0001144204-10-005319.txt : 20100204 0001144204-10-005319.hdr.sgml : 20100204 20100204111812 ACCESSION NUMBER: 0001144204-10-005319 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20091231 FILED AS OF DATE: 20100204 DATE AS OF CHANGE: 20100204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Cavitation Technologies, Inc. CENTRAL INDEX KEY: 0001376793 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 000000000 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-53239 FILM NUMBER: 10572995 BUSINESS ADDRESS: STREET 1: 10019 CANOGA AVENUE CITY: CHATSWORTH, STATE: CA ZIP: 91311 BUSINESS PHONE: 775-338-2598 MAIL ADDRESS: STREET 1: 10019 CANOGA AVENUE CITY: CHATSWORTH, STATE: CA ZIP: 91311 FORMER COMPANY: FORMER CONFORMED NAME: Bioenergy Inc. DATE OF NAME CHANGE: 20060927 10-Q 1 v172619_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission File Number: 0-29901

Cavitation Technologies, Inc.

(Exact name of Registrant as Specified in its Charter)

Nevada		20-4907818
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

10019 CANOGA AVENUE, CHATSWORTH, CALIFORNIA 91311

(Address, including Zip Code, of Principal Executive Offices)

(818) 718-0905

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class:		Name of Each Exchange on Which Registered:
None		Over the Counter (Bulletin Board)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.101 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o No x

State the aggregate market value of the voting and non -voting common equity held by non-affiliates of the registrant by reference to the price at which the common equity was last sold, or of the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completely second fiscal quarter: $26,216,684 as of December 31, 2009 based on the closing price of $0.23 per share and 113,985,584 shares outstanding.

The registrant had 114,165,048 shares of Common Stock, par value $0.001 per share, outstanding at January 22, 2009.

FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED DECEMBER 31, 2009

TABLE OF CONTENTS

			Page
PART I - FINANCIAL INFORMATION

	ITEM 1.	FINANCIAL STATEMENTS	4

	ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22

	ITEM 4.	CONTROLS AND PROCEDURES	22

PART II – OTHER INFORMATION

	ITEM 1.	LEGAL PROCEEDINGS	23

	ITEM 1A	RISK FACTORS	23

	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	23

	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	23

	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	23

	ITEM 5.	OTHER INFORMATION	23

	ITEM 6.	EXHIBITS	23

Note Regarding Forward Looking Statements

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q may contain statements relating to future results of Cavitation Technologies, Inc. (including certain projections and business trends) that are “forward-looking statements”. Our actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, without limitation, statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements of the Company to be materially different from any future results or achievements of the Company expressed or implied by such forward-looking statements. Such factors include, among others, those set forth herein and those detailed from time to time in our other Securities and Exchange Commission (“SEC”) filings. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. We qualify all the forward-looking statements contained in this quarterly report by the foregoing cautionary statements.

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CAVITATION TECHNOLOGIES, INC.

Balance Sheets

	(Unaudited)
	December 31,			June 30,
	2009			2009

ASSETS

Current assets:
Cash and cash equivalents	$	10,476		$	5,038
Prepaid expenses and other current assets		352			2,341
Total current assets		10,828			7,379

Property and equipment, net		75,833			62,753
Other assets		9,500			9,500
Total assets	$	96,161		$	79,632

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued expenses	$	506,976		$	382,615
Deferred revenue		33,480			26,000
Convertible notes payable, net of discounts		-			200,000
Common stock subscription deposit		9,870			-
Short term loan		18,500			-
Line of credit		550,146			636,917
Total current liabilities		1,118,972			1,245,532

Commitments and contingencies

Stockholders' deficit:
Preferred stock $0.001 par value, 10,000,000 shares authorized, 111,111 shares issued and outstanding at December 31, 2009 and June 30, 2009.		111			111
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 113,985,584 and 88,984,593 shares issued and outstanding at December 31, 2009 and June 30, 2009, respectively.		41,955			29,661
Additional paid-in capital		8,855,831			4,148,926
Deficit accumulated during the development stage		(9,920,708	)		(5,344,598	)
Total stockholders' deficit		(1,022,811	)		(1,165,900	)
Total liabilities and stockholders' deficit	$	96,161		$	79,632

See accompanying notes, which are an integral part of these financial statements.

CAVITATION TECHNOLOGIES, INC.

Statements of Operations (Unaudited)

													January 29, 2007,
													Inception,
	Three Months Ended						Six Months Ended						Through
	December 31,						December 31,						December 31,
	2009			2008			2009			2008			2009

General and administrative expenses	$	1,249,554		$	660,586		$	4,327,428		$	1,009,532		$	6,914,171
Research and development expenses		91,968			48,671			154,933			178,546			2,593,431
Total operating expenses		1,341,522			709,257			4,482,361			1,188,078			9,507,602
Loss from operations		(1,341,522	)		(709,257	)		(4,482,361	)		(1,188,078	)		(9,507,602	)
Interest expense		(10,167	)		(11,681	)		(93,749	)		(21,318	)		(246,281	)
Loss before income taxes		(1,351,689	)		(720,938	)		(4,576,110	)		(1,209,396	)		(9,753,883	)
Income tax expense		-			-			-			-			-
Net loss	$	(1,351,689	)	$	(720,938	)	$	(4,576,110	)	$	(1,209,396	)	$	(9,753,883	)
Preferred stock dividend		(1,500	)		(50,756	)		(3,000	)		(50,756	)
Net loss available to common stockholders	$	(1,353,189	)	$	(771,694	)	$	(4,579,110	)	$	(1,260,152	)

Net loss available to common stockholders per share:
Basic and Diluted	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	(0.02	)

Weighted average shares outstanding:
Basic and Diluted		111,567,617			77,416,140			107,253,064			67,068,510

See accompanying notes, which are an integral part of these financial statements.

Cavitation Technologies, Inc.

Statement of Changes In Stockholders' Deficit (Unaudited)

	Preferred Stock				Common Stock				Additional			Accumulated
	Shares		Amount		Shares		Amount		Paid-In Capital			Deficit			Total

Issuance of common stock for services on
January 29, 2007, inception						42,993,630	$	14,331	$	6,669		$			$	21,000
Net loss													(533,185	)		(533,185	)

Balance at December 31, 2007		-	$	-		42,993,630	$	14,331	$	6,669		$	(533,185	)	$	(512,185	)

Common stock sold for cash						2,047,314		682		499,318						500,000
Common stock issued as payment for services						10,369,650		3,457		1,819,943						1,823,400
Amortization of discount on convertible preferred stock										47,879			(47,879	)		-
Net loss													(2,148,597	)		(2,148,597	)

Balance at June 30, 2008		-	$	-		55,410,594	$	18,470	$	2,373,809		$	(2,729,661	)	$	(337,382	)

Preferred stock sold in connection with reverse merger						2,149,560		717		124,283						125,000
Preferred stock sold for cash		111,111		111						99,889						100,000
Preferred stock - Beneficial Conversion Feature										11,111			(11,111	)
Bio shares outstanding before reverse merger						27,840,534		9,280		(9,280	)					-
Common stock issued as payment for services						1,983,909		661		639,012						639,673
Common stock sold for cash						1,599,996		533		299,467						300,000
Warrants issued in connection with issuance of convertible debt										49,245						49,245
Amortization of discount on conversion of preferred stock										107,835			(107,835	)		-
Warrants issued as payment for services										146,043						146,043
Share-based compensation										307,512						307,512
Net loss													(2,495,991	)		(2,495,991	)

Balance at June 30, 2009		111,111	$	111		88,984,593	$	29,661	$	4,148,926		$	(5,344,598	)	$	(1,165,900	)

Common stock issued as payment for services						17,938,011		5,979		2,799,303						2,805,282
Common stock issued for debt and accrued interest conversion						1,122,375		374		190,429						190,803
Conversion feature on notes payable										63,601						63,601
Warrants issued as payment for services										5,173						5,173
Net loss													(3,224,421	)		(3,224,421	)

Balance at September 30, 2009		111,111	$	111		108,044,979	$	36,014	$	7,207,432		$	(8,569,019	)	$	(1,325,462	)

Common stock sold for cash						4,179,935		4,180		695,460						699,640
Common stock issued as payment for services						1,760,670		1,761		560,904						562,665
Amortization of restricted stock										395,285						395,285
Dividends on preferred stock										(3,250	)					(3,250	)
Net loss													(1,351,689	)		(1,351,689	)

Balance at December 31, 2009		111,111	$	111		113,985,584	$	41,955	$	8,855,831		$	(9,920,708	)	$	(1,022,811	)

See accompanying notes, which are an integral part of these financial statements.

CAVITATION TECHNOLOGIES, INC.

Statements of Cash Flows (Unaudited)

							January 29, 2007,
							Inception,
							Through
	Six Months Ended December 31,						March 31,
	2009			2008			2009

Operating activities:
Net loss	$	(4,576,110	)	$	(1,209,396	)	$	(9,753,883	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		7,940			2,262			20,558
Warrants issued in connection with convertible notes payable		-			1,255			49,245
Common stock issued for services		3,763,232			454,600			6,247,649
Stock option compensation		-			198,620			307,512
Warrants issued for services		5,173			-			151,216
Amortization of loan discount		63,601			-			63,601

Effect of changes in:

Prepaid expenses and other current assets		1,989			(898	)		(353	)
Deposits		-			-			(9,500	)
Accounts payable and accrued expenses		131,914			35,195			514,187
Deferred revenue		7,480			26,000			33,480
Net cash used in operating activities	$	(594,781	)	$	(492,362	)	$	(2,376,288	)

Investing activities:
Purchase of Property and Equipment		(21,020	)		-			(96,392	)
Net cash used in investing activities	$	(21,020	)	$	-		$	(96,392	)

Financing activities:
Proceeds from line of credit borrowings		-			9,061			636,917
Payments on line of credit		(86,771	)		-			(86,771	)
Proceeds from sales of preferred stock		-			125,000			725,000
Payments on convertible notes payable		(20,000	)		-			(55,000	)
Proceeds from convertible notes payable		-			125,900			235,000
Proceeds from sale of commom stock and subscription deposit		709,510			-			1,009,510
Proceeds from short term loan		18,500			-			18,500
Net cash provided by financing activities	$	621,239		$	259,961		$	2,483,156

Net increase (decrease) in cash		5,438			(232,401	)		10,476
Cash, beginning of period		5,038			310,929			-
Cash, end of period	$	10,476		$	78,528		$	10,476

Supplemental disclosures of cash flow information:
Cash paid for interest	$	30,368		$	17,868		$	133,655
Cash paid for income taxes		-			-			3,469

Supplemental disclosure of non-cash investing and financing activities:
Warrants issued in connection with preferred stock		-			-			155,714
Beneficial conversion feature of preferred stock		-			-			11,111
Conversion of preferred to common shares in reverse merger		-			625,000			625,000
Proceeds from sales of preferred stock used to purchase shares of Bio		-			-			400,000
Conversion of notes payable to common stock		190,803			-			190,803

See accompanying notes, which are an integral part of these financial statements.

CAVITATION TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2009

Note 1 - Nature of Operations

Cavitation Technologies, Inc. is a Nevada Corporation (the “Company”) ,which operates through its wholly owned subsidiary Hydrodynamic Technology, Inc., a California corporation. The Company designs and engineers environmentally friendly NANO technology based systems that use our patents pending, multi-stage, continuous flow-through, hydrodynamic NANO Series of cavitation reactors. These systems have commercial applications in industries such as vegetable oil refining, renewable fuels, water recycling, water-oil emulsions, alcoholic beverage enhancement, extraction of algae, and crude oil yield enhancement.

Products include the "Green D+ Plus De-gumming System", a vegetable oil refining system, the "HydorFuel System" for producing diesel-water fuel emulsions, and the "Bioforce 9000 NANO Reactor Skid System" which performs the transesterification process during the production of biodiesel.

Our success will depend in part on our ability to obtain patents, maintain trade secrets, and operate without infringing on the proprietary rights of others both in the United States and other countries. We have eight patent applications pending in the US and have applied for three international patents. We intend to apply for new patents on a regular basis. Our patents pending apply to potential commercial applications in markets such as vegetable oil refining, renewable fuels production, waste water treatment, water-oil emulsions, crude oil yield enhancement,

and alcoholic beverage enhancement. There can be no assurances that patents issued to the Company will not be challenged, invalidated, or circumvented, or that the rights granted hereunder will provide proprietary protection or competitive advantage to the Company.

We are are traded on both the Over the Counter Bulletin Board where our ticker symbol is CVAT as well as the Berlin and Stuttgart Stock Exchanges where our symbol is WTC. Our single location is our headquarters in Chatsworth, CA. We have four full-time employees and have engaged approximately forty consultants and independent contractors over the past two years.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation and Going Concern

The Company is a development stage entity as of December 31, 2009 as defined by the Financial Accounting Standard Board Accounting Standard Codification (ASC) 915. Successful completion of the Company’s development programs and ultimately the attainment of profitable operations are dependent on future events including, among other things, our ability to access potential markets; secure financing; develop a customer base; attract, retain, and motivate qualified personnel; and develop strategic alliances. The Company has no significant operating history and, from January 29, 2007 (inception), through December 31, 2009 generated a net loss of $9,753,883. The Company also has negative cash flow from operations and negative net equity. To date the Company has been funded by private equity and debt. Although management believes that the company will be able to successfully fund its operations, there can be no assurance that the Company will be able to do so or that the company will ever operate profitably.

Management’s plan is 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. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of the Company to continue as a going concern.

CAVITATION TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2009

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for the three and six months ended December 31, 2009 and for the three and six months ended December 31, 2008 are not necessarily indicative of results to be expected for fiscal year ending June 30, 2010. For further information, please refer to Notes to Consolidated Financial Statements - “Significant Accounting Policies” of the Company’s Form 10-K for the year ended June 30, 2009 as filed with the Securities and Exchange Commission (SEC) on September 28, 2009 for a description of the Company’s Basis of Presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of Cavitation Technologies, Inc. and its wholly owned subsidiary Hydrodynamic Technology, Inc. All significant inter-company transactions and balances have been eliminated through consolidation.

Fair Value Measurement

Effective January 1, 2008, the Company adopted the provisions of ASC 820, “Fair Value Measurements”. ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. The implementation of this standard did not have any impact on the Company’s consolidated financial positions, results of operations, or cash flows. The carrying amounts of cash and cash equivalents, accounts payable and other accrued expenses approximate fair value because of the short maturity of these items. The carrying amounts of outstanding debt issued pursuant to credit agreements approximate fair value because interest rates over the term of these instruments approximate current market interest rates.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period. Significant estimates are used in valuing our stock options, warrants, and common stock issued for services, among other items. Actual results could differ from these estimates.

Revenue Recognition

Revenue is recognized 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 collectibility is reasonably assured. The Company recognizes revenues in accordance with ASC 605 Revenue Recognition. During the first quarter of fiscal 2010, the Company received a deposit of $7,480 from a customer relating to an order for our Bioforce 9000 NANO Reactor Skid System. Because this transaction has not yet been fully completed, this amount is included in deferred revenue on the accompanying balance sheet as of December 31, 2009. There were no deposits during the second quarter of fiscal 2010.

Cash

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents are carried at cost which approximates market value.

CAVITATION TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2009

Property and Equipment

Property and equipment presented at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets. Betterments, renewals, and extraordinary repairs that extend the life of the assets are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation and amortization applicable to retired assets are removed from the Company's accounts, and the gain or loss on dispositions, if any, is recognized in the consolidated statements of operations

Share-Based Compensation

Compensation costs related to stock options are determined in accordance with ASC 718, “Share-Based Payments”. Under this method, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable vesting period of the stock award using the straight-line method.

Income Taxes

The Company accounts for income taxes under the liability method which requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. The provision for income taxes, if any, represents the tax payable for the period and the change during the period in deferred income tax assets and liabilities.

Advertising costs

Advertising costs incurred in the normal course of operations are expensed as incurred.

Research and Development Costs

R&D expenses relate primarily to the development, design, and testing of preproduction prototypes and models and are expensed as incurred.

Note 3 -Net Loss Per Share – Basic and Diluted

The Company computes loss per common share using ASC 260, Earnings Per Share. The net loss per common share, both basic and diluted, is computed based on the weighted average number of shares outstanding for the period. The diluted loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average shares outstanding assuming all potential dilutive common shares were issued. Diluted EPS uses the treasury stock method or the if-converted method, where applicable, to compute the potential dilution that would occur if stock-based awards and other commitments to issue common stock were exercised.

CAVITATION TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2009

On December 31, 2009, the Company had 2,251,938 stock options and 8,802,638 warrants outstanding to purchase common stock that were not included in the diluted net loss per common share because their effect would be anti-dilutive. In addition, the Company had 111,111 shares of Series A Preferred Stock outstanding, which are convertible into 375,000 shares of common stock. These items were not included in the calculation of diluted net loss per common share because their effect would be anti-dilutive.

Note 4 - Property and Equipment

Property and equipment consisted of the following as of December 31, 2009 (unaudited) and June 30, 2009.

	December 31,			June 30,
	2009			2009

Leasehold improvements	$	2,475		$	2,475
Furniture and fixtures		26,837			26,837
Office equipment		1,400			1,400
Equipment		65,680			44,660
Property and Equipment (gross)		96,392			75,372
Less: accumulated depreciation		(20,559	)		(12,619	)
Property and Equipment (net)	$	75,833		$	62,753

Depreciation expense for the three and six months ended December 31, 2009 amounted to $4,401 and $7,940, respectively. Depreciation expense for the three and six months ended December 31, 2008 amounted to $1,131 and $2,363, respectively.

Note 5 -Bank Loan

On February 7, 2007, the Company contracted a $700,000 revolving line of credit from National Bank of California. On August 1, 2009, the revolving line of credit was replaced by a one-year variable rate loan which matures August 1, 2010. This loan bears interest at Prime + 2.75% and will be repaid with equal monthly installments of $7,396 beginning September 1, 2009. A final payment of $599,322 is due August 1, 2010. This loan is secured by personal guarantees of the Company’s principals and assets. The balance outstanding under the loan was $550,146 on December 31, 2009 and under the line of credit was $636,917 on June 30, 2009.

Note 6 - Convertible Notes Payable

Convertible Notes Payable

On August 17, 2009, $180,000 in convertible notes payable plus accrued interest were converted into 1,122,375 shares of restricted common stock. Immediately prior to the conversion, the Company changed the conversion rate to be equal to 75% of the average closing price of the Company’s stock for the 10 days immediately preceding the conversion request.

Note 7 – Common and Preferred Stock, Options and Warrants

Common

CAVITATION TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2009

On September 24, 2009, the Company’s Board of Directors authorized an increase in authorized common shares from 100,000,000 to 1,000,000,000 as well as a 3 for 1 forward split of the Company’s common shares. The stock split requires retroactive restatement of all historical shares outstanding. The accompanying Statement of Changes to Stockholder’s Deficit was restated to give retroactive recognition of the forward stock split. All references to the number of shares in the Consolidated Financial Statements are presented on a post-split basis. On October 7, 2009, the Company filed an amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada to authorize and increase the number of authorized shares of common stock to 1,000,000,000 (par value $0.001) and to effect a 3 for 1 forward split of all outstanding shares. The effective date for the forward split was October 12, 2009.

On December 31, 2009, the Company received $9,870 in deposits from an individual for the purpose of investing in common stock. The amount of $9,870 is reflected in Common Stock Subscription Deposit on the accompanying balance sheet as of December 31, 2009. In January 2010, the $9,870 deposit was converted into 58,056 of common stock.

Preferred

The holders of the Series A Preferred Stock are entitled to receive out of any funds legally available, dividends at the rate of 6% per annum, payable on September 30 and March 30. Dividends accrue and are cumulative whether or not they have been declared. Dividends may be paid in cash or through the issuance of additional shares of Series A Preferred Stock at the Company’s option. At December 31, 2009, the Company has accrued $4,750 in dividends.

Stock Options

There were 2,251,938 stock options outstanding June 30, 2009. There were no options issued during the six months ended December 31, 2009. For details on Stock Options, please refer to our 10-K submitted September 28, 2009.

Warrants

The following tables summarize the Company’s warrant activity and related information for six months ended December 31, 2009 and the year ended June 30, 2009 after consideration of the 3 for 1 forward stock split which occurred on October 12, 2009.

	Warrants				Weighted Average Exercise Price
	December 31,				December 31,
	2009		June 30, 2009		2009		June 30, 2009
Outstanding — Beginning		4,532,703		409,440	$	0.44	$	0.37
Granted		4,269,935		4,123,263	$	0.42		0.45
Exercised		—		—		—		—
Forfeited		—		—		—		—
Expired		—		—		—		—
Outstanding — ending		8,802,638		4,532,703	$	0.43		0.44
Exercisable		8,802,638		4,532,703	$	0.43	$	0.44

CAVITATION TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2009

Warrants Outstanding
	Range of Exercise	Number of		Weighted Average Remaining
	Prices	Warrants		Contractual Life (Years)
$	0.20 – 0.42		6,632,642		3.05
$	0.50 – 0.58		2,169,996		3.75
			8,802,638

The fair value of the warrants granted for services during the first quarter of fiscal 2010 is estimated at $5,173. There were no warrants issued for services during the second quarter of fiscal 2010. The fair value of these warrants was estimated at the date of grant using the Black-Scholes option-pricing model with the following range of assumptions:

Expected Life	3.0 years
Stock Price Volatility		64	%
Risk Free Interest Rate		1.6	%
Expected Dividends	None

Note 8 - 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, 2010, and it is not more likely than not that those losses will be recovered using future taxable income. Therefore, no provision for income tax has been recorded as of and for the period ended December 31, 2009.

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.

The Company files income tax returns with state and federal jurisdictions. The Company’s state and federal income tax returns for the tax years ended December 31, 2009, 2008 and 2007 are subject to examination by the taxing authorities as of December 31, 2009. The Company has sustained significant net operating losses since inception and has generated corresponding net operating loss carryforwards. We are in the process of evaluating those losses. At December 31, 2009 and 2008, based on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, we determined that it was not more likely than not that our deferred income tax assets would not be realized. Consequently we have recorded a 100% valuation allowance which is presented as a reduction of our deferred income tax asset which principally arose from our net operating loss carryforwards.

CAVITATION TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2009

Note 9 - Lease Agreements

On January 9, 2007, the Company entered into a 3-year lease agreement for approximately 6,000 square feet of office space located at 10019 Canoga Ave., Chatsworth, CA 91311. The lease provides for monthly rental payments including parking and utilities of $4,750 for the first 12 months, and cost of living adjustments according to the Consumer Price Index for All Urban Customers at a rate not less than 3% per annum, and not greater than 6% per annum. The lease expires February 15, 2010. As of December 31, 2009, the Company has a security deposit of $9,500 associated with this lease.

On December 30, 2009, the Company extended its lease agreement for office space for a period of two years effective February 1, 2010. Monthly rent under the extended lease agreement is $4,250 per month.

Note 10 – Recent Accounting Standards

Accounting standards promulgated by the Financial Accounting Standards Board (“FASB”) change periodically. Changes in such standards may have an impact on the Company’s future financial position. The following are a summary of recent accounting developments.

In February 2007, the FASB issued ASC 825, (formerly SFAS No. 159), The Fair Value Option of Financial Assets and Financial Liabilities. ASC 825 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. ASC 825 is effective as of the beginning of the entity’s first fiscal year that begins after November 15, 2007. The adoption of ASC 825 did not have a significant impact on the Company’s financial statements.

In December 2007, the FASB issued ASC 810 (SFAS No. 160), Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51. ASC 810 establishes accounting and reporting standards for the non—controlling interest in a subsidiary and for the deconsolidation of a subsidiary. ASC 810 clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests of which the Company currently has none. All other requirements of ASC 810 shall be applied prospectively. ASC 810 is effective for fiscal years beginning after December 15, 2008. The adoption of ASC 810 did not have a significant impact on the Company’s financial statements.

In December 2007 the FASB issued ASC 805 (formerly SFAS No. 141 revised 2007), Business Combinations, which revises current purchase accounting guidance in ASC 805, Business Combinations. ASC 805 requires most assets acquired and liabilities assumed in a business combination to be measured at their fair values as of the date of acquisition. ASC 805 also modifies the initial measurement and subsequent re-measurement of contingent consideration and acquired contingencies, and requires that acquisition related costs be recognized as expense as incurred rather than capitalized as part of the cost of the acquisition. ASC 805 is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively to business combinations occurring after adoption. The impact of ASC 805 on the Company’s financial statements will depend on the nature and extent of the Company’s future acquisition activities.

CAVITATION TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2009

In March 2008, the FASB issued ASC 815-10-50 (formerly SFAS No. 161 and an amendment of FASB Statement No. 133), Disclosures about Derivative Instruments and Hedging Activities. ASC 815 requires enhanced disclosures about a company's derivative and hedging activities. These enhanced disclosures will discuss (a) how and why a company uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for and its related interpretations and (c) how derivative instruments and related hedged items affect a company's financial position, results of operations and cash flows. ASC 815 is effective for fiscal years beginning on or after November 15, 2008 with earlier adoption allowed. The adoption of ASC 815 on the Company’s financial statements will depend on the nature and extent of the Company’s future use of hedging and derivatives.

In April 2008 the Financial Accounting Standards Board issued ASC 350-30 (formerly FASB Staff Position No. FAS 142-3) “Determination of the Useful Life of Intangible Assets.” This ASC discusses the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of this ASC is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under ASC 805, “Business Combinations” and other U.S. generally accepted accounting principles (GAAP). This ASC is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company adopted this FSP beginning July 1, 2009 and it did not have a significant impact on the Company’s financial position, results of operations, or cash flow.

In May 2008 the FASB issued ASC 470-20 (formerly FSP No. APB 14-1), “Accounting for Convertible Debt Instruments that May be Settled in Cash upon Conversion (Including Partial Cash Settlement).” ASC 470-20 addresses instruments commonly referred to as Instrument C which requires the issuer to settle the principal amount in cash and the conversion spread in cash or net shares at the issuer's option. ASC 470-20 requires that issuers of these instruments account for their liability and equity components separately by bifurcating the conversion option from the debt instrument, classifying the conversion option in equity, and then accreting the resulting discount on the debt as additional interest expense over the expected life of the debt. ASC 470-20 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and requires retrospective application to all periods presented. The adoption of this accounting pronouncement did not have a material effect on our financial statements.

In May 2009 FASB issued ASC 855 (formerly SFAS 165), Subsequent Events effective for interim and annual financial periods ending after June 15, 2009. The objective of this Statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. It also includes the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements. It addresses the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This pronouncement had no material impact on the Company’s financial statements.

In June 2009 FASB issued ASC 810 (formerly SFAS 167 which is an amendment to FASB Interpretation No. 46), Consolidation of Variable Interest Entities, to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This Statement requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This Statement eliminates the quantitative-based risks and rewards calculation previously required for determining the primary beneficiary of a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance. This Statement shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. This pronouncement had no material impact on the Company’s financial statements.

On April 9, 2009 the FASB Issued ASC 825 (formerly Staff Position FAS 107-1 and APB 28-1), Interim Disclosures about Fair Value of Financial Instruments. This requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This ASC also requires those disclosures in summarized financial information at interim reporting periods. This ASC shall be effective for interim reporting periods ending after June 15, 2009. This pronouncement had no material impact on the Company’s financial statements.

CAVITATION TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2009

In June 2009 FASB issued ASC 105 (formerly SFAS 168), The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. This ASC identifies the sources of accounting principles and the framework for selecting the principles used in preparing the financial statements of nongovernmental entities that are presented in conformity with GAAP. ASC 105 arranges these sources of GAAP in a hierarchy for users to apply accordingly. The GAAP hierarchy will include only two levels of GAAP: authoritative and non-authoritative. This Codification supersedes all existing non-SEC accounting and reporting standards. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. In the Board’s view, the adoption of this ASC will not change GAAP, and as a result, will not have a material impact on the company’s financial statements.

Note 11 – Subsequent Events

In accordance with ASC 855, “Subsequent Events”, the Company has performed a review of events subsequent to the balance sheet date through February 2, 2010, the date that the consolidated financial statements were issued. On January 15, 2010 the Company signed a worldwide license and distribution Agreement with the Desmet Ballestra Group for the marketing of the Company’s “Green D Plus Nano Cavitation Reactor Systems”.

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

Hydrodynamic Technology, Inc. dba Cavitation Technologies, Inc (Company) was incorporated January 29, 2007, in California. We are a development stage enterprise that designs and engineers NANO technology based systems that use our patents pending, multi-stage, continuous flow-through, hydrodynamic cavitation reactors. We are a “GreenTech” company whose goal is to monetize our patent pending technologies that we feel have unique, useful, and environmentally friendly commercial applications in markets such as vegetable oil refining, renewable fuels, water recycling and desalination, alcoholic beverage enhancement, water-oil emulsions, and crude oil yield enhancement. Research and development has led to products which include the Green D De-gumming System, a vegetable oil refining system, and the Bioforce 9000 NANO Reactor Skid System which performs the transesterification process during the production of biodiesel. We believe the application of our technology can dramatically reduce operating costs and improve yields in comparison to competitive solutions. Our headquarters and only office is in Chatsworth, California.

We have no significant operating history and from January 29, 2007 (date of inception) through December 31, 2009, we generated net losses aggregating $9,753,883. Management’s plan is 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.

Our success depends in part on our ability to obtain patents, maintain trade secrets, and operate without infringing on the proprietary rights of others both in the United States and other countries. We have seven patent applications pending in the US along with three PCT applications. We intend to apply for new patents on a regular basis. Our patents pending apply to potential commercial applications in markets such as vegetable oil processing, renewable fuels production, water recycling and desalination, water–oil emulsions, crude oil yield enhancement, water-oil emulsions, blending systems, alcoholic beverage enhancement, and algae processing. There can be no assurances that patents issued to the Company will not be challenged, invalidated, or circumvented, or that the rights granted hereunder will provide proprietary protection or competitive advantage to the Company.

We are a public company with stock traded on the Over the Counter Bulletin Board with ticker symbol CVAT. Our stock is also traded on the Stuttgart Stock Exchange with symbol WTC. Our only location is our headquarters in Chatsworth, California. We have four employees and have engaged approximately 40 consultants and independent contractors over the past two years.

Results of Operations

The following is a comparison of the results of operations for the Company for the three and six months ended December 31, 2009 and 2008.

	Three Months Ended
	December 31,
	2009			2008			$ Change			% Change

General and administrative
expenses	$	1,249,554		$	660,586		$	588,968			89	%
Research and development
expenses		91,968			48,671			43,297			89	%
Total operating expenses		1,341,522			709,257			632,265			89	%
Loss from operations		(1,341,522	)		(709,257	)		(632,265	)		89	%
Interest expense		(10,167	)		(11,681	)		1,514			-13	%
Loss before income taxes		(1,351,689	)		(720,938	)		(630,751	)		87	%
Income tax expense		-			-			-			-
Net loss	$	(1,351,689	)	$	(720,938	)	$	(630,751	)		87	%

	Six Months Ended
	December 31,
	2009			2008			$ Change			% Change

General and administrative
expenses	$	4,327,428		$	1,009,532		$	3,317,896			329	%
Research and development
expenses		154,933			178,546			(23,613	)		-13	%
Total operating expenses		4,482,361			1,188,078			3,294,283			277	%
Loss from operations		(4,482,361	)		(1,188,078	)		(3,294,283	)		277	%
Interest expense		(93,749	)		(21,318	)		(72,431	)		340	%
Loss before income taxes		(4,576,110	)		(1,209,396	)		(3,366,714	)		278	%
Income tax expense		-			-			-			0	%
Net loss	$	(4,576,110	)	$	(1,209,396	)	$	(3,366,714	)		278	%

Revenues

We had no revenue for the three and six months ended December 31, 2009 and 2008. For the three month period ended September 30, 2009, we recorded Deferred Income of $7,480 as a deposit for a potential future sale/lease/license. This amount is included in deferred revenue on the accompanying balance sheet as of December 31, 2009. We expect to be able to achieve revenue during the fiscal year ending June 30, 2010.

General and Administrative Expenses

Our general and administrative expenses increased $588,968 and $3,317,896 for the three and six months ended December 31, 2009, respectively. This is primarily attributed to the issuance of 1,660,182 common shares valued at $923,870, and 19,598,181 common shares valued at $3,729,152, as compensation for services rendered by consultants and key personnel during the three and six months ended December 31, 2009, respectively. We issued 1,050,000 common shares valued at $454,600, and 15,000 stock option s valued at $4,590, during the three months ended December 31, 2008 as compensation for services rendered by consultants and key personnel. We issued 1,050,000 common shares valued at $454,600, and 675,000 stock options valued at $198,620 as compensation for services rendered by consultants and key personnel during the six months ended December 31, 2008. Other expenses contributing to the increase in general and administrative expenses for the three months ended December 31, 2009 include legal fees and salaries in the amount of $90,011 and $112,765, respectively. Legal fees and salaries for the three months ended December 31, 2008 totaled $28,554 and $60,681, respectively. Other expenses contributing to the increase in general and administrative expenses for the six months ended December 31, 2009 include consulting and legal fees, and salaries in the amounts of $267,972, $162,273 and $225,324, respectively. For the six months ended December 31, 2008, legal fees and salaries totaled $38,330 and $122,858, respectively. There were no consulting fees (other than share-based incentives mentioned above) during the six months ended December 31, 2008.

Research and Development

Research and development expenses increased by $43,297 for the three months ended December 31, 2009 when compared to the three months ended December 31, 2008. This increase is primarily attributed to issuance of 100,500 common shares as compensation for services rendered by consultants valued at $34,080. Research and development expenses decreased by $23,613 for the six months ended December 31, 2009 when compared to the six months ended December 31, 2008. Research and development expenses decreased because we focused more resources on advertising and marketing of our existing products and we focused fewer resources on the development potential of commercial products. Nevertheless, we did continue to conduct research and development on our NANO Technology for potential commercial applications in markets such as vegetable oil refining, water recycling and desalination, alcoholic beverage enhancement, crude oil yield enhancement, and water-diesel emulsion.

Interest Expense

Interest expense decreased by $1,514 for the three months ended December 31, 2009 when compared to the three months ended December 31, 2008. Interest expense increased by $72,431 for the six months ended December 31, 2009 when compared to the six months ended December 31, 2008. The decrease in interest expense for the three months ended December 31, 2009 is attributed to lower bank loan levels. The increase in interest expense for the six months ended December 31, 2009 is attributed to interest and amortization of discount on convertible notes payable that were issued on December 30, 2008 at a rate of 12% that were converted to common stock on August 17, 2009 offset by lower bank loans levels.

Liquidity and Capital Resources

At December 31, 2009 and June 30, 2009, we had cash of $10,476 and $5,038, respectively. Our net cash used by operating activities increased by $102,419 from $492,362 to $594,781 during the six months ended December 31, 2008 and 2009, respectively. Our net cash used by investing activities increased by $21,020 from $0 to $21,020 during the six months ended December 31, 2008 and 2009, respectively. Our net cash provided by financing activities increased by $361,278 from $259,961 to $621,239 during the six months ended December 31, 2008 and 2009, respectively.

At December 31, 2009 and June 30, 2009 we had a negative working capital, excluding the aforementioned bank loan, of $557,998 and $601,236, respectively. Our working capital improved primarily because of the conversion of the convertible notes payable to common shares offset by an increase in accounts payable and accrued expenses.

It is our intent to raise additional debt and/or equity financing to fund operations. In addition, we expect to fund our operations from revenue generated in fiscal 2010. 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 we 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.

Share-Based Compensation

Income Taxes

Recently Issued Accounting Standards

In June 2009 FASB issued ASC 105 (formerly SFAS 168), The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. This ASC identifies the sources of accounting principles and the framework for selecting the principles used in preparing the financial statements of nongovernmental entities that are presented in conformity with GAAP. ASC 105 arranges these sources of GAAP in a hierarchy for users to apply accordingly. The GAAP hierarchy will include only two levels of GAAP: authoritative and non-authoritative. This Codification supersedes all existing non-SEC accounting and reporting standards. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. In the Board’s view, the adoption of this ASC has not changed GAAP, and as a result, it did not have a material impact on the company’s financial statements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4. Controls and Disclosures

Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2009, our disclosure controls and procedures were effective.

The term “disclosure controls and procedures,” as defined under the Exchange Act, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

We sold 4,179,935 common shares for $699,640 during the three months ended December 31, 2009. There were no sales of common stock during the three months ended September 30, 2009.

We issued 19,698,681 common shares as compensation for services rendered during the six months ended December 31, 2009.

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Submission of Matters to a vote of Securities Holders.

On September 24, 2009, the Board of Directors authorized an increase in outstanding common shares from 100,000,000 to 1,000,000,000 (par value $0.001as well as authorizing a 3 for 1 forward split of our common shares. A majority of the shareholders voted in favor of the forward split. The articles of incorporation were amended and submitted to the Secretary of State of the State of Nevada on October 7, 2009. The forward split became effective October 12, 2009 in the State of Nevada and was declared effective by FINRA on October 28, 2009. We have incorporated the impact of the forward split into these financial statements.

Item 5 – Other Information

None

Item 6 – Exhibits

Part I Exhibits

31.1 Principal Executive Officer Certification

31.2 Principal Financial Officer Certification

32.1 Section 1350 Certification

10.1 Material agreement

Part II Exhibits

None.

SIGNATURES

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

SIGNATURE	TITLE	DATE

/s/ Roman Gordon	Chief Executive Officer and Director	February 2, 2010
Roman Gordon	(Principal Executive Officer) Chairman of the Board

/s/ Igor Gorodnitsky	President	February 2, 2010
Igor Gorodnitsky

/s/ R.L. Hartshorn	Chief Financial Officer	February 2, 2010
R.L. Hartshorn	(Principal Financial Officer and Accounting Officer)

EX-10.1 2 v172619_ex10-1.htm

Green D Plus Nano Cavitation Reactor Skid System

CONFIDENTIAL

MARKETING & TECHNOLOGY

LICENSE AGREEMENT

Between

CAVITATION TECHNOLOGIES, INC.

and

n.v. DESMET BALLESTRA GROUP s.a.,

January 15, 2010

TABLE OF CONTENTS

Preamble		1

Article I Definitions		1
1.01 Defined Terms.		1

Article II Licensor Grant to Licensee		1
2.01 Scope of Grant:		1
2.02 Limitations; Prohibitions.		2

Article III Orders and User Licenses; Testing and Maintenance		2
3.01 Reactor Skid Orders; Site User Licenses		2
3.02 Delivery of Reactor Skid(s)		3
3.03 Startup and Testing		3
3.04 Quality Control; Manuals		3
3.05 Maintenance of Units/Equipment		3

Article IV Technical Assistance and Support		3
4.01 Scope of Services		3
4.02 Training Expenses		3

Article V Inventions or Improvements		4
5.01 Licensor Inventions or Improvements		4
5.02 Licensee Inventions or Improvements		4
5.03 Ownership; Grant of License		4

Article VI Ownership of Property; Patent Filings		5
6.01 Ownership of Property		5
6.02 Additional Patent Filings		5

Article VII Lease Payments and Other Payments		5
7.01 Lease Payments		5
7.02 Pilot Test Units; Costs-		5
7.03 Payment Procedure		5

Article VIII Assignments and Transfers		5
8.01 Non-Transferability		5
8.02 Transfer to New Site User		5

Article IX Duration and Termination		6

9.01 Term and Duration		6
9.02 Termination for Material Default		6
9.03 Effect of Expiration/Termination		6

Article X Confidentiality and Non-Disclosure		6
10.01 Confidentiality and Non-Disclosure		6

Article XI Use of Names, Marks and Logos		7
11.01 Licensor’s Name, Marks and Logos		7
11.02 Licensee’s Name, Marks and Logos		7
11.03 Licensor Branding Requirements		7

-ii-

Article XII Notices	8
12.01 Notices	8

Article XIII Content of Agreement; Schedules	8
13.01 Integrated Documents	8

Schedule A Definitions	A-1
Article 1. Defined Terms	A-1

Schedule B General Terms and Conditions	B-1
Article 1. Warranties; Performance Guarantee; Limitations on Liability.	B-1
1.01 Licensor’s Warranties; Limitations	B-1
1.02 Licensee’s Warranties; Remedies	B-1
1.03 Performance Guarantee	B-1
1.04 Limitation on Damages	B-1

Article 2. Indemnification	B-2
2.01 Licensor’s Indemnity	B-2
2.02 Licensor’s Indemnity; Limitations	B-3
2.03 Licensee’s Indemnity	B-3
2.04 Licensee’s Indemnity; No Insurance Limitation	B-3
2.05 Notice of Claims; Assistance.	B-3
2.06 Settlement and Compromise	B-4

Article 3. Compliance With Law	B-4
301 Compliance; Applicable Law	B-4

Article 4 Governing Law and Dispute Resolution	B-4
4.01 Governing Law	B-4
4.02 Dispute Resolution	B-4

Article 5. Additional Provisions.	B-5
5.01 Amendment and Waiver	B-5
5.02 Invalidity	B-5
5.03 Third Parties	B-5
5.04 Relationship of Parties	B-5
5.05 Required Currency	B-5
5.06 Rights, Powers, Remedies Cumulative; Waiver; Time	B-5
5.07 Integration	B-5
5.08 Counterparts	B-5

Schedule C Confirmed Order Form	C-1
Schedule D Site User License Form	D-1
Schedule E Licensor’s Technical Support - Rates	E-1
Schedule F Lease Fees and Payment	F-1
Schedule G Performance Guarantee	G-1
Schedule H Patent Rights	H-1

-iii-

MARKETING & TECHNOLOGY

LICENSE AGREEMENT

This TECHNOLOGY LICENSE AGREEMENT (“Agreement”) is entered into and made effective as of this 15th day of January 2010 (“Effective Date”), by and between CAVITATION TECHNOLOGIES, INC., a Nevada corporation (“Licensor”), and n.v. DESMET BALLESTRA GROUP s.a., a Belgian corporation (“Licensee”) (the parties herein sometimes referred to individually a “Party” or collectively as “Parties”).

PREAMBLE

A. Licensor has developed and owns the Green D Plus Nano Cavitation Reactor Skid System (the “System”), a proprietary nano-cavitation system comprised of equipment manufactured to Licensor’s specifications and related proprietary technology and software used in the process of degumming crude vegetable oils and other oils related processes; and

B. Licensee, together with its Affiliates, is a professional engineering firm engaged in the design and construction of vegetable oil extraction, production and refining facilities (“Vegetable Oil Processing Facilities”) for third parties and has requested a license for the limited purpose of (1) marketing Green D Plus Nano Cavitation Reactor Skid Units (each a “Reactor Skid Unit” or “Unit”) anywhere in the World, except within the territory of Japan (the “Licensed Territory”); and (2) incorporating the System into Licensee’s process design package for Vegetable Oil Processing Facilities; and (3) integrating Reactor Skid Units supplied by Licensor into Vegetable Oil Processing Facilities designed and/or supplied, and/or constructed by Licensee.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, the Parties agree as follows:

ARTICLE I

DEFINITIONS

1.01 Defined Terms. Capitalized terms used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the meanings and definitions ascribed to them (with such meanings and definitions applicable to the singular and plural forms thereof) in Schedule A hereto.

ARTICLE II

LICENSOR GRANT TO LICENSEE

2.01 Scope of Grant. (a)Subject to the terms and conditions of this Agreement, Licensor grants to Licensee a limited, exclusive, non-transferable license and right to market and use the Licensed Technology, including related Improvements and Inventions, to :

(1) Market Reactor Skid Units that are (1) operated by Site Users for the sole purpose of producing and/or processing Vegetable Oils, including without limitation aiding in or facilitating the production of degummed vegetable oils, either as standalone units or in connection with the operation of Vegetable Oil Processing Facilities, or in connection with other processes involving or relating to Vegetable Oils, and (2) located within the Licensed Territory;

(2) Include or incorporate the System into Licensee’s process design packages for Vegetable Oil Processing Facilities for the purpose of integrating Reactor Skid Units into or part of Vegetable Oil Processing Facilities or any process or processing equipment comprising a part thereof; will be installed and operated within the Licensed Territory for the sole purpose of making or aiding in the production of oils (triglycerides), including without limitation the production of degummed vegetable oils, either as stand alone Units or in connection with or as part of any vegetable oil refining facility or other oils processes.

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(3) Assist Site Users in the inspection, installation, testing, startup, operation and maintenance of each Reactor Skid Unit under the terms of this Agreement and each Site User License.

(b) Except as provided under article V of this Agreement, the marketing rights and license granted to Licensee under this Agreement shall not include any design, fabrication or manufacturing rights in or to the System, or any part thereof, or in or to any Reactor Skid Unit. Furthermore, the marketing rights and license granted to Licensee under this Agreement shall not restrict Licensor from assisting Licensee in its marketing efforts to maximize the number of Site User Licenses issued and Systems Leased for benefit of both parties. In no event shall Licensor market directly to any competitor of Licensee.

2.02 Limitations; Prohibitions. (a) Except as expressly authorized or provided in this Agreement, Licensee shall not (1) deploy or use any Reactor Skid Unit or the Licensed Technology in any manner that is inconsistent with the grant of rights specified in Section 2.01 or any other provision of this Agreement, (2) transfer, distribute, disclose or offer to make available the Licensed Technology to any Person, whether by assignment, sublicense or otherwise, or allow any Person access to the Licensed Technology, (3) copy, adapt, reverse engineer, decompile, disassemble or modify, in whole or in part, any Reactor Skid Unit or the Licensed Technology (including proprietary software), (4) use any Skid Reactor Unit (or any component or part thereof) or the Licensed Technology to create derivative works, or (5) use, copy or reproduce any Confidential Information for any purpose other than as authorized in this Agreement or the Secrecy & Non-Disclosure Agreement.

(b) For applications other than degumming of crude Vegetable Oils and other than any processes involving or relating to the production, processing or treatment of Vegetable Oils, Licensor hereby retains the right to (1) design, fabricate, construct, operate, sell and market Reactor Skid Units within the Licensed Territory, and (2) grant to any Person any license or right to practice the Licensed Technology for any purpose, including without limitation to design, fabricate, construct, operate, sell, lease or market Reactor Skid Units in the Licensed Territory

2.03 Extension to Affiliates

Licensor agrees to grant and does hereby grant to the Licensee the right to extend to Licensee’s Affiliates all the rights of Licensee under this Agreement, provided that Licensee promptly notifies Licensor in writing of any such extension, and the Licensee’s Affiliate concerned agrees to observe and be bound by all of the obligations of Licensee under this Agreement.

ARTICLE III

ORDERS AND USER LICENSES; TESTING & MAINTENANCE

3.01 Reactor Orders; Site User Licenses. (a) Subject to the conditions of this Agreement, Licensee shall be entitled, from time to time, to order from Licensor one or more Reactor Skid Units that will be installed at or incorporated or otherwise integrated into Vegetable Oil Processing Facilities designed, and/or supplied and/or erected, and sold by Licensee. Each such order shall be in the form of Exhibit C hereto (each a “Confirmed Order”) and include the information requested or called for therein. Licensee shall submit a separate Confirmed Order for each Reactor Skid Unit.

(b) Each Confirmed Order shall specify the Site User for the Reactor Skid Unit and shall request that Licensor issue a Site User License to the proposed Site User(s) for the Unit in accordance with and within the scope of the rights granted by this Agreement. Licensor shall not unreasonably withhold any such requested authorization. Each Site User License issued to Site Users shall be substantially in the form of Schedule D hereto.

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3.02 Shipment of Reactor Skid Unit(s). Licensor will ship to Site User, as specified in the Confirmed Order, the Reactor Skid Unit(s) requested in the Confirmed Order in approximately one hundred twenty (120) days after Licensor receives (1) a Site User License that has been issued by Licensor and accepted by the Site User for the Unit, (2) an equipment lease that will be developed and executed as contemplated in Schedule F hereto, and (3) payment of the first or initial amount of revenue from lease payments made by the Site User as provided in Article VII and as will be specified in the equipment lease executed by such Site User.

3.03 Startup and Testing. Upon delivery and installation of each Reactor Skid Unit at the Site Location and prior to any testing or start-up of such Unit, Licensee and Site User shall examine the Unit to determine its physical condition and operational status, and its conformity to the Licensor’s Process Design Package, and shall conduct such testing of the Unit as shall be required to determine that it is operational and functional. Licensee shall provide Licensee with at least seven (7) days advance notice of any scheduled inspection and testing in order to give Licensor an opportunity to travel to the Site Location and participate in such inspection and testing.

3.04 Quality Control; Manuals. (a) Licensee and Site User shall follow and diligently adhere to all procedures, instructions, specifications and guidelines provided by Licensor with respect to installation and operation of each Reactor Skid Unit and in any technical or user manuals developed or prepared by Licensor and Licensee on a joint and cooperative basis. Licensee shall provide and deliver to each Site User a current technical or user manual upon handover of each Unit to the Site User(s).

(b) Upon Licensor’s request from time to time, Licensee shall deliver to Licensor suggested or proposed revisions to Licensor’s technical or user manual developed for the Reactor Skid Units. Any proposed changed, modifications or revisions to any technical or user manual for the Units that has been developed or prepared by Licensee shall require Licensor’s consent before being implemented or adopted.

3.05 Maintenance of Units/Equipment. (a) Licensee shall maintain, and shall require each Site User to maintain, at its expense, each Reactor Skid Unit in good operating order, repair, condition and appearance, and shall protect each Unit from deterioration, other than normal and expected wear and tear, and damage, loss or destruction. Each Reactor Skid Unit (including component parts to be incorporated into the Unit) shall be maintained and stored in secure facilities until the Unit is delivered and installed at the Site Location designated in the Site User License.

(b) Licensee or Site User shall perform all required calibrations, adjustments and preventative maintenance on each Reactor Skid Unit in accordance with the instructions and guidelines set forth in the technical or user manuals provided by Licensee as required under this Agreement and delivered to Site Users.

ARTICLE IV

TECHNICAL ASSISTANCE AND SUPPORT

4.01 Scope of Services. Licensor shall provide to Licensee, at the rates and compensation specified in Exhibit E hereto, any consultation, technical assistance and support services that Licensee may reasonably request from time to time, whether by telephone, in written communications, or in person, in (a) installing, operating or troubleshooting for any Reactor Skid Unit, (b) testing, startup or maintenance of any Unit or any problems associated therewith, and (c) providing training to Licensee and/or any Site User (or any of their respective employees, contractors and representatives).

4.02 Training Expenses. All expenses of Licensee’s (and any Site User’s) employees or representatives in attending any training session conducted by Licensor shall be the responsibility of Licensee or Site User, as the case may be. Expenses of Licensor’s employees or representatives engaged in any onsite training or any training sessions conducted away from Licensor’s offices in Chatsworth, California, including airfare, meals and lodging, shall, be paid to Licensor by Licensee in advance or promptly reimbursed to Licensor after such expenses have been incurred..

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ARTICLE V

INVENTIONS OR IMPROVEMENTS

5.01 Licensor Inventions or Improvements. Licensor agrees to promptly disclose to Licensee, all Inventions or Improvements invented, discovered or developed by Licensor and in a stage of development potentially suitable for evaluation, testing or commercial use.

5.02 Licensee Inventions or Improvements. (a) Licensee agrees to disclose promptly to Licensor, all Inventions or Improvements invented, discovered or developed by Licensee, whether or not any such Invention or Improvement is in a stage of development potentially suitable for evaluation, testing or commercial use. Licensee shall permit Licensor and/or its representatives to inspect, at mutually convenient times, the operating procedures, process conditions, material balances, energy consumption, reactant performance, analyses of product and other internal streams, feedstocks, catalysts and chemicals, chemical compounds or chemical reactions that are or may be applicable to any such Invention or Improvement.

(b) Should Licensee, during the term of this Agreement, invent, make, discover or develop any patentable Invention or Improvement to the Licensed Technology, Licensee will notify and allow Licensor a period of ninety (90) days to file patent applications with respect thereto in its own name and at its own expense, and take such other steps required or necessary to protect its rights in such Invention or Improvement. In the event that Licensor fails or otherwise elects not to file patent applications within the 90 days time period, Licensee shall be entitled, at its option, to proceed to prepare and file any such patent application, provided that such application lists or identifies both Licensor and Licensee as joint applicants (as well as assignees of any discovery or invention forming the basis of such application) and that any patent issued as a result is issued to Licensee and Licensor jointly as co-owners. The parties will share the costs of any such joint patent applications on an equal basis.

5.03 Ownership; Grant of License. (a) Except in case Licensee and Licensor would be co-owner of an Invention of Improvement as per the terms of article 5.02 (b) hereabove, Licensor shall, at all times, have exclusive and unlimited ownership of all Inventions or Improvements; provided, however, all such Inventions or Improvements shall, to the extent that they may be used or practiced in the field of Vegetable Oil Refining Science, be included within the scope of the rights granted to Licensee under this Agreement. Upon Licensor’s written request, Licensee shall assign and transfer to Licensor all of Licensee’s ownership rights in any Invention or Improvement, including without limitation any patent, patent application, copyright, trade secret or other intellectual property right contained therein or arising with respect thereto.

(b) Licensee shall, upon Licensor’s request, take such actions and execute all documents, and cause its employees and contractors to take all actions and execute all documents, as are necessary or appropriate to implement the provisions of this Article V and shall assist Licensor in the preparing, filing, prosecuting and assigning patents, patent applications, copyrights and other intellectual property rights and in otherwise securing their protection.

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ARTICLE VI

OWNERSHIP OF PROPERTY; PATENT FILINGS

6.01 Ownership of Property. (a) All patents, patent applications, copyrights, trade secrets and other intellectual property rights in or relating to the System, any Reactor Skid Unit or the Licensed Technology, in all languages, formats and media throughout the world, are and shall remain the sole and exclusive property of Licensor, including without limitation, (1) the Licensor Primary Patents, Licensor Patent Rights, and Licensor Technical Information, and (2) all Inventions or Improvements except as provided under 5.02 (b) hereabove , and (3) each Process Design Package and any detailed engineering design and any document contained therein or included as a part thereof, and any drawings, schematics, blueprints, maps and other documentation, whether in print, digital or other form, showing the design, configuration and/or engineering of any Reactor Skid Unit (including the Pilot Plant) or any Nano-Cavitation Reactor, in each case prepared or developed individually by Licensor or jointly by Licensor and Licensee, or any of their respective owners, employees, partners, representatives or contractors; however, it is expressly acknowledged that any document and any engineering contained therein, prepared and/or developed by Licensee to integrate the System, any Reactor Skid Unit or the Licensed Technology into a specific Site User’s Vegetable Oil process, is the sole property of Licensee. and (4) Licensor’s software (including source code) included within the Licensed Technology or any Unit, together with the performance and operating data generated by any Unit (including the Pilot Plant) or any Nano-Cavitation Reactor.

(b) Nothing in this Agreement shall be construed or interpreted as assigning or transferring any portion or aspect of Licensor’s ownership rights in any of the properties specified or described herein.

6.02 Additional Patent Filings. (a) In the event that Licensee receives orders for Reactor Skid Units that will be delivered, installed and operated in countries other than the United States, Licensee shall promptly consult with Licensor to determine whether Licensor has filed patent applications or obtained patents with respect to the Licensed Technology that will provide adequate protection to Licensor in such country and jurisdiction. Licensee shall, at its sole cost, cooperate with and assist Licensor in preparing, filing and prosecuting any patents or patent applications that Licensor, in its sole discretion, determines must be filed and prosecuted in foreign jurisdictions in order to protect its intellectual property. Licensee shall pay or contribute fifty percent (50%) of the costs incurred or to be incurred by Licensor in preparing, filing and prosecuting any such patents or patent applications where needed and with any governmental authority having jurisdiction therein, including without limitation any associated filing fees, costs and attorneys’ fees.

(b) Upon Licensor’s request from time to time, Licensee shall either advance funds to Licensor, or reimburse Licensor for Licensee’s share of fees and costs incurred in filing, prosecuting and maintaining patents and patent applications in foreign jurisdictions as provided herein.

ARTICLE VII

LICENSE FEES AND OTHER PAYMENTS

INTENTIONALLY LEFT BLANK

ARTICLE VIII

ASSIGNMENTS AND TRANSFERS

8.01 Non-Transferability. During the term of this Agreement, neither Party shall be entitled to assign, convey, sell or otherwise transfer this Agreement or any interest therein to any Person without the prior written consent of the other Party. Any attempted conveyance, transfer, sale, encumbrance or assignment of this Agreement, either in whole or in part, by either Party shall be null and void.

8.02 Transfer to New Site User. Site User may not transfer any Reactor Skid Unit to any other Person without Licensor’s prior written approval. If a transfer is approved in writing by Licensor, Licensee shall, upon receiving Licensor’s authorization to do so, issue and execute a Site User License with the new Site User. Licensee shall promptly notify Licensor of any such transfer request in advance and shall deliver to Licensor a true and correct copy of each new Site User License executed by Licensee and any such Site User.

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ARTICLE IX

DURATION AND TERMINATION

9.01 Term and Duration. (a) Subject to the provisions of Section 9.02, this Agreement shall become effective as of the Effective Date and shall continue in full force and effect for an initial period of three (3) years from and after the Effective Date (the “Primary Term”). At the end of the Primary Term, this Agreement shall automatically be extended for additional periods of three (3) years each (each a “Renewal Term”) provided Licensee fulfills the Minimum Annual Units for each year of the term as specified in 9.01 (b).

(b) Intentionally Left Blank

(c) Notwithstanding anything to the contrary herein, after the Primary Term and during any Renewal Term, either Party shall be entitled to terminate this Agreement upon at least six (6) months prior written notice to the other Party.

9.02 Termination for Material Default. (a) Upon Licensor’s notice to Licensee of any material default under this Agreement, the Parties shall, within thirty (30) days, attempt to resolve any differences between them and to cure any such default that exists or may exist under this Agreement. If a material default hereunder continues for a period of ninety (90) days following Licensor’s notice of such default to Licensee without being cured or corrected, Licensor shall have the right to terminate this Agreement upon notice to Licensee.

(b) Termination of this Agreement hereunder shall not preclude any Party from pursuing or enforcing any claim it may have for damages or otherwise on account of any default by any Party.

9.03 Effect of Expiration/Termination. The expiration or termination of this Agreement under this Article IX or otherwise shall not (1) relieve Licensee of its obligations to account for and pay all amounts due Licensor under this Agreement, (2) affect any rights granted to Site Users that are in full compliance with the terms of Site User Licenses and any corresponding equipment leases that remain in effect as of the date of any such termination.

ARTICLE X

CONFIDENTIALITY AND NON-DISCLOSURE

10.01 Confidentiality and Non-Disclosure. Each of the Parties agrees that any Confidential Information developed or acquired by either Party or disclosed or made available to a Party (or its Affiliates) by the other Party at any time prior to or during the term of this Agreement, shall be kept strictly confidential and protected in accordance with the Secrecy & Non-Disclosure Agreement.

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ARTICLE XI

USE OF NAMES, MARKS AND LOGOS

11.01 Licensor’s Name, Marks and Logos. (a) During the term of this Agreement, subject to Section 11.01(b), Licensee shall be entitled to use Licensor’s name, marks and logos in materials prepared or used by Licensee to advertise, promote or market the System or any Reactor Skid Unit under and within the scope of the rights and license granted to Licensee under this Agreement. Licensee shall not publish, use or refer to Licensor’s name, marks or logos in any manner that would diminish, dilute or compromise its/their commercial value.

(b) All advertising, promotional and marketing materials (printed or in electronic format) prepared or used by Licensee that either use Licensor’s name, marks or logos to describe the System or any Reactor Skid Unit must be approved in writing by Licensor before its/their use or distribution by Licensee. Licensee shall not issue any press release or other public announcement or statement with respect to the existence or terms of this Agreement or any Site User License, or as to any Reactor Skid Unit, without Licensor’s prior approval.

11.02 Licensee’s Name, Marks and Logos. (a) During the term of this Agreement, subject to Section 11.02(b), Licensor shall be entitled to use Licensee’s name, marks and logos in materials prepared or used by Licensor to advertise, promote or market the System, Reactor Skid Units. Licensor shall not publish, use or refer to Licensee’s name, marks or logos in any manner that would diminish, dilute or compromise its/their commercial value.

(b) All advertising, promotional and marketing materials (printed or in electronic format) prepared or used by Licensor that either use Licensee’s name, marks or logos to describe the System or any Reactor Skid Unit must be approved in writing by Licensee before its/their use or distribution by Licensor. Licensor shall not issue any press release or other public announcement or statement with respect to the existence or terms of this Agreement or any Site User License without Licensee’s prior approval.

11.03 Licensor Branding Requirements. (a) Licensee may request to have displayed on each Reactor Skid Unit by Licensor under the terms of this Agreement, either directly on the Unit or in sign or other display, which is permanently affixed thereto, the following:

CTI Reactor Skid Unit

Proprietary Design/Technology

Licensed to

n.v. DESMET BALLESTRA GROUP s.a.

Cavitation Technologies, Inc. (w/Logo)

Chatsworth, CA

(b) Within sixty (60) days after the Effective Date, the Parties will develop an appropriate platform, format, artwork and graphics to satisfy the Licensor branding requirement specified above, each of which shall require Licensor’s final approval.

(c) Any proposed use, presentation or publication by the Parties, or either of them, of a “co-branded” format, platform or medium for any Reactor Skid Unit, or in any advertising, promotional or scientific materials or works, shall maintain adequate separation of the names, marks and logos of the Parties in order to protect the distinctness and integrity of the marks under Applicable Law and shall require the prior written approval and consent of each Party.

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ARTICLE XII

NOTICES

12.01 Notices. Any notice, payment, request, demand or other communication hereunder shall be in writing and shall be deemed to have been duly given when (i) delivered personally to the Party to be notified; or (ii) upon delivery or transmittal if sent by facsimile transmission with confirmation that the facsimile message was received by the facsimile machine of the Party to be notified, (iii) upon delivery if sent by a overnight carrier; (iv) three business days after sent by ordinary mail, postage paid, to the party to be notified, or (v) five business days after sent by registered or certified mail, postage paid, to the party to be notified, at the address set forth below. Either Party may change its address, facsimile number or representative upon written notice to the other Party. A letter duplicating a facsimile transmission previously marked as received by the facsimile machine of the other party shall not extend the time by which the notice was given.

(a) If to Licensor:		(b) If to Licensee:

Cavitation Technologies, Inc.		n.v. Desmet Ballestra Group s.a.
10019 Canoga Avenue		Minervastraat, 1 – B-1930
Chatsworth, California 91311 USA		Zaventem, Belgium
Telephone: (818) 718-0905		Telephone: +32 .2. 716 .11.11
Telefax: (818) 718-1176		Telefax: +32 2 716 11 09
Attn: Roman Gordon, CEO		Attn: Marc Kellens, Group Technical Director

ARTICLE XIII

CONTENT OF AGREEMENT; SCHEDULES

13.01 Integrated Documents. (a) This Agreement consists of the Preamble, Articles and Sections contained in the text of this Signature Document, together with the following Schedules:

Schedule A		Definitions
Schedule B		General Terms and Conditions
Schedule C		Confirmed Order Form
Schedule D		Site User License Form
Schedule E		Licensor’s Technical Assistance - Rates
Schedule F		License Fees and Payment
Schedule G		Performance Guarantee
Schedule H		Patent Rights

(b) The Schedules listed above and attached hereto, together with documents referred to therein, are incorporated by reference and made a part of this Agreement for all purposes.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date(s) set forth below.

Licensor			Licensee
CAVITATION TECHNOLOGIES, INC.			N.V. DESMET BALLESTRA GROUP S.A.

By:			By:
Name:			Name:
Title:			Title:
Date:			Date:

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SCHEDULE A

DEFINITIONS

Article 1. Defined Terms. Unless the context shall otherwise require, capitalized terms contained in this Agreement (including each of the Schedules thereto) shall have the following meanings:

“AAA” means the American Arbitration Association.

“AAA Rules” means the AAA’s Commercial Arbitration Rules, together with the AAA Optional Rules for Emergency Measures of Protection, in each case as amended and updated from time to time.

"Affiliate" means, with respect to either Party, a person or entity that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with that Party, with the terms “control” and “controlled” meaning for purposes of this definition, the power to direct the management and policies of a person or entity, directly or indirectly, whether through the ownership of voting securities or a partnership, membership or other ownership interest, or by contract or otherwise.

“Agreement” means this Marketing & Technology License Agreement.

“Applicable Law” means all laws, statutes, ordinances, certifications, orders, decrees, injunctions, permits, agreements, rules and regulations of the United States or any state thereof, or any governing authority having jurisdiction over all or any portion of this Agreement or performance of Licensee’s services and work under this Agreement, or other legislative or administrative action of any governing authority, or a final decree, judgment or order of any arbitrator, arbitration panel or a court or the interpretation or application of this Agreement, including (a) any and all permits, authorizations, certifications, or other approvals or orders, (b) any codes and standards contained in or required by Applicable Law, and (c) any Applicable Law related to safety, health or environmental protection.

“Confidential Information” means information, data and documents (whether in print form or capable of being digitally stored and generated), including any formula, pattern, compilation, program, apparatus, device, drawing, schematic, method, technique, process or data (including without limitation data generated by the operation of the Pilot Plant), that (a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other Persons that can obtain economic value from its publication, disclosure or use, and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

For purposes of this Agreement, the term “Confidential Information” consists of and includes, without limitation, the following: (1) this Agreement and the terms and conditions contained herein, together with any notices, communications or correspondence required or given by the Parties thereunder; (2) the Licensor Confidential Information, and (3) the Licensee Confidential Information.

“Dispute” has the meaning set forth in Section 5.02 of the General Terms and Conditions in Schedule B hereto.

“Drawings" means the drawings, diagrams, flow charts or sheets, process data sheets and other process documents either furnished by Licensor to Licensee, or developed by Licensee and approved by Licensor, for or in connection with the marketing, lease, installation, testing, operation and/or maintenance of any Reactor Skid Unit.

“Effective Date” means the date on which this Agreement shall take effect as specified in the first or introductory paragraph of this Agreement.

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A-1

“Inventions or Improvements” means any patentable or non-patentable invention, discovery, technology and information of any type whatsoever, including without limitation processes, methods, formulae, compositions, devices, operating techniques, reactants, catalysts, technical information, knowledge, experience, improvements, modifications, enhancements and Know-How that relate to the design, fabrication, construction, maintenance or operation of any Reactor Skid Unit or in the use, practice or commercialization of the Licensed Technology. or in making or aiding in the production of degummed vegetable oils that utilizes, incorporates, derives from, or is otherwise based on the Licensed Technology, in each case which is discovered, made, designed, developed or acquired by Licensor or by Licensee, as the case may be, solely or with others, or used or practiced at or in a Licensed Reactor Unit. The term “Inventions or Improvements” includes, without limitation, patents, patent applications, copyrights, trade secrets and Confidential Information, and the entire scope and content of the intellectual and tangible property included therein and produced therefrom.

“Know-How” means all factual and proprietary knowledge, information and expertise possessed by Licensor, or to which Licensor has rights, relating to or otherwise useful in (a) the design, fabrication, construction, maintenance or operation of a Reactor Skid Unit, or (b) the practice of the Licensed Technology, whether or not such knowledge, information and expertise are included within (1) the Licensor Patent Rights and the Licensor Technical Information, (2) any Invention or Improvement, or (3) any patent or patent application or future patent application, copyright, trademark or other intellectual property rights; and includes, without limitation, all technical, chemical, manufacturing, business, financial, formulation and scientific research data or information, whether or not capable or precise separate description, and whether or not such information is public or non-public.

“Licensed Technology” means and includes the Licensor Patent Rights and the Licensor Technical Information; provided, however, the term “Licensed Technology” shall be limited to the rights granted to Licensee under this Agreement and to rights granted to each Site User under the terms of a Site User License and shall not include any of rights with respect to the design and manufacture of any Reactor Skid Unit or any component or part thereof.

“Licensed Territory” means and includes the following: Worldwide, except for Japan.

“Licensee Group” means Licensee and its Affiliates, and each of their respective officers, directors, and employees, consultants, advisors and representatives.

“Licensor Confidential Information” means (1) the Licensor Technical Information and the Reactor Information, (2) the Process Design Package, including without limitation each document and any and all information contained therein, together with the Drawings, Standards and Specifications and other drawings, charts, schematics, blueprints, diagrams, standards, specifications and other information showing or depicting the process design of the Green D Plus Nano Cavitation Reactor Skid System or any specific Reactor Skid Unit, including the Pilot Plant; (3) all information, data and documents (whether in print form or capable of being digitally stored and generated) furnished by Licensor to Licensee under the terms of this Agreement or prior to the Effective Date that relate in any way to the Reactor Skid Unit or the Licensed Technology; and all information, data and documents (whether in print form or capable of being digitally stored and generated) furnished by Licensee to Licensor, to the exclusion of Licensee’s Confidential Information, under the terms of this Agreement, including without limitation all Drawings, Standards and Specifications and other drawings, charts, schematics, blueprints, diagrams, standards, specifications and other documents relating in any way to the engineering, design, fabrication, construction, operation and maintenance of any Reactor Skid Unit or that contain, show or depict the Licensed Technology or any aspect thereof. For purposes hereof, the term “Licensor Confidential Information” shall not include any information, data or document that is included within the scope of Licensee’s Confidential Information.

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“Licensor Group” means Licensor and its Affiliates, and each of their respective officers, directors, employees, consultants, advisors and representatives.

“Licensor Inventions or Improvements” means the Inventions or Improvements invented, discovered, conceived or acquired by Licensor or any of its Affiliates.

“Licensor Patent Rights” means all rights with respect to the Licensor Primary Patents and other patents and patent applications of, issued by, or filed or prosecuted in, all relevant countries, in all embodiments covered thereby or included therein, to the extent that the claims include or embody features of or relating to (a) the design, fabrication and construction of Reactor Skid Units (or any component thereof), (b) the Licensed Technology, including without limitation any process or method, operating technique, apparatus and device relating thereto, which is or may be useful in the practice thereof, and (c) a process for the design, fabrication and construction of certain equipment, reactors, piping and instrument that utilizes a hydrodynamic flow-through nano cavitation process for aiding in the production of degummed oils; and (d) any other process, method, operating technique, apparatus or device for manufacturing, making or aiding in the production of degummed vegetable oils and other products, fuels, chemicals, formulations, compounds and/or mixtures; in each case which are acquired by Licensor or are based on or derived from inventions or discoveries conceived by Licensor in the field of Vegetable Oil Refining Science prior to termination of this Agreement, to the extent that, and subject to the terms and conditions under which, Licensor has the right to grant licenses, immunities or licensing rights, including any obligation by Licensor to account to and make payment to others. A list of the existing Licensed Patent Rights is attached to this Agreement as Schedule H.

“Licensor Primary Patents” means the patents and patent applications filed by Licensor with, or issued to Licensor by, the U.S. Patents and Trademarks Office, together with any corresponding or equivalent patents or patent applications issued to or filed by Licensor in any foreign countries or jurisdiction, which assert claims or reflect or embody features of or relating to (a) the design, fabrication and construction of Reactor Skid Units (or any component thereof), (b) the Licensed Technology, including without limitation any process or method, operating technique, apparatus and device relating thereto, which is or may be useful in the practice thereof, and (c) a process for the design, fabrication and construction and operation of certain equipment, reactors, piping and instrument that utilizes a hydrodynamic flow-through nano cavitation process which aids in degumming crude vegetable oils; and (d) any other process, method, operating technique, apparatus or device for manufacturing, making or aiding in the production of degummed vegetable oils and other products, fuels, chemicals, formulations, compounds and/or mixtures; in each case which are acquired by Licensor or are based on or derived from inventions or discoveries conceived by Licensor in the field of Vegetable Oil Refining Science.

“Licensor Technical Information” means (a) all unpatented information and data relating to the Licensed Technology, including without limitation all Know-How and any inventions, trade secrets, formulae, processes, methods, technologies, operating techniques, apparatuses, reactants, catalysts and other chemicals, chemical compounds and mixtures, that are or may be useful in practicing the Licensed Technology, (b) the Reactor Information, and (c) all Inventions and Improvements.

“Nano Cavitation Reactor” means the proprietary reactors designed and manufactured in accordance with Licensor’s specifications and integrated into each Reactor Skid Unit.

“Party” means Licensor or Licensee, or either of them, including each of their respective successors and any permitted assignees under the terms of this Agreement.

“Performance Guarantee” means the performance criteria that each Reactor Skid Unit must achieve or satisfy during performance tests conducted prior to handover of the Unit to the Site User as specified in Section 1.03 of Schedule B hereto and as set forth in Schedule G hereto.

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“Person” means any natural person, corporation, partnership (including both general and limited partnerships), limited liability company, firm, association, trust, government, governmental agency, instrumentality, political subdivision or other legal entity other than the Parties.

“Pilot Plant” means the limited scale pilot plant previously designed by Licensor and constructed or assembled by Licensor.

“Primary Term” means the initial term of this Agreement set forth in Section 9.01.

“Process Design Package” means the comprehensive design package for the Reactor Skid Units, including without limitation drawings, schematics, flow charts, diagrams and documents depicting process design; reactor, piping and instrumentation diagrams; process data sheets for equipment; instrumentation data sheets; safety value data sheets; logic diagrams; graphic displays; performance data; and technical or operating manuals; in each case which are in tangible print or that are or may be electronically stored and retrieved by any means and relate to the design, fabrication, construction, installation, operation and maintenance of the Units.

“Reactor Information” means all information, including without limitation, all data, processes, plans, specifications, flow sheets, designs, diagrams and drawings relating in any way to the design, fabrication, construction, or operation of any Nano-Cavitation Reactor.

“Reactor Skid Unit” or “Unit” means each processing unit or facility designed and constructed in accordance with and utilizing Licensor’s proprietary Green D Plus Nano Cavitation Reactor Skid System, consisting of certain equipment, piping, instrumentation and other components (including one or more Nano-Cavitation Reactors) designed, fabricated and constructed in accordance with the Product Design Package, whether constructed for demonstration or commercialization purposes, which uses a hydrodynamic flow-through nano cavitation technology in making, generating or aiding in the production of degummed vegetable oils.

“Renewal Term” has the meaning set forth in Section 9.01 of this Agreement.

“Secrecy & Non-Disclosure Agreement” means the Secrecy & Non-Disclosure Agreement executed by and between the Parties simultaneously herewith.

“Site User License” means the license to use, maintain and operate one or more Reactor Skid Units substantially in the form of the Site User License set forth in Exhibit D hereto.

“Site User” means any Person that has received, accepted and executed a Site User License with respect to one or more Reactor Skid Units.

“Specifications” means the items, criteria, data and requirements governing the design, fabrication, construction, installation, performance, operation and/or maintenance of the Reactor Skid Units, including without limitation the detailed specifications developed by Licensee and approved by Licensor, in each case shall be part of or be consistent with the Process Design Package.

“Standards” means any and all codes, standards or requirements set forth or specified in this Agreement or under Applicable Law, relating to Licensee’s design, construction, installation and operation of any Reactor Skid Unit. In the event of any conflict between any of the Standards, the Standard containing or including the higher performance standard shall apply.

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“Vegetable Oil” means any natural oils (virgin and/or used) derived from plants and other related organic materials (excluding crude oil and other hydrocarbon based minerals and substances), including any products, materials and other substances derived therefrom.

“Vegetable Oil Processing Facilities”” means any plant or facility located at a geographic site or location within the Licensed Territory which is designed, constructed and is or will be operated for the purpose of processing vegetable oils.

“Vegetable Oil Science” means the use of a process known as “degumming” or any other process or method for the processing of natural oils (virgin and/or used) derived from plants and other organic materials (excluding crude oil and other hydrocarbon based oils, minerals and substances) and includes, without limitation, the teachings and claims set forth in the Licensor Primary Patents.

[END OF SCHEDULE A]

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SCHEDULE B

GENERAL TERMS AND CONDITIONS

Article 1. Warranties; Performance Guarantee; Limitations on Liability.

1.01 Licensor’s Warranties; Limitations.

(a) Licensor warrants that, at the time each Nano-Cavitation Reactor or Reactor Skid Unit delivered to Licensee or a Site User, as the case may be, will perform in accordance with Licensor’s performance specifications.

(b) If, at any time during a one (1) year period after startup of any Reactor Skid Unit, it is discovered that the Unit (or any component or part thereof) does not meet the foregoing warranties, Licensee shall, at no cost to Licensor, promptly perform or arrange for the performance of any remedial work or services required to make the Unit conform to such warranties.

1.02 Performance Guarantee. (a) Prior to the handover of each Reactor Skid Unit to the Site User(s), Licensee shall conduct a performance test on each Unit, utilizing the American Society of Mechanical Engineers’ testing methodology and deploying steady state testing, for the purpose of determining whether the Unit’s performance achieves or satisfies the Performance Guarantee set forth in Schedule G hereto. If the Unit, during performance testing, achieves the criteria specified in the Performance Guarantee, Licensee shall promptly issue to the Site User(s) an inspection and performance test certificate confirming that the Performance Guarantee has been satisfied. Each such certificate shall be signed by Licensee and the Site User and shall be conclusive evidence that the Unit achieved and satisfied the Performance Guarantee. Upon delivery of the original certificate to the Site User, one (1) copy will be delivered to Licensor with one (1) or more copies retained by Licensee.

(b) If the performance testing of any Reactor Skid Unit prior to handover fails to achieve or satisfy the Performance Guarantee, Licensor shall (1) promptly perform or arrange for the performance of any remedial work or services required for the Unit to satisfy the Performance Guarantee, and (2) conduct such additional performance tests to verify that the Performance Guarantee has been satisfied. Licensor shall be responsible for the cost of any performance re-test, including costs associated with securing and storing feedstocks.

1.03 Limitation on Damages. (a) Except for violations of Section 4.03 of this Agreement or as set forth in Section 5.02(c) of this Schedule B, NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE OR EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION, LOST PROFITS OR SAVINGS, REGARDLESS OF THE FORM OF ACTION GIVING RISE TO SUCH A CLAIM FOR SUCH DAMAGES, WHETHER IN CONTRACT OR TORT, OR OTHERWISE, INCLUDING WITHOUT LIMITATION NEGLIGENCE, EVEN IF LICENSOR OR LICENSEE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

(b) THE AGGREGATE LIABIITY OF LICENSOR FOR ANY REASON AND UPON ANY CLAIM OR CAUSE OF ACTION BASED ON OR ARISING OUT OF THIS AGREEMENT SHALL BE LIMITED TO THE AGGREGATE AMOUNT OF LICENSE FEES, RENTS AND ROYALTIES PAID TO LICENSOR UNDER THIS AGREEMENT. THIS LIMITATION APPLIES TO ALL CLAIMS OR CAUSES OF ACTION IN THE AGGREGATE, INCLUDING WITHOUT LIMITATION BREACH OF CONTRACT, INDEMNITIES, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATIONS, CLAIMS FOR FAILURE TO EXERCISE DUE CARE IN THE PERFORMANCE OF SERVICES HEREUNDER OR IN THE SELECTION, DIRECTION OR SUPERVISION OF ANY MANUFACTURER OR FABRICATOR OF EQUIPMENT OR ANY VENDOR OF SOFTWARE.

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HOWEVER, THE LIMITATION STATED UNDER THIS SECTION 1.03 (b) DOES NOT APPLY IN CASE OF INFRINGEMENT OR CONTRIBUTORY INFRINGEMENT OF PATENTS OR COPYRIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS RELATING TO OR ARISING FROM ANY REACTOR SKID UNIT OR THE LICENSED TECHNOLOGY AND ASSERTED BY ANY THIRD PARTY AGAINST THE LICENSEE OR AGAINST ANY SITE USER .

IF IT APPEARS THAT THE CLAIM FOR INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHT CAN BE SOLVED BY THE PAYMENT OF AN INDEMNITY OR FEE OR ROYALTY TO THE AGGRIEVED THIRD PARTY CAN BE SOLVED BY THE PAYMENT OF AN INDEMNITY OR FEE OR ROYALTY TO THE AGGRIEVED THIRD PARTY, LICENSOR SHALL SUPPORT THE PAYMENT OF SUCH INDEMNITY, FEE OR ROYALTY.

Article 2. Indemnification.

2.01 Licensor’s Indemnity. (a) LICENSOR AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE LICENSEE GROUP FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, ACTIONS, SUITS, DAMAGES, LOSSES, AND LIABILITY (INCLUDING WITHOUT LIMITATION LITIGATION COSTS AND REASONABLE ATTORNEYS’ FEES) ON ACCOUNT OF:

(1) ANY BREACH OR VIOLATION OF LICENSOR’S REPRESENTATIONS OR WARRANTIES UNDER THIS AGREEMENT; AND

(2) ANY CLAIMED OR ACTUAL INFRINGEMENT OR CONTRIBUTORY INFRINGEMENT OF PATENTS OR COPYRIGHTS RELATING TO OR ARISING FROM THE REACTOR SKID UNIT OR THE LICENSED TECHNOLOGY;

(b) NOTWITHSTANDING THE FOREGOING, LICENSOR’S INDEMNITY HEREIN SHALL NOT EXTEND TO OR INCLUDE LICENSEE’S PROPRIETARY EQUIPMENT, TECHNOLOGY OR SOFTWARE THAT DO NOT CONFORM IN ALL RESPECTS WITH THIS AGREEMENT, THE PROCESS DESIGN PACKAGE, AND LICENSOR’S SPECIFICATIONS.

HOWEVER, THE LIMITATION STATED UNDER THIS SECTION 1.03 (b) DOES NOT APPLY IN CASE OF INFRINGEMENT OR CONTRIBUTORY INFRINGEMENT OF PATENTS OR COPYRIGHTS OR OTHER INTELLECTUAL PROPORTY RIGHTS RELATING TO OR ARISING FROM THE REACTOR SKID UNIT OR THE LICENSED TECHNOLOGY AND ASSERTED BY ANY THIRD PARTY AGAINST THE LICENSEE OR AGAINST SITE USER .

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2.02 Licensor’s Indemnity; Limitations. LICENSOR’S TOTAL OBLIGATION AND LIABILITY TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE LICENSEE GROUP, OR ANY OF THEM, UNDER THIS AGREEMENT SHALL BE SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 1.03 OF THIS SCHEDULE B.

2.03 Licensee’s Indemnity. (a) LICENSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE LICENSOR GROUP FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, ACTIONS, SUITS, DAMAGES, LOSSES, AND LIABILITY (INCLUDING WITHOUT LIMITATION LITIGATION COSTS AND REASONABLE ATTORNEYS’ FEES) ON ACCOUNT OF:

(1) ANY PERSONAL INJURY, DISEASE OR DEATH OF ANY PERSON (S), OR DAMAGE TO OR LOSS OF PROPERTY, CAUSED BY OR ARISING OUT OF THE PERFORMANCE OF LICENSEE’S SERVICES AND WORK UNDER THIS AGREEMENT, INCLUDING WITHOUT LIMITATION ANY INJURY, DEATH OR PROPERTY DAMAGE CAUSED BY OR ATTRIBUTABLE TO (1) THE NEGLIGENCE OF LICENSEE, ITS SUBCONTRACTORS, INVITEES OR SUPPLIERS (INCLUDING WITHOUT LIMITATION THE RESPECTIVE EMPLOYEES, CONTRACTORS OR AGENTS OF THE FOREGOING); OR (2) WHERE LIABILITY WITH OR WITHOUT FAULT IS STRICTLY IMPOSED BY OPERATION OF LAW;

(2) ANY FAILURE BY LICENSEE TO COMPLY WITH APPLICABLE LAW, INCLUDING WITHOUT LIMITATION, FEDERAL, STATE AND LOCAL LAWS, RULES AND REGULATIONS WHICH MAY BE APPLICABLE TO OR IMPOSED IN CONNECTION WITH PERFORMANCE OF LICENSEE’S SERVICES AND WORK UNDER THIS AGREEMENT, WITHOUT REGARD TO WHETHER LICENSEE’S ACTIONS MAY HAVE RESULTED IN STRICT LIABILITY IMPOSED BY OPERATION OF LAW;

(3) LIENS AND OTHER CLAIMS ARISING FROM WORK PERFORMED BY LICENSEE’S SUBCONTRACTORS OR FROM MATERIALS SUPPLIED TO LICENSEE; AND

(4) ANY (i) BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT OF LICENSEE CONTAINED HEREIN, AND (ii) ANY CLAIM OR LOSS (INCLUDING LITIGATION COSTS AND REASONABLE ATTORNEYS’ FEES) ASSERTED OR INCURRED BY ANY MEMBER OF THE LICENSOR GROUP IN DEFENSE OR IN ENFORCING OR ASSERTING CLAIMS FOR INDEMNITY OR INSURANCE PROTECTION UNDER THIS AGREEMENT.

2.04 Licensee’s Indemnity; Insurance Limitation. Licensee’s indemnity obligations herein shall be limited by, the Insurance coverage maintained by Licensee under Article 3 of this Schedule B.

2.05 Notice of Claims; Assistance. Each Party will promptly advise the other Party in writing of any demand, claim, proceeding, action or lawsuit alleging infringement of any patent or copyright relating to any Reactor Skid Unit or the Licensed Technology or of unauthorized disclosure, communication or transportation of Confidential Information. Each Party will render all reasonable assistance that may be required by the other Party in the defense of any claim or lawsuit as to which a Party owes a defense and indemnity obligation hereunder; in each case, the indemnified Party shall have the right to be represented therein by advisory counsel of its selection and at its expense.

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2.06 Settlement and Compromise. (a) In the event of any claim or lawsuit for patent infringement and/or misappropriation for which Licensor owes a duty of indemnification, Licensor shall have the obligation, if and to the extent such claim or lawsuit can be settled that way, at Licensor’s expense, to either (1) provide designs, specifications and/or operating conditions and make modifications to any Reactor Skid Unit (or any component or part thereof) that would avoid such infringement and/or misappropriation without degrading the economics or performance of the Unit(s), or (2) acquire the right to continue using the design, construction and operating conditions which are the subject of such infringement and/or misappropriation.

(b) Except as provided in Section 2.06(a) above, a Party shall not settle or compromise any claim or lawsuit for which a defense and/or an indemnity obligation is owed hereunder without the indemnified Party’s written consent if the settlement or compromise obligates the indemnified Party to make any payment or relinquish or waive any property or contractual right under such settlement or compromise.

Article 3. Compliance with Law.

3.01 Compliance; Applicable Law. This Agreement is made subject to, and each of the Parties expressly shall comply with, all applicable laws, rules, regulations, ordinances and codes in the countries, territories and other jurisdictions in which they transact business insofar as they may be applicable to the terms and conditions of this Agreement.

Article 4. Governing Law and Dispute Resolution.

4.01 Governing Law. This Agreement and all amendments, modifications, alterations, or supplements hereto, and the rights of the Parties hereunder, shall be governed by and construed under the laws of the State of California (USA) without regard to the choice of laws principles thereof.

4.02 Dispute Resolution. (a) In the event of any claim, controversy or dispute between the Parties arising out of or in any way relating to this Agreement (each a “Dispute”), the Parties shall make a good faith effort to resolve the Dispute amicably through settlement and compromise. If the Parties are unable to resolve a Dispute, the Dispute shall be finally and exclusively resolved by binding arbitration administered by the American Arbitration Association (“AAA”) under its Commercial Arbitration Rules and the AAA Optional Rules for Emergency Measures of Protection (the “AAA Rules”). Unless otherwise agreed by the Parties in writing, arbitration of Disputes shall be conducted at the AAA’s offices in Los Angeles, California.

(b) The decision or award of the arbitrators shall be in writing and shall state their detailed reasoning for the award. Discovery of evidence shall be conducted expeditiously by the Parties, bearing in mind the Parties’ desire to limit discovery and to expedite the decision or award of the arbitrators at the most reasonable cost and expense of the Parties. Judgment upon an award rendered pursuant to such arbitration may be entered in any court having jurisdiction or application may be made to such court for a judicial acceptance of the award and/or an order of enforcement, as the case may be.

(c) In any arbitration or litigation between the Parties, neither Party shall be liable for or assert any claim for consequential, incidental, special or punitive damages unless it is determined that a Party (1) intentionally and knowingly breached or violated this Agreement, or (2) willfully ignored or disregarded any emergency relief obtained by a Party hereunder. Each Party shall pay all its own costs and expenses incurred in any such arbitration/litigation, including attorneys’ fees and the fees and expenses of its experts and witnesses.

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(d) Each Party acknowledges that the unauthorized disclosure of Confidential Information may cause irreparable harm and significant injury that may be difficult to ascertain. Each Party therefore agrees that emergency relief ((including without limitation temporary restraining orders, temporary or permanent injunctive relief, specific performance or similar relief), in addition to other legal and equitable relief, are appropriate remedies for any actual or threatened violation or breach of confidentiality obligations contained in this Agreement and/or the Secrecy & Non-Disclosure Agreement and may be obtained by a Party on an emergency basis from a single arbitrator designated by AAA under AAA’s Optional Rules for Emergency Measures of Protection. The Parties agree that, in any arbitral action or claim submitted to AAA hereunder for emergency relief, the Party initiating the claim or request for relief shall not be required to demonstrate that it has no adequate remedy at law in respect of the relief sought and shall not be required to post a bond or other security.

Article 5. Additional Provisions.

5.01 Amendment and Waiver. This Agreement may be amended, and waivers under this Agreement may be granted, only by a written instrument signed by both Parties. Failure of either Party, at any time or from time to time, to exercise any of its rights under this Agreement or to insist upon strict performance of the other Party's obligations hereunder shall not be deemed a waiver of or to limit any of such rights or obligations with respect to any subsequent occurrence.

5.02 Invalidity. Should any part or provision of this Agreement be held unenforceable or in conflict with the laws of the United States of America or any state thereof, or of any foreign country, the validity of the remaining parts or provisions shall not be affected by such decision or holding.

5.03 Third Parties. The Parties intend to confer no benefit or right on any Person not a party to this Agreement. No Person shall have the right to claim the benefit of any provision hereof as a third party beneficiary of any such provision.

5.04 Relationship of Parties. Nothing in this Agreement shall be deemed to create an agency, joint venture, partnership, franchise or similar relationship between the Parties. Each Party shall conduct all business in its own name as an independent contractor and neither Party shall be liable for the representations, acts, or omission of the other Party.

5.05 Required Currency. All payments shall be made in U.S. Dollars, and payment obligations shall not be discharged by an amount paid in another currency, whether pursuant to a judgment or otherwise.

5.06 Rights, Powers, Remedies Cumulative; Waiver; Time. Each and every right, power and remedy specified in this Agreement shall be cumulative and in addition to every other right, power and remedy existing now or hereafter at law, in equity or by statute. Each and every right, power and remedy may be exercised from time to time and as often and in such order as may be deemed expedient by a Party. The exercise of any right, power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy.

5.07 Integration. This Agreement, together with the Secrecy & Non-Disclosure Agreement, embodies the entire agreement of the Parties and merges all prior oral and written agreements between the Parties with respect to subject matter hereof. No stipulation, agreement, representation or understanding of the Parties shall be valid or enforceable unless contained in this Agreement or the Secrecy & Non-Disclosure Agreement, or in a subsequent written agreement signed by the Parties.

5.08 Counterparts. This Agreement may be executed in several counterparts, and all copies so executed shall constitute but one and the same agreement, which shall be binding on all the Parties notwithstanding that less than all of the Parties, may have signed the original or the same counterpart.

[END OF SCHEDULE B]

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SCHEDULE C

CONFIRMED ORDER FORM

[Date]

To:	Cavitation Technologies, Inc.
	10019 Canoga Avenue
	Chatsworth, California 91311 USA	CONFIRMED ORDER # __________
	Attn: Mr. Roman Gordon, CEO

Re:	Green D Plus Nano Cavitation Reactor Skid System
	Marketing & Technology License Agreement dated _______, 2010
	Reactor Skid Unit Order & Request for Site User License and Equipment Lease

Product/Equipment Order: One (1) Green D Plus Nano Cavitation Reactor Skid Unit

Company, Plant, Bank and Leasing Company Information
Date:

Company Name (Site User)			Plant Name
Contact Name			Contact Name
Address			Address
Address Cont.			Address Cont.
City			City
State or Province			State or Province
Zip Code or Mail Stop			Zip Code or Mail Stop
Country			Country
Phone Number			Phone Number
Fax Number			Fax Number
Email			Email
Web Site			Web Site

Banking Information			Leasing Company Information
Contact Name			Contact Name
Address			Address
Address Cont.			Address Cont.
City			City
State or Province			State or Province
Zip Code or Mail Stop			Zip Code or Mail Stop
Country			Country
Phone Number			Phone Number
Fax Number			Fax Number
Email			Email
ABA Number			ABA Number
Web Site			Web Site

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Reactor Skid Unit Application and Specifications
Reactor Skid Unit Application:

Oil type	Crude	Degummed		Comments

Feed rate:	Lbs/Hr	Kgs/Hr		Voltage	Hz

Location specific electrical and safety codes and standards.

Installation point:

Dosing in place	% added	Strength	% excess	Type
Acid
Caustic
Water
Incoming Oil	Min.	Max.	Unit
FFA			%
Total P			ppm
Ca	90		ppm
Mg	130		ppm
Fe	2		ppm
Cu	0.030		ppm
Lovibond Color			Red
Lovibond Color			Yellow
Post Degumming	Min.	Max.	Unit
FFA			%
Total P			ppm
Ca	90		ppm
Mg	130		ppm
Fe	2		ppm
Cu	0.030		ppm
Lovibond Color			Red
Lovibond Color			Yellow
Current Process	Yes	No
Water Degum
Acid Degum
Chemical Refine
Physical Refine
Gums	%	AI
For Lecithin
For Animal Feed

Please acknowledge receipt of this Order and authorize issuance of Site User License at your earliest convenience.

Should you have any questions, contact ________________ at __________.

[END OF SCHEDULE C]

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SCHEDULE D

SITE USER LICENSE FORM

This SITE USER LICENSE (“User License”) is being issued effective ________, ____, by CAVITATION TECHNOLOGIES, INC., Nevada (U.S.) Corporation, having offices at 10019 Canoga Avenue, Chatsworth, California 91311, and acting through n.v. DESMET BALLESTRA GROUP s.a., corporation, having an office at ______________ (“DBG”), to _______________, a ____________ corporation, having offices at _________________ (“Site User”).

WITNESSETH

1. Product/System. Under the terms of an Equipment Lease being submitted to you for execution with this Site User License, Site User has agreed to lease the following:

Green D Plus Nano Cavitation Reactor Skid Unit

(hereinafter “Reactor Skid Unit”). The Reactor Skid Unit will be delivered to Site User and installed at or integrated into a vegetable oil extraction, production or refining facility located at _____________, ____________, _________________ (the “Site Location”). The Reactor Skid Unit is based on a proprietary system developed by Licensor and utilizes a unique hydrodynamic flow-through NANO cavitation technology that aids in the degumming of crude vegetable oils.

2. Grant of User Right. (a) This User License grants to Site User a non-exclusive, non-transferable right to operate the Reactor Skid Unit at the Site Location for the production and refining of degummed vegetable oils. In return for this right of use, Site User agrees that the Reactor Skid Unit will be (1) operated solely for the purpose of producing degummed vegetable oils, (2) maintained at the Site Location and will not be dismantled, relocated or removed from the Site Location without first notifying DBG in writing, and (3) operated and maintained in accordance with the specifications, standards and instructions contained in the technical or user manuals delivered by DBG to Site User upon handover of the Reactor Skid Unit(s).

(b) Site User agrees to protect the proprietary technology and software used in operating the Reactor Skid Unit and will not modify, alter, attempt to “reverse engineer”, or otherwise tamper with the Reactor Skid Unit or its technology or software without DBG’s prior written consent.

3. Proprietary Reactor Skid Unit. (a) The Reactor Skid Unit delivered and installed at the Site Location. Site User agrees that (1) the Reactor Skid Unit will not be dismantled, relocated or removed from the Site Location without DBG’s prior written consent, and (2) Site User will not, and agrees to use all available efforts to ensure that other persons or companies will not, modify, alter, attempt to “reverse engineer”, or otherwise tamper with the Reactor or its proprietary technology or software without DBG’s prior written consent.

(b) Tampering with or removing the wire security seal on the Reactor Skid Unit will void the warranties for the Reactor Skid Unit and the Components thereof.

4. Maintenance of Reactor Skid Unit. Site User will maintain the Reactor Skid Unit, at its expense, in good working order, repair, condition and appearance, and will protect the Reactor Skid Unit from deterioration, other than normal wear and tear from operations, and from damage, loss or destruction. Site User will perform all calibrations, adjustments and preventative maintenance on the Reactor Skid Unit in accordance with the technical or user manuals delivered by DBG to Site User upon handover of the Reactor Skid Unit.

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5. Losses or Destruction. Risk of loss of the Reactor Skid Unit will pass to Site User upon the date of delivery to Site User. If the Reactor Skid Unit or the Reactor is lost, stolen or damaged, Site User will promptly notify DBG. In such event, DBG will, if requested by Site User and at Site User’s cost, obtain and install a replacement Reactor Skid Unit or other component for the Unit.

6. Transfer of Reactor Skid Unit. Unauthorized transfer of the Reactor Skid Unit is prohibited. If Site User wishes to transfers the Reactor Skid Unit, Site User will promptly notify DBG of the desired transfer. Upon receiving Site User’s notice and the name/address of the person or company to which the Unit is to be transferred and upon acceptance of the terms of the Operating Lease and approval by the lease company, DBG notify CTI for approval to issue a new Site User License to the new lessee(s). No right of lease, license or sublicense of the user rights granted herein is authorized except in conjunction with the operation of the Reactor Skid Unit.

7. Notice/Contact If any operational or maintenance problem is encountered with the Reactor Skid Unit; please immediately contact DBG as follows:

If Site User is in agreement with the foregoing, please so indicate by signing this User License in the space(s) designated below and returning a signed copy to us at your earliest convenience.

	Sincerely,
	Desmet Ballestra Group
	n.v. Desmet Ballestra Group, s.a.

	By:

Agreed to and accepted this ___ day of ____, 2___

_______________________ [Site User]

[END OF SCHEDULE D]

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SCHEDULE E

TECHNICAL ASSISTANCE/SUPPORT - RATES

Technical assistance and support provided by Licensor from time to time under the provisions of Article IV of this Agreement shall be charged at the rate of $ 1,500 per man day, together with payment or reimbursement of costs and expenses as specified therein.

[END OF SCHEDULE E]

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SCHEDULE F

OPERATING LEASE

Operating Lease. The Operating Lease will be provided by PNB or other leasing company as directed by the Licensee. Licensor may direct the Licensee as to which Leasing companies are available to Site User in their country or region.

Cost Basis. Licensor will advise Licensee of the Cost basis for the Operating Lease and Licensee will advise the Site User of the Cost basis. The Cost Basis will be provided by the Licensor to the Licensee and will be based on the Lease Term, Reactor Skid Unit Model, capacity, manufacturing and other costs.

Lease Application. Site User will apply for the Operating Lease as instructed by Leasing Company.

Lease Payment Amount. The Lease Payment Amount is determined by the Leasing Company and is based on the Cost Basis and Lease Term.

Lease Terms. The Lease Terms available are determined by the Leasing Company.

Lease Approval. Leasing Company will notify Licensor of Lease Approval. Licensor will notify Licensee of Lease Approval.

Lease Payments. Lease Payments will be made by Site User to the Leasing Company. The leasing Company will pay the Licensor. The Licensee bears no responsibility for such Lease Payments.

Lease Revenue Sharing. Licensor agrees to pay Licensee 10% of gross lease revenues.

[END OF SCHEDULE F]

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F-1

SCHEDULE G

PERFORMANCE GUARANTEE

1.01. Performance Test. (a) After mechanical completion, upon request of the Licensee and prior to Licensor’s handover of a Reactor Skid Unit to the Licensee or Site User, Licensor shall arrange and conduct a performance test on such Unit to determine whether it will achieve or satisfy the Performance Guarantee specified below. Prior to initiating a performance test on any Reactor Skid Unit, Licensee shall notify Licensor of a scheduled performance test with respect to a Unit at least ten (10) days before the test is conducted in order to give Licensor an opportunity to arrange for one or more representatives to conduct such test.

(b) Performance tests conducted as specified herein shall adhere to the following testing protocol:

1. Testing Methodology – American Oil Chemists Society;

2. Testing Equipment – Licensor will arrange at its cost;

3. Operating Conditions – Steady state testing over period of at least 72 hours;

1.02 Performance Guarantee. The performance test conducted by Licensor with respect to each Reactor Skid Unit must demonstrate that, during the test period, the Unit’s performance achieved contractual performance.

[END OF SCHEDULE G]

CTI Initials _______ DB Initials ________

G-1

SCHEDULE H

INTENTIONALLY LEFT BLANK

CTI Initials _______ DB Initials ________

H-1

EX-31.1 3 v172619_ex31-1.htm

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Roman Gordon, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cavitation Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have significant role in the registrant’s internal control over financial reporting.

February 2, 2010		/s/ Roman Gordon
		Roman Gordon

EX-31.2 4 v172619_ex31-2.htm

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, R.L. Hartshorn, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cavitation Technologies, Inc.;

b) any fraud, whether or not material, that involves management or other employees who have significant role in the registrant’s internal control over financial reporting.

February 2 , 2010	By:	/s/ R.L. Hartshorn
		R.L. Hartshorn
		Chief Financial Officer

EX-32.1 5 v172619_ex32-1.htm

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

Solely for the purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Principal Executive Officer of Cavitation Technologies, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended December 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 2, 2010		/s/ Roman Gordon
		Roman Gordon
		Chief Executive Officer and Secretary