.13 | ||||||
Second Quarter | 0.15 | 0.10 | ||||||||
Third Quarter | 0.15 | 0.09 | ||||||||
Fourth Quarter | 0.12 | 0.09 |
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Fiscal 2012 | First Quarter |
| $ | 0.10 |
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| 0.05 |
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| Second Quarter |
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| 0.06 |
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| 0.03 |
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| Third Quarter |
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| 0.05 |
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| 0.03 |
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| Fourth Quarter |
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| 0.05 |
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| 0.02 |
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Fiscal 2011 | First Quarter |
| $ | 0.19 |
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| 0.13 |
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| Second Quarter |
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| 0.15 |
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| 0.10 |
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| Third Quarter |
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| 0.15 |
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| 0.09 |
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| Fourth Quarter |
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| 0.12 |
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| 0.09 |
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We became a public company through a share exchange that was effected in October 2008. The first day of public trading of our stock was November 11, 2008. Since our fiscal year end was changed to June 30, public trading of our stock began in the second quarter of fiscal 2009. As of September 20, 2011, there were approximately 1100 holders of record of our Common Stock.
Dividend Policy
We have neither declared nor paid any dividends on our Common Stock in the preceding two fiscal years. We currently intend to retain future earnings to fund ongoing operations and finance the growth and development of our business and, therefore, do not anticipate declaring or paying cash dividends on our Common Stock for the foreseeable future. Any future decision to declare or pay dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deems relevant. In addition, certain of our debt facilities contain restrictions on the declaration and payment of dividends.
Securities Authorized for Issuance under Equity Compensation Plans
None
Unregistered Sales of Equity Securities and Use of Proceeds
Since our previous disclosure in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011,2012, filed on May 16, 2011,2012, the following is our unregistered security activity.
8 2012. The holder of the note may elect to convert principal and accrued interest into shares of common stock at any time at a conversion price equal to 61% of the average lowest three trading prices of the Company’s common stock for the 10 trading days prior to conversion.
Issuance of Common Stock for Conversion of Indebtedness
On April 4, 2011,3, 2012, we issued 59,82960,096 shares of common stock to Tripod Group,Gel Properties, LLC, an accredited investor, as conversion of $3,500 in principal$1,000 of outstanding convertible notes payable.notes. On April 5, 2011,17, 2012, we issued an additional 24,37660,332 shares of common stock to Tripod Group,Gel Properties, LLC as conversion of $1,217 in principal$1,000 of outstanding convertible notes. On April 19, 2012, we issued 66,365 shares of common stock to Gel Properties, LLC as conversion of $1,100 of outstanding convertible notes. On April 23, 2012, we issued 267,559 shares of common stock to Gel Properties, LLC as conversion of $4,800 of outstanding convertible notes. On April 23, 2012, we issued 113,311 shares of common stock to Gel Properties, LLC as conversion of $2,033 of accrued interest. On June 6, 2012, a conversion request was submitted by the Prolific Group, LLC for $21,450 of outstanding convertible notes payable, along with $209corresponding to 1,500,000 shares of common stock. These shares were subsequently returned to the Company in accrued interest.the first quarter of fiscal 2013, and the note of $25,000 was paid in full in two payments of $15,000 on July 12 and $10,000 on August 7 plus a pre-payment premium of $12,500. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended.amended . These shares were not offered via general solicitation to the public but solelypublic.. No sales commissions or other remuneration was paid in connection with these issuances.
Issuance of Common Stock for Services
On June 3, 2011, we issued 200,000 shares of common stock with a recorded value of $4,629 to Tripod Group, LLC, an accredited investor, as a break-up fee for a financing arrangment. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. The shares were not offered via general solicitation to the aforementioned service provider.public . The Company issued restrictedrule 144 shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable for smaller reporting companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of should be read in conjunction with the Company’sCompany's financial statements and the related notes. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as its plans, objectives, expectations and intentions. Its actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.
Overview of Our Business
Hydrodynamic Technology, Inc. was incorporated January 29, 2007 as a California corporation. It is a wholly owned subsidiary of Cavitation Technologies, Inc., a Nevada corporation originally incorporated under the name Bio Energy, Inc. We havedesign and engineer environmentally friendly technology based systems that are designed to serve large, growing, global markets such as vegetable oil refining, renewable fuels, water treatment, algae oil extraction, water-oil emulsions and crude oil yield enhancement. Our systems are designed to process industrial liquids at a lower cost and higher yield than conventional technology. We are a process and product development firm that has developed, patented, and commercialized proprietary technology
CTi has developed, patented, and commercialized proprietary technology that can be used for processing soybean oil through a device called the of industrial fluids. CTi's patentedNano Neutralization™ Reactor (the “Reactor”). The Reactor® is the critical componentcomponents ofthe CTi Nano NeutralizationNeutralization® System which is designedcommercially proven to reduce operating costs and increase yields in theprocessing oils and fats. CTi has two issued patents relating to ourNano Reactor® systems and has filed several national and international patents to employ its proprietary technology in applications including, vegetable oil refining, of vegetable oils.
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During the year ended June 30, 2011,2012, we recorded revenue of $589,926.$187,216. Our cumulative loss since inception on January 29, 2007 is $16,669,663,$18,597,791 including $11,530,601$11,666,060 in common stock issued for services. Cumulative net cash used in operating activities of $3,421,456was$3,652,351 was funded largely with $3,822,760$4,229,699 in cash provided from financial activities including proceeds of $725,000 from the sale of preferred stock, $2,104,688$471,212 from the sale of convertible notes, $2,139,690 from the sale of common stock $386,212 in proceeds from convertible debt, and $486,110$349,276 in a bank loan. Our investment in research and development since inception on January 29, 2007 through June 30 2011 is $5,288,394, including $4,308,803 paid in restricted stock primarily to service providers.
Management's Plan of Operation
As a Development Stage company, we present aPlan of Operation for the next twelve months. We have four full-time employees and no part-time employees.
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going concern. The Company has not generated significant revenue and from January 29, 2007, (inception) through June 30, 2012 recorded cumulative revenue of $777,142 and a cumulative net loss of $18,597,791. To date, cumulative negative cash flow from operations of $3,652,351 was funded largely with $2.8 million in equity. Total Stockholder's Deficit at June 30, 2012 was $1,963,972.
Management's plan is to generate income from operations by licensing our technology globally through our strategic partner, the Desmet Ballestra Group. WeDesmet has agreed to provide us limited advance against sales payments. As of June 30 and August 30, 2012, cumulative advances received amounted to $125,000 and $375,000 respectively. These funds pay maturing debt plus a portion of operational expenses on a monthly basis. Desmet shall be entitled to immediately terminate the present agreement in case the claims of current US Patent Application Number 12/484,981 are not granted as such or are cancelled. In addition, Desmet may terminate the agreement on August 1 of any particular year if they have not installed at least 6 Nano Reactor® devices in the previous 12 month period. CTi may terminate the Agreement for material default. This Agreement supersedes a previous agreement dated November 1, 2010, amended on June 1, 2011 and on September 2, 2011. In addition to these advances, we anticipate that we will alsoneed additional funding, and we will attempt to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’sCompany's needs, or that the Company will be able to meet its future contractual obligations. Should management fail to obtain such financing, the Company may curtail its operations.
The accompanying consolidated financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of the Company to continue as a going concern. As a result of the aforementioned factors, our independent auditors, in their report on our audited financial statements for the fiscal year ended June 30, 2012, expressed substantial doubt about our ability to continue as a going concern.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. The accounting policies and estimates described below are those CTi considers most critical in preparing its consolidated financial statements. The following is a review of the accounting policies and estimates that include significant judgments made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used instead.
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Note 3 to the financial statements includes a summary of the CTi’s significant accounting policies, estimates, and methods used in the preparation of CTi’sCTi's financial statements.
Revenue Recognition
Revenue from the sale of ourNano Reactor® Systems is recognized when persuasive evidence of an agreement exists; delivery has occurred, including transfer of title and risk of loss for product sales, or services have been rendered for service revenues; the price to the buyer is fixed or determinable; and collectability is reasonably assured. The Company employs the Milestone Method of Revenue Recognition. Accounting Standard Codification 605-28-15 describes the Milestone Method as pertaining to R&D deliverables under which the Company satisfies its performance obligations over a period of time and which a portion or all of the consideration is contingent upon uncertain future events or circumstances. Revenue from the licensing of ourNano Reactor® System includes non-refundable license fees that are triggered upon achievement of a specific event. For agreements that provide for milestone payments, such as our agreement with Desmet Ballestra, we adopted ASC 605-28-25, Revenue Recognition, Milestone Method.
Recoverability of Intangible and Long-Lived Assets
Management believes that the accounting estimate related to the recoverability of its intangible and long-lived assets is a “critical"critical accounting estimate”estimate" because significant changes in the assumptions used to develop the estimates could materially affect key financial measures, including net income and non-current assets.
Testing intangible and long-lived assets for impairment involves a high degree of judgment due to the assumptions that underlie the undiscounted cash flows analysis. In accordance with ASC 350-30, we evaluateevaluated long-lived assets for impairment whenever events or changes in circumstances indicate that theirthe net book value may not be recoverable. When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value based on market value when available or discounted expected cash flows of those assets and is recorded in the period in which the determination is made. Management believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for our products under development will continue. Either of these could result in future impairment of long-lived assets.
Share-Based Compensation
We account for our share-based compensation in accordance ASC 718-20. Stock-based compensation cost is measured at the grant date based on the estimated fair value of the award and is recognized as an expense over the requisite vesting period.
Determining the fair value of share-based awards at the measurement date requires judgment, including estimating the expected term that stock options and warrants will be outstanding prior to exercise, the associated volatility, and the expected dividends. CTi estimates the fair value of options granted using the Black-Scholes valuation model. The expected life of the options used in this calculation is the period of time the options are expected to be outstanding and has been determined based on historical exercise experience. Expected stock price volatility is based on the historical volatility of CTi’sCTi's stock for a period approximating the expected life, and the risk-free interest rate is based on the implied yield available on US Treasury zero-coupon issues approximating the expected life. Judgment is also required in estimating the amount of share-based awards that will be forfeited prior to vesting. CTi believes that these assumptions are “critical"critical accounting estimates”estimates" because significant changes in the assumptions used to develop the estimates could materially affect key financial measures including net income.
11
Income Taxes
Management believes that the accounting estimate related to income taxes is a “critical"critical accounting estimate”estimate" because significant judgment is required in interpreting tax regulations in the US, evaluating CTi’sCTi's uncertain tax positions, and assessing the likelihood of realizing certain tax benefits. Actual results could differ materially from those judgments, and changes in judgments could materially affect CTi’sCTi's consolidated financial statements.
We account for income taxes in accordance with ASC 740-10. We recognize deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at expected future tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates on the date of enactment.
ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. We measure and record uncertain tax positions by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized.
In the normal course of business, CTi may be audited by federal and state tax authorities. The ultimate settlement of any particular issue with the applicable taxing authority could have a material impact on CTi’sCTi's financial statements.
Results of Operations
As a Development Stage Enterprise, we have provided aPlan of Operation herein. Although there is no obligation for a comparisonDevelopment Stage Company to provide a discussion of Results of Operations, below is an abbreviated summary comparing fiscal 2012 and analysisfiscal 2011.
For the Years Ended | ||||||||||||
June 30, | ||||||||||||
2012 | 2011 | $ Change | % Change | |||||||||
Revenue | $ | 187,216 | $ | 589,926 | $ | (402,710) | -68.3% | |||||
Cost of revenue | 40,564 | 91,144 | (50,580) | -55.5% | ||||||||
Gross profit | 146,652 | 498,782 | (352,130) | -70.6% | ||||||||
General and administrative expenses | 1,720,315 | 3,029,912 | (1,309,597) | -43.2% | ||||||||
Research and development expenses | 152,002 | 664,994 | (512,992) | -77.1% | ||||||||
Total operating expenses | 1,872,317 | 3,694,906 | (1,822,589) | -49.3% | ||||||||
Loss from operations | (1,725,665) | (3,196,124) | 1,470,459 | -46.0% | ||||||||
Interest expense and other | (202,463) | (99,304) | (103,159) | 103.9% | ||||||||
Net loss | $ | (1,928,128) | $ | (3,295,428) | 1,367,300 | -41.5% |
12
Revenue
During fiscal 2012, revenue consisted primarily of our resultspartial payments of operations for the years ended June 30, 2011 and 2010.
For the Years Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2011 | 2010 | $ Change | % Change | |||||||||||||
Revenue | $ | 589,926 | $ | - | $ | 589,926 | 100.0 | % | ||||||||
Cost of revenue | 91,144 | - | 91,144 | 100.0 | % | |||||||||||
Gross profit | 498,782 | - | 498,782 | 100.0 | % | |||||||||||
General and administrative expenses | 3,029,912 | 5,675,627 | (2,645,715 | ) | -46.6 | % | ||||||||||
Research and development expenses | 664,994 | 2,184,902 | (1,519,908 | ) | -69.6 | % | ||||||||||
Total operating expenses | 3,694,906 | 7,860,529 | (4,165,623 | ) | -53.0 | % | ||||||||||
Loss from operations | (3,196,124 | ) | (7,860,529 | ) | 4,664,405 | -59.3 | % | |||||||||
Interest expense and other | (99,304 | ) | (335,933 | ) | 236,629 | -70.4 | % | |||||||||
Net loss | $ | (3,295,428 | ) | $ | (8,196,462 | ) | 4,901,034 | -59.8 | % | |||||||
Operating Expenses
Operating expenses for a NANO Neutralization System for $341,326 as well as a licensing agreement that we completed in December 2010 with a customer located in North Carolina for a 10 gallons/minute NANO Neutralization System for $187,600. In addition, we recognized revenue of $35,000 associated with the rental of a NANO Neutralization System and $26,000 related to the sale of a Bioforce 9000 Reactor Skid System. We recognized no revenue during the year ended June 30, 2010.
Interest Expense and Other
Interest expense and other consists of interest expense and change in value of derivatives.
During fiscal 2012, we issued convertible notes payable amounting to a gross face value of $132,500. By virtue of the variable conversion ratios contained in the provisions of the agreements, the conversion features of the notes are a derivative under ASC 815-40,Derivatives and Hedging. Accordingly, the value of the beneficial conversion feature has been classified as a derivative liability on the accompanying balance sheet. On a quarterly basis, the value of the beneficial conversion feature is adjusted and reflected in derivative liability on the balance sheet. As of June 30, 2012, the aggregate value of the Derivative Liability associated with the above notes amounted to $6,271. The initial aggregate Derivative Liability value upon the issuance dates amounted to $45,695. The decrease of $39,424 is recorded in Interest Expense and Other for the year ended June 30, 2012.
During the year ended June 30, 2011, we issued convertible notes payable amounting to a gross face value of $151,212. By virtue of the variable conversion ratios contained in the provisions of the agreements, the conversion features of the notes are a derivative under ASC 815-40,Derivatives and Hedging. Accordingly, the value of the beneficial conversion feature has been classified as a derivative liability on the accompanying balance sheet. On a quarterly basis, the value of the beneficial conversion feature is adjusted and reflected in derivative liability on the balance sheet. As of June 30, 2011, the aggregate value of the Derivative Liability associated with the above notes amounted to $121,679. The initial aggregate Derivative Liability value upon the issuance dates amounted to $102,482. The increase of $19,197 is recorded in Interest Expense and Other for the year ended June 30, 2011. There was no such expense in 2010.
Liquidity and Capital Resources
For fiscal 2012 gross financing of liquidity have been issuances$543,771 less $136,834 in payments on the bank loan resulted in net financing of restricted$406,937. Funding included short term loans of $214,521 which are expected to be invested in convertible promissory notes to be issued by the company. We also received $125,000 in advances against future sales from our partner, Desmet Ballestra. We sold $35,000 in common stock and warrants to service providers, salereceived net proceeds of common stock for cash, issuances of$85,000 from convertible promissory notes, and short-termnotes. Net short term loans from related parties and a strategic partner.
13
Our ability to continue to issue restricted common stock and warrants in exchange for services mayaccess these sources of financing can be adversely affected by the performance of our stock price. Additionally, CTi’s ability to issue long-term debt and obtain short-term loans may be negatively impacted by domestic economic conditions that create a tight credit environment, particularlymany factors. See Note 7, "Convertible Notes Payable," Note 8 "Related Party Short-Term Loans," Note 9, "Short-Term Loans," and Note 10, "Stockholder's Equity" for development stage companies.
Sources and Uses of Cash
During fiscal 2011, we generated a gross profit2012, net use of $498,782 compared with $0 in fiscal 2010. During fiscal 2011, our net loss amounted to $3,295,428 including non-cash operating expenses of $2,711,135 arising primarily from common stock and warrants issued for services. Net cash used in operating activities in 2011 of $614,188amounted to $230,895, a 62% reduction over fiscal 2011.
This cash was used largely to pay salary and related expenses of $377,037,fixed operating costs, professional fees to attorneysservice providers such as auditors and accountants, of $124,721, R&D of $111,267, consultant fees of $88,100, as well asand interest expense on the bank debt of $39,973.
Net cash used in investing activities during fiscal 20112012 amounted to $53,574 including $22,552 for property, plant, and equipment and $31,022 for expenses related to patent filings and $123,366 in fiscal 2011 including $81,038 for the customization of demonstration systemsproperty and equipment and $42,328 for patent filing costs. This was comparable to fiscal 2010 when we invested $187,787 including $23,820 for property
Fiscal 2012 net cash provided by financing activities of $406,939 included short term loans of $214,521, advances against sales of $125,000, related party payables/loan of $84,250, sale of common stock of $35,000, and equipment, $71,683 for$85,000 in net proceeds from the customizationissuance of systems, and $92,284convertible notes ($132,500 in patent filing costs.
Fiscal 2011 net cash provided by financing activities of $752,063 included proceeds from the sale of common stock of $572,741, convertible notes payable of $151,212, and short-term loans of $90,750. These proceeds were offset by $38,640 in payments on borrowings from our bank loan as well as a repayment of $24,000 for short term loans. Fiscal 2010 net cash provided by financing activities of $1,208,780 included proceeds from the sale of common stock of $1,231,947 and short-term loans of $109,000. These proceeds were offset by $112,167 in payments on borrowings from our bank loan as well as repayment of $20,000 in convertible notes payable.
Off-balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable for smaller reporting companies.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
We have audited the accompanying consolidated balance sheets of Cavitation Technologies, Inc. (a development stage company) as of June 30, 20112012 and 2010,2011, and the related consolidated statements of operations, changes in stockholders’stockholders' deficit, and cash flows for the years ended June 30, 20112012 and 2010,2011, and the period from January 29, 2007 (inception date) through June 30, 2011.2012. These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on these 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 audit 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 audit 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 of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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 financial position of Cavitation Technologies, Inc. as of June 30, 20112012 and 2010,2011, and the results of its operations and its cash flows for the years ended June 30, 20112012 and 20102011 and the period from January 29, 2007 (inception date) through June 30, 2011,2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred losses in developing its business and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of operations. These factors, among others, raise substantial doubt about the Company’sCompany's ability to continue as a going concern. Management’sManagement's plans in this regard are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Rose, Snyder & Jacobs
Rose, Snyder & Jacobs,
Encino, California
15
CAVITATION TECHNOLOGIES, INC.
(A Development Stage Company)
June 30, | June 30, | |||||||
2011 | 2010 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 14,779 | $ | 270 | ||||
Inventory | 92,475 | - | ||||||
Prepaid expenses and other current assets | 3,337 | 3,158 | ||||||
Total current assets | 110,591 | 3,428 | ||||||
Property and equipment, net | 159,344 | 69,605 | ||||||
Deferred costs | - | 71,683 | ||||||
Patents, net | 118,153 | 92,284 | ||||||
Other assets | 9,500 | 9,500 | ||||||
Total assets | $ | 397,588 | $ | 246,500 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current liabilities: | ||||||||
Bank overdraft | $ | - | $ | 2,747 | ||||
Accounts payable | 143,949 | 160,179 | ||||||
Accrued expenses | 54,745 | 75,656 | ||||||
Accrued payroll | 149,316 | 83,051 | ||||||
Advances | 36,533 | 17,262 | ||||||
Deferred revenue | 16,951 | 33,499 | ||||||
Convertible notes payable, net of discounts | 52,852 | - | ||||||
Derivative liability | 121,679 | - | ||||||
Related party short-term loan | 15,750 | - | ||||||
Short-term loan | 60,000 | 109,000 | ||||||
Bank loan | 486,110 | 524,750 | ||||||
Total current liabilities | 1,137,885 | 1,006,144 | ||||||
Commitments and contingencies, Note 12 | ||||||||
Stockholders' deficit: | ||||||||
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 111,111 shares issued and outstanding as of June 30, 2011 and 2010, respectively | 111 | 111 | ||||||
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 153,799,715, shares and 130,581,562 shares are issued and outstanding as of June 30, 2011 and June 30, 2010, respectively | 153,800 | 130,582 | ||||||
Additional paid-in capital | 15,954,280 | 12,656,723 | ||||||
Deficit accumulated during the development stage | (16,848,488 | ) | (13,547,060 | ) | ||||
Total stockholders' deficit | (740,297 | ) | (759,644 | ) | ||||
Total liabilities and stockholders' deficit | $ | 397,588 | $ | 246,500 |
June 30, | June 30, | |||||
2012 | 2011 | |||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 137,249 | $ | 14,779 | ||
Inventory | 141,057 | 92,475 | ||||
Prepaid expenses and other current assets | - | 3,337 | ||||
Related party advances | 23,853 | - | ||||
Total current assets | 302,159 | 110,591 | ||||
Property and equipment, net | 135,615 | 159,344 | ||||
Patents, net | 123,158 | 118,153 | ||||
Other assets | 9,500 | 9,500 | ||||
Total assets | $ | 570,432 | $ | 397,588 | ||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 187,095 | $ | 143,949 | ||
Accrued expenses | 126,767 | 54,745 | ||||
Accrued payroll | 992,806 | 149,316 | ||||
Advances from customers | 136,533 | 36,533 | ||||
Deferred revenue | 147,444 | 16,951 | ||||
Convertible notes payable, net of discounts | 29,083 | 52,852 | ||||
Derivative liability | 6,271 | 121,679 | ||||
Related party payable | 59,608 | 15,750 | ||||
Short-term loan | 274,521 | 60,000 | ||||
Bank loan | 349,276 | 486,110 | ||||
Short-term loan, related parties | 100,000 | - | ||||
Advances from partner | 125,000 | - | ||||
Total current liabilities | 2,534,404 | 1,137,885 | ||||
Commitments and contingencies, Note 11 | ||||||
Stockholders' deficit: | ||||||
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 and 111,111 shares issued and outstanding as of June 30, 2012 and June 30, 2011, respectively. | - | 111 | ||||
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 163,969,569 shares and 153,799,715 shares are issued and outstanding as of June 30, 2012 and June 30, 2011, respectively | 165,971 | 153,800 | ||||
Additional paid-in capital | 16,650,959 | 15,954,280 | ||||
Deficit accumulated during the development stage | (18,780,902) | (16,848,488) | ||||
Total stockholders' deficit | (1,963,972) | (740,297) | ||||
Total liabilities and stockholders' deficit | $ | 570,432 | $ | 397,588 |
See accompanying notes, which are an integral part of these financial statements
16
CAVITATION TECHNOLOGIES, INC.
(A Development Stage Company)
January 29, 2007, | ||||||||||||
Inception, | ||||||||||||
For the Years Ended | Through | |||||||||||
June 30, | June 30, | |||||||||||
2011 | 2010 | 2011 | ||||||||||
Revenue | $ | 589,926 | $ | - | $ | 589,926 | ||||||
Cost of revenue | 91,144 | - | 91,144 | |||||||||
Gross profit | 498,782 | - | 498,782 | |||||||||
General and administrative expenses | 3,029,912 | 5,675,627 | 11,292,282 | |||||||||
Research and development expenses | 664,994 | 2,184,902 | 5,288,394 | |||||||||
Total operating expenses | 3,694,906 | 7,860,529 | 16,580,676 | |||||||||
Loss from operations | (3,196,124 | ) | (7,860,529 | ) | (16,081,894 | ) | ||||||
Interest expense and other | (99,304 | ) | (335,933 | ) | (587,769 | ) | ||||||
Net loss | $ | (3,295,428 | ) | $ | (8,196,462 | ) | $ | (16,669,663 | ) | |||
Deemed dividends to preferred stockholders | (6,000 | ) | (6,000 | ) | (178,825 | ) | ||||||
Net loss available to common stockholders | $ | (3,301,428 | ) | $ | (8,202,462 | ) | $ | (16,848,488 | ) | |||
Net loss available to common shareholders per share: | ||||||||||||
Basic and Diluted | $ | (0.02 | ) | $ | (0.07 | ) | ||||||
Weighted average shares outstanding: | ||||||||||||
Basic and Diluted | 139,150,615 | 114,739,605 |
January 29, 2007, | ||||||||||
Inception, | ||||||||||
For the Years Ended | Through | |||||||||
June 30, | June 30, | |||||||||
2012 | 2011 | 2012 | ||||||||
Revenue | $ | 187,216 | $ | 589,926 | $ | 777,142 | ||||
Cost of revenue | 40,564 | 91,144 | 131,708 | |||||||
Gross profit | 146,652 | 498,782 | 645,434 | |||||||
General and administrative expenses | 1,720,315 | 3,029,912 | 13,012,597 | |||||||
Research and development expenses | 152,002 | 664,994 | 5,440,396 | |||||||
Total operating expenses | 1,872,317 | 3,694,906 | 18,452,993 | |||||||
Loss from operations | (1,725,665) | (3,196,124) | (17,807,559) | |||||||
Interest expense and other | (202,463) | (99,304) | (790,232) | |||||||
Net loss before income taxes | (1,928,128) | (3,295,428) | (18,597,791) | |||||||
Income tax expense | - | - | - | |||||||
Net loss | (1,928,128) | (3,295,428) | (18,597,791) | |||||||
Deemed dividends to preferred stockholders | (4,286) | (6,000) | (183,111) | |||||||
Net loss available to common stockholders | $ | (1,932,414) | $ | (3,301,428) | $ | (18,780,902) | ||||
Net loss available to common shareholders per share: | ||||||||||
Basic and Diluted | $ | (0.01) | $ | (0.02) | ||||||
Weighted average shares outstanding: | ||||||||||
Basic and Diluted | 159,195,686 | 139,150,615 |
See accompanying notes, which are an integral part of these financial statements
17
CAVITATION TECHNOLOGIES, INC.
(A Development Stage Company)
Deficit | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
During the | ||||||||||||||||||||||||||||
Series A Preferred | Common Stock | Additional Paid-in | Development | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stage | Total | ||||||||||||||||||||||
Balance at inception, January 29, 2007 | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Common stock issued as payment for services on January 29, 2007 | 42,993,630 | 42,994 | (21,994 | ) | 21,000 | |||||||||||||||||||||||
Common stock issued as payment for services on March 31, 2008 | 6,428,904 | 6,429 | 1,123,971 | 1,130,400 | ||||||||||||||||||||||||
Common stock issued as payment for services on April 16, 2008 | 51,180 | 51 | 8,949 | 9,000 | ||||||||||||||||||||||||
Common stock issued as payment for services on April 22, 2008 | 102,360 | 102 | 17,898 | 18,000 | ||||||||||||||||||||||||
Common stock issued as payment for services on June 18, 2008 | 3,787,320 | 3,788 | 662,212 | 666,000 | ||||||||||||||||||||||||
Common stock sold for cash on June 30, 2008 | 2,047,200 | 2,047 | 497,953 | 500,000 | ||||||||||||||||||||||||
Amortization of discount on convertible preferred stock | 47,879 | (47,879 | ) | - | ||||||||||||||||||||||||
Net loss | (2,681,782 | ) | (2,681,782 | ) | ||||||||||||||||||||||||
Balance at June 30, 2008 | - | $ | - | 55,410,594 | $ | 55,411 | $ | 2,336,868 | $ | (2,729,661 | ) | $ | (337,382 | ) | ||||||||||||||
Common stock sold in connection with reverse merger for cash on October 3, 2008 | 2,149,560 | 2,150 | 122,850 | 125,000 | ||||||||||||||||||||||||
Preferred stock sold for cash on March 17, 2009 | 111,111 | 111 | 99,889 | 100,000 | ||||||||||||||||||||||||
Preferred stock - beneficial conversion feature | 11,111 | (11,111 | ) | - | ||||||||||||||||||||||||
Common stock sold for cash on April 22, 2009 | 499,998 | 500 | 99,500 | 100,000 | ||||||||||||||||||||||||
Common stock sold for cash on June 4, 2009 | 499,998 | 500 | 99,500 | 100,000 | ||||||||||||||||||||||||
Common stock sold for cash on June 22, 2009 | 300,000 | 300 | 49,700 | 50,000 | ||||||||||||||||||||||||
Common stock sold for cash on June 30, 2009 | 300,000 | 300 | 49,700 | 50,000 | ||||||||||||||||||||||||
Bio common stock outstanding before reverse merger on October 3, 2008 | 27,840,534 | 27,840 | (27,840 | ) | - | |||||||||||||||||||||||
Common stock issued as payment for services on September 22, 2008 | 150,000 | 150 | 17,850 | 18,000 | ||||||||||||||||||||||||
Common stock issued as payment for services on December 3, 2008 | 450,000 | 450 | 187,150 | 187,600 | ||||||||||||||||||||||||
Common stock issued as payment for services on December 17, 2008 | 300,000 | 300 | 131,800 | 132,100 | ||||||||||||||||||||||||
Common stock issued as payment for services on February 27, 2009 | 590,565 | 591 | 156,893 | 157,484 | ||||||||||||||||||||||||
Common stock issued as payment for services on March 11, 2009 | 86,550 | 86 | 26,853 | 26,939 | ||||||||||||||||||||||||
Common stock issued as payment for services on March 22, 2009 | 150,000 | 150 | 50,350 | 50,500 | ||||||||||||||||||||||||
Common stock issued as payment for services on April 23, 2009 | 29,415 | 29 | 9,285 | 9,314 | ||||||||||||||||||||||||
Common stock issued as payment for services on May 28, 2009 | 152,379 | 152 | 38,959 | 39,111 | ||||||||||||||||||||||||
Common stock issued as payment for services on June 4, 2009 | 37,500 | 38 | 9,837 | 9,875 | ||||||||||||||||||||||||
Common stock issued as payment for services on June 30, 2009 | 37,500 | 38 | 8,712 | 8,750 | ||||||||||||||||||||||||
Warrants issued with convertible debt in December 2008, January 2009 and February 2009 | 49,245 | 49,245 | ||||||||||||||||||||||||||
Amortization of discount on convertible preferred stock | 107,835 | (107,835 | ) | - | ||||||||||||||||||||||||
Warrants issued as payment for services on May 27, 2009 | 56,146 | 56,146 | ||||||||||||||||||||||||||
Warrants issued as payment for services on June 3, 2009 | 84,219 | 84,219 | ||||||||||||||||||||||||||
Warrants issued as payment for services on June 30, 2009 | 5,678 | 5,678 | ||||||||||||||||||||||||||
Issuance of stock options as payment for services on August 8, 2008 | 229,493 | 229,493 | ||||||||||||||||||||||||||
Issuance of stock options as payment for services on October 1, 2008 | 4,598 | 4,598 | ||||||||||||||||||||||||||
Issuance of stock options as payment for services on October 7, 2008 | 22,770 | 22,770 | ||||||||||||||||||||||||||
Issuance of stock options as payment for services on October 21, 2008 | 47 | 47 | ||||||||||||||||||||||||||
Issuance of stock options as payment for services on October 28, 2008 | 33 | 33 | ||||||||||||||||||||||||||
Issuance of stock options as payment for services on January 19, 2009 | 50,571 | 50,571 | ||||||||||||||||||||||||||
Net loss | (2,495,991 | ) | (2,495,991 | ) | ||||||||||||||||||||||||
Balance at June 30, 2009 | 111,111 | $ | 111 | 88,984,593 | $ | 88,985 | $ | 4,089,602 | $ | (5,344,598 | ) | $ | (1,165,900 | ) |
Deficit | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
During the | ||||||||||||||||||||
Series A Preferred | Common Stock | Additional Paid-in | Development | |||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stage | Total | ||||||||||||||
Balance at inception, January 29, 2007 | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | ||||||||
Common stock issued as payment for services on January 29, 2007 | 42,993,630 | 42,994 | (21,994) | 21,000 | ||||||||||||||||
Common stock issued as payment for services on March 31, 2008 | 6,428,904 | 6,429 | 1,123,971 | 1,130,400 | ||||||||||||||||
Common stock issued as payment for services on April 16, 2008 | 51,180 | 51 | 8,949 | 9,000 | ||||||||||||||||
Common stock issued as payment for services on April 22, 2008 | 102,360 | 102 | 17,898 | 18,000 | ||||||||||||||||
Common stock issued as payment for services on June 18, 2008 | 3,787,320 | 3,788 | 662,212 | 666,000 | ||||||||||||||||
Common stock sold for cash on June 30, 2008 | 2,047,200 | 2,047 | 497,953 | 500,000 | ||||||||||||||||
Amortization of discount on convertible preferred stock | 47,879 | (47,879) | - | |||||||||||||||||
Net loss | (2,681,782) | (2,681,782) | ||||||||||||||||||
Balance at June 30, 2008 | - | - | 55,410,594 | 55,411 | 2,336,868 | (2,729,661) | (337,382) | |||||||||||||
Common stock sold in connection with reverse merger for cash on October 3, 2008 | 2,149,560 | 2,150 | 122,850 | 125,000 | ||||||||||||||||
Preferred stock sold for cash on March 17, 2009 | 111,111 | 111 | 99,889 | 100,000 | ||||||||||||||||
Preferred stock - beneficial conversion feature | 11,111 | (11,111) | - | |||||||||||||||||
Common stock sold for cash on April 22, 2009 | 499,998 | 500 | 99,500 | 100,000 | ||||||||||||||||
Common stock sold for cash on June 4, 2009 | 499,998 | 500 | 99,500 | 100,000 | ||||||||||||||||
Common stock sold for cash on June 22, 2009 | 300,000 | 300 | 49,700 | 50,000 | ||||||||||||||||
Common stock sold for cash on June 30, 2009 | 300,000 | 300 | 49,700 | 50,000 | ||||||||||||||||
Bio common stock outstanding before reverse merger on October 3, 2008 | 27,840,534 | 27,840 | (27,840) | - | ||||||||||||||||
Common stock issued as payment for services on September 22, 2008 | 150,000 | 150 | 17,850 | 18,000 | ||||||||||||||||
Common stock issued as payment for services on December 3, 2008 | 450,000 | 450 | 187,150 | 187,600 | ||||||||||||||||
Common stock issued as payment for services on December 17, 2008 | 300,000 | 300 | 131,800 | 132,100 | ||||||||||||||||
Common stock issued as payment for services on February 27, 2009 | 590,565 | 591 | 156,893 | 157,484 | ||||||||||||||||
Common stock issued as payment for services on March 11, 2009 | 86,550 | 86 | 26,853 | 26,939 | ||||||||||||||||
Common stock issued as payment for services on March 22, 2009 | 150,000 | 150 | 50,350 | 50,500 | ||||||||||||||||
Common stock issued as payment for services on April 23, 2009 | 29,415 | 29 | 9,285 | 9,314 | ||||||||||||||||
Common stock issued as payment for services on May 28, 2009 | 152,379 | 152 | 38,959 | 39,111 | ||||||||||||||||
Common stock issued as payment for services on June 4, 2009 | 37,500 | 38 | 9,837 | 9,875 | ||||||||||||||||
Common stock issued as payment for services on June 30, 2009 | 37,500 | 38 | 8,712 | 8,750 | ||||||||||||||||
Warrants issued with convertible debt in December 2008, January 2009 and February 2009 | 49,245 | 49,245 | ||||||||||||||||||
Amortization of discount on convertible preferred stock | 107,835 | (107,835) | - | |||||||||||||||||
Warrants issued as payment for services on May 27, 2009 | 56,146 | 56,146 | ||||||||||||||||||
Warrants issued as payment for services on June 3, 2009 | 84,219 | 84,219 | ||||||||||||||||||
Warrants issued as payment for services on June 30, 2009 | 5,678 | 5,678 | ||||||||||||||||||
Issuance of stock options as payment for services on August 8, 2008 | 229,493 | 229,493 | ||||||||||||||||||
Issuance of stock options as payment for services on October 1, 2008 | 4,598 | 4,598 | ||||||||||||||||||
Issuance of stock options as payment for services on October 7, 2008 | 22,770 | 22,770 | ||||||||||||||||||
Issuance of stock options as payment for services on October 21, 2008 | 47 | 47 | ||||||||||||||||||
Issuance of stock options as payment for services on October 28, 2008 | 33 | 33 | ||||||||||||||||||
Issuance of stock options as payment for services on January 19, 2009 | 50,571 | 50,571 | ||||||||||||||||||
Net loss | (2,495,991) | (2,495,991) | ||||||||||||||||||
Balance at June 30, 2009 | 111,111 | $ | 111 | 88,984,593 | $ | 88,985 | $ | 4,089,602 | $ | (5,344,598) | $ | (1,165,900) |
18
CAVITATION TECHNOLOGIES, INC.
(A Development Stage Company)
Deficit | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
During the | ||||||||||||||||||||||||||||
Series A Preferred | Common Stock | Additional Paid-in | Development | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stage | Total | ||||||||||||||||||||||
Balance at June 30, 2009 | 111,111 | $ | 111 | 88,984,593 | $ | 88,985 | $ | 4,089,602 | $ | (5,344,598 | ) | $ | (1,165,900 | ) | ||||||||||||||
Common stock issued as payment for services on July 27, 2009 | 17,358,000 | 17,358 | 3,886,279 | 3,903,637 | ||||||||||||||||||||||||
Common stock issued as payment for services on August 5, 2009 | 165,000 | 165 | 44,935 | 45,100 | ||||||||||||||||||||||||
Common stock issued as payment for services on September 16, 2009 | 190,011 | 190 | 42,209 | 42,399 | ||||||||||||||||||||||||
Common stock issued as payment for services on October 7, 2009 | 130,500 | 131 | 42,500 | 42,631 | ||||||||||||||||||||||||
Common stock issued as payment for services on October 16, 2009 | 100,911 | 101 | 34,209 | 34,310 | ||||||||||||||||||||||||
Common stock issued as payment for services on October 23, 2009 | 30,000 | 30 | 9,270 | 9,300 | ||||||||||||||||||||||||
Common stock issued as payment for services on October 29, 2009 | 37,500 | 38 | 13,463 | 13,501 | ||||||||||||||||||||||||
Common stock issued as payment for services on November 3, 2009 | 37,500 | 37 | 13,464 | 13,501 | ||||||||||||||||||||||||
Common stock issued as payment for services on November 10, 2009 | 35,102 | 35 | 12,251 | 12,286 | ||||||||||||||||||||||||
Common stock issued as payment for services on November 16, 2009 | 1,505,000 | 1,505 | 405,944 | 407,449 | ||||||||||||||||||||||||
Common stock issued as payment for services on November 30, 2009 | 60,000 | 60 | 17,340 | 17,400 | ||||||||||||||||||||||||
Common stock issued as payment for services on December 4, 2009 | 49,157 | 49 | 12,240 | 12,289 | ||||||||||||||||||||||||
Common stock issued as payment for services on January 11, 2010 | 121,286 | 121 | 30,200 | 30,321 | ||||||||||||||||||||||||
Common stock issued as payment for services on February 1, 2010 | 5,125,102 | 5,125 | 1,071,146 | 1,076,271 | ||||||||||||||||||||||||
Common stock issued as payment for services on February 11, 2010 | 500,000 | 500 | 109,500 | 110,000 | ||||||||||||||||||||||||
Common stock issued as payment for services on February 15, 2010 | 127,500 | 128 | 26,648 | 26,776 | ||||||||||||||||||||||||
Common stock issued as payment for services on February 23, 2010 | 135,000 | 135 | 26,865 | 27,000 | ||||||||||||||||||||||||
Common stock issued as payment for services on March 5, 2010 | 346,098 | 346 | 82,897 | 83,243 | ||||||||||||||||||||||||
Common stock issued as payment for services on March 12, 2010 | 70,000 | 70 | 13,455 | 13,525 | ||||||||||||||||||||||||
Common stock issued as payment for services on March 22, 2010 | 50,000 | 50 | 8,450 | 8,500 | ||||||||||||||||||||||||
Common stock issued as payment for services on April 12, 2010 | 127,282 | 127 | 16,420 | 16,547 | ||||||||||||||||||||||||
Common stock issued as payment for services on April 19, 2010 | 100,000 | 100 | 16,900 | 17,000 | ||||||||||||||||||||||||
Common stock issued as payment for services on April 29, 2010 | 1,700,000 | 1,700 | 253,300 | 255,000 | ||||||||||||||||||||||||
Common stock issued as payment for services on May 10, 2010 | 773,750 | 774 | 115,288 | 116,062 | ||||||||||||||||||||||||
Common stock issued as payment for services on May 24, 2010 | 219,092 | 219 | 43,599 | 43,818 | ||||||||||||||||||||||||
Common stock issued as payment for services on June 1, 2010 | 163,794 | 164 | 29,319 | 29,483 | ||||||||||||||||||||||||
Common stock issued as payment for services on June 9, 2010 | 333,333 | 333 | 59,667 | 60,000 | ||||||||||||||||||||||||
Common stock issued as payment for services on June 14, 2010 | 46,544 | 47 | 8,331 | 8,378 | ||||||||||||||||||||||||
Common stock issued for debt and accrued interest conversion on August 7, 2009 | 1,122,375 | 1,122 | 189,681 | 190,803 | ||||||||||||||||||||||||
Conversion feature on convertible notes payable | 63,601 | 63,601 | ||||||||||||||||||||||||||
Common stock sold for cash on October 13, 2009 | 208,104 | 208 | 34,156 | 34,364 | ||||||||||||||||||||||||
Common stock sold for cash on October 16, 2009 | 2,980,734 | 2,981 | 493,808 | 496,789 | ||||||||||||||||||||||||
Common stock sold for cash on November 4, 2009 | 217,117 | 217 | 36,183 | 36,400 | ||||||||||||||||||||||||
Common stock sold for cash on November 17, 2009 | 421,529 | 422 | 71,748 | 72,170 | ||||||||||||||||||||||||
Common stock sold for cash on December 4, 2009 | 352,451 | 352 | 59,565 | 59,917 | ||||||||||||||||||||||||
Common stock sold for cash on January 6, 2010 | 58,058 | 58 | 9,812 | 9,870 | ||||||||||||||||||||||||
Common stock sold for cash on February 4, 2010 | 888,235 | 888 | 150,112 | 151,000 | ||||||||||||||||||||||||
Common stock sold for cash on March 2, 2010 | 743,746 | 744 | 125,693 | 126,437 | ||||||||||||||||||||||||
Common stock sold for cash on March 12, 2010 | 352,941 | 353 | 59,647 | 60,000 | ||||||||||||||||||||||||
Common stock sold for cash on April 19, 2010 | 125,000 | 125 | 14,875 | 15,000 | ||||||||||||||||||||||||
Common stock sold for cash on June 1, 2010 | 700,000 | 700 | 69,300 | 70,000 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on June 1, 2010 | 2,789,217 | 2,789 | 276,133 | 278,922 | ||||||||||||||||||||||||
Common stock sold for cash on June 24, 2010 | 1,000,000 | 1,000 | 99,000 | 100,000 | ||||||||||||||||||||||||
Warrants issued as payment for services on July 15, 2009 | 13,205 | 13,205 | ||||||||||||||||||||||||||
Warrants issued as payment for services on February 11, 2010 | 131,376 | 131,376 | ||||||||||||||||||||||||||
Conversion feature of note payable on June 1, 2010 | 223,137 | 223,137 | ||||||||||||||||||||||||||
Dividends on preferred stock | (6,000 | ) | (6,000 | ) | ||||||||||||||||||||||||
Net loss | (8,196,462 | ) | (8,196,462 | ) | ||||||||||||||||||||||||
Balance at June 30, 2010 | 111,111 | $ | 111 | 130,581,562 | $ | 130,582 | $ | 12,656,723 | $ | (13,547,060 | ) | $ | (759,644 | ) | ||||||||||||||
Common stock issued as payment for services on July 8, 2010 | 349,571 | 350 | 52,086 | 52,436 | ||||||||||||||||||||||||
Common stock issued as payment for services on August 3, 2010 | 1,854,009 | 1,854 | 350,406 | 352,260 | ||||||||||||||||||||||||
Common stock issued as payment for services on August 30, 2010 | 75,000 | 75 | 11,175 | 11,250 | ||||||||||||||||||||||||
Common stock issued as payment for services on September 8, 2010 | 237,192 | 237 | 35,342 | 35,579 | ||||||||||||||||||||||||
Common stock issued as payment for services on October 1, 2010 | 473,517 | 474 | 70,554 | 71,028 | ||||||||||||||||||||||||
Common stock issued as payment for services on November 1, 2010 | 1,020,482 | 1,020 | 131,643 | 132,663 | ||||||||||||||||||||||||
Common stock issued as payment for services on November 22, 2010 | 100,000 | 100 | 11,900 | 12,000 | ||||||||||||||||||||||||
Common stock issued as payment for services on December 7, 2010 | 459,056 | 459 | 50,037 | 50,496 | ||||||||||||||||||||||||
Common stock issued as payment for services on January 10, 2011 | 116,916 | 117 | 13,913 | 14,030 | ||||||||||||||||||||||||
Common stock issued as payment for services on February 14, 2011 | 1,264,883 | 1,265 | 137,872 | 139,137 | ||||||||||||||||||||||||
Common stock issued as payment for services on March 10, 2011 | 219,767 | 220 | 21,757 | 21,977 | ||||||||||||||||||||||||
Common stock issued as payment for services on March 22, 2011 | 510,000 | 510 | 50,490 | 51,000 | ||||||||||||||||||||||||
Common stock issued as payment for services on April 1, 2011 | 816,145 | 816 | 80,799 | 81,615 | ||||||||||||||||||||||||
Common stock issued as payment for services on May 17, 2011 | 276,203 | 276 | 27,343 | 27,619 | ||||||||||||||||||||||||
Common stock issued as payment for services on June 13, 2011 | 333,924 | 334 | 33,058 | 33,392 | ||||||||||||||||||||||||
Common stock issued as payment for services on June 14, 2011 | 8,096,990 | 8,097 | 689,603 | 697,700 | ||||||||||||||||||||||||
Common stock sold for cash on August 3, 2010 | 593,211 | 593 | 58,728 | 59,321 | ||||||||||||||||||||||||
Common stock sold for cash on October 1, 2010 | 661,000 | 661 | 78,659 | 79,320 | ||||||||||||||||||||||||
Common stock sold for cash on November 1, 2010 | 1,400,000 | 1,400 | 142,600 | 144,000 | ||||||||||||||||||||||||
Common stock sold for cash on November 22, 2010 | 350,000 | 350 | 41,650 | 42,000 | ||||||||||||||||||||||||
Common stock sold for cash on January 10, 2011 | 110,000 | 110 | 11,990 | 12,100 | ||||||||||||||||||||||||
Common stock sold for cash on February 14, 2011 | 1,920,000 | 1,920 | 190,080 | 192,000 | ||||||||||||||||||||||||
Common stock sold for cash on March 2, 2011 | 290,000 | 290 | 28,710 | 29,000 | ||||||||||||||||||||||||
Common stock sold for cash on March 10, 2011 | 176,923 | 177 | 14,823 | 15,000 | ||||||||||||||||||||||||
Common stock issued as payment of short-term loan into stock on February 14, 2011 | 1,000,000 | 1,000 | 99,000 | 100,000 | ||||||||||||||||||||||||
Warrants issued as payment for services on November 22, 2010 | 46,735 | 46,735 | ||||||||||||||||||||||||||
Common stock issued for conversion of note payable on February 8, 2011 | 30,769 | 31 | 1,967 | 1,998 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on February 11, 2011 | 15,385 | 15 | 985 | 1,000 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on February 16, 2011 | 26,154 | 26 | 1,674 | 1,700 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on February 17, 2011 | 15,385 | 15 | 985 | 1,000 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on February 22, 2011 | 21,927 | 22 | 1,475 | 1,497 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on February 28, 2011 | 55,749 | 56 | 3,568 | 3,624 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on March 7, 2011 | 24,796 | 25 | 1,506 | 1,531 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on March 8, 2011 | 18,100 | 18 | 982 | 1,000 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on March 14, 2011 | 109,783 | 110 | 5,956 | 6,066 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on March 28, 2011 | 51,282 | 51 | 2,949 | 3,000 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on March 30, 2011 | 59,829 | 60 | 3,440 | 3,500 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on April 4, 2011 | 59,829 | 60 | 3,440 | 3,500 | ||||||||||||||||||||||||
Common stock issued for conversion of note payable on April 5, 2011 | 24,376 | 24 | 1,402 | 1,426 | ||||||||||||||||||||||||
Amortization of restricted stock issued for services | 786,275 | 786,275 | ||||||||||||||||||||||||||
Dividends on preferred stock | (6,000 | ) | (6,000 | ) | ||||||||||||||||||||||||
Net loss | (3,295,428 | ) | (3,295,428 | ) | ||||||||||||||||||||||||
Balance at June 30, 2011 | 111,111 | $ | 111 | 153,799,715 | $ | 153,800 | $ | 15,954,280 | $ | (16,848,488 | ) | $ | (740,297 | ) | ||||||||||||||
See accompanying notes, which are an integral part of these financial statements |
January 29, 2007, | ||||||||||||
Inception, | ||||||||||||
Through | ||||||||||||
Years Ended June 30, | June 30, | |||||||||||
2011 | 2010 | 2011 | ||||||||||
Operating activities: | ||||||||||||
Net loss | $ | (3,295,428 | ) | $ | (8,196,462 | ) | $ | (16,669,663 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Depreciation and amortization | 21,123 | 16,968 | 50,710 | |||||||||
Warrants issued in connection with convertible notes payable | - | - | 49,245 | |||||||||
Beneficial conversion feature on convertible notes payable | 34,724 | 286,738 | 321,462 | |||||||||
Common stock issued for services | 2,570,457 | 6,475,727 | 11,530,601 | |||||||||
Stock option compensation | - | - | 307,512 | |||||||||
Warrants issued for services | 46,735 | 144,581 | 337,359 | |||||||||
Change in value of derivatives | 19,197 | - | 19,197 | |||||||||
Equipment write-down | 5,399 | - | 5,399 | |||||||||
Patent write-down | 13,500 | - | 13,500 | |||||||||
Effect of changes in: | - | |||||||||||
Inventory | (53,056 | ) | - | (53,056 | ) | |||||||
Prepaid expenses and other current assets | (179 | ) | (817 | ) | (3,337 | ) | ||||||
Deposits | - | - | (9,500 | ) | ||||||||
Bank overdraft | (2,747 | ) | 2,747 | - | ||||||||
Accounts payable and accrued expenses | (42,900 | ) | 73,413 | 197,394 | ||||||||
Accrued payroll | 66,264 | 146,583 | 428,237 | |||||||||
Advances | 19,271 | 17,262 | 36,533 | |||||||||
Deferred revenue | (16,548 | ) | 7,499 | 16,951 | ||||||||
Net cash used in operating activities | (614,188 | ) | (1,025,761 | ) | (3,421,456 | ) | ||||||
Investing activities: | ||||||||||||
Purchase of property and equipment | - | (23,820 | ) | (99,192 | ) | |||||||
Payments for systems | (81,038 | ) | (71,683 | ) | (152,721 | ) | ||||||
Payments for patents | (42,328 | ) | (92,284 | ) | (134,612 | ) | ||||||
Net cash used in investing activities | (123,366 | ) | (187,787 | ) | (386,525 | ) | ||||||
Financing activities: | ||||||||||||
Proceeds from (payments on) bank loan borrowings | (38,640 | ) | (112,167 | ) | 486,110 | |||||||
Proceeds from sales of preferred stock | - | - | 725,000 | |||||||||
Proceeds from convertible notes payable | 151,212 | - | 386,212 | |||||||||
Payments on convertible notes payable | - | (20,000 | ) | (55,000 | ) | |||||||
Proceeds from sale of common stock | 572,741 | 1,231,947 | 2,104,688 | |||||||||
Proceeds from related party short-term loans | 15,750 | - | 15,750 | |||||||||
Proceeds from short-term loans | 75,000 | 109,000 | 184,000 | |||||||||
Payments on short-term loans | (24,000 | ) | - | (24,000 | ) | |||||||
Net cash provided by financing activities | 752,063 | 1,208,780 | 3,822,760 | |||||||||
Net increase (decrease) in cash | 14,509 | (4,768 | ) | 14,779 | ||||||||
Cash, beginning of period | 270 | 5,038 | - | |||||||||
Cash, end of period | $ | 14,779 | $ | 270 | $ | 14,779 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Cash paid for interest | $ | 42,610 | $ | 47,695 | $ | 193,592 | ||||||
Cash paid for income taxes | $ | 1,600 | $ | 1,659 | $ | 6,728 | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||
Warrants issued in connection with preferred stock | $ | - | $ | - | $ | 155,714 | ||||||
Beneficial conversion feature on preferred stock | $ | - | $ | - | $ | 11,111 | ||||||
Conversion of preferred to common shares in reverse merger | $ | - | $ | - | $ | 625,000 | ||||||
Proceeds from sales of preferred shares used to purchase shares of Bio | $ | - | $ | - | $ | 400,000 | ||||||
Conversion of note payable to common stock | $ | - | $ | 278,922 | $ | 278,922 | ||||||
Conversion of short-term loan to common stock | $ | 100,000 | $ | - | $ | 100,000 | ||||||
Accrued dividends issued to preferred stockholders | $ | 6,000 | $ | 6,000 | $ | 13,733 | ||||||
Conversion of convertible notes payable and accrued interest to common stock | $ | 30,843 | $ | 190,803 | $ | 221,646 |
Deficit | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
During the | ||||||||||||||||||||
Series A Preferred | Common Stock | Additional Paid-in | Development | |||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stage | Total | ||||||||||||||
Balance at June 30, 2009 | 111,111 | $ | 111 | 88,984,593 | $ | 88,985 | $ | 4,089,602 | $ | (5,344,598) | $ | (1,165,900) | ||||||||
Common stock issued as payment for services on July 27, 2009 | 17,358,000 | 17,358 | 3,886,279 | 3,903,637 | ||||||||||||||||
Common stock issued as payment for services on August 5, 2009 | 165,000 | 165 | 44,935 | 45,100 | ||||||||||||||||
Common stock issued as payment for services on September 16, 2009 | 190,011 | 190 | 42,209 | 42,399 | ||||||||||||||||
Common stock issued as payment for services on October 7, 2009 | 130,500 | 131 | 42,500 | 42,631 | ||||||||||||||||
Common stock issued as payment for services on October 16, 2009 | 100,911 | 101 | 34,209 | 34,310 | ||||||||||||||||
Common stock issued as payment for services on October 23, 2009 | 30,000 | 30 | 9,270 | 9,300 | ||||||||||||||||
Common stock issued as payment for services on October 29, 2009 | 37,500 | 38 | 13,463 | 13,501 | ||||||||||||||||
Common stock issued as payment for services on November 3, 2009 | 37,500 | 37 | 13,464 | 13,501 | ||||||||||||||||
Common stock issued as payment for services on November 10, 2009 | 35,102 | 35 | 12,251 | 12,286 | ||||||||||||||||
Common stock issued as payment for services on November 16, 2009 | 1,505,000 | 1,505 | 405,944 | 407,449 | ||||||||||||||||
Common stock issued as payment for services on November 30, 2009 | 60,000 | 60 | 17,340 | 17,400 | ||||||||||||||||
Common stock issued as payment for services on December 4, 2009 | 49,157 | 49 | 12,240 | 12,289 | ||||||||||||||||
Common stock issued as payment for services on January 11, 2010 | 121,286 | 121 | 30,200 | 30,321 | ||||||||||||||||
Common stock issued as payment for services on February 1, 2010 | 5,125,102 | 5,125 | 1,071,146 | 1,076,271 | ||||||||||||||||
Common stock issued as payment for services on February 11, 2010 | 500,000 | 500 | 109,500 | 110,000 | ||||||||||||||||
Common stock issued as payment for services on February 15, 2010 | 127,500 | 128 | 26,648 | 26,776 | ||||||||||||||||
Common stock issued as payment for services on February 23, 2010 | 135,000 | 135 | 26,865 | 27,000 | ||||||||||||||||
Common stock issued as payment for services on March 5, 2010 | 346,098 | 346 | 82,897 | 83,243 | ||||||||||||||||
Common stock issued as payment for services on March 12, 2010 | 70,000 | 70 | 13,455 | 13,525 | ||||||||||||||||
Common stock issued as payment for services on March 22, 2010 | 50,000 | 50 | 8,450 | 8,500 | ||||||||||||||||
Common stock issued as payment for services on April 12, 2010 | 127,282 | 127 | 16,420 | 16,547 | ||||||||||||||||
Common stock issued as payment for services on April 19, 2010 | 100,000 | 100 | 16,900 | 17,000 | ||||||||||||||||
Common stock issued as payment for services on April 29, 2010 | 1,700,000 | 1,700 | 253,300 | 255,000 | ||||||||||||||||
Common stock issued as payment for services on May 10, 2010 | 773,750 | 774 | 115,288 | 116,062 | ||||||||||||||||
Common stock issued as payment for services on May 24, 2010 | 219,092 | 219 | 43,599 | 43,818 | ||||||||||||||||
Common stock issued as payment for services on June 1, 2010 | 163,794 | 164 | 29,319 | 29,483 | ||||||||||||||||
Common stock issued as payment for services on June 9, 2010 | 333,333 | 333 | 59,667 | 60,000 | ||||||||||||||||
Common stock issued as payment for services on June 14, 2010 | 46,544 | 47 | 8,331 | 8,378 | ||||||||||||||||
Common stock issued for debt and accrued interest conversion on August 7, 2009 | 1,122,375 | 1,122 | 189,681 | 190,803 | ||||||||||||||||
Conversion feature on convertible notes payable | 63,601 | 63,601 | ||||||||||||||||||
Common stock sold for cash on October 13, 2009 | 208,104 | 208 | 34,156 | 34,364 | ||||||||||||||||
Common stock sold for cash on October 16, 2009 | 2,980,734 | 2,981 | 493,808 | 496,789 | ||||||||||||||||
Common stock sold for cash on November 4, 2009 | 217,117 | 217 | 36,183 | 36,400 | ||||||||||||||||
Common stock sold for cash on November 17, 2009 | 421,529 | 422 | 71,748 | 72,170 | ||||||||||||||||
Common stock sold for cash on December 4, 2009 | 352,451 | 352 | 59,565 | 59,917 | ||||||||||||||||
Common stock sold for cash on January 6, 2010 | 58,058 | 58 | 9,812 | 9,870 | ||||||||||||||||
Common stock sold for cash on February 4, 2010 | 888,235 | 888 | 150,112 | 151,000 | ||||||||||||||||
Common stock sold for cash on March 2, 2010 | 743,746 | 744 | 125,693 | 126,437 | ||||||||||||||||
Common stock sold for cash on March 12, 2010 | 352,941 | 353 | 59,647 | 60,000 | ||||||||||||||||
Common stock sold for cash on April 19, 2010 | 125,000 | 125 | 14,875 | 15,000 | ||||||||||||||||
Common stock sold for cash on June 1, 2010 | 700,000 | 700 | 69,300 | 70,000 | ||||||||||||||||
Common stock issued for conversion of note payable on June 1, 2010 | 2,789,217 | 2,789 | 276,133 | 278,922 | ||||||||||||||||
Common stock sold for cash on June 24, 2010 | 1,000,000 | 1,000 | 99,000 | 100,000 | ||||||||||||||||
Warrants issued as payment for services on July 15, 2009 | 13,205 | 13,205 | ||||||||||||||||||
Warrants issued as payment for services on February 11, 2010 | 131,376 | 131,376 | ||||||||||||||||||
Conversion feature of note payable on June 1, 2010 | 223,137 | 223,137 | ||||||||||||||||||
Dividends on preferred stock | (6,000) | (6,000) | ||||||||||||||||||
Net loss | (8,196,462) | (8,196,462) | ||||||||||||||||||
Balance at June 30, 2010 | 111,111 | $ | 111 | 130,581,562 | $ | 130,582 | $ | 12,656,723 | $ | (13,547,060) | $ | (759,644) |
See accompanying notes, which are an integral part of these financial statements
19
CAVITATION TECHNOLOGIES, INC.
Deficit | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
During the | ||||||||||||||||||||
Series A Preferred | Common Stock | Additional Paid-in | Development | |||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stage | Total | ||||||||||||||
Balance at June 30, 2010 | 111,111 | $ | 111 | 130,581,562 | $ | 130,582 | $ | 12,656,723 | $ | (13,547,060) | $ | (759,644) | ||||||||
Common stock issued as payment for services on July 8, 2010 | 349,571 | 350 | 52,086 | 52,436 | ||||||||||||||||
Common stock issued as payment for services on August 3, 2010 | 1,854,009 | 1,854 | 350,406 | 352,260 | ||||||||||||||||
Common stock issued as payment for services on August 30, 2010 | 75,000 | 75 | 11,175 | 11,250 | ||||||||||||||||
Common stock issued as payment for services on September 8, 2010 | 237,192 | 237 | 35,342 | 35,579 | ||||||||||||||||
Common stock issued as payment for services on October 1, 2010 | 473,517 | 474 | 70,554 | 71,028 | ||||||||||||||||
Common stock issued as payment for services on November 1, 2010 | 1,020,482 | 1,020 | 131,643 | 132,663 | ||||||||||||||||
Common stock issued as payment for services on November 22, 2010 | 100,000 | 100 | 11,900 | 12,000 | ||||||||||||||||
Common stock issued as payment for services on December 7, 2010 | 459,056 | 459 | 50,037 | 50,496 | ||||||||||||||||
Common stock issued as payment for services on January 10, 2011 | 116,916 | 117 | 13,913 | 14,030 | ||||||||||||||||
Common stock issued as payment for services on February 14, 2011 | 1,264,883 | 1,265 | 137,872 | 139,137 | ||||||||||||||||
Common stock issued as payment for services on March 10, 2011 | 219,767 | 220 | 21,757 | 21,977 | ||||||||||||||||
Common stock issued as payment for services on March 22, 2011 | 510,000 | 510 | 50,490 | 51,000 | ||||||||||||||||
Common stock issued as payment for services on April 1, 2011 | 816,145 | 816 | 80,799 | 81,615 | ||||||||||||||||
Common stock issued as payment for services on May 17, 2011 | 276,203 | 276 | 27,343 | 27,619 | ||||||||||||||||
Common stock issued as payment for services on June 13, 2011 | 333,924 | 334 | 33,058 | 33,392 | ||||||||||||||||
Common stock issued as payment for services on June 14, 2011 | 8,096,990 | 8,097 | 689,603 | 697,700 | ||||||||||||||||
Common stock sold for cash on August 3, 2010 | 593,211 | 593 | 58,728 | 59,321 | ||||||||||||||||
Common stock sold for cash on October 1, 2010 | 661,000 | 661 | 78,659 | 79,320 | ||||||||||||||||
Common stock sold for cash on November 1, 2010 | 1,400,000 | 1,400 | 142,600 | 144,000 | ||||||||||||||||
Common stock sold for cash on November 22, 2010 | 350,000 | 350 | 41,650 | 42,000 | ||||||||||||||||
Common stock sold for cash on January 10, 2011 | 110,000 | 110 | 11,990 | 12,100 | ||||||||||||||||
Common stock sold for cash on February 14, 2011 | 1,920,000 | 1,920 | 190,080 | 192,000 | ||||||||||||||||
Common stock sold for cash on March 2, 2011 | 290,000 | 290 | 28,710 | 29,000 | ||||||||||||||||
Common stock sold for cash on March 10, 2011 | 176,923 | 177 | 14,823 | 15,000 | ||||||||||||||||
Common stock issued as payment of short-term loan into stock on February 14, 2011 | 1,000,000 | 1,000 | 99,000 | 100,000 | ||||||||||||||||
Warrants issued as payment for services on November 22, 2010 | 46,735 | 46,735 | ||||||||||||||||||
Common stock issued for conversion of note payable on February 8, 2011 | 30,769 | 31 | 1,967 | 1,998 | ||||||||||||||||
Common stock issued for conversion of note payable on February 11, 2011 | 15,385 | 15 | 985 | 1,000 | ||||||||||||||||
Common stock issued for conversion of note payable on February 16, 2011 | 26,154 | 26 | 1,674 | 1,700 | ||||||||||||||||
Common stock issued for conversion of note payable on February 17, 2011 | 15,385 | 15 | 985 | 1,000 | ||||||||||||||||
Common stock issued for conversion of note payable on February 22, 2011 | 21,927 | 22 | 1,475 | 1,497 | ||||||||||||||||
Common stock issued for conversion of note payable on February 28, 2011 | 55,749 | 56 | 3,568 | 3,624 | ||||||||||||||||
Common stock issued for conversion of note payable on March 7, 2011 | 24,796 | 25 | 1,506 | 1,531 | ||||||||||||||||
Common stock issued for conversion of note payable on March 8, 2011 | 18,100 | 18 | 982 | 1,000 | ||||||||||||||||
Common stock issued for conversion of note payable on March 14, 2011 | 109,783 | 110 | 5,956 | 6,066 | ||||||||||||||||
Common stock issued for conversion of note payable on March 28, 2011 | 51,282 | 51 | 2,949 | 3,000 | ||||||||||||||||
Common stock issued for conversion of note payable on March 30, 2011 | 59,829 | 60 | 3,440 | 3,500 | ||||||||||||||||
Common stock issued for conversion of note payable on April 4, 2011 | 59,829 | 60 | 3,440 | 3,500 | ||||||||||||||||
Common stock issued for conversion of note payable on April 5, 2011 | 24,376 | 24 | 1,402 | 1,426 | ||||||||||||||||
Amortization of restricted stock issued for services | 786,275 | 786,275 | ||||||||||||||||||
Dividends on preferred stock | (6,000) | (6,000) | ||||||||||||||||||
Net loss | (3,295,428) | (3,295,428) | ||||||||||||||||||
Balance at June 30, 2011 | 111,111 | $ | 111 | 153,799,715 | $ | 153,800 | $ | 15,954,280 | $ | (16,848,488) | $ | (740,297) |
20
CAVITATION TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders' Deficit (Continued)
Deficit | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
During the | ||||||||||||||||||||
Series A Preferred | Common Stock | Additional Paid-in | Development | |||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stage | Total | ||||||||||||||
Balance at June 30, 2011 | 111,111 | $ | 111 | 153,799,715 | $ | 153,800 | $ | 15,954,280 | $ | (16,848,488) | $ | (740,297) | ||||||||
Common stock issued as payment for services on July 13, 2011 | 379,449 | 380 | 25,968 | 26,348 | ||||||||||||||||
Common stock issued as payment for services on August 19, 2011 | 198,879 | 199 | 10,541 | 10,740 | ||||||||||||||||
Common stock issued as payment for services on August 22, 2011 | 230,000 | 230 | 12,191 | 12,421 | ||||||||||||||||
Common stock issued as payment for services on September 29, 2011 | 366,924 | 367 | 13,787 | 14,154 | ||||||||||||||||
Common stock issued for conversion of note payable on August 16, 2011 | 287,356 | 287 | 20,786 | 21,073 | ||||||||||||||||
Common stock issued for conversion of note payable on August 17, 2011 | 391,850 | 392 | 25,949 | 26,341 | ||||||||||||||||
Common stock issued for conversion of note payable on August 19, 2011 | 391,850 | 392 | 25,949 | 26,341 | ||||||||||||||||
Common stock issued for conversion of note payable on August 22, 2011 | 288,401 | 288 | 17,216 | 17,504 | ||||||||||||||||
Common stock issued for conversion of note payable on September 13, 2011 | 30,769 | 31 | 1,508 | 1,539 | ||||||||||||||||
Common stock issued for conversion of note payable on September 15, 2011 | 46,154 | 46 | 2,262 | 2,308 | ||||||||||||||||
Common stock issued for conversion of note payable on September 16 2011 | 76,923 | 77 | 4,538 | 4,615 | ||||||||||||||||
Common stock sold for cash on August 22, 2011 | 600,000 | 600 | 34,400 | 35,000 | ||||||||||||||||
Common stock issued for conversion of note payable on October 4, 2011 | 130,474 | 130 | 4,818 | 4,948 | ||||||||||||||||
Common stock issued for conversion of note payable on October 5, 2011 | 178,891 | 179 | 6,943 | 7,122 | ||||||||||||||||
Common stock issued for conversion of note payable on October 6, 2011 | 429,338 | 429 | 16,663 | 17,092 | ||||||||||||||||
Common stock issued for conversion of note payable on October 10, 2011 | 35,778 | 36 | 1,388 | 1,424 | ||||||||||||||||
Common stock issued for conversion of note payable on October 11, 2011 | 194,231 | 194 | 6,929 | 7,123 | ||||||||||||||||
Common stock issued as payment for services on October 25, 2011 | 44,000 | 44 | 1,653 | 1,697 | ||||||||||||||||
Common stock issued as payment for services on November 1, 2011 | 353,959 | 354 | 13,300 | 13,654 | ||||||||||||||||
Common stock issued as payment for services on November 22, 2011 | 87,500 | 88 | 2,612 | 2,700 | ||||||||||||||||
To record prepayment of convertible promissory note December 6, 2011 | 24,591 | 24,591 | ||||||||||||||||||
Common stock issued for conversion of note payable on January 25, 2012 | 230,769 | 231 | 6,692 | 6,923 | ||||||||||||||||
Common stock issued for conversion of note payable on January 26, 2012 | 179,487 | 179 | 5,205 | 5,384 | ||||||||||||||||
Common stock issued for conversion of note payable on January 27, 2012 | 102,564 | 103 | 4,000 | 4,103 | ||||||||||||||||
Common stock issued for conversion of note payable on January 30, 2012 | 76,923 | 77 | 3,000 | 3,077 | ||||||||||||||||
Common stock issued for conversion of note payable on January 31, 2012 | 338,462 | 338 | 13,200 | 13,538 | ||||||||||||||||
Common stock issued for conversion of note payable on February 1, 2012 | 153,846 | 154 | 6,000 | 6,154 | ||||||||||||||||
Common stock issued for conversion of note payable on February 17, 2012 | 50,441 | 50 | 2,063 | 2,113 | ||||||||||||||||
Common stock issued for conversion of note payable on February 21, 2012 | 249,750 | 250 | 9,740 | 9,990 | ||||||||||||||||
Common stock issued for conversion of note payable on March 5, 2012 | 82,124 | 82 | 2,382 | 2,464 | ||||||||||||||||
Common stock issued for conversion of note payable on March 9, 2012 | 122,587 | 123 | 3,555 | 3,678 | ||||||||||||||||
Common stock issued for conversion of note payable on March 12, 2012 | 183,880 | 184 | 5,333 | 5,517 | ||||||||||||||||
Common stock issued for conversion of note payable on March 13, 2012 | 91,940 | 92 | 2,666 | 2,758 | ||||||||||||||||
Common stock issued for conversion of note payable on March 16, 2012 | 61,538 | 62 | 1,785 | 1,847 | ||||||||||||||||
Common stock issued for conversion of note payable on March 26, 2012 | 200,669 | 201 | 5,819 | 6,020 | ||||||||||||||||
Common stock issued for conversion of note payable on March 27, 2012 | 66,890 | 67 | 1,940 | 2,007 | ||||||||||||||||
Common stock issued for conversion of note payable on March 29, 2012 | 100,334 | 100 | 2,910 | 3,010 | ||||||||||||||||
Common stock issued for conversion of note payable on March 30, 2012 | 196,399 | 196 | 5,696 | 5,892 | ||||||||||||||||
Issuance of stock options as payment for services on February 16, 2012 | 168,928 | 168,928 | ||||||||||||||||||
Common stock issued as payment for services on January 5, 2012 | 140,792 | 141 | 5,290 | 5,431 | ||||||||||||||||
Common stock issued as payment for services on February 7, 2012 | 87,500 | 88 | 1,937 | 2,025 | ||||||||||||||||
Common stock issued as payment for services on February 16, 2012 | 2,000,000 | 2,000 | 44,290 | 46,290 | ||||||||||||||||
Conversion of Convertible Preferred Shares to Common Shares on March 18, 2012 | (111,111) | (111) | 442,570 | 443 | 17,687 | 18,019 | ||||||||||||||
Common stock issued for conversion of note payable on April 3, 2012 | 60,096 | 60 | 1,743 | 1,803 | ||||||||||||||||
Common stock issued for conversion of note payable on April 17, 2012 | 60,332 | 60 | 1,750 | 1,810 | ||||||||||||||||
Common stock issued for conversion of note payable on April 19, 2012 | 66,365 | 66 | 1,925 | 1,991 | ||||||||||||||||
Common stock issued for conversion of note payable on April 23, 2012 | 267,559 | 268 | 7,758 | 8,026 | ||||||||||||||||
Common stock issued for conversion of note payable on April 23, 2012 | 113,311 | 113 | 3,286 | 3,399 | ||||||||||||||||
Common stock issued for conversion of note payable on June 1, 2012 | - | - | 5,136 | 5,136 | ||||||||||||||||
Issuance of stock options as payment for services on March 31, 2012 | - | - | 16,570 | 16,570 | ||||||||||||||||
Issuance of stock options as payment for services on March 31, 2012 | - | - | 570 | 570 | ||||||||||||||||
Issuance of stock options as payment for services on June 30, 2012 | - | - | 34,271 | 34,271 | ||||||||||||||||
Issuance of stock options as payment for services on June 30, 2012 | - | - | 1,172 | 1,172 | ||||||||||||||||
Common stock issued as payment for services on June 3, 2012 | 200,000 | 200 | 4,429 | 4,629 | ||||||||||||||||
Common stock issued for conversion of note payable on June 6, 2012 | 1,500,000 | 1,500 | 23,960 | 25,460 | ||||||||||||||||
Dividends on Preferred Stock | (4,286) | (4,286) | ||||||||||||||||||
Net Loss | (1,928,128) | (1,928,128) | ||||||||||||||||||
Balance at June 30, 2012 | - | $ | - | 165,969,569 | $ | 165,971 | $ | 16,650,959 | $ | (18,780,902) | $ | (1,963,972) |
See accompanying notes, which are an integral part of these financial statements
21
CAVITATION TECHNOLOGIES, INC.
January 29, 2007, | ||||||||||||
inception thru | ||||||||||||
Years Ended June 30, | June 30, | |||||||||||
2012 | 2011 | 2012 | ||||||||||
Operating activities: | ||||||||||||
Net loss | $ | (1,928,128) | $ | (3,295,428) | $ | (18,597,791) | ||||||
Adjustments to reconcile net loss to net cash | ||||||||||||
used in operating activities: | ||||||||||||
Depreciation and amortization | 50,540 | 21,123 | 101,250 | |||||||||
Warrants issued in connection with convertible notes payable | - | - | 49,245 | |||||||||
Beneficial conversion feature on convertible notes payable | 108,987 | 34,724 | 430,449 | |||||||||
Common stock issued for services | 135,459 | 2,570,457 | 11,666,060 | |||||||||
Stock option compensation | 221,511 | - | 529,023 | |||||||||
Warrants issued for services | - | 46,735 | 337,359 | |||||||||
Change in value of derivatives | (19,007) | 19,197 | 190 | |||||||||
Equipment write-down | - | 5,399 | 5,399 | |||||||||
Patent write-down | 21,758 | 13,500 | 35,259 | |||||||||
Effect of changes in: | ||||||||||||
Inventory | (48,581) | (53,056) | (101,637) | |||||||||
Prepaid expenses and other current assets | (20,516) | (179) | (20,516) | |||||||||
Bank overdraft | - | (2,747) | (9,500) | |||||||||
Accounts payable and accrued expenses | 129,242 | (42,900) | 326,634 | |||||||||
Accrued payroll | 843,490 | 66,264 | 1,252,456 | |||||||||
Advances - Related Party Payables | 43,858 | 19,271 | 59,792 | |||||||||
Advances from customers | 100,000 | - | 136,533 | |||||||||
Deferred revenue | 130,494 | (16,548) | 147,444 | |||||||||
Net cash used in operating activities | (230,893) | (614,188) | (3,652,351) | |||||||||
Investing activities: | ||||||||||||
Purchase of property and equipment | (22,552) | (81,038) | (121,744) | |||||||||
Payments for systems | - | - | (152,721) | |||||||||
Payments for patents | (31,022) | (42,328) | (165,634) | |||||||||
Net cash used in investing activities | (53,574) | (123,366) | (440,099) | |||||||||
Financing activities: | ||||||||||||
Proceeds from (payments on) bank loan borrowings | (136,834) | (38,640) | 349,276 | |||||||||
Proceeds from sales of preferred stock | - | - | 725,000 | |||||||||
Proceeds from convertible notes payable | 85,000 | 151,212 | 471,212 | |||||||||
Payments on convertible notes payable | - | - | (55,000) | |||||||||
Proceeds from sale of common stock | 35,000 | 572,741 | 2,139,690 | |||||||||
Proceeds from related party short-term loans | 84,250 | 15,750 | 100,000 | |||||||||
Proceeds from short-term loans | 214,521 | 75,000 | 398,521 | |||||||||
Payments on short-term loans | - | (24,000) | (24,000) | |||||||||
Advances against sales | 125,000 | - | 125,000 | |||||||||
Net cash provided by financing activities | 406,937 | 752,063 | 4,229,699 | |||||||||
Net increase (decrease) in cash | 122,470 | 14,509 | 137,249 | |||||||||
Cash, beginning of period | 14,779 | 270 | - | |||||||||
Cash, end of period | $ | 137,249 | $ | 14,779 | $ | 137,249 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Cash paid for interest | $ | 69,280 | $ | 42,610 | $ | 262,872 | ||||||
Cash paid for income taxes | $ | 1,600 | $ | 1,600 | $ | 8,328 | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||
Warrants issued in connection with preferred stock | $ | - | $ | - | $ | 155,714 | ||||||
Beneficial conversion feature on preferred stock | $ | - | $ | - | $ | 11,111 | ||||||
Conversion of preferred to common shares in reverse merger | $ | - | $ | - | $ | 625,000 | ||||||
Proceeds from sales of preferred shares used to purchase shares of Bio | $ | - | $ | - | $ | 400,000 | ||||||
Conversion of note payable to common stock | $ | - | $ | - | $ | 278,922 | ||||||
Conversion of related party short-term loan to common stock | $ | - | $ | 100,000 | $ | 100,000 | ||||||
Accrued dividends issued to preferred stockholders | $ | - | $ | 6,000 | $ | 13,733 | ||||||
Conversion of convertible notes payable and accrued interest to common stock | $ | 152,127 | $ | 30,843 | $ | 373,773 |
See accompanying notes, which are an integral part of these financial statements
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization
Hydrodynamic Technology, Inc. was incorporated January 29, 2007 as a California corporation. It is a wholly owned subsidiary of Cavitation Technologies, Inc. (referred to herein, unless otherwise indicated, as “the"the Company,” “CTi,” “we,” “us,”" "CTi," "we," "us," and “our”"our") a Nevada corporation originally incorporated under the name Bio Energy, Inc. Cavitation Technologies, Inc.CTi has developed, patented, and commercialized proprietary technology forthat may be used in liquid processing soybean oil through a device called the applications. CTi's patentedNano Neutralization™ Reactor (the “Reactor”). The ReactorReactor® is the critical component of the CTiNano NeutralizationNeutralization® System which is designedcommercially proven to reduce operating costs and increase yields in refining vegetable oils.
Note 2 –- Basis of Presentation and Going Concern
Management's Plan Regarding Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going concern. The Company has nonot generated significant operating historyrevenue and, from January 29, 2007, (inception), through June 30, 2011,2012, generated a net loss of $16,669,663.$18,597,791. The Company also has negative cash flow from operations and negative net equity. These factors, among others, raise substantial doubt about the Company’sCompany's ability to continue as a going concern.
Management's plan is to generate income from operations by licensing our technology globally through our strategic partner, the Desmet Ballestra Group. Desmet has agreed to provide us limited monthly advances against future sales. As of June 30 and August 30, 2012, advances received amounted to $125,000 and $375,000 respectively. Minimum monthly advances from Desmet amount to $125,000. In addition, in the first quarter of fiscal 2013, the Company signed an agreement with the GEA Westfalia Separator Group. The purpose of the agreement is to jointly develop and patent new process applications for CTi's technology.
We will also attempt to raise additional debt and/or equity financing to fund operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’sCompany's needs, or that the Company will be able to meet its future contractual obligations. Should management fail to obtain such financing, the Company may curtail its operations.
The accompanying consolidated financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of the Company to continue as a going concern.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”("GAAP") as promulgated in the United States of America (“("U.S.”").
Note 3 - Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Cavitation Technologies, Inc. and its wholly owned subsidiary Hydrodynamic Technology, Inc. All significant inter-company transactions and balances have been eliminated through consolidation.
23
Fair Value Measurement
FASB Accounting Standards Codification (“ASC”("ASC") 820-10 requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet for which it is practicable to estimate fair value. ASC 820-10 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of June 30, 20112012 and 2010,2011, the carrying value of certain accounts such as inventory, accounts payable, accrued expenses, accrued payroll and short-term loans approximatesapproximate fair value due to the short-term nature of such instruments.
The following table presents information about the Company’sCompany's assets and liabilities measured and reported in the financial statements at fair value on a recurring basis as of June 30, 20112012 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. The three levels of the fair value hierarchy are as follows:
|
Fair Value | Fair Value Measurements at June 30, 2011 | |||||||||||||||
as of | Using Fair Value Heirarchy | |||||||||||||||
Financial Instruments | June 30, 2011 | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities: | ||||||||||||||||
Derivative liability | 121,679 | - | - | 121,679 | ||||||||||||
Total | $ | 121,679 | $ | - | $ | - | $ | 121,679 |
Fair Value | Fair Value Measurements at June 30, 2012 | |||||||||||
as of | Using Fair Value Heirarchy | |||||||||||
Financial Instruments | June 30, 2012 | Level 1 | Level 2 | Level 3 | ||||||||
Liabilities: | ||||||||||||
Derivative liability | 6,271 | - | - | 6,271 | ||||||||
Total | $ | 6,271 | $ | - | $ | - | $ | 6,271 |
The following tables provide a reconciliation of the beginning and ending balances of our financial liabilities classified as Level 3:
Fair Value Measurements Using Significant | ||||
Unobservable Inputs (Level 3) | ||||
Derivative Liability | ||||
Balance at June 30, 2010 | $ | - | ||
Total gains (losses) included in interest expense and other | (19,197 | ) | ||
Issuances and settlements | 140,876 | |||
Balance at June 30, 2011 | $ | 121,679 |
Fair Value Measurements Using Significant | ||
Unobservable Inputs (Level 3) | ||
Derivative Liability | ||
Balance at June 30, 2011 | $ | 121,679 |
Total (gains) losses included in interest expense and other | (19,007) | |
Creation - convertible note issuances | 45,696 | |
Settlements - note conversions | (142,097) | |
Balance at June 30, 2012 | $ | 6,271 |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period. Significant estimates are used in valuing our stock options, warrants, convertible notes, and common stock issued for services, among other items. Actual results could differ from these estimates.
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Revenue Recognition
Revenue from the sale of ourNano Reactor® Systems is recognized when persuasive evidence of an agreement exists; delivery has occurred, including transfer of title and risk of loss for product sales, or services have been rendered for service revenues; the price to the buyer is fixed or determinable; and collectability is reasonably assured.
Deferred Revenue
As of June 30, 2011,2012, the Company had received total deposits of $16,951$147,444 relating to the fabricationlicense fees associated with two of the Company’s Company'sNANO Neutralization SystemSystems. Because this transaction does not yet fulfillOnce the requirements ofsystems show that they meet performance specifications and have been acknowledged by the client, then the revenue recognition,will be recognized. Until then, this amount has been reflected in Deferred Revenue on the accompanying consolidated balance sheet as of June 30, 2011.
In addition, we received an advance of $100,000 from a client for a license fee. Once the system has been installed, meets performance specifications, and is accepted by the client, we will recognize revenue.
Cash
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents are carried at cost which approximates market value. The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, may exceed federally insured limits. The Company has never experienced losses in such accounts and believes it is not exposed to significant credit risk on cash and cash equivalents.
Inventory
Inventory, net of an allowance for excess quantities and obsolescence, areis stated at the lower of cost or market. Cost is determined by the first-in, first-out method.on a specific item basis. Inventory is composed of finished goods and represents costs incurred to manufacture our NANO Reactors.
Property and Equipment
Property and equipment is presented at cost less accumulated depreciation and amortization.depreciation. Depreciation and amortization areis provided using the straight-line method over the estimated useful lives of the assets. Betterments, renewals, and extraordinary repairs that extend the life of the assets are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation and amortization applicable to retired assets are removed from the Company's accounts, and the gain or loss on dispositions, if any, is recognized in the consolidated statements of operations.
Property and equipment are recorded at cost and depreciated using the straight-line method over the following estimated useful lives.
Leasehold improvements | Shorter of life of asset or lease | |
Furniture | 5-7 Years | |
Office equipment | 5-7 Years | |
Lab equipment | 4-7 Years | |
Skid systems (demo units) | 4 Years |
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Patents
Capitalized patent costs represent legal fees associated with procuring and filing patent applications. The Company accounts for patents in accordance with ASC 350-30,General Intangibles Other Than Goodwill. As of June 30, 2011,2012, the Company had incurred $121,112$129,334 in gross patent costs which are capitalized in the accompanying consolidated balance sheet. The Company had one patent issued during the year ended June 30,fiscal 2012 and one issued in fiscal 2011 both of which isare being amortized over an estimated useful life of 4 years. We believe that four years is a reasonable estimate based upon our estimate of time until the next generation of reactors is developed or until other forms of competition appear. The patent haspatents have a duration through February 27, 2029.of twenty years from filing date. For the yearyears ended June 30, 2012 and June 30, 2011 amortization amounted to $2,959.
2013 | $ | 7,964 | |
2014 | 11,760 | ||
2015 | 15,936 | ||
2016 | 20,530 | ||
2017 | 25,583 | ||
Thereafter | 41,385 | ||
Total | $ | 123,158 |
Impairment of patent costs is estimated as follows:
2012 | $ | 8,621 | ||
2013 | 14,251 | |||
2014 | 20,611 | |||
2015 | 21,545 | |||
2016 | 15,883 | |||
Thereafter | 37,242 | |||
Total | $ | 118,153 |
In accordance with ASC 350-30 (General Intangibles Other than Goodwill), the Company evaluates amortizable intangibles and long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’sCompany's management believes there is no impairment of its intangibles and long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’sCompany's products under development will continue. Either of these could result in future impairment of intangibles and long-lived assets.
Share-Based Compensation
The Company accounts for its share-based compensation in accordance ASC 718-20,Share-Based Payment. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite vesting period. During fiscal 2012, 11,750,000 stock options were granted and valued at $320,488 with $221,511 recognized in fiscal 2012 and included in theStatement of Operations. Remaining expenses will be recognized over the vesting periods in accordance with the assumptions cited below. There were no stock options granted during fiscal 2011. The table below represents the years ended June 30, 2011 or 2010. Warrantsassumptions for valuing the warrants granted during the year ended June 30,in fiscal 2011 and 2010 were valued using the following assumptions.
Year Ended | Year Ended | |||||||
June 30, | June 30, | |||||||
2011 | 2010 | |||||||
Expected life in years | 3.0 | 2 - 3 | ||||||
Stock price volatility | 132.1% | 132.1% | ||||||
Risk free interest rate | 0.72% | 0.91% - 1.60% | ||||||
Expected dividends | None | None | ||||||
Forfeiture rate | 0% | 0% |
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Year Ended June 30, 2012 2011 Expected life in years 5-6.5 3.0 Stock price volatility 147.0% 132.1% Risk free interest rate 0.86% 0.72% Expected dividends None None Forfeiture rate 0% 0%
The assumptions used in the Black Scholes models referred to above are based upon the following data: (1) The contractual life of the underlying non-employee warrants asis the expected life; The expected life of the option is estimated by considering the contractual term of the option, the vesting period of the option, the employees’employees' expected exercise behavior and the post-vesting employee turnover rate. (2) The expected stock price volatility of the underlying shares over the expected term of the option or warrant is based upon historical share price data of the Company. (3) The risk free interest rate is based on published U.S. Treasury Department interest rates for the expected terms of the underlying options. (4) Expected dividends are based on historical dividend data and expected future dividend activity. (5) The expected forfeiture rate is based on historical forfeiture activity and assumptions regarding future forfeitures based on the composition of current grantees.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740-10,Income Taxes. The Company recognizes deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at anticipated future tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. The Company classifies interest and penalties as a component of interest and other expenses. To date, there have been no interest or penalties assessed or paid.
The Company measures and records uncertain tax positions by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized.
Advertising costs
Advertising costs (including marketing expense) incurred in the normal course of operations are expensed as incurred. Advertising expenses amounted to $34,114, $97,135, $46,719, and $236,438$270,552 for the years ended June 30, 2012, and June 30, 2011 and 2010, andfor the period from January 29, 2007 (date of inception) through June 30, 2011,2012, respectively.
Research and Development Costs
Research and development expenses relate primarily to the development, design, testing of preproduction prototypes and models, compensation, and consulting fees, and are expensed as incurred.
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Recent Accounting Pronouncements
Accounting standards promulgated by the FASB change periodically. Changes in such standards may have an impact on the Company’sCompany's future financial position. The following are a summary of recent relevant accounting developments.
In November 2011, the Financial Accounting Standard Board ("FASB") issued ASU 2011-11, "Balance Sheet (topic 210): Disclosures about Offsetting Assets and Liabilities". ASU 2011-11 stipulates that entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. ASU 2011-11 enhances disclosure required by US GAAP by requiring improved information about financial instruments and derivative instruments. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.
The Company does not expect the adoption of ASU 2011-14 to have a material effect on its operating results or financial position.
In May 2011, the Financial Accounting Standard Board (“FASB”("FASB") issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-042011- 04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and International Financial Reporting Standards (“IFRS”("IFRS"), and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for Cavitation beginning after December 15, 2011. Cavitation does not expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial position.
Dependence on Desmet
Our revenue is almost entirely dependent on Desmet Ballestra who is our exclusive distribution agent with regard to theCTi Nano Neutralization® System. During fiscal 2012, 77% of revenue derived from Desmet sales efforts.
Note 4 -Net Loss Perper Share –- Basic and Diluted
The Company computes the loss per common share using ASC 260,Earnings per Share. The net loss per common share, both basic and diluted, is computed based on the weighted average number of shares outstanding for the period. The diluted loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average shares outstanding assuming all potential dilutive common shares were issued.
As of June 30, 2011,2012, the Company had 1,810,95713,560,957 stock options and 13,145,61811,222,287 warrants outstanding to purchase common stock that were not included in the diluted net loss per common share because their effect would be anti-dilutive. In addition, the Company had 111,111 shares of Series A Preferred Stock outstanding which are convertible into approximately 333,333 shares of common stock. The Company also had $120,610$33,550 of outstanding convertible notes payable, before any discounts, which are convertible into 2,202,626approximately 1,720,513 shares of common stock as of June 30, 2011.2012. These items were also not included in the calculation of diluted net loss per common share because their effect would be anti-dilutive.
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Note 5 - Property and Equipment
Property and equipment consisted of the following as of June 30, 20112012 and June 30, 2010:
June 30, | June 30, | |||||||
2011 | 2010 | |||||||
Leasehold improvement | $ | 2,475 | $ | 2,475 | ||||
Furniture | 26,837 | 26,837 | ||||||
Office equipment | 1,500 | 1,500 | ||||||
Equipment | 68,380 | 68,380 | ||||||
Systems | 112,474 | - | ||||||
211,666 | 99,192 | |||||||
Less: accumulated depreciation and amortization | (52,322 | ) | (29,587 | ) | ||||
$ | 159,344 | $ | 69,605 |
June 30, | June 30, | ||||
2012 | 2011 | ||||
Leasehold improvement | $ | 2,475 | $ | 2,475 | |
Furniture | 26,837 | 26,837 | |||
Office equipment | 1,499 | 1,500 | |||
Lab equipment | 68,380 | 68,380 | |||
Skid systems | 135,027 | 112,474 | |||
234,218 | 211,666 | ||||
Less: accumulated depreciation and amortization | (98,603) | (52,322) | |||
Propert and equipment, net | $ | 135,615 | $ | 159,344 |
Depreciation and amortization expense for the years ended June 30, 2012 and 2011 2010, and for the period from January 29, 2007 (inception) through June 30, 2011,2012, amounted to $46,282, $18,164, $16,968 and $47,751,$94,033 respectively.
Note 6 -Bank Loan
On August 1, 2010 the Company renewed its loan with National Bank of California until November 1, 2010. The amount outstanding was $520,516. The terms and conditions remainremained the same with monthly payments of $7,396 and an interest rate of prime plus 2.75%. On November 1, 2010, the loan was extended until November 1, 2011 with 11 regular monthly payment of $6,000 and a final payment of $474,171. The interest rate floor was increased from 7.0% to 7.5%. On November 1, 2011, the maturity of the variable rate loan was extended to February 1, 2013. Monthly payments include 14 principal payments of $6,000 plus interest. In addition, CTi is to make a quarterly principal payment of $50,000. The remaining principal and accrued interest of approximately $110,000 is due February 1, 2013. As of June 30, 2011,2012, the outstanding balance on the loan was $486,110. We$349,276. The Company provided the National Bank of California a security interest in the assets of the Company as collateral for athe loan.
Note 7 - Convertible Notes Payable
On February 1, 2011, the Company issued convertible promissory notes to the Tripod Group, LLC, (the “Tripod Notes”"Tripod Notes") for an aggregate total amount of $61,212. The Tripod Notes bearbore interest at a rate of 6% per annum and have a maturity date of February 1, 2012. The holder of the notes maycould elect to convert the outstanding principal and accrued interest into shares of the Company’sCompany's common stock at a conversion price equal to 65% of the lowest closing bid price of any of the four trading days prior to the conversion. CTi has the option to pre-pay the note prior to conversion at a premium of 150% of the principal amount. The issuance of the Tripod Notes amounted in a beneficial conversion feature of $32,960 on the issue date, which was recorded as a discount to the carrying value of the notes. As of June 30,From February through October 2011, Tripod converted the remaining discount balance amounted to $16,482. During the year ended June 30, 2011, $30,602 of the Tripod Notes principal was convertedentire $61,212 into 513,3641,635,897 shares of common stock. As a result, the carrying value of the Tripod Notes as of June 30, 2011 amounted to $14,128 consisting of outstanding principal of $30,610 less the discount of $16,482. The beneficial conversion feature is measured using the Black-Sholes option valuation model. Refer to the table below for the inputs used in the Black-Scholes option valuation model
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On February 8, 2011, the Company issued a convertible promissory note payable to Asher Enterprises, Inc., (the “Asher Note”"Asher Note"), in the amount of $42,500. The Asher Note bears interest at a rate of 8% per annum and matureswas to mature on November 10, 2011. The holder of the note maycould elect to convert principal and accrued interest into shares of common stock at any time at a conversion price equal to 58% of the average lowest closing bid prices of the Company’sCompany's common stock for 3 of any 10 trading days prior to conversion. CTi has the option to pre-pay the note prior to conversion at a premium ranging from 130% to 150% of the principal amount. The issuance of the Asher Note amounted in a beneficial conversion feature of $28,412 on the issue date, which has beenwas recorded as a discount to the carrying value of the note. AsDuring fiscal 2012, the entire $42,500 was converted into 1,359,457 shares of June 30, 2011, the remaining discount balance amounted to $13,741. Ascommon stock at a result, the carrying value of $91,258, and the Asher Note as of June 30, 2011 amounted to $28,759 consisting of outstanding principal of $42,500 less the discount of $13,741. The$47,059 beneficial conversion feature is measured using the Black-Sholes option valuation model. Referwas allocated to the table below for the inputs usedadditional paid in the Black-Scholes option valuation model.
On June 6, 2011, the Company issued a convertible promissory note payable to Asher Enterprises, Inc., (the “Second"Second Asher Note”Note"), in the amount of $47,500. The Second Asher Note bearsbore interest at a rate of 8% per annum and matures on March 8, 2012. The holder of the note maycould elect to convert principal and accrued interest into shares of common stock at any time at a conversion price equal to 61% of the average lowest closing bid prices of the Company’sCompany's common stock for 3 of any 10 trading days prior to conversion. CTi has the option to pre-pay the note prior to conversion at a premium ranging from 130% to 150% of the principal amount. The issuance of the Second Asher Note amounted in a beneficial conversion feature of $41,109 on the issue date, which was recorded as a discount to the carrying value of the note. During the year ended June 30, 2012, the $47,500 outstanding balance was pre-paid incurring a pre-payment penalty (interest expense) of $23,750. The company pre- paid the convertible promissory note as part of our overall strategy to minimize the issuance of shares.
On June 24, 2011, we issued a convertible promissory note payable to GEL Properties, LLC, (the "GEL Note") in the amount of $52,500. The Note is due June 24, 2012 and bore interest at a rate of 6% p.a. The GEL Note was convertible into shares of our common stock at a conversion price equal to 65% of the average day's lowest closing bid out of the 5 trading days prior to conversion. The transaction was funded July 12, 2011. CTi has the option to pre-pay the note prior to conversion at a premium of 150% of the principal amount. The issuance of the GEL Note amounted in a beneficial conversion feature of $28,269 on the issue date which was recorded as a discount to the carrying value of the note. By virtue of the variable conversion ratio, the conversion feature is a derivative under ASC 815-40, Derivatives and Hedging, and accordingly, the value of the conversion feature was classified as a derivative liability on the accompanying balance sheet. During the year ended June 30, 2012, the entire $52,500 in principal plus $2,033 in accrued interest was converted into 3,056,266 shares of common stock at a value of $98,105, and the $45,605 beneficial conversion feature was allocated to additional paid in capital.
On December 6, 2011 we issued a convertible promissory note payable to the Prolific Group, LLC, (the "Prolific Note") in the amount of $25,000. The Note is due December 6, 2012 and bears interest at 6% p.a. The Prolific Note is convertible into shares of our common stock at a conversion price equal to 65% of the average day's lowest closing bid out of the 5 trading days prior to conversion. CTi has the option to pre-pay the note prior to conversion at a premium of 150% of the principal amount. The issuance of the Prolific Note amounted in a beneficial conversion feature of $4,673 on the issue date which has been recorded as a discount to the carrying value of the note. During fiscal 2012, $21,450 was converted to 1,500,000 shares. As of June 30, 2012, the outstanding balance was $3,550 and remaining discount balance amounted to $2,030. By virtue of the variable conversion ratio, the conversion feature is a derivative under ASC 815-40, Derivatives and Hedging, and accordingly, the value of the conversion feature has been classified as a derivative liability on the accompanying balance sheet.
On December 6, 2011 we issued a convertible promissory note payable to the Tripod Group, LLC, (the "Second Tripod Note") in the amount of $30,000. The Note is due December 6, 2012 and bears interest at 6% p.a. The Second Tripod Note is convertible into shares of our common stock at a conversion price equal to 65% of the average day's lowest closing bid out of the 5 trading days prior to conversion. CTi has the option to pre-pay the note prior to conversion at a premium of 150% of the principal amount. The issuance of the Second Tripod Note amounted in a beneficial conversion feature of $5,608 on the issue date which has been recorded as a discount to the carrying value of the note. As of June 30, 2011,2012, the outstanding balance was $30,000 and the remaining discount balance amounted to $29,724.$2,436. By virtue of the variable conversion ratio, the conversion feature is a derivative under ASC 815-40, Derivatives and Hedging, and accordingly, the value of the conversion feature has been classified as a derivative liability on the accompanying balance sheet. As of June 30, 2012, the outstanding balance was $30,000.
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On December 21, 2011 we issued a result,convertible promissory note payable to Asher Enterprises, Inc., (the "Third Asher Note") in the amount of $25,000. The Note is due September 21, 2012 and bears interest at 8% p.a. The Third Asher Note was convertible into shares of our common stock at a conversion price equal to 60% of the average day's lowest trading price during the 10 trading days prior to conversion. CTi has the option to pre-pay the note prior to conversion at a premium ranging from 125% to 150% of the principal amount. The issuance of the Third Asher Note amounted in a beneficial conversion feature of $7,146 on the issue date which was recorded as a discount to the carrying value of the Second Asher Note as ofnote. During the year ended June 30, 20112012, the outstanding balance of $25,000 was pre-paid along with a pre-payment premium of $12,801 which is included as interest expense in the accompanying consolidated financial statements.
On June 30, 2012, the outstanding balance of Convertible Notes Payable (net of discounts) as recorded on the balance sheet amounted to $17,776$29,083 consisting of outstanding principal of $47,500$33,550 less the discount of $29,724. The beneficial conversion feature is measured using the Black-Sholes option valuation model. Refer to the table below for the inputs used in the Black-Scholes option valuation model.
Note 8 –- Related Party Short-Term Loans
On December 28, 2011, the Company borrowed $6,000 from our Chief Financial Officer. The borrowing bears noCEO, Todd Zelek, extended to the company a $100,000 short-term loan due on demand at an annual interest and is payable on demand.rate of 12%. The outstanding balance as ofamount at June 30, 20112012 was $100,000 and accrued interest amounted to $6,000.
Note 9 –- Short-Term Loans
On October 26, 2010, the Company entered into a loan agreement with Desmet Ballestra North America, Inc. under which the Company borrowed $75,000. Under the original terms of the agreement, the loan was interest-free and was repayable at $25,000 per month beginning January 25, 2011. On March 28, 2011, the terms of the loan agreement were revised to provide for monthly payments of $15,000 starting in April 2011. The loan bears no interest unless the Company is late with a payment at which point interest is accrued on the late amount at a rate of 10% compounded annually. Accrued interest on late payments amounted to $5,500 for the year ended June 30, 2012. As of June 30, 2011,2012, the Company had made one payment of $15,000,two payments amounting to $20,000, and the outstanding balance amounted to $60,000. Accrued interest on the late payments amounted to $125 as of June 30, 2011.
During fiscal 20112012, we received $219,521 from third party lenders and 2010,we recorded these funds in Short Term Loans which are due on demand and pay an annual interest rate of 12%. These funds are earmarked for potential conversion into convertible promissory notes to be issued by the Company. One of the interested parties has indicated that he made the deposit specifically for an investment in convertible promissory notes to be issued by the Company. The terms of the deposits are currently being negotiated.
During fiscal 2012 and 2011, CTi had average borrowings of $648,644$686,030 and $619,045,$648,644 respectively under its short-term obligations (bank loan, related party payable short term loans, convertible notes payable and short-term loans). The weighted average stated interest rate on the short-term obligations outstanding as of June 30, 20112012 and June 30, 20102011 was 9.7% and 6.7% and 5.8%, respectively.
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Note 10 – Stockholders’- Stockholders' Equity
Common Stock
During the year ended June 30, 2010, the Company completed the following common stock transactions.
During the year ended June 30, 2010, the Company sold an aggregate of 8,047,915 shares of restricted common stock for aggregate total proceeds of $1,231,947. Along with the purchase of the shares, the investors were also issued an aggregate of 6,922,915 warrants to purchase additional shares of the Company’s common stock. These warrants have an exercise price of $0.42 per share, a contractual life of 3 years, and were vested immediately upon the date of grant.
Preferred Stock
On March 17, 2009, the Company filed Amended and Restated Articles of Incorporation and created two new series of preferred stock, the first of which is designated Series A Preferred Stock and the second of which is designated as Series B Preferred Stock .Stock. The total number of shares of Common Stock which this corporation shall have authority to issue is 100,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock of which 5,000,000 shares are designated as Series A Preferred Stock, and 5,000,000 shares are designated as Series B Preferred Stock, with the rights, preferences and privileges of the Series B Preferred Stock to be designated by the Board of Directors. The company converted 111,111 Series A Preferred Shares plus $18,019 in accrued dividends into 442,570 shares of common stock in March 2012. There are no shares of Series A or Series B Preferred Stock outstanding. Each share of Common Stock and Preferred Stock has a par value of $0.001.
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Stock Options
The Company has not adopted a formal stock option plan, however, it has assumed outstanding stock options resulting from the acquisition of its wholly-owned subsidiary, Hydrodynamic Technology, Inc. In addition, the Company has made periodic non-plan grants.
Weighted- | |||||||
Average | |||||||
Weighted- | Remaining | ||||||
Average | Contractual | ||||||
Exercise | Life | ||||||
Options | Price | (Years) | |||||
Outstanding at January 29, 2007 (date of inception) | - | $ | - | - | |||
Granted | 2,137,612 | 0.57 | |||||
Exercised | - | - | |||||
Outstanding at June 30, 2009 | 2,137,612 | 0.57 | 6.68 | ||||
Granted | - | - | |||||
Forfeited | (150,000) | 0.67 | |||||
Exercised | - | - | |||||
Outstanding at June 30, 2010 | 1,987,612 | 0.56 | 6.16 | ||||
Granted | - | - | |||||
Forfeited | (176,655) | 0.67 | |||||
Exercised | - | - | |||||
Outstanding at June 30, 2011 | 1,810,957 | 0.55 | 5.23 | ||||
Granted | 11,750,000 | 0.03 | 9.88 | ||||
Forfeited | - | - | - | ||||
Exercised | - | - | - | ||||
Expired | - | - | - | ||||
Outstanding June 30, 2012 | 13,560,957 | 0.10 | 8.95 | ||||
Exercisable at June 30, 2012 | 8,060,957 | 0.15 | 8.48 | ||||
Vested and expected to vest at June 30, 2012 | 8,060,957 | 0.15 | 8.48 |
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There were 11,750,000 options issued in fiscal 2012. Ten million options were issued to our CEO as follows.
Weighted- | ||||||||||||
Average | ||||||||||||
Weighted- | Remaining | |||||||||||
Average | Contractual | |||||||||||
Exercise | Life | |||||||||||
Options | Price | (Years) | ||||||||||
Outstanding at January 29, 2007 (date of inception) | - | $ | - | - | ||||||||
Granted | 2,137,612 | 0.57 | ||||||||||
Exercised | - | - | ||||||||||
Outstanding at June 30, 2009 | 2,137,612 | 0.57 | 6.68 | |||||||||
Granted | - | - | ||||||||||
Forfeited | (150,000 | ) | 0.67 | |||||||||
Exercised | - | - | ||||||||||
Outstanding at June 30, 2010 | 1,987,612 | 0.56 | 6.16 | |||||||||
Granted | - | - | ||||||||||
Forfeited | (176,655 | ) | 0.67 | |||||||||
Exercised | - | - | ||||||||||
Outstanding at June 30, 2011 | 1,810,957 | 0.55 | 5.73 | |||||||||
Vested and expected to vest at June 30, 2011 | 1,810,957 | 0.55 | 5.73 | |||||||||
Exercisable at June 30, 2011 | 1,810,957 | 0.55 | 5.73 |
Year Ended June 30, | ||||
2012 | 2011 | |||
Contract life in years | 10.0 | N/A | ||
Expected life in years | 5-6.5 | N/A | ||
Stock price volatility | 147.0% | N/A | ||
Risk free interest rate | 0.86% | N/A | ||
Expected dividends | None | N/A | ||
Forfeiture rate | 0% | N/A |
There were no stock options granted during the year ended June 30, 2011 or 2010. In addition, there were no unvested options as of June 30, 2011 or 2010.fiscal 2011. The intrinsic value of the outstanding options was $0 as of June 30, 20112012 and 2010.
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||
Exercise | Number | Remaining | Exercise | Number | Exercise | |||||||||||||||||
Price | of Shares | Life (Years) | Price | of Shares | Price | |||||||||||||||||
$ | 0.33 | 637,297 | 5.31 | $ | 0.33 | 637,297 | $ | 0.33 | ||||||||||||||
0.67 | 1,173,660 | 5.96 | 0.67 | 1,173,660 | 0.67 | |||||||||||||||||
1,810,957 | 1,810,957 |
Options Outstanding | Options Exercisable | ||||||||||||
Weighted | Weighted | Weighted | |||||||||||
Average | Average | Average | |||||||||||
Exercise | Number | Remaining | Exercise | Number | Exercise | ||||||||
Price | of Shares | Life (Years) | Price | of Shares | Price | ||||||||
$ | 0.03 | 11,750,000 | 9.64 | $ | 0.03 | 6,250,000 | $ | 0.03 | |||||
0.33 | 637,297 | 4.31 | 0.33 | 637,297 | 0.33 | ||||||||
0.67 | 1,173,660 | 4.59 | 0.67 | 1,173,660 | 0.67 | ||||||||
13,560,957 | 8,060,957 |
34
Warrants
A summary of the Company’sCompany's warrant activity and related information from January 29, 2007 (date of inception) through June 30, 20112012 is as follows.
Weighted- | ||||||||||||
Average | ||||||||||||
Weighted- | Remaining | |||||||||||
Average | Contractual | |||||||||||
Exercise | Life | |||||||||||
Warrants | Price | (Years) | ||||||||||
Outstanding at January 29, 2007 (date of inception) | - | $ | - | - | ||||||||
Granted | 409,440 | 0.37 | ||||||||||
Exercised | - | - | - | |||||||||
Outstanding at June 30, 2008 | 409,440 | 0.37 | 2.75 | |||||||||
Granted | 4,123,263 | 0.46 | ||||||||||
Exercised | - | - | ||||||||||
Outstanding at June 30, 2009 | 4,532,703 | 0.45 | 3.18 | |||||||||
Granted | 8,012,915 | 0.40 | ||||||||||
Exercised | - | - | ||||||||||
Outstanding at June 30, 2010 | 12,545,618 | 0.42 | 2.66 | |||||||||
Granted | 600,000 | 0.25 | ||||||||||
Exercised | - | - | ||||||||||
Outstanding at June 30, 2011 | 13,145,618 | 0.41 | 1.69 | |||||||||
Vested and expected to vest at June 30, 2011 | 13,145,618 | 0.41 | 1.69 | |||||||||
Exercisable at June 30, 2011 | 13,145,618 | 0.41 | 1.69 |
Weighted- | |||||||
Average | |||||||
Weighted- | Remaining | ||||||
Average | Contractual | ||||||
Exercise | Life | ||||||
Warrants | Price | (Years) | |||||
Outstanding at January 29, 2007 (date of inception) | - | $ | - | - | |||
Granted | 409,440 | 0.37 | |||||
Exercised | - | - | - | ||||
Outstanding at June 30, 2008 | 409,440 | 0.37 | 2.75 | ||||
Granted | 4,123,263 | 0.46 | |||||
Exercised | - | - | |||||
Outstanding at June 30, 2009 | 4,532,703 | 0.45 | 3.18 | ||||
Granted | 8,012,915 | 0.40 | |||||
Exercised | - | - | |||||
Outstanding at June 30, 2010 | 12,545,618 | 0.42 | 2.66 | ||||
Granted | 600,000 | 0.25 | |||||
Exercised | - | - | |||||
Outstanding at June 30, 2011 | 13,145,618 | 0.41 | 1.69 | ||||
Granted | - | - | - | ||||
Exercised | - | - | - | ||||
Expired | 1,923,331 | 0.36 | - | ||||
Outstanding at June 30, 2012 | 11,222,287 | 0.42 | 0.85 | ||||
Vested at June 30, 2012 | 11,222,287 | 0.42 | 0.85 | ||||
Exercisable at June 30, 2012 | 11,222,287 | 0.42 | 0.85 |
There were no warrants granted in fiscal 2012. The weighted average grant date fair value of warrants granted during the years ended June 30,fiscal 2011 and 2010 amounted to $0.08 and $0.19, respectively.
The following table summarizes additional information concerning warrants outstanding and exercisable at June 30, 2011.
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||
Exercise | Number | Remaining | Exercise | Number | Exercise | |||||||||||||||||
Price | of Shares | Life (Years) | Price | of Shares | Price | |||||||||||||||||
$ | 0.20 - 0.37 | 2,939,374 | 1.77 | $ | 0.29 | 2,939,374 | $ | 0.29 | ||||||||||||||
0.42 - 0.58 | 10,206,244 | 1.67 | 0.45 | 10,206,244 | 0.45 | |||||||||||||||||
13,145,618 | 13,145,618 |
Warrants Outstanding | Warrants Exercisable | |||||||||||
Weighted | Weighted | Weighted | ||||||||||
Average | Average | Average | ||||||||||
Exercise | Number | Remaining | Exercise | Number | Exercise | |||||||
Price | of Shares | Life (Years) | Price | of Shares | Price | |||||||
0.20 - 0.37 | 1,939,374 | 1.37 | $ | 0.29 | 1,939,374 | $ | 0.29 | |||||
0.42 - 0.58 | 9,282,913 | 0.92 | 0.48 | 9,282,913 | 0.48 | |||||||
11,222,287 | 11,222,287 |
35
Note 11 - Income Taxes
Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to income before income tax expense as a result of the following:
Year Ended | Year Ended | |||||||
June 30, 2011 | June 30, 2010 | |||||||
Computed tax provision at statutory Federal rate | 34.0 | % | 34.0 | % | ||||
Increase (decrease) in taxes resulting from: | ||||||||
State taxes, net of Federal income tax benefit | 3.2 | % | 5.8 | % | ||||
Restricted stock compensation | -15.5 | % | 0.0 | % | ||||
Change in valuation allowance | -21.7 | % | -39.8 | % | ||||
Effective income tax rate | 0.0 | % | 0.0 | % |
Year Ended | Year Ended | |||||||
June 30, 2012 | June 30, 2011 | |||||||
Computed tax provision at statutory Federal rate | 34.0 | % | 34.0 | % | ||||
Increase (decrease) in taxes resulting from: | ||||||||
State taxes, net of Federal income tax benefit | 4.5 | % | 3.2 | % | ||||
Stock compensation and other permanent differences | 7.9 | % | -15.5 | % | ||||
Change in valuation allowance | -46.4 | % | -21.7 | % | ||||
Effective income tax rate | 0.0 | % | 0.0 | % |
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax asset at June 30, 20112012 and June 30, 20102011 relate to the following:
Year Ended | Year Ended | |||||||
June 30, 2011 | June 30, 2010 | |||||||
Net operating loss | $ | 2,830,000 | $ | 2,146,000 | ||||
Restricted stock compensation | 3,290,000 | 2,369,000 | ||||||
Other | 159,000 | 831,000 | ||||||
Valualtion allowance | (6,279,000 | ) | (5,346,000 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
Year Ended | Year Ended | |||||||
June 30, 2012 | June 30, 2011 | |||||||
Net operating loss | $ | 3,646,000 | $ | 2,830,000 | ||||
Stock compensation | 2,501,000 | 3,290,000 | ||||||
Other | 283,000 | 159,000 | ||||||
Valuation allowance | (6,430,000 | ) | (6,279,000 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
The Company files income tax returns in the United States ("Federal") and California ("State") jurisdictions. The Company is subject to Federal and State income tax examinations by tax authorities for all years since its inception.
At June 30, 2011,2012, the Company had Federal and State net operating loss carry forwards available to offset future taxable income of approximately $6.6$8.5 million and $6.7$8.5 million, respectively. These carry forwards will begin to expire in the years ending June 30, 2027 and June 30, 2017, respectively, subject to IRS limitations, including change in ownership.
The Company periodically evaluates the likelihood of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by a valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors when assessing the likelihood of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.
At June 30, 2011,2012, based on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, the Company determined that it was more likely than not that its deferred tax assets would not be realized. Accordingly, the Company has recorded a valuation allowance for 100% of its cumulative deferred tax assets.
As a result of the implementation of certain provisions of ASC 740-10, the Company performed an analysis of its previous tax filings and determined that there were no positions taken that it considered uncertain. Therefore, there were no unrecognized tax benefits as of June 30, 2011.
36
Future changes in the unrecognized tax benefit are not expected to have an impact on the effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized tax benefit will not change within the next twelve months. The Company will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in its consolidated statements of operations. There is no interest or penalties accrued as of June 30, 2011.
The following summarizes the open tax years for each major jurisdiction:
JurisdictionOpen Tax Years
Federal 2007 – 2010
California State 2006– 2010
The Company’sCompany's net operating loss carryforwards are subject to IRS examination until they are utilized and such tax years are closed.
Note 12 –- Commitments and Contingencies
Lease Agreements
The Company leases approximately 5,000 square feet of office and warehouse space at 10019 Canoga Ave in Chatsworth, California under a lease agreement which extends through February 1, 2012. Monthly rent under the extended lease agreement is $4,378 per month. The Company has a security deposit of $9,500 associated with this lease.
Year Ended | ||||
June 30, | ||||
2012 | 30,646 | |||
Total | $ | 30,646 |
Year Ended | ||
June 30, | ||
2013 | 31,563 | |
Total | $ | 31,563 |
Royalty Agreements
On July 1, 2008, our wholly owned subsidiary entered into Patent Assignment Agreements with two parties, our President andas well as our former CEO, and CEO/current CTO, where certain devices and methods involved in the hydrodynamic cavitation processes invented by the President and CTOthese two individuals, have been assigned to the Company. In exchange, the Company agreed to pay a royalty of 5% of gross revenues to each of the CTO and Presidentthese two individuals for licensing of the technology and leasing of the related equipment embodying the technology. These agreements were subsequently assigned to Cavitation Technologies on May 13, 2010. The Company’sCompany's CTO and President both waived their rights to receive royalty payments that have accrued, or that may accrue, on any gross revenue generated through June 30, 2011.
On April 30, 2008 (as amended November 22, 2010), our wholly owned subsidiary entered into an employment agreement with Varvara Grichko who became a memberthe Director of the Board of Directors in September 2010. Mrs. GrichkoChemical and Analytical Department (the "Inventor")who shall receive an amount equal to 5% of actual gross royalties received from the royalty stream in the first year in which the Company receives royalty payments from the patent which Mrs. Grichkothe Inventor was the legally named inventor, and 3% of actual gross royalties received by the Company resulting from the patent in each subsequent year.
37
Licensing Agreement
On November 1, 2010May 14, 2012, we signed a 3-yearR and D, Marketing and Technology License Marketing &Collaboration Agreement (the "Agreement")with N.V.n.v. Desmet Ballestra Group, S.A. (“Desmet”s.a. ("Desmet"). The Agreement provides Desmet (licensee) an exclusive license and right to develop, design and supply systems which incorporate Nano Reactor® devices on a global basis but limited to oils and fats and oleo chemical applications. CTi (licensor) remains owner of the current patents and patent applications but Desmet will be co-owner of any new process patent applications jointly developed. Desmet has agreed to provide limited monthly advance payments on future sales to CTi, if necessary. Payments made by Desmet during fiscal 2012 amounted to $125,000. Desmet shall be entitled to immediately terminate the present agreement givesin case the claims of current US Patent Application Number 12/484,981 are not granted as such or are cancelled. In addition, Desmet may terminate the exclusive worldwide license to market the CTIagreement on August 1 of any particular year if they have not installed at least 6 Nano Reactor System (“CTI System”)Reactor® devices in the field of vegetable oil processing (the “Licensed Field”). Under thisprevious 12 month period. CTi may terminate the Agreement Desmet is responsible for marketing the CTI System to end users in the Licensed Field, as well as the construction, installation and maintenance of the system. In consideration for services rendered, we agreed to pay Desmet a fee. We intend to generate revenues from the licensing of systems.material default. This agreementAgreement supersedes a previous agreement between the parties signed January 15, 2010. In subsequent amendments (attached hereto as exhibits) to the agreement dated November 1, 2010, Desmet agreed to guaranty results to end-users. We rely exclusivelyamended on our strategic partnership with Desmet to market,June 1, 2011 and distribute our Reactors to new customers.
Note 13 –- Subsequent Events
On December 6, 2011 we issued a convertible promissory note payable to the Prolific Group, LLC, in the amount of $25,000 with an interest rate of 6% p.a. and due December 6, 2012. During June 24,2012, a conversion request was submitted for $21,450 corresponding to 1,500,000 shares. These shares were subsequently returned to the Company in the first quarter of fiscal 2013, and the note was paid in full including a pre-payment premium of $12,500. On December 6, 2011 we issued a convertible promissory note payable to the Tripod Group, LLC, in the amount of $30,000 with an interest rate of 6% p.a. and due December 6, 2012. During the first quarter of fiscal 2013, the note was paid in full including a pre-payment premium of $15,000.
On July 12, 2012 we entered into a convertible promissory note with GEL Properties, LLC,Asher Enterprises, Inc. under which we issued a $52,500$53,000 convertible promissory note to GEL Properties, LLC.note. The note is due June 24, 2012April 13, 2013 and bears interest at a rate of six percent per annum.8% p.a. The note is convertible into shares of our common stock at a conversion price equal to 65%60% of the average day’s lowest closing bid out of the 5 trading dayslowest three (3) Trading Prices for the Common Stock during the ten Trading Day period ending on the latest complete Trading Day prior to conversion. The transaction was funded July 12, 2011.the Conversion Date. The note was issued in reliance on Section 4(2) of the Securities Act of 1933. The note was not offered via general solicitation to the public but solely to the aforementioned purchaser.public. No sales commissions or other remuneration was paid in connection with the issuance of this note.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Disclosure Controls and Procedures
In accordance with rule 13a-15(a), CTi management must maintain disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934, or the Exchange Act, to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and accumulated and communicated to the Company’sCompany's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Rule 13a-15(b) and (c), management must also evaluate the effectiveness of these disclosure control and procedures at the end of each fiscal year. As of June 30, 2011,2012, the Company carried out an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’sCompany's disclosure controls and procedures. Based upon that evaluation, the Company’sCompany's principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective as of June 30, 2011.
38
Report of Management on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’sCompany's internal control over financial reporting is designed under the supervision of our principal executive and principal financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’sCompany's assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’sCompany's receipts and expenditures are being made only in accordance with authorizations of the Company’sCompany's management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’sCompany's assets that could have a material effect on the financial statements.
In accordance Rule 13a–15(c)13a-15(c), as of the end of each fiscal year, management must evaluate the effectiveness of internal control over financial reporting. Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2011.2012. We evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”("COSO") inInternal Control —- Integrated Framework. Based on these criteria, management concluded that our internal control over financial reporting was effective as of June 30, 2011.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’sCompany's internal control over financial reporting during the quarter ended June 30, 20112012 that materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.
Attestation
Pursuant to Item 308(b) of Regulation S-K, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Wall Street Reform Act), this report does not include an attestation report of the Company’sCompany's registered public accounting firm regarding internal control over financial reporting. The Wall Street Reform Act permanently exempts small public companies from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls.
ITEM 9B. Other Information
Nothing to report.
39
Part III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Person | Age | Position | ||
Todd Zelek | 55 | CEO, Secretary & Director | ||
Igor Gorodnitsky | 52 | President & Director | ||
R.L. Hartshorn | 64 | CFO and Director | ||
Varvara Grichko | 55 | Director | ||
James Fuller | 71 | Director | ||
Audit committee but do not have a compensation committee.standing members consist of Todd Zelek, James Fuller, and R.L. Hartshorn. We anticipate forming compensation, governance, and other committees.
Todd Zelek.
Mr. Zelek has been our Chairman and CEO since June 14, 2011. Prior to joining the Company, Mr. Zelek was formerly a private investor and former Investment Banker. Mr. Zelek was formerly Managing Director, Internet Group Head and Co-Head of the Los Angeles Investment Banking office for Lehman Brother, Inc. from 1995 through 2001. Prior to that he was a Managing Director and head of the Thrift Industry practice at Salomon Brothers in Los Angeles and New York. He began his career as an Investment Banker at Smith Barney in 1982. Mr. Zelek earned a Master's degree from the Sloan School at MIT in 1982 and graduated with Distinction from Cornell University in 1979. He was a member of Phi Beta.Igor Gorodnitsky.
Mr. Gorodnitsky has been our President and member of the Board of Directors since September 26, 2008. Mr. Gorodnitsky developed expertise in handling and processing hazardous waste material. As a Senior Haz-Mat Specialist, he coordinated and successfully completed more than 500 emergency response Haz-mat clean-ups over the past 20 years. He coordinated and supervised Haz Mat projects, emergency and routine spill clean-ups, and confined space entry tasks. He coordinated and scheduled manpower and purchased and scheduled equipment and materials for containment and treatment of spills. He successfully managed, coordinated and supervised projects including Hazscanning, sampling, lab-packing, manifesting, profiling, labeling, and other special procedures for a variety of commercial clients and municipalities. He is a chemist by training and holds numerous certifications and licenses including Hazwoper Training Program, Confined Space Entry and Gas Vapour HazCating, Certified Uniform Waste Manifest Training, Basic and Intermediate HazCating, On-Scene Incident Commander Emergency, Site Remediation Methods, Underground Storage Tank Removal, Health & Safety Supervisor Certification, Hazardous Certification, and Tosco Refinery Safety. Mr. Gorodnitsky was president of Express Environmental Corp. since its inception in 1980 until he sold his interest in January 2009.R.L. Hartshorn
40
James Fuller
Varvara Grichko.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors, persons who own more than 10% of our common stock, and immediate family members living in the same household to file an Initial Statement of Beneficial Ownership on Form 3 and changes in ownership on Form 4 with the Securities and Exchange Commission (the "SEC"). Such "insiders" are required by SEC rules to furnish us with copies of all Section 16(a) forms they file.
Based on a review of Forms 3, 4, and 5 and amendments thereto furnished to us during fiscal 2012 ended June 30, 2012, the following delinquent filings were filed: Todd Zelek CEO, submitted one delinquent Form 3 and one delinquent Form 4 involving two transactions. James Fuller, Director, submitted one delinquent Form 4 involving three transactions. Varvara Grichko, member of the Board of Directors and Director of Research and Development for the Company, did not file one delinquent Form 4 involving four transactions.
Filing delinquencies from previous years included: R.L. Hartshorn, CFO and Board Member, filed one delinquent Form 4 relating to seven transactions. Igor Gorodnitsky, President and Director, filed one delinquent Form 4 involving two transactions. Roman Gordon, Chief Technology Officer and beneficial owner of more than 10% of the common stock, filed one delinquent Form 4 involving two transactions. James Fuller, Director, filed one delinquent Form 3 and one delinquent Form 4 involving six transactions. Varvara Grichko, member of the Board of Directors and Director or Research and Development for the Company, did not file one delinquent Form 3 and a Form 4 involving five transactions.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees. A copy may also be obtained free of charge by mailing a request in writing to: Cavitation Technologies, Inc., 10019 Canoga Ave., Chatsworth, CA 91311 USA. If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waiver from a provision of the Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver in a current report on Form 8-K.
41
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following table summarizes the compensation earned by each named executive officer of the Company for the past two fiscal years determined on the basis of rules adopted by the SEC relating to smaller reporting companies.
Non-Equity | Non-Qualified | All | |||||||||||||||||||||||||||
Stock | Option | Incentive Plan | Deferred | Other | |||||||||||||||||||||||||
Year | Salary | Awards (1) | Awards | Compensation | Compensation | Compensation | Totals | ||||||||||||||||||||||
Todd J. Zelek * | 2011 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
Chief Executive Officer | 2010 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
Roman Gordon * | 2011 | $ | 195,000 | (2) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 195,000 | |||||||||||||
Chief Technology Officer | 2010 | $ | 195,000 | $ | 800,000 | (4) | $ | - | $ | - | $ | - | $ | - | $ | 995,000 | |||||||||||||
Igor Gorodnitsky | 2011 | $ | 195,000 | (3) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 195,000 | |||||||||||||
President | 2010 | $ | 195,000 | (3) | $ | 800,000 | (5) | $ | - | $ | - | $ | - | $ | - | $ | 995,000 | ||||||||||||
R.L. Hartshorn | 2011 | $ | 56,250 | (6) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 56,250 | |||||||||||||
Chief Financial Officer | 2010 | $ | 63,750 | (6) | $ | 200,000 | (7) | $ | - | $ | - | $ | - | $ | - | $ | 263,750 |
Non-Equity | Non-Qualified | All | ||||||||||||||||||||||
Stock | Option | Incentive Plan | Deferred | Other | ||||||||||||||||||||
Year | Salary | Bonus | Awards (1) | Awards | Compensation | Compensation | Compensation | Totals | ||||||||||||||||
Todd J. Zelek * | 2012 | $ | 97,500 | (1) | $ | 46,290 | (2) | $ | 272,601 | (3) | $ | - | $ | - | $ | - | $ | 409,038 | ||||||
Chief Executive Officer | 2011 | $ | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
Igor Gorodnitsky | 2012 | $ | 146,250 | (4) | $ | $ | - | $ | - | $ | - | $ | - | $ | 146,250 | |||||||||
President | 2011 | $ | 195,000 | (4) | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | 195,000 | |||||||
R.L. Hartshorn | 2012 | $ | 60,000 | (5) | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | 60,000 | |||||||
Chief Financial Officer | 2011 | $ | 56,250 | (5) | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | 56,250 |
(1) For the year ended June 30, 2012, Mr. Zelek earned a base salary of $97,500 none ofwhich was paid in cash
(2) During 2012, Mr. Zelek received two million shares of stock valued at $46,290 as part of an employment
(3) During fiscal 2012, Mr. Zelek received 10,000,000 stock options half of which vested immediately and half of
which vest in one year. Option Awards are reported at the aggregate grant date fair value computed in
accordance with ASC 718.
(4) For the year ended June 30, 2011, Mr. Gorodnitsky earned a base salary of $195,000 but received only $157,500
in cash with the remaining $37,500 recorded as Accrued Payroll at June 30, 2011. For the year ended June 30,
2012, Mr. Gorodnitsky earned a base salary of $146,250 none of which was paid in cash and all of which was
recorded as accrued payroll as of June 30, 2012. Total accrued salary for Mr. Gorodnitsky at June 30, 2012
amounted to $227,798.
(5) For the year ended June 30, 2011, Mr. Hartshorn received an aggregate total of 375,000 shares of common stock
with an aggregate grant date fair value of $56,250 as compensation. For the year ended June 30, 2012, Mr.
Hartshorn earned a base salary of $60,000 none of which was paid in cash and all of which was recorded as
accrued payroll as of June 30, 2012. Total accrued salary for Mr. Hartshorn at June 30, 2012 amounted to
$100,000.
Messrs Zelek, Gorodnitsky, and Hartshorn also served as members of the Board of Directors during fiscal 2012 and part of their compensation was received for services provided as a board member.
42
Outstanding Equity Awards at Fiscal Year-End
The following table shows the outstanding equity-based awards that were held by our named executive officers as of June 30, 2011.
Option Awards | |||||||||||||||
Name | Grant Date for Options | Number of Securities Underlying Unexercised Options (#) Exercisable (1) | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | ||||||||||
R.L. Hartshorn | 7/21/2008 | 71,655 | - | $ | 0.33 | 8/31/2016 | |||||||||
7/21/2008 | 102,366 | - | $ | 0.67 | 8/31/2016 |
Option Awards | Stock Awards | ||||||||||||||||
Equity | Equity | Equity Incentive | |||||||||||||||
Incentive | Market | Incentive | Plan Awards: | ||||||||||||||
Number | Number | Plan Awards | value of | Plan Awards | market or | ||||||||||||
of securities | of securities | # of Securities | # of Shares | Shares | # of Unearned | payout value of | |||||||||||
Underlying | Underlying | underlying | or units of | or units of | Shares, units | unearned shares, | |||||||||||
Unexercised | Unexercised | Unexercised | Option | Option | stock that | stock that | or other | units or other | |||||||||
Options | Options | Unearned | Exercise | expiration | have not | have not | rights that | rights that have | |||||||||
Name | # Exercisable | # Unexercisable | Options | Price | date | vested | vested | have not vested | not vested | ||||||||
Todd J. Zelek | 5,000,000 | 5,000,000 | - | $ 0.03 | 2/16/2022 | - | $ - | - | $ - | ||||||||
Chief Executive Officer | |||||||||||||||||
Igor Gorodnitsky | - | - | - | $ - | - | 3,000,000 | $ 90,000 | - | $ - | ||||||||
President | |||||||||||||||||
R.L. Hartshorn | 102,366 | $ - | - | $ 0.67 | 8/31/2016 | $ - | - | $ - | |||||||||
Chief Financial Officer | 71655 | $ 0.33 | 8/31/2016 |
We do not offer retirement benefit plans to our executive officers.
Compensation
The following table sets forth certain information with respect to the compensation paid to our directors for the past fiscal year,2012 determined on the basis of rules adopted by the SEC relating to smaller reporting companies.
Stock Awards (1) | Totals | |||||||
James Fuller | $ | 19,875 | (2) | $ | 19,875 | |||
Varvara Grichko | $ | 3,100 | (3) | $ | 3,100 |
(1) In fiscal 2012, Mr. Fuller received an aggregate 112,500 shares |
(2) In fiscal 2012, for paymentsservices as Director, Ms. Grichko received 10,000 shares of common stock with
a grant date fair value of $386. She also received 35,000 shares for services related to a named executive officerDirector of R&D.
Her accrued salary as Director of R&D for the Company at or in connection with the resignation, retirement or other termination of a named executive officer, or a change in control of the company or a change in the named executive officer's responsibilities following a change in control.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the number of shares of our common stock known by us to be owned beneficially as of June 30, 20112012 and the date hereof by: (i) each person (including any group) that owns more than 5% of any class of the voting securities of our company; (ii) each director and officer of our company; and (iii) directors and officers as a group. Unless otherwise indicated, the stockholders listed possess sole voting and investment power with respect to the shares shown. The address for all directors and officers, unless otherwise indicated, is 10019 Canoga Avenue, Chatsworth, CA 91311.
Amount and | ||||||||||
Nature of | ||||||||||
Title of | Beneficial | Percent of | ||||||||
Name of Beneficial Owner | Class | Owner | Class (1) | |||||||
Todd J. Zelek * | Common Stock | - | * | |||||||
Chief Executive Officer and Chairman of the Board | ||||||||||
Roman Gordon | Common Stock | 20,323,475 | 13.2 | % | ||||||
Chief Technology Officer | ||||||||||
Igor Gorodnitsky | Common Stock | 20,323,475 | 13.2 | % | ||||||
President | ||||||||||
R.L. Hartshorn | Common Stock | 2,051,387 | 1.3 | % | ||||||
Chief Financial Officer | ||||||||||
James Fuller | Common Stock | 410,183 | * | |||||||
Director and Chairman of Audit Committee | ||||||||||
Varvara Grichko | Common Stock | 399,021 | * | |||||||
Director | ||||||||||
BioWorld Management LTD | Common Stock | 10,226,183 | 6.6 | % | ||||||
Directors and Officers | Common Stock | 43,507,541 | 28.3 | % | ||||||
(as a group, five individuals) |
Amount and | |||||||||||
Nature of | |||||||||||
Title of | Beneficial | Percent of | |||||||||
Name of Beneficial Owner | Class | Ownership | Class (1) | ||||||||
Todd J. Zelek * | Common Stock | 2,000,000 | 1.2% | (2) | |||||||
Chief Executive Officer and Chairman of the Board | |||||||||||
Igor Gorodnitsky | Common Stock | 20,323,475 | 12.0% | ||||||||
President | |||||||||||
R.L. Hartshorn | Common Stock | 1,877,366 | 1.1% | (3) | |||||||
Chief Financial Officer | |||||||||||
James Fuller | Common Stock | 337,500 | * | ||||||||
Chairman of Audit Committee | |||||||||||
Varvara Grichko | Common Stock | 490,183 | * | (4) | |||||||
Director | |||||||||||
Roman Gordon | Common Stock | 20,323,475 | 12.0% | (5) | |||||||
Chief Technology Officer | |||||||||||
BioWorld Management LTD | Common Stock | 9,500,000 | 5.6% | ||||||||
Directors and Officers | Common Stock | 23,028,524 | 14.8% | ||||||||
(as a group, five individuals) |
* Less than 1%
(1) Based on 168,782,063 issued and outstanding shares of common stock as of June 30, 2012.
(2) In addition, Mr. Zelek has the right to acquire 5,000,000 shares of common stock through stock options.
(3) In addition, Mr. Hartshorn has the right to acquire 174.021 shares of common stock through stock options.
(4) In addition, Dr. Grichko has the right to acquire 1,520,600 shares of common stock through stock options. Dr. Grichko is alsoDirector of R&D for the Company.
(5) Mr. Gordon is neither a director nor an officer of the Company but he is owner of more than 10% of the outstanding stock.
For details regarding stock options, please refer toNotes to the Financial Statements - Note 10 Stockholder's Equity.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Related Party Transactions
Other than compensation agreements and other arrangements with our executive officers and directors and the transactions described below, during our last two fiscal years, there has not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years and in which any of our directors, executive officers, holders of more than five percent of any class of our voting securities or any member of the immediate family of the foregoing persons had or will have a direct or indirect material interest.
Related Party Payables
On December 27, 2011 the Company's CEO, Todd Zelek, extended to the Company a short term loan due on demand of $100,000 at an annual interest rate of 12%. At June 17, 2011we granted 3,000,000 shares valued30, 2012, the outstanding balance remained $100,000 along with $6,000 in accrued interest.
During fiscal 2012, the Company provided a $15,000 advance against future reimbursable company expenses to our President and Board Member, Igor Gorodnitsky. This amount was subsequently used and the outstanding balance on June 30, 2012 was $0. The Company provided an advance against future reimbursable company expenses of $15,000 to Roman Gordon, Chief Technology Officer, sibling of Igor Gorodnitsky, and owner of more than 5% of the outstanding common stock. The outstanding balance at $254,595June 30, 2012 was $15,000.
During the course of fiscal 2012, various affiliates incurred expenses on behalf of the company. The outstanding balance at June 30, 2012 was $59,608 but this amount was reduced to Bioworld Management Ltd.less than $10,000 as compensation for research and development related engineering and consulting services. As of the date of the transaction, the total number of shares recorded by the transfer agent owned by Bioworld Management Ltd., and its beneficial owner, Maxim Promtov, amounted to 10,226,183, or 6.65% of the then outstanding 153,836,471 shares. As a result, Bioworld Management and Maxim Promtov are considered related parties. Bioworld had an existing relationship with the Company by virtue of a Consulting Agreement dated November 1, 2010 and the payment of these shares was for additional services provided.
Refer to Footnote 8,Related Party Short-Term Loans,Loan and Payables, and Note 12,Commitments and Contingencies,Royalty Agreements, for a description of our related party transactions with our executive officers during the fiscal year ended June 30, 2011.
Director Independence
As our common stock is currently traded on the OTC Bulletin Board, we are not subject to the rules of any national securities exchange which require that a majority of a listed company’scompany's directors and specified committees of the board of directors meet independence standards prescribed by such rules. For the purpose of preparing the disclosures in this Report on Form 10-K regarding director independence, we have used the definition of “independent director”"independent director" set forth in the Marketplace Rules of The NASDAQ, which defines an “independent director”"independent director" generally as a person other than an executive officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’sCompany's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Consistent with these standards, we believe that James Fuller is an Independent Financial Expert and independent director.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit
Our principal auditing firm is Rose, Snyder, and Jacobs. During fiscal 20112012 and 2010,2011, we incurred expenses of $57,950$63,509 and $97,113,$57,950 respectively for professional services rendered for the audit of our annual financial statements and review of quarterly financial statements included on Form 10-Q.
Tax Fees
The aggregate fees billed in fiscal 20112012 and fiscal 20102011 for professional services rendered by the principal accountant for tax preparation amounted to $6,800$10,600 and $10,300 respectively.
Audit Committee
The charter of the Audit Committee provides that the Audit Committee pre-approves all audit services and permitted non-audit services to be performed for CTi by its independent public accounting firm, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act.
Part IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this annual report on Form 10-K:
The financial statements are filed as part of this report under Item 8 “Financial"Financial Statements and Supplementary Data”Data".
All other schedules are omitted because they are not applicable or the required information is presented in the financial statements and notes thereto.
The exhibits required by Item 601 of Regulation S-K are included in Item 15(b) below.
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(b) –- Exhibits.
Incorporated by Reference | ||||||||||||
Exhibit | Filed | |||||||||||
Number | Exhibit Description | Herewith | Form | Pd. Ending | Exhibit | Filing Date | ||||||
3(i)(a) | Articles of Incorporation - original name of Bioenergy, Inc. | SB-2 | N/A | 3.1 | October 19, 2006 | |||||||
3(i)(b) | Articles of Incorporation - Amended and Restated | 10-Q | December 31, 2008 | 3.1 | February 17, 2009 | |||||||
3(i)( c ) | Articles of Incorporation - Amended and Restated | 10-Q | June 30, 2009 | 3.1 | May 14, 2009 | |||||||
3(i)(d) | Articles of Incorporation - Amended; increase in authorized shares | 8K | N/A | N/A | October 29, 2009 | |||||||
3(i)(e) | Articles of Incorporation - Certificate of Amendment; forward split | 10Q | September 30, 2009 | 3.1 | November 16, 2009 | |||||||
3(ii)(a) | By-laws - originally Bioenergy, Inc. | SB-2 | N/A | 3.2 | October 19, 2006 | |||||||
10.1 | Convertible Promissory Note Agreement by and between the Company and Tripod Group, LLC dated February 1, 2011 | X | ||||||||||
10.2 | Convertible Promissory Note Agreement by and between the Company and Asher Enterprises, Inc dated February 8, 2011 | X | ||||||||||
10.3 | Convertible Promissory Note Agreement by and between the Company and Asher Enterprises, Inc dated June 6, 2011 | X | ||||||||||
10.4 | Warrant Agreement with Pinnacle Financial Group and Insurance Services, Inc. date November 22, 2010 | X | ||||||||||
10.5 | Employment Agreement by and between the Company and Roman Gordon | X | ||||||||||
10.6 | Employment Agreement by and between the Company and Igor Gorodnitsky | X | ||||||||||
10.7 | Employment Agreement by and between the Company and R.L. Hartshorn | 10-Q | December 31, 2010 | 10.2 | February 12, 2011 | |||||||
10.8 | Employment Agreement by and between the Company and Varvara Grichko | 10-Q | December 31, 2010 | 10.3 | February 12, 2011 | |||||||
10.9 | Amendment #1 to the Confidentiality and Invention Assignment Agreement by and between the Company and Varvara Grichko | X | ||||||||||
10.10 | Loan Renewal Agreement with National Bank of California dated August 1, 2010 | X | ||||||||||
10.11 | Loan Extension and Change in Terms Agreement with National Bank of California dated November 1, 2010 | X | ||||||||||
14.1 | Code of Business Conduct and Ethics* | X | ||||||||||
31.1 | Certificate of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | X | ||||||||||
31.2 | Certificate of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | X | ||||||||||
32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted | X | ||||||||||
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||||||
32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted | X | ||||||||||
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||||||
99.1 | Unregistered Sale of Equity Securities | 8K | June 30, 2011 | N/A | July 15, 2011 | |||||||
99.2 | Departure/Appointment of Directors/Officers | 8K | June 30, 2011 | N/A | June 20, 2011 | |||||||
* In accordance with Regulation S-K 406 of the Securities Act of 1934, we undertake to provide to any person | ||||||||||||
without charge, upon request, a copy of our “Code of Business Conduct and Ethics”. A copy may be requested | ||||||||||||
by sending an email to info@cavitationtechnologies.com. |
Exhibit | Filed | Incorporated by Reference | ||||
Number | Exhibit Description | Herewith | Form | Period Ended | Exhibit | Filing Date |
3(i)(a) | Articles of Incorporation - original name of Bioenergy, Inc. | SB-2 | N/A | 3.1 | October 19, 2006 | |
3(i)(b) | Articles of Incorporation - Amended and Restated | 10-Q | December 31, 2008 | 3-1 | February 17, 2009 | |
3(i)( c ) | Articles of Incorporation - Amended and Restated | 10-Q | June 30, 2009 | 3-1 | May 14, 2009 | |
3(i)(d) | Articles of Incorporation - Amended; increase in authorized shares | 8K | N/A | N/A | October 29, 2009 | |
3(i)(e) | Articles of Incorporation - Certificate of Amendment; forward split | 10Q | September 30, 2009 | 3-1 | November 16, 2009 | |
10.1 | Patent Assignment Agreement between the Company and Roman Gordon dated July 1, 2008. | 8K | June 30, 2009 | 10.1 | May 18, 2010 | |
10.2 | Patent Assignment Agreement between the Company and Igor Gorodnitsky dated July 1, 2008. | 8K | June 30, 2009 | 10.2 | May 18, 2010 | |
10.3 | Assignment of Patent Assignment Agreement between the Company and Roman Gordon | 8K | June 30, 2009 | 10.3 | May 18, 2010 | |
10.4 | Assignment of Patent Assignment Agreement between the Company and Igor Gorodnitsky | 8K | June 30, 2009 | 10.4 | May 18, 2010 | |
10.5 | Employment Agreement between the Company and Roman Gordon date March 17, 2008 | 10K/A | June 30, 2009 | 10.3 | October 20, 2011 | |
10.6 | Employment Agreement between the Company and Igor Gorodnitsky dated March 17, 2008 | 10K/A | June 30, 2009 | 10.4 | October 20, 2011 | |
10.7 | Employment Agreement with R.L. Hartshorn datedSept. 22, 2009 | 10-Q | December 31, 2011 | 10.70 | February 10, 2012 | |
10.8 | Employment and Confidentiality and Invention Assignment Agreement between the Company and Varvara Grichko dated April 30, 2008 | 10-Q | December 31, 2010 | 10.3 | February 11, 2011 | |
10.9 | Board of Director Agreement - James Fuller | 10-Q | December 31, 2011 | 10.12 | October 20, 2011 | |
10.10 | Technology and License Agreement with Desmet Ballestra dated 14 May 2012 | X | ||||
10.11 | Short Term Loan Agreement - CEO | X | ||||
10.13 | Convertible Note Payable - Prolific Group LLC - $25,000 | 10-Q | December 31, 2011 | 10.40 | February 10, 2012 | |
10.14 | Convertible Note Payable - Tripod Group LLC - $30,000 | 10-Q | December 31, 2011 | 10.41 | February 10, 2012 | |
10.15 | Loan Agreement - Desmet Ballestra - Oct. 26, 2010 | 10-Q | December 31, 2011 | 10.43 | February 10, 2012 | |
14.1 | Code of Business Conduct and Ethics* | 10-K | June 30, 2011 | 14.1 | September 28, 2011 | |
31.1 | Certificate of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | X | ||||
31.2 | Certificate of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | X | ||||
32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted | X | ||||
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||
32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted | X | ||||
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||
101.INS** | XBRL Instance Document | X | ||||
101.SCH** | XBRL Taxonomy Extension Schema | X | ||||
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase | X | ||||
101.DEF** | XBRL Taxonomy Extension Definition Linkbase | X | ||||
101.LAB** | XBRL Taxonomy Extension Label Linkbase | X | ||||
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase | X | ||||
* | In accordance with Regulation S-K 406 of the Securities Act of 1934, we undertake to provide to any person | |||||
without charge, upon request, a copy of our "Code of Business Conduct and Ethics". A copy may be requested | ||||||
by sending an email to info@cavitationtechnologies.com. | ||||||
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a | |||||
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section | ||||||
18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. |
(c) –- Financial Statement Schedules
See Item (a) 2 above.
47
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED
SIGNATURE | TITLE | DATE | ||
/s/ | ||||
(Principal Executive Officer) | ||||
/s/ R.L. Hartshorn | Chief Financial Officer | |||
R.L. Hartshorn | (Principal Financial Officer) | |||
/s/ | ||||
48