The following table summarizes information about outstanding stock options as of September 30,December 31, 2010.
| | | | 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 | | | | 2.27 | | | $ | 0.29 | | | | 2,939,374 | | | $ | 0.29 | |
| | 0.42 - 0.58 | | | | 10,206,244 | | | | 2.16 | | | | 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 | | | | 2,339,374 | | | | 2.36 | | | $ | 0.30 | | | | 2,339,374 | | | $ | 0.30 | |
| 0.42 - 0.58 | | | | 10,206,244 | | | | 2.42 | | | | 0.45 | | | | 10,206,244 | | | | 0.45 | |
| | | | | 12,545,618 | | | | | | | | | | | | 12,545,618 | | | | | |
Note 9 - Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Under ASC 270, Interim Financial Reporting, the Company is required to adjust its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company is also required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter based upon the mix and timing of actual earnings versus annual projections. The Company has estimated its annual effective tax rate to be zero. This is based on an expectation that the Company will generate net operating losses in the year ending June 30, 2011, and it is not more likely than not that those losses will be recovered using future taxable income. Therefore, no provision for income tax or tax liability has been recorded as of and for the period ended September 30,December 31, 2010.
ASC 740-10, Accounting for Uncertainty in Income Taxes, indicates criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in the financial statements. ASC 740-10 includes a higher standard that tax benefits must meet before they can be recognized in a company’s financial statements. As the Company has no uncertain tax positions as defined in ASC 740, there are no corresponding unrecognized tax benefits. Any future changes in the unrecognized tax benefit will have no impact on the Company’s effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized tax benefit will not change significantly within the next twelve months. It is the Company’s policy to classify income tax penalties and interest, if any, as part of general and administrative expense in its Statements of Operations. The Company has not incurred any interest or penalties since inception.
Note 10 - Commitments and Contingencies
Lease Agreements
On December 30, 2009, the Company extended its existing lease agreement for approximately 5,000 square feet of office and warehouse space at 10019 Canoga Ave for a period of two years effective February 1, 2010. Monthly rent under the extended lease agreement is $4,250 per month. The Company has a security deposit of $9,500 associated with this lease.
Total rent expense was $12,750, $15,118,$25,500, $30,235, and $212,533$226,183 for the threesix months ended September 30,December 31, 2010 and 2009, and for the period from January 29, 2007 (date of inception) through September 30,December 31, 2010, respectively. Total rent expense was $12,750 and $15,118 for the three months ended December 31, 2010 and 2009, respectively.
Future minimum lease payments under non-cancelable operating leases are as follows.
Year Ended | | | |
June 30, | | | |
| | | |
2011 (remainder of) | | | 25,500 | |
2012 | | | 29,750 | |
Total | | $ | 55,250 | |
Year Ended | | | |
June 30, | | | |
| | | |
2011 (remainder of) | | | 38,250 | |
2012 | | | 29,750 | |
Total | | $ | 68,000 | |
Royalty Agreements
The Company has
On July 1, 2008, our wholly owned subsidiary entered into Patent Assignment Agreements with each of itsour President and CEO where certain devices and methods involved in the hydrodynamic cavitation processes invented by the President and CEO have been assigned to the Company. In exchange, the Company agreed to pay a royalty of 5% of future gross revenues to each of the CEO and President for future licensing, leasing, or rental revenue generated from products using the assigned technologies. In connection withThese were subsequently assigned to Cavitation Technologies on May 13, 2010.
On April 30, 2008, our wholly owned subsidiary entered into an employment agreement with Varvara Grichko, a key employee formember of the Board of Directors. For any technologies invented by the employee,Ms. Grichko, the Company shall pay a royalty of 5% of future revenues received in the first year and 3% in subsequent years from licensing, leasing, or rental revenues associated with patents assigned from the employee.
During the three months ended December 31, 2010, we incurred royalty expenses relating to these agreements. As of September 30,December 31, 2010, the Companywe had not paid any amounts related to these royalties.royalties, and the amounts are reflected in accrued expenses on the accompanying balance sheet.
Licensing Agreement
On November 15, 2010 we signed a Technology License, Marketing &Collaboration Agreement with N.V. Desmet Ballestra Group S.A. (“Desmet”). The agreement gives Desmet the exclusive worldwide license to market the CTI Nano Reactor System (“CTI System”) in the field of vegetable oil processing (the “Licensed Field”). Under this Agreement, Desmet is responsible for the marketing of 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. This agreement supersedes a previous agreement between the parties signed January 15, 2010.
As of December 31, 2010, the Company received advances of $67,896 from Desmet to assist with funding the production of specific CTI Systems. The Company has agreed to pay these amounts back at the time the systems are sold or licensed. These amounts are reflected as Advances on the accompanying consolidated balance sheets as of December 31, 2010 and June 30, 2010.
Note 11 – Subsequent Events
The company became listed on the Frankfurt (Germany)On January 10, 2011, we issued 110,000 restricted shares of common stock exchange and began trading October 27, 2010 under the trading symbol WTC.to Anita McCormick for a total purchase price of $12,100.
On October 25,January 10, 2010, we received a purchase orderissued 31,836 shares of common stock to Michael Psomas for a 10 gallons/minute NANO Neutralization System. The purchase order requires delivery before December 9, 2010. This agreement is attached as Exhibit 99.2.accounting services.
On October 26,January 10, 2010, we issued 76,080 shares of common stock to Tomer Tal for legal services.
On January 10, 2011, we issued 9,000 shares of common stock to Shannon Stokes for administrative services.
On February 1, 2011, we issued convertible promissory notes in an amount equal to $61,212 to the Tripod Group, LLC. The notes bear interest rate of 6% per annum and have a maturity of one year or less. The holder of the notes may elect to convert the outstanding principal and accrued interest into shares of our 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.
On Feb 8, 2011 the Company entered into a loan agreementSecurities Purchase Agreement with Desmet Ballestra North America,Asher Enterprises, Inc. under which we receivedAsher Enterprises, Inc. purchased a loanconvertible promissory note in the amount of $75,000.$42,500. The loanconvertible promissory note bears no interest at a rate of 8% p.a. and is repayablematures on Nov 10, 2011. The holder of the note may elect to convert principal and accrued interest into shares of common stock at $25,000 per month beginning January 25, 2011. This document is attached as Exhibit 99.1.a conversion price equal to 58% of the average lowest closing bid prices of the Company’s common stock for 3 of any 10 trading days prior to conversion.
On October 1, 2010, the Board of Directors granted 1,134,517 common shares including 661,000 shares to equity investors valued at $79,320 and 473,517 shares issued to service providers.
On November 1, 2010, the Board of Directors granted 2,422,265 common shares including 1,400,000 shares to equity investors valued at $140,000 and 1,022,265 shares issued to service providers.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements and the related notes. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as its plans, objectives, expectations and intentions. Its actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.
Overview
We design and engineer NANO technology based systems that are designed to serve large, growing, global markets such as vegetable oil refining, renewable fuels, water purification, alcoholic beverage enhancement, algae oil extraction, water-oil emulsions and crude oil yield enhancement. To date,During the three months ended December 31, 2010, we have sold no products and have recorded no revenue.revenue of $248,600. Our cumulative loss since inception on January 29, 2007 through September 30, 2010 is $14,537,312.$15,355,089, including $10,464,131 in common stock issued for services. Cumulative net cash used in operating activities of $3,024,179$3,151,131 was funded largely with approximately $2.5 million$2,816,588 in proceeds from equity sales, including proceeds of $725,000 from the sale of preferred stock and $500,000$235,000 from convertible debt, and $498,760 in a bank loan. Our investment in research and development since inception on January 29, 2007 through December 31, 2010 is $4,864,653$4,969,470, consisting of $2,713,195$2,737,662 paid in cash and $2,151,458$2,231,808 paid in restricted stock primarily to service providers. We have four full-time employees and no part-time employees.
The company is focused on merchandising our NANO Neutralization System – a vegetable oil refining system that employs our proprietary continuous flow-through, hydrodynamic NANO Technology in the form of our multi-stage NANO Series of reactors. The principleprincipal market for our systems includes the approximate 300 major global refiners who process vegetable oils including soybean, canola and rapeseed. The finished product is used for human consumption as well as animal feed. To date, we have not sold or licensed productsone system and have recorded nonominal revenue.
Management’s Plan
We are a development stage entity engaged in merchandising our NANO Neutralization System which is designed to help refine vegetable oils such as soybean, canola, and rapeseed. Our near term goal is to successfully merchandise our systems. We have no significant operating history and, from January 29, 2007, (inception), through September 30,December 31, 2010, generated a net loss of $14,537,312.$15,355,089. We also have negative cash flow from operations and negative net equity. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going concern.
Management’s plan is to generate income from operations by successfully finalizing arrangements with prospective clients. We will also attempt to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’s needs, or that the Company will be able to meet its future contractual obligations. Should management fail to obtain such financing, the Company may curtail its operations.
Critical Accounting Policies
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 estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to stock options, warrants, and common stock issued for services, among others. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
We recognize revenue when an arrangement 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
The Company received total deposits of $104,484$16,950 as September 30,of December 31, 2010 from prospective customers relating to potential ordersfabrication of the Company’s NANO Neutralization System and Bioforce 9000 Reactor Skid Systems. Because these transactions have not yet been fully completed, these amounts have been reflected in deferred revenue on the accompanying consolidated balance sheet as of September 30,December 31, 2010.
Patents
Capitalized patent costs represent legal fees associated with procuring and filing patent applications. We accountThe Company accounts for patents in accordance with ASC 350-30, General Intangibles Other Than Goodwill. As of September, 30,December 31, 2010, the Company had incurred $92,284 in gross patent costs less $569 in amortization. These costswhich are capitalized in the accompanying consolidated balance sheet. WeThe Company had one patent issued during the threesix months ended September 30,December 31, 2010 which is being amortized over an estimated useful life of 4 years. The patent has a duration through February 27, 2029. For the three and six months ended September 30,December 31, 2010, amortization amounted to $569. We are$806 and $1,375, respectively. In addition to one approved patent, we have 10 pending United States patents and 10 pending international patent applications filed under the Patent Corporation Treaty. The Company is awaiting final approval and issuance of these additional pending patents. Once the patents are issued, wethe Company will begin amortizing the capitalized patent costs over their estimated useful lives. CTi also received the “CE Marking” certification which allows us to market our systems in the European Union. We plan to continue to file for new and improved patents on a regular basis.
Intangible and Long-Lived Assets
In accordance with ASC 350-30, we evaluate 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, 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.
Stock-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.
Income Taxes
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 currently effective 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 classify interest and penalties as a component of interest and other expenses. To date, there have been no interest or penalties assessed or paid. 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.
Deferred costs
Deferred costs represent costs associated with customizing specific units of our NANO Neutralization System that we plan to lease or rent in the short term.rent. The direct costs incurred by the Company associated with manufacturing the products have been capitalized and reflected as deferred costs on the balance sheet. When sales or licensing of the specific products are made, the amounts recorded as Deferred Costsdeferred costs will be expensed.expensed as cost of sales.
Results of Operations for the Three Months Ended December 31, 2010 Compared to the Three Months Ended December 31, 2009
The following is a comparison of our results of operations for the three months ended September 30,December 31, 2010 and 2009.
| | For the Three Months Ended | | | | | | | |
| | December 31, | | | | | | | |
| | 2010 | | | 2009 | | | $ Change | | | % Change | |
| | (Unaudited) | | | (Unaudited) | | | | | | | |
| | | | | | | | | | | | |
Revenue | | $ | 248,600 | | | $ | - | | | $ | 248,600 | | | | 100.0 | % |
Cost of sales | | | 36,700 | | | | - | | | | 36,700 | | | | 100.0 | % |
Gross profit | | | 211,900 | | | | - | | | | 211,900 | | | | 100.0 | % |
General and administrative expenses | | | 915,316 | | | | 1,249,554 | | | | (334,238 | ) | | | -26.7 | % |
Research and development expenses | | | 104,817 | | | | 91,968 | | | | 12,849 | | | | 14.0 | % |
Total operating expenses | | | 1,020,133 | | | | 1,341,522 | | | | (321,389 | ) | | | -24.0 | % |
Loss from operations | | | (808,233 | ) | | | (1,341,522 | ) | | | 533,289 | | | | -39.8 | % |
Interest expense | | | (9,544 | ) | | | (10,167 | ) | | | 623 | | | | -6.1 | % |
Loss before income taxes | | | (817,777 | ) | | | (1,351,689 | ) | | | 533,912 | | | | -39.5 | % |
Income tax expense | | | - | | | | - | | | | - | | | | 0.0 | % |
Net loss | | $ | (817,777 | ) | | $ | (1,351,689 | ) | | | 533,912 | | | | -39.5 | % |
19
| | For the Three Months Ended | | | | | | | |
| | September 30, | | | | | | | |
| | 2010 | | | 2009 | | | $ Change | | | % Change | |
| | | | | | | | | | | | |
General and administrative expenses | | $ | 909,131 | | | $ | 3,077,874 | | | $ | (2,168,743 | ) | | | -70.5 | % |
Research and development expenses | | | 241,253 | | | | 62,965 | | | | 178,288 | | | | 283.2 | % |
Total operating expenses | | | 1,150,384 | | | | 3,140,839 | | | | (1,990,455 | ) | | | -63.4 | % |
Loss from operations | | | (1,150,384 | ) | | | (3,140,839 | ) | | | 1,990,455 | | | | -63.4 | % |
Interest expense | | | (12,693 | ) | | | (83,582 | ) | | | 70,889 | | | | -84.8 | % |
Loss before income taxes | | | (1,163,077 | ) | | | (3,224,421 | ) | | | 2,061,344 | | | | -63.9 | % |
Income tax expense | | | - | | | | - | | | | - | | | | 0.0 | % |
Net loss | | $ | (1,163,077 | ) | | $ | (3,224,421 | ) | | | 2,061,344 | | | | -63.9 | % |
Revenue
During the three months ended December 31, 2010, our revenue consisted primarily of a sale 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 also recognized revenue of $35,000 associated with the rental of a NANO Neutralization System. From May through November 2010, we received monthly rental payments of $5,000 from a commercial vegetable oil refining plant located in South Carolina. These payments were received as compensation for use of our NANO Neutralization System. This facility was sold in mid December 2010 and will be used for purposes other than soybean oil refining. As a result, we will receive no further monthly rental payments from this facility. The equipment has been returned to us and we expect to use it in another facility.
We also recognized $26,000 in revenue associated with the sale of a Bioforce 9000 Reactor Skid System.
We had no revenue during the three months ended December 31, 2009.
Cost of Sales
During the three months ended December 31, 2010, our cost of sales amounted to $36,700 which was the result of the revenue transactions described above. We had no cost of sales during the three months ended December 31, 2009, as we had no sales during that period. One of the units sold in 2010 was a prototype, and as a result much of the associated cost was expensed in a prior year. As a result, we do not expect our gross profit percentage to be as high on future sales.
Operating Expenses
Our operating expenses for the three months ended September 30,December 31, 2010 amounted to $1,150,384$1,020,133 compared with $3,140,839$1,341,522 in 2009, a decrease of $1,990,455,$321,389, or 63.4%24.0%. The decrease consisted of a decrease in general and administrative expenses in 2010 of $2,168,743,$334,238, or 70.5%26.7%, offset by an increase in research and development expenses of $178,288,$12,849, or 283.2%14.0%. These components of our operating expenses increased primarily due to the following.
Our general and administrative expenses decreased by $2,168,743$334,238 for the three months ended September 30,December 31, 2010 as compared to 2009. This decrease is primarily due to a decrease in our expenses related to the issuance of 17,938,011share-based compensation as payment for services. During the three months ended December 31, 2009, we issued 1,985,670 shares of common stock valued at $2,805,282 issued during the three months ended September 30, 2009$562,667 to consultants, service providers and other key personnel who contributed to the success of the Company. During the three months ended September 30,December 31, 2010, we issued 2,515,7722,053,055 shares of common stock valued at $451,525$266,187, including $247,275$185,837 in G&Ageneral and administrative expenses and $80,350 in research and development expenses. We also issued 600,000 warrants as payment for services and $204,250 in R&D. We also recognized the quarterly amortization of $395,285 in restricted stock issued for services during the yearthree months ended June 30, 2010.December 31, 2010 resulting in $46,734 in general and administrative expenses. As a result, our total share-based general and administrative expenses relating to share-based compensation decreased by $330,096. The primary reason for this decrease is due to the decrease in the value of our common stock in 2010 as compared to 2009. During the three months ended December 31, 2010, our common stock had an average value per share of approximately $0.13 per share, as compared with an average value per share of approximately $0.29 during the three months ended December 31, 2009. The remaining expenses for the three months ended September 30, 2010 amounted to $642,560. Share based compensation, therefore declined by $2,162,722 from $2,805,282 to $642,560 during the three months ended September 30, 2010. The remaining expenses for the periods ending September 30,December 31, 2010 and 2009 consisted largelymostly of compensation expense and professional fees for legal, audit, and accounting services.services which remained fairly consistent between the periods.
Our research and development expenses increased by $178,288$12,849 for the three months ended September 30,December 31, 2010 as compared to 2009. This increase is primarily due to the issuance of common stock valued at $204,250$80,350 and issued to consultants that were added in 2010 involved in research and development. There was no such expense in 2009. The increase was offset by a general decrease in research and development spending in 2010 due to cash flow constraints.
Interest Expense
Our interest expense decreased by $70,889,$623, or 84.8%6.1%, for the three months ended SeptemberDecember 31, 2010 as compared to 2009. This decrease was primarily due to a decrease in the outstanding balance of the loan in 2010.
Results of Operations for the Six Months Ended December 31, 2010 Compared to the Six Months Ended December 31, 2009
The following is a comparison of our results of operations for the six months ended December 31, 2010 and 2009.
| | For the Six Months Ended | | | | | | | |
| | December 31, | | | | | | | |
| | 2010 | | | 2009 | | | $ Change | | | % Change | |
| | (Unaudited) | | | (Unaudited) | | | | | | | |
| | | | | | | | | | | | |
Revenue | | $ | 248,600 | | | $ | - | | | $ | 248,600 | | | | 100.0 | % |
Cost of sales | | | 36,700 | | | | - | | | | 36,700 | | | | 100.0 | % |
Gross profit | | | 211,900 | | | | - | | | | 211,900 | | | | 100.0 | % |
General and administrative expenses | | | 1,824,447 | | | | 4,327,428 | | | | (2,502,981 | ) | | | -57.8 | % |
Research and development expenses | | | 346,070 | | | | 154,933 | | | | 191,137 | | | | 123.4 | % |
Total operating expenses | | | 2,170,517 | | | | 4,482,361 | | | | (2,311,844 | ) | | | -51.6 | % |
Loss from operations | | | (1,958,617 | ) | | | (4,482,361 | ) | | | 2,523,744 | | | | -56.3 | % |
Interest expense | | | (22,237 | ) | | | (93,749 | ) | | | 71,512 | | | | -76.3 | % |
Loss before income taxes | | | (1,980,854 | ) | | | (4,576,110 | ) | | | 2,595,256 | | | | -56.7 | % |
Income tax expense | | | - | | | | - | | | | - | | | | 0.0 | % |
Net loss | | $ | (1,980,854 | ) | | $ | (4,576,110 | ) | | | 2,595,256 | | | | -56.7 | % |
Revenue
During the six months ended December 31, 2010, our revenue consisted primarily of a sale 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 amounting to $35,000 associated with the rental of a NANO Neutralization System, as well as $26,000 associated with the sale of a Bioforce 9000 Reactor Skid System. We had no revenue during the six months ended December 31, 2009.
Cost of Sales
During the six months ended December 31, 2010, our cost of sales amounted to $36,700 which was the result of the revenue transactions described above. We had no cost of sales during the six months ended December 31, 2009, as we had no sales during that period. One of the units sold in 2010 was a prototype, and as a result much of the associated cost was expensed in a prior year. As a result, we go not expect our gross profit percentage to be as high on future sales.
Operating Expenses
Our operating expenses for the six months ended December 31, 2010 amounted to $2,170,517 compared with $4,482,361 in 2009, a decrease of $2,311,844 or 51.6%. The decrease consisted of a decrease in general and administrative expenses in 2010 of $2,502,981, or 57.8%, offset by an increase in research and development expenses of $191,137, or 123.4%. These components of our operating expenses increased primarily due to the following.
Our general and administrative expenses decreased by $2,502,981 for the six months ended December 31, 2010 as compared to 2009. This decrease is primarily due to a decrease in share-based compensation during the six months ended December 31, 2010. During the six months ended December 31, 2009, our total share-based compensation recorded as general and administrative expenses amounted to $3,768,405 which consisted of $3,763,232 relating to the issuance of 19,698,681 shares of common stock to consultants, service providers and other key personnel who contributed to the success of the Company, as well as $5,173 relating to the issuance of warrants as payment for services. The increased number of shares issued for services was due primarily to bonuses in July 2009 to kep employees and consultants. During the six months ended December 31, 2010, we issued 4,568,827 shares of common stock as payment for services valued at $717,712, including $433,112 in general and administrative expenses and $284,600 in research and development. During the six months ended December 31, 2010, we also recognized amortization of $786,275 in restricted stock issued for services during the year ended June 30, 2010, as well as $46,734 in expenses relating to warrants issued as payment for services. As a result, total share-based general and administrative expenses for the six months ended December 31, 2010 amounted to $1,266,121. Share based compensation, therefore declined by $2,502,284 during the six months ended December 31, 2010. The remaining expenses for the six months ending December 31, 2010 and 2009 consisted largely of salaries, professional fees for legal, audit, and accounting services, and remained fairly consistent between the periods.
Our research and development expenses increased by $191,137 for the six months ended December 31, 2010 as compared to 2009. This increase is primarily due to the issuance of common stock valued at $284,600 and issued to consultants that were added in 2010 involved in research and development. There was no such expense in 2009. The increase was offset by a general decrease in research and development spending in 2010 due to cash flow constraints.
Interest Expense
Our interest expense decreased by $71,512, or 76.3%, for the six months ended December 31, 2010 as compared to 2009. This decrease was primarily due to $63,601 attributable to the beneficial conversion feature on convertible debt during 2009. This amount arose as we converted debt into restricted common shares at a 25% discount to the market price. There was no such charge in 2010. The remaining decrease was due primarily to a decrease in the outstanding loan balance in 2010.
Liquidity and Capital Resources
Bank Loan
On August 1, 2010 we renewed our loan from the National Bank of California through November 1, 2010 for $520,516. The terms and conditions remain the same with monthly payments of $7,396 and an interest rate of prime plus 2.75%. On August 1, 2010, we renewed the loan until November 1, 2010. The amount outstanding at the time of renewal was $520,516. The terms and conditions remain 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 payments of $6,000 and a final payment of $474,171. The interest rate floor was increased from 7.0% to 7.5%. As of September 30,December 31, 2010, the outstanding balance on the loan was $511,875. We are in the process of negotiating a renewal of the terms of this loan.
Short-Term Loans
During the three months ended September 30,As of December 31, 2010, we received proceeds fromhad outstanding short-term loans from investorsshareholders in the aggregate totalamount of $279,165.$212,025. The borrowings bear no interest and are due on demand. Management expects investorsWe expect the shareholders to convert these short-term loans into common stock or otheranother financial instrumentsinstrument during the year endedending June 30, 2011.
On October 26, 2010, we entered into a loan agreement with Desmet Ballestra North America, Inc. under which the Company borrowed $75,000. The total outstanding balances of short-term loans amounted to $379,165 as of September 30, 2010,loan bears no interest and are recorded as short-term loansis repayable at $25,000 per month beginning January 25, 2011. This agreement was restructured on January 21, 2011 extending the due date on the accompanying consolidated balance sheet.initial payment to March 31, 2011.
Common Stock
During the threesix months ended September 30,December 31, 2010, we issued 593,2113,004,211 shares of common stock for $59,321$324,641 in cash.
Share-based Compensation
During the threesix months ended September 30,December 31, 2010, we issued 2,515,7724,568,827 shares of common stock valued at $451,525$717,712 as payments to service providers. In addition, we incurred $395,285$786,275 of expenses relating to the amortization of restricted stock issued during the year ended June 30, 2010. We also issued warrants as payment for services during the six months ending December 31, 2010, resulting in $46,735 in expenses.
Cash Flow
Net cash used in operating activities during the threesix months ended September 30,December 31, 2010 amounted to $216,911$343,863 compared to $237,632$594,781 for the same period in fiscal 2010.2009. During the threesix months ended September 30,December 31, 2010, our net loss amounted to $1,163,077,$1,980,854, including non-cash operating expenses of $851,920$1,561,178 arising primarily from common stock issued for services provided. The remaining net cash of $311,157$419,676 was used largely to pay salary and related expenses, research and development, interest expense and professional fees such as attorneys and accountants. During the threesix months ended September 30,December 31, 2009, our net loss amounted to $3,224,421,$4,576,110, including non-cash operating expenses of $2,877,595$3,839,946 arising primarily from common stock issued for services provided. The remaining net cash of $346,826$736,164 was used largely to pay similar salary and professional expenses as in 2010.
Net cash used in investing activities during the threesix months ended September 30,December 31, 2010 amounted to $89,441$132,898 which was the result of payment for customization of systems. During the threesix months ended September 30,December 31, 2009, our net cash used in investing activities amounted to $21,020 which resulted from amounts spent for the purchase of property and equipment.
Net cash provided by financing activities during the threesix months ended September 30,December 31, 2010 amounted to $316,611,$476,676, which resulted from proceeds from the sale of common stock amounting to $59,321$324,641 and proceeds from short-term loans of $279,165,$187,025, offset by the payment of short-term loans of $9,000 and payments for the bank loan of $12,875.$25,990. During the threesix months ended September 30,December 31, 2009, our net cash provided from financing activities amounted to $260,643$621,239 which resulted from proceeds from the sale of common stock of $289,684$709,510 offset by payments for convertible notes payable of $20,000 and payments for the bank loan of $9,041.$86,771.
Commitments
Lease Agreements
On December 30, 2009, we extended our existing lease agreement for approximately 5,000 square feet of office and warehouse space at 10019 Canoga Ave for a period of two years effective February 1, 2010. Monthly rent under the extended lease agreement is $4,250 per month.
Future minimum lease payments under non-cancelable operating leases are as follows.
Year Ended | | | |
June 30, | | | |
| | | |
2011 (remainder of) | | | 25,500 | |
2012 | | | 29,750 | |
Total | | $ | 55,250 | |
Year Ended | | | |
June 30, | | | |
| | | |
2011 (remainder of) | | | 38,250 | |
2012 | | | 29,750 | |
Total | | $ | 68,000 | |
Royalty Agreements
WeOn July 1, 2008, our wholly owned subsidiary entered into Patent Assignment Agreements with our President and CEO where certain devices and methods involved in the hydrodynamic cavitation processes invented by the President and CEO have been assigned to the Company. In exchange, the Company agreed to pay a royalty of 5% of future gross revenues to each of the CEO and President for future licensing, leasing, or rental revenue generated from products using the assigned technologies. In connection withThese were subsequently assigned to Cavitation Technologies on May 13, 2010.
On April 30, 2008, our wholly owned subsidiary entered into an employment agreement with Varvara Grichko, a key employee, formember of the Board of Directors. For any technologies invented by the employee,Ms. Grichko, the Company shall pay a royalty of 5% of future revenues received in the first year and 3% in subsequent years from licensing, leasing, or rental revenues associated with patents assigned from the employee. As of September 30, 2010, we have not paid any amounts related to these royalties.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable for smaller reporting companies.
ITEM 4. Controls and Disclosures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures as defined in Rules 13a-15(b)(e) and 15d-15(b)(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
ThereIn accordance with the requirements of Rule 13a-15(d) of the Securities Exchange Act of 1934, there were no changes in financialinternal control over financial reporting during the firstsecond quarter of fiscal 2011 that have materially affected or are reasonably likely to materially affect the company’s internal control over financial reporting.
Our conclusion about the effectiveness of our Internal Controls over Financial Reporting changed from “ineffective” to “effective” during the 4th quarter of fiscal 2010 as we implemented internal controls which we evaluated as working properly and effectively. Changes to our design and operations of our controls primarily related to the increased use of outside consultants and implementation of new internal control procedures. Steps we have taken include:
a. | With the assistance of an outside consultant, we were able to design, implement, and test processes and procedures for Internal Controls over Financial Reporting. |
b. | With the help of an outside consultant, we were able to raise our knowledge and expertise of GAAP to a level that is consistent with our conclusion that our internal controls are effective. |
c. | We updated and implemented new internal control procedures which address our risk assessment process, entity level control evaluations, and testing of key controls over financial reporting. |
d. | We continue to monitor our internal control processes and procedures on a regular basis. |
PART II – OTHER INFORMATION
Item 1 Legal Proceedings
We know of no material, existing or pending legal proceeding against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
TheSince our previous disclosure in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, the following is a listing of unregistered security activity during the three monthsquarter ended September 30,December 31, 2010.
Sales of Restricted Common Stock
On August 3,October 1, 2010, we issued 593,211100,000 shares of common stock to Suzahnna TepperCharles Collier for a total purchase price of $59,321. The$12,000. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider.purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances
Issuance of Restricted Common Stock for Servicesissuances.
On July 8,October 1, 2010, we issued 125,00042,000 shares of common stock to RL Hartshorn, the Company’s CFO,Richard Burns for services provided. Thea total purchase price of $5,040. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaserpurchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On October 1, 2010, we issued 84,000 shares of common stock to Nathanial D. Conrad for a total purchase price of $10,080. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On October 1, 2010, we issued 84,000 shares of common stock to Constance Troncale for a total purchase price of $10,080. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On October 1, 2010, we issued 16,000 shares of common stock to Nick Pomeranz for a total purchase price of $1,920. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On October 1, 2010, we issued 126,000 shares of common stock to Gerald Healy for a total purchase price of $15,120. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On October 1, 2010, we issued 125,000 shares of common stock to David P. Conrad for a total purchase price of $15,000. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On October 1, 2010, we issued 84,000 shares of common stock to Philip L. Terry for a total purchase price of $10,080. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On November 1, 2010, we issued 100,000 shares of common stock to Kathleen Elliott for a total purchase price of $12,000. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On November 1, 2010, we issued 100,000 shares of common stock to Patricia Morales for a total purchase price of $12,000. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On November 1, 2010, we issued 1,000,000 shares of common stock to West Pointe Partners, LTD for a total purchase price of $100,000. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On November 1, 2010, we issued 100,000 shares of common stock to Anna Mosk for a total purchase price of $10,000. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On November 1, 2010, we issued 100,000 shares of common stock to Suzahnna Tepper for a total purchase price of $10,000. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On November 22, 2010, we issued 100,000 shares of common stock to Janice Tamoto for a total purchase price of $12,000. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On November 22, 2010, we issued 150,000 shares of common stock to Rose De Santos for a total purchase price of $18,000. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned purchaser. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
Issuance of Restricted Common Stock for Services
On October 1, 2010, we issued 101,370 shares of common stock to Michael Psomas for accounting services. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On July 8,October 1, 2010, we issued 98,02578,147 shares of common stock to Mike PsomasTomer Tal for accountinglegal services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On July 8,October 1, 2010, we issued 97,546250,000 shares of common stock to Tomer TalRL Hartshorn for legalCFO services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On July 8,October 1, 2010, we issued 10,0009,000 shares of common stock to Irakli GaguaShannon Stokes for consultingoffice services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On July 8,October 1, 2010, we issued 9,00035,000 shares of common stock to Shannon StokesVarvara Grichko for services provided. Theresearch and development services. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On July 8,November 1, 2010, we issued 10,00088,800 shares of common stock to Fred RambergMichael Psomas for consultingaccounting services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On August 3,November 1, 2010, we issued 250,000116,954 shares of common stock to Undiscovered Equity, Inc.Tomer Tal for consultinglegal services.
The These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaserservice provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On November 1, 2010, we issued 47,728 shares of common stock to Kelly Lowry & Kelley, LLP for legal services. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On August 3,November 1, 2010, we issued 250,000150,000 shares of common stock to Christopher CastaldoJames Hurley for consultinglegal services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On August 3, 2010, we issued 75,000 shares of common stock to Viktor Grichko for research and development services. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. The shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On August 3,November 1, 2010, we issued 37,500 shares of common stock500,000 to James FullerAM-PM Appliance Service for consultingresearch and development services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On August 3,November 1, 2010, we issued 50,00030,000 shares of common stock to Kirk WigginsIrakli Gagua for consultingIT services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On August 3,November 1, 2010, we issued 1,000,00037,500 shares of common stock to Bioworld Technology ManagementJames Fuller for research and developmentboard of director services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On August 3,November 1, 2010, we issued 91,09950,000 shares of common stock to Mike PsomasKirk Wiggins for accountingmarketing and sales services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On August 3,November 22, 2010, we issued 60,41075,000 shares of common stock to Tomer TalViktor Grichko for legalresearch and development services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On August 3,November 22, 2010, we issued 40,00025,000 shares of common stock to Stacie JovancevicStrategic IR, LTD for consultinginvestor relation services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On August 30,December 7, 2010, we issued 75,00055,062 shares of common stock to Fred RamburgMichael Psomas for consultingaccounting services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaserservice provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On December 7, 2010, we issued 170,107 shares of common stock to Tomer Tal for legal services. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. These shares were not offered via general solicitation to the public but solely to the aforementioned service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On September 8,December 7, 2010, we issued 156,66010,000 shares of common stock to Tomer TalVarvara Grichko for legalresearch and development services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
On September 8,December 7, 2010, we issued 80,532226,887 shares of common stock to Mike PsomasSnapshot, LTD for accountinginvestor relation services. TheThese shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. TheThese shares were not offered via general solicitation to the public but solely to the aforementioned purchaser or service provider. The Company issued restricted shares in connection with these issuances. No sales commissions or other remuneration was paid in connection with these issuances.
With the exception of RL Hartshorn, Varvara Grichko, and JimJames Fuller who are affiliates of the company, none of the aforementioned service providers are affiliates of the Company.
Issuance of Warrants
On November 22, 2010, we issued Pinnacle Financial Group warrants to purchase 600,000 shares of common stock at an exercise price of $0.25 for investor relation services. The warrants are fully vested as of the issuance date and can be exercised at any time through November 22, 2013.
We have granted the above securities in reliance on Section 4(2) of the Securities Act of 1933, as amended. These warrants were not offered via general solicitation to the public but solely to the aforementioned service provider. No sales commissions or other remuneration was paid in connection with these issuances.
Item 3 – Defaults Upon Senior Securities
None
Item 4 – (Reserved and Removed)
Item 5 – Other Information
On October 25, 2010, we received a purchase order for a 10 gallons/minute NANO Neutralization System. The purchase order requires delivery before December 9, 2010.None
On October 26, 2010, we entered into a loan agreement with Desmet Ballestra North America, Inc. under which we received a loan of $75,000. The loan bears no interest and is repayable at $25,000 per month beginning January 25, 2011.28
On October 1, 2010, the Board of Directors granted 1,134,517 common shares including 661,000 shares to equity investors valued at $79,320 and 473,517 shares issued to service providers.
On November 1, 2010, the Board of Directors granted 2,422,265 common shares including 1,400,000 shares to equity investors valued at $140,000 and 1,022,265 shares issued to service providers.
Item 6 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:report or incorporated by reference.
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted 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 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1 Nano Reactor Loan Agreement between the Company and Desmet Ballestra North America, Inc. dated October 26, 2010.
99.2 Purchase Order from AG Natural, LLC dated October 25, 2010.
| | | | Incorporated by Reference | | |
| | Filed | | | | |
Exhibit | 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 | Oct. 19, 2006 |
3(i)(b) | Articles of Incorporation - Amended and Restated | | 10-Q | Dec. 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 | 30-Sep-09 | 3-1 | November 16, 2009 |
| | | | | | |
3(ii)(a) | By-laws - originally Bioenergy, Inc. | | SB-2 | N/A | 3.2 | Oct. 19, 2006 |
| | | | | | |
10.1 | Licensing agreement | X | | | | |
10.2 | CFO agreement | X | | | | |
10.3 | Employment Agreement | X | | | | |
10.4 | Employment Agreement | X | | | | |
10.5 | Assignment of Patent Assignment Agreement | | 8K | N/A | 10.3 | May 18, 2010 |
10.6 | Assignment of Patent Assignment Agreement | | 8K | N/A | 10.4 | May 18, 2010 |
10.7 | Patent Assignment Agreement | | 8K | N/A | 10.1 | May 18, 2010 |
10.8 | Patent Assignment Agreement | | 8K | N/A | 10.2 | May 18, 2010 |
| | | | | | |
31.1 | Certificat of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | X | | | | |
31.2 | Certificat of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | X | | | | |
32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted | X | | | | |
| pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | |
32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted | X | | | | |
| pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | |
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/ Roman Gordon | | Chief Executive Officer and Director | | November 12, 2010February 11, 2011 |
Roman Gordon | | (Principal Executive Officer) Chairman of the Board | | |
| | | | |
/s/ Igor Gorodnitsky | | President | | November 12, 2010February 11, 2011 |
Igor Gorodnitsky | | | | |
| | | | |
/s/ R.L. Hartshorn | | Chief Financial Officer | | November 12, 2010February 11, 2011 |
R.L. Hartshorn | | (Principal Financial Officer and Accounting Officer) | | |