Healthcare Solutions Management (HSMD) 8-K/A Financial Statements and Exhibits

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

(Amendment No.1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):December 31, 2012.

AQUALIV TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Nevada	0-17953	38-3767357
(State or other jurisdiction of incorporation)	Commission File Number	(I.R.S. Employer Identification No.)
4550 NW Newberry Hill Road, Suite 202
Silverdale, WA		98383
(Address of principal executive offices)		(zip code)

Registrant’s telephone number, including area code: (360) 473-1160

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 9.01 Financial Statements and Exhibits.

On January 8, 2013, AquaLiv Technologies, Inc. (the “Company”) filed a Current Report on Form 8-K with the Securities and Exchange Commission (the “SEC”) to report the completion of its acquisition of all of the outstanding shares of Verity Farms II, Inc. The purpose of this Amendment No.1 is to provide the financial information required under Item 9.01 as provided in Rule 8.04(b) of Regulation S-X.

Pursuant to Item 9.01 of Form 8-K, set forth below are the financial statements and pro forma financial information relating to the aforementioned acquisition. Such information should be read in conjunction with the Company’s Current Report on Form 8-K, filed with the SEC on January 8, 2013.

Item 9.01 Financial Statements and Exhibits

(a) Financial Statements of Business Acquired

2

VERITY FARMS, LLC AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

3

Index to Consolidated Financial Statements

	Pages
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-2
Consolidated Statements of Operations	F-3
Consolidated Statement of Member’s Equity (deficit)	F-4
Consolidated Statements of Cash Flows	F-5
Notes to Consolidated Financial Statements	F-6 - F-22

4

 

FL Office

7951 SW 6th St., Suite. 216

Plantation, FL 33324

Tel: 954-424-2345

Fax: 954-424-2230

NC Office

19720 Jetton Road, 3rd Floor

Cornelius, NC 28031

Tel: 704-892-8733

Fax: 704-892-6487

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Verity Farms, LLC and Subsidiaries

We have audited the accompanying consolidated balance sheets of Verity Farms, LLC and Subsidiaries (“the Company”) as of September 30, 2012 and 2011 and the related consolidated statements of operations, consolidated statements of member’s equity (deficit), and consolidated cash flows for the years ended September 30, 2012 and2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’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 consolidated financial position of Verity Farms, LLC and Subsidiaries as of September 30, 2012 and 2011, and the results of its operations, changes in member’s equity (deficit) and cash flows for the years ended September 30, 2012 and2011in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses, has negative working capital, and has yet to generate an internal net cash flow that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 16. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty

/s/ Bongiovanni & Associates , CPA’s

Bongiovanni & Associates, CPA’s

Certified Public Accountants

Cornelius, North Carolina

The United States of America

March 18, 2013

 

F-1

Verity Farms, LLC and Subsidiaries

Consolidated Balance Sheets

As of September 30, 2012 and 2011

	September 30, 2012			September 30, 2011
ASSETS
CURRENT ASSETS
Cash	$	145,259		$	375,429
Accounts receivable		159,285			113,774
Inventories		516,101			472,498
Prepaid expenses		32,466			12,793
Other receivables		11,756			15,950
TOTAL CURRENT ASSETS		864,866			990,443
FIXED ASSETS
Property, plant, and equipment		502,164			322,878
Accumulated depreciation		(212,657	)		(147,554	)
NET FIXED ASSETS		289,507			175,324
OTHER ASSETS
Investment in partnership		19,798			21,236
TOTAL OTHER ASSETS		19,798			21,236
TOTAL ASSETS	$	1,174,170		$	1,187,003
LIABILITIES AND MEMBER’S EQUITY (DEFICIT)
CURRENT LIABILITIES
Short-term borrowings	$	91,000		$	182,000
Accounts payable		40,019			68,843
Other payables and accrued liabilities		32,624			11,983
Notes payable-related party		1,160,000			290,000
Customer deposits		30,434			24,727
TOTAL CURRENT LIABILITIES		1,354,078			577,553
TOTAL LIABILITIES		1,354,078			577,553
COMMITMENTS AND CONTINGENCIES
MEMBER’S EQUITY (DEFICIT)
Member’s contributions		2,754,887			2,451,549
Retained (deficit)		(2,934,795	)		(1,842,099	)
TOTAL MEMBER’S EQUITY (DEFICIT)		(179,908	)		609,450
TOTAL LIABILITIES AND MEMBER’S EQUITY (DEFICIT)	$	1,174,170		$	1,187,003

The Report of Independent Registered Public Accounting Firm and accompanying notes are an integral part of these consolidated financial statements

F-2

Verity Farms, LLC and Subsidiaries

Consolidated Statements of Operations

For the Years Ended September 30, 2012 and 2011

	For the years ended September 30,
	2012			2011
Revenues
Sales	$	2,562,732		$	1,979,560
Cost of goods sold		(1,763,685	)		(1,696,050	)
Gross profit		799,048			283,510
Operating expenses
Salaries and benefits		857,035			398,562
Advertising and marketing		117,434			69,258
Legal and professional services		119,143			36,689
Repairs and maintenance		43,832			22,583
Travel and entertainment		155,156			55,753
General supplies and office expense		72,189			20,188
Telephone		30,040			14,970
Rent		114,150			24,000
Depreciation		65,104			38,800
Insurance		53,943			16,093
Other general and administrative		163,146			65,528
Total Operating Expenses		1,791,172			762,423
(Loss) from operations		(992,124	)		(478,913	)
Other income (expenses)
Other income		25,275			11,139
Interest expense		(37,857	)		(23,512	)
Other expense		(87,990	)		(73,853	)
Total other income (expense)		(100,572	)		(86,227	)
(Loss) before income taxes		(1,092,696	)		(565,140	)
Provision for income taxes		-			-
Net loss	$	(1,092,696	)	$	(565,140	)

The Report of Independent Registered Public Accounting Firm and accompanying notes are an integral part of these consolidated financial statements

F-3

Verity Farms, LLC and Subsidiaries

Consolidated Statements of Cash Flows

For the Years ended September 30, 2012 and 2011

	For the years ended September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)		(1,092,696	)		(565,140	)
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:
Depreciation		65,104			38,800
Loss on investment in partnership		1,438			1,914
Write off of fixed assets		11,000			30,833
Bad debts		12,364			2,108
Changes in operating assets and liabilities:
Accounts receivable		(57,876	)		(42,159	)
Prepaid expense		(19,673	)		(3,908	)
Inventories		4,735			(287,310	)
Other receivables		4,194			(15,950	)
Accounts payable		(28,823	)		68,843
Other payables and accrued liabilities		20,640			(349	)
Customer deposits		5,708			4,508
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(1,073,884	)		(767,810	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment		(190,286	)		(135,005	)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(190,286	)		(135,005	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term borrowings		102,000			660,000
Principal repayments of short term borrowings		(193,000	)		(498,500)
Proceeds from notes payable-related party		1,200,000			862,000
Repayments of notes payable-related party		-			(1,500	)
Member’s contributions		-			181,429
Member’s withdrawals		(75,000	)		-
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		1,034,000			1,203,429
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(230,170	)		300,614
CASH AND CASH EQUIVALENTS:
Beginning of year		375,429			74,816
End of year	$	145,259		$	375,429
NON-CASH INVESTING AND FINANCING ACTIVITIES
Conversion of notes payable-related party to member’s contribution	$	330,000		$	973,500
Contribution of fixed assets and inventory by member	$	48,338		$	-
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest	$	8,101		$	23,512
Taxes	$	-		$	-

The Report of Independent Registered Public Accounting Firm and accompanying notes are an integral part of these consolidated financial statements

F-4

Verity Farms, LLC and Subsidiaries

Consolidated Statements of Member’s Equity (Deficit)

For the years ended September 30, 2012 and 2011

							Total member’s
	Member’s contributions			Retained (deficit)			equity (deficit)
Balances as of October 1, 2010	$	1,296,620		$	(1,276,959	)	$	19,661
Member’s contributions		181,429			-			181,429
Conversion of notes payable-related party to member’s contributions		973,500			-			973,500
Net loss for the year ended September 30, 2011		-			(565,140	)		(565,140	)
Balances as of September 30, 2011		2,451,549			(1,842,099	)		609,450
Member’s withdrawals		(75,000	)		-			(75,000	)
Conversion of notes payable-related party to member’s contributions		330,000			-			330,000
Contributions of fixed assets and inventory		48,338			-			48,338
Net loss for the year ended September 30, 2012		-			(1,092,696	)		(1,092,696	)
Balances as of September 30, 2012	$	2,754,887		$	(2,934,795	)	$	(179,908	)

The Report of Independent Registered Public Accounting Firm and accompanying notes are an integral part of these consolidated financial statements

F-5

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

NOTE – 1 ORGANIZATION AND BUSINESS BACKGROUND

Verity Farms, LLC (the “Company”) was incorporated under the laws of the State of South Dakota on June 11, 2003 in the name of Double V Holdings LLC, which changed its name to Verity Farms, LLC on July 28, 2004. On November 28, 2007 and January 7, 2008, the Company formed two limited liability companies in name of Verity Meats LLC (“Verity Meats) and Verity Grains LLC (“Verity Grains”), respectively, to operate different sections of the business. The Company is the sole member of Verity Meats and Verity Grains. On March 14, 2012, the Company formed a limited liability company in name of Verity Water LLC (“Verity Water”) to continue the operations of Ultimate Water Distribution LLC and Ultimate Water Manufacturing LLC, both of which were dissolved in March of 2012. The Company is the sole member of Verity Water.

Verity Farms, LLC, Verity Meats LLC, Verity Grains LLC and Verity Water LLCare hereinafter referred to as (the “Company”).

The Company is dedicated to providing consumers with safe, high quality and nutritious food sources through sustainable crop and livestock production. The Company has built the foundation for expansion that is diversified into three distinct, yet inter linked, divisions operating six business units. The three divisions: Soil Preservation, Verity Water Systems and Consumer Products. Soil Preservation consists of Verity Farms and Verity Turf; Verity Water Systems comprises its own division; and, Consumer Products will consist of Verity Meats, Verity Produce and Verity Grains. The common goal within each business unit of Company is to decrease chemical dependency, diminish the need for genetic modification, preserve the family farm, and ultimately, provide a nutritious, high-quality food source to consumers.

Verity Farms

Since the 1970’s, farmers associated with the Company and its subsidiaries and predecessors have dedicated their farming practices to healthy soil and crop production based upon natural practices and limited chemical usage. Since June 2011, substantial resources of people and facilities have been applied to build the organizational model to expand those efforts into an effective and efficient growth of natural healthy food products.

Verity Turf

The Company has developed an environmentally friendly Organic Materials Review Institute (“ORMI”) approved fertilizer to provide a natural, weed-free lawn that is safe to use and good for the environment. This product is people and pet friendly. It nurtures one’s grass by enhancing the natural biology of your soil.

Verity Water Systems

Verity Water Systems units are maintenance-free products designed to be used directly in water lines to both revitalize the water at the molecular level and to increase the water’s energy-carrying capability. Different models are designed according to the water capacity needed either for personal or commercial usage.   Some of the potential benefits of Verity Water Systems as represented by the Company include:  healthier livestock and poultry through improved hydration, oxygenation and energy; plants require less water; increase in nutrient content of seed crops and produce; plants withstand extremes in hot and freezing temperatures better; significantly increased bio-availability of nutrients; longer shelf life of agricultural produce and cut flowers; decreased seed germination time; greatly improved aerobic bacterial activity; eliminates mineral deposits like calcium, iron & aragonite; reduced bio-availability of pollutants and toxins; and increased life span of water valves, pipes, hot water heaters, swamp-coolers and humidifiers.

F-6

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

Verity Meats

Verity Meats has on a limited basis and intends to expand the offer of all -natural meat products born and raised with pride by American Family Farmers. Working with only a core group of dedicated livestock producers throughout South Dakota, Minnesota and Iowa, The Company was able to tailor production protocols directly to end-product needs. By knowing the importance of using quality inputs for quality results, its producers follow a program that utilizes the best of animal nutrition, health, technology, and economics along with many years of practical knowledge and scientific principles. Verity Family Farmers follow defined protocols for the production of their grain and livestock. The protocols require proper preparation of the ground. Following up to three years of conditioning and cleansing of the soil, the soil is tested and must be free of more than 250 chemical residues. The grain used to feed the livestock must pass the same test before qualifying as feed for Verity livestock. The result is the highest quality meats available, according to management, – raised for Verity Farms customer’s total eating enjoyment and health.

Verity Grains

Verity Grain comes from the harvest of Verity Farms Crops. These grains originate from only non-GMO seeds which are raised on soil which has tested below detectable limits for 250 known carcinogens and chemicals residues (test performed by independent labs using FDA and EPA test methods/guidelines). Following harvest, these grains are again tested for the 250 know carcinogens and chemical residues. Those grains which test free from those carcinogens and chemicals are then Verity Farms certified to be fed to livestock and sold for consumption.

Verity Produce

Verity Produce is the newest, and could become one of the most crucial components of the Company.  Verity Produce consists of fruits and vegetables which are raised for human consumption. Verity Produce has been patterned after the Verity Farms crop production program, utilizing the same concept of creating a healthy, balanced soil. This creates an optimum environment for plants to grow and flourish.

NOTE – 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting.

F-7

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

Use of Estimates

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivables, inventories, prepaid expenses, other receivables, investment in partnership, liabilities and the estimation on useful lives of property, and plant and equipment. Actual results could differ from these estimates.

Basis of Consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. 

All significant inter-company balances and transactions within the Company and subsidiaries have been eliminated upon consolidation.

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of the accounts receivables collectibles. Judgment is required in assessing the amount of the allowance. The Company considers the historical level of credit losses and applies percentages to different receivables categories. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a larger allowance may be required.

Based on the above assessment, during the reporting periods, management establishes the general provisioning policy to make an allowance equivalent to approximately 5% of the gross amount of accounts receivables. Additional specific provision is made against accounts receivables to the extent which they are considered to be doubtful.

Historically, losses from uncollectible accounts have not significantly deviated from the general allowance estimated by management and no significant additional bad debts have been written off directly to net income. There were no changes in the general provisioning policy in the past since establishment and management considers that the aforementioned general provisioning policy is adequate, not excessive and does not expect to change this established policy in the near future. As of September 30, 2012 and 2011, the Company recorded an allowance for uncollectible accounts in the amounts of $8,383 and $5,988, respectively.

F-8

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

Inventories

Inventories consist of raw materials and finished goods and goods available for resale, which are valued at lower of cost or market value, cost being determined on the first-in, first-out method.  The Company periodically reviews historical sales activity to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand.  The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand, which was approximately 5% of ending inventories at the reporting periods.  The spoilage will be written-off directly to the profit and loss when it occurs. As of September 30, 2012 and 2011, the Company recorded an allowance for obsolete inventories in the amounts of $27,163 and $24,868, respectively.

  Fixed Assets, Net

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational. There are no estimated residual values taken into account.

	Depreciable life	Residual value
Software and website development	3 years		0	%
Machinery and Equipment	5 years		0	%
Furniture and fixtures	7 years		0	%

Expenditures for maintenance and repairs that do not make the fixed asset more useful or prolong its useful life are expensed as incurred.

Impairment of Long Lived Assets

The Company evaluated the recoverability of its property, plant, equipment, and other long-lived assets in accordance withFASBAccounting Standards Codification Topic 360,“Property, Plant and Equipment” (“ASC 360”), which requires recognition of impairment of long-lived assets in the event the net book value of such assets exceed the estimated future undiscounted cash flows attributable to such assets or the business to which such intangible assets relate. The Company evaluated the recoverability of the fixed assets and recognized impairment of fixed assets in the amounts of $11,000 and $30,833 during the years ended September 30, 2012 and 2011, respectively.

Fair Value for Financial Assets and Financial Liabilities

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification (“ASC”) for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1	Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2	Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3	Pricing inputs that are generally observable inputs and not corroborated by market data.

F-9

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their fair values because of the short maturity of these instruments.

The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at September 30, 2012 and 2011 nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the for the years ended September 30, 2012 and 2011, respectively.

Revenue Recognition

The Company derives revenues from the sale of agricultural products, animal feeds, consulting services and water revitalization units. In accordance with guidance by paragraph 605-10-S99-1 of the FASB ASC for revenue recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.  The Company’s sales arrangements are not subject to warranty.

Cost of Goods Sold

Cost of goods sold consists primarily of material costs which are directly attributable to the manufacture of products, to the products held for resale and to the provision of services.

Income Taxes

The Company, with the consent of its sole member, is approved by the Internal Revenue Service to be taxed under the sections of the federal and state income tax laws that provide which, in lieu of corporation income taxes, the member separately accounts for his proportionate share of the Company’s items of income, deductions, losses and credits. Therefore, these consolidated financial statements do not include any provision for corporate federal or state income taxes.

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the years ended September 30, 2012 or 2011.

F-10

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

Comprehensive income

The Company adopted FASB Accounting Standards Codification 220 “Comprehensive Income” (ASC “220”) whichestablishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during the year from non-owner sources. There are no items of comprehensive income (loss) applicable to the Company during the years covered in the consolidated financial statements.

Off-balance sheet arrangements

The Company does not have any off-balance sheet arrangements.

Related Parties

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to Section 850-10-20 the Related parties include: a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Commitments and Contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

F-11

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s consolidated financial position, consolidated results of operations or consolidated cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows.

Subsequent Events

The Company adopted FASB Accounting Standards Codification 855 “Subsequent Events”(“ASC 855”) to establish general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued.

Recently issued accounting standards

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.

In May 2011, FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (ASC 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”).  ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency 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. This new guidance is to be applied prospectively.  The Company anticipates that the adoption of this standard will not materially expand its financial statement note disclosures.

In June 2011, FASB issued ASU No. 2011-05, “Comprehensive Income (ASC 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which amends current comprehensive income guidance.  This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity.  Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements.  ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted.  The Company is reviewing ASU 2011-05 to ascertain its impact on the Company’s consolidated financial position, results of operations or cash flows as it only requires a change in the format of the current presentation.

F-12

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, which allows, but does not require, an entity when performing its annual goodwill impairment test the option to first do an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for purposes of determining whether it is even necessary to perform the first step of the two-step goodwill impairment test. Accordingly, based on the option created in ASU 2011-08, the calculation of a reporting unit’s fair value is not required unless, as a result of the qualitative assessment, it is more likely than not that fair value of the reporting unit is less than its carrying amount. If it is less, the quantitative impairment test is then required. ASU 2011-08 also provides for new qualitative indicators to replace those currently used. Prior to ASU 2011-08, entities were required to test goodwill for impairment on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test is performed to measure the amount of impairment loss, if any. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted ASU 2011-08 during the first quarter of fiscal 2013. The adoption of ASU 2011-08 did not impact the Company’s results of operations or financial condition.

In December 2011, FASB issued Accounting Standards Update 2011-11, “Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity’s balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, the Company does not expect that the adoption of this standard will have a material impact on its consolidated results of operations, cash flows or financial condition.

In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment”. The guidance allows companies to perform a “qualitative” assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test.

ASU 2012-02 allows companies the option to first assess qualitatively whether it is more likely than not that an indefinite-lived intangible asset is impaired, before determining whether it is necessary to perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired. Companies can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets or choose to only perform the quantitative impairment test for any indefinite-lived intangible in any period.

ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is in the process of evaluating the guidance and the impact ASU 2012-02 will have on its consolidated financial statements.

F-13

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

NOTE –3 ACCOUNTS RECEIVABLE

Accounts receivable was comprised of the following amounts as of September 30, 2012 and 2011:

	9/30/2012			9/30/2011
Gross accounts receivable from customers	$	167,668		$	119,762
Allowance for doubtful customer accounts		(8,383	)		(5,988	)
Accounts receivable, net	$	159,285		$	113,774

The bad debt expenses of $12,364 and $2,108 were recognized during the years ended September 30, 2012 and 2011, respectively, in the accompanying consolidated statements of operations.

NOTE – 4 INVENTORIES

Inventories as of September 30, 2012 and 2011 consisted of the following:

	9/30/2012			9/30/2011
Raw materials	$	15,164		$	0
Finished goods		528,100			497,366
		543,264			497,366
Allowance for obsolete inventories		(27,163	)		(24,868	)
Inventories, net	$	516,101		$	472,498

The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. Accordingly, the Company recorded cost of goods sold due to inventories obsolescence in amount of $28,805 and $15,121 during the years ended September 30, 2012 and 2011, respectively. 

NOTE – 5 PREPAID EXPENSES

As of September 30, 2012 and 2011, the Company had prepaid expenses of $32,466 and $12,793, respectively, and consisted of the following: 

	9/30/2012		9/31/2011
Prepaid insurance	$	9,954	$	5,743
Prepaid inventories		22,512		7,050
Total	$	32,466	$	12,793

F-14

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

NOTE –6 FIXED ASSETS

Fixed assets were comprised of the following as of September 30, 2012 and 2011:

	9/30/2012			9/30/2011
Cost:
Software and website development	$	66,034		$	58,160
Machinery and equipment		436,130			264,718
Furniture and fixtures		0			0
Total cost		502,164			322,878
Less: Accumulated depreciation		(212,657	)		(147,554	)
Property and equipment, net	$	289,507		$	175,324

Depreciation expense of $65,104 and $38,800 were recognized during the years ended September 30, 2012 and 2011, respectively, in the accompanying consolidated statements of operations. In addition, the Company evaluated the recoverability of the fixed assets and recognized impairment of fixed assets in the amounts of $11,000 and $30,833 during the years ended September 30, 2012 and 2011, respectively.

NOTE – 7 INVESTMENT IN PARTNERSHIP

In 2006, The Company acquired a 19% interest in Crop Resources LLC by contributing $25,000 cash to the partnership. Investment in partnership was comprised of the following amounts as of September 30, 2012 and 2011, respectively.

Partnership	Crop Resources LLC
Percentage of Ownership		19	%
Book Equity 9/30/2010	$	21,917
Share of Net (Loss)		(681	)
Book Equity 9/30/2011		21,236
Share of Net (Loss)		(1,438	)
Book Equity 9/30/2012	$	19,798

NOTE – 8 SHORT-TERM BORROWINGS

The Company has short-term unsecured loans with American State Bank at interest rates of 2.8 % per annum. The loans have no maturity dates and are payable on demand. The balance on the loans was $91,000 and $182,000 as of September 30, 2012 and 2011, respectively. Accordingly, the Company recorded interest expense of $8,101 and $23,512 during the years ended September 30, 2012 and 2011, respectively.

NOTE – 9 NOTES PAYABLE – RELATED PARTY

The Company had notes payable to the Company’s President in amounts of $1,160,000 and $290,000 as of September 30, 2012 and 2011, respectively. The notes are due on demand with zero interest, which are not evidenced by promissory notes, but rather are oral agreements between the President and the Company. The Company recorded imputed interest expense of $29,756 during the year ended September 30, 2012. This accrued interest amount is recorded in other payables. The effects of imputed interest for the year ended September 30, 2011, is immaterial to the consolidated financial statements taken as a whole.

F-15

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

NOTE – 10 CUSTOMER DEPOSITS

As of September 30, 2012 and 2011, the Company had customer deposits of $30,434 and $24,727, respectively, representing payments received for orders not yet shipped.

NOTE – 11 MEMBER’S CONTRIBUTIONS

The Company’s President made contributions to the Company over time since inception. As of September 30, 2012 and 2011, the balance of member’s contributions was $2,754,887 and $2,451,549, respectively, comprised of the following: 

	9/30/2012		9/31/2011
Verity Farms	$	573,300	$	573,300
Verity Grains		148,500		223,500
Verity Meats		1,654,749		1,654,749
Verity Water		378,338		0
Total	$	2,754,887	$	2,451,549

NOTE – 12 INCOME TAXES

The Company is registered in the State of South Dakota as a limited liability company and is subject to United States of America tax law. No provisions for income taxes have been made as the Company has no U.S. related taxable income for the years presented due to its member separately accounting for the LLC share of profits.

The effective income tax expense for the years ended September 30, 2012 and 2011 are as follows:

	2012		2011
Current taxes	$	0	$	0
Deferred taxes		0		0
	$	0	$	0

NOTE – 13 CONCENTRATIONS AND RISKS

(a)     Major Vendors

During the year ended September 30, 2012, major vendors were as follows:

Vendors	Purchases
Hawkins, Inc	$	449,720	24.8	%
Total	$	449,720	24.8	%

F-16

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

During the year ended September 30, 2011, major vendors were as follows:

Vendors	Purchases
Hawkins, Inc	$	423,875	21.4	%
Total	$	423,875	21.4	%

(b)     Credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers’ financial condition, but does not require collateral to support such receivables.

In addition, the Company is subject to risks common to companies in its industry, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.

NOTE – 14 RELATED PARTY TRANSACTIONS

Except for the transactions disclosed in Note 9 and 18, the Company had no material transactions carried out with its related parties during the years ended September 30, 2012 and 2011.

NOTE – 15 SEGMENTS

The Company determined that it does not operate in any material, separately reportable operating segments as of September 30, 2012 and 2011.

NOTE – 16 GOING CONCERN

The Company has suffered recurring losses from operations and has a negative working capital. In addition, the Company has yet to generate an internal net cash flow from its business operations. These factors raise substantial doubt as to the ability of the Company to continue as a going concern. 

Management’s plans in regard to this matter are to raise equity capital and seek strategic relationships and alliances in order to increase sales in an effort to generate positive cash flow. Additionally, the Company must continue to rely upon equity infusions from investors in order to improve liquidity and sustain operations. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE – 17 COMMITMENTS AND CONTINGENCIES

The Company had no non-cancellable leases existing beyond one year at September 30, 2012.

The Company had no contingencies existing at September 30, 2012 and 2011.

F-17

VERITY FARMS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011

NOTE – 18 SUBSEQUENT EVENTS

In accordance with ASC Topic 855-10,the Company has analyzed its operations subsequent to September 30, 2012 to the date these consolidated financial statements were issued. In addition to the transactions disclosed below, the Company does not have other material subsequent events to disclose in these financial statements, except for as follows:

On December 28, 2012, the Company was acquired byVerity Farms II, Inc., (“Verify Farms II”) a corporation incorporated under the laws of South Dakota.  The Company currently operates as a wholly owned subsidiary of Verity Farms II, and is a party related through common ownership and directorship.

On December 31, 2012, the Company’s parent company, Verity Farms II, was acquired in a share exchange by AquaLiv Technologies, Inc., (“AquaLiv”) a corporation incorporated under the laws of Nevada.  Pursuant to the transaction, 4,850,000 shares of common stock of Verity Farms II, representing 100% interest in Verity Farms II, was exchanged for 4,850,000 shares of Series B Preferred Stock of AquaLiv.

F-18

Verity Farms II, Inc. and Its Subsidiaries

and AquaLiv Technologies, Inc and Its Subsidiaries

Consolidated (Unaudited) Condensed Balance Sheet

As of December 31, 2012

	Verity Farms II, Inc and Subsidiaries			AquaLiv Technologies, Inc. and Subsidiaries			Unaudited			Unaudited Total
	December 31, 2012			December 31, 2012			adjustment			December 31, 2012
ASSETS
CURRENT ASSETS
Cash	$	227,474			231,893			(227,474	)	$	231,893
Accounts receivable		62,775			94,369			(62,775	)		94,369
Inventories		495,324			556,982			(495,324	)		556,982
Prepaid expenses		167,680			-						167,680
Other receivables		12,221			96,756			(96,756	)		12,221
Notes receivable- Aqualiv		85,000			-			(85,000	)		-
TOTAL CURRENT ASSETS		1,050,474			980,000						1,063,145
FIXED ASSETS
Land		2,400,000			-			-			2,400,000
Building		800,000			-			-			800,000
Accumulated depreciation -Building		(1,667	)		-			-			(1,667	)
Property, plant, and equipment		528,929			3,749,047			(3,604,718	)		673,258
Accumulated depreciation -PP&E		(228,840	)					-			(228,840	)
NET FIXED ASSETS		3,498,423			3,749,047						3,642,752
OTHER ASSETS
Investment in partnership		23,150			-			-			23,150
TOTAL OTHER ASSETS		23,150			-						23,150
TOTAL ASSETS	$	4,572,046		$	4,729,047					$	4,729,047
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Short-term borrowings	$	-		$	-			-		$	-
Accounts payable		37,052			213,790			(37,052	)		213,790
Credit card payable		-			12,974			-			12,974
Other payables and accrued liabilities		107,788			84,709			(107,788	)		84,709
Notes payable		278,500			278,500			(278,500	)		278,500
Notes payable-related party		4,705,000			5,440,223			(4,705,000	)		5,440,223
Customer prepaid		207,238			207,238			(207,238	)		207,238
TOTAL CURRENT LIABILITIES		5,335,579			6,237,434						6,237,434
TOTAL LIABILITIES		5,335,579			6,237,434						6,237,434
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY (DEFICIT)
Member Contributions		2,754,887			-			(2,754,887	)		-
Retained (deficit)		(3,518,419	)		-			3,518,419			-
TOTAL MEMBER' EQUITY (DEFICIT)		(763,532	)
TOTAL LIABILITIES AND MEMBER'S EQUITY (DEFICIT)	$	4,572,046
STOCKHOLDERS' DEFICIT
Preferred stock		-			5,774			-			5,774
Common stock		-			768,573			-			768,573
Capital in excess of par value		-			7,066,220			-			7,066,220
Retained deficit		-			(9,253,073	)		-			(9,253,073	)
Noncontrolling interest		-			(95,881	)		-			(95,881	)
TOTAL STOCKHOLDERS' DEFICIT					(1,508,387	)					(1,508,387	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT				$	4,729,047					$	4,729,047

Notes:
	A	Cash has been adjusted to account for the previously consolidated balances of Verity Farms II, Inc. (“Verity Farms II”) and AquaLiv Technologies, Inc. (“AquaLiv”) on Form 10-Q for the period ended December 31, 2012.
	B	Accounts receivable has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	C	Inventories has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	D	Other receivables has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	E	Notes receivable-Aqualiv has been eliminated to account for the intercompany transaction between Verity Farms II and Aisita Corp (an AquaLiv subsidiary).
	F	Property, plant, and equipment, has been adjusted to account for the previously consolidated balances of Verity Farms II, and AquaLiv on Form 10-Q for the period ended December 31, 2012, and to account for the break out of land, buildings, and accumulated depreciation into seperate line items.
	G	Accounts payable has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	H	Other payables and accrued liabilities has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	I	Notes payable has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	J	Notes payable-related party has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	K	Customer prepaid has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	L	Member contributions have been eliminated through the acquisition of 100% of Verity Farms II by AquaLiv.
	M	Retained earnings have been eliminated through the acquisition of 100% of Verity Farms II by AquaLiv.

See accompanying notes to (unaudited) pro forma financial statements.

F-19

Verity Farms II, Inc. and Its Subsidiaries  

and AquaLiv Technologies, Inc and Its Subsidiaries  

Consolidated (Unaudited) Condensed Pro Forma Statement of Operations  

For the Three Months Ended December 31, 2012  

	Verity Farms II, Inc. and Its Subsidiaries			AquaLiv Technologies, Inc. and Its Subsidiaries			Unaudited  adjustment	Unaudited Total
Revenues
Sales	$	408,397		$	96,121		-	$	504,518
Cost of goods sold		(330,544	)		(12,654	)	-		(343,198	)
Gross profit		77,853			83,467				161,320
Operating expenses
Salaries and benefits		288,241			37,999		-		326,240
Management and consulting fees		-			191,640		-		191,640
Advertising and marketing		16,965			-		-		16,965
Legal and professional Services		76,987			56,559		-		133,546
Repairs and maintenance		8,111			-		-		8,111
Travel and entertainment		52,311			584		-		52,895
General supplies and office expense		18,857			-		-		18,857
Telephone		10,730			-		-		10,730
Rent		26,300			-		-		26,300
Depreciation		20,645			-		-		20,645
Insurance		8,045			-		-		8,045
Loss on goodwill impariment, Verity Farms		-			5,790,922		-		5,790,922
Other general and administrative		82,968			60,073		-		143,041
Total Operating Expenses		610,158			6,137,777				6,747,935
Income from operations		(532,306	)		(6,054,310	)			(6,586,616	)
Other income (expenses)
Other income		6,971			-		-		6,971
Interest expense		(42,566	)		(10,000	)	-		(52,566	)
Other expense		(15,725	)		-		-		(15,725	)
Total other income (expense)		(51,319	)		(10,000	)			(61,319	)
Income before income taxes		(583,625	)		(6,064,310	)			(6,647,935	)
Provision for income taxes		-			-		-		-
Net loss (income) attributable to non-controlling interest, AquaLiv		-			46,705		-		46,705
Net loss	$	(583,625	)	$	(6,017,605	)		$	(6,601,230	)

Notes: No adjustment required

See accompanying notes to (unaudited) pro forma financial statements.

F-20

Verity Farms, LLC and Subsidiaries  

and AquaLiv Technologies, Inc. and Its Subsidiaries  

Consolidated (Unaudited) Condensed Pro Forma Statement of Operations  

For the Years ended September 30, 2012  

	Verity Farms, LLC			Aqualiv Technologies, Inc.			Unaudited		Unaudited
	and Subsidiaries			and Its Subsidiaries				adjustment	Total
Revenues
Sales	$	2,562,732		$	479,529			-	$	3,042,261
Cost of goods sold		(1,763,685	)		(123,173	)		-		(1,886,858	)
Gross profit		799,048			356,356					1,155,404
Operating expenses
Salaries and benefits		857,035			172,861			-		1,029,896
Management and consulting fees		-			155,810			-		155,810
Advertising and marketing		117,434			-			-		117,434
Legal and professional Services		119,143			180,501			-		299,644
Repairs and maintenance		43,832			-			-		43,832
Travel and entertainment		155,156			18,769			-		173,925
General supplies and office expense		72,189			-			-		72,189
Telephone		30,040			-			-		30,040
Rent		114,150			-			-		114,150
Depreciation		65,104			-			-		65,104
Insurance		53,943			-			-		53,943
Other general and administrative		163,146			255,596			-		418,742
Total Operating Expenses		1,791,172			783,537					2,574,709
Income from operations		(992,124	)		(427,181	)				(1,419,305	)
Other income (expenses)
Other income		25,275			-			-		25,275
Interest expense		(37,857	)		(157,854	)		-		(195,711	)
Loss on derivative liability		-			(68,904	)				(68,904	)
Other expense		(87,990	)		-			-		(87,990	)
Total other income (expense)		(100,572	)		(226,758	)				(327,330	)
Income before income taxes		(1,092,696	)		(653,939	)				(1,746,635	)
Provision for income taxes		-			-			-		-
Add: Net loss attributable to noncontrolling interest, AquaLiv, Inc.		-			30,860			-		30,860
Net loss	$	(1,092,696	)	$	(623,079	)			$	(1,715,775	)

Notes: No adjustment required

See accompanying notes to (unaudited) pro forma financial statements.

F-21

Notes to Unaudited Condensed Pro Forma Financial Statements

1. Basis of Presentation

On December 31, 2012 (the Closing Date), AquaLiv Technologies, Inc. (“AquaLiv”). completed the acquisition of Verity Farms II, (“Verity Farm II”) whereby Verity Farms II, became a wholly-owned subsidiary of AquaLiv in a transaction accounted for using the purchase method of accounting in accordance with ASC Topic 805.

2. Purchase Price

The total consideration paid by AquaLiv to Verity Farms II, security holders at closing consisted of preferred stock valued at $4,850,000.

For purposes of presentation in the unaudited condensed combined pro forma financial statements, the purchase price for Verity Farms II, of $4,850,000 is presented as follows:

Preferred shares	$	4,850
Capital in excess of par	$	4,845,150
Total	$	4,850,000

Under the purchase method of accounting, the total purchase price of $4,850,000 is allocated to Verity Farms II’s net identifiable assets and acquired liabilities as follows:

Current Assets	$	967,517
Property & Equipment, net	$	3,727,385
Current Liabilities assumed	$	(5,635,823	)
Goodwill	$	5,790,922
Total	$	4,850,000

3. Unaudited Pro Forma Adjustments

Pro forma adjustments are necessary to reflect the purchase price, to reflect amounts related to Verity Farms II’s net identifiable assets and acquired liabilities at an amount equal to the estimated fair values on the Closing Date.

AquaLiv has not identified any other significant pre-acquisition contingencies where the related asset, liability or impairment is probable and the amount of the asset, liability or impairment can be reasonably estimated.

Pro forma Condensed Combined Balance Sheet as of December 31, 2012 (Adjustments)

Notes:
	A	Cash has been adjusted to account for the previously consolidated balances of Verity Farms II, Inc. (“Verity Farms II”) and AquaLiv Technologies, Inc. (“AquaLiv”) on Form 10-Q for the period ended December 31, 2012.
	B	Accounts receivable has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	C	Inventories has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	D	Other receivables has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	E	Notes receivable-Aqualiv has been eliminated to account for the intercompany transaction between Verity Farms II and Aisita Corp (an AquaLiv subsidiary).
	F	Property, plant, and equipment, has been adjusted to account for the previously consolidated balances of Verity Farms II, and AquaLiv on Form 10-Q for the period ended December 31, 2012, and to account for the break out of land, buildings, and accumulated depreciation into seperate line items.
	G	Accounts payable has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	H	Other payables and accrued liabilities has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	I	Notes payable has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	J	Notes payable-related party has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	K	Customer prepaid has been adjusted to account for the previously consolidated balances of Verity Farms II and AquaLiv on Form 10-Q for the period ended December 31, 2012.
	L	Member contributions have been eliminated through the acquisition of 100% of Verity Farms II by AquaLiv.
	M	Retained earnings have been eliminated through the acquisition of 100% of Verity Farms II by AquaLiv.

F-22

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on behalf by the undersigned hereunto duly authorized.

March 19, 2013                          AQUALIV TECHNOLOGIES, INC.

By:	/s/ Duane G. Spader
Duane G. Spader, President & CEO
By:	/s/ William M. Wright
William M. Wright, Executive Vice President & CFO

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