CALCULATION OF REGISTRATION FEE

Title of Class of Securities to be Registered	Amount To Be Registered (1)		Proposed Maximum Aggregate Price Per Share (2)		Proposed Maximum Aggregate Offering Price		Amount of Registration Fee

Common Stock, $0.001 par value per share, issuable pursuant to the Equity Agreement		128,927,716	$	.0031	$	399,675.920	$	47.00

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

(2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act, using the closing price as reported on the Over-the-Counter Bulletin Board (the “OTCBB”) on June 7, 2012, which was $.0031 per share.

(2)

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

(3)

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

PRELIMINARY PROSPECTUS

SUBJECT TO COMPLETION, DATED JUNE 14, 2012

AQUALIV TECHNOLOGIES, INC.

128,927,716 Shares of Common Stock

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

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

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

We will not receive any proceeds from the sale of these Shares offered by the Selling Security Holder. However, we will receive proceeds from the sale of our Shares under the Equity Agreement. The proceeds will be used for working capital or general corporate purposes. We will bear all costs associated with this registration.

Our common stock is quoted on the OTCBB under the symbol “AQLV.OB.” The Shares registered hereunder are being offered for sale by the Selling Security Holder at prices established on the OTCBB during the term of this offering. On June 7, 2012, the closing price as reported on the OTCBB was $.0031 per share. These prices will fluctuate based on the demand for our common stock.

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

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

The date of this prospectus is_________, 2012

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TABLE OF CONTENTS


	Page
Prospectus Summary	6
Summary Financial Data	9
Risk Factors	10
Forward-Looking Statements	15
Use of Proceeds	15
Determination of Offering Price	15
Selling Security Holders	15
Plan of Distribution	17
Description of Securities to be Registered	18
Description of Business	19
Description of Property	21
Legal Proceedings	21
Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters	26
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	27
Directors, Executive Officers, Promoters and Control Persons	27
Executive Compensation	28
Security Ownership of Certain Beneficial Owners and Management	29
Transactions with Related Persons, Promoters, and Certain Control Persons	30
Indemnification for Securities Act Liabilities	30
Legal Matters	31
Experts	31
Additional Information	31

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

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PROSPECTUS SUMMARY

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

AQUALIV TECHNOLOGIES, INC.

Our Company

AquaLiv Technologies, Inc. was formed under the laws of the State of Nevada on April 11, 2006, originally under the name of Infrared Systems International (ISI) as a wholly-owned subsidiary of CSBI (then known as Advance Technologies, Inc.) to pursue a narrowly defined business objective called infrared security systems.

On July 11, 2007, CSBI acquired American SXAN Biotech, Inc. a Delaware Corporation doing business exclusively in the People's Republic of China under a registered capital corporation, Tieli XiaoXingAnling Forest Frog Breeding Co, Ltd. As a result of the acquisition, the stockholders of American SXAN Biotech, Inc. acquired control of CSBI.

Pursuant to one of the terms of the acquisition, all of the assets and liabilities of CSBI as of the date of the acquisition were transferred into ISI. From that time and until June 22, 2011, ISI had conducted not only the infrared security systems development for which it was formed but also the other prior activities of CSBI.

In March 2010, ISI transferred all of the assets and liabilities of ISI into a newly created wholly-owned subsidiary, Infrared Applications, Inc. (IAI). IAI continued to operate the previous business of ISI under this newly created company until June 22, 2011, when, in accordance with a Management and Distribution Agreement dated March 24, 2010, all of the outstanding stock of IAI was transferred to Gary Ball, the former CEO. Subsequent to this event, Ball shall be responsible to make, if any, a Subsidiary Stock Distribution to the Company’s shareholders of record as of March 23, 2010.

On April 12, 2010, the company sold a majority interest in its common stock to Take Flight Equities, Inc (TFE). As part of the agreement, a change in control took place and William Wright was appointed CEO of the company. Also included in the agreement were provisions for the future distribution of the IAI assets to the ISI shareholders of record on March 23, 2010 within 15 months of the agreement (which was completed on June 22, 2011).

On April 19, 2010, the company purchased 100% of the outstanding common stock of Focus Systems, Inc. (Focus) from ProPalms, Inc. Focus is held and operated as a wholly-owned subsidiary of the company. Focus was formed in August of 2007 as a technology company providing remote desktop – cloud computing – services and Voice over Internet Protocol (VoIP) phone services to small and mid-sized businesses. For the calendar year 2008, Focus operated a regional Internet Service Provider (ISP) business under a management agreement with a third party.

On December 16, 2010, the Company purchased a 50% interest in AquaLiv, Inc. We have concluded, pursuant to the guidance in FASB ASC 810-10-25-38 (previously FIN 46R) that AquaLiv, Inc. is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, Inc. and we are required to consolidate its financials accordingly. The remaining 50% non-controlling interest is owned by Craig Hoffman, AquaLiv, Inc’s President and CEO. AquaLiv, Inc. is a life sciences research and development company creating novel products for numerous industries. The company's technology alters the behavior of organisms, including plants and humans, without chemical interaction. From increased crop yields to drug-free medicine, AquaLiv is providing innovative, ingredient-free solutions to the world's largest problems.

On June 22, 2011, in accordance with Management and Distribution Agreement (“Agreement”) dated March 24, 2010, we completed the distribution of substantially all of the assets of Infrared Applications, Inc. (“IAI”), a Texas corporation. All of the outstanding stock of IAI has been transferred to Gary Ball (“Ball”) in accordance with the Agreement. Subsequent to this event, Ball shall be responsible to make, if any, a Subsidiary Stock Distribution to the Company’s shareholders of record as of March 23, 2010, upon the earlier of the foregoing occurrence: (i) the net proceeds from the sale of substantially all of the assets of IAI or (ii) Ball elects to make a Subsidiary Stock Distribution. Any cost incurred in connection with a Subsidiary Distribution shall be the responsibility of Ball. There is no certainty as to when or if a Subsidiary Stock Distribution will occur.

On September 6, 2011, the company filed its Articles of Amendment with the State of Nevada to effect a name change to AquaLiv Technologies, Inc. and to increase its authorized common shares to 1,000,000,000. FINRA declared the corporate action effective on September 19, 2011. The name change was effected to more closely align the name with the future direction of the Company.

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

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About This Offering

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

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

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

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

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

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

As further consideration for Auctus entering into and structuring the equity facility, the Company shall pay to Auctus (i) five percent (5%) of the Advance request specified in each drawdown notice; (ii) a non-refundable origination fee equal to $7,500; and (iii) a fee by issuing to Auctus that number of shares of the Company’s common stock that equal a dollar amount of fifty-seven thousand and five hundred dollars ($57,500) (the “Commitment Shares”).

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

At an assumed purchase price under the Equity Agreement of $.0029 (equal to 93% of the closing price of our common stock of $.0031 on June 7, 2012), we will be able to receive up to $373,890.38 in gross proceeds, assuming the sale of the entire 128,927,716 Shares being registered hereunder pursuant to the Equity Agreement. At an assumed purchase price of $.0029 under the Equity Agreement, we would be required to register approximately 1,077,968,836 additional shares to obtain the balance of $3,500,000 under the Equity Agreement. The Company is currently authorized to issue 1,000,000,000 shares of its common stock. Auctus has agreed, subject to certain exceptions listed in the Equity Agreement, to refrain from holding an amount of shares which would result in Auctus or its affiliates from owning more than 4.99% of the then-outstanding shares of the Company’s common stock at any one time.

We will bear the expenses of this offering which we estimate to be approximately $40,000, including legal expenses of approximately $25,000, accounting expenses of approximately $25,000, and miscellaneous expenses, including printer costs, of approximately $5,000.

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

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

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Summary of the Shares Offered by the Selling Security Holder

Common stock Offered by the Selling Security Holder		128,927,716 shares of common stock.

Common Stock Outstanding Before the Offering		502,605,319 as of June 14, 2012

Common Stock Outstanding After the Offering		631,533,035 shares, assuming the sale of all of the shares being registered in this Registration Statement.

Terms of the Offering		The Selling Security Holder will determine when and how it will sell the common stock offered in this prospectus.

Termination of the Offering		Pursuant to the Equity Agreement, this offering will terminate twenty-four (24) months after the registration statement to which this prospectus is made a part is declared effective by the SEC.

Use of Proceeds		We will not receive any proceeds from the sale of the shares of common stock offered by the Selling Security Holder. However, we will receive proceeds from the sale of our common stock under the Equity Agreement. The proceeds from the offering will be used for working capital and general corporate purpose. See “Use of Proceeds.”

Risk Factors		The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 10.

OTCBB Symbol		AQLV.OB

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SUMMARY FINANCIAL DATA

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

Summary of Operations

For the Years Ended September 30,

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

Statement of Financial Position

For the Years Ended September 30,

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

Summary of Operations

For the Six Months Ended March 31,

	2012			2011
Total Revenue	$	264,168		$	302,628
Loss from operations	$	(191,484	)	$	(458,609	)
Net loss	$	(203,170	)	$	(437,947	)
Net loss per common share (basic and diluted)	$	(0.00	)	$	(0.00	)
Weighted average common shares outstanding		352,774,805			200,493,870

Statement of Financial Position

For the Six Months Ended March 31,

	2012			2011
Cash and cash equivalents	$	40,789		$	60,491
Total assets	$	53,339		$	86,290
Working Capital	$	36,942		$	52,859
Long term debt	$	336,266		$	278,903
Stockholders’ equity ( deficit )	$	(430,908	)	$	(357,579	)

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RISK FACTORS

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

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

We were incorporated on April 11, 2006. Our business primarily involves marketing activities. As of March 31, 2012, we had a retained deficit of $2,815,560. During the years ended September 30, 2011 and 2010, respectively, we had net losses of $564,294 and $1,008,604. We expect our revenues during the next twelve months from our existing products and service customers to remain flat depending upon the US economic recovery and our ability to create market awareness with our AquaLiv brand. Our expected revenue generation and expenses are difficult to predict, and there can be no assurance that revenues will be sufficient to cover operating costs for the foreseeable future. It may be necessary to raise additional funds. If we are unable to raise funds to cover any operating deficit and our sales decrease in 2012 our business may fail.

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

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

TRADING IN OUR SHARES IS SUBJECT TO RULES GOVERNING "PENNY STOCKS," WHICH WILL IMPAIR TRADING ACTIVITY IN OUR SHARES.

We have been listed on the OTCBB since August 11, 2009, our symbol is AQLV. The AQLV common stock has been trading at either very low or inconsistent volumes. Penny stocks trading at low volumes are extremely volatile and investors should exercise care in any trading activities.

Our stock is subject to rules adopted by the Securities and Exchange Commission regulating broker dealer practices in connection with transactions in "penny stocks." Those disclosure rules applicable to "penny stocks" require a broker dealer, prior to a transaction in a "penny stock" not otherwise exempt from the rules, to deliver a standardized list disclosure document prepared by the Commission. That disclosure document advises an investor that investment in "penny stocks" can be very risky and that the investor's salesperson or broker is not an impartial advisor but rather paid to sell the shares. The disclosure contains further warnings for the investor to exercise caution in connection with an investment in "penny stocks," to independently investigate the security, as well as the salesperson with which the investor is working and to understand the risky nature of an investment in this security. The broker dealer must also provide the customer with certain other information and must make a special written determination that the "penny stock" is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. Further, the rules require that, following the proposed transaction, the broker provide the customer with monthly account statements containing market information about the prices of the securities.

Many brokers may be unwilling to engage in transactions in our common stock because of the added disclosure requirements, thereby making it more difficult for stockholders to dispose of their shares. You will also find it difficult to obtain accurate information about, and/or quotations as to the price of, our common stock.

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

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

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

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

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

COMPETITION IN THE LIFE SCIENCES AND INFORMATION TECHNOLOGY INDUSTRY IS INTENSE.

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

OUR INTELLECTUAL PROPERTY MAY NOT BE ADEQUATELY PROTECTED.

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

ENFORCING AND PROTECTING OUR PROPRIETARY INFORMATION CAN BE COSTLY.

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

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

With the default of the note receivable by Take Flight Equities, Inc., Gary Ball retains voting control of the 91,572,170 common shares issued, and held in escrow, and associated with the April 2010 agreement, thereby making Gary Ball the largest shareholder with control of approximately 19% of our outstanding shares. Because Gary Ball controls such a significant percentage of the outstanding shares, other stockholders, individually or as a group, will be at a disadvantage in their ability to effectively influence the election or removal of our directors, the supervision and management of the business or a change in control of or the sale of our company, even if he believed such changes were in the best interest of our stockholders generally.

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

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

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RISKS RELATED TO OUR COMMON STOCK AND THIS OFFERING

THERE IS NO LIQUID MARKET FOR OUR COMMON STOCK.

Our shares are traded on the OTCBB and the trading volume has historically been very low. An active trading market for our shares may not develop or be sustained. We cannot predict at this time how actively our shares will trade in the public market or whether the price of our shares in the public market will reflect our actual financial performance.

THE MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE AND STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PRICE AT WHICH SUCH SHARES WERE PURCHASED.

The market price of our common stock may fluctuate significantly. Our share price has fluctuated in response to various factors, including not yet beginning construction of our first plant, needing additional time to organize engineering resources, issues relating to feedstock sources, trying to locate suitable plant locations, locating distributors and finding funding sources.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

YOU COULD BE DILUTED FROM THE ISSUANCE OF ADDITIONAL COMMON STOCK.

As of June 14, 2012, we had 502,605,319 shares of common stock outstanding and 923,618 shares of preferred stock outstanding. We are authorized to issue up to 1,000,000,000 shares of common stock and 50,000,000 shares of preferred stock. To the extent of such authorization, our Board of Directors will have the ability, without seeking stockholder approval, to issue additional shares of common stock or preferred stock in the future for such consideration as the Board of Directors may consider sufficient. The issuance of additional common stock or preferred stock in the future may reduce your proportionate ownership and voting power.

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

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

(12)

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

We are registering an aggregate of 128,927,716 Shares of common stock under the registration statement of which this prospectus forms a part for issuance pursuant to the Equity Agreement. Notwithstanding Auctus’s ownership limitation, the 128,927,716 Shares would represent approximately 25.65% of our shares of common stock outstanding immediately after our exercise of the put right under the Equity Agreement. The sale of these Shares into the public market by Auctus could depress the market price of our common stock. At the assumed offering price of $.0029 per share, we will be able to receive up to $373,890.38 in gross proceeds, assuming the sale of the entire 128,927,716 Shares being registered hereunder pursuant to the Equity Agreement. We would be required to register approximately 1,077,968,836 additional shares to obtain the balance of $3,500,000 under the Equity Agreement at the assumed offering price of $.0029. Due to the floating offering price, we are not able to determine the exact number of shares that we will issue under the Equity Agreement. However, to obtain the balance of the $3,500,000 under the Equity Agreement we will likely amend our Articles of Incorporation to increase our authorized shares.

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

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

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

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

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

Our Equity Agreement with Auctus contemplates the potential future issuance and sale of up to $3,500,000 of our common stock to Auctus subject to certain restrictions and obligations. The following table is an example of the number of shares that could be issued at various prices assuming we utilize the maximum amount remaining available under the Equity Agreement. These examples assume issuances at a market price of $.0029 per share and at 10%, 25%, 50%, and 75% below $.0029 per share, taking into account Auctus’s 7% discount.

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

Percent below Current market price		Price per share (1)		Number of shares issuable (2)		Shares outstanding (3)(2)		Percent of outstanding shares (4)

	10 %	$	.00261		1,340,996,168		1,843,601,487		72.73 %

	25 %	$	.00218		1,605,504,587		2,108,109,906		76.15 %

	50 %	$	.00145		2,413,793,103		2,916,398,422		82.76 %

	75 %	$	.00073		4,794,520,548		5,297,125,867		90.51 %


	(1)	Represents purchase prices equal to 93% of $.0031 and potential reductions thereof of 10%, 25%, 50% and 75%.

(2)

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

(3)

Based on 502,605,319 shares of common stock outstanding at June 14, 2012. Our Articles of Incorporation currently authorizes 1,000,000,000 shares of common stock. We may in the future need to amend our Articles of Incorporation in order to increase our authorized shares of common stock.

(4)

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

(13)

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

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

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

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

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

WE DO NOT INTEND TO PAY DIVIDENDS.

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

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

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

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

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

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

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

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

(14)

FORWARD-LOOKING STATEMENTS

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

USE OF PROCEEDS

The Selling Security Holder is selling all of the shares of our common stock covered by this prospectus for its own account. Accordingly, we will not receive any proceeds from the resale of our common stock. However, we will receive proceeds from any sale of the common stock to Auctus under the Equity Agreement. We intend to use the net proceeds received for working capital or general corporate needs.

DETERMINATION OF OFFERING PRICE

Our common stock currently trades on the OTCBB under the symbol “AQLV.OB”. The proposed offering price of the Shares is $.0031 and has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(c) of the Securities Act of 1933, on the basis of the closing bid price of common stock of the Company as reported on the OTCBB on June 7, 2012.

SELLING SECURITY HOLDERS

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

Selling Security Holder Pursuant to the Equity Agreement

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

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

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

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

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

Auctus is a limited liability company organized and existing under the laws of the State of Massachusetts. Lou Posner is the managing director of Auctus, and has voting and investment power over the shares beneficially owned by Auctus. Auctus acquired, or will acquire, all shares being registered in this offering in the financing transaction with us.

Auctus intends to sell up to 128,927,716 Shares of our common stock pursuant to the Equity Agreement under this prospectus. On April 27, 2012, the Company and Auctus entered into the Equity Agreement pursuant to which we have the opportunity, for a twenty-four (24) month period, beginning on the date on which the SEC first declares effective this registration statement registering the resale of our shares by Auctus, to sell shares of our common stock for a total price of $3,500,000. For each share of our common stock purchased under the Equity Agreement, Auctus will pay ninety-three percent (93%) of the average bid price of the Company’s common stock for the five trading days immediately following the date on which the Company is deemed to provide an advance notice of a sale of common stock under the Equity Agreement.

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

At an assumed purchase price under the Equity Agreement of $.0029 (equal to 93% of the average bid price of our common stock of $.0031 on June 7, 2012), we will be able to receive up to $373,890.38 in gross proceeds, assuming the sale of the entire 128,927,716 Shares being registered hereunder pursuant to the Equity Agreement. At an assumed purchase price of $.0029 under the Equity Agreement, we would be required to register approximately 1,077,968,836 additional shares to obtain the balance of $3,500,000 under the Equity Agreement. The Company is currently authorized to issue 1,000,000,000 shares of its common stock. Auctus has agreed, subject to certain exceptions listed in the Equity Agreement, to refrain from holding an amount of shares which would result in Auctus or its affiliates from owning more than 4.99% of the then-outstanding shares of the Company’s common stock at any one time.

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

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

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

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

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

(15)

Name	Shares Beneficially Owned Prior to Offering	Shares to Be Offered	Amount Beneficially Owned After Offering (1)	Percent Beneficially Owned After Offering

Auctus Private Equity Fund, LLC (2)	3,571,429(3)	128,927,716 (4)	3,571,429 (3)	.006%


	(1)	The number assumes the Selling Security Holder sells all of its shares being offered pursuant to this prospectus.

(2)

Auctus Private Equity Fund, LLC is a limited liability company organized and existing under the laws of the State of Massachusetts. Lou Posner is the managing director and has voting and investment power over the shares beneficially owned by Auctus.

	(3)	These shares represent the Commitment Shares issued to Auctus pursuant to the Equity Agreement. We are not registering the commitment shares for resale. Auctus owns approximately .007% prior to the offering.

	(4)	These shares represent only a portion of the shares that may be issued to Auctus pursuant to the Equity Agreement. At an assumed purchase price of $.0029 under the Equity Agreement, we would be required to register approximately 1,077,968,836 additional shares to obtain the balance of $3,500,000. We do not believe we will exercise our right to obtain the balance of $3,500,000 under the Equity Agreement. The principal balance of $3,500,000 was chosen by the parties as working capital the Company could use in the event the Company’s stock price increases.

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

(16)

PLAN OF DISTRIBUTION

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

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

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

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

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

privately negotiated transactions;

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

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

a combination of any such methods of sale; or

any other method permitted pursuant to applicable law.

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

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

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

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

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

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

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

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

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

We will pay all expenses incident to the registration, offering and sale of the shares of our common stock to the public hereunder other than commissions, fees and discounts of underwriters, brokers, dealers and agents. If any of these other expenses exists, we expect Auctus to pay these expenses. We have agreed to indemnify Auctus and its controlling persons against certain liabilities, including liabilities under the Securities Act. We estimate that the expenses of the offering to be borne by us will be approximately $38,000. We will not receive any proceeds from the resale of any of the shares of our common stock by Auctus. We may, however, receive proceeds from the sale of our common stock under the Equity Agreement. Neither the Equity Agreement nor any rights of the parties under the Equity Agreement may be assigned or delegated to any other person.

(17)

DESCRIPTION OF SECURITIES TO BE REGISTERED

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

The Company is authorized to issue 1,000,000,000 shares of $0.001 par value common stock, and 50,000,000 shares of preferred stock, $0.001 par value. As of June 14, 2012, the Company had 502,605,319 shares of common stock outstanding and 923,618 preferred stock outstanding.

Common Stock

As of June 14, 2012, we had 502,605,319 shares of common stock outstanding. The shares of our common stock presently outstanding, and any shares of our common stock issues upon exercise of stock options and/or warrants, will be fully paid and non-assessable. Each holder of common stock is entitled to one vote for each share owned on all matters voted upon by shareholders, and a majority vote is required for all actions to be taken by shareholders. In the event we liquidate, dissolve or wind-up our operations, the holders of the common stock are entitled to share equally and ratably in our assets, if any, remaining after the payment of all our debts and liabilities and the liquidation preference of any shares of preferred stock that may then be outstanding. The common stock has no preemptive rights, no cumulative voting rights, and no redemption, sinking fund, or conversion provisions. Since the holders of common stock do not have cumulative voting rights, holders of more than 50% of the outstanding shares can elect all of our Directors, and the holders of the remaining shares by themselves cannot elect any Directors. Holders of common stock are entitled to receive dividends, if and when declared by the Board of Directors, out of funds legally available for such purpose, subject to the dividend and liquidation rights of any preferred stock that may then be outstanding.

Voting Rights

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

Dividends

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

Anti-Takeover Provisions

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

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DESCRIPTION OF BUSINESS

BACKGROUND

AquaLiv Technologies, Inc (ALTI) was formed under the laws of the State of Nevada on April 11, 2006 originally under the name of Infrared Systems International (ISI) as a wholly-owned subsidiary of CSBI (then known as Advance Technologies, Inc.) to pursue a narrowly defined business objective called infrared security systems.

On December 16, 2010 the company purchased a 50% interest in AquaLiv, Inc. We have concluded, pursuant to the guidance in FASB ASC 810-10-25-38 (previously FIN 46R) that AquaLiv, Inc. is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, Inc. and we are required to consolidate its financials accordingly. The remaining 50% non-controlling interest is owned by Craig Hoffman, AquaLiv, Inc’s President and CEO. AquaLiv, Inc. is a life sciences research and development company creating novel products for numerous industries. The company's technology alters the behavior of organisms, including plants and humans, without chemical interaction. From increased crop yields to drug-free medicine, AquaLiv is providing innovative, ingredient-free solutions to the world's largest problems.

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AQUALIV, INC.

Our research has revealed that all substances have an inherent information signature. Biological systems naturally understand this information and respond to it. While science has not previously detected this powerful aspect of our natural world, AquaLiv's technology can already record, catalog, and mix this bioinformation into unique composites. These composites are designed for specific applications and then programmed into water for delivery to biological systems.

With direct applications in the industries of water purification, environmental science, agriculture, animal husbandry, personal use products, and medicine, AquaLiv is poised to provide innovative ingredient-free solutions to the world's problems. Revenues generated from AquaLiv, Inc. products for fiscal year ended September 30, 2011 were $446,085.

AquaLiv Water System

The AquaLiv water system addresses every aspect of water to make it whole and full of vital nutrients. The system requires no electicity, is eco-friendly, removes most impurities (including harmful sodium fluoride), and creates a healthful and stable alkaline pH. Users of the AquaLiv Water System have reported stabilized blood sugar, improvements in both high and low blood pressure, reduced allergy symptoms, less headaches, better digestion, and healthy glowing skin. Some diabetics have even reported that AquaLiv helped them decrease their insulin requirements.

Infotone Face Mist

Infotone Face Mist contains a non-toxic and 100% natural mineral clay ceramic ball that features AquaLiv’s BioT™ Bioinformation Technology. This revolutionary technology turns regular water into a powerful tonic that when misted over the face encourages optimal hydration and clear, youthful, glowing skin. Researchers observed improved hydration, suppleness, firmness, and texture and reduced dryness, oxidation, wrinkles, skin pigmentation, and blemishes. Infotone Face Mist stands apart from other facial water misters because it isn’t just a typical water mister. In fact, no other water mister on the market today utilizes AquaLiv’s BioT™ Bioinformation Technology. Infotone is the first cosmetic of its kind.

AgSmart™ Rice

AgSmart™ Rice has demonstrated over 100% crop yield increase over test control yield (same seeds, same practices, adjacent parcel) while decreasing duration before harvest by one month. It is also more resistant to pests, disease, and storms. All AgSmart™ products are 100% natural and organic standards compliant. Based on our experience, we do not expect all farms to achieve a 100% yield increase, but rather a 30-60% increase will be average.

NatuRx™ Medication Alternatives

Based on AquaLiv's BioT™ Bioinformation Technology, NatuRx™ formulations utilize novel wave-based information composites in lieu of active-molecules for treatment. Physics-based medicine, not chemistry. NatuRx™ formulations are non-toxic and have no contraindications. NatuRx™ formulations are in development and not yet available to the general public.

COMPETITION

AquaLiv’s AgSmart™ can be used in conjunction with other technologies, e.g. hybridization, agrochemicals, and/or GMOs, while delivering its yield increases and other benefits. For this reason, other technologies currently available in agriculture do not compete directly with AgSmart™. This statement is particularly true in the case of organic production methods that forbid the use of agrochemicals or GMOs. Other competition comes directly from pharmaceutical and biotech companies providing traditional active-molecule based treatments. In order to compete against traditional treatments for specific conditions, we will need to deliver better results, fewer side effects, a lower toxicity, and/or a lower cost. Our early studies and observed results indicated this to be possible on all accounts.

FOCUS SYSTEMS

Remote Desktop and Cloud Computing

A remote device runs the client software that implements the chosen protocol(s) and allows the user to access an entire desktop environment that is being projected from a remote server or group of servers. Although the remote device may be a personal computer running an agent, the remote device, some times called a “Thin Client,” does not need to have a large amount of memory or storage. In fact, it may offer no local storage at all. The remote device does not need to be based upon the same hardware architecture or operating system as used by the remote servers. It is quite possible for a small, hand held device based upon an X-scale processor running some embedded operating system to display Linux, Windows, UNIX or even Z/OS applications.

The Company believes that there are inherent benefits of operating in a completely portable desktop office environment. Remote desktop users can access their same computer desktop from the office, at home, a mobile device, or virtually anywhere in the world. Access to central data and shared recourses will increase productivity and reduce cost for businesses. The remote environment is controlled, managed and updated by the Company from a centralized location, further reducing operating costs for its customers. Revenues generated from remote desktop and other services for fiscal year ending September 30, 2011 were $31,094.

VOIP Phone Service

VoIP phone service is a method for taking analog audio signals (similar to the kind you hear when you talk on the phone) and turning them into digital data that can be transmitted over the Internet. This allows VoIP service to replace traditional landline service for business and residential customers. Since VoIP phone service is digital, companies can run both data and voice over the same network infrastructure greatly reducing costs. This reduction in cost is experienced in both the initial start up phase, as well as the ongoing maintenance and services fees associated with phone service. Company management believes that the trend away from traditional phone service to digital VoIP services will continue to grow. Revenues generated from VoIP services for the fiscal year ending September 30, 2011 were $12,991.

COMPETITION

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

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

EMPLOYEES

We have four (4) current employees between the Company and its subsidiaries, with William Wright being the sole employee at AquaLiv Technologies, Inc. Additional work is performed by subcontractors.

EXPENSES

We estimate that we will require between $100,000 and $150,000 over the next twelve months in order to maintain operations.

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DESCRIPTION OF PROPERTY

We currently rent an office space, on a month to month basis, for corporate purposes and pay rent of $1,000 per month for the use of the space. We own no real estate nor have plans to acquire any real estate.

LEGAL PROCEEDINGS

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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

Overview

Our research has revealed that all substances have an inherent information signature. Biological systems naturally understand this information and respond to it. While science has not previously detected this powerful aspect of our natural world, AquaLiv’s technology can already record, catalog, and mix this bioinformation into unique composites. These composites are designed for specific applications and then programmed into water for delivery to biological systems.

AquaLiv Water System

The AquaLiv water system addresses every aspect of water to make it whole and full of vital nutrients. The system requires no electricity, is eco-friendly, removes most impurities (including harmful sodium fluoride), and creates a healthful and stable alkaline pH. Users of the AquaLiv Water System have reported stabilized blood sugar, improvements in both high and low blood pressure, reduced allergy symptoms, less headaches, better digestion, and healthy glowing skin. Some diabetics have even reported that AquaLiv helped them decrease their insulin requirements.

Infotone Face Mist

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AgSmart™ Rice

NatuRx™ Medication Alternatives

Based on AquaLiv’s BioT™ Bioinformation Technology, NatuRx™ formulations utilize novel wave-based information composites in lieu of active-molecules for treatment. Physics-based medicine, not chemistry. NatuRx™ formulations are non-toxic and have no contraindications. NatuRx™ formulations are in development and not yet available to the general public.

Focus Systems, Inc.

Remote Desktop and Cloud Computing

A remote device runs the client software that implements the chosen protocol(s) and allows the user to access an entire desktop environment that is being projected from a remote server or group of servers. Although the remote device may be a personal computer running an agent, the remote device, sometimes called a “Thin Client,” does not need to have a large amount of memory or storage. In fact, it may offer no local storage at all. The remote device does not need to be based upon the same hardware architecture or operating system as used by the remote servers. It is quite possible for a small, hand held device based upon an X-scale processor running some embedded operating system to display Linux, Windows, UNIX or even Z/OS applications.

VOIP Phone Service

VoIP phone service is a method for taking analog audio signals (similar to the kind you hear when you talk on the phone) and turning them into digital data that can be transmitted over the Internet. This allows VoIP service to replace traditional landline service for business and residential customers. Since VoIP phone service is digital, companies can run both data and voice over the same network infrastructure greatly reducing costs. This reduction in cost is experienced in both the initial start-up phase, as well as the ongoing maintenance and services fees associated with phone service. Company management believes that the trend away from traditional phone service to digital VoIP services will continue to grow.

Plan of Operation

Recent advancements in AquaLiv’s technology uncovered a new field of biological information science. With direct applications in the industries of water purification, environmental science, agriculture, animal husbandry, personal use products, and medicine, AquaLiv is ready to expand its innovative product offering. While the economy has slowed in recent years, recent sales campaigns have produced positive results for AquaLiv.

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

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Results of Operations

For the Three and Six Months Ended March 31, 2012 Compared with the Three and Six Months Ended March 31, 2011

Revenues

The revenues for the three months ending March 31, 2012 were $124,448 as compared to $159,018 in the quarter ending March 31, 2011. Revenues were $264,168 for the six months ended March 31, 2012, as compared to $302,628 for the six months ended March 31, 2011. Sales revenue comprised of 94.1% and 93.2% of our revenue for the three and six months ending March 31, 2012, respectively, compared to the same three and six month periods in 2011, where sales revenue accounted for 75.4% and 77.4% of overall revenue, respectively. Service revenue accounted for 5.9% and 6.8% of our revenues for the three and six months ending March 31, 2012, respectively, compared to the same three and six month periods in 2011, where service revenue accounted for 6.4% and 7.3% of overall revenue, respectively. The Company stopped receiving royalty revenue on June 22, 2011 in conjunction with the distribution of Infrared Applications, Inc., therefore, royalty revenues were $0 for the three and six months ended March 31, 2012, compared to $28,800 and $46,400 for the three and six months ended March 31, 2011, respectively. Royalty revenue accounted for 0% of revenues for the three and six months ended March 31, 2012, compared to the same three and six month periods in 2011, where royalty revenue accounted for 18.1% and 15.3 of overall revenue, respectively. Revenue recognition is accounted for as follow: Sales revenue is billed, paid, and shipped in the same period each month; Service revenue is billed in advance on the first day of the month that service is rendered; and royalty revenue is recorded as earned in the month it is received.

Cost of Goods Sold

Cost of goods sold for the three and six months ending March 31, 2012 were $38,138 (30.6% of total revenues) and $71,809 (27.2% of total revenues), respectively, compared to $59,522 (37.4% of total revenues) and $106,046 (35% of total revenues), respectively, for the same three and six month periods ending March 31, 2011. The improvement in cost of goods sold is associated with outsourcing changes made to operations related to Focus Systems.

Operating Expenses

Operating expenses for the three months ending March 31, 2012 were $198,933 as compared to $187,994 for the quarter ending March 31, 2011. The increase of $12,602 in consulting fees, increase of $5,970 in management fees, increase of $19,200 in payroll expense, decrease of $2,028 in professional fees, increase of $4,595 in research and development, increase of $8,160 in travel expense, and decrease of $28,369 in general and administrative fees is due in part to the increased costs of running the businesses compared to the quarter ending March 31, 2011. The operation expenses for the six months ending March 31, 2012, were $383,842 as compared to $655,192 for the six months ending March 31, 2011. The increase of $8,357 in consulting fees, increase of $15,080 in management fees, increase of $38,211 in payroll expense, decrease of $21,603 in professional fees, decrease of $6,110 in research and development, increase of $9,947 in travel expense, and increase of $252 in general and administrative fees is due in part to the increased costs of running the businesses compared to the six months ending March 31, 2011. The decrease of $315,484 in loss on goodwill impairment, AquaLiv, was due to the one time write down of goodwill attributed to the acquisition of that business during the six months ending March 31, 2011. The Company expects operating expenses to remain higher that previously comparable periods as the Company expands its services.

Other Income and Expense

Interest expense for the three months ended March 31, 2012 was $20,917 as compared to $3,767 for the three months ended March 31, 2011, and was $42,386 for the six months ended March 31, 2012 as compared to $6,344 for the six months ended March 31, 2011. The increase in interest expense is due to an increase in loss on derivative liability.

Net (Loss) Before Provision for Income Taxes

The net loss for the three months ended March 31, 2012 was $124,626 as compared to $62,723 for the three months ended March 31, 2011. The increase in net loss is attributed to the increase in our operating expenses due to the subsidiary changes and business additions to the Company. The net loss for the six months ended March 31, 2012 was $203,170 as compared to $437,947 for the six months ended March 31, 2011. The one time write off of goodwill attributed to the AquaLiv acquisition during the six months ended March 31, 2011 accounted for the decrease in net loss between then and the same period ending March 31, 2012. Had that one time event not occurred, the company would have reported an increase in our operating expenses for the six months ended March 31, 2012, as compared to the six months ended March 31, 2011. The increase in normal operating expenses is due to the subsidiary changes and business additions to the Company.

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

Revenues

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

Cost of Sales

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

Selling, General and Administrative Expenses

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

Other Income and Expense

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

Net (Loss) Before Provision for Income Taxes

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

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Liquidity and Capital Resources

Operating expenses for the six months ended March 31, 2012 and 2011, was $383,842 and $655,192, respectively. The net loss for the six months ended March 31, 2012 and 2011, was $(203,170) and $(437,947), respectively.

As of June 14, 2012, the Company did not have and continues to not have sufficient cash on hand to pay present obligations as they become due. In addition, due to current economic conditions and the Company’s related risks and uncertainties, there is no assurance that we will be able to raise additional capital on acceptable terms, if at all, to meet our current obligation over the next 12 months. Because of the foregoing, the Company’s auditors have expressed substantial doubt about our ability to continue as a going concern.

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

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

Further, on April 27, 2012, the Company entered into an Equity Facility Agreement (the “Equity Agreement”) with Auctus Private Equity Fund, LLC, a Massachusetts corporation (“Auctus”). Pursuant to the terms of the Equity Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of the a registration statement, Auctus has committed to purchase up to $3,500,000 of the Company’s common stock, par value $0.001 per share.

The Company expects the current resources from the Debenture, as well as the resources available from the Equity Agreement once the registration statement is declared effective, will be sufficient for a period of approximately 24 months, depending upon certain funding conditions contained herein, unless significant additional financing is received. Management has determined that general expenditures must be reduced and additional capital will be required in the form of equity or debt securities. In addition, if we cannot raise additional short term capital we will be forced to continue to further accrue liabilities due to our limited cash reserves. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.

Going Concern

We have limited working capital and limited revenues from sales of products, services, or licensing. During the three months ended March 31, 2012, our operating expenses continued to be greater than our revenues. These factors have caused our accountants to express substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

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

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements.

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MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information

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

Quarter Ending	High		Low

September 30, 2010	$	0.0200	$	0.0010

December 31, 2010	$	0.0180	$	0.0022

March, 31, 2011	$	0.0128	$	0.0030

June 30, 2011	$	0.0160	$	0.0027

September 30, 2011	$	0.0070	$	0.0028

December 21, 2011	$	0.0055	$	0.0050

March 31, 2012	$	0.0059	$	0.0051

(b) Holders

As of June 14, 2012, a total of 502,605,319 shares of the Company’s common stock are currently outstanding held by approximately 1,371 shareholders of record.

(c) Dividends

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

(d) Securities Authorized for Issuance under Equity Compensation Plans

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

PLAN CATEGORY

NUMBER OF SECURITIES TO BE ISSUED UPON EXERCUSE OF OUTSTANDING OPTIONS

WEIGHTED AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS

NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION
PLANS (EXCLUDING
COLUMN A)

Equity Compensation Plans Not
Approved by Stockholders (1)

N/A

15,000,000

Total

N/A

15,000,000

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

Rule 10B-18 Transactions

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

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

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

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Directors and Executive Officers

The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers as of June 14, 2012. There is no familial relationship between or among the nominees, directors or executive officers of the Company.

NAME	AGE	POSITION WITH THE COMPANY	DIRECTOR SINCE

William M. Wright	47	Chairman, Chief Executive Officer, Chief Financial Officer, Secretary	2010

Tracy D. Bushnell	46	Director	2010

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

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

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

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

DIRECTOR INDEPENDENCE

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

COMMITTEES OF THE BOARD OF DIRECTORS

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

INDEMNIFICATION AND LIMITATION ON LIABILITY OF DIRECTORS

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

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

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

CODE OF ETHICS

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

FAMILY RELATIONSHIPS

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

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

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

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

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EXECUTIVE COMPENSATION

GENERAL

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

SUMMARY COMPENSATION TABLE

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

NAME AND PRINCIPAL POSITION	FISCAL YEAR		SALARY			STOCK BONUS		NON-EQUITY INCENTIVE OPTION AWARDS		PLAN AWARDS		ALL OTHER COMPENSATION		COMPENSATION			TOTAL

Willian M. Wright, Chief Executive Officer (current)		2011	$	0			0		0		0		0	$	80,000	(1)	$	80,000	(1)
		2010	$	40,000	(2)		0		0		0		0	$	30,000	(2)	$	70,000	(1)(2)

Craig Hoffman President (AquaLiv,Inc.)		2011	$	44,000			0		0		0		0		0		$	44,000
		2010		32,954			0		0		0		0		0		$	32,954


Alma Hoffman Vice President (AquaLiv, Inc.)		2011	$	38,200			0		0		0		0		0		$	38,000
		2010	$	13,500			0		0		0		0		0		$	13,500

(1) Consists of management fees paid as Chief Executive Officer of the Company.

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

COMPENSATION DISCUSSION AND ANALYSIS

As indicated in the Summary Compensation Table, the only compensation paid to an officer is the salary and management fee payable to our current President and Treasurer, William M. Wright; the President of our subsidiary, AquaLiv, Inc., Craig Hoffman; and the Vice President of our subsidiary, AquaLiv, Inc., Alma Hoffman. The total salary and management fee paid to our officers, both immediately preceding their role as President of the Company, and subsequent to presiding over the Company, but in the capacity of President of one of our subsidiaries, was $162,200 in fiscal year 2011.

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EMPLOYMENT AGREEMENTS

We do not have a written employment agreement with William M. Wright, our sole executive officer.

EQUITY INCENTIVE PLAN

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

LACK OF COMPENSATION COMMITTEE

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

COMPENSATION COMMITTEE REPORT

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

The members of the Board of Directors are:

William M. Wright

Tracy D. Bushnell

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of June 14, 2012, our authorized capitalization was 1,050,000,000 shares of capital stock, consisting of 1,000,000,000 shares of common stock, $0.001 par value per share and 50,000,000 shares of preferred stock, $0.001 par value per share. As of June 14, 2012, there were 502,605,319 shares of our common stock outstanding, all of which were fully paid, non-assessable and entitled to vote. Each share of our common stock entitles its holder to one vote on each matter submitted to the stockholders.

The following table sets forth, as of June 14, 2012, the number of shares of our common stock owned by (i) each person who is known by us to own of record or beneficially five percent (5%) or more of our outstanding shares, (ii) each of our directors, (iii) each of our executive officers and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, each of the persons listed below has sole voting and investment power with respect to the shares of our common stock beneficially owned.

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

NAME OF BENEFICIAL OWNER	AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP			PERCENTAGE OF CLASS


William M. Wright (1)		24,250,000	(2)		5.1 %
Tracy D. Bushnell (1)		0			0.00 %
Gary E. Ball		91,572,170	(3)		19.1 %	(3)

All directors and executive officers as a group (2 persons)		24,250,000	(2)		5.1%

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

(2) Includes 24,250,000 common shares held by Take Flight Equities, Inc., of which William Wright is President.

(3) Includes the voting rights to 91,572,170 common shares held in escrow due to a default in a promissory note from Take Flight Equities, Inc.

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Disclosure of Commission Position on Indemnification for Securities Act Liabilities

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

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

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

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

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

TRANSACTIONS WITH RELATED PERSONS, PROMOTERS, AND CERTAIN CONTROL PERSONS

Rider A:

The Company has not entered into any related party transactions since the beginning of the Company’s last fiscal year and the Company has no currently proposed transaction in which the Company was or is to be a participant and the amount involved exceeds $ 120,000, and in which any related person had or will have a direct or indirect material interest.

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

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

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

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LEGAL MATTERS

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

EXPERTS

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

ADDITIONAL INFORMATION

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

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

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128,927,716 Shares of

Common Stock

PROSPECTUS

Dealer Prospectus Delivery Obligation

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

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

, 2012

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AQUALIV TECHNOLOGIES, INC.

(F/K/A INRARED SYSTEMS INTERNATIONAL)

AND IT’S SUBSIDIARIES

SEPTEMBER 30, 2011 CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

	Page
Reports of Independent Registered Public Accounting Firm	34

Consolidated Balance Sheets, September 30, 2011 and 2010	35

Consolidated Statements of Operations, For the Years Ended September 30, 2011 and 2010	36

Consolidated Statements of Changes in Stockholders' (Deficit), For the Years Ended September 30, 2011 and 2010	37

Consolidated Statements of Cash Flows, For the Years Ended September 30, 2011 and 2010	38

Notes to the Consolidated Financial Statements	39

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BONGIOVANNI & ASSOCIATES, C.P.A.’s

19720 Jetton Road, 3 rd Floor

Cornelius, North Carolina 28031 (USA)

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

AquaLiv Technologies, Inc. (FKA Infrared Systems International)

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

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

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

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

/s/ Bongiovanni & Associates, C.P.A.’s

Bongiovanni & Associates, C.P.A.’s

Cornelius, North Carolina

January 13, 2012

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AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL)
AND ITS’ SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
	September 30, 2011			September 30, 2010

CURRENT ASSETS:
Cash	$	3,732		$	1,034
Accounts receivable		1,968			16,008

Total Current Assets		5,700			17,042

PROPERTY AND EQUIPMENT, net		8,427			5,000

INVENTORY		723			—

TOTAL ASSETS	$	14,850		$	22,042

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable	$	107,438		$	100,513
Credit cards payable		17,187			46,262
Notes payable		189,179			260,695
Derivative liability		111,111			—
Other liabilities		20,746			36,599

Total Current Liabilities		445,661			444,069

STOCKHOLDERS' DEFICIT:
Preferred stock, $0.001 par value, 50,000,000
shares authorized,
911,618 and 285,618 shares issued and		912			286
outstanding, respectively
Common stock, $0.001 par value, 1,000,000,000
shares authorized,
291,617,428 and 187,243,870 shares issued and		291,617			187,244
outstanding, respectively
Additional paid in capital		1,907,365			1,414,898
Retained (deficit)		(2,612,390	)		(2,024,455
Noncontrolling interest		(18,315)			—

Total Stockholders' (Deficit)		(430,811)			(422,027)

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)	$	14,850		$	22,042

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

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AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL)
AND ITS’ SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS


	For the Years
	Ended September 30,

		2011			2010

REVENUES:

Royalty	$	100,000		$	109,190
Sales		446,053			—
Service		44,085			30,108

Total Revenues		590,138			139,298

COST OF GOODS SOLD		193,430			5,834

GROSS PROFIT		396,708			133,464

OPERATING EXPENSES:
Bad Debts		4,289			—
Consulting fees		60,819			72,361
Management fees		105,900			55,802
Payroll expense		127,455			126
Professional fees		88,683			93,302
Research and development		9,936			577
Travel, meals, and entertainment		20,333			5,070
Loss on goodwill impairment, AquaLiv		315,484			—
Loss on goodwill impairment, Focus		—			583,301
Loss on goodwill impairment, IAI		—			34,970
Loss on impairment of note receivable		—			170,000
Other selling general and administrative		287,412			122,509

Total Operating Expenses		1,020,310			1,138,018

LOSS FROM OPERATIONS		(623,602	)		(1,004,554	)

OTHER INCOME (EXPENSE):
Recapture of loss on impairment of
note receivable		19,400			—
Gain on distribution of IAI, net		74,353			—
Loss on derivative liability		(61,111	)		—
Interest expense		(15,290	)		(4,050	)

NET (LOSS) BEFORE INCOME TAX PROVISION		(606,250	)		(1,008,604	)

PROVISION FOR INCOME TAXES		—			—

CONSOLIDATED NET (LOSS)		(606,250	)		(1,008,604	)

Add: Net loss attributable to noncontrolling interest, AquaLiv, Inc.		41,956			—

NET (LOSS) ATTRIBUTABLE TO COMPANY	$	(564,294	)	$	(1,008,604	)

BASIC AND DILUTED NET (LOSS) PER SHARE	$	*		$	(0.01	)

WEIGHTED AVERAGE SHARES
OUTSTANDING		228,052,093			91,957,785

* = less than $.01

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

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AQUALIV TECHNOLOGIES, INC.

(F/K/A INFRARED SYSTEMS INTERNATIONAL)

AND ITS’ SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT)

	Preferred Stock						Common Stock
											Additional									Total
											paid in			Retained			Noncontrolling			Stockholders
	Shares			Amount			Shares		Amount		capital			(Deficit)			interest			(Deficit)

BALANCES,
September 30, 2009		—			—			11,671,700	$	11,672	$	992,947		$	(1,015,851	)	$	—		$	(11,232	)

Issuance of common stock for cash and a promissory note		—			—			115,572,170		115,572		84,428			—			—			200,000

Issuance of common stock for services received		—			—			30,000,000		30,000		40,000			—			—			70,000

Issuance of common and preferred stock for purchase of Focus Systems, Inc.		250,000			250			30,000,000		30,000		279,750			—			—			310,000

Issuance of preferred stock for an investment receivable		500,000			500			—		—		249,500			—			—			250,000

Cancellation of unexercised preferred stock investment		(464,382	)		(464	)		—		—		(231,727	)		—			—			(232,191	)

Net loss of the year ended September 30, 2010		—			—			—		—		—			(1,008,604	)		—			(1,008,604	)

BALANCES,
September 30, 2010		285,618		$	286			187,243,870	$	187,244	$	1,414,898		$	(2,024,455	)	$	—		$	(422,027	)

Issuance of common stock to repay debt		—			—			100,623,558		100,623		(15,273	)		—			—			85,350

Issuance of preferre stock for 50% purchase of AquaLiv, Inc.		400,000			400			—		—		399,600			(23,641	)		23,641			400,000

Issuance of common stock		—			—			3,750,000		3,750		20,250			—						24,000

Preferred stock returned for common stock		(24,000	)		(24	)		—		—		(23,976	)		—						(24,000	)

Issuance of preferred stock for cash		240,000			240			—		—		119,760			—						120,000

Issuance of preferred stock for sevices		10,000			10			—		—		4,990			—						5,000

Distribution of IAI assets, net		—			—			—		—		(18,298	)		—						(18,298	)

Other capital contribution		—			—			—		—		5,414			—						5,414

Net loss of the year ended September 30, 2011		—			—			—		—		—			(564,294	)		(41,956	)		(606,250	)

BALANCES,
September 30, 2011		911,618		$	912			291,617,428	$	291,617	$	1,907,365		$	(2,612,390	)	$	(18,315	)	$	(430,811	)

See accompanying notes and auditors reports.

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AQUALIV TECHNOLOGIES, INC.
(F/K/A INFRARED SYSTEMS INTERNATIONAL)
AND ITS’ SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Years
	Ended September 30,

		Restated 2011		2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(564,294)	$	(1,008,604)
Adjustments to reconcile net loss to net cash
provided by
(used in) operating activities:
Noncontrolling interest in income of consolidated subsidiary		(41,956)		—
Depreciation		3,446		1,802
Amount reserved due to doubtful accounts		4,289		(180)
Loss on goodwill impairment, Focus		—		583,301
Loss on impairment of assets, IAI		—		34,970
Loss (recapture) on impairment of note receivable		(19,400)		170,000
Issuance of Preferred stock for services received		5,000		70,000
Loss on goodwill impairment, Aqualiv		315,484		—
Loss on derivative liability		61,111
Gain on distribution of IAI, net of intercompany		(18,298)		—
transfers
Net (increase) decrease in operating assets:
Accounts receivable		14,040		14,392
Prepaid expenses		—		8,174
Net increase (decrease) in operating liabilities:
Accounts payable		6,925		75,088
Credit cards payable		(29,075)		46,262
Customer deposits		—		(66,168)
Other liabilities		(15,853)		36,599

Net Cash (Used in) Operating Activities		(279,035)		(34,202)

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for definite-life intangible assets		—		(1,000)
Payments for property and equipment		(6,873)		—

Net Cash (Used in) Investing Activities		(6,873)		(1,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable		106,712		39,638
Payments for notes payable		(22,250)		(22,226)
Proceeds of capital stock issuance		204,414		17,809

Net Cash Provided by Financing Activities		288,876		35,221

NET INCREASE IN CASH AND CASH EQUIVALENTS		2,698		19

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,034		1,015

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	3,732	$	1,034

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	—	$	—
Income taxes	$	—	$	—

NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of stock to retire notes payable and related	$	85,350	$	—
accrued interest
Debt acquired from acquisition	$	—	$	221,057
Issuance of preferred stock for acquisition	$	400,000	$	—

(38)

AQUALIV TECHNOLOGIES, INC.

(F/K/A INFRARED SYSTEMS INTERNATIONAL)

AND ITS’ SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

In March 2010, the Company transferred the assets, liabilities, and operations of its technology licensing business to a wholly-owned subsidiary, Infrared Applications, Inc (“IAI”). IAI was organized under the laws of the state of Texas on March 26, 2010. On April 14, 2010, the Company sold a majority interest in its Common stock to Take Flight Equities, Inc. (“TFE”), a corporation organized under the laws of the State of Washington, and control of the Company was transferred to William Wright, its current CEO. Under the terms of the Agreement, continued to operate as a wholly owned subsidiary until June 22, 2011, when IAI was distributed to the Gary Ball, the companies former CEO, under a Management and Distribution Agreement dated March 24, 2010.

Also in April 2010, the Company acquired 100% of the outstanding common stock of Focus Systems, Inc. (“Focus”), a company organized under the laws of the state of Washington on August 8, 2007, from ProPalms, Inc., for 3,000,000 shares of Common stock, 250,000 shares of Preferred stock, and the assumption of $283,639 in liabilities. Focus is operated as a wholly-owned subsidiary of the Company. In addition to this agreement, the Company agreed to issue ProPalms 500,000 Preferred shares for an Investment Receivable of $250,000. Under the terms of the agreement, ProPalms was to make the investment over the course of 4 months or return the unvested stock within 1 year. Over the course of the 4 months, ProPalms invested $17,809. ProPalms returned the unvested portion of the stock (amounting to 464,382 Preferred shares) and the Company has accounted for it on its Change in Stockholders’ Deficit. On May 14, 2010, the Company completed a 10:1 forward split of its Common stock.

On December 16, 2010 the company purchased a 50% interest in AquaLiv, Inc. from Craig Hoffman for $400,000 paid in the form of 400,000 shares of Preferred stock valued at $1.00 per share. We have concluded, pursuant to the guidance in FASB ASC 810-10-25-38 (previously FIN 46R) that AquaLiv, Inc. is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, Inc. and we are required to consolidate its financials accordingly. The remaining 50% non-controlling interest is owned by Craig Hoffman, AquaLiv, Inc’s President and CEO. AquaLiv, Inc. is a life sciences research and development company creating novel products for numerous industries. The company's technology alters the behavior of organisms, including plants and humans, without chemical interaction. From increased crop yields to drug-free medicine, AquaLiv is providing innovative, ingredient-free solutions to the world's largest problems.

Nature of Operations - The Company’s subsidiary, AquaLiv, Inc., is a life sciences research and development company based in Seattle, Washington. The Company’s technology taps into a previously undiscovered natural phenomenon that gives us significant competitive advantages in the industries of agriculture and medicine. This technology represents an entirely new way to affect the health and behavior of plants and animals, including human beings.. The Company’s wholly-owned subsidiary, Focus Systems, provides remote desktop and cloud computing solutions to small businesses. Additionally, Focus provides Voice over Internet Protocol (VoIP) phone solutions to small businesses and can deliver the service to households as well. The Company has not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factors.

Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents - The Company considers all highly-liquid debt investments purchased with a maturity of three months or less to be cash equivalents.

Accounts Receivable - The Company records accounts receivable at cost less allowance for doubtful accounts. The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses. Management has estimated that $4,289 is necessary for doubtful accounts after reviewing the accounts receivable at September 30, 2011.

Property and Equipment - The Company records property and equipment at cost and uses straight-line depreciation methods over three to ten years. Maintenance, repairs, and expenditures for renewals and betterments not determined to extend the useful lives or to materially increase the productivity of the assets are expensed as incurred. Other renewals and betterments are capitalized. Property and Equipment is that of our subsidiaries, AquaLiv, Inc. and Focus Systems, Inc., which we have been recorded at actual cost and estimated net book value, less depreciation, which was recorded under Other Expenses on our Consolidated Statements of Operations.

(39)

AQUALIV TECHNOLOGIES, INC.

(F/K/A INFRARED SYSTEMS INTERNATIONAL)

AND ITS’ SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition - The Company's revenue is derived through its subsidiaries. AquaLiv, Inc.’s revenue come primarily from the sales of AquaLiv Water Systems and Infotone Face Mist. The products are sold though the subsidiary’s website portal, www.aqualiv.com. Revenue is derived from AquaLiv, Inc from several smaller purchases ranging from $35 to $1,695. Revenue derived from Focus Systems comes from several smaller accounts and is billed on a monthly basis. The monthly billing for these accounts range from $72 to $1,087. IAI’s revenue came from royalties derived through licensing its technology to a single customer. The licensing agreement allowed the customer exclusively to use the subsidiary’s technology in aircraft systems manufactured by the customer in exchange for a royalty fee for each system that includes the Company's technology sold by the customer for commercial sales . The royalty fee was payable quarterly and amounts to $800 per aircraft system. As of June 22, 2011, royalty revenue has been discontinued along with the distribution of the IAI assets per the Management and Distribution Agreement.

Research and Development - The Company expenses research and development costs as incurred.

Income taxes

The Company adopts the ASC Topic 740, “Income Taxes” regarding accounting for uncertainty in income taxes which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, classification, penalties and interest, accounting in interim periods and disclosure.

For the years ended September 30, 2011 and 2010, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2011 and 2010, the Company did not have any significant unrecognized uncertain tax positions.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

Comprehensive income

The Company adopted FASB Accounting Standards Codification 220 “Comprehensive Income” (formerly SFAS No. 130, “Reporting Comprehensive income”, which establishes standards for reporting and display of comprehensive income, and its components in the consolidated financial statements. Components of comprehensive income include net income and foreign currency translation adjustments. The Company has presented consolidated statements of income which includes other comprehensive income or loss.

Fair value of financial instruments

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

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

The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, trade accounts and other receivables, inventories, prepaid expenses, accounts payable, other payables and accrued liabilities, deposits received in advance, taxes payable, deferred tax liabilities, and short term borrowings approximate their fair values because of the short maturity of these instruments. The Company’s short term borrowings approximate the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at September 30, 2011 and 2010.

The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at September 30, 2011 and 2010, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the year ended September 30, 2011 and 2010.

Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources, if applicable, are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Off-balance sheet arrangements

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

Recent Accounting Pronouncements

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

Fair Value Measurements and Disclosures

In January 2010, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance regarding fair value measures and disclosures. The guidance requires disclosure of significant transfers between level 1 and level 2 fair value measurements along with the reason for the transfer. An entity must also separately report purchases, sales, issuances and settlements within the level 3 fair value rollforward. The guidance further provides clarification of the level of disaggregation to be used within the fair value measurement disclosures for each class of assets and liabilities and clarified the disclosures required for the valuation techniques and inputs used to measure level 2 or level 3 fair value measurements. This new authoritative guidance is effective for the Company in fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this guidance will not impact the Company’s consolidated results of operations or financial position.

Variable Interest Entities (VIEs)

In June 2009, the FASB issued authoritative guidance changing the approach to determine a VIE’s primary beneficiary and requiring ongoing assessments of whether an enterprise is the primary beneficiary of a VIE. This guidance also requires additional disclosures about a company’s involvement with VIEs and any significant changes in risk exposure due to that involvement. This guidance was adopted January 1, 2010, and did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

Basis of presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America under the accrual basis of accounting. All intercompany accounts and transactions have been eliminated.

Inventories – The Company’s inventories (finished goods, work in process, raw materials and packaging materials) are stated at the lower of cost or market. Cost is determined on a first in first out basis. In addition, the Company estimates net realizable value based on intended use, current market value and contract terms. The Company writes down the inventories for estimated obsolescence, slow moving or unmarketable inventories equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions.

Impairment of long-lived assets

The Company evaluated the recoverability of its property, plant, equipment, and other long-lived assets in accordance with FASB Accounting Standards Codification 360 “Property, Plant and Equipment” (formerly SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”), which requires recognition of impairment of long-lived assets in the event the net book value of such assets exceed the estimated future undiscounted cash flows attributable to such assets or the business to which such intangible assets relate. Impairments of these types of assets were recognized during the years ended September 30, 2011 and 2010.

Loss per share

The Company reports loss per share in accordance with FASB Accounting Standards Codification 260 “Earnings per Share” (formerly SFAS 128, “Earnings per Share”). This statement requires dual presentation of basic and diluted earnings (loss) with a reconciliation of the numerator and denominator of the loss per share computations. Basic earnings per share amounts are based on the weighted average shares of common outstanding. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Accordingly, this presentation has been adopted for the periods presented. There were no adjustments required to net income for the period presented in the computation of diluted earnings per share. There were no common stock equivalents (CSE) necessary for the computation of diluted loss per share.

NOTE 2 - GOING CONCERN

The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At September 30, 2011, the Company had a retained deficit of $2,612,390 and current liabilities in excess of current assets by $439,961. During the year ended September 30, 2011, the Company incurred a net loss of $564,294 and negative cash flows from operations of $279,305. These factors create an uncertainty about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company's continuation as a going concern is dependent upon its ability to increase revenues, decrease or contain costs, and achieve profitable operations. In this regard, our ability to continue as a going concern has caused the Board of Directors to continue investigating merger and acquisition opportunities. We will look to further diversify our holdings and sources of cash flow. Should the Company's financial resources prove inadequate to meet the Company's needs before additional revenue sources can be realized, the Company may raise additional funds through loans or through sales of common or preferred stock. There is no assurance that the Company will be successful in achieving profitable operations or in raising any additional capital.

NOTE 3 - RELATED PARTY TRANSACTIONS

Revenues - Service – The Company, through its wholly owned subsidiary, Focus, received $1,303 in service revenues from parties related to our CEO during the fiscal year ended September 30, 2011. The revenue was booked at the same rate as that of non-affiliated customers.

Management compensation - During the years ended September 30, 2011 and 2010, respectively, the Company paid management fees of $105,900 and $55,802 to its officers.

Consulting - During the years ended September 30, 2011 and 2010, respectively, the Company paid $30,000 and $0 for consulting services to officers and directors or entities related to or under the control of an officer or director of the Company.

Credit cards payable – During the years ended September 30, 2011 and 2010, the Company’s current and former officers extended credit to the Company and/or its subsidiaries in the form of personal credit card usage in the amount of $17,187 and $46,262, respectively.

Notes payable – During the fiscal year ended September 30, 2011 and 2010, a company closely held by an officer of the company, loaned the Company $23,388 and $35,588, respectively. The loan is due on demand and carries no interest. Imputed interest is included in the accompanying Consolidated Statements of Operations.

(40)

AQUALIV TECHNOLOGIES, INC.

(F/K/A INFRARED SYSTEMS INTERNATIONAL)

AND ITS’ SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - PROPERTY AND EQUIPMENT

	Estimated Useful Lives	September 30, 2011	September 30, 2010

Optical equipment	5 years	$ 39,386	$ 39,386
Office equipment	3 - 10 years	$8,231	$8,231
Computers and peripherals	5 years	7,000	16,000
Furniture and fixtures	5 years	6,873	-
		70,490	63,617
Less accumulated depreciation		(62,063)	(58,617)

Net property and equipment		$8,427	$5,000

Depreciation expense for the years ended September 30, 2011and 2010 was $2,800 and $1,802, respectively.

NOTE 5 - DEFINITE-LIFE INTANGIBLE ASSETS

	Estimated Useful Lives	September 30, 2011	September 30, 2010

Pending patent application	Not applicable	$ -	$ 33,970
Addition to assets		-	1,000

Less accumulated amortization		-	34,970
Less impairment of asset		-	(34,970)

Net definite-life intangible assets		$ -	$ -

The Company's definite-life intangile assets consisted only of a pending patent application. The Company subsidiary received patent approval in fiscal year ended September 30, 2010. Since the patent was the property of the Company’s subsidiary, IAI, and the determination of value is deemed worthless with no probably future economic benefit, the Company expensed the asset in its entirety, rather than amortize it over an undeterminable amount of time.

Focus Systems Acquisition	September 30, 2010

Acquisition value
Capital in excess of par	$	279,750
Common shares 3,000,000 shares		30,000
Preferred shares 250,000 shares		250

Total Acquisition value	$	310,000

Valuation classification
Physical Assets	$	10,338
Liabilities Assumed	$	283,639

Goodwill		583,301
Impairment of Goodwill		(583,301	)
Goodwill, net		—

Net value	$	0

The Company recorded a one-time impairment of goodwill under operating expenses in the amount of $583,301 in conjunction with the acquisition of Focus Systems due to there being no probable future economic benefit and no certainty of any future cash flows.

Note receivable to IAI	September 30, 2010

Face value of note	$	170,000
Less impairment of note		(170,000	)
Note receivable remaining	$	—

The Company recorded a one-time impairment of the note receivable to IAI under operating expenses in the amount of $170,000 due to the total uncollectability thereof.

AquaLiv, Inc. Acquisition

	September 30, 2011

Acquisition value

Preferred shares (per contract)	$	400,000
Total Acquisition value	$	400,000

Valuation classification
Physical assets	$	5,516
Cash		79,000

Goodwill		315,484
Impairment of Goodwill		(315,484
Goodwill, net		—

Net value	$	84,516

We have concluded, pursuant to the guidance in FASB ASC 810-10-25-38 (previously FIN 46R) that AquaLiv is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, and we are required to consolidate its financials accordingly. Additionally, the acquisition was recorded at its fair market value in that the cash, computer equipment, and inventory were recorded at their fair market value on the date of the acquisition. Impairment of goodwill from the date of acquisition was written off to its net realizable value in the accompanying statements of operations.

(41)

AQUALIV TECHNOLOGIES, INC.

(F/K/A INFRARED SYSTEMS INTERNATIONAL)

AND ITS’ SUBSIDIARIES

NOTES TO THE CONSOLIDATAED FINANCIAL STATEMENTS

NOTE 6 – INVENTORY

Inventories are comprised of the following amounts at the respective dates:

	September 30, 2011

Raw materials	$	4,340
Work in process		1,447
Finished goods		3,858
Provision for inventory liquidations		(8,921	)
Inventory - end of period	$	723

There was no inventory as of September 30, 2010.

NOTE 7 - NOTES PAYABLE AND DERIVATIVE LIABILITY

At fiscal year ended September 30, 2011, the Company had notes payable in the amount of $189,179, compared to $260,695, in the prior fiscal year. The notes included a note payable to an unaffiliated party in the amount of $165,790, which is not secured by collateral of the company, carries accrued interest of 6%and is due on demand by the holder. The second note payable is to an affiliated company of our President in the amount of $23,338, is not secured by collateral of the company, carries no interest, and is due on demand by the holder.

A third note payable was issued to an unaffiliated party on August 1, 2011 in the aggregate amount of $50,000. The note carries an interest rate of 8%, is not secured by collateral of the company, and has a maturity date of May 3, 2012. The note has conversion rights beginning after month six (6). The variable conversion price is 55% of the market price, which is calculated by the average three (3) lowest closing bid prices as quoted on the applicable trading market (the “OTCBB”) during the previous ten (10) trading days. The note holder may not own any more than 4.99% of the company’s outstanding common stock. The Company recognizes the conversion option of the note (an embedded derivative) as a derivative liability.

Derivative Liability

ASC Topic 815 (“ASC 815”) requires that all derivative financial instruments be recorded on the balance sheet at fair value. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

The Company issued convertible notes and has evaluated the terms and conditions of the conversion features contained in the notes to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features contained in the notes represent freestanding derivative instruments that meet the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instruments in the notes is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instruments of the convertible notes was measured at the inception date of the notes and warrants and each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.

The Company valued the conversion features in its convertible notes using the Black-Scholes model. The Black-Scholes model values the embedded derivatives based on a risk-free rate of return ranging from 0.29% to 0.30%, grant dates at 8/1/2011 and 9/30/2011, the term of convertible note, conversion prices is 55% of stock bid price at date of note conversion, current stock prices on the measurement date ranging from $0.0028 to $0.0051, and the computed measure of the Company’s stock volatility, ranging from 2,342.87% to 2,242.33%.

Included in the September 30, 2011 financial statements is a derivative liability in the amount of $111,111 to account for this transaction. There were no balances in prior periods since this liability arose in 2011. It will be revalued quarterly henceforth and adjusted as a gain or loss to the consolidated statements of operations depending on its value at that time.

Included in our Consolidated Statements of Operations for the year ended September 30, 2011 are $0 in change of fair value of derivative and $61,111 of debt discount amortization in non-cash charges pertaining to the derivative liability as it pertains to the gain on derivative liability and debt discount, respectively.

	30-Sep-11	30-Sep-10

Loss on goodwill impairment, AquaLiv	$315,484	$ -
Loss on goodwill impairment, Focus		583,301
Loss on goodwill impairment, IAI		34,970
Loss on impairment of note receivable	_________	170,000_
Net loss on impairments	$315,484	$788,271

(42)

AQUALIV TECHNOLOGIES, INC.

(F/K/A INFRARED SYSTEMS INTERNATIONAL)

AND ITS’ SUBSIDIARIES

NOTES TO THE CONSOLIDATAED FINANCIAL STATEMENTS

NOTE 8 – STOCKHOLDERS’ DEFICIT

In December 2008, the Company completed its spin-off by distributing 1,167,170 common stock shares to stockholders of CSBI. The remaining 4,832,830 common stock shares previously owned by CSBI were returned and cancelled.

On April 12, 2010, the Company issued 115,572,170 post-split shares of Common stock for $30,000 in cash and a note receivable to the Company’s subsidiary, IAI, in the amount of $170,000. The transaction resulted in a change of control of the Company and was identified in the 8-K filed on April 16, 2010.

On May 7, 2010, the Company issued 20,000,000 post-split shares of Common stock for $20,000 in consulting services.

On May 7, 2010, the Company issued 30,000,000 post-split shares of Common stock and 250,000 shares of Preferred stock as part of an acquisition agreement for Focus Systems, Inc. from Propalms, Inc. The transaction was recorded on the Company’s books at $310,000. The transaction was reported in the Company’s 8-K filed April 21, 2010.

On May 7, 2010, and in conjunction with the Focus acquisition agreement, the Company issued 500,000 shares of Preferred stock for an investment receivable in the amount of $250,000.

On May 14, 2010, the Company completed a 10:1 forward split of its Common stock.

On August 2, 2010, the Company issued 5,000,000 shares of Common stock for $30,000 in consulting services.

On August 2, 2010, the Company issued 5,000,000 shares of Common stock for $20,000 in consulting services.

At September 30, 2010, the Company recorded the impairment of the unexercised investment receivable from the Preferred stock issued May 7, 2010. 464,352 shares of Preferred stock were returned to the Company.

In October 2010 the Company issued 9,500,000 shares of Common stock to repay $5,000 in debt.

In December 2010 the Company issued 400,000 shares of Preferred stock for the purchase of 50% interests in AquaLiv, Inc.

In December 2010 the Company issued 3,750,000 shares of Common stock in exchange for 24,000 shares of Preferred stock valued at $24,000.

In January 2011, the Company issued 90,000 shares of Preferred stock for $45,000 in cash.

In January 2011, the Company issued 100,000 shares of Preferred stock for $50,000 in cash.

In April 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.

In May 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.

In June 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.

In June 2011 the Company issued 3,947,368 shares of Common stock to repay $15,000 in debt.

In June 2011 the Company issued 2,380,952 shares of Common stock to repay $10,000 in debt.

In July 2011 the Company issued 3,200,000 shares of Common stock to repay $8,000 in debt.

In July 2011 the Company issued 11,500,000 shares of Common stock to repay $5,750 in debt.

In July 2011 the Company issued 4,095,238 shares of Common stock to repay $8,600 in debt.

In August 2011 the Company issued 12,000,000 shares of Common stock to repay $6,000 in debt.

In September 2011 the Company issued 6,500,000 shares of Common stock to repay $3,250 in debt.

In September 2011 the Company issued 7,500,000 shares of Common stock to repay $3,750 in debt.

In September 2011 the Company issued 10,000 shares of Preferred stock for $5,000 in management fees.

In September 2011 the Company issued 50,000 shares of Preferred stock for $25,000 in cash.

In September 2011 the Company’s subsidiary received $5,414 in cash in exchange for previously issued Preferred stock related to the AquaLiv, Inc. acquisition.

NOTE 9 - CONCENTRATIONS

At September 30, 2011, 92% of the Company's accounts receivable was due from custom of which two (2) customers, each accounted for 55% and 37%, respectively. During the years ended September 30, 2011 and 2010, 17% and 59% of the Company's royalty revenues were generated through a single licensee, respectively. As the company stopped receiving royalty revenue on June 22, 2011, the Company does not expect that level of concentration related to our current products and services.

NOTE 10 - CONTINGENCIES

The Company had no contingencies existing as of September 30, 2011 and 2010.

NOTE 11 - LOSS PER SHARE

The basic loss per share was calculated using the net loss and the weighted average number of shares outstanding during the reporting periods. All share and per share data have been adjusted to reflect the forward stock split.

NOTE 12 - SEGMENTS

The Company determined that it do not operate in any material, separately reportable operating segments as of September 30, 2011 and 2010.

NOTE 13 - INCOME TAXES

At September 30, 2011, the Company has federal net operating loss carryovers of approximately $1,172,000 available to offset future taxable income and expiring as follows:

$2,320 in 2026, $12,616 in 2027, $127,675 in 2028, $37,465 in 2029, and $428,000 in 2030 and $564,00 in 2031. The Company also has a federal contribution carryover of $150 that expires in 2029. At September 30, 2011, the Company had experienced losses since inception and had not yet generated any taxable income; therefore, the Company established a valuation allowance to offset the net deferred tax assets.

The income tax provision consists of the following components for the years ended September 30, 2011 and 2010:

		2011		2010

Current income tax expense (benefit)	$	—	$	—
Deferred income tax expense (benefit)		—		—

Net income tax expense (benefit) charged to operations	$	—	$	—

(43)

AQUALIV TECHNOLOGIES, INC.

(F/K/A INFRARED SYSTEMS INTERNATIONAL)

AND ITS’ SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - INCOME TAXES (Continued)

The income tax provision differs from the amounts that would be obtained by applying the federal statutory income tax rate to loss before income tax provision as follows for the years ended September 30, 2011 and 2010:

	2011			2010

Loss before income tax provision	$	(564,294	)		(1,008,604	)
Expected federal income tax rate		15.0	%		15.0	%

Expected income tax expense (benefit at statutory rate	$	(84,644	)	$	(115,291	)
Tax effect of		-
Meals and entertainment					632
Change in valuation allowance		84,644			150,659

Net income tax expense (benefit)	$	—		$	—

The Company's deferred tax assets, deferred tax liabilities, and valuation allowance are as follows:

	September 30, 2011			September 30, 2010

Deferred tax assets:
Organization costs	$	—		$	—
Contribution carryover		—			—
Net operating loss carryovers		175,800			91,200

Total deferred tax assets	$	175,800		$	91,200

Deferred tax liabilities:
Book basis of patent application	$	—		$	—
Tax depreciation in excess of book		—			—

Total deferred tax liabilities	$	—		$	—

Total deferred tax assets	$	175,800		$	91,200
Total deferred tax liabilities		—			—
Valuation allowance		(175,800	)		(91,200	)

Net deferred tax asset (liability)	$	—		$	—

These amounts have been presented in the financial statements as follows:

		September 30, 2011		September 30, 2010

Current deferred tax asset (liability)	$	—	$	—
Non-current deferred tax asset (liability)		—		—
	$	—	$	—

NOTE 14 - SUBSEQUENT EVENTS

The Company evaluated events subsequent to September 30, 2011 through January 13, 2012, which is the date that the September 30, 2011 consolidated financial statements were available to be issued. Previously, the Company evaluated events subsequent to September 30, 2010 through January 14, 2011, which was the date that the September 30, 2010 consolidated financial statements were issued.

On December 1, 2011, the Company’s independent accountant and management identified that the consolidated financial statements prepared following the Company’s merger with Focus Systems, Inc. had material errors and should no longer be relied upon. Errors in the consolidated financial statements included the incorrect accounting of the purchase of Focus Systems, Inc., incorrect classification in its statement of cash flows, and accounting for the non-controlling interest of AquaLiv, Inc. The audit committee or equivalent has informed the independent auditor of these errors. The Company immediately commenced preparation of amendments to the effected reports, which would contain the revised financials upon which the public could rely. The net effect of the changes on net loss were in material, taken as a whole. Following is a list of quarterly and annual reports that should no longer be relied upon and which will be amended and refiled:

Quarterly report for period ended June 30, 2010

Annual report for period ended September 30, 2010

Quarterly report for period ended December 31, 2010

Quarterly report for period ended March 31, 2011

Quarterly report for period ended June 30, 2011

The Company has instituted an amended internal procedure that includes a review by an independent accountant, management, and directors, or a combination thereof, to approve and authorize the filing of any report to the Commission

(44)

AQUALIV TECHNOLOGIES, INC.

AND IT’S SUBSIDIARIES

MARCH 31, 2012 CONSOLIDATED FINANCIAL STATEMENTS

AQUALIV TECHNOLOGIES, INC.

AND ITS’ SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


		March 31,2012 (Unaudited)			September 30, 2011 (Audited)

ASSETS
CURRENT ASSETS:
Cash	$	36,942		$	3,732
Accounts receivable		3,848			1,968

Total Current Assets		40,789			5,700

PROPERTY AND EQUIPMENT, net		7,027			8,427

INVENTORY		5,523			723

TOTAL ASSETS	$	53,339		$	14,850


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable	$	120,579		$	107,438
Credit cards payable		18,557			17,187
Notes payable		149,354			189,179
Derivative liability		186,912			111,111
Other liabilities		8,845			20,746

Total Current Liabilities		484,247			445,661

STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 991,618 and 991,618 shares issued and outstanding		992			912

Common stock, $0.001 par value, 1,000,000,000 shares authorized, 414,024,625 and 291,617,428 shares issued and outstanding, respectively		414,024			291,617

Capital in excess of par value		2,006,128			1,907,365
Retained earnings (deficit)		(2,815,560	)		(2,612,390
Noncontrolling interest		(36,493	)		(18,315

Total Stockholders' (Deficit)		(430,908	)		(430,811

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	53,339		$	14,850

See accompanying notes

(45)

AQUALIV TECHNOLOGIES, INC.

AND ITS’ SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)



	For the Three Months						For the Six Months
	Ended March 31,						Ended March 31,
	2012			2011			2012			2011

REVENUES:
Sales	$	117,134		$	119,993		$	246,318		$	234,210
Service		7,313			10,255			17,849			22,018
Royalty		—			28,800			—			46,400

Total Revenues		124,448			159,048			264,168			302,628

COST OF GOODS SOLD		38,138			59,522			71,809			106,046

GROSS PROFIT		86,309			99,527			192,358			196,583

OPERATING EXPENSES:
Consulting fees		19,655			7,053			30,485			22,128
Management fees		30,000			24,030			60,000			44,920
Payroll expense		47,930			28,730			91,714			53,503
Professional fees		25,233			27,261			37,315			58,918
Research and development		68			4,663			987			7,097
Travel, meals, and entertainment		11,613			3,453			16,787			6,840
Loss on goodwill impairment,
AquaLiv		—			—			—			315,484
Other general and administrative		64,435			92,804			146,554			146,302

Total Operating Expenses		198,933			187,994			383,842			655,192

LOSS FROM OPERATIONS		(112,624	)		(88,467	)		(191,484	)		(458,609	)

OTHER INCOME (EXPENSE):
Recapture prior expense		884			19,400			12,522			19,400
Interest expense		(20,917	)		(3,767	)		(42,386	)		(6,344	)

LOSS BEFORE INCOME TAX PROVISION		(132,657	)		(72,834	)		(221,347	)		(445,553	)

PROVISION FOR INCOME TAXES		—			—			—			—

CONSOLIDATED NET LOSS		(132,657	)		(72,834	)		(221,347	)		(445,553	)

Add: Net loss attributable to
noncontrolling interest,
AquaLiv		8,031			10,111			18,177			7,606

NET LOSS ATTRIBUTABLE TO COMPANY	$	(124,626	)	$	(62,723	)		(203,170	)	$	(437,947	)

BASIC AND DILUTED LOSS PER SHARE	$	*		$	*		$	*		$	*

WEIGHTED AVERAGE SHARES OUTSTANDING		379,418,249			200,493,870			352,774,805			200,493,870

* - Less than $0.01

See accompanying notes.

(46)

AQUALIV TECHNOLOGIES, INC.

AND ITS’ SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

SIX MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)

	For the Six Months
	Ended March 31,

		2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(203,170	)	$	(437,947	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities
Noncontrolling interest in income (loss) of consolidated subsidiary
		(18,177	)		(7,606	)
Depreciation		1,400			2,046
Recapture prior expense		(12,522	)		(19,400	)
Issuance of stock for services received		15,000			—
Loss on goodwill impairment, AquaLiv		—			315,484
Loss on derivative liability, net		32,801			—
Net (increase) decrease in operating assets:
Accounts receivable		(1,880	)		8,375
Inventory		(4,800	)		(17,328	)

Net increase (decrease) in operating liabilities:
Accounts payable		13,141			(3,257	)
Credit cards payable		1,370			(2,428	)
Other liabilities		(11,901	)		(12,723	)


Net Cash Provided (Used) by Operating Activities		(188,738	)		(174,784	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment		—			(5,516	)
Cash received from AquaLiv investment		—			79,000


Net Cash Provided (Used) by Investing Activities		—			73,484

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes, net		15,737			48,125
Proceeds of capital stock issuance		206,210			105,000

Net Cash Provided by Financing Activities		221,947			153,125

NET INCREASE (DECREASE) IN CASH		33,210			51,825

CASH AT BEGINNING OF PERIOD		3,732			1,034

CASH AT END OF PERIOD	$	36,942		$	52,859

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	—		$	—
Income taxes	$	—		$	—

NON-CASH INVESTING AND FINANCING ACTIVITIES

Issuance of stock to retire notes payable and accrued interest	$	95,750		$	5,000
Issuance of preferred stock for acquisition	$	—		$	400,000

See accompanying notes

(47)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements have been prepared by the Company in accordance with Article 8 of U.S. Securities and Exchange Commission Regulation S-X. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2012 and 2011 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s September 30, 2011 audited financial statements. The results of operations for the periods ended March 31, 2012 and 2011 are not necessarily indicative of the operating results for the full year.

NOTE 2 – GOING CONCERN

The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2012, the Company had a retained deficit of $2,815,560 and current liabilities in excess of current assets by $430,908. During the six months ended March 31, 2012, the Company incurred a net loss of $221,347 and negative cash flows from operations of $188,738. These factors create an uncertainty about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company’s continuation as a going concern is dependent upon its ability to increase revenues, decrease or contain costs, and achieve profitable operations. In this regard, Company management is focused on the development and expansion of the Company’s technology, including water filtration and purification, bioinformation and life sciences, the deployment of its technology platform in the agricultural and medical fields, the licensing of patents, remote desktop and cloud computing, and VoIP telephony, as well as exploring strategic acquisitions in the technology field. Should the Company’s financial resources prove inadequate to meet the Company’s needs before additional revenue sources can be realized, the Company may raise additional funds through loans or through sales of common or preferred stock. There is no assurance that the Company will be successful in achieving profitable operations or in raising any additional capital.

NOTE 3 – RELATED PARTY TRANSACTIONS

Shareholder Loans - During the three months ended March 31, 2012, the Company’s officer extended an additional use of credit in the amount of $713.62. The credit carries an interest rate of 15.24%.

Management Compensation - During the three months ended March 31, 2012 and 2011, respectively, the Company and its subsidiaries paid or accrued salary and management fees of $61,154 and $42,705 to its officers.

NOTE 4 – PROPERTY AND EQUIPMENT

Estimated Useful Lives		March 31, 2012

Optical equipment	5 years	$	39,386
Office equipment	3 - 10 years		8,231
Computers and peripherals	5 years		16,000
Furniture and fixtures	5 years		6,873

			70,490
Less accumulated depreciation			(63,463)

Net property and equipment		$	7,027

Depreciation expense for the three months ended March 31, 2012 and 2011 was $1,400 and $1,346, respectively.

NOTE 5 – AQUALIV ACQUISITION

	December 31, 2010

Acquisition value

Preferred shares (per contract)	$	400,000
Total Acquisition value	$	400,000

Valuation classification
Physical assets	$	5,516
Cash		79,000

Goodwill		315,484
Impairment of Goodwill		(315,484	)
Goodwill, net		—

Net value	$	84,516

We have concluded, pursuant to the guidance in FASB ASC 810-10-25-38 (previously FIN 46R) that AquaLiv, Inc. is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, Inc. and we are required to consolidate its financials accordingly. Additionally, the acquisition was recorded at its fair market value in that the cash, computer equipment, and inventory were recorded at their fair market value on the date of the acquisition. Impairment of goodwill from the date of acquisition was written off to its net realizable value in the accompanying statements of operations.

NOTE 6 – INVENTORY


	March 31, 2012

Inventory - beginning of period	$	764
Change in inventory		4,759

Inventory - end of period	$	5,523

NOTE 7 - CONCENTRATIONS

At March 31, 2012, 39% of the Company’s accounts receivable was due from a single customer. During the three months ended March 31, 2012, 31% of the Company’s service revenue was generated from a single customer, and less than 2% of sales revenue was generated from a single customer. Compared to total revenue, less than 2% was generated from a single customer during the three months ended March 31, 2012, compared to the three months ended March 31, 2011, where 18% of the Company’s revenues were generated from a single customer.

(48)

NOTE 8 – INCOME TAXES

At March 31, 2012, the Company has federal net operating loss carryovers of approximately $1,172,000 available to offset future taxable income and expiring as follows: $2,320 in 2026, $12,616 in 2027, $127,675 in 2028, $37,465 in 2029, and $428,000 in 2030 and $564,000 in 2031. The Company also has a federal contribution carryover of $150 that expires in 2029. At March 31, 2012, the Company had experienced losses since inception and had not yet generated any taxable income; therefore, the Company established a valuation allowance to offset the net deferred tax assets. The income tax provision consists of the following components for the three months ended March 31, 2012 and 2011:

		2012		2011
Current income tax expense (benefit)	$	—	$	—
Deferred income tax expense (benefit)		—		—
Net income tax expense (benefit) charged to operations	$	—	$	—

The income tax provision differs from the amounts that would be obtained by applying the federal statutory income tax rate to loss before income tax provision as follows for the six months ended March 31, 2011 and 2010:

	2012			2011
Loss before income tax provision	$	(221,347)		$	(445,553)
Expected federal income tax rate		15.0	%		15.0	%
Expected income tax expense (benefit) at statutory rate	$	(33,202)		$	(66,833)
Tax effect of:
Meals and entertainment		2,518			1,026
Change in valuation allowance		30,684			65,807
Net income tax expense (benefit)	$	—		$	—

The Company’s deferred tax assets, deferred tax liabilities, and valuation allowance are as follows:

	March 31, 2012
Deferred tax assets:
Organization costs	$	60
Contribution carryover		23
Net operating loss carryovers		33,220
Total deferred tax assets	$	33,303

Deferred tax liabilities:
Book basis of patent application	$	(5,246	)
Tax depreciation in excess of book		(498	)
Total deferred tax liabilities	$	(5,744	)

Total deferred tax assets	$	33,303
Total deferred tax liabilities		(5,744	)
Valuation allowance		(27,559	)
Net deferred tax asset (liability)	$	—

These amounts have been presented in the financial statements as follows:

		March 31, 2012
Current deferred tax asset (liability)	$	—
Non-current deferred tax asset (liability)		—
	$	—

(49)

NOTE 9 – SUBSEQUENT EVENTS

On May 3, 2012, the Company filed Form 8-K with the Securities and Exchange Commission. On April 27, 2012, the Company finalized an equity facility (the “Equity Facility”) with Auctus Private Equity Fund, LLC, a Massachusetts corporation (“Auctus”), whereby the parties entered into (i) a drawdown equity financing agreement (the “Equity Agreement”) and (ii) a registration rights agreement (the “Registration Rights Agreement”).

Drawdown Equity Financing Agreement

On April 27, 2012, the Company entered into the Equity Agreement with Auctus. Pursuant to the terms of the Equity Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of the Registration Statement (as defined below), Auctus shall commit to purchase up to $3,500,000 of the Company’s common stock, par value $0.001 per share (the “Shares”), pursuant to an Advance Request (as defined below) contained in a drawdown notice (“Drawdown Notice”), covering the Registrable Securities (as defined below). The purchase price of the Shares under the Equity Agreement is equal to ninety-three percent (93%) of the average daily bid prices of the Company’s common stock during the five (5) consecutive trading days immediately following the day on which an estimated amount of advance shares have been deposited into Auctus’s brokerage account pursuant to the delivery by the Company of a Drawdown Notice to Auctus in accordance with the terms of the Equity Agreement.

The “Registrable Securities” include (i) the Shares; and (ii) any securities issued or issuable with respect to the Shares by way of exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise.

As further consideration for Auctus entering into and structuring the Equity Facility, the Company shall pay to Auctus the following fees: (i) five percent (5%) of the Advance Request amount specified in each Drawdown Notice; (ii) a non-refundable origination fee equal to $7,500; (iii) that number of shares of the Company’s common stock that is equal to $57,500.

Registration Rights Agreement

On April 27, 2012, the Company entered into the Registration Rights Agreement with Auctus. Pursuant to the terms of the Registration Rights Agreement, the Company is obligated to file a registration statement (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC’) to cover the Registrable Securities within 45 days of closing. The Company must use its commercially reasonable efforts to cause the Registration Statement to be declared effective by the SEC by a date that is no later than 180 days following closing.

On May 3, 2012, the Company filed Form 8-K with the Securities and Exchange Commission. On April 27, 2012, Company entered into a securities purchase agreement (the “Purchase Agreement”) with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”), pursuant to which TCA purchased from the Company a two hundred thousand dollar ($200,000) senior secured redeemable debenture (the “Debenture”). As consideration for entering into the Purchase Agreement, the Company paid to TCA (i) a transaction advisory fee in the amount of six thousand dollars ($6,000), (ii) a due diligence fee equal to four thousand dollars ($4,000), and (iii) document review and legal fees in the amount of ten thousand dollars ($10,000).

As further consideration, the Company agreed to issue to TCA that number of shares of the Company’s common stock that equals twenty five thousand dollars ($25,000) (the “Incentive Shares”). It is the intention of the Company and TCA that the value of the Incentive Shares shall equal $25,000. In the event the value of the Incentive Shares issued to TCA does not equal $25,000 after a nine month evaluation date, the Purchase Agreement provides for an adjustment provision allowing for necessary action (either the issuance of additional shares to TCA or the return of shares previously issued to TCA to the Company’s treasury) to adjust the number of Incentive Shares issued.

First Pledge and Escrow Agreement

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

Second Pledge and Escrow Agreement

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

First Security Agreement

On April 27, 2012, the Company entered into a security agreement (the “First Security Agreement”) with TCA, related to the issuance of the Debenture. As security for the Company’s obligations to TCA under the Debenture, the Purchase Agreement and any other transaction document, the First Security Agreement grants to TCA a continuing, first priority security interest in all of the Company’s assets, wheresoever located and whether now existing or hereafter arising or acquired.

Second Security Agreement

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

Guaranty Agreement

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

(50)

PART II – INFORMATION NOT REQUIRED IN PROSPECTUS

Other Expenses

The following table sets forth an itemization of all estimated expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered:

SEC registration fee	$	47.00
Accounting fees and expenses	$	25,000.00	*
Legal fees and expenses*	$	25,000.00	*
Miscellaneous	$	5,000.00	*
Total	$	55,047.00	*
* Estimated

Indemnification of Directors and Officers

Our certificate of incorporation and bylaws provide that we will indemnify an officer, director, or former officer or director, to the full extent permitted by law. We have been advised that in the opinion of the U.S. Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court’s decision.

Recent Sales of Unregistered Securities

As of June 14, 2012, these are no recent sales of unregistered securities that were not previously disclosed in a Current Report on Form 8-K.

(51)

EXHIBITS

Exhibit No.		Description

3.1		Articles of Incorporation (as filed as Exhibit 3.1 to the Company’s Registration Statement on Form SB-2, filed with the SEC on November 13, 2007, and incorporated herein by reference)

3.2		Bylaws (as filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on September 2, 2008, and incorporated herein by reference)

5.1		Legal Opinion of Lucosky Brookman LLP *

10.1		Infrared Systems International 2010 Incentive Compensation Plan (as filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 on July 9, 2010, and incorporated herein by reference)

10.2		Form of Drawdown Equity Financing Agreement, dated April 27, 2012, by and between AquaLiv Technologies, Inc. and Auctus Private Equity Fund, LLC *

10.3		Form of Registration Rights Agreement, dated April 27, 2012, by and between AquaLiv Technologies, Inc. and Auctus Private Equity Fund, LLC *

10.4		Acquisition Agreement, dated November 30, 2010, by and among Infrared Systems International, AquaLiv, Inc. and Craig Hoffman, individually (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on December 20, 2010, and incorporated herein by reference)

10.5		Acquisition Agreement, dated April 19, 2010, by and among Infrared Systems International, Focus Systems, Inc. and Propalms, Inc. (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on April 21, 2010, and incorporated herein by reference)

10.6		Share Purchase Agreement, dated March 24, 2010, by and among Infrared Systems International, Take Flight Equities, Inc., Propalms, Inc., William M. Wright III, individually, and Gary E. Ball, individually (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on March 30, 2010, and incorporated herein by reference)

10.7		Form of Securities Purchase Agreement, dated April 27, 2012, by and between AquaLiv Technologies, Inc. and TCA Global Credit Master Fund, LP *

10.8		Form of Senior Secured, Convertible, Redeemable Debenture, dated as of April 27, 2012, issued by AquaLiv Technologies, Inc. in favor of TCA Global Credit Master Fund, LP *

10.9		Form of Security Agreement, dated April 27, 2012, by and between Focus Systems, Inc. and TCA Global Credit Master Fund, LP *

10.10		Form of Security Agreement, dated April 27, 2012, by and between AquaLiv Technologies, Inc. and TCA Global Credit Master Fund, LP *

10.11		Form of First Pledge and Escrow Agreement, dated April 27, 2012, by and between AquaLiv Technologies, Inc. and TCA Global Credit Master Fund, LP, with the joinder of David Kahan P.A., as escrow agent *

10.12		Form of Second Pledge and Escrow Agreement, dated April 27, 2012, by and between AquaLiv Technologies, Inc. and TCA Global Credit Master Fund, LP, with the joinder of David Kahan P.A., as escrow agent *

10.13		Form of Guaranty Agreement, dated April 27, 2012, made by Focus Systems, Inc. in favor of TCA Global Credit Master Fund, LP *

23.1		Consent of Bongiovanni & Associates, C.P.A.’s *

23.2		Consent of Lucosky Brookman LLP (included in Exhibit 5.1)

* filed herewith

(52)

Undertakings

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

i. To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(5) Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(53)

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form S-1 and authorizes this registration statement to be signed on its behalf by the undersigned, in the City of Silverdale, Washington, on June 14, 2012.

			AQUALIV TECHNOLOGIES, INC.


			By:	/s/ William M. Wright
				Name: William M. Wright
				Title: Chief Executive Officer (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer)

In accordance with the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.

Name	Title	Date


/s/ William M. Wright	Chief Executive Officer (Principal Executive Officer) Chief	June 12, 2012
William M. Wright	Financial Officer (Principal Financial Officer) (Principal
	Accounting Officer), Secretary, Chairman

/s/ Tracy D. Bushnell	Director	June 12, 2012
Tracy D. Bushnell

(54)

EX-5.1 2 ex5_1.htm

June 14, 2012

Aqualiv Technologies, Inc.

4550 NW Newberry Hill Road, Suite 202

Silverdale, WA 98383

Re: Registration Statement on Form S-1

Ladies and Gentlemen:

We have acted as counsel to Aqualiv Technologies, Inc., a Nevada corporation (the “Company”), in connection with the preparation and filing by the Company of a registration statement on Form S-1 (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the registration of 128,927,716 of the Company’s common stock, par value $0.001 per share (the “Put Shares”) that are issuable upon delivery of a put notice (the “Notice”) granted to the Company pursuant to the terms and conditions of that certain Drawdown Equity Financing Agreement, dated April 27, 2012, by and between the Company and Auctus Private Equity Fund, LLC, a Massachusetts corporation (the “Agreement”).

This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.

In connection with this opinion, we have examined and relied upon the originals or copies of such documents, corporate records, and other instruments as we have deemed necessary or appropriate for the purpose of this opinion, including, without limitation, the following: (a) the articles of incorporation of the Company; (b) the bylaws of the Company; (c) the Agreement; and (d) the Registration Statement, including all exhibits thereto.

In our examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such documents, and the accuracy and completeness of the corporate records made available to us by the Company. As to any facts material to the opinions expressed below, with your permission we have relied solely upon, without independent verification or investigation of the accuracy or completeness thereof, any certificates and oral or written statements and other information of or from public officials, officers or other representatives of the Company and others.

Based upon the foregoing, and in reliance thereon, we are of the opinion that the Put Shares have been duly authorized, and when sold pursuant to the terms described in the Registration Statement, will be legally issued, fully paid and non-assessable.

The opinion expressed herein is limited to the laws of the State of Nevada, including the Nevada Constitution, all applicable provisions of the statutory provisions, and reported judicial decisions interpreting those laws. This opinion is limited to the laws in effect as of the date the Registration Statement is declared effective by the Commission and is provided exclusively in connection with the public offering contemplated by the Registration Statement.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference of this firm under the caption “Legal Matters” in the prospectus which is made part of the Registration Statement. In giving this consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder.

	Very truly yours,
	LUCOSKY BROOKMAN LLP
	/s/ Lucosky Brookman LLP

EX-10.2 3 ex10_2.htm

DRAWDOWN EQUITY FINANCING AGREEMENT

THIS AGREEMENT is dated as of [—], 2012 (this “Agreement”) and is between Auctus Private Equity Fund, LLC, a Massachusetts corporation (the “Investor”), and AquaLiv Technologies, Inc., a corporation organized and existing under the laws of the State of Nevada (the “Company”).

WHEREAS, the parties desire that, upon the terms and subject to the conditions and limitations contained herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase from the Company up to Three Million Five Hundred Thousand ($3,500,000) of the Company’s common stock, par value $0.001 per share (the “Common Stock”);

WHEREAS, such investments will be made in reliance upon the provisions of Regulation D (“Regulation D”) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder (the “Securities Act”), and or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments to be made hereunder; and

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, substantially in the form attached hereto (the "Registration Rights Agreement"), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act, and the rules and regulations promulgated thereunder, and applicable state securities laws.

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I.
Certain Definitions

Section 1.1 “Advance Request” shall mean the portion of the Commitment Amount requested by the Company in the Drawdown Notice.

Section 1.2 "Advance Shares" shall mean all shares of Common Stock that may be issued or are issuable pursuant to an Advance Request that has been exercised or may be exercised in accordance with the terms, limitations, and conditions of this Agreement.

Section 1.3 “Advance Shares True-Up Date” shall mean the first (1^st) Trading Day after expiration of the applicable Pricing Period for an Advance Request.

Section 1.4 “Bid Price” shall mean, on any date, the closing best bid price (as reported by a direct feed service) of the Common Stock on the Principal Market or, if the Common Stock is not traded on a Principal Market, the highest reported bid price for the Common Stock, as furnished by FINRA.

Section 1.5 “Business Day” shall mean shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of Boston, Massachusetts are authorized or required by law or executive order to remain closed.

Section 1.6 “Clearing Date” shall be the date on which the Estimated Advance Shares (as defined in Section 2.2(b)) have been deposited into the Investor’s brokerage account and the Investor’s broker has confirmed with the Investor that the Investor may execute trades of such Estimated Advance Shares.

Section 1.7 “Closing” shall mean each of the closings of a purchase and sale of Common Stock pursuant to Section 2.3.

Section 1.8 “Closing Date” shall have the meaning specified in Section 2.3.

Section 1.9 “Commitment Amount” shall mean the aggregate amount of up to Three Million Five Hundred Thousand Dollars ($3,500,000) which the Investor has agreed to provide to the Company in order to purchase the Company’s Common Stock pursuant to the terms and conditions of this Agreement.

Section 1.10 “Commitment Period” shall mean the period commencing on the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the Company and the Investor may mutually agree in writing, and expiring on the earliest to occur of (x) the date on which the Investor shall have made payment of Advance Requests pursuant to this Agreement in the aggregate amount of the Commitment Amount, (y) the date this Agreement is terminated pursuant to Section 10.2, or (z) the date occurring twenty-four (24) months after the Effective Date

Section 1.11 “Commitment Shares” shall have the meaning set forth in Section 12.4(c).

Section 1.12 “Common Stock” shall mean the Company’s Common Stock, par value $0.001 per share issuable pursuant to this Agreement, including but not limited to the Advance Shares and the Commitment Shares. No Drawdown Notice shall be delivered to the Investor if the Company’s Common Stock is trading at or below its par value.

Section 1.13 “Condition Satisfaction Date” shall have the meaning set forth in Section 7.2.

Section 1.14 “Damages” shall mean any loss, claim, damage, liability, reasonable costs and expenses (including, without limitation, reasonable attorney’s fees and disbursements and reasonable costs and expenses of expert witnesses and investigation).

Section 1.15 “Discounted Floor Price” shall be set at Ninety-Three (93%) percent of the Floor Price of the Common Stock during the Pricing Period, in accordance with the terms and conditions of this Agreement.

Section 1.16 “Drawdown Notice” shall mean a written notice, in the form of Exhibit A attached hereto, to the Investor executed by an officer of the Company and setting forth the Advance Request amount that the Company requests from the Investor.

Section 1.16 “Drawdown Notice Date” shall mean any Trading Day during the Commitment Period that the Company provides (in accordance with and deemed delivered pursuant to Section 2.2(d) of this Agreement) to the Investor a Drawdown Notice requesting the Investor to advance funds to the Company at Closing subject to the terms, conditions, and limitations of this Agreement.

Section 1.17 “DTC” shall have the meaning specified in Section 2.3.

Section 1.18 “DWAC” shall have the meaning specified in Section 2.3.

Section 1.19 “Effective Date” shall mean the date on which the SEC first declares effective a Registration Statement registering the resale of the Registrable Securities as set forth in Section 7.2(a).

Section 1.20 “Estimated Advance Shares” shall have the meaning specified in Section 2.2(b).

Section 1.21 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Section 1.22 “Excluded Day” shall have the meaning specified in Section 2.2(c).

Section 1.23 “Exchange Cap” shall have the meaning specified in Section 2.2(e).

Section 1.24 “FINRA” shall mean the Financial Industry Regulatory Authority.

Section 1.25 “Floor Day” shall have the meaning specified in Section 2.2(c).

Section 1.26 “Floor Price” shall mean, with respect to any Trading Day in a Pricing Period, the lowest price per share of Common Stock provided by the Company in the applicable Drawdown Notice at which the Investor may sell shares of Common Stock in connection with an Advance Request provided however that the Floor Price is equal to or less than the Bid Price of the Common Stock one Trading Day immediately preceding the Drawdown Notice Date and greater than Sixty-Five percent (65%) of the average Bid Price over the ten (10) trading days immediately preceding the Drawdown Notice Date . If the Company does not specify a Floor Price in the applicable Drawdown Notice, then the “Floor Price” shall be deemed to equal Sixty-Five percent (65%) of the average Bid Price over the ten (10) trading days immediately preceding the Drawdown Notice Date. In all circumstances the specified Floor Price must be above par value.

Section 1.27 “Material Adverse Effect” shall mean (i) any condition, occurrence, state of facts or event having, or insofar as reasonably can be foreseen would likely have, any material adverse effect on the legality, validity or enforceability of the Transaction Documents or the transactions contemplated thereby, (ii) any condition, occurrence, state of facts or event having, or insofar as reasonably can be foreseen would likely have, any effect on the business, operations, properties, financial condition or prospects of the Company that is material and adverse to the Company and its Subsidiaries, taken as a whole, and/or (iii) any condition, occurrence, state of facts or event that would, or insofar as reasonably can be foreseen would likely, prohibit or otherwise materially interfere with or delay the ability of the Company to perform any of its obligations under any of the Transaction Documents to which it is a party.

Section 1.28 “Market Price” shall mean the average of the Bid Prices of the Common Stock during the Pricing Period.

Section 1.29 “Maximum Advance Amount” shall not exceed the lesser of (a) One Hundred Fifty Thousand Dollars ($150,000) or (b) two hundred (200%) percent of the average daily volume of the Common Stock for the ten (10) Trading Days immediately preceding the applicable Drawdown Notice Date, multiplied by the average of the Bid Prices for the ten (10) Trading Days immediately preceding the applicable Drawdown Notice Date, rounded down to the nearest hundred dollars.

Section 1.30 “Ownership Limitation” shall have the meaning specified in Section 2.2(f).

Section 1.31 “Par Value Payment” shall have the meaning specified in Section 2.2(b).

Section 1.32 “Person” shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

Section 1.33 “Pricing Period” shall mean the five (5) consecutive Trading Days immediately following the Clearing Date associated with the applicable Drawdown Notice and during which the Purchase Price of the Common Stock is valued.

Section 1.34 “Principal Market” shall mean the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the American Stock Exchange, the OTC Bulletin Board, OTC Pink Sheets or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock.

Section 1.35 “Purchase Price” shall be set at Ninety-Three (93%) percent of the Market Price of the Common Stock during the Pricing Period, in accordance with the terms and conditions of this Agreement.

Section 1.36 "Registrable Securities," shall mean (i) any shares of Common Stock issued or issuable as Advance Shares, (ii) any shares of capital stock issued or issuable as a dividend on or in exchange for or otherwise with respect to any of the foregoing, (iii) any other shares of common stock issued or issuable to the Investor pursuant to the terms of this Agreement, this Registration Rights Agreement or any other Transaction Document (with the exception of the Commitment Shares) (iv) shares of capital stock of a successor entity into which the shares of Common Stock are converted or exchanged and (v) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing to be issued hereunder (a) in respect of which the Registration Statement has not been declared effective by the SEC, (b) which have not been sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act (“Rule 144”) or (c) which have not been otherwise transferred to a holder who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend.

Section 1.37 “Registration Limitation” shall have the meaning specified in Section 2.2(a).

Section 1.38 “Registration Rights Agreement” shall mean the Registration Rights Agreement, dated the date hereof, regarding the filing of the Registration Statement for the resale of the Registrable Securities, entered into between the Company and the Investor.

Section 1.39 “Registration Statement” shall mean a registration statement on Form S-1 or Form S-3 (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the resale of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement and the Registration Rights Agreement, and in accordance with the intended method of distribution of such securities), for the registration of the resale by the Investor of the Registrable Securities under the Securities Act.

Section 1.40 “Registration Statement Eligibility Cap” shall have the meaning specified in Section 2.2(e).

Section 1.41 “Regulation D” shall have the meaning set forth in the recitals of this Agreement.

Section 1.42 “SEC” shall mean the United States Securities and Exchange Commission.

Section 1.43 “Securities Act” shall have the meaning set forth in the recitals of this Agreement.

Section 1.44 “SEC Documents” shall mean Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K and Proxy Statements of the Company as supplemented to the date hereof, filed by the Company for a period of at least twelve (12) months immediately preceding the date hereof, until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in the Registration Rights Agreement.

Section 1.45 “Share Value” shall have the meaning set forth in Section 12.4(c).

Section 1.46 “Trading Day” shall mean any day during which the New York Stock Exchange shall be open for business.

Section 1.47 “Transaction Documents” shall mean, collectively, the Registration Rights Agreement and the Drawdown Equity Financing Agreement entered into by the parties on the Effective Date.

Section 1.48 “Valuation Date” shall have the meaning set forth in Section 12.4(c).

ARTICLE II
Advance Requests

Section 2.1 Advance Requests. Subject to the terms, conditions and limitations of this Agreement (including, without limitation, the provisions of Article VII hereof), the Company may, at its sole and exclusive option, issue and sell to the Investor from time to time during the Commitment Period, and, except for conditions outside of the Investor’s control, the Investor shall purchase from the Company, shares of the Company’s Common Stock by the delivery, in the Company’s sole discretion, of Drawdown Notices in accordance with Section 2.2. Subject to the terms, conditions and limitations of this Agreement (including, without limitation, the provisions of Article VII hereof), the number of Advance Shares that the Investor shall purchase pursuant to a Drawdown Notice shall be determined by dividing the applicable Advance Request, as such Advance Request may be reduced pursuant to Section 2.2(c), by the Purchase Price with respect to such Drawdown Notice, together with such additional shares of Common Stock that may be purchased pursuant to Section 2.2(c).

Section 2.2 Mechanics.

(a) Drawdown Notice. Subject to the terms, conditions and limitations of this Agreement (including, without limitation, the provisions of Article VII hereof), the Company may, at its sole and exclusive option from time to time during the Commitment Period, deliver a Drawdown Notice to the Investor setting forth the Advance Request that the Company requests from the Investor on the applicable Closing Date. Notwithstanding anything herein to the contrary, in no event shall (i) any Advance Request designated by the Company in any Drawdown Notice exceed the Maximum Advance Amount, (ii) the aggregate amount of all Advance Requests pursuant to this Agreement exceed the Commitment Amount, (iii) the number of shares of Common Stock issuable to the Investor pursuant to a Drawdown Notice cause the aggregate number of shares of Common Stock beneficially owned (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder) by the Investor and its affiliates to exceed the Ownership Limitation, (iv) if the Common Stock is listed or quoted on The Nasdaq Stock Market or any other U.S. national securities exchange during the Commitment Period, the number of shares of Common Stock issuable to the Investor pursuant to a Drawdown Notice cause the aggregate number of shares of Common Stock that would be issued pursuant to this Agreement, together with all shares of Common Stock issued pursuant to any transactions that may be aggregated with the transactions contemplated by this Agreement under applicable rules of The Nasdaq Stock Market or any other Principal Market on which the Common Stock may be listed or quoted, to exceed the Exchange Cap and (v) the number of shares of Common Stock issuable to the Investor pursuant to a Drawdown Notice exceed the number of shares of Common Stock then available for resale by the Investor under the Registration Statement (the “Registration Limitation”). In connection with each Drawdown Notice delivered by the Company, if any portion of the applicable Advance Request would result in any of the limitations set forth in this Section 2.2(a) to be exceeded, such portion of such Advance Request shall be void ab initio. Unless the parties agree in writing otherwise, there shall be a minimum of five (5) Trading Days between a Closing Date and a subsequent Drawdown Notice Date.

(b) Delivery of Estimated Advance Shares. On a Drawdown Notice Date, the Company shall deliver to the Investor’s brokerage account an estimated number of shares of Common Stock, rounded down to the nearest whole share, equal to the Advance Request indicated in the applicable Drawdown Notice divided by the Bid Price on the Trading Day immediately preceding the Drawdown Notice Date, multiplied by two hundred percent (200%) (the “Estimated Advance Shares”). On the Trading Day immediately following the applicable Clearing Date, the Investor shall acknowledge consideration by segregating funds in the amount equal to the par value of the Estimated Advance Shares (“Par Value Payment”) in the Investor’s brokerage account, held for the duration of the Pricing Period and adjusted at the Closing. Under no circumstances shall the Par Value Payment exceed the amount of the Advance Request specified in the Drawdown Notice and no Drawdown Notice shall be delivered to the Investor if the Company’s Common Stock is trading at or below its par value. The Company acknowledges and agrees that the Investor may sell shares of the Company’s Common Stock relating to a particular Drawdown Notice, including, without limitation, all of the Estimated Advance Shares delivered on the Clearing Date with respect to such Drawdown Notice, at any time after the Drawdown Notice is received by the Investor. If the amount of Estimated Advance Shares due to be delivered to the Investor pursuant to a particular Drawdown Notice would result in the Investor exceeding the Ownership Limitation, then the Estimated Advance Shares shall be automatically reduced to an amount when aggregated with all other shares of Common Stock then beneficially owned by the Investor and its affiliates shall not exceed the Ownership Limitation. As a result, the amount specified in the Drawdown Notice shall be reduced to conform to the Ownership Limitation in order to allow for the Investor to have two hundred percent (200%) worth of Estimated Advance Shares.

(c) Maximum Advance Amount, Floor Price. In relation to each Drawdown Notice, the Company may, in its sole discretion, designate a Floor Price. Any Floor Price designated by the Company in a Drawdown Notice may not be changed by the Company once the Drawdown Notice is submitted to the Investor. The amount of the Advance Request set forth in a Drawdown Notice shall automatically be reduced by one-fifth (20%) for each Trading Day during the Pricing Period that any one or more of the following occur: (i) the bid price of the Common Stock falls below the Floor Price at any time during the Trading Day (each such day, a “Floor Day”), (ii) trading in the Common Stock is suspended for any reason during trading hours on the Principal Market on the Trading Day (each such day, an “Excluded Day”), (iii) the bid price of the Common Stock falls below its par value at any time during the Trading Day (each such day, an “Excluded Day”), or (iv) there is a public holiday or no trading volume in the Common Stock on the Principal Market on the Trading Day (each such day, an “Excluded Day”). The Investor shall immediately cease selling any shares of Common Stock with respect to the Drawdown Notice if the bid price of the Common Stock falls below the Floor Price; provided, however, that the Investor may reinitiate selling shares of Common Stock on any Floor Day if the bid price of the Common Stock exceeds the Floor Price. The number of Advance Shares to be issued and delivered to the Investor at the Closing (in accordance with Section 2.3 of this Agreement) with respect to a Drawdown Notice that includes one or more Floor Days shall be determined based on the applicable Advance Request, as it may be reduced pursuant to this Section 2.2(c), provided however, that the Company shall be obligated to sell, and the Investor shall be obligated to purchase, at a price equal to the Floor Price multiplied by 93% (“The Discounted Floor Price”), any shares of Common Stock corresponding to such Drawdown Notice that have been sold by the Investor on any Floor Day (all of which shares shall be deemed Advance Shares). The Investor shall provide the Company with notice of the number of shares of Common Stock sold by the Investor on any Floor Day prior to the applicable Closing.

(d) Date of Delivery of Drawdown Notice. A Drawdown Notice shall be deemed delivered on: (i) the Trading Day it is received by email or fax if such notice is received prior to 5:00 pm Eastern Time; or (ii) the immediately succeeding Trading Day if the Drawdown Notice is received by facsimile or otherwise after 5:00 pm Eastern Time on a Trading Day or at any time on a day which is not a Trading Day. No Drawdown Notice may be deemed delivered on a day that is not a Trading Day or if positive receipt is not acknowledged by the Investor.

(e) Exchange Cap. If the Common Stock is listed or quoted on The Nasdaq Stock Market or any other U.S. national securities exchange during the Commitment Period, the Company shall not issue or sell any shares of Common Stock pursuant to this Agreement, and the Investor shall not purchase or acquire any shares of Common Stock pursuant to this Agreement, to the extent that after giving effect thereto, the aggregate number of all shares of Common Stock that would be issued pursuant to this Agreement, together with all shares of Common Stock issued pursuant to any transactions that may be aggregated with the transactions contemplated by this Agreement under applicable rules of The Nasdaq Stock Market or any other Principal Market on which the Common Stock may be listed or quoted, would exceed the maximum number of shares of Common Stock that the Company may issue pursuant to this Agreement and the transactions contemplated hereby without (1) breaching the Company’s obligations under the applicable rules of The Nasdaq Stock Market or any other Principal Market on which the Common Stock may be listed or quoted or (2) obtaining stockholder approval under the applicable rules of The Nasdaq Stock Market or any other Principal Market on which the Common Stock may be listed or quoted (the “Exchange Cap”), unless and until the Company elects to solicit stockholder approval of the transactions contemplated by this Agreement and the stockholders of the Company have in fact approved the transactions contemplated by this Agreement in accordance with the applicable rules and regulations of The Nasdaq Stock Market, any other Principal Market on which the Common Stock may be listed or quoted, and the Certificate of Incorporation and Bylaws of the Company.

(f) Ownership Limitation. The Company shall not issue or sell, and the Investor shall not purchase or acquire, any shares of Common Stock under this Agreement which, when aggregated with all other shares of Common Stock then beneficially owned by the Investor and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in the beneficial ownership by the Investor and its affiliates of more than 4.99% of the then issued and outstanding shares of Common Stock (the “Ownership Limitation”). If the Ownership Limitation is met during a Pricing Period, then the Company shall not issue or sell, and the Investor shall not purchase or acquire, any additional shares of Common Stock. The amount specified in the Drawdown Notice shall be reduced as a result to conform to the Ownership Limitation and the amount of proceeds ultimately due to the Company will be reduced. Upon the written or oral request of the Investor, the Company shall confirm orally or in writing to the Investor within two (2) Business Days of such request the number of shares of Common Stock then outstanding. The Investor and the Company shall each cooperate in good faith in the determinations required hereby and the application hereof.

Section 2.3 Closings. Subject to the terms and conditions of this Agreement, the Investor promptly shall notify the Company in writing of the occurrence of the Clearing Date associated with a Drawdown Notice. The Pricing Period with respect to such Drawdown Notice shall begin on the first (1^st) Trading Day immediately following the applicable Clearing Date. At the end of the Pricing Period, the Purchase Price and the amount of the Advance Request (taking into account adjustments and/or reductions) shall be established and the number of Advance Shares shall be determined for a particular Advance Request (which shall include any shares of Common Stock sold by the Investor on any Floor Day). If the number of Estimated Advance Shares initially delivered to the Investor pursuant to Section 2.2(b) is greater than the aggregate number of Advance Shares to be purchased by the Investor pursuant to such Advance Request, then, on the Advance Shares True-Up Date, the Investor shall deliver to Company any excess Estimated Advance Shares associated with such Advance Request unless the parties mutually agree for the Investor to retain such excess Common Shares to apply to the next Advance Request. If the number of Estimated Advance Shares initially delivered to the Investor pursuant to Section 2.2(b) is less than the aggregate number of Advance Shares to be purchased by the Investor pursuant to such Advance Request, then, on the Advance Shares True-Up Date, the Company shall deliver to the Investor the difference between the Estimated Advance Shares and the Advance Shares issuable pursuant to such Advance Request. In all circumstances any amount of additional shares due to the Investor to make up this difference on the Advance Share True-Up Date shall not cause the Investor to exceed the 4.99% Ownership Limitation. The amount specified in the Drawdown Notice shall be reduced as a result to conform to the Ownership Limitation and the amount of proceeds ultimately due to the Company will be reduced. The Closing of an Advance Request shall occur upon the date (the “Closing Date”) on which the settlement of trades of the Advance Shares that occurred during the applicable Pricing Period and after the applicable Advance Shares True-Up Date associated with such Drawdown Notice in the Investor’s brokerage account has been completed and when any additional Advance Shares, if required after an Advance Share True-Up Date, have been deposited into the Investor’s brokerage account without restrictive legend and only after the Investor’s broker has confirmed with the Investor that the Investor may execute trades. A Closing may be delayed if shares are sent via physical delivery in certificate form. In all circumstances no subsequent Drawdown Notice(s) may be deemed delivered and the Investor has no obligation to accept subsequent Drawdown Notice(s) until all shares of Common Stock related to a previous Drawdown Notice’s Advance Share True-Up Date have been deposited into the Investor’s brokerage account without restrictive legend and only after the Investor’s broker has confirmed with the Investor that the Investor may execute trades related to them. Once the settlement of Advance Shares has been confirmed and, if applicable, any subsequent Advance Shares due to the Investor have been received and their delivery confirmed, then the Investor shall deliver to the Company, by wire transfer of immediately available funds to an account designated in writing by the Company, (i) the Advance Request specified in the Drawdown Notice, as reduced pursuant to Section 2.2(c) (as applicable), plus (ii) an amount equal to the number of shares of Common Stock corresponding to such Drawdown Notice that have been sold by the Investor on any Floor Day during the applicable Pricing Period multiplied by the Discounted Floor Price, less (iii) the Par Value Payment. In the event that the Investor is no longer able, due to time constraints beyond its control, to perform a wire on any particular Trading Day, then the wire will be promptly executed on the next following Trading Day. In lieu of delivering physical certificates representing the Common Stock issuable in accordance with this Section 2.3, and provided that the Company’s transfer agent is then participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer (FAST) program, upon request of the Investor, the Company shall cause the Company’s transfer agent to electronically transmit the applicable Advance Shares by crediting the account of the Investor's prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system, and provide proof satisfactory to the Investor of such delivery. In addition, on or prior to the Closing Date, each of the Company and the Investor shall deliver to the other all documents, instruments and writings required to be delivered by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein. To the extent the Company has not paid the fees, expenses, and disbursements to the Investor in accordance with Sections 2.4 and 12.4, then the amount of such fees, expenses, and disbursements may be withheld by the Investor (and shall be paid to the relevant party) from the wire transfer pursuant to that particular Drawdown Notice. If in the event that on a Closing Date the Advance Request has been reduced to a dollar amount that does not exceed the initial Par Value Payment made by the Investor, then that difference, up to the full Par Value Payment, will be required to be returned to the Investor by the Company on the next following Trading Day via wire transfer, if applicable. In all circumstances no subsequent Drawdown Notice(s) may be deemed delivered and the Investor has no obligation to accept subsequent Drawdown Notice(s) if any amount of a Par Value Payment is outstanding and due to the Investor.

(a) Company’s Obligations Upon Closing.

(i) The Company shall use all reasonable efforts to become DTC eligible within a reasonable time of the date of this Agreement. Upon approval of DTC eligibility, and provided that the Company’s transfer agent then is participating in the DTC Fast Automated Securities Transfer (FAST) program, upon request of the Investor, the Company shall cause the Company’s transfer agent to electronically transmit all shares of Common Stock issuable in accordance with Sections 2.2,2.3 and 12.4 by crediting the account of the Investor's prime broker with DTC through its DWAC system, and provide proof satisfactory to the Investor of such delivery, all of which shares of Common Stock shall be freely tradable and transferable and without restriction on resale pursuant to the Registration Statement (and no stop-transfer order shall be placed against transfer thereof), and the Company shall not take any action or give any instructions to any transfer agent of the Company otherwise.

All physical certificates representing the Common Stock issuable in accordance with Sections 2.2, 2.3, and 12.4, if applicable, shall be free of restrictive legends, and all of such shares of Common Stock shall be freely tradable and transferable and without restriction on resale pursuant to the Registration Statement (and no stop-transfer order shall be placed against transfer thereof), and the Company shall not take any action or give any instructions to any transfer agent of the Company otherwise.

(ii) The Registration Statement covering the resale by the Investor of the Registrable Securities shall have been declared effective under the Securities Act by the SEC and shall remain effective, and the Investor shall be permitted to utilize the prospectus therein to resell (a) all of the Advance Shares issued pursuant to all prior Drawdown Notices and (b) all of the Advance Shares issuable pursuant to the applicable Drawdown Notice.

(iii) The Company shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the Registrable Securities, or shall have the availability of exemptions therefrom. The sale and issuance of the Registrable Securities shall be legally permitted by all laws and regulations to which the Company is subject.

(iv) The Company shall file with the SEC in a timely manner all reports, notices and other documents required of a “reporting company” under the Exchange Act and applicable Commission regulations.

(v) The fees as set forth in Section 12.4 below shall have been paid or can be withheld as provided in Section 2.3.

(vi) The Company’s transfer agent shall be DWAC eligible.

(b) Investor’s Obligations Upon Closing. Subject to the terms, conditions, and limitations of this Agreement, upon receipt of the shares referenced in Section 2.3(a)(i) above and provided the Company is in compliance with its obligations in Sections 2.2, 2.3,7.2, and 12.4, the Investor shall deliver to the Company the amount of the Advance Request specified in the Drawdown Notice (taking into account adjustments and/or reductions) by wire transfer of immediately available funds.

Section 2.4 Hardship. In the event the Investor sells shares of the Company’s Common Stock after receipt of a Drawdown Notice and the Company fails to perform its obligations as mandated in Sections 2.2,2.3,7.2 and 12.4 and specifically the Company fails to deliver to the Investor the shares of Common Stock corresponding to the applicable Drawdown Notice pursuant to Sections 2.2 and 2.3 and no later than on the Advance Share True-Up Date, the Company acknowledges that the Investor shall suffer financial hardship and therefore shall be liable for any and all losses, commissions, fees, interest, legal fees or any other financial hardship caused to the Investor.

The Company understands that a delay in the delivery of the securities in the form required pursuant to this registration statement beyond the Closing could result in economic loss to the Investor. After the Effective Date, as compensation to the Investor for late issuance of such shares (delivery of securities after the applicable closing), the Company agrees to make payments to the Investor in accordance with the schedule below where the number of days overdue is defined as the number of Business Days beyond the close with amount due being cumulative.

The Company understands that if for any reason shares of its Common Stock are not able to be delivered electronically, then significant transaction delays may occur, impacting the ability of transfer agents, brokers, counterparties and intermediaries to deliver and clear shares promptly. This may ultimately delay any applicable Drawdown Notice Date, Clearing Date, Advance Share True-Up Date, and Closing Date related to a Drawdown Notice. Furthermore, the Company understands that additional costs may be associated with the delivery of shares of its Common Stock when issued and/or delivered in certificate form and acknowledges that any related fees will be borne by the Company in full.

The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Nothing herein shall limit the right of the Investor to pursue damages for the Company’s failure to comply with the issuance and delivery of securities to the Investor.

Payments for Each Number of Days Overdue	For each $10,000 Worth of Common Stock

1	$100
2	$200
3	$300
4	$400
5	$500
6	$600
7	$700
8	$800
9	$900
10	$1000
Over 10	$1000 + $200 for each Business Day beyond the tenth day

Section 2.5 Limitation on Amount of Ownership. Notwithstanding anything to the contrary in this Agreement, in no event shall the Investor be entitled to purchase that number of Shares, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the 1934 Act), by the Investor, would exceed 4.99% of the number of shares of Common Stock outstanding on the Closing Date, as determined in accordance with Rule 13d-1(j) of the 1934 Act.

ARTICLE III
Representations and Warranties of Investor

Investor hereby represents and warrants to, and agrees with, the Company that the following are true and correct as of the date hereof and as of each Advance Request True-Up Date:

Section 3.1 Organization and Authorization. The Investor is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite power and authority to purchase and hold the securities issuable hereunder. The decision to invest and the execution and delivery of this Agreement by such Investor, the performance by such Investor of its obligations hereunder and the consummation by such Investor of the transactions contemplated hereby have been duly authorized and requires no other proceedings on the part of the Investor. The undersigned has the right, power and authority to execute and deliver this Agreement and all other instruments (including, without limitations, the Registration Rights Agreement), on behalf of the Investor. This Agreement has been duly executed and delivered by the Investor and, assuming the execution and delivery hereof and acceptance thereof by the Company, will constitute the legal, valid and binding obligations of the Investor, enforceable against the Investor in accordance with its terms.

Section 3.1.1 Evaluation of Risks. The Investor has such knowledge and experience in financial, tax and business matters as to be capable of evaluating the merits and risks of, and bearing the economic risks entailed by, an investment in the Company and of protecting its interests in connection with this transaction. It recognizes that its investment in the Company involves a high degree of risk.

Section 3.2 No Legal Advice From the Company. The Investor acknowledges that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors. The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.

Section 3.3 Investment Purpose. The securities are being purchased by the Investor for its own account, and for investment purposes. The Investor agrees not to assign or in any way transfer the Investor’s rights to the securities or any interest therein and acknowledges that the Company will not recognize any purported assignment or transfer except in accordance with applicable Federal and state securities laws. No other person has or will have a direct or indirect beneficial interest in the securities. The Investor agrees not to sell, hypothecate or otherwise transfer the Investor’s securities unless the securities are registered under Federal and applicable state securities laws or unless, in the opinion of counsel satisfactory to the Company, an exemption from such laws is available.

Section 3.4 Accredited Investor. The Investor is an “Accredited Investor” as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.

Section 3.5 Information. The Investor and its advisors (and its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information it deemed material to making an informed investment decision. The Investor and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management. Neither such inquiries nor any other due diligence investigations conducted by such Investor or its advisors, if any, or its representatives shall modify, amend or affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement. The Investor understands that its investment involves a high degree of risk. The Investor is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Investor to obtain information from the Company in order to evaluate the merits and risks of this investment. The Investor has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to this transaction.

Section 3.6 Receipt of Documents. The Investor and its counsel have received and read in their entirety: (i) this Agreement and the Exhibits annexed hereto; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; and (iii) answers to all questions the Investor submitted to the Company regarding an investment in the Company; and the Investor has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus.

Section 3.7 Registration Rights Agreement. The parties have entered into the Registration Rights Agreement dated the date hereof.

Section 3.8 No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the shares of Common Stock offered hereby.

Section 3.9 Not an Affiliate. The Investor is not an officer, director or a person that directly, or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with the Company or any “Affiliate” of the Company (as that term is defined in Rule 405 of the Securities Act).

Section 3.10 Trading Activities. The Investor’s trading activities with respect to the Company’s Common Stock shall be in compliance with all applicable federal and state securities laws, rules and regulations and the rules and regulations of the Principal Market on which the Company’s Common Stock is listed or traded and Investor will comply with any requests that the SEC makes in connection with the filing of the Registration Agreement to ensure such compliance. Neither the Investor nor its affiliates has an open short position in the Common Stock of the Company, the Investor agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with respect to the Common Stock, provided that the Company acknowledges and agrees that upon receipt of a Drawdown Notice the Investor has the right to sell the shares issued and to be issued to the Investor pursuant to the Drawdown Notice, during the applicable Pricing Period and thereafter.

Section 3.11 No Registration as a Dealer. The Investor is not and will not be required to be registered as a "dealer" under the 1934 Act, either as a result of its execution and performance of its obligations under this Agreement or otherwise.

Section 3.12 Good Standing. The Investor is a limited liability company, duly organized, validly existing and in good standing under the laws of its state of formation and any jurisdiction in which it is conducting business.

ARTICLE IV.
Representations and Warranties of the Company

Except as stated below, on the disclosure schedules attached hereto or in the SEC Documents (as defined herein), the Company hereby represents and warrants to, and covenants with, the Investor that the following are true and correct as of the date hereof:

Section 4.1 Organization and Qualification. The Company is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite corporate power to own its properties and to carry on its business as now being conducted. Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect on the Company and its subsidiaries taken as a whole.

Section 4.2 Authorization, Enforcement, Compliance with Other Instruments. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement and any related agreements, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) this Agreement, the Registration Rights Agreement and any related agreements have been duly executed and delivered by the Company, (iv) this Agreement, the Registration Rights Agreement and any related agreements constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.

Section 4.3 Capitalization. The authorized capital stock of the Company consists of 1,000,000,000 shares of Common Stock, $0.001 par value per share. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as disclosed in the SEC Documents, no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in the SEC Documents, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities (iii) there are no outstanding registration statements, other than on Form S-1and (iv) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Registration Rights Agreement). There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by this Agreement or any related agreement or the consummation of the transactions described herein or therein. This section shall not prevent the Company, after the date hereof, from obtaining other funding or other means of financing.

Section 4.4 No Conflict. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any material property or asset of the Company or any of its subsidiaries is bound or affected and which would cause a Material Adverse Effect. Except as disclosed in the SEC Documents, neither the Company nor its subsidiaries is in violation of any term of or in default under its Articles of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted in violation of any material law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any fact or circumstance which might give rise to any of the foregoing.

Section 4.5 SEC Documents; Financial Statements. As of the date hereof, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act. As of their respective dates, to the Company’s knowledge, the financial statements of the Company disclosed in the SEC Documents (the “Financial Statements”) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and, fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Investor, which is not included in the SEC Documents, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

Section 4.6 No Default. Except as disclosed in Exhibit 4.6, the Company is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust or other material instrument or agreement to which it is a party or by which it is or its property is bound and neither the execution, nor the delivery by the Company, nor the performance by the Company of its obligations under this Agreement or any of the exhibits or attachments hereto will conflict with or result in the breach or violation of any of the terms or provisions of, or constitute a default or result in the creation or imposition of any lien or charge on any assets or properties of the Company under its Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other material agreement applicable to the Company or instrument to which the Company is a party or by which it is bound, or any statute, or any decree, judgment, order, rules or regulation of any court or governmental agency or body having jurisdiction over the Company or its properties, in each case which default, lien or charge is likely to cause a Material Adverse Effect on the Company’s business or financial condition.

Section 4.7 Absence of Events of Default. Except for matters described in Exhibit 4.7 and/or this Agreement, no Event of Default, as defined in the respective agreements to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (as so defined), has occurred and is continuing, which would have a Material Adverse Effect on the Company’s business, properties, prospects, financial condition or results of operations.

Section 4.8 Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company, there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

Section 4.9 Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company’s or its subsidiaries’ employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good.

Section 4.10 Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable material foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.

Section 4.11 Title. Except as set forth in Exhibit 4.11, the Company has good and marketable title to its properties and material assets owned by it, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than such as are not material to the business of the Company. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.

Section 4.12 Insurance. Except as set forth in Exhibit 4.12, the Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole.

Section 4.13 Regulatory Permits. The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

Section 4.14 Internal Accounting Controls. Except as disclosed in the SEC documents, the Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Representation by the Company relating to internal controls will be made at such time the registration filing has been approved.

Section 4.15 No Material Adverse Breaches, etc. Except as set forth in Exhibit 4.15, neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which, in the judgment of the Company’s officers, has or is expected in the future to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries. Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.

Section 4.16 Absence of Litigation. Except as set forth in Exhibit 4.16, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a Material Adverse Effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii) except as expressly disclosed in the SEC Documents, have a Material Adverse Effect on the business, operations, properties, financial condition or results of operation of the Company and its subsidiaries taken as a whole.

Section 4.17 Subsidiaries. Except as disclosed in Exhibit 4.17, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, association or other business entity.

Section 4.18 Tax Status. Except as disclosed in Exhibit 4.18, the Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

Section 4.19 Certain Transactions. Except as set forth in Exhibit 4.19 none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

Section 4.20 Fees and Rights of First Refusal. The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties.

Section 4.21 Use of Proceeds. The Company shall use the net proceeds from this offering for general corporate purposes, including, without limitation, the payment of loans incurred by the Company. However, in no event shall the Company use the net proceeds from this offering for the payment (or loan to any such person for the payment) of any judgment, or other liability, incurred by any executive officer, officer, director or employee of the Company, except for any liability owed to such person for services rendered, or if any judgment or other liability is incurred by such person originating from services rendered to the Company, or the Company has indemnified such person from liability.

Section 4.22 Further Representation and Warranties of the Company. For so long as any securities issuable hereunder held by the Investor remain outstanding, the Company acknowledges, represents, warrants and agrees that it will maintain the listing of its Common Stock on the Principal Market.

Section 4.23 Opinion of Counsel. Investor shall receive an opinion letter from counsel to the Company on the date hereof. The Company will obtain for the Investor, at the Company’s expense, any and all opinions of counsel which may be reasonably required in order to sell the securities issuable hereunder without restriction.

Section 4.24 Dilution. The Company is aware and acknowledges that issuance of shares of the Company’s Common Stock could cause dilution to existing shareholders and could significantly increase the outstanding number of shares of Common Stock.

Section 4.25 Valid Issuance of Common Stock. The Advance Shares and Commitment Shares, when issued, sold and delivered in accordance with the terms hereof, for the consideration expressed herein, will be validly issued, fully paid and nonassessable, will be issued free of any preemptive rights and, based in part upon the representations made by the Company to the Investor in this Agreement, will be issued in compliance with all applicable U.S. federal and state securities laws.

Section 4.26 Acknowledgement of Terms. The Company acknowledges, represents, and warrants to the Investor that (i) it has had independent legal counsel of its own choosing review, advise, and represent on this Agreement, (ii) it has had sufficient time to review, and has carefully reviewed and fully understands, all the provisions of this Agreement, (iii) the terms of this Agreement are reasonable and fair to the Company, (iv) it is entering knowingly and voluntarily into this Agreement of its own freewill, and (v) it is entering into this Agreement not out of economic duress. Each party and counsel for each party (where such exist) has reviewed this Agreement, and thus agree that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

ARTICLE V.
Indemnification

The Investor and the Company represent to the other the following with respect to itself:

Section 5.1 Indemnification.

(a) In consideration of the Investor’s execution and delivery of this Agreement, and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Investor, and all of its officers, directors, partners, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Investor Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Investor Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by the Investor Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Investor Indemnitee not arising out of any action or inaction of an Investor Indemnitee, and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Investor Indemnitees. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

(b) In consideration of the Company’s execution and delivery of this Agreement, and in addition to all of the Investor’s other obligations under this Agreement, the Investor shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, shareholders, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against any and all Indemnified Liabilities incurred by the Company Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Investor in this Agreement, the Registration Rights Agreement, or any instrument or document contemplated hereby or thereby executed by the Investor, (b) any breach of any covenant, agreement or obligation of the Investor(s) contained in this Agreement, the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Investor, or (c) any cause of action, suit or claim brought or made against such Company Indemnitee based on misrepresentations or due to a breach by the Investor and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Company Indemnitees. To the extent that the foregoing undertaking by the Investor may be unenforceable for any reason, the Investor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

ARTICLE VI.
Covenants of the Company

Section 6.1 Registration Rights. The Company shall cause the Registration Rights Agreement to remain in full force and effect and the Company shall comply in all material respects with the terms thereof. During the Commitment Period, the Company shall notify the Investor promptly if (i) the Registration Statement shall cease to be effective under the Securities Act, (ii) the Common Stock shall cease to be authorized for listing on the Principal Market, (iii) the Common Stock ceases to be registered under Section 12(g) of the Exchange Act or (iv) the Company fails to file in a timely manner all reports and other documents required of it as a reporting company under the Exchange Act.

Section 6.2 Listing of Common Stock. The Company shall maintain the Common Stock’s authorization for quotation on the Principal Market and the Commitment Shares shall be so listed or quoted.

Section 6.3. Comfort Letters. At the reasonable request of the Investor the Company will request that its independent accountants furnish to the Investor a letter, in form and substance reasonably satisfactory to the Investor, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements of the Company dated the date of and provided within a reasonable period of time after (i) the date hereof, (ii) the date the Registration Statement or the Prospectus shall be amended (other than (1) in connection with the filing of a prospectus supplement that contains solely the information required (2) in connection with the filing of any report or other document under Section 13, 14 or 15(d) of the Exchange Act by the Company or (3) by a prospectus supplement relating to the offering of other securities (including, without limitation, other shares of Common Stock)) and (iii) the date of filing or amending each Annual Report on Form 10-K and Quarterly Report on Form 10-Q for a period in which an Advance Request was delivered pursuant to this Agreement and which are incorporated by reference in the Registration Statement.

Section 6.4. Stamp Duties. Without limiting anything else in this Agreement, the Company shall indemnify the Investor against any claim, action, damage, loss liability, cost charge, expense outgoing or payment, including ay penalty, fine or interest, which the Investor pays, suffers, incurs, or is liable for, in connection with (including any administration costs of the Investor in connection in the matters referred to in the preceding pat of this sentence, any legal costs and expenses and any professional consultants’ fees for any of the above on a full indemnity basis:

(a) the stamping of, or any stamp duty payable on, any of the following: (i) this Agreement; (ii) any contemplated transaction or Advance Request under this Agreement;

(b) any inquiry by a governmental authority or regulatory body in connection with the assessment for stamp duty of the documents referred to in this clause involving the Investor;

(c) any future, or any change in any present or future, stamp duty law or regulation or stamp duty or state or territory revenue office practice (with which, if not having the force of law, compliance is in accordance with the practice or responsible bankers and financial institutions in the jurisdiction concerned; and/or

(d) any litigation or administrative proceedings (including any objection made to a stamp duty or state or territory revenue office) taken against or involving the Investor in connection with the assessment for stamp duty of the documents or transactions referred to in this Agreement.

Section 6.5 Exchange Act Registration. The Company will cause its Common Stock to continue to be registered under Section 12(g) of the Exchange Act, will file in a timely manner all reports and other documents required of it as a reporting company under the Exchange Act and will not take any action or file any document (whether or not permitted by Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Exchange Act.

Section 6.6 Transfer Agent Instructions. Upon effectiveness of the Registration Statement the Company shall deliver instructions to its transfer agent to issue shares of Common Stock to the Investor free of restrictive legends for any Advance Shares on each Drawdown Notice Date and each Advance Shares True-Up Date subject to the terms, conditions, and limitations of this Agreement.

Section 6.7 Corporate Existence. The Company will take all steps necessary to preserve and continue the corporate existence of the Company.

Section 6.8 Notice of Certain Events Affecting Registration; Suspension of Right to Make an Advance Request. The Company will immediately notify the Investor as soon as practible, upon its becoming aware of the occurrence of any of the following events in respect of the Registration Statement or related prospectus relating to an offering of Registrable Securities: (i) receipt of any request for additional information by the SEC or any other Federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the registration statement or related prospectus; (ii) the issuance by the SEC or any other Federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company’s reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; and the Company will promptly make available to the Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to the Investor any Drawdown Notice during the continuation of any of the foregoing events.

Section 6.9. Prohibited Transactions. During the term of this Agreement, the Company shall give the Investor five (5) days notice of the closing of any Prohibited Transaction. For the purposes of this Agreement, the term “Prohibited Transaction” shall refer to the issuance by the Company of any “future priced securities,” which shall mean the issuance of shares of Common Stock or securities of any type whatsoever that are, or may become, convertible or exchangeable into shares of Common Stock where the purchase, conversion or exchange price for such Common Stock is determined using any floating discount or other post-issuance adjustable discount to the market price of Common Stock, including, without limitation, pursuant to any equity line financing, stand-by equity distribution agreements, at the market transactions or convertible securities and loans that are substantially similar to the financing provided for under this Agreement, provided that any future issuance by the Company of (i) a convertible security (“Convertible Security”) that (A) contains provisions that adjust the conversion price of such Convertible Security in the event of stock splits, dividends, distributions, reclassifications or similar events or pursuant to anti-dilution provisions or (B) is issued in connection with the Company obtaining debt financing for research and development purposes where the issuance of Convertible Securities is conditioned upon the Company meeting certain defined clinical milestones, (ii) securities in a registered direct public offering or an unregistered private placement where the price per share of such securities is fixed concurrently with the execution of definitive documentation relating to the offering or placement, as applicable and (iii) securities issued in connection with a secured debt financing, shall not be a Prohibited Transaction.

Section 6.10 Restriction on Sale of Capital Stock. During the Commitment Period, the Company shall not, without five (5) days written notice to the Investor (i) issue or sell any Common Stock or Preferred Stock without consideration or for a consideration per share less than the Bid Price of the Common Stock determined immediately prior to its issuance, (ii) issue or sell any Preferred Stock warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share less than the Bid Price of the Common Stock determined immediately prior to its issuance, or (iii) file any registration statement on Form S-8.

Section 6.11 Consolidation; Merger. The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all the assets of the Company to another entity (a “Consolidation Event”) unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the Investor such shares of stock and/or securities as the Investor is entitled to receive pursuant to this Agreement prior to the closing date of any merger.

Section 6.12 Issuance of the Company’s Common Stock. The sale of the shares of Common Stock shall be made in accordance with the provisions and requirements of Regulation D and any applicable state securities law.

Section 6.13 Review of Public Disclosures. All SEC filings (including, without limitation, all filings required under the Exchange Act, which include Forms 10-Q, 10-K, 8-K, etc) and other public disclosures made by the Company, including, without limitation, all press releases, investor relations materials, and scripts of analysts meetings and calls, shall be reviewed and approved for release by the Company’s attorneys and, if containing financial information, the Company’s independent certified public accountants. All press releases referencing the Investor shall first be approved by Investor prior to release.

Section 6.14 Market Activities. The Company will not, directly or indirectly, (i) take any action designed to cause or result in, or that constitutes or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Common Stock or (ii) sell, bid for or purchase the Common Stock, or pay anyone any compensation for soliciting purchases of the Common Stock.

Section 6.15 Change in Law or Policy. In the event of a change in law, or policy of the SEC, as evidenced by a No-Action letter or other written statements of the SEC or FINRA which causes the Investor or the Company to be unable to perform its obligations hereunder, this Agreement shall be automatically terminated, provided that notwithstanding any termination under this Section 6.15, the Investor shall retain full ownership of the Commitment Shares as partial consideration for its commitment hereunder.

Section 6.16. Lock-Up Period. The Company shall cause its officers, insiders, directors, and affiliates or other related parties under control of the Company, to refrain from buying and/or selling Common Stock during each Pricing Period.

ARTICLE VII.
Conditions for Advance and Conditions to Closing

Section 7.1 Conditions Precedent to the Obligations of the Company. The obligation hereunder of the Company to issue and sell the shares of Common Stock to the Investor incident to each Closing is subject to the satisfaction, or waiver by the Company, at or before each such Closing, of each of the conditions set forth below.

(a) Accuracy of the Investor’s Representations and Warranties. The representations and warranties of the Investor contained in this Agreement shall be true and correct in all material respects.

(b) Performance by the Investor. The Investor shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Investor at or prior to such Closing.

Section 7.2 Conditions Precedent to the Right of the Company to Deliver a Drawdown Notice. The right of the Company to deliver a Drawdown Notice to the Investor is subject to the fulfillment by the Company on each Drawdown Notice Date, and the right of the Company to receive an Advance Request from the Investor is subject to the fulfillment by the Company on each Closing Date (each such date, a “Condition Satisfaction Date”), of each of the following conditions:

(a) Registration of the Common Stock with the SEC. The Company shall have filed with the SEC a Registration Statement with respect to the resale of the Registrable Securities in accordance with the terms of the Registration Rights Agreement. As set forth in the Registration Rights Agreement, the Registration Statement shall have previously become effective and shall remain effective on each Condition Satisfaction Date and (i) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened to do so, and (ii) no other suspension of the use or withdrawal of the effectiveness of the Registration Statement or related prospectus shall exist. The Registration Statement must have been declared effective by the SEC prior to the first Drawdown Notice Date.

(b) Authority. The Company shall have obtained all permits and qualifications required by any applicable state in accordance with the Registration Rights Agreement for the offer and sale of the shares of Common Stock, or shall have the availability of exemptions therefrom. The sale and issuance of the shares of Common Stock shall be legally permitted by all laws and regulations to which the Company is subject.

(c) Fundamental Changes. There shall not exist any fundamental changes to the information set forth in the Registration Statement, which would require the Company to file a post-effective amendment to the Registration Statement.

(d) Accuracy of the Company’s Representations and Warranties. The representations and warranties of the Company contained in this Agreement (a) that are not qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all material respects when made and shall be true and correct in all material respects as of the applicable Condition Satisfaction Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct in all material respects as of such other date and (b) that are qualified by “materiality” or “Material Adverse Effect” shall have been true and correct when made and shall be true and correct as of the applicable Condition Satisfaction Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of such other date.

(e) Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Company at or prior to each Condition Satisfaction Date.

(f) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits or directly and adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement.

(g) No Suspension of Trading in or Delisting of Common Stock. The trading of the Common Stock is not suspended by the SEC or the Principal Market (if the Common Stock is traded on a Principal Market). The issuance of shares of Common Stock with respect to the applicable Closing shall not violate the shareholder approval requirements, if any, of the Principal Market (if the Common Stock is traded on a Principal Market). The Company shall not have received any notice threatening the continued listing of the Common Stock on the Principal Market (if the Common Stock is traded on a Principal Market). If the Company receives any such notice from a Principal Market regarding the continued eligibility of the continued listing of the Common Stock on such automated quotation system or exchange, then the Company shall promptly, and in no event later than the following Business Day, provide to the Investor a copy of any such notice.

(h) Maximum Advance Amount. The amount of an Advance Request made by the Company shall not exceed and is subject to the limitations set forth in Section 2.2. In no event shall the Company be obligated to issue such additional shares if such issuance may result in non-compliance with any securities laws. If any of the Company’s representations in this Agreement are false or if at any time the Common Stock’s bid price is less than its par value, then no Advance Request shall be permitted.

(i) Five Percent Limitation. On each Closing Date, the number of Advance Shares then to be purchased by the Investor shall not exceed the number of such shares that, when aggregated with all other shares of Common Stock then owned by Investor beneficially or deemed beneficially owned by Investor, would result in Investor owning more than 4.99% of all of such Common Stock as would be outstanding on such Closing Date, as determined in accordance with Section 13(d) and Rule 13d-3 of the Exchange Act and the regulations promulgated thereunder. For purposes of this Section, in the event that the amount of Common Stock outstanding as determined in accordance with Section 13(d) and Rule 13d-3 of the Exchange Act and the regulations promulgated thereunder is greater on a Closing Date than on the date upon which the Drawdown Notice associated with such Closing Date is given, the amount of Common Stock outstanding on such Closing Date shall govern for purposes of determining whether Investor, when aggregating all purchases of Common Stock made pursuant to this Agreement, would own more than 4.99% of the Common Stock following such Closing Date.

(j) No Knowledge. The Company has no knowledge of any event which would be more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective.

(k) Executed Drawdown Notice. The Investor shall have received the Drawdown Notice executed by an officer of the Company and the representations contained in such Drawdown Notice shall be true and correct as of each Condition Satisfaction Date.

(l) Compliance with Laws. The Company shall have complied with all applicable federal, state and local governmental laws, rules, regulations and ordinances in connection with the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the Company shall have obtained all permits and qualifications required by any applicable state securities or “blue sky” laws for the offer and sale of the Securities by the Company to the Investor and the subsequent resale of the Registrable Securities by the Investor (or shall have the availability of exemptions therefrom).

(m) No Bankruptcy Proceedings. The Company shall not have filed for and/or be subject to any bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors instituted by or against the Company or any subsidiary of the Company, or instituted involuntarily against the Company.

(n) [INTENTIONALLY OMITTED]

(o) Consecutive Drawdown Notices. Except with respect to the first Drawdown Notice, the Company shall have delivered all shares of the Company’s Common Stock to the Investor relating to all prior Drawdown Notices.

(p) Advance Shares DTC Eligible. The Company shall use all commercially reasonable efforts to make all Advance Shares delivered to the Investor DTC eligible, so that the shares can be immediately converted into electronic form. There is no DTC “chill” or equivalent on the Company’s Common Stock.

(q) Commitment Shares Delivered. The Company shall have issued to the Investor, or shall have caused its transfer agent to issue to the Investor, certificates representing the Commitment Shares in the name of the Investor or its designee (in which case such designee name shall have been provided to the Company on or prior to the execution of this Agreement and shall be Auctus Private Equity Management, Inc.), in consideration for the Investor’s execution and delivery of this Agreement. Such certificate shall be delivered to the Investor by overnight courier at its address set forth in Section 11.1 hereof. For the avoidance of doubt, all of the Commitment Shares shall be fully earned upon receipt regardless of whether or not the Registration Statement is filed or declared effective, regardless of whether or not a Termination occurs and regardless of whether or not any Drawdown Notices are issued by the Company or settled hereunder.

(r) No Restrictive Legends. If requested by the Investor from and after the date that the Commitment Shares in question can be sold under Rule 144 without volume restrictions (the “Liquidity Date”), the Company shall have either (i) issued and delivered (or caused to be issued and delivered) to the Investor certificates representing the Commitment Shares, that are free from all restrictive and other legends or (ii) caused the Company’s transfer agent to credit the Investor’s or its designee’s account at DTC through its Deposit/Withdrawal at Custodian (DWAC) system with a number of shares of Common Stock equal to the number of Commitment Shares represented by the certificate delivered by the Investor to the Company in accordance with Section 12.4(c) of this Agreement. The date that the shares issued to the Investor can be sold under Rule 144 without volume restrictions shall be six (6) months after the date of such issuance, provided that the Company remains current in its public reporting under the 1934 Act hereafter.

(s) Continuing Clearing House Acceptability. The Common Stock to be issued pursuant to each Drawdown Notice shall continue to be eligible for deposit with and clearing through the Depository Trust Company or another FINRA member clearing firm without cost or expense to the investor. No legend shall be placed on the share certificates representing the Advance Shares.

(t) Par Value Payment. On each Closing, if any amount of Par Value Payment relating to a Drawdown Notice is required to be returned to the Investor, due to adjustments in the amount of an Advance Request or due to the costs and fees associated with facilitating a Drawdown Notice, then the Investor has no obligation to accept a subsequent Drawdown Notice until that amount has been paid in full by the Company to the Investor.

(u) Other. On each Condition Satisfaction Date, Investor shall have received a certificate in substantially the form and substance of Exhibit A hereto, executed by an executive officer of the Company and to the effect that all the conditions to such Closing shall have been satisfied as at the date of each such certificate.

ARTICLE VIII.
Due Diligence Review; Non-Disclosure of Non-Public Information

Section 8.1 Non-Disclosure of Non-Public Information.

(a) The Company covenants and agrees that it shall refrain from disclosing, and shall cause its officers, directors, employees and agents to refrain from disclosing, any material non-public information to the Investor without also disseminating such information to the public, unless prior to disclosure of such information the Company identifies such information as being material non-public information and provides the Investor with the opportunity to accept or refuse to accept such material non-public information for review.

(b) Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, promptly notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 8.1 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading.

ARTICLE IX.
Choice of Law/Jurisdiction

Section 9.1 Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Boston, Massachusetts. for the adjudication of any civil action asserted pursuant to this Agreement.

EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

ARTICLE X.
Assignment; Termination

Section 10.1 Assignment. Neither this Agreement nor any rights of the Company hereunder may be assigned to any other Person.

Section 10.2 Termination.

(a) Unless terminated earlier as herein provided, the obligations of the Investor to make Advance Requests under Article II hereof shall terminate twenty four (24) months after the Effective Date.

(b) The obligation of the Investor to make an Advance Request to the Company pursuant to this Agreement shall terminate permanently (including with respect to an Advance Request True-Up Date or a Drawdown that has not yet occurred) in the event that (i) there shall occur any stop order or suspension of the effectiveness of the Registration Statement for an aggregate of fifty (50) Trading Days, other than due to the acts of the Investor, during the Commitment Period, or (ii) the Company shall at any time fail materially to comply with the requirements of Article VI and such failure is not cured within thirty (30) days after receipt of written notice from the Investor, provided, however, that this termination provision shall not apply to any period commencing upon the filing of a post-effective amendment to such Registration Statement and ending upon the date on which such post effective amendment is declared effective by the SEC.

(c ) The obligations and rights of each of the Company and the Investor are terminable by the Company at any time upon written notice to the Investor subject at all times to the terms, conditions and obligations that the Company may have to the Investor, including and without limit to any fees, charges and obligations described herein. Prior to issuing any press release, or making any public statement or announcement, with respect to such termination, the Company shall consult with the Investor and shall obtain the Investor’s consent to the form and substance of such press release or other disclosure, which consent shall not be unreasonably delayed or withheld. Any and all shares, or penalties, if any, due under this Agreement shall be immediately payable in cash or by wire transfer and due upon termination of this Agreement.

(d) The obligation of the Investor to make an Advance Request to the Company pursuant to this Agreement shall terminate permanently if there is a failure for any reason by the Transfer Agent to issue Commitment Shares to the Investor, without restrictive legends, pursuant to a legend removal request, within ten (10) Trading Days after the applicable Required Delivery Date.

(e) The obligation of the Investor to make an Advance Request to the Company pursuant to this Agreement shall terminate permanently if pursuant to or within the meaning of any Bankruptcy Law, the Company commences a voluntary case or any Person commences a proceeding against the Company, a Custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors, this Agreement shall automatically terminate without any liability or payment to the Company without further action or notice by any Person. No such termination of this Agreement under this Section 10.2(e) shall affect the Company's or the Investor's obligations under this Agreement with respect to pending purchases and the Company and the Investor shall complete their respective obligations with respect to any pending purchases under this Agreement.

For purposes of clarification, notwithstanding any Termination described hereunder, the Investor shall retain all of the Commitment Shares in consideration for this Agreement.

ARTICLE XI.
Notices

Section 11.1 Notices. Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3) Business Days after being sent by U.S. certified mail, return receipt requested, or (iv) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company, to:
	AquaLiv Technologies, Inc. 4550 NW Newberry Hill Road, Suite 202 Silverdale, WA 98383 ATTN: William Wright Telephone: (360) 473-1160
(with a copy which shall not constitute notice to:)	Lucosky Brookman LLP 33 Wood Avenue South, 6^th Floor Iselin, NJ 08830 ATTN: Seth A. Brookman, Esq. Telephone: (732) 395-4400 Facsimile: (732) 395-4401

If to the Investor, to:	Auctus Private Equity Fund, LLC 101 Arch Street, Suite 2010 Boston, MA 02110 ATTN: Lou Posner Telephone: 617-532-6408 Facsimile: 617-532-6420

Each party shall provide five (5) Business Days prior written notice to the other party of any change in address or facsimile number.

ARTICLE XII.
Miscellaneous

Section 12.1 Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature or signature delivered by e-mail in a “.pdf” format data file shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature or a signature in a “.pdf” format data file. In the event any signature page is delivered by electronic transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) Business Days of the execution and delivery hereof, though failure to deliver such copies shall not affect the validity of this Agreement.

Section 12.2 Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Investor, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.

Section 12.3 Reporting Entity for the Common Stock. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement shall be reported by a direct feed service. The written mutual consent of the Investor and the Company shall be required to employ any other reporting entity.

Section 12.4 Fees and Expenses. The Company hereby agrees to pay the following fees:

(a) Fees. Each of the parties shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of any Securities. The Company shall also pay an amount not to exceed five percent (5%) of the Advance Request amount specified in a Drawdown Notice on each Closing Date to cover the costs associated with, but not limited to: DWAC costs, legal review fees, brokerage fees, and wire fees which shall be deducted or withheld by the Investor out of the gross proceeds of each Drawdown.

(b) Origination Fee. The Company is obligated to pay the Investor a non-refundable origination fee equal to Seven Thousand Five Hundred Dollars ($7,500) upon execution of the initial term sheet (which it is hereby acknowledged that such amount was paid by the Company as of the date hereof).

(c) Commitment Shares. The Company shall pay to the Investor a fee for structuring the facility contemplated hereby by issuing to the Investor that number of shares of the Company’s Common Stock that is equal to Fifty Seven Thousand Five Hundred Dollars ($57,500) (the “Share Value”). For purposes of determining the number of shares issuable to Investor under this Section 12.4(c), the Company’s Common Stock shall be valued at the VWAP as of the close of the business day immediately prior to the date of each issuance (the “Valuation Date”). The Commitment Shares shall be issued by the Company to Investor in three (3) installments as follows: (i) Twelve Thousand Five Hundred Dollars ($12,500) on the date hereof and due immediately upon execution of this Agreement; (ii) Thirty Thousand Dollars ($30,000) on that date which is one hundred eighty (180) days following the date hereof; and (iii) Fifteen Thousand Dollars ($15,000) on that date which is two hundred seventy (270) days following the date hereof. If at any time, any amount of Commitment Shares due to the Investor would result in the beneficial ownership by the Investor and its affiliates of more than 4.99% of the then issued and outstanding shares of Common Stock, then only the amount up to the Ownership Limitation will be issued and delivered to the Investor with the balance due immediately upon request by the Investor from the Company until each installment has been delivered in full. The Investor shall confirm to the Company in writing, the VWAP for the Common Stock as of the Valuation Date, and the corresponding number of Shares issuable on each of such respective issuance dates based on such price. The Company shall instruct its transfer agent to issue certificates representing the Commitment Shares issuable to the Investor immediately upon the Company’s execution of this Agreement and immediately upon each subsequent issuance date, and shall cause its transfer agent to deliver such certificates to Investor within three (3) Trading Days from the date the Company executes this Agreement, and within three (3) Trading Days from each of such subsequent issuance dates. In the event such certificates representing the Commitment Shares issuable hereunder shall not be delivered to the Investor within said three (3) Trading Day period, at each of the respective issuance dates, same shall be an immediate default under this Agreement and Investor shall have no obligation to make any Advances hereunder until such default is cured. The Commitment Shares, when issued, shall be deemed to be validly issued, fully paid, and non-assessable shares of the Company’s Common Stock. The Commitment Shares shall be deemed fully earned as of the date the Company executes this Agreement, regardless of the amount of Advances, if any, that the Company is able to, or chooses to, request hereunder. If this Agreement is terminated prior to the issuance of the full amount of Commitment Shares, then immediately upon termination all remaining Commitment Shares shall be deemed due regardless of their installment period and required issuable to the Investor by the Company within three (3) Trading Days. The Commitment Shares shall be deemed Registrable Securities hereunder and shall be included on any registration statement filed by the Company after the date hereof, unless such shares may be resold without any limitation of any kind pursuant to Rule 144.

(d) Legends. The certificate representing the Commitment Shares, except as set forth below, shall each bear a restrictive legend (“Legend”) in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificate):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

(e) Removal of Legend. If either (i) the Registration Statement is Effective, or (ii) such holder provides the Company with an opinion of counsel, in form, substance and scope reasonably acceptable to counsel for the Company (the reasonable cost of which shall be borne by the Investor), to the effect that a public sale or transfer of such Security may be made without registration under the Act, or (iii) such holder provides the Company with reasonable assurances (which assurances shall be adequate to the Company or the Company’s counsel) that such Security can be sold pursuant to Rule 144 (each, a “Legend Removal Condition”), then the Company shall, no later than five (5) Trading Days following the delivery by the Investor to the Company or the Company’s transfer agent (with notice to the Company) of a legended certificate representing the Commitment Shares (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer, if applicable), as directed by the Investor, either: (a) issue and deliver (or cause to be issued and delivered) to the Investor a certificate(s) representing such Commitment Shares that is free from all restrictive and other legends or (b) cause the Company’s transfer agent to credit the investor’s or its designee’s account at DTC through its Deposit/Withdrawal at Custodian (DWAC) system with a number of shares of Common Stock equal to the number of Commitment Shares represented by the certificate(s) so delivered by the Investor (the date by which such certificate is required to be delivered to the investor or such credit is so required to be made to the account of the Investor or its designee at DTC pursuant to the foregoing is referred to herein as the “Required Delivery Date ”).

Section 12.5 Confidentiality. If for any reason the transactions contemplated by this Agreement are not consummated, each of the parties hereto shall keep confidential any information obtained from any other party (except information publicly available or in such party’s domain prior to the date hereof, and except as required by court order) and shall promptly return to the other parties all schedules, documents, instruments, work papers or other written information without retaining copies thereof, previously furnished by it as a result of this Agreement or in connection herein.

Section 12.6 Remedies, Other Obligations, Breaches and Injunctive Relief. The Investor’s remedies provided in this Agreement shall be cumulative and in addition to all other remedies available to the Investor under this Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy of the Investor contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit the Investor's right to pursue actual damages for any failure by the Company to comply with the terms of this Agreement. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Investor and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Investor shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

Section 12.7 No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

Section 12.8 Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

Section 12.9 Publicity. The Investor shall have the right to pre-approve any press release, SEC filing (including, without limitation, all filings required under the Exchange Act, which include Forms 10-Q, 10-K, 8-K, etc), or any other public disclosure made by or on behalf of the Company whatsoever relating to the Investor, its purchases hereunder or any aspect of this Agreement or the transaction contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Investor, to make any press release or other public disclosure (including any SEC filings) with respect thereto as is required by applicable law and regulations so long as prior to releasing any such press release or any other public disclosure, the Company and its counsel shall have provided the Investor and its counsel with a reasonable opportunity to review and comment upon, and shall have consulted with the Investor and its counsel on the form and substance of such press release or other disclosure. Notwithstanding the foregoing, the Company shall not publicly disclose the name of the Investor without prior consent from the Investor, except to the extent required by law. The Company agrees and acknowledges that its failure to fully comply with this provision constitutes a material adverse affect on its ability to perform its obligations under this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Drawdown Equity Financing Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.

	COMPANY:
	AquaLiv Technologies, Inc.



	By:
	Name: William Wright
	Title: CEO


	INVESTOR:
	Auctus Private Equity Fund, LLC



	By: ___________________________________
	Name: Lou Posner
	Title: Managing Director

EXHIBIT A

DRAWDOWN NOTICE

AquaLiv Technologies, Inc.

The undersigned, _______________________ hereby certifies, with respect to the sale of shares of Common Stock of AquaLiv Technologies, Inc. (the “Company”) issuable in connection with this Drawdown Notice, delivered pursuant to the Drawdown Equity Financing Agreement (the “Agreement”), as follows:

1. The undersigned is the duly elected ______________ of the Company.

2. There are no fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post effective amendment to the Registration Statement.

3. The Company has performed in all material respects all covenants and agreements to be performed by the Company and has complied in all material respects with all obligations and conditions contained in the Agreement on or prior to the Drawdown Notice Date, and shall continue to perform in all material respects all covenants and agreements to be performed by the Company through the applicable Pricing Period. All conditions to the delivery of this Drawdown Notice are satisfied as of the date hereof and all of the Company’s conditions to Closing set forth in Section 7.2 of the Agreement have been satisfied as of the Condition Satisfaction Date.

4. The Company hereby represents, warrants and covenants that it has made all filings (“SEC Filings”) required to be made by it pursuant to applicable securities laws (including, without limitation, all filings required under the Securities Exchange Act of 1934, which include Forms 10-Q, 10-K, 8-K, etc.). All SEC Filings and other public disclosures made by the Company, including, without limitation, all press releases, analysts meetings and calls, etc. (collectively, the “Public Disclosures”), have been reviewed and approved for release by the Company’s attorneys and, if containing financial information, the Company’s independent certified public accountants. None of the Company’s Public Disclosures contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

5. The Advance Request will be in the amount of up to $_____________________ in Advance Shares.

The current number of shares issued and outstanding is and 4.99% of that amount would be_____________.

The number of shares currently available for resale pursuant to the Registration Statement on Form S-1 for the Drawdown Equity Financing Facility is .

6. The “Floor Price” for this Drawdown Notice shall be: $______ per share or Sixty-Five (65%) of the average Bid Price over the preceding ten (10) trading days prior to the Drawdown Notice Date, whichever is higher.

The undersigned has executed this Certificate this ____ day of _________________.

AquaLiv Technologies, Inc.

By:

Name: William Wright

Title: CEO

EX-10.3 4 ex10_3.htm

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of [—], 2012, by and between AquaLiv Technologies, Inc. a Nevada corporation (the “Company”), and Auctus Private Equity Fund, LLC, Massachusetts corporation (the “Investor”).

WHEREAS:

A. In connection with the Drawdown Equity Financing Agreement, by and between the parties hereto, of even date herewith (the “Drawdown Equity Financing Agreement”), the Company has agreed, upon the terms and subject to the conditions of the Drawdown Equity Financing Agreement, to issue and sell to the Investor that number of shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), which can be purchased pursuant to the terms of the Drawdown Equity Financing Agreement for an aggregate purchase price of up to Three Million Five Hundred Thousand Dollars ($3,500,000). Capitalized terms not defined herein shall have the meaning ascribed to them in the Drawdown Equity Financing Agreement.

B. Pursuant to the terms of, and in consideration for the Investor entering into, the Drawdown Equity Financing Agreement, and to induce the Investor to execute and deliver the Drawdown Equity Financing Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities Act”), and applicable state securities laws.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:

1. DEFINITIONS.

As used in this Agreement, the following terms shall have the following meanings:

a. “Person” means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.

b. “Register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous or delayed basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the “SEC”).

c. “Registrable Securities” shall have the meaning ascribed to such term in the Drawdown Equity Financing Agreement.

d. “Registration Statement” shall mean a registration statement under the Securities Act which covers the Registrable Securities.

2. REGISTRATION.

a. Mandatory Registration. The Company shall prepare and file with the SEC a Registration Statement on Form S-1, or on such other form as is available, no later than forty five (45) calendar days from the date hereof (the “Scheduled Filing Deadline”). The Company shall use all commercially reasonable efforts to have the Registration Statement(s) declared effective by the SEC within one hundred and eighty (180) calendar days. The Company shall cause the Registration Statement to remain effective until the full completion of the Commitment Period (as such term is defined in the Drawdown Equity Financing Agreement).

b. Sufficient Number of Shares Registered. In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover all of the Registrable Securities pursuant to the Drawdown Equity Financing Agreement as result of the limitations imposed by the SEC pursuant to Rule 415 of the Securities Act, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefore, if applicable), or both, so as to cover all of such Registrable Securities pursuant to the Drawdown Equity Financing Agreement as soon as practicable, but in any event no later than fifteen (15) days after the necessity therefore arises. The Company shall use it best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed “insufficient to cover all of the Registrable Securities” if at any time the number of Registrable Securities issuable on a Drawdown Notice Date and an Advance Shares True-Up Date is greater than the number of shares available for resale under such Registration Statement.

3. RELATED OBLIGATIONS.

a. The Company shall keep the Registration Statement effective pursuant to Rule 415 at all times until the completion of the Commitment Period (as such term is defined in the Drawdown Equity Financing Agreement) (the “Registration Period”), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.

b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement accurate at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the investor (seller or sellers thereof) as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company’s filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company shall have incorporated such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the Exchange Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement.

c. To the extent such documents are unavailable via the SEC's live EDGAR website, the Company shall furnish to the Investor without charge, (i) at least one copy of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) ten (10) copies of the final prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.

d. The Company shall use its reasonable efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of such jurisdictions in the United States as the Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (w) make any change to its certificate of Incorporation or by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify the Investor of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

e. As promptly as practicable after becoming aware of such event or development, the Company shall notify the Investor in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to each Investor. The Company shall also promptly notify the Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to the Investor by facsimile on the same day of such effectiveness), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.

f. The Company shall use its commercially reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

g. At the reasonable request of the Investor, the Company shall furnish to the Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as the Investor may reasonably request (i) a letter, dated such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investor.

h. The Company shall hold in confidence and not make any disclosure of information concerning the Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning the Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Investor and allow the Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

i. The Company shall use its commercially reasonable best efforts either to cause all the Registrable Securities covered by a Registration Statement (i) to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or to secure the inclusion for quotation on the National Association of Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(i).

j. The Company shall cooperate with the Investor to the extent applicable, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investor may reasonably request and registered in such names as the Investor may request.

k. The Company shall use its commercially reasonable best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.

l. The Company shall, every quarter make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a twelve-month period. This obligation shall begin no later than the first day of the Company’s fiscal quarter next following the effective date of the Registration Statement.

m. The Company shall otherwise use its commercially reasonable best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder. The Investor shall provide the Company with all information and agreements that the Company needs to include in the Registration Statement or provide to the SEC regarding Investor or its disposition of Registrable Securities in order to cause the SEC to declare the Registration Statement(s) effective.

n. Within two (2) business days after a Registration Statement which covers Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A.

o. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to a Registration Statement.

4. OBLIGATIONS OF THE INVESTOR.

The Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e), the Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until the Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(e) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended certificates for shares of Common Stock to a transferee of the Investor in accordance with the terms of the Drawdown Equity Financing Agreement in connection with any sale of Registrable Securities with respect to which the Investor has entered into a contract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e) and for which the Investor has not yet settled.

5. EXPENSES OF REGISTRATION.

All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers, legal and accounting fees shall be paid by the Company.

6. INDEMNIFICATION.

With respect to Registrable Securities which are included in a Registration Statement under this Agreement:

a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls the Investor within the meaning of the Securities Act or the Exchange Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). The Company shall reimburse the Investor and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees or disbursements or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(e); and (z) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person.

b. In connection with a Registration Statement, the Investor agrees to indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (each an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by the Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), the Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to the Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the prospectus was corrected and such new prospectus was delivered to the Investor prior to the Investor’s use of the prospectus to which the Claim relates.

c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.

d. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

e. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

7. CONTRIBUTION.

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

8. REPORTS UNDER THE EXCHANGE ACT.

With a view to making available to the Investor the benefits of Rule 144 promulgated under the Securities Act or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration (“Rule 144”) the Company agrees to:

a. make and keep public information available, as those terms are understood and defined in Rule 144;

b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company’s obligations under Section 6.3 of the Drawdown Equity Financing Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

c. furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration.

9. AMENDMENT OF REGISTRATION RIGHTS.

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a written agreement between the Company and the Investor. Any amendment or waiver affected in accordance with this Section 9 shall be binding upon the Investor and the Company. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

10. MISCELLANEOUS.

a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company, to:	AquaLiv Technologies, Inc. 4550 NW Newberry Hill Road, Suite 202 Silverdale, WA 98383 Telephone: (360) 473-1160

If to the Investor, to:	Auctus Private Equity Fund, LLC
	101 Arch Street, Suite 2010
	Boston, MA 02110
	Attention: Lou Posner
	Telephone: 617-532-6408
	Facsimile: 617-532-6420

Any party may change its address by providing written notice to the other parties hereto at least five days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d. The corporate laws of the Commonwealth of Massachusetts shall govern all issues concerning the relative rights of the Company and the Investor. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts without giving effect to any choice of law or conflict of law provision or rule (whether of the Commonwealth of Massachusetts or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Commonwealth of Massachusetts. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the Massachusetts, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

e. This Agreement and the Drawdown Equity Financing Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Drawdown Equity Financing Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

f. This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

h. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

j. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.

k. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written.

	AquaLiv Technologies, Inc.


	By:
	Name: William Wright
	Title: CEO


	Auctus Private Equity Fund, LLC



	By:
	Name: Lou Posner
	Title: Managing Director

EXHIBIT A

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

Attention:

Re: AquaLiv Technologies, Inc.

Ladies and Gentlemen:

We are counsel to AquaLiv Technologies, Inc. (the “Company”), and have represented the Company in connection with that certain Drawdown Equity Financing Agreement (the “Drawdown Equity Financing Agreement”) entered into by and between the Company and Auctus Private Equity Fund, LLC (the “Investor”), pursuant to which the Company (i) may issue to the Investor shares of its common stock, par value $0.001 per share (the “Common Stock”) from time to time. Pursuant to the Drawdown Equity Financing Agreement, the Company also has entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the Company’s obligations under the Registration Rights Agreement, on the Company filed a Registration Statement on Form ________ (File No. 333-_____________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names the Investor as a selling stockholder thereunder.

In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the Securities Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the Securities Act pursuant to the Registration Statement.

EX-10.7 5 ex10_7.htm

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”) is dated as of [—], 2012, by and between AQUALIV TECHNOLOGIES, INC., a Nevada corporation (the “Company”) and TCA GLOBAL CREDIT MASTER FUND, LP, a Cayman Islands limited partnership (the “Buyer”).

RECITALS

WHEREAS, Buyer desires to purchase from Company, and the Company desires to sell and issue to Buyer, upon the terms and subject to the conditions contained herein, Two Hundred Thousand Dollars ($200,000) of senior secured redeemable debentures in the form attached hereto as Exhibit “A” (the “Debentures”), which Debentures shall be purchased on the date hereof (the “Closing Date”), all for the total purchase price of Two Hundred Thousand Dollars ($200,000) (the “Purchase Price”), and all otherwise subject to the terms and provisions hereinafter set forth; and

WHEREAS, the Company and its subsidiaries have agreed to secure all of their respective “Obligations” (as hereinafter defined) to Buyer under the Debentures, this Agreement and all other Transaction Documents by: (i) granting to the Buyer a continuing and first priority security interest in all of the assets and properties of the Company pursuant to a Security Agreement dated as of the date hereof (the “Security Agreement”); (ii) pledging to the Buyer all of its right, title and interest in and to Aqualiv, Inc., a Washington corporation, a 50% owned subsidiary of the Company (“Aqua Sub”), pursuant to a Pledge and Escrow Agreement dated as of the date hereof (the “Aqua Sub Pledge Agreement”) (iii) causing Focus Systems, Inc., a Washington corporation (“Focus”), a wholly owned subsidiary of the Company, to guaranty all of the Company’s Obligations pursuant to a guaranty agreement executed by Focus in favor of Buyer (the “Focus Guaranty”); (iv) causing Focus to grant to the Buyer a continuing and first priority lien and security interest in all of the assets and properties of Focus pursuant to a Security Agreement dated as of the date hereof (the “Focus Security Agreement”); (v) agreeing to the filing of UCC-1 Financing Statements covering all of the assets and properties of the Company and Focus, and covering the Company’s 50% ownership interest in Aqua Sub (collectively, the “UCC-1’s”); and (vi) granting to the Buyer a continuing and first priority security interest and lien in certain stock (the “Pledged Stock”) of the Company pursuant to a Stock Pledge and Escrow Agreement dated as of the date hereof (the “Pledge Agreement”);

NOW, THEREFORE, in consideration of the premises and the mutual covenants of the parties hereinafter expressed and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, each intending to be legally bound, agree as follows:

ARTICLE I

RECITALS, EXHIBITS, SCHEDULES

The foregoing recitals are true and correct and, together with the Schedules and Exhibits referred to hereafter, are hereby incorporated into this Agreement by this reference.

ARTICLE II

DEFINITIONS

For purposes of this Agreement, except as otherwise expressly provided or otherwise defined elsewhere in this Agreement, or unless the context otherwise requires, the capitalized terms in this Agreement shall have the meanings assigned to them in this Article as follows:

2.1 “Affiliate” means, with respect to a Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person at any time during the period for which the determination of affiliation is being made. For purposes of this definition, the term “control,” “controlling,” “controlled” and words of similar import, when used in this context, means, with respect to any Person, the possession, directly or indirectly, of the power to direct, or cause the direction of, management policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

2.2 “Assets” means all of the properties and assets of the Company, whether real, personal or mixed, tangible or intangible, wherever located, whether now owned or hereafter acquired.

2.3 “Claims” means any Proceedings, Judgments, Obligations, threats, losses, damages, deficiencies, settlements, assessments, charges, costs and expenses of any nature or kind.

2.4 “Common Stock” means the Company’s common stock, $0.001 par value per share.

2.5 “Consent” means any consent, approval, order or authorization of, or any declaration, filing or registration with, or any application or report to, or any waiver by, or any other action (whether similar or dissimilar to any of the foregoing) of, by or with, any Person, which is necessary in order to take a specified action or actions, in a specified manner and/or to achieve a specific result.

2.6 “Contract” means any written or oral contract, agreement, order or commitment of any nature whatsoever, including, any sales order, purchase order, lease, sublease, license agreement, services agreement, loan agreement, mortgage, security agreement, guarantee, management contract, employment agreement, consulting agreement, partnership agreement, shareholders agreement, buy-sell agreement, option, warrant, debenture, subscription, call or put.

2.7 “Effective Date” means the date set forth in the introductory paragraph of this Agreement.

2.8 “Encumbrance” means any lien, security interest, pledge, mortgage, easement, leasehold, assessment, tax, covenant, restriction, reservation, conditional sale, prior assignment, or any other encumbrance, claim, burden or charge of any nature whatsoever.

2.9 “Environmental Requirements” means all Laws and requirements relating to human, health, safety or protection of the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, or Hazardous Materials in the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), or otherwise relating to the treatment, storage, disposal, transport or handling of any Hazardous Materials.

2.10 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

2.11 “GAAP” means generally accepted accounting principles, methods and practices set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants, and statements and pronouncements of the Financial Accounting Standards Board, the SEC or of such other Person as may be approved by a significant segment of the U.S. accounting profession, in each case as of the date or period at issue, and as applied in the U.S. to U.S. companies.

2.12 “Governmental Authority” means any foreign, federal, state or local government, or any political subdivision thereof, or any court, agency or other body, organization, group, stock market or exchange exercising any executive, legislative, judicial, quasi-judicial, regulatory or administrative function of government.

2.13 “Hazardous Materials” means: (i) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls (PCB’s); (ii) any chemicals, materials, substances or wastes which are now or hereafter become defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants” or words of similar import, under any Law; and (iii) any other chemical, material, substance, or waste, exposure to which is now or hereafter prohibited, limited or regulated by any Governmental Authority.

2.14 “Incentive Shares” means the shares of the Company’s Common Stock to be issued by the Company to Buyer in accordance with Section 7.5 below.

2.15 “Judgment” means any order, writ, injunction, fine, citation, award, decree, or any other judgment of any nature whatsoever of any Governmental Authority.

2.16 “Law” means any provision of any law, statute, ordinance, code, constitution, charter, treaty, rule or regulation of any Governmental Authority.

2.17 “Leases” means all leases for real or personal property.

2.18 “Material Adverse Effect” means with respect to the event, item or question at issue, that such event, item or question would not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of this Agreement or any of the Transaction Documents; (ii) a material adverse effect on the results of operations, Assets, business or condition (financial or otherwise) or prospects of the Company or any of its subsidiaries, either individually or taken as a whole; (iii) a material adverse effect on the Company’s or its subsidiaries’ ability to perform, on a timely basis, its or their respective Obligations under this Agreement or any Transaction Documents; or (iv) a material adverse effect on the Buyer’s ability to sell or dispose of any of the Securities, whether on the Principal Trading Market, or otherwise, in accordance with applicable securities laws.

2.19 “Material Contract” shall mean any Contract to which the Company is a party or by which the Company or any of its Assets are bound and which: (i) involves aggregate payments of Twenty-Five Thousand Dollars ($25,000) or more to or from the Company; (ii) involves delivery, purchase, licensing or provision, by or to the Company, of any goods, services, assets or other items having a value (or potential value) over the term of such Contract of Twenty-five Thousand Dollars ($25,000) or more or is otherwise material to the conduct of the Company’s business as now conducted and as contemplated to be conducted in the future; (iii) involves a Company Lease; (iv) imposes any guaranty, surety or indemnification Obligations on the Company; or (v) prohibits the Company from engaging in any business or competing anywhere in the world.

2.20 “Obligation” means any debt, liability or obligation of any nature whatsoever, whether secured, unsecured, recourse, nonrecourse, liquidated, unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained, known, unknown or obligations under executory Contracts.

2.21 “Ordinary Course of Business” means the ordinary course of business consistent with past custom and practice (including with respect to quantity, quality and frequency).

2.22 “Permit” means any license, permit, approval, waiver, order, authorization, right or privilege of any nature whatsoever, granted, issued, approved or allowed by any Governmental Authority.

2.23 “Person” means any individual, sole proprietorship, joint venture, partnership, company, corporation, association, cooperation, trust, estate, Governmental Authority, or any other entity of any nature whatsoever.

2.24 “Principal Trading Market” shall mean the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the OTC Markets, including the Bulletin Board and Pink Sheets, the NYSE Euronext or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock.

2.25 “Proceeding” means any demand, claim, suit, action, litigation, investigation, audit, study, arbitration, administrative hearing, or any other proceeding of any nature whatsoever.

2.26 “Real Property” means any real estate, land, building, structure, improvement, fixture or other real property of any nature whatsoever, including, but not limited to, fee and leasehold interests.

2.27 “SEC” means the United States Securities and Exchange Commission.

2.28 “Securities” means, collectively, the Debentures and the Incentive Shares.

2.29 “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

2.30 “Tax” means (i) any foreign, federal, state or local income, profits, gross receipts, franchise, sales, use, occupancy, general property, real property, personal property, intangible property, transfer, fuel, excise, accumulated earnings, personal holding company, unemployment compensation, social security, withholding taxes, payroll taxes, or any other tax of any nature whatsoever, (ii) any foreign, federal, state or local organization fee, qualification fee, annual report fee, filing fee, occupation fee, assessment, rent, or any other fee or charge of any nature whatsoever, or (iii) any deficiency, interest or penalty imposed with respect to any of the foregoing.

2.31 “Tax Return” means any tax return, filing, declaration, information statement or other form or document required to be filed in connection with or with respect to any Tax.

2.32 “Transaction Documents” means any documents or instruments to be executed by Company in connection with this Agreement, including the Debentures, the Security Agreement, the UCC-1’s, the Aqua Sub Pledge Agreement, the Focus Guaranty, the Focus Security Agreement and the Pledge Agreement, together with all modifications, amendments, extensions, future advances, renewals, and substitutions thereof.

ARTICLE III

INTERPRETATION

In this Agreement, unless the express context otherwise requires: (i) the words “herein,” “hereof” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement; (ii) references to the words “Article” or “Section” refer to the respective Articles and Sections of this Agreement, and references to “Exhibit” or “Schedule” refer to the respective Exhibits and Schedules annexed hereto; (iii) references to a “party” mean a party to this Agreement and include references to such party’s permitted successors and permitted assigns; (iv) references to a “third party” mean a Person not a party to this Agreement; (v) the terms “dollars” and “$” means U.S. dollars; (vi) wherever the word “include,” “includes” or “including” is used in this Agreement, it will be deemed to be followed by the words “without limitation.”

ARTICLE IV

PURCHASE AND SALE OF DEBENTURES

4.1 Purchase and Sale of Debentures. Subject to the satisfaction (or waiver) of the terms and conditions of this Agreement, Buyer agrees to purchase, on the Closing Date, and Company agrees to sell and issue to Buyer, on the Closing Date, Debentures in the amount of the Purchase Price as more specifically set forth below.

4.2 Closing. The closing of the purchase and sale of the Debentures (the “Closing”) shall take place on the Closing Date, subject to satisfaction of the conditions to the Closing set forth in this Agreement. The Closing shall occur on the Closing Date through the use of overnight mails and subject to customary escrow instructions from Buyer and its counsel, or in such other manner as is mutually agreed to by the Company and the Buyer.

4.3 Form of Payment. Subject to the satisfaction of the terms and conditions of this Agreement, on the Closing Date: (i) the Buyer shall deliver to the attorney trust account of Lucosky Brookman, LLP, acting as counsel to the Company, the aggregate proceeds for the Debentures to be issued and sold to Buyer at the Closing, minus the fees to be paid directly from the proceeds of such Closing as set forth in this Agreement, in the form of wire transfers of immediately available U.S. funds; and (ii) the Company shall deliver to Buyer the Securities which Buyer is purchasing hereunder at the Closing, duly executed on behalf of the Company, together with any other documents required to be delivered pursuant to this Agreement.

ARTICLE V

BUYER’S REPRESENTATIONS AND WARRANTIES

Buyer represents and warrants to the Company, that:

5.1 Investment Purpose. Buyer is acquiring the Securities for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, Buyer reserves the right to dispose of the Securities at any time in accordance with or pursuant to an effective registration statement covering such Securities or an available exemption under the Securities Act.

5.2 Accredited Buyer Status. Buyer is an “accredited investor” as that term is defined in Rule 501(a) (3) of Regulation D, as promulgated under the Securities Act.

5.3 Reliance on Exemptions. Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of Buyer to acquire the Securities.

5.4 Information. Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and information Buyer deemed material to making an informed investment decision regarding its purchase of the Securities, which have been requested by Buyer. Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management. Neither such inquiries, nor any other due diligence investigations conducted by Buyer or its advisors, if any, or its representatives, shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Article VI below. Buyer understands that its investment in the Securities involves a high degree of risk. Buyer is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables Buyer to obtain information from the Company in order to evaluate the merits and risks of this investment. Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities.

5.5 No Governmental Review. Buyer understands that no United States federal or state Governmental Authority has passed on or made any recommendation or endorsement of the Securities, or the fairness or suitability of the investment in the Securities, nor have such Governmental Authorities passed upon or endorsed the merits of the offering of the Securities.

5.6 Authorization, Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of Buyer and is a valid and binding agreement of Buyer, enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF THE SELLER

Except as set forth and disclosed in the disclosure schedule attached to this Agreement and made a part hereof, the Company hereby makes the following representations and warranties to the Buyer:

6.1 Subsidiaries. Except for a fifty percent (50%) interest in Aqua Sub and one hundred percent (100%) ownership in Focus and otherwise set forth in Schedule 6.1, the Company has no subsidiaries and the Company does not own, directly or indirectly, any outstanding voting securities of or other interests in, or have any control over, any other Person. With respect to Aqua Sub, Focus, and to the extent the Company has any other subsidiaries disclosed in Schedule 6.1, all representations and warranties in this Article VI and elsewhere in this Agreement shall be deemed repeated and re-made from and by Aqua Sub, Focus, and any such other subsidiaries, as if such representations and warranties were independently made by Aqua Sub, Focus, and each of such other subsidiaries, in this Agreement. In addition, each representation and warranty contained in this Article VI or otherwise set forth in this Agreement shall be deemed to mean and be construed to include the Company and each of its subsidiaries, as applicable, regardless of whether each of such representations and warranties in Article VI specifically refers to the Company’s subsidiaries or not.

6.2 Organization. The Company and its subsidiaries are corporations, duly organized, validly existing and in good standing under the Laws of the jurisdiction in which they are incorporated. The Company has the full corporate power and authority and all necessary certificates, licenses, approvals and Permits to: (i) enter into and execute this Agreement and the Transaction Documents and to perform all of its Obligations hereunder and thereunder; and (ii) own and operate its Assets and properties and to conduct and carry on its business as and to the extent now conducted. The Company is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction where the character of its business or the ownership or use and operation of its Assets or properties requires such qualification. Schedule 6.2 contains a correct and complete list of the jurisdictions in which the Company is qualified to do business as a foreign corporation.

6.3 Authority and Approval of Agreement; Binding Effect. The execution and delivery by Company of this Agreement and the Transaction Documents, and the performance by Company of all of its Obligations hereunder and thereunder, including the issuance of the Securities, have been duly and validly authorized and approved by Company and its board of directors pursuant to all applicable Laws and no other corporate action or Consent on the part of Company, its board of directors, stockholders or any other Person is necessary or required by the Company to execute this Agreement and the Transaction Documents, consummate the transactions contemplated herein and therein, perform all of Company’s Obligations hereunder and thereunder, or to issue the Securities. This Agreement and each of the Transaction Documents have been duly and validly executed by Company (and the officer executing this Agreement and all such other Transaction Documents is duly authorized to act and execute same on behalf of Company) and constitute the valid and legally binding agreements of Company, enforceable against Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

6.4 Capitalization. The authorized capital stock of the Company consists of 1,000,000,000 shares of Common Stock and 50,000,000 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”), of which 342,117,428 shares of Common Stock are issued and outstanding as of the date hereof, and 911,618 shares of Preferred Stock are issued and outstanding as of the date hereof. All of such outstanding shares have been validly issued and are fully paid and nonassessable. The Common Stock is currently quoted on the OTC Markets under the trading symbol “AQLV”. The Company has received no notice, either oral or written, with respect to the continued eligibility of the Common Stock for quotation on the Principal Trading Market, and the Company has maintained all requirements on its part for the continuation of such quotation. Except as disclosed in the “SEC Documents” (as hereinafter defined), no shares of Common Stock are subject to preemptive rights or any other similar rights or any Encumbrances suffered or permitted by the Company. Except as disclosed in the SEC Documents, as of the date hereof: (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or Contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries; (ii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other Contracts or instruments evidencing indebtedness of the Company or any of its subsidiaries, or by which the Company or any of its subsidiaries is or may become bound; (iii) there are no outstanding registration statements with respect to the Company or any of its securities; (iv) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to this Agreement); (v) there are no financing statements securing obligations filed in connection with the Company or any of its Assets; (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by this Agreement or any related agreement or the consummation of the transactions described herein or therein; and (vii) there are no outstanding securities or instruments of the Company which contain any redemption or similar provisions, and there are no Contracts by which the Company is or may become bound to redeem a security of the Company. The Company has furnished to the Buyer true, complete and correct copies of: (I) the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”); and (II) the Company’s Bylaws, as in effect on the date hereof (the “Bylaws”). Except for the Certificate of Incorporation and the Bylaws, there are no other shareholder agreements, voting agreements or other Contracts of any nature or kind that restrict, limit or in any manner impose Obligations on the governance of the Company.

6.5 No Conflicts; Consents and Approvals. The execution, delivery and performance of this Agreement and the Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, including the issuance of any of the Securities, will not: (i) constitute a violation of or conflict with the Certificate of Incorporation, Bylaws or any other organizational or governing documents of Company; (ii) constitute a violation of, or a default or breach under (either immediately, upon notice, upon lapse of time, or both), or conflicts with, or gives to any other Person any rights of termination, amendment, acceleration or cancellation of, any provision of any Contract to which Company is a party or by which any of its Assets or properties may be bound; (iii) constitute a violation of, or a default or breach under (either immediately, upon notice, upon lapse of time, or both), or conflicts with, any Judgment; (iv) constitute a violation of, or conflict with, any Law (including United States federal and state securities Laws and the rules and regulations of any market or exchange on which the Common Stock is quoted); or (v) result in the loss or adverse modification of, or the imposition of any fine, penalty or other Encumbrance with respect to, any Permit granted or issued to, or otherwise held by or for the use of, Company or any of Company’s Assets. The Company is not in violation of its Certificate of Incorporation, Bylaws or other organizational or governing documents and the Company is not in default or breach (and no event has occurred which with notice or lapse of time or both could put the Company in default or breach) under, and the Company has not taken any action or failed to take any action that would give to any other Person any rights of termination, amendment, acceleration or cancellation of, any Contract to which the Company is a party or by which any property or Assets of the Company are bound or affected. The businesses of the Company are not being conducted, and shall not be conducted so long as Buyer owns any of the Securities, in violation of any Law. Except as specifically contemplated by this Agreement, the Company is not required to obtain any Consent of, from, or with any Governmental Authority, or any other Person, in order for it to execute, deliver or perform any of its Obligations under this Agreement or the Transaction Documents in accordance with the terms hereof or thereof, or to issue and sell the Securities in accordance with the terms hereof. Except as disclosed in Schedule 6.5, all Consents which the Company is required to obtain pursuant to the immediately preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not aware of any facts or circumstances which might give rise to any of the foregoing.

6.6 Issuance of Securities. The Securities are duly authorized and, upon issuance in accordance with the terms hereof, shall be duly issued, fully paid and non-assessable, and free from all Encumbrances with respect to the issue thereof, and will be issued in compliance with all applicable United States federal and state securities Laws. Assuming the accuracy of the representations and warranties of the Buyer set forth in Article V above, the offer and sale by the Company of the Securities is exempt from: (i) the registration and prospectus delivery requirements of the Securities Act; and (ii) the registration and/or qualification provisions of all applicable state and provincial securities and “blue sky” laws.

6.7 SEC Documents; Financial Statements. The Common Stock is registered pursuant to Section 12 of the Exchange Act and the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the Exchange Act (all of the foregoing filed within the two (2) years preceding the date hereof or amended after the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the “SEC Documents”). The Company is current with its filing obligations under the Exchange Act and all SEC Documents have been filed on a timely basis or the Company has received a valid extension of such time of filing and has filed any such SEC Document prior to the expiration of any such extension. The Company represents and warrants that true and complete copies of the SEC Documents are available on the SEC’s website (www.sec.gov) at no charge to Buyer, and Buyer acknowledges that it may retrieve all SEC Documents from such website and Buyer’s access to such SEC Documents through such website shall constitute delivery of the SEC Documents to Buyer; provided, however, that if Buyer is unable to obtain any of such SEC Documents from such website at no charge, as result of such website not being available or any other reason beyond Buyer’s control, then upon request from Buyer, the Company shall deliver to Buyer true and complete copies of such SEC Documents. The Buyer shall also deliver to Buyer true and complete copies of all draft filings, reports, schedules, statements and other documents required to be filed with the SEC that have been prepared but not filed with the SEC as of the date hereof. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable Law (except as set forth in Schedule 6.7 or such statements as have been amended or updated in subsequent filings prior the date hereof, which amendments or updates are also part of the SEC Documents). As of their respective dates, except as set forth in Schedule 6.7, the financial statements of the Company included in the SEC Documents (“Financial Statements”) complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. All of the Financial Statements have been prepared in accordance with GAAP, consistently applied, during the periods involved (except: (i) as may be otherwise indicated in such Financial Statements or the notes thereto; or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements), and fairly present in all material respects the consolidated financial position of the Company as of the dates thereof and the consolidated results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). To the knowledge of the Company and its officers, no other information provided by or on behalf of the Company to the Buyer which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading.

6.8 Absence of Certain Changes. Since the date the last of the SEC Documents was filed with the SEC, none of the following have occurred:

(a) There has been no event or circumstance of any nature whatsoever that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect; or

(b) Any transaction, event, action, development, payment, or any other matter of any nature whatsoever entered into by the Company other than in the Ordinary Course of Business.

6.9 Absence of Litigation or Adverse Matters. Except as set forth in Schedule 6.9: (i) there is no Proceeding before or by any Governmental Authority or any other Person, pending, or the best of Company’s knowledge, threatened or contemplated by, against or affecting the Company, its business or Assets; (ii) there is no outstanding Judgments against or affecting the Company, its business or Assets; (iii) the Company is not in breach or violation of any Contract; and (iv) the Company has not received any material complaint from any customer, supplier, vendor or employee.

6.10 Liabilities and Indebtedness of the Company. The Company does not have any Obligations of any nature whatsoever, except: (i) as disclosed in Schedule 6.10; (ii) as disclosed in the Financial Statements; or (iii) Obligations incurred in the Ordinary Course of Business since the date of the last Financial Statements filed by the Company with the SEC which do not or would not, individually or in the aggregate, exceed Ten Thousand Dollars ($10,000) or otherwise have a Material Adverse Effect.

6.11 Title to Assets. The Company has good and marketable title to, or a valid leasehold interest in, all of its Assets which are material to the business and operations of the Company as presently conducted, free and clear of all Encumbrances or restrictions on the transfer or use of same. Except as set forth in Schedule 6.11 and except as would not have a Material Adverse Effect, the Company’s Assets are in good operating condition and repair, ordinary wear and tear excepted, and are free of any latent or patent defects which might impair their usefulness, and are suitable for the purposes for which they are currently used and for the purposes for which they are proposed to be used.

6.12 Real Estate.

(a) Real Property Ownership. The Company does not own any Real Property.

(b) Real Property Leases. Except for the Leases described in Schedule 6.12(b) (the “Company Leases”), the Company does not lease any other Real Property. With respect to each of the Company Leases: (i) the Company has been in peaceful possession of the property leased thereunder and neither the Company nor the landlord is in default thereunder; (ii) no waiver, indulgence or postponement of any of the Obligations thereunder has been granted by the Company or landlord thereunder; and (iii) there exists no event, occurrence, condition or act known to the Company which, upon notice or lapse of time or both, would be or could become a default thereunder or which could result in the termination of the Company Leases, or any of them, or have a Material Adverse Effect on the business of the Company, its Assets or its operations or financial results. The Company has not violated nor breached any provision of any such Company Leases, and all Obligations required to be performed by the Company under any of such Company Leases have been fully, timely and properly performed. The Company has delivered to the Buyer true, correct and complete copies of all Company Leases, including all modifications and amendments thereto, whether in writing or otherwise. The Company has not received any written or oral notice to the effect that any of the Company Leases will not be renewed at the termination of the term of such Company Leases, or that any of such Company Leases will be renewed only at higher rents.

6.13 Material Contracts. An accurate, current and complete copy of each of the Material Contracts has been furnished to Buyer and/or is readily available as part of the SEC Documents, and each of the Material Contracts constitutes the entire agreement of the respective parties thereto relating to the subject matter thereof. There are no outstanding offers, bids, proposals or quotations made by Company which, if accepted, would create a Material Contract with Company. Each of the Material Contracts is in full force and effect and is a valid and binding Obligation of the parties thereto in accordance with the terms and conditions thereof. To the knowledge of the Company and its officers, all Obligations required to be performed under the terms of each of the Material Contracts by any party thereto have been fully performed by all parties thereto, and no party to any Material Contracts is in default with respect to any term or condition thereof, nor has any event occurred which, through the passage of time or the giving of notice, or both, would constitute a default thereunder or would cause the acceleration or modification of any Obligation of any party thereto or the creation of any Encumbrance upon any of the Assets of the Company. Further, the Company has received no notice, nor does the Company have any knowledge, of any pending or contemplated termination of any of the Material Contracts and, no such termination is proposed or has been threatened, whether in writing or orally.

6.14 Compliance with Laws. To the knowledge of the Company and its officers, the Company is and at all times has been in full compliance with all Laws. The Company has not received any notice that it is in violation of, has violated, or is under investigation with respect to, or has been threatened to be charged with, any violation of any Law.

6.15 Intellectual Property. The Company owns or possesses adequate and legally enforceable rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and all other intellectual property rights necessary to conduct its business as now conducted. The Company does not have any knowledge of any infringement by the Company of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other intellectual property rights of others, and, to the knowledge of the Company, there is no Claim being made or brought against, or to the Company’s knowledge, being threatened against, the Company regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other intellectual property infringement; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing.

6.16 Labor and Employment Matters. The Company is not involved in any labor dispute or, to the knowledge of the Company, is any such dispute threatened. To the knowledge of the Company and its officers, none of the Company’s employees is a member of a union and the Company believes that its relations with its employees are good. To the knowledge of the Company and its officers, the Company has complied in all material respects with all Laws relating to employment matters, civil rights and equal employment opportunities.

6.17 Employee Benefit Plans. Except as set forth in Schedule 6.17, the Company does not have and has not ever maintained, and has no Obligations with respect to any employee benefit plans or arrangements, including employee pension benefit plans, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), multiemployer plans, as defined in Section 3(37) of ERISA, employee welfare benefit plans, as defined in Section 3(1) of ERISA, deferred compensation plans, stock option plans, bonus plans, stock purchase plans, hospitalization, disability and other insurance plans, severance or termination pay plans and policies, whether or not described in Section 3(3) of ERISA, in which employees, their spouses or dependents of the Company participate (collectively, the “Employee Benefit Plans”). To the Company’s knowledge, all Employee Benefit Plans meet the minimum funding standards of Section 302 of ERISA, where applicable, and each such Employee Benefit Plan that is intended to be qualified within the meaning of Section 401 of the Internal Revenue Code of 1986 is qualified. No withdrawal liability has been incurred under any such Employee Benefit Plans and no “Reportable Event” or “Prohibited Transaction” (as such terms are defined in ERISA), has occurred with respect to any such Employee Benefit Plans, unless approved by the appropriate Governmental Authority. To the Company’s knowledge, the Company has promptly paid and discharged all Obligations arising under ERISA of a character which if unpaid or unperformed might result in the imposition of an Encumbrance against any of its Assets or otherwise have a Material Adverse Effect.

6.18 Tax Matters. The Company has made and timely filed all Tax Returns required by any jurisdiction to which it is subject, and each such Tax Return has been prepared in compliance with all applicable Laws, and all such Tax Returns are true and accurate in all respects. Except and only to the extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported Taxes, the Company has timely paid all Taxes shown or determined to be due on such Tax Returns, except those being contested in good faith, and the Company has set aside on its books provision reasonably adequate for the payment of all Taxes for periods subsequent to the periods to which such Tax Returns apply. There are no unpaid Taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has withheld and paid all Taxes to the appropriate Governmental Authority required to have been withheld and paid in connection with amounts paid or owing to any Person. There is no Proceeding or Claim for refund now in progress, pending or threatened against or with respect to the Company regarding Taxes.

6.19 Insurance. The Company is covered by valid, outstanding and enforceable policies of insurance which were issued to it by reputable insurers of recognized financial responsibility, covering its properties, Assets and businesses against losses and risks normally insured against by other corporations or entities in the same or similar lines of businesses as the Company is engaged and in coverage amounts which are prudent and typically and reasonably carried by such other corporations or entities (the “Insurance Policies”). Such Insurance Policies are in full force and effect, and all premiums due thereon have been paid. None of the Insurance Policies will lapse or terminate as a result of the transactions contemplated by this Agreement. The Company has complied with the provisions of such Insurance Policies. The Company has not been refused any insurance coverage sought or applied for and the Company does not have any reason to believe that it will not be able to renew its existing Insurance Policies as and when such Insurance Policies expire or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company.

6.20 Permits. The Company possesses all Permits necessary to conduct its business, and the Company has not received any notice of, or is otherwise involved in any Proceedings relating to, the revocation or modification of any such Permits. All such Permits are valid and in full force and effect and the Company is in full compliance with the respective requirements of all such Permits.

6.21 Bank Accounts; Business Location. Schedule 6.21 sets forth, with respect to each account of the Company with any bank, broker or other depository institution: (i) the name and account number of such account; (ii) the name and address of the institution where such account is held; (iii) the name of any Person(s) holding a power of attorney with respect to such account, if any; and (iv) the names of all authorized signatories and other Persons authorized to withdraw funds from each such account. The Company has no office or place of business other than as identified on Schedule 6.21 and the Company's principal places of business and chief executive offices are indicated on Schedule 6.21. All books and records of the Company and other material Assets of the Company are held or located at the principal offices of the Company indicated on Schedule 6.21.

6.22 Environmental Laws. The Company is and has at all times been in compliance with any and all applicable Environmental Requirements, and there are no pending Claims against the Company relating to any Environmental Requirements, nor to the best knowledge of the Company, is there any basis for any such Claims.

6.23 Illegal Payments. Neither the Company, nor any director, officer, agent, employee or other Person acting on behalf of the Company has, in the course of his actions for, or on behalf of, the Company: (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

6.24 Related Party Transactions. Except for arm’s length transactions pursuant to which the Company makes payments in the Ordinary Course of Business upon terms no less favorable than the Company could obtain from third parties, none of the officers, directors or employees of the Company, nor any stockholders who own, legally or beneficially, five percent (5%) or more of the issued and outstanding shares of any class of the Company’s capital stock (each a “Material Shareholder”), is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any Contract providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from, any officer, director or such employee or Material Shareholder or, to the best knowledge of the Company, any other Person in which any officer, director, or any such employee or Material Shareholder has a substantial or material interest in or of which any officer, director or employee of the Company or Material Shareholder is an officer, director, trustee or partner. There are no Claims or disputes of any nature or kind between the Company and any officer, director or employee of the Company or any Material Shareholder, or between any of them, relating to the Company and its business.

6.25 Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to Assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for Assets is compared with the existing Assets at reasonable intervals and appropriate action is taken with respect to any differences.

6.26 Acknowledgment Regarding Buyer’s Purchase of the Securities. The Company acknowledges and agrees that Buyer is acting solely in the capacity of an arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by Buyer or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to Buyer’s purchase of the Securities. The Company further represents to Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation by the Company and its representatives.

6.27 Seniority. No indebtedness or other equity or security of the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, except only purchase money security interests (which are senior only as to underlying Assets covered thereby).

6.28 Brokerage Fees. There is no Person acting on behalf of the Company who is entitled to or has any claim for any brokerage or finder’s fee or commission in connection with the execution of this Agreement or the consummation of the transactions contemplated hereby.

6.29 Full Disclosure. All the representations and warranties made by Company herein or in the Schedules hereto, and all of the statements, documents or other information pertaining to the transaction contemplated herein made or given by Company, its agents or representatives, are complete and accurate, and do not omit any information required to make the statements and information provided, in light of the transaction contemplated herein and in light of the circumstances under which they were made, not misleading, accurate and meaningful.

ARTICLE VII

COVENANTS

7.1 Negative Covenants.

(a) Indebtedness. So long as Buyer owns, legally or beneficially, any of the Debentures, neither the Company, nor any of its subsidiaries shall, either directly or indirectly, create, assume, incur or have outstanding any indebtedness for borrowed money of any nature or kind (including purchase money indebtedness), or become liable, whether as endorser, guarantor, surety or otherwise, for any Obligation of any other Person, except for: (i) the Debentures; (ii) Obligations for accounts payable, other than for money borrowed, incurred in the Ordinary Course of Business; and (iii) indebtedness that matures by its terms after the Maturity Date (as defined in the Debenture) and that is subordinated to the Obligations owed to Buyer under the Debentures as a matter of law or pursuant to a subordination agreement, in form and content acceptable to Buyer in its sole discretion, which shall include an indefinite standstill on remedies and payment blockage rights during any default hereunder.

(b) Encumbrances. So long as Buyer owns, legally or beneficially, any of the Debentures, neither the Company, nor any of its subsidiaries shall, either directly or indirectly, create, assume, incur or suffer or permit to exist any Encumbrance upon any Asset of the Company or any of its subsidiaries which is senior to the security interest and rights of the Buyer, whether owned at the date hereof or hereafter acquired.

(c) Issuances. Neither the Company nor any of its subsidiaries shall, either directly or indirectly, issue any equity, debt or convertible or derivative instruments whatsoever during the period from the date hereof until sixty (60) days following the date hereof.

(d) Transfer; Merger. So long as Buyer owns, legally or beneficially, any of the Debentures, neither the Company, nor any of its subsidiaries shall, either directly or indirectly, permit or enter into any transaction involving a “Change in Control” (as hereinafter defined), or any other merger, consolidation, sale, transfer, license, lease, encumbrance or otherwise disposition of all or substantially all of its properties or business or all or substantially all of its Assets, except for the sale, lease or licensing of property or Assets of the Company in the Ordinary Course of Business. For purposes of this Agreement, the term “Change of Control” shall mean any sale, conveyance, assignment or other transfer, directly or indirectly, of any ownership interest of the Company or any of its subsidiaries which results in any change in the identity of the individuals or entities previously having the power to direct, or cause the direction of, the management and policies of the Company or any of its subsidiaries, or the grant of a security interest in any ownership interest of any Person directly or indirectly controlling the Company, which could result in a change in the identity of the individuals or entities previously having the power to direct, or cause the direction of, the management and policies of the Company or any of its subsidiaries.

(e) Distributions; Restricted Payments. So long as Buyer owns, legally or beneficially, any of the Debentures, neither the Company, nor any of its subsidiaries shall, either directly or indirectly: (i) purchase or redeem any shares of its capital stock; (ii) declare or pay any dividends or distributions, whether in cash or otherwise, or set aside any funds for any such purpose; (iii) make any loans, advances or extensions of credit to, or investments in, any Person, including, without limitation, any Affiliates of the Company or its subsidiaries, or the Company’s officers, directors, employees or Material Shareholders, or the officers, directors, employees of any subsidiary of the Company; or (iv) increase the annual salary paid to any officers or directors of the Company or any of its subsidiaries as of the Effective Date, unless any such increase is part of a written employment contract with any such officers entered into prior to the Effective Date, a copy of which has been delivered to and approved by the Buyer.

(f) Use of Proceeds. The proceeds from the purchase and sale of the Debentures shall be used by the Company for general working capital purposes.

(g) Business Activities; Change of Legal Status and Organizational Documents. Neither the Company, nor any of its subsidiaries, shall: (i) engage in any line of business other than the businesses engaged in as of the Effective Date and business reasonably related thereto; (ii) change its respective name, organizational identification number, its type of organization, its jurisdiction of organization or other legal structure; or (iii) permit its Certificate of Incorporation, Bylaws or other organizational documents to be amended or modified in any way which could reasonably be expected to have a Material Adverse Effect.

(h) Transactions with Affiliates. Neither the Company, nor any of its subsidiaries, shall enter into any transaction with any of its Affiliates, officers, directors, employees, Material Shareholders or other insiders, except in the Ordinary Course of Business and upon fair and reasonable terms that are no less favorable to the Company or its subsidiaries, as applicable, than it would obtain in a comparable arm’s length transaction with a Person not an Affiliate of the Company or any of its subsidiaries.

7.2 Affirmative Covenants.

(a) Corporate Existence. The Company and each of its subsidiaries shall at all times preserve and maintain their respective: (i) existence and good standing in the jurisdiction of its and their organization; and (ii) its and their qualification to do business and good standing in each jurisdiction where the nature of its and their business makes such qualification necessary, and shall at all times continue as a going concern in the business which the Company is presently conducting.

(b) Tax Liabilities. The Company and each of its subsidiaries shall at all times pay and discharge all Taxes upon, and all Claims (including claims for labor, materials and supplies) against the Company and each of its subsidiaries or any of its or their properties or Assets, before the same shall become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP are being maintained.

(c) Notice of Proceedings. The Company shall, promptly, but not more than five (5) days after knowledge thereof shall have come to the attention of any officer of the Company, give written notice to the Buyer of all threatened or pending Proceedings before any Governmental Authority.

(d) Material Adverse Effect. The Company shall, promptly, but not more than five (5) days after knowledge thereof shall have come to the attention of any officer of the Company, give written notice to the Buyer of any event, circumstance, fact or other matter that could in any way have or be reasonably expected to have a Material Adverse Effect.

(e) Notice of Default. The Company shall, promptly, but not more than five (5) days after the commencement thereof, give notice to the Buyer in writing of the occurrence of any “Event of Default” (as such term is defined in any of the Transaction Documents) or of any event which, with the lapse of time, the giving of notice or both, would constitute an Event of Default hereunder or under any other Transaction Documents.

(f) Maintain Property. The Company and each of its subsidiaries shall at all times maintain, preserve and keep all of their respective Assets in good repair, working order and condition, normal wear and tear excepted, and shall from time to time, as the Company deems appropriate in its reasonable judgment, make all needful and proper repairs, renewals, replacements, and additions thereto so that at all times the efficiency thereof shall be fully preserved and maintained. The Company shall permit Buyer to examine and inspect such Assets (and all assets and properties of its subsidiaries) at all reasonable times upon reasonable notice during business hours. During the continuance of any Event of Default hereunder or under any Transaction Documents, the Buyer shall, at the Company’s expense, have the right to make additional inspections without providing advance notice.

(g) Maintain Insurance. The Company and its subsidiaries shall at all times insure and keep insured with insurance companies acceptable to Buyer, all insurable property owned by the Company and its subsidiaries, respectively and as applicable, which is of a character usually insured by companies similarly situated and operating like properties, against loss or damage from environmental, fire and such other hazards or risks as are customarily insured against by companies similarly situated and operating like properties; and shall similarly insure employers’, public and professional liability risks. Prior to the Closing Date, the Company shall deliver to the Buyer a certificate setting forth in summary form the nature and extent of the insurance maintained pursuant to this Section. All such policies of insurance must be satisfactory to Buyer in relation to the amount and term of the Debentures and type and value of the Assets of the Company and the assets and properties of its subsidiaries, shall identify Buyer as sole/lender’s loss payee and as an additional insured. In the event the Company fails to provide Buyer with evidence of the insurance coverage required by this Section or at any time hereafter shall fail to obtain or maintain any of the policies of insurance required above, or to pay any premium in whole or in part relating thereto, then the Buyer, without waiving or releasing any obligation or default by the Company hereunder, may at any time (but shall be under no obligation to so act), obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto, which Buyer deems advisable. This insurance coverage: (i) may, but need not, protect the Company’s interest in such property; and (ii) may not pay any claim made by, or against, the Company in connection with such property. The Company may later request that the Buyer cancel any such insurance purchased by Buyer, but only after providing Buyer with evidence that the insurance coverage required by this Section is in force. The costs of such insurance obtained by Buyer, through and including the effective date such insurance coverage is canceled or expires, shall be payable on demand by the Company to Buyer, together with interest at the highest non-usurious rate permitted by law on such amounts until repaid and any other charges by Buyer in connection with the placement of such insurance. The costs of such insurance, which may be greater than the cost of insurance which the Company may be able to obtain on its own, together with interest thereon at the highest non-usurious rate permitted by Law and any other charges incurred by Buyer in connection with the placement of such insurance may be added to the total Obligations due and owing by the Company hereunder and under the Debentures to the extent not paid by the Company.

(h) Reporting Status; Listing. So long as Buyer owns, legally or beneficially, any of the Securities, the Company shall: (i) file in a timely manner all reports required to be filed under the Securities Act, the Exchange Act or any securities Laws and regulations thereof applicable to the Company of any state of the United States, or by the rules and regulations of the Principal Trading Market, and, to provide a copy thereof to the Buyer promptly after such filing; (ii) not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit such termination; (iii) if required by the rules and regulations of the Principal Trading Market, promptly secure the listing of the Incentive Shares upon the Principal Trading Market (subject to official notice of issuance) and, take all reasonable action under its control to maintain the continued listing, quotation and trading of its Common Stock (including, without limitation, the Incentive Shares) on the Principal Trading Market, and the Company shall comply in all respects with the Company’s reporting, filing and other Obligations under the bylaws or rules of the Principal Trading Market, the Financial Industry Regulatory Authority, Inc. and such other Governmental Authorities, as applicable. The Company shall promptly provide to Buyer copies of any notices it receives from the SEC or any Principal Trading Market, to the extent any such notices could in any way have or be reasonably expected to have a Material Adverse Effect.

(i) Rule 144. With a view to making available to Buyer the benefits of Rule 144 under the Securities Act (“Rule 144”), or any similar rule or regulation of the SEC that may at any time permit Buyer to sell the Incentive Shares to the public without registration, the Company represents and warrants that: (i) the Company is, and has been for a period of at least ninety (90) days immediately preceding the date hereof, subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; (ii) the Company has filed all required reports under Section 13 or 15(d) of the Exchange Act, as applicable, during the twelve (12) months preceding the Closing Date (or for such shorter period that the Company was required to file such reports); (iii) the Company is not an issuer defined as a “Shell Company” (as hereinafter defined); and (iv) if the Company has, at any time, been an issuer defined as a Shell Company, the Company has: (A) not been an issuer defined as a Shell Company for at least six (6) months prior to the Closing Date; and (B) has satisfied the requirements of Rule 144(i) (including, without limitation, the proper filing of “Form 10 information” at least six (6) months prior to the Closing Date). For the purposes hereof, the term “Shell Company” shall mean an issuer that meets the description defined under Rule 144. In addition, so long as Buyer owns, legally or beneficially, any of the Securities, the Company shall, at its sole expense:

(i) Make, keep and ensure that adequate current public information with respect to the Company, as required in accordance with Rule 144, is publicly available;

(ii) furnish to the Buyer, promptly upon reasonable request: (A) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act; and (b) such other information as may be reasonably requested by Buyer to permit the Buyer to sell any of the Securities pursuant to Rule 144 without limitation or restriction; and

(iii) promptly at the request of the Buyer, give the Company’s transfer agent instructions to the effect that, upon the transfer agent’s receipt from the Buyer of a certificate (a “Rule 144 Certificate”) certifying that the Buyer’s holding period (as determined in accordance with the provisions of Rule 144) for any portion of the Incentive Shares which the Buyer proposes to sell (the “Securities Being Sold”) is not less than six (6) months, and receipt by the transfer agent of the “Rule 144 Opinion” (as hereinafter defined) from the Company or its counsel, the transfer agent is to effect the transfer of the Securities Being Sold and issue to the Buyer(s) or transferee(s) thereof one or more stock certificates representing the transferred Securities Being Sold without any restrictive legend and without recording any restrictions on the transferability of such shares on the transfer agent’s books and records. In this regard, upon Buyer’s request, the Company shall have an affirmative obligation to cause its counsel to promptly issue to the transfer agent a legal opinion providing that, based on the Rule 144 Certificate, the Securities Being Sold may be sold pursuant to the provisions of Rule 144, even in the absence of an effective registration statement (the “Rule 144 Opinion”). If the transfer agent requires any additional documentation in connection with any proposed transfer by the Buyer of any Securities Being Sold, the Company shall promptly deliver or cause to be delivered to the transfer agent or to any other Person, all such additional documentation as may be necessary to effectuate the transfer of the Securities being Sold and the issuance of an unlegended certificate to any transferee thereof, all at the Company’s expense.

(j) Matters With Respect to Securities.

(i) Issuance of Conversion Shares. The parties hereto acknowledge that pursuant to the terms of the Debentures, Buyer has the right, at its discretion, to convert amounts due under the Debentures into Common Stock in accordance with the terms of the Debentures. In the event, for any reason, the Company fails to issue, or cause its transfer agent (the “Transfer Agent”) to issue, any portion of the Common Stock issuable upon conversion of the Debentures (the “Conversion Shares”) to Buyer in connection with the exercise by Buyer of any of its conversion rights under the Debentures, then the parties hereto acknowledge that Buyer shall irrevocably be entitled to deliver to the Transfer Agent, on behalf of itself and the Company, a “Conversion Notice” (as defined in the Debentures) requesting the issuance of the Conversion Shares then issuable in accordance with the terms of the Debentures, and the Transfer Agent, provided they are the acting transfer agent for the Company at the time, shall, and the Company hereby irrevocably authorizes and directs the Transfer Agent to, without any further confirmation or instructions from the Company, issue the Conversion Shares applicable to the Conversion Notice then being exercised, and surrender to a nationally recognized overnight courier for delivery to Buyer at the address specified in the Conversion Notice, a certificate of the Common Stock of the Company, registered in the name of Buyer, for the number of Conversion Shares to which Buyer shall be then entitled under the Debentures, as set forth in the Conversion Notice.

(ii) Issuance of Additional Common Stock Under Section 7.5. The parties hereto acknowledge that pursuant to Section 7.5 below, the Company has agreed to issue, simultaneously with the execution of this Agreement and in the future, certain shares of the Company’s Common Stock in accordance with the terms of Section 7.5 below. In the event, for any reason, the Company fails to issue, or cause its Transfer Agent to issue, any portion of the Common Stock issuable to Buyer under Section 7.5, either now or in the future, then the parties hereto acknowledge that Buyer shall irrevocably be entitled to deliver to the Transfer Agent, on behalf of itself and the Company, a written instruction requesting the issuance of the shares of Common Stock then issuable in accordance with Section 7.5 below, and the Transfer Agent, provided they are the acting transfer agent for the Company at the time, shall, and the Company hereby irrevocably authorizes and directs the Transfer Agent to, without any further confirmation or instructions from the Company, issue such shares of the Company’s Common Stock as directed by Buyer, and surrender to a nationally recognized overnight courier for delivery to Buyer at the address specified in the Buyer’s notice, a certificate of the Common Stock of the Company, registered in the name of Buyer, for the number of shares of Common Stock issuable to Buyer in accordance with Section 7.5.

(iii) Removal of Restrictive Legends. In the event that Buyer has any shares of the Company’s Common Stock bearing any restrictive legends, and Buyer, through its counsel or other representatives, submits to the Transfer Agent any such shares for the removal of the restrictive legends thereon, whether in connection with a sale of such shares pursuant to any exemption to the registration requirements under the Securities Act, or otherwise, and the Company and or its counsel refuses or fails for any reason to render an opinion of counsel or any other documents or certificates required for the removal of the restrictive legends, then the Company hereby agrees and acknowledges that Buyer is hereby irrevocably and expressly authorized to have counsel to Buyer render any and all opinions and other certificates or instruments which may be required for purposes of removing such restrictive legends, and the Company hereby irrevocably authorizes and directs the Transfer Agent to, without any further confirmation or instructions from the Company, issue any such shares without restrictive legends as instructed by Buyer, and surrender to a common carrier for overnight delivery to the address as specified by Buyer, certificates, registered in the name of Buyer or its designees, representing the shares of Common Stock to which Buyer is entitled, without any restrictive legends and otherwise freely transferable on the books and records of the Company.

(iv) Authorized Agent of the Company. The Company hereby irrevocably appoints the Buyer and its counsel and its representatives, each as the Company’s duly authorized agent and attorney-in-fact for the Company for the purposes of authorizing and instructing the Transfer Agent to process issuances, transfers and legend removals upon instructions from Buyer, or any counsel or representatives of Buyer, as specifically contemplated herein. The authorization and power of attorney granted hereby is coupled with an interest and is irrevocable so long as any obligations of the Company under Debentures remain outstanding, and so long as the Buyer owns or has the right to receive, any shares of the Company’s Common Stock hereunder. In this regard, the Company hereby confirms to the Transfer Agent and the Buyer that it can NOT and will NOT give instructions, including stop orders or otherwise, inconsistent with the terms of this Agreement with regard to the matters contemplated herein, and that the Buyer shall have the absolute right to provide a copy of this Agreement to the Transfer Agent as evidence of the Company’s irrevocable authority for Buyer and Transfer Agent to process issuances, transfers and legend removals upon instructions from Buyer, or any counsel or representatives of Buyer, as specifically contemplated herein, without any further instructions, orders or confirmations from the Company.

(v) Injunction and Specific Performance. The Company specifically acknowledges and agrees that in the event of a breach or threatened breach by the Company of any provision of this Section 7.2(j), the Buyer will be irreparably damaged and that damages at law would be an inadequate remedy if this Agreement were not specifically enforced. Therefore, in the event of a breach or threatened breach of any provision of this Section (j) by the Company, the Buyer shall be entitled to obtain, in addition to all other rights or remedies Buyer may have, at law or in equity, an injunction restraining such breach, without being required to show any actual damage or to post any bond or other security, and/or to a decree for specific performance of the provisions of this Section (j).

7.3 Reporting Requirements. The Company shall agree as follows:

(a) Annual Audited Financial Statements. At or before the time required by the SEC for filing of the Company’s Form 10-K (including extensions), to file with the SEC and to deliver a copy of such filing to the Buyer, of the annual audited financial statements of the Company, including all information required by the SEC to be included in a Form 10-K filing; and

(b) Quarterly Financial Statements. At or before the time required by the SEC for filing of the Company’s Form 10-Q (including extensions), to file with the SEC and to deliver a copy of such filing to the Company, of the financial statements of the Company regarding such fiscal quarter including all information required by the SEC to be included in a Form 10-Q filing;

(c) Monthly Compliance Certificate. On the first (1^st) day of every month, the Company shall deliver to the Buyer a compliance certificate in substantial substance and form as attached hereto as Exhibit “B”, including a balance sheet and income statement of the Company, on a consolidated basis, as of the then ended calendar month.

7.4 Fees and Expenses.

(a) Transaction Fees. The Company agrees to pay to Buyer a transaction advisory fee equal to three percent (3%) of the amount of the Debentures purchased by Buyer at the Closing, which fee shall be due and payable on the Effective Date and withheld from the gross purchase price paid by Buyer for the Debentures.

(b) Due Diligence Fees. The Company agrees to pay to the Buyer a due diligence fee equal to Four Thousand and No/100 Dollars ($4,000.00), which shall be due and payable in full on the Effective Date, or any remaining portion thereof shall be due and payable on the Effective Date if a portion of such fee was paid upon the execution of any term sheet related to this Agreement.

(c) Document Review and Legal Fees. The Company agrees to pay to the Buyer or its counsel a document review and legal fee equal to Ten Thousand and No/100 Dollars ($10,000.00), which shall be due and payable in full on the Effective Date, or any remaining portion thereof shall be due and payable on the Effective Date if a portion of such fee was paid upon the execution of any term sheet related to this Agreement. The Company also agrees to be responsible for the prompt payment of all legal fees and expenses of the Company and its own counsel and other professionals incurred by the Company in connection with the negotiation and execution of this Agreement and the Transaction Documents.

(d) Other Fees. The Company also agrees to pay to the Buyer (or any designee of the Buyer), upon demand, or to otherwise be responsible for the payment of, any and all other costs, fees and expenses, including the reasonable fees, costs, expenses and disbursements of counsel for the Buyer and of any experts and agents, which the Buyer may incur or which may otherwise be due and payable in connection with: (i) the administration, amendment, waiver or other modification or termination of this Agreement or any other Transaction Documents; (ii) any documentary stamp taxes, intangibles taxes, recording fees, filing fees, or other similar taxes, fees or charges imposed by or due to any Governmental Authority in connection with this Agreement or any other Transaction Documents; (iii) the exercise or enforcement of any of the rights of the Buyer under this Agreement or the Transaction Documents; or (iv) the failure by the Company to perform or observe any of the provisions of this Agreement or any of the Transaction Documents. Included in the foregoing shall be the amount of all expenses paid or incurred by Buyer in consulting with counsel concerning any of its rights under this Agreement or any other Transaction Document or under applicable law. To the extent any such costs, fees, charges, taxes or expenses are incurred prior to the funding of proceeds from the Closing, same shall be paid directly from the proceeds of the Closing. All such costs and expenses, if not so immediately paid when due or upon demand thereof, shall bear interest from the date of outlay until paid, at the highest rate set forth in the Debenture, or if none is so stated, the highest rate allowed by law. All of such costs and expenses shall be additional Obligations of the Company to Buyer secured under the Transaction Documents. The provisions of this Subsection shall survive the termination of this Agreement. Notwithstanding anything which may be contained herein to the contrary, the only cash fees and expenses (other than stamp and UCC Financing Statement filing expenses) which shall be assessed by the Buyer upon Closing are provided in Sections 7.4(a), (b) and (c).

7.5 Incentive Shares.

(a) Share Issuance. The Company shall pay to Buyer a fee for corporate advisory and investment banking services provided by the Buyer to the Company prior to the Effective Date by issuing to Buyer that number of shares of the Company’s Common Stock that equal to a dollar amount equal to $25,000.00 (the “Share Value”). For purposes of determining the number of Incentive Shares issuable to Buyer under this Section 7.5(a), the Company’s Common Stock shall be valued at the volume weighted average price as of the close of the business day immediately prior to the date the Company executes this Agreement (the “Valuation Date”), as reported by Bloomberg (the “VWAP”). The Buyer shall confirm to the Company in writing, the VWAP for the Common Stock as of the Valuation Date, and the corresponding number of Shares issuable to the Buyer based on such price. The Company shall instruct its transfer agent to issue certificates representing the Incentive Shares issuable to the Buyer immediately upon the Company’s execution of this Agreement, and shall cause its transfer agent to deliver such certificates to Buyer within five (5) business days from the date the Company executes this Agreement. In the event such certificates representing the Incentive Shares issuable hereunder shall not be delivered to the Buyer within said five (5) business day period, same shall be an immediate default under this Agreement and the other Transaction Documents. The Incentive Shares, when issued, shall be deemed to be validly issued, fully paid, and non-assessable shares of the Company’s Common Stock. The Incentive Shares are and shall be deemed fully earned in connection with the corporate advisory and investment banking services provided by the Buyer to the Company prior to the Effective Date.

(b) Adjustments. It is the intention of the Company and Buyer that by a date that is nine (9) months after the Valuation Date (the “Nine Month Valuation Date”) the Buyer shall have generated net proceeds from the sale of the Incentive Shares equal to the Share Value. The Buyer shall have the right to sell the Incentive Shares in the Principal Trading Market or otherwise, at any time in accordance with applicable securities laws. At any time the Buyer may elect after the Nine Month Valuation Date (or prior to such Nine Month Valuation Date, if Buyer has sold all Incentive Shares prior to such Nine Month Valuation Date), the Buyer may deliver to the Company a reconciliation statement showing the net proceeds actually received by the Buyer from the sale of the Incentive Shares (the “Sale Reconciliation”). If, as of the date of the delivery by Buyer of the Sale Reconciliation, the Buyer has not realized net proceeds from the sale of such Incentive Shares equal to at least the Share Value, as shown on the Sale Reconciliation, then the Company shall immediately take all required action necessary or required in order to cause the issuance of additional shares of Common Stock to the Buyer in an amount sufficient such that, when sold and the net proceeds thereof are added to the net proceeds from the sale of any of the previously issued and sold Incentive Shares, the Buyer shall have received total net funds equal to the Share Value. If additional shares of Common Stock are issued pursuant to the immediately preceding sentence, and after the sale of such additional issued shares of Common Stock, the Buyer still has not received net proceeds equal to at least the Share Value, then the Company shall again be required to immediately take all required action necessary or required in order to cause the issuance of additional shares of Common Stock to the Buyer as contemplated above, and such additional issuances shall continue until the Buyer has received net proceeds from the sale of such Common Stock equal to the Share Value. In the event the Buyer receives net proceeds from the sale of Incentive Shares equal to the Share Value, and the Buyer still has Incentive Shares remaining to be sold, the Buyer shall return all such remaining Incentive Shares to the Company. In the event additional Common Stock is required to be issued as outlined above, the Company shall instruct its transfer agent to issue certificates representing such additional shares of Common Stock to the Buyer immediately subsequent to the Buyer’s notification to the Company that additional shares of Common Stock are issuable hereunder, and the Company shall in any event cause its transfer agent to deliver such certificates to Buyer within three (3) business days following the date Buyer notifies the Company that additional shares of Common Stock are to be issued hereunder. In the event such certificates representing such additional shares of Common Stock issuable hereunder shall not be delivered to the Buyer within said three (3) business day period, same shall be an immediate default under this Agreement and the Transaction Documents. Notwithstanding anything contained in this Section 7.5 to the contrary, at any time on or prior to the Nine Month Valuation Date, but not thereafter (unless agreed to by the Buyer), the Company shall have the right, at any time during such period, to redeem any Incentive Shares then in the Buyer’s possession for an amount payable by the Company to Buyer in cleared U.S. funds equal to the Share Value, less any net cash proceeds received by the Buyer from any previous sales of Incentive Shares. Upon Buyer’s receipt of such cash payment in accordance with the immediately preceding sentence, the Buyer shall return any then remaining Incentive Shares in its possession back to the Company.

(c) Mandatory Redemption. In the event that the five (5) day average trading volume of the Company’s Common Stock declines by greater than seventy-five percent (75%) in any given five (5) day period at any time after the Buyer may lawfully begin to sell any Incentive Shares, then Buyer may require, upon written notice to the Company, that the Company redeem all Incentive Shares then in Buyer’s possession for cash equal to the Share Value, less any cash proceeds received by the Buyer from any previous sales of Incentive Shares, if any. In the event such redemption notice is given by the Buyer, the Company shall redeem the then remaining Incentive Shares in Buyer’s possession for cash payable in cleared and good U.S. funds equal to the Share Value, less any cash proceeds received by the Buyer from any previous sales of Incentive Shares, if any, within five (5) business days from the date the Buyer delivers such redemption notice to the Company.

7.6 Pledged Stock.

(a) Number of Shares for Pledged Stock. As additional security for the Company’s obligations under the Debentures and the other Transaction Documents, the Company shall issue and pledge to the Buyer under the Pledge Agreement a number of shares of the Company’s Common Stock in a number to be calculated such that, when added to the number of Incentive Shares issued to the Buyer hereunder, the Buyer shall own or have shares of Common Stock pledged to it under the Pledge Agreement equal to the lesser of: (i) 4.99% of the then issued and outstanding shares of Common Stock of the Company; or (ii) 200% of the then outstanding amount owed pursuant to the Debentures (using VWAP as of the close of business on the day immediately prior to the date such calculation is made). The shares representing the Pledged Stock shall be delivered to the escrow agent under the Pledge Agreement on or prior to the Closing Date in accordance with the terms of the Pledge Agreement.

7.7 Adjustment to Pledged Stock. The Company agrees that the Buyer shall have full anti-dilution protection with respect to the Pledged Stock while the Debentures are outstanding. In that regard, if the Company issues any Common Stock, or any securities convertible into Common Stock, or options to purchase Common Stock or securities convertible into Common Stock, at any time while the Debentures remain outstanding to any Person other than Buyer or an Affiliate of Buyer, the Company shall immediately take all required action necessary or required in order to cause the issuance of additional shares of Common Stock to be pledged under the Pledge Agreement and delivered to the escrow agent thereunder, such that the number of shares Common Stock pledged under the Pledge Agreement, together with any Incentive Shares owned by Buyer as of the time of such calculation, is always the lesser of: (i) 4.99% of the then issued and outstanding shares of Common Stock of the Company; or (ii) 200% of the then outstanding amount owed pursuant to the Debentures.

ARTICLE VIII

CONDITIONS PRECEDENT TO THE COMPANY’S OBLIGATIONS TO SELL

The obligation of the Company hereunder to issue and sell the Securities to the Buyer at the Closings is subject to the satisfaction, at or before the respective Closing Dates, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

8.1 Buyer shall have executed the Transaction Documents and delivered them to the Company.

8.2 The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Dates as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Dates.

8.3 That certain Drawdown Equity Facility Agreement and Registration Rights Agreement, each by and between the Company and Auctus Private Equity Fund, LLC, shall have been fully executed and be in full force and effect.

ARTICLE IX

CONDITIONS PRECEDENT TO THE BUYER’S OBLIGATIONS TO PURCHASE

The obligation of the Buyer hereunder to purchase the Debentures at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions (in addition to any other conditions precedent elsewhere in this Agreement), provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:

9.1 The Company shall have executed and delivered the Transaction Documents and delivered the same to the Buyer.

9.2 The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties are already qualified as to materiality in Article VI above, in which case, such representations and warranties shall be true and correct in all respects without further qualification) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.

9.3 The Buyer shall have received an opinion of counsel from counsel to the Company in a form satisfactory to the Buyer and its counsel.

9.4 The Buyer shall have issued an irrevocable issuance instruction letter and board resolution, authorizing the issuance of the Incentive Shares and directing its transfer agent to issue and deliver the Incentive Shares to Buyer or its designee.

9.5 The Company shall have executed and delivered to Buyer a closing certificate in substance and form required by Buyer, which closing certificate shall include and attach as exhibits: (i) a true copy of a certificate of good standing evidencing the formation and good standing of the Company from the secretary of state (or comparable office) from the jurisdiction in which the Company is incorporated, as of a date within ten (10) days of the Closing Date; (ii) the Company’s Certificate of Incorporation; (iii) the Company’s Bylaws; and (iv) copies of the resolutions of the board of directors of the Company consistent with Section 6.3, as adopted by the Company’s board of directors in a form reasonably acceptable to Buyer.

9.6 No event shall have occurred which could reasonably be expected to have a Material Adverse Effect.

9.7 The Company shall have executed such other agreements, certificates, confirmations or resolutions as the Buyer may required to consummate the transactions contemplated by this Agreement and the Transaction Documents, including a closing statement and joint disbursement instructions as may be required by Buyer.

ARTICLE X

INDEMNIFICATION

10.1 Company’s Obligation to Indemnify. In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement, the Company hereby agrees to defend and indemnify Buyer and its Affiliates and subsidiaries and their respective directors, officers, employees, agents and representatives, and the successors and assigns of each of them (collectively, the “Buyer Indemnified Parties”) and Company does hereby agree to hold the Buyer Indemnified Parties forever harmless, from and against any and all Claims made, brought or asserted against the Buyer Indemnified Parties, or any one of them, and Company hereby agrees to pay or reimburse the Buyer Indemnified Parties for any and all Claims payable by any of the Buyer Indemnified Parties to any Person, including reasonable attorneys’ and paralegals’ fees and expenses, court costs, settlement amounts, costs of investigation and interest thereon from the time such amounts are due at the highest non-usurious rate of interest permitted by applicable Law, through all negotiations, mediations, arbitrations, trial and appellate levels, as a result of, or arising out of, or relating to: (i) any misrepresentation or breach of any representation or warranty made by the Company or any of its subsidiaries in this Agreement, the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; (ii) any breach of any covenant, agreement or Obligation of the Company or its subsidiaries contained in this Agreement, the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; or (iii) any Claims brought or made against the Buyer Indemnified Parties, or any one of them, by a third party and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement, the Transaction Documents or any other instrument, document or agreement executed pursuant hereto or thereto, any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Debentures, or the status of the Buyer or holder of any of the Securities, as a buyer of such Securities in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Claims covered hereby, which is permissible under applicable Law.

ARTICLE XI

MISCELLANEOUS

11.1 Notices. All notices of request, demand and other communications hereunder shall be addressed to the parties as follows:

If to the Company: Aqualiv Technologies, Inc.

4550 NW Newberry Hill Road, Suite 202

Silverdale, WA 98383

Attn: Mr. William Wright, CEO

Telephone: (360) 536-4220

Facsimile: (360) 473-1160

E-Mail: bwright@aqualivtech.com

With a copy to: Seth Brookman, Esq.

(which shall not constitute notice) Lucosky Brookman, LLP

33 Wood Avenue South, 6^th Floor

Iselin, New Jersey 08830

Phone: (732) 395-4400

Fax: (732) 395-4401

Email: sbrookman@lucbro.com

If to the Buyer: TCA Global Credit Master Fund, LP

1404 Rodman Street

Hollywood, FL 33020

Attn: Mr. Robert Press

Telephone: (786) 323-1650

Facsimile: (786) 323-1651

E-Mail: bpress@trafcap.com

With a copy to: David Kahan, P.A.

6420 Congress Ave., Suite 1800

Boca Raton, FL 33487

Attn: David Kahan, Esq.

Telephone: (561) 672-8330

Facsimile: (561) 672-8301

E-Mail: david@dkpalaw.com

unless the address is changed by the party by like notice given to the other parties. Notice shall be in writing and shall be deemed delivered: (i) if mailed by certified mail, return receipt requested, postage prepaid and properly addressed to the address below, then three (3) business days after deposit of same in a regularly maintained U.S. Mail receptacle; or (ii) if mailed by Federal Express, UPS or other nationally recognized overnight courier service, next business morning delivery, then one (1) business day after deposit of same in a regularly maintained receptacle of such overnight courier; or (iii) if hand delivered, then upon hand delivery thereof to the address indicated on or prior to 5:00 p.m., EST, on a business day. Any notice hand delivered after 5:00 p.m., EST, shall be deemed delivered on the following business day. Notwithstanding the foregoing, notice, consents, waivers or other communications referred to in this Debenture may be sent by facsimile, e-mail, or other method of delivery, but shall be deemed to have been delivered only when the sending party has confirmed (by reply e-mail or some other form of written confirmation from the receiving party) that the notice has been received by the other party.

11.2 Entire Agreement. This Agreement, including the Exhibits and Schedules attached hereto and the documents delivered pursuant hereto, including the Transaction Documents, set forth all the promises, covenants, agreements, conditions and understandings between the parties hereto with respect to the subject matter hereof and thereof, and supersede all prior and contemporaneous agreements, understandings, inducements or conditions, expressed or implied, oral or written, except as contained herein and in the Transaction Documents.

11.3 Assignment. The Buyer may at any time assign its rights in this Agreement or any of the other Transaction Documents, or any part thereof, without the Company’s consent or approval. In addition, the Buyer may at any time sell one or more participations in the Debentures. The Company may not sell or assign this Agreement or any of the Transaction Documents, or any portion thereof, either voluntarily or by operation of law, nor delegate any of its duties of obligations hereunder or thereunder, without the prior written consent of the Buyer, which consent may be withheld in Buyer’s sole and absolute discretion.

11.4 Binding Effect. This Agreement shall be binding upon the parties hereto, their respective successors and permitted assigns.

11.5 Amendment. The parties hereby irrevocably agree that no attempted amendment, modification, or change of this Agreement shall be valid and effective, unless the parties shall unanimously agree in writing to such amendment, modification or change.

11.6 No Waiver. No waiver of any provision of this Agreement shall be effective, unless it is in writing and signed by the party against whom it is asserted, and any such written waiver shall only be applicable to the specific instance to which it relates and shall not be deemed to be a continuing or future waiver.

11.7 Gender and Use of Singular and Plural. All pronouns shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the party or parties or their personal representatives, successors and assigns may require.

11.8 Counterparts. This Agreement and any amendments hereto may be executed in one or more counterparts, each of which shall be deemed an original and all of which together will constitute one and the same instrument.

11.9 Electronic Signatures. The Buyer is hereby authorized to rely upon and accept as an original for all purposes, this Agreement, any other Transaction Document or other communication which is sent to Buyer or its counsel by facsimile, telegraphic, ..pdf, or other electronic transmission (each, a “Communication”) which Buyer or its counsel in good faith believes has been signed by the Company and has been delivered to Buyer or its counsel by a properly authorized representative of the Company, whether or not that is in fact the case. Notwithstanding the foregoing, the Buyer shall not be obligated to accept any such Communication as an original and may in any instance require that an original document be submitted to Buyer in lieu of, or in addition to, any such Communication.

11.10 Headings. The article and section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of the Agreement.

11.11 Governing Law. This Agreement shall be construed in accordance with the laws of the State of Nevada, without regard to the principles of conflicts of laws. The parties further agree that any action between them shall be heard in Clark County, Nevada and expressly consent to the jurisdiction and venue of the State Courts sitting in Clark County, Nevada and the United States District Court for the District of Nevada for the adjudication of any civil action asserted pursuant to this Agreement; provided, however, nothing contained herein shall limit the Buyer’s ability to bring suit or enforce this Agreement or any other Transaction Documents in any other jurisdiction.

11.12 Further Assurances. The parties hereto will execute and deliver such further instruments and do such further acts and things as may be reasonably required to carry out the intent and purposes of this Agreement.

11.13 Survival. All covenants, agreements, representations and warranties made by the Company herein shall, notwithstanding any investigation by the Buyer, be deemed material and relied upon by Buyer and shall survive the making and execution of this Agreement and the Transaction Documents and the issuance of the Debentures, and shall be deemed to be continuing representations and warranties until such time as the Company has fulfilled all of its Obligations to Buyer, the Debentures have been repaid in full and Buyer no longer owns any of the Incentive Shares.

11.14 Time is of the Essence. The parties hereby agree that time is of the essence with respect to performance of each of the parties’ Obligations under this Agreement. The parties agree that in the event that any date on which performance is to occur falls on a Saturday, Sunday or state or national holiday, then the time for such performance shall be extended until the next business day thereafter occurring.

11.15 Joint Preparation. The preparation of this Agreement has been a joint effort of the parties and the resulting documents shall not, solely as a matter of judicial construction, be construed more severely against one of the parties than the other.

11.16 Severability. If any one of the provisions contained in this Agreement, for any reason, shall be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall remain in full force and effect and be construed as if the invalid, illegal or unenforceable provision had never been contained herein.

11.17 No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

11.18 WAIVER OF JURY TRIAL. THE BUYER AND THE COMPANY, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES, IRREVOCABLY, THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR ANY OTHER AGREEMENT EXECUTED OR CONTEMPLATED TO BE EXECUTED IN CONJUNCTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT OR COURSE OF DEALING IN WHICH THE BUYER AND THE COMPANY ARE ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BUYER TO PURCHASE THE DEBENTURES.

11.19 Compliance with Federal Law. The Company shall: (i) ensure that no Person who owns a controlling interest in or otherwise controls the Company is or shall at any time be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury, included in any Executive Orders or in any other similar lists of any Governmental Authority; (ii) not use or permit the use of the proceeds of the purchase of the Debentures to violate any of the foreign asset control regulations of OFAC or any enabling statute, Executive Order relating thereto or any other requirements or restrictions imposed by any Governmental Authority; and (iii) comply with all applicable Lender Secrecy Act (“BSA”) laws and regulations, as amended. As required by federal law and Buyer’s policies and practices, Buyer may need to obtain, verify and record certain customer identification information and documentation in connection with opening or maintaining accounts or establishing or continuing to provide services.

[SIGNATURES ON THE FOLLOWING PAGE]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year set forth above.

COMPANY:

AQUALIV TECHNOLOGIES, INC., a Nevada corporation

By:_______________________________________

Name:_____________________________________

Title:______________________________________

Date:______________________________________

BUYER:

TCA GLOBAL CREDIT MASTER FUND, LP

By: TCA Global Credit Fund GP, Ltd.

Its: General Partner

By:________________________________________

Name:______________________________________

Title:____________________________________

Date:____________________________________

Aqua Sub and Focus are each hereby executing this Agreement for the purpose of making and confirming all of the representations and warranties deemed made by Aqua Sub and Focus under this Agreement (specifically Article VI hereof) pursuant to Section 6.1 of this Agreement.

AQUALIV, INC. FOCUS SYSTEMS, INC.

By:________________________________ By:________________________________

Name:______________________________ Name:_____________________________

Title:______________________________

Date:_______________________________ Date:_______________________________

EXHIBIT “A”

FORM OF DEBENTURE

EXHIBIT “B”

Form of Compliance Certificate
DISCLOSURE SCHEDULES FOR COMPANY AND ITS SUBSIDIARIES

EX-10.8 6 ex10_8.htm

Senior Secured, Convertible, Redeemable Debenture

Original Issue Date as of: April 27, 2012

Maturity Date: April 24, 2013 (subject to adjustment as set forth below)

Amount: $200,000.00

This Senior Secured, Convertible, Redeemable Debenture (the “Debenture”) is issued as of April 27, 2012 (the “Closing Date”) by Aqualiv Technologies, Inc., a Nevada corporation (the “Company”), to TCA Global Credit Master Fund LP, a Cayman Islands limited partnership (together with its permitted successors and assigns, the “Holder”) pursuant to exemptions from registration under the Securities Act of 1933, as amended.

ARTICLE I.

Section 1.01 Principal and Interest. For value received, the Company hereby promises to pay to the order of the Holder, by no later than April 24, 2013, subject to adjustment as set forth below (the “Maturity Date”), in immediately available and lawful money of the United States of America, Two Hundred Thousand and No/100 Dollars ($200,000.00), together with interest on the outstanding principal amount under this Debenture, at the rate of twelve percent (12%) per annum simple interest (the “Interest Rate”) from the date the proceeds hereof are initially funded, until paid, as more specifically provided below.

Section 1.02 Repayment. The Company, at its option, shall have the right to repay principal, interest, fees and expenses due under this Debenture with no penalty or premium in full and for cash, at any time prior to the Maturity Date, with three (3) business days advance written notice to the Holder. On the Maturity Date, the Company shall repay all outstanding principal, interest, fees and expenses due and payable to the Holder under this Debenture and all other Transaction Documents by no later than 2:00 P.M., EST, on the Maturity Date.

Section 1.03 Payments.

(1) Payments from CEF. The Company hereby represents that it has entered into and executed a Drawdown Equity Facility Agreement and Registration Rights Agreement, each by and between the Company and Auctus Private Equity Fund, LLC (collectively, the “CEF”), pursuant to which the Company will have the right, upon the effectiveness of its registration statement being filed with the SEC in accordance with the terms of the CEF, to sell its Common Stock to raise capital for the Company. Upon such registration statement becoming effective, the Company shall: (i) send written notice thereof to the Holder; and (ii) cause Auctus Private Equity Fund, LLC to pay directly to the Holder, for each advance taken by the Company under the CEF, fifty percent (50%) of any net proceeds otherwise payable to the Company from any sale of its Common Stock under the CEF, up to $25,000 per calendar month. So long as any part of this Debenture remains outstanding, the Company shall notify the Holder in writing each time it requests an advance under the CEF. The Company hereby represents and warrants that the CEF is in full force and effect as of the date hereof. In the event: (I) the Company fails to make a payment to the Holder through an advance under the CEF as required hereunder by a date that is two hundred ten (210) days after the date hereof; or (II) the Company makes an initial payment to the Holder through an advance under the CEF as required hereunder prior to a date that is two hundred ten (210) days after the date hereof, but fails thereafter to make payments to the Holder through an advance under the CEF as required hereunder at least one time per calendar month after said initial payment, then upon the occurrence of either of the foregoing two events, the Maturity Date of this Debenture shall, without any further notice or demand from Holder and without the need for any further amendment or other written instrument, automatically be modified and amended to a date that is as follows: (A) if the event in Section 1.03(1)(I) occurs, then to a date that is fifteen (15) days from the end of such two hundred ten (210) day period; or (B) if the event in Section 1.03(1)(II) occurs, then to a date that is fifteen (15) days after the end of the calendar month in which the Company fails to make a monthly payment as required hereby. Notwithstanding anything which may be contained in this Section 1.03(1) to the contrary, if the event in Section 1.03(1)(II) occurs, the Maturity Date shall not be accelerated and modified as provided above so long as the Company pays a fee to Holder in the amount of $1,000 per month, for each month in which it is not making payments as required hereby in order to satisfy the monthly requirements contained herein.

(2) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, and shall accrue daily on the outstanding principal amount outstanding from time to time for the actual number of days elapsed, commencing on the date the proceeds hereof are initially funded, until payment in full of the outstanding principal, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made. All payments hereunder shall be applied first towards costs and expenses, if any, due under this Debenture or any other Transaction Documents, second towards the payment of accrued and unpaid interest and third towards the principal amount outstanding hereby.

Section 1.04 Manner of Payments. All sums payable to the order of Holder hereunder shall be payable by wire transfer of lawful dollars of the United States of America to the wire instructions set forth below, or at such place as Holder, from time to time, may designate in writing. Wire Instructions for all sums due and payable hereunder are as follows:

TCA Global Credit Master Fund, LP (US Dollars)

Correspondent Bank:

Bank of New York

1 Wall Street

New York, New York 10286

ABA# 021-0000-18

SWIFT: IRVTUS3N

Beneficiary Bank:

Caledonian Bank Limited

A/C Number: 89-000-50977

SWIFT: CBTLKYKY

For Final Credit:

Account Name: Caledonian Fund Services (Cayman) Limited – Client Bank Account

Account Number: 0201420308681001

Beneficiary Reference: TCA Global Credit Master Fund, LP A/C # 0201420310849001

ARTICLE II.

Section 2.01 Secured Nature of Debenture. This Debenture is being issued in connection with a Securities Purchase Agreement dated of even date herewith by and between the Company and the Holder (the “SPA”). The indebtedness evidenced by this Debenture is also secured by all of the assets and property of the Company, all of the assets and property of certain of the Company’s subsidiaries, and various other instruments and documents referred to in the SPA as the “Transaction Documents.” All of the agreements, conditions, covenants, provisions, representations, warranties and stipulations contained in any of the Transaction Documents which are to be kept and performed by the Company are hereby made a part of this Debenture to the same extent and with the same force and effect as if they were fully set forth herein, and the Company covenants and agrees to keep and perform them, or cause them to be kept or performed, strictly in accordance with their terms.

ARTICLE III.

Section 3.01 Events of Default. The occurrence of any of the following events shall constitute an “Event of Default” hereunder: (i) the Company shall fail to pay any interest, principal or other charges due under this Debenture when any such payment shall be due and payable; (ii) the Company makes an assignment for the benefit of creditors; (iii) any order or decree is rendered by a court which appoints or requires the appointment of a receiver, liquidator or trustee for the Company, and the order or decree is not vacated within thirty (30) days from the date of entry thereof; (iv) any order or decree is rendered by a court adjudicating the Company insolvent, and the order or decree is not vacated within thirty (30) days from the date of entry thereof; (v) the Company files a petition in bankruptcy under the provisions of any bankruptcy law or any insolvency act; (vi) the Company admits, in writing, its inability to pay its debts as they become due; (vii) a proceeding or petition in bankruptcy is filed against the Company and such proceeding or petition is not dismissed within thirty (30) days from the date it is filed; (viii) the Company files a petition or answer seeking reorganization or arrangement under the bankruptcy laws or any law or statute of the United States or any other foreign country or state; (ix) the Company shall fail to perform, comply with or abide by any of the stipulations, agreements, conditions and/or covenants contained in this Debenture or any of the other Transaction Documents on the part of the Company to be performed complied with or abided by, and such failure continues or remains uncured for ten (10) days following written notice from the Holder to the Company; and (x) the occurrence of any default or breach by the Company under the CEF that is not cured by the Company within any cure period applicable thereto.

Section 3.02 Remedies. Upon the occurrence of an Event of Default that is not timely cured within an applicable cure period hereunder, the interest on this Debenture shall immediately accrue at an Interest Rate equal to the lesser of (i) eighteen percent (18%) or (ii) the maximum rate permitted by applicable law, and, in addition to all other rights or remedies the Holder may have, at law or in equity, the Holder may, in its sole discretion, accelerate full repayment of all principal amounts outstanding hereunder, together with accrued interest thereon, together with all redemption premiums due hereunder, together with all attorneys’ fees, paralegals’ fees and costs and expenses incurred by the Holder in collecting or enforcing payment hereof (whether such fees, costs or expenses are incurred in negotiations, all trial and appellate levels, administrative proceedings, bankruptcy proceedings or otherwise), and together with all other sums due by the Company hereunder and under the Transaction Documents, all without any relief whatsoever from any valuation or appraisement laws, and payment thereof may be enforced and recovered in whole or in part at any time by one or more of the remedies provided to the Holder at law, in equity, or under this Debenture or any of the other Transaction Documents. In connection with the Holder’s rights hereunder upon an Event of Default, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately enforce any and all of its rights and remedies hereunder and all other remedies available to it in equity or under applicable law.

ARTICLE IV.

Section 4.01 Usury Savings Clause. Notwithstanding any provision in this Debenture or the other Transaction Documents, the total liability for payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions, or other sums which may at any time be deemed to be interest, shall not exceed the limit imposed by the usury laws of the jurisdiction governing this Debenture or any other applicable law. In the event the total liability of payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions or other sums which may at any time be deemed to be interest, shall, for any reason whatsoever, result in an effective rate of interest, which for any month or other interest payment period exceeds the limit imposed by the usury laws of the jurisdiction governing this Debenture, all sums in excess of those lawfully collectible as interest for the period in question shall, without further agreement or notice by, between, or to any party hereto, be applied to the reduction of the outstanding principal balance due hereunder immediately upon receipt of such sums by the Holder hereof, with the same force and effect as though the Company had specifically designated such excess sums to be so applied to the reduction of the principal balance then outstanding, and the Holder hereof had agreed to accept such sums as a penalty-free payment of principal; provided, however, that the Holder may, at any time and from time to time, elect, by notice in writing to the Company, to waive, reduce, or limit the collection of any sums in excess of those lawfully collectible as interest, rather than accept such sums as a prepayment of the principal balance then outstanding. It is the intention of the parties that the Company does not intend or expect to pay, nor does the Holder intend or expect to charge or collect any interest under this Debenture greater than the highest non-usurious rate of interest which may be charged under applicable law.

ARTICLE V.

Section 5.01 No Exemption. The Company hereby waives and releases all benefit that might accrue to the Company by virtue of any present or future laws exempting any property that may serve as security for this Debenture, or any other property, real or personal, or any part of the proceeds arising from any sale of any such property, from attachment, levy, or sale under execution, exemption from civil process, or extension of time for payment; and the Company agrees that any property that may be levied upon pursuant to a judgment obtained by virtue hereof, on any writ of execution issued thereon, may be sold upon any such writ in whole or in part in any order or manner desired by Holder.

Section 5.02 Exercise of Remedies. The remedies of the Holder as provided herein and in any of the other Transaction Documents shall be cumulative and concurrent and may be pursued singly, successively or together, at the sole discretion of the Holder, and may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof.

Section 5.03 Waivers. The Company and all others who are, or may become liable for the payment hereof: (i) severally waive presentment for payment, demand, notice of nonpayment or dishonor, protest and notice of protest of this Debenture or any other Transaction Documents, and all other notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Debenture and the other Transaction Documents, except as specifically provided in this Debenture or any other Transaction Document; (ii) expressly consent to all extensions of time, renewals or postponements of time of payment of this Debenture and any other Transaction Documents from time to time prior to or after the maturity of this Debenture without notice, consent or further consideration to any of the foregoing; (iii) expressly agree that the Holder shall not be required first to institute any suit, or to exhaust its remedies against the Company or any other person or party to become liable hereunder or against any collateral that may secure this Debenture in order to enforce the payment of this Debenture; and (iv) expressly agree that, notwithstanding the occurrence of any of the foregoing (except the express written release by the Holder of any such person), the undersigned shall be and remain, directly and primarily liable for all sums due under this Debenture.

Section 5.04 No Waiver. Holder shall not be deemed, by any act of omission or commission, to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by Holder, and then only to the extent specifically set forth in the writing. A waiver on one event shall not be construed as continuing or as a bar to or waiver of any right or remedy to a subsequent event.

ARTICLE VI.

Section 6.01 Notice. Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Debenture must be in writing and in each case properly addressed to the party to receive the same in accordance with the information below, and will be deemed to have been delivered: (i) if mailed by certified mail, return receipt requested, postage prepaid and properly addressed to the address below, then three (3) business days after deposit of same in a regularly maintained U.S. Mail receptacle; or (ii) if mailed by Federal Express, UPS or other nationally recognized overnight courier service, next business morning delivery, then one (1) business day after deposit of same in a regularly maintained receptacle of such overnight courier; or (iii) if hand delivered, then upon hand delivery thereof to the address indicated on or prior to 5:00 p.m., EST, on a business day. Any notice hand delivered after 5:00 p.m., EST, shall be deemed delivered on the following business day. Notwithstanding the foregoing, notice, consents, waivers or other communications referred to in this Debenture may be sent by facsimile, e-mail, or other method of delivery, but shall be deemed to have been delivered only when the sending party has confirmed (by reply e-mail or some other form of written confirmation from the receiving party) that the notice has been received by the other party. The addresses and facsimile numbers for such communications shall be as set forth below, unless such address or information is changed by a notice conforming to the requirements hereof.

If to the Company: Aqualiv Technologies, Inc.

4550 NW Newberry Hill Road, Suite 202

Silverdale, WA 98383

Attn: Mr. William Wright, CEO

Telephone: (360) 536-4220

Facsimile: (360) 473-1160

E-Mail: bwright@aqualivtech.com

With a copy to: Seth Brookman, Esq.

(which shall not constitute notice) Lucosky Brookman, LLP

33 Wood Avenue South, 6^th Floor

Iselin, New Jersey 08830

Phone: (732) 395-4400

Fax: (732) 395-4401

Email: sbrookman@lucbro.com

If to the Holder: TCA Global Credit Master Fund, LP

1404 Rodman Street

Hollywood, FL 33020

Attn: Mr. Robert Press

Telephone: (786) 323-1650

Facsimile: (786) 323-1651

E-Mail: bpress@trafcap.com

With a copy to: David Kahan, P.A.

6420 Congress Ave., Suite 1800

Boca Raton, FL 33487

Attn: David Kahan, Esq.

Telephone: (561) 672-8330

Facsimile: (561) 672-8301

E-Mail: david@dkpalaw.com

Section 6.02 Governing Law. This Debenture shall be deemed to be made under and shall be construed in accordance with the laws of the State of Nevada without giving effect to the principals of conflict of laws thereof. Each of the parties consents to the jurisdiction of the U.S. District Court sitting in the District of the State of Nevada or the state courts of the State of Nevada sitting in Clark County, Nevada in connection with any dispute arising under this Debenture and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens to the bringing of any such proceeding in such jurisdictions, provided, however, nothing contained herein shall limit the Holder’s ability to bring suit or enforce this Debenture or any other Transaction Documents in any other jurisdiction.

Section 6.03 Severability. In the event any one or more of the provisions of this Debenture shall for any reason be held to be invalid, illegal, or unenforceable, in whole or in part, in any respect, or in the event that any one or more of the provisions of this Debenture operates or would prospectively operate to invalidate this Debenture, then and in any of those events, only such provision or provisions shall be deemed null and void and shall not affect any other provision of this Debenture. The remaining provisions of this Debenture shall remain operative and in full force and effect and shall in no way be affected, prejudiced, or disturbed thereby.

Section 6.04 Entire Agreement and Amendments. This Debenture, together with the other Transaction Documents, represents the entire agreement between the parties hereto with respect to the subject matter hereof and thereof, and there are no representations, warranties or commitments, except as set forth herein and therein. This Debenture may be amended only by an instrument in writing executed by the parties hereto.

Section 6.05 Binding Effect. This Debenture shall be binding upon the Company and the successors and assigns of the Company and shall inure to the benefit of the Holder and the successors and assigns of the Holder.

Section 6.06 Assignment. The Holder may from time to time sell or assign, in whole or in part, or grant participations in, this Debenture and/or the obligations evidenced hereby without the consent of the Company, provided that the Holder shall give written notice of the assignment to the Company. The holder of any such sale, assignment or participation, if the applicable agreement between Holder and such holder so provides, shall be: (i) entitled to all of the rights, obligations and benefits of Holder (to the extent of such holder’s interest or participation); and (ii) deemed to hold and may exercise the rights of setoff or banker’s lien with respect to any and all obligations of such holder to the Company (to the extent of such holder’s interest or participation), in each case as fully as though the Company was directly indebted to such holder. Holder may in its discretion give notice to the Company of such sale, assignment or participation; however, the failure to give such notice shall not affect any of Holder’s or such holder’s rights hereunder.

Section 6.07 Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

Section 6.08 Waiver of Jury Trail. THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON THIS DEBENTURE, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS DEBENTURE OR ANY OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF OR BETWEEN ANY PARTY HERETO, AND THE COMPANY AGREES AND CONSENTS TO THE GRANTING TO HOLDER OF RELIEF FROM ANY STAY ORDER WHICH MIGHT BE ENTERED BY ANY COURT AGAINST HOLDER AND TO ASSIST HOLDER IN OBTAINING SUCH RELIEF. THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER ACCEPTING THIS DEBENTURE FROM THE COMPANY. THE COMPANY’S REASONABLE RELIANCE UPON SUCH INDUCEMENT IS HEREBY ACKNOWLEDGED.

Section 6.09 Non-U.S. Status. THE HOLDER IS A NON-U.S. PERSON AS THAT TERM IS DEFINED IN THE UNITED STATES INTERNAL REVENUE CODE. IT IS HEREBY AGREED AND UNDERSTOOD THAT THE OBLIGATIONS HEREUNDER MAY BE SOLD OR RESOLD ONLY TO NON-U.S. PERSONS. THE INTEREST PAYABLE HEREUNDER IS PAYABLE ONLY OUTSIDE THE UNITED STATES. ANY U.S. PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAW.

ARTICLE VII.

Section 7.01 Conversion of Debenture. At any time and from time to time while this Debenture is outstanding on or after the Closing Date, this Debenture may be, at the sole option of the Holder, convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), in accordance with the terms and conditions set forth in this Article VII.

(1) Voluntary Conversion. At any time while this Debenture is outstanding on or after the Closing Date, the Holder may convert all or any portion of the outstanding principal, accrued and unpaid interest, and any other sums due and payable hereunder or under any of the other Transaction Documents (such total amount, the “Conversion Amount”) into shares of Common Stock of the Company (the “Conversion Shares”) at a price equal to: (i) the Conversion Amount (the numerator); divided by (ii) ninety percent (90%) of the lowest daily volume weighted average price of the Company’s Common Stock during the five (5) trading days immediately prior to the Conversion Date (as defined below) as indicated in the conversion notice (in the form attached hereto as Exhibit “A”, the “Conversion Notice”) (the denominator) (the “Conversion Price”). The Holder shall submit a Conversion Notice indicating the amount of the Debenture being converted, the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered.

(2) The Holder’s Conversion Limitations. The Company shall not affect any conversion of this Debenture, and the Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the Conversion Notice submitted by the Holder, the Holder (together with the Holder’s affiliates (as defined herein) and any Persons acting as a group together with the Holder or any of the Holder’s affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined herein). To ensure compliance with this restriction, prior to delivery of any Conversion Notice, the Holder shall have the right to request that the Company provide to the Holder a written statement of the percentage ownership of the Company’s Common Stock that would by beneficially owned by the Holder and its affiliates in the Company if the Holder converted such portion of this Debenture then intended to be converted by Holder. The Company shall, within two (2) business days of such request, provide Holder with the requested information in a written statement, and the Holder shall be entitled to rely on such written statement from the Company in issuing its Conversion Notice and ensuring that its ownership of the Company’s Common Stock is not in excess of the Beneficial Ownership Limitation. The restriction described in this Section may be waived by Holder, in whole or in part. For purposes of this Debenture, the “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture. The limitations contained in this Section shall apply to a successor holder of this Debenture. For purposes of this Debenture, “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof.

(3) Mechanics of Conversion. The conversion of this Debenture shall be conducted in the following manner:

(a) Holder's Delivery Requirements. To convert this Debenture into shares of Common Stock on any date set forth in the Conversion Notice by the Holder (the “Conversion Date”), the Holder shall: (A) transmit by facsimile or electronic mail (or otherwise deliver) a copy of the fully executed Conversion Notice to the Company (or, under certain circumstances as set forth below, by delivery of the Conversion Notice to the Company’s transfer agent); and (B) upon receipt by the Holder of the Conversion Shares, surrender the original Debenture to a nationally recognized overnight courier for delivery to the Company.

(b) Company’s Response. Upon receipt by the Company of a copy of a Conversion Notice, the Company shall as soon as practicable, but in no event later than five (5) business days after receipt of such Conversion Notice, send, via facsimile or electronic mail (or otherwise deliver) a confirmation of receipt of such Conversion Notice (the “Conversion Confirmation”) to the Holder indicating that the Company will process such Conversion Notice in accordance with the terms herein. In the event the Company fails to issue its Conversion Confirmation within said five (5) business day time period, the Holder shall have the absolute and irrevocable right and authority to deliver the fully executed Conversion Notice to the Company’s transfer agent, and pursuant to the Irrevocable Transfer Agent Instructions and Transfer Agent Acknowledge Agreement to be entered into simultaneously herewith between the Company, Holder and the Company’s transfer agent (the “ITAI”), the Company’s transfer agent shall issue the applicable Conversion Shares to Holder as hereby provided. Within five (5) business days after the date of the Conversion Confirmation (or the date of the Conversion Notice, if the Company fails to issue the Conversion Confirmation), provided that the Company’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, the Company shall cause the transfer agent to (or, if for any reason the Company fails to instruct or cause its transfer agent to so act, then pursuant to the ITAI, the Holder may request and require the Company’s transfer agent to) electronically transmit the applicable Conversion Shares to which the Holder shall be entitled by crediting the account of the Holder’s prime broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system, and provide proof satisfactory to the Holder of such delivery. In the event that the Company’s transfer agent is not participating in the DTC FAST program and is not otherwise DWAC eligible, within five (5) business days after the date of the Conversion Confirmation (or the date of the Conversion Notice, if the Company fails to issue the Conversion Confirmation), the Company shall instruct and cause its transfer agent to (or, if for any reason the Company fails to instruct or cause its transfer agent to so act, then pursuant to the ITAI, the Holder may request and require the Company’s transfer agent to) issue and surrender to a nationally recognized overnight courier for delivery to the address specified in the Conversion Notice, a certificate, registered in the name of the Holder, for the number of Conversion Shares to which the Holder shall be entitled. If less than the full principal and accrued but unpaid interest amount of this Debenture is submitted for conversion, then the Company shall within five (5) business days after receipt of the original Debenture, at its own expense, issue and deliver to the Holder a new Debenture for the outstanding principal and interest amount not so converted; provided that such new Debenture shall be substantially in the same form as this Debenture.

(c) Record Holder. The Person(s) entitled to receive the shares of Common Stock issuable upon a conversion of this Debenture shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the Conversion Date.

(d) Failure to Deliver Certificates. If in the case of any Conversion Notice, the certificate or certificates are not delivered to or as directed by the Holder by the date required hereby, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion Notice, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Company.

(e) Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or entity or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other person or entity of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person or entity, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof and accrued but unpaid interest thereon in accordance with the terms of this Debenture, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture being converted, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates representing Conversion Shares pursuant to timing and delivery requirements of this Debenture, the Company shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $1.00 per day for each day after the date by which such certificates should have been delivered until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant this Debenture or any agreement securing the indebtedness under this Debenture for the Company’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Nothing herein shall prevent the Holder from having the Conversion Shares issued directly by the Company’s transfer agent in accordance with the ITAI, in the event for any reason the Company fails to issue or deliver, or cause its transfer agent to issue and deliver, the Conversion Shares to the Holder upon exercise of Holder’s conversion rights hereunder.

(f) Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes, or any other issuance or transfer fees of any nature or kind that may be payable in respect of the issue or delivery of such certificates, any such taxes or fees, if payable, to be paid by the Company.

(4) Adjustments to Conversion Price.

(a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on outstanding shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, or re-classification.

(b) Fundamental Transaction. If, at any time while this Debenture is outstanding: (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one (1) share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new note consistent with the foregoing provisions and evidencing the Holder’s right to convert such note into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

(c) Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Debenture, the Company shall promptly deliver to Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

(d) Notice to Allow Conversion by Holder. If: (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Company’s records, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating: (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 10-day period commencing on the date of such notice through the effective date of the event triggering such notice.

(5) Reservation of Common Stock. The Company shall keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of this Debenture, such number of shares of Common Stock as shall from time to time be sufficient to effect such conversion, based upon the Conversion Price. If at any time the Company does not have a sufficient number of Conversion Shares authorized and available, the Company shall immediately take such action as is required to increase the number of Conversion Shares authorized and available to allow for the Holder to effectuate a full conversion of this Debenture at the Conversion Price.

[Signatures on the following page]

IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as executed this Debenture as of the date first written above.

	AQUALIV TECHNOLOGIES, INC.

	By:
	Name:_______________________________
	Title:________________________________

Signature page – Debenture

EX-10.9 7 ex10_9.htm

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (“Agreement”) is made as of this [—], 2012, by and between FOCUS SYSTEMS, INC., a Washington corporation (the “Company”), in favor of TCA GLOBAL CREDIT MASTER FUND, LP, a Cayman Islands limited partnership (the “Secured Party”).

RECITALS

WHEREAS, pursuant to a Securities Purchase Agreement dated of even date herewith between Aqualiv Technologies, Inc. (“AQLV”) and the Secured Party (the “Purchase Agreement”), AQLV has agreed to issue to the Secured Party and the Secured Party has agreed to purchase from AQLV certain senior secured redeemable, convertible debentures (the “Debentures”), as more specifically set forth in the Purchase Agreement; and

WHEREAS, in order to induce the Secured Party to purchase the Debentures, the Company, a wholly owned subsidiary of AQLV, has made and executed a Guaranty Agreement dated of even date herewith (the “Guaranty”) in favor of TCA; and

WHEREAS, in order to induce the Secured Party to purchase the Debentures, and to secure the Company’s liabilities and obligations under the Guaranty, the Company has agreed to execute and deliver to the Secured Party this Agreement for the benefit of the Secured Party and to grant to it a continuing, first priority security interest and lien in all of the assets and property of Company to secure the prompt payment, performance and discharge in full of all of Company’s obligations under the Guaranty, the Purchase Agreement and the other Transaction Documents;

NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties each intending to be legally bound, hereby do agree as follows:

1. Recitals. The recitations set forth in the preamble of this Agreement are true and correct and incorporated herein by this reference.

2. Construction and Definition of Terms. In this Agreement, unless the express context otherwise requires: (i) the words “herein,” “hereof” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement; (ii) references to the words “Section” or “Subsection” refer to the respective Sections and Subsections of this Agreement, and references to “Exhibit” or “Schedule” refer to the respective Exhibits and Schedules attached hereto; (iii) wherever the word “include,” “includes” or “including” is used in this Agreement, it will be deemed to be followed by the words “without limitation.” All capitalized terms used in this Agreement that are defined in the Purchase Agreement or otherwise defined in Articles 8 or 9 of the Code shall have the meanings assigned to them in the Purchase Agreement or the Code, respectively and as applicable, unless the context of this Agreement requires otherwise. In addition to the capitalized terms defined in the Code and the Purchase Agreement, unless the context otherwise requires, when used herein, the following capitalized terms shall have the following meanings (provided that if a capitalized term used herein is defined in the Purchase Agreement and separately defined in this Agreement, the meaning of such term as defined in this Agreement shall control for purposes of this Agreement):

(a) “Agreement” means this Security Agreement and all amendments, modifications and supplements hereto.

(b) “Bankruptcy Code” means the United States Bankruptcy Code, as amended from time to time, or any other similar laws, codes, rules or regulations relating to bankruptcy, insolvency or the protection of creditors.

(c) “Business Premises” shall mean the Company’s offices located at 4550 NW Newberry Hill Road, Suite 202, Silverdale, WA 98383.

(d) “Closing” shall mean the date on which this Agreement is fully executed by both parties.

(e) “Code” shall mean the Uniform Commercial Code as in effect from time to time in the State of Nevada, provided that terms used herein which are defined in the Code as in effect in the State of Nevada on the date hereof shall continue to have the same meaning notwithstanding any replacement or amendment of such statute, except as the Secured Party may otherwise agree.

(f) “Collateral” shall mean any and all property of the Company, of any kind or description, tangible or intangible, real, personal or mixed, wheresoever located and whether now existing or hereafter arising or acquired, including the following: (i) all property of, or for the account of, the Company now or hereafter coming into the possession, control or custody of, or in transit to, Secured Party or any agent or bailee for Secured Party or any parent, affiliate or subsidiary of Secured Party or any participant with Secured Party in the Obligations (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise), including all cash, earnings, dividends, interest, or other rights in connection therewith and the products and proceeds therefrom, including the proceeds of insurance thereon; (ii) the following additional property of the Company, whether now existing or hereafter arising or acquired, and wherever now or hereafter located, together with all additions and accessions thereto, substitutions, betterments and replacements therefor, products and Proceeds therefrom, and all of the Company’s books and records and recorded data relating thereto (regardless of the medium of recording or storage), together with all of the Company’s right, title and interest in and to all computer software required to utilize, create, maintain and process any such records or data on electronic media, including all: (A) Accounts, and all goods whose sale, lease or other disposition by the Company has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, the Company, or rejected or refused by an Account debtor; (B) As-extracted Collateral; (C) Chattel Paper (whether tangible or electronic); (D) Commodity Accounts; (E) Commodity Contracts; (F) Deposit Accounts, including all cash and other property from time to time deposited therein and the monies and property in the possession or under the control of the Secured Party or any affiliate, representative, agent, designee or correspondent of the Secured Party; (G) Documents; (H) Equipment; (I) Farm Products; (J) Fixtures; (K) General Intangibles (including all Payment Intangibles); (L) Goods, and all accessions thereto and goods with which the Goods are commingled; (M) Health-Care Insurance Receivables; (N) Instruments; (O) Inventory, including raw materials, work-in-process and finished goods; (P) Investment Property; (Q) Letter-of-Credit Rights; (R) Promissory Notes; (S) Software; (T) all Supporting Obligations; (U) all commercial tort claims hereafter arising; (V) all other tangible and intangible personal property of the Company (whether or not subject to the Code), including, all bank and other accounts and all cash and all investments therein, all proceeds, products, offspring, accessions, rents, profits, income, benefits, substitutions and replacements of and to any of the property of the Company described within the definition of Collateral (including, any proceeds of insurance thereon and all causes of action, claims and warranties now or hereafter held by the Company in respect of any of the items listed within the definition of Collateral), and all books, correspondence, files and other Records, including, all tapes, desks, cards, Software, data and computer programs in the possession or under the control of the Company or any other Person from time to time acting for the Company, in each case, to the extent of the Company’s rights therein, that at any time evidence or contain information relating to any of the property described or listed within the definition of Collateral or which are otherwise necessary or helpful in the collection or realization thereof; (W) real estate property owned by the Company, leasehold interests owned by the Company in real property and the interest of the Company in fixtures or any other assets or property related to such real property or leasehold interests; and (X) Proceeds, including all Cash Proceeds and Noncash Proceeds, and products of any or all of the foregoing, in each case howsoever the Company’s interest therein may arise or appear (whether by ownership, security interest, claim or otherwise).

(g) “Event of Default” shall mean any of the events described in Section 4 hereof.

(h) “Obligations” shall mean any and all obligations of the Company and of AQLV to Secured Party, whether arising, existing or incurred under this Agreement, the Guaranty, the Purchase Agreement or any other Transaction Documents, or any other agreement between the Company or AQLV and the Secured Party, in each case, whether now or hereafter existing or incurred, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later decreased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Secured Party as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time.

3. Security.

(a) Grant of Security Interest. As security for the full payment and performance of all of the Obligations, whether or not any instrument or agreement relating to any Obligation specifically refers to this Agreement or the security interest created hereunder, the Company hereby assigns, pledges and grants to Secured Party an unconditional, continuing, first-priority security interest in all of the Collateral. Secured Party’s security interest shall continually exist until all Obligations have been indefeasibly satisfied and/or paid in full.

(b) Representations, Warranties, Covenants and Agreement of the Company. With respect to all of the Collateral, Company covenants, warrants and represents, for the benefit of the Secured Party, as follows:

(i) The Company has the requisite corporate power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by the Company of this Agreement and the filings contemplated herein have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company. This Agreement constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor’s rights generally.

(ii) The Company represents and warrants that it has no place of business or offices where its respective books of account and records are kept or places where Collateral is stored or located, except for the Business Premises.

(iii) The Company is the sole owner of the Collateral (except for non-exclusive licenses granted by the Company in the Ordinary Course of Business), free and clear of any and all Encumbrances. The Company is fully authorized to grant the security interests in and to pledge the Collateral to Secured Party. There is not on file in any agency, land records or other office of any Governmental Authority, an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that have been filed in favor of the Secured Party pursuant to this Agreement) covering or affecting any of the Collateral. So long as this Agreement shall be in effect, the Company shall not execute and shall not permit to be on file in any such agency, land records or other office any such financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Party pursuant to the terms of this Agreement).

(iv) No part of the Collateral has been judged invalid or unenforceable. No Claim, Proceeding or other notice or other similar item has been received by the Company that any Collateral or the Company’s use of any Collateral violates the rights of any Person. There has been no adverse decision or claim to the Company’s ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to the Company’s right to keep and maintain such Collateral in full force and effect, and there is no Claim or Proceeding of any nature involving said rights pending or, to the best knowledge of the Company, threatened, before any Governmental Authority.

(v) The Company shall at all times maintain its books of account and records relating to the Collateral and maintain the Collateral at the Business Premises, and the Company shall not relocate such books of account and records or Collateral, except and unless: (A) Secured Party first approves of such relocation, which approval may be withheld in Secured Party’s sole and absolute discretion; (B) evidence that appropriate financing statements and other necessary documents have been filed and recorded and other steps have been taken to create in favor of the Secured Party valid, perfected and continuing liens in the Collateral or (C) Collateral is moved or relocated in the ordinary course of the Company’s business, consistent with past practice, provided, however, that any permanent relocation of any of the Collateral shall require Secured Party’s prior written approval in accordance with Subsection 3(b)(v)(A) above.

(vi) Upon making the filings described in the immediately following sentence, this Agreement creates, in favor of the Secured Party, a valid, perfected, first-priority security interest in the Collateral. Except for the filing of financing statements on Form-1 under the Code with the State of Washington, no authorization or approval of, or filing with, or notice to any Governmental Authority is required either: (A) for the grant by the Company of, or the effectiveness of, the security interest granted hereby or for the execution, delivery and performance of this Agreement by the Company; or (B) for the perfection of or exercise by the Secured Party of its rights and remedies hereunder.

(vii) Simultaneous with the execution of this Agreement, the Company hereby authorizes the Secured Party to file one or more UCC financing statements, and any continuations, amendments, or assignments thereof, with respect to the security interests on the Collateral granted hereby, with the State of Washington and in such other jurisdictions as may be requested or desired by the Secured Party.

(viii) The execution, delivery and performance of this Agreement, and the granting of the security interests contemplated hereby, will not: (A) constitute a violation of or conflict with the Certificate of Incorporation, Bylaws or any other organizational or governing documents of the Company; (B) constitute a violation of, or a default or breach under (either immediately, upon notice, upon lapse of time, or both), or conflicts with, or gives to any other Person any rights of termination, amendment, acceleration or cancellation of, any provision of any Contract or agreement to which Company is a party or by which any of the Collateral may be bound; (C) constitute a violation of, or a default or breach under (either immediately, upon notice, upon lapse of time, or both), or conflicts with, any Judgment of any Governmental Authority; (D) constitute a violation of, or conflict with, any Law; or (E) result in the loss or adverse modification of, or the imposition of any fine, penalty or other Encumbrance with respect to, any Permit granted or issued to, or otherwise held by or for the use of, the Company or any of the Collateral. No Consent (including from stockholders or creditors of the Company) is required for the Company to enter into and perform its obligations hereunder.

(ix) The Company shall at all times maintain the liens and security interests provided for hereunder as valid and perfected first-priority liens and security interests in the Collateral in favor of the Secured Party until this Agreement and the security interests hereunder shall terminate pursuant to Section 8(o) below. The Company shall at all times safeguard and protect all Collateral, at its own expense, for the account of the Secured Party. At the request of the Secured Party, the Company will sign and deliver to the Secured Party at any time, or from time to time, one or more financing statements pursuant to the Code (or any other applicable statute) in form reasonably satisfactory to the Secured Party and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Secured Party to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, the Company shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the security interests granted hereunder, and the Company shall obtain and furnish to the Secured Party from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the security interests hereunder.

(x) The Company will not transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral without the prior written consent of the Secured Party, which consent may be withheld in the Secured Party’s sole and absolute discretion, except for transfers, sales or licenses made in the Ordinary Course of Business.

(xi) The Company shall keep, maintain and preserve all of the Collateral in good condition, repair and order and the Company will use, operate and maintain the Collateral in compliance with all Laws, and in compliance with all applicable insurance requirements and regulations.

(xii) The Company shall, within five (5) days of obtaining knowledge thereof, advise the Secured Party promptly, in sufficient detail, of any substantial or material change in the Collateral, and of the occurrence of any event which would have a Material Adverse Effect on the value of the Collateral or on the Secured Party’s security interest therein.

(xiii) The Company shall promptly execute and deliver to the Secured Party such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Secured Party may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce its security interest in the Collateral, including, placing legends on Collateral or on books and records pertaining to Collateral stating that Secured Party has a security interest therein.

(xiv) The Company will take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

(xv) The Company shall promptly notify the Secured Party in sufficient detail upon becoming aware of any litigation, attachment, garnishment, execution or other legal process levied against any Collateral or of any litigation, attachment, garnishment, execution or other legal process which Company knows or has reason to believe is pending or threatened against it or the Collateral, and of any other information received by the Company that may materially affect the value of the Collateral, the security interests granted hereunder or the rights and remedies of the Secured Party hereunder.

(xvi) All information heretofore, herein or hereafter supplied to the Secured Party by or on behalf of the Company with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

(xvii) Company will promptly pay when due all taxes and all transportation, storage, warehousing and all other charges and fees affecting or arising out of or relating to the Collateral and shall defend the Collateral, at Company’s expense, against all claims of any Persons claiming any interest in the Collateral adverse to Company or Secured Party.

(xviii) During normal business hours and subject to prior reasonable notice from Secured Party to the Company (which notice may be e-mail or telephonic notice), Secured Party and its agents and designees may enter the Business Premises and any other premises of the Company and inspect the Collateral and all books and records of the Company (in whatever form), and the Company shall pay the reasonable costs of such inspections; provided, however, that without in any manner limiting the number of site visits or inspections that Secured Party may undertake, the Company’s obligation to reimburse Secured Party for the cost and expense of such visits or inspections shall be limited to three (3) visits or inspections at $750.00 per visit or inspection.

(xix) The Company shall maintain comprehensive casualty insurance on the Collateral against such risks, in such amounts, with such loss deductible amounts and with such companies as may be reasonably satisfactory to the Secured Party, and each such policy shall contain a clause or endorsement satisfactory to Secured Party naming Secured Party as loss payee and a clause or endorsement satisfactory to Secured Party that such policy may not be canceled or altered and Secured Party may not be removed as loss payee without at least thirty (30) days prior written notice to Secured Party. In all events, the amounts of such insurance coverages shall conform to prudent business practices and shall be in such minimum amounts that Company will not be deemed a co-insurer under applicable insurance laws, policies or practices. The Company hereby assigns to Secured Party and grants to Secured Party a security interest in any and all proceeds of such policies and authorizes and empowers Secured Party to adjust or compromise any loss under such policies and to collect and receive all such proceeds. The Company hereby authorizes and directs each insurance company to pay all such proceeds directly and solely to Secured Party and not to the Company and Secured Party jointly. The Company authorizes and empowers Secured Party to execute and endorse in Company’s name all proofs of loss, drafts, checks and any other documents or instruments necessary to accomplish such collection, and any persons making payments to Secured Party under the terms of this subsection are hereby relieved absolutely from any obligation or responsibility to see to the application of any sums so paid. After deduction from any such proceeds of all costs and expenses (including attorney’s fees) incurred by Secured Party in the collection and handling of such proceeds, the net proceeds shall be applied as follows: if no Event of Default shall have occurred and be continuing, such net proceeds may be applied, at Company’s option, either toward replacing or restoring the Collateral, in a manner and on terms satisfactory to Secured Party, or as a credit against such of the Obligations, whether matured or unmatured, as Secured Party shall determine in Secured Party’s sole discretion. In the event that Company may and does elect to replace or restore any of the Collateral as aforesaid, then such net proceeds shall be deposited in a segregated account opened in the name and for the benefit of Secured Party, and such net proceeds shall be disbursed therefrom by Secured Party in such manner and at such times as Secured Party deems appropriate to complete and insure such replacement or restoration; provided, however, that if an Event of Default shall occur at any time before or after replacement or restoration has commenced, then thereupon Secured Party shall have the option to apply all remaining net proceeds either toward replacing or restoring the Collateral, in a manner and on terms satisfactory to Secured Party, or as a credit against such of the Obligations, whether matured or unmatured, as Secured Party shall determine in Secured Party’s sole discretion. If an Event of Default shall have occurred prior to such deposit of the net proceeds, then Secured Party may, in its sole discretion, apply such net proceeds either toward replacing or restoring the Collateral, in a manner and on terms satisfactory to Secured Party, or as a credit against such of the Obligations, whether matured or unmatured, as Secured Party shall determine in Secured Party’s sole discretion.

(xx) The Company shall cooperate with Secured Party to obtain and keep in effect one or more control agreements in Deposit Accounts, Electronic Chattel Paper, Investment Property and Letter-of-Credit Rights Collateral, or any other Collateral that may, in Secured Party’s sole discretion, require any such control agreements. In addition, the Company, at the Company’s expense, shall promptly: (A) execute all notices of security interest for each relevant type of Software and other General Intangibles in forms suitable for filing with any United States or foreign office handling the registration or filing of patents, trademarks, copyrights and other intellectual property and any successor office or agency thereto; and (B) take all commercially reasonable steps in any Proceeding before any such office or any similar office or agency in any other country or any political subdivision thereof, to diligently prosecute or maintain, as applicable, each application and registration of any Software, General Intangibles or any other intellectual property rights and assets that are part of the Collateral, including filing of renewals, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings.

(xxi) Company shall not file any amendments, correction statements or termination statements concerning the Collateral without the prior written consent of Secured Party.

(c) Collateral Collections. After an Event of Default shall have occurred, Secured Party shall have the right at any and all times to enforce the Company’s rights against all Persons obligated on any of the Collateral, including the right to: (i) notify and/or require the Company to notify any or all Persons obligated on any of the Collateral to make payments directly to Secured Party or in care of a post office lock box under the sole control of Secured Party established at Company’s expense, and to take any or all action with respect to Collateral as Secured Party shall determine in its sole discretion, including, the right to demand, collect, sue for and receive any money or property at any time due, payable or receivable on account thereof, compromise and settle with any Person liable thereon, and extend the time of payment or otherwise change the terms thereof, without incurring any liability or responsibility to the Company whatsoever; and/or (ii) require the Company to segregate and hold in trust for Secured Party and, on the day of Company’s receipt thereof, transmit to Secured Party in the exact form received by the Company (except for such assignments and endorsements as may be required by Secured Party), all cash, checks, drafts, money orders and other items of payment constituting any portion of the Collateral or proceeds of the Collateral. Secured Party’s collection and enforcement of Collateral against Persons obligated thereon shall be deemed to be commercially reasonable if Secured Party exercises the care and follows the procedures that Secured Party generally applies to the collection of obligations owed to Secured Party.

(d) Care of Collateral. Company shall have all risk of loss of the Collateral. Secured Party shall have no liability or duty, either before or after the occurrence of an Event of Default, on account of loss of or damage to, to collect or enforce any of its rights against, the Collateral, to collect any income accruing on the Collateral, or to preserve rights against Persons with prior interests in the Collateral. If Secured Party actually receives any notices requiring action with respect to Collateral in Secured Party’s possession, Secured Party shall take reasonable steps to forward such notices to the Company. The Company is responsible for responding to notices concerning the Collateral, voting the Collateral, and exercising rights and options, calls and conversions of the Collateral. Secured Party’s sole responsibility is to take such action as is reasonably requested by Company in writing, however, Secured Party is not responsible to take any action that, in Secured Party’s sole judgment, would affect the value of the Collateral as security for the Obligations adversely. While Secured Party is not required to take certain actions, if action is needed, in Secured Party’s sole discretion, to preserve and maintain the Collateral, Company authorizes Secured Party to take such actions, but Secured Party is not obligated to do so.

4. Events of Default. The occurrence of any one or more of the following events shall constitute an “Event of Default” hereunder:

(a) Failure to Pay. The failure of Company to pay any sum due under or as part of the Obligations as and when due and payable (whether by acceleration, declaration, extension or otherwise).

(b) Covenants and Agreements. The failure of Company to perform, observe or comply with any and all of the covenants, promises and agreements of the Company in this Agreement, the Guaranty, the Purchase Agreement or any other Transaction Documents, which such failure is not cured by the Company within ten (10) days after receipt of written notice thereof from Secured Party, except that there shall be no notice or cure period with respect to any failure to pay any sums due under or as part of the Obligations.

(c) Information, Representations and Warranties. If any representation or warranty made herein, in the Guaranty Agreement, in the Purchase Agreement or any other Transaction Documents, or if any information contained in any financial statement, application, schedule, report or any other document given by the Company in connection with the Obligations, with the Collateral, or with any Transaction Document, is not in all respects true, accurate and complete, or if the Company omitted to state any material fact or any fact necessary to make such information not misleading.

(d) Default on Other Obligations. The occurrence of any default under any other borrowing or Obligation of the Company that is for an aggregate amount of debt or consideration of Ten Thousand and No/100 Dollars ($10,000.00) or more, either with Secured Party or others, if the result of such default would: (i) permit the acceleration of the maturity of any note, loan or other Contract between Company and any Person other than Secured Party; or (ii) materially and adversely affect, as determined by Secured Party in good faith, but in its sole discretion, any of the Collateral, the value thereof or Secured Party’s rights and remedies to realize upon such Collateral as set forth herein.

(e) Insolvency. Company shall be or become insolvent or unable to pay its debts as they become due, or admits in writing to such insolvency or to such inability to pay its debts as they become due.

(f) Involuntary Bankruptcy. There shall be filed against Company an involuntary petition or other pleading seeking the entry of a decree or order for relief under the Bankruptcy Code or any similar foreign, federal or state insolvency or similar laws ordering: (i) the liquidation of the Company; or (ii) a reorganization of Company or the business and affairs of Company; or (iii) the appointment of a receiver, liquidator, assignee, custodian, trustee, or similar official for Company of the property of Company, and the failure to have such petition or other pleading denied or dismissed within thirty (30) calendar days from the date of filing.

(g) Voluntary Bankruptcy. The commencement by the Company of a voluntary case under the Bankruptcy Code or any foreign, federal or state insolvency or similar laws or the consent by the Company to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, or similar official for Company of any of the property of the Company or the making by the Company of an assignment for the benefit of creditors, or the failure by the Company generally to pay its debts as the debts become due.

(h) Judgments, Awards. The entry of any final and non-appealable Judgment or other determination or adjudication against the Company and a determination by Secured Party, in good faith but in its sole discretion, that any such Judgment or other determination or adjudication could have a Material Adverse Effect on the prospect for Secured Party to fully and punctually realize the full benefits conferred on Secured Party by this Agreement.

(i) Injunction. The injunction or restraint of the Company in any manner from conducting its business in whole or in part and a determination by Secured Party, in good faith but in its sole discretion, that the same could have a Material Adverse Effect on the prospect for Secured Party to fully and punctually realize the full benefits conferred on Secured Party by this Agreement.

(j) Attachment by Other Parties. Any Assets of the Company shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by Secured Party, in good faith but in its sole discretion, that the same could have a Material Adverse Effect on the prospect for Secured Party to fully and punctually realize the full benefits conferred on Secured Party by this Agreement.

(k) Adverse Change in Financial Condition. The determination in good faith by Secured Party that a Material Adverse Change has occurred in the financial condition or operations of the Company, or the Collateral, which change could have a Material Adverse Effect on the prospect for Secured Party to fully and punctually realize the full benefits conferred on Secured Party by this Agreement.

(l) Adverse Change in Value of Collateral. The determination in good faith by Secured Party that the security for the Obligations is or has become inadequate.

(m) Prospect of Payment or Performance. The determination in good faith by Secured Party that the prospect for payment or performance of any of the Obligations is impaired for any reason.

(n) Default by AQLV. Any default or Event of Default by AQLV under the Purchase Agreement or any other Transaction Documents.

5. Rights and Remedies.

(a) Rights and Remedies of Secured Party. Upon and after the occurrence of an Event of Default, Secured Party may, without notice or demand, exercise in any jurisdiction in which enforcement hereof is sought, the following rights and remedies, in addition to the rights and remedies available to Secured Party under the Guaranty, the Purchase Agreement and any other Transaction Documents, the rights and remedies of a secured party under the Code, and all other rights and remedies available to Secured Party under applicable law or in equity, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently:

(i) Take absolute control of the Collateral, including transferring into the Secured Party’s name or into the name of its nominee or nominees (to the extent the Secured Party has not theretofore done so) and thereafter receive, for the benefit of the Secured Party, all payments made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act with respect thereto as though it were the outright owner thereof;

(ii) Require the Company to, and the Company hereby agrees that it will at its expense and upon request of the Secured Party forthwith, assemble all or part of the Collateral as directed by the Secured Party and make it available to the Secured Party at a place or places to be designated by the Secured Party that is convenient to Secured Party, and the Secured Party may enter into and occupy the Business Premises or any other premises owned or leased by the Company where the Collateral or any part thereof is located or assembled in order to effectuate the Secured Party’s rights and remedies hereunder or under law, including removing such Collateral therefrom, without any obligation or liability to the Company in respect of such occupation, the Company HEREBY WAIVING ANY AND ALL RIGHTS TO PRIOR NOTICE AND TO JUDICIAL HEARING WITH RESPECT TO REPOSSESSION OF COLLATERAL AND THE COMPANY HEREBY GRANTING TO SECURED PARTY AND ITS AGENTS AND REPRESENTATIVES FULL AUTHORITY TO ENTER SUCH PREMISES;

(iii) Without notice, except as specified below, and without any obligation to prepare or process the Collateral for sale: (A) sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Secured Party’s offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Secured Party may deem commercially reasonable; and/or (B) lease, license or dispose of the Collateral or any part thereof upon such terms as the Secured Party may deem commercially reasonable. The Company agrees that, to the extent notice of sale or any other disposition of the Collateral shall be required by law, at least ten (10) days’ notice to the Company of the time and place of any public sale or the time after which any private sale or other disposition of the Collateral is to be made shall constitute reasonable notification. The Secured Party shall not be obligated to make any sale or other disposition of any Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Company hereby waives any claims and actions against the Secured Party arising by reason of the fact that the price at which any of the Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree, and waives all rights that the Company may have to require that all or any part of such Collateral be marshaled upon any sale (public or private) thereof. The Company hereby acknowledges that: (X) any such sale of the Collateral by the Secured Party shall be made without warranty; (Y) the Secured Party may specifically disclaim any warranties of title, possession, quiet enjoyment or the like; and (Z) such actions set forth in clauses (X) and (Y) above shall not adversely affect the commercial reasonableness of any such sale of Collateral. In addition to the foregoing: (1) upon written notice to the Company from the Secured Party after and during the continuance of an Event of Default, the Company shall cease any use of any intellectual property or any trademark, patent or copyright similar thereto for any purpose described in such notice; (2) the Secured Party may, at any time and from time to time after and during the continuance of an Event of Default, license, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any of the Company’s intellectual property, throughout the universe for such term or terms, on such conditions, and in such manner, as the Secured Party shall in its sole discretion determine; and (3) the Secured Party may, at any time, pursuant to the authority granted under this Agreement (such authority being effective upon the occurrence and during the continuance of an Event of Default), execute and deliver on behalf of the Company, one or more instruments of assignment of any intellectual property (or any application or registration thereof), in form suitable for filing, recording or registration in any country.

(iv) Operate, manage and control the Collateral (including use of the Collateral and any other property or assets of Company in order to continue or complete performance of Company’s obligations under any contracts of Company), or permit the Collateral or any portion thereof to remain idle or store the same, and collect all rents and revenues therefrom.

(v) Enforce the Company’s rights against any Persons obligated upon any of the Collateral.

(vi) The Company hereby acknowledges that if the Secured Party complies with any applicable foreign, state, provincial or federal law requirements in connection with a disposition of the Collateral, such compliance will not adversely affect the commercial reasonableness of any sale or other disposition of the Collateral.

(vii) The Secured Party shall not be required to marshal any present or future collateral security (including, this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of the Secured Party’s rights hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that the Company lawfully may, the Company hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Secured Party’s rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the Company hereby irrevocably waives the benefits of all such laws.

(b) Power of Attorney. Effective upon the occurrence of an Event of Default, Company hereby designates and appoints Secured Party and its designees as attorney-in-fact of and for the Company, irrevocably and with full power of substitution, with authority to endorse the Company’s name on any notes, acceptances, checks, drafts, money orders, instruments or other evidences of payment or proceeds of the Collateral that may come into Secured Party’s possession; to execute proofs of claim and loss; to adjust and compromise any claims under insurance policies; and to perform all other acts necessary and advisable, in Secured Party’s sole discretion, to carry out and enforce this Agreement and the rights and remedies conferred upon the Secured Party by this Agreement, the Guaranty, the Purchase Agreement or any other Transaction Documents. All acts of said attorney or designee are hereby ratified and approved by the Company and said attorney or designee shall not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law. This power of attorney is coupled with an interest and is irrevocable so long as any of the Obligations remain unpaid or unperformed or there exists any commitment by Secured Party which could give rise to any Obligations.

(c) Costs and Expenses. The Company agrees to pay to the Secured Party, upon demand, the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and disbursements of counsel for the Secured Party and of any experts and agents, which the Secured Party may incur in connection with: (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement; (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral; (iii) the exercise or enforcement of any of the rights of the Secured Party hereunder; or (iv) the failure by the Company to perform or observe any of the provisions hereof. Included in the foregoing shall be the amount of all expenses paid or incurred by Secured Party in consulting with counsel concerning any of its rights hereunder, under the Guaranty, under the Purchase Agreement or under applicable law, as well as such portion of Secured Party’s overhead as Secured Party shall allocate to collection and enforcement of the Obligations in Secured Party’s sole but reasonable discretion. All such costs and expenses shall bear interest from the date of outlay until paid, at the highest rate set forth in the Debenture, or if none is so stated, the highest rate allowed by law. The provisions of this Subsection shall survive the termination of this Agreement and Secured Party’s security interest hereunder and the payment of all Obligations.

6. Security Interest Absolute. All rights of the Secured Party and all Obligations of the Company hereunder, shall be absolute and unconditional, irrespective of: (i) any lack of validity or enforceability of this Agreement, the Guaranty, the Purchase Agreement, and any other Transaction Documents or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (ii) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the terms and provisions of the Guaranty, the Purchase Agreement, any other Transaction Documents, or any other agreement entered into in connection with the foregoing; (iii) any exchange, release or non-perfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guaranty, or any other security, for all or any of the Obligations; (iv) any action by the Secured Party to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (v) any other circumstance which might otherwise constitute any legal or equitable defense available to the Company, or a discharge of all or any part of the security interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Party shall continue even if the Obligations are barred for any reason, including, the running of the statute of limitations or bankruptcy. In the event that at any time any transfer of any Collateral or any payment received by the Secured Party hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the Bankruptcy Code or any other similar insolvency or bankruptcy laws of any jurisdiction, or shall be deemed to be otherwise due to any party other than the Secured Party, then, in any such event, the Company’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. The Company waives all right to require the Secured Party to proceed against any other Person or to apply any Collateral which the Secured Party may hold at any time, or to pursue any other remedy. The Company waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

7. Indemnity. The Company agrees to defend, protect, indemnify and hold the Secured Party forever harmless from and against any and all Claims of any nature or kind (including reasonable legal fees, costs, expenses, and disbursements of counsel) to the extent that they arise out of, or otherwise result from, this Agreement (including, enforcement of this Agreement). This indemnity shall survive termination of this Agreement.

8. Miscellaneous.

(a) Performance for Company. The Company agrees and hereby authorizes that Secured Party may, in Secured Party’s sole discretion, but Secured Party shall not be obligated to, whether or not an Event of Default shall have occurred, advance funds on behalf of the Company in order to insure the Company’s compliance with any covenant, warranty, representation or agreement of the Company made in or pursuant to this Agreement, the Guaranty, the Purchase Agreement, or any other Transaction Documents, to continue or complete, or cause to be continued or completed, performance of the Company’s obligations under any Contracts of the Company, or to preserve or protect any right or interest of Secured Party in the Collateral or under or pursuant to this Agreement, the Guaranty, the Purchase Agreement or any other Transaction Documents, including, the payment of any insurance premiums or taxes and the satisfaction or discharge of any Claim, Obligation, Judgment or any other Encumbrance upon the Collateral or other property or Assets of Company; provided, however, that the making of any such advance by Secured Party shall not constitute a waiver by Secured Party of any Event of Default with respect to which such advance is made, nor relieve the Company of any such Event of Default. The Secured Party shall use its good faith efforts to provide written notice (either before or after any advances or payments are made) to the Company of any advances or payments made on behalf of the Company under this Section 8(a), provided, however, failure of the Secured Party to give such written notice, whether before or after the advance or payment is made, shall in no way impair, hinder or otherwise be deemed any kind of default by Secured Party, nor shall any such failure be deemed any kind of waiver by Secured Party of any of its rights or remedies. The Company shall pay to Secured Party upon demand all such advances made by Secured Party with interest thereon at the highest rate set forth in the Debenture, or if none is so stated, the highest rate allowed by law. All such advances shall be deemed to be included in the Obligations and secured by the security interest granted Secured Party hereunder; provided, however, that the provisions of this Subsection shall survive the termination of this Agreement and Secured Party’s security interest hereunder and the payment of all other Obligations.

(b) Applications of Payments and Collateral. Except as may be otherwise specifically provided in this Agreement, the Guaranty, or the Purchase Agreement, all Collateral and proceeds of Collateral coming into Secured Party’s possession and all payments made by any Person to Secured Party with respect to any Collateral may be applied by Secured Party (after payment of any amounts payable to the Secured Party pursuant to Section 5(c) hereof) to any of the Obligations, whether matured or unmatured, as Secured Party shall determine in its sole, but reasonable discretion. Any surplus held by the Secured Party and remaining after the indefeasible payment in full in cash of all of the Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct. Secured Party may defer the application of Noncash Proceeds of Collateral, to the Obligations until Cash Proceeds are actually received by Secured Party. In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Secured Party is legally entitled, the Company shall be liable for the deficiency, together with interest thereon at the highest rate specified in the Debenture for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Secured Party to collect such deficiency.

(c) Waivers by Company. The Company hereby waives, to the extent the same may be waived under applicable law: (i) notice of acceptance of this Agreement; (ii) all claims and rights of the Company against Secured Party on account of actions taken or not taken by Secured Party in the exercise of Secured Party’s rights or remedies hereunder, under the Guaranty, under the Purchase Agreement, and other Transaction Documents or under applicable law; (iii) all claims of the Company for failure of Secured Party to comply with any requirement of applicable law relating to enforcement of Secured Party’s rights or remedies hereunder, under the Guaranty, under the Purchase Agreement, under any other Transaction Documents or under applicable law; (iv) all rights of redemption of the Company with respect to the Collateral; (v) in the event Secured Party seeks to repossess any or all of the Collateral by judicial proceedings, any bond(s) or demand(s) for possession which otherwise may be necessary or required; (vi) presentment, demand for payment, protest and notice of non-payment and all exemptions applicable to any of the Collateral or the Company; (vii) any and all other notices or demands which by applicable law must be given to or made upon the Company by Secured Party; (viii) settlement, compromise or release of the obligations of any Person primarily or secondarily liable upon any of the Obligations; (ix) all rights of the Company to demand that Secured Party release account debtors or other Persons liable on any of the Collateral from further obligation to Secured Party; and (x) substitution, impairment, exchange or release of any Collateral for any of the Obligations. The Company agrees that Secured Party may exercise any or all of its rights and/or remedies hereunder, under the Guaranty, under the Purchase Agreement, the other Transaction Documents and under applicable law without resorting to and without regard to any Collateral or sources of liability with respect to any of the Obligations. Upon termination of this Agreement and Secured Party’s security interest hereunder and payment of all Obligations, within ten (10) business days following the Company’s request to Secured Party, Secured Party shall release control of any security interest in the Collateral perfected by control and Secured Party shall send Company a statement terminating any financing statement filed against the Collateral.

(d) Waivers by Secured Party. No failure or any delay on the part of Secured Party in exercising any right, power or remedy hereunder, under this Agreement, the Guaranty, the Purchase Agreement, and other Transaction Documents or under applicable law, shall operate as a waiver thereof.

(e) Secured Party’s Setoff. Secured Party shall have the right, in addition to all other rights and remedies available to it, following an Event of Default, to set off against any Obligations due Secured Party, any debt owing to the Company by Secured Party.

(f) Modifications, Waivers and Consents. No modifications or waiver of any provision of this Agreement, the Guaranty, the Purchase Agreement, or any other Transaction Documents, and no consent by Secured Party to any departure by the Company therefrom, shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given, and any single or partial written waiver by Secured Party of any term, provision or right of Secured Party hereunder shall only be applicable to the specific instance to which it relates and shall not be deemed to be a continuing or future waiver of any other right, power or remedy. No notice to or demand upon the Company in any case shall entitle Company to any other or further notice or demand in the same, similar or other circumstances.

(g) Notices. All notices of request, demand and other communications hereunder shall be addressed to the parties as follows:

If to the Company: Focus Systems, Inc.

4550 NW Newberry Hill Road, Suite 202

Silverdale, WA 98383

Attn: Mr. William Wright, CEO

Telephone: (360) 536-4220

Facsimile: (360) 473-1160

E-Mail: bwright@aqualivtech.com

With a copy to: Seth Brookman, Esq.

(which shall not constitute notice) Lucosky Brookman, LLP

33 Wood Avenue South, 6^th Floor

Iselin, New Jersey 08830

Phone: (732) 395-4400

Fax: (732) 395-4401

Email: sbrookman@lucbro.com

If to the Secured Party: TCA Global Credit Master Fund, LP

1404 Rodman Street

Hollywood, FL 33020

Attn: Mr. Robert Press

Telephone: (786) 323-1650

Facsimile: (786) 323-1651

E-Mail: bpress@trafcap.com

With a copy to: David Kahan, P.A.

6420 Congress Ave., Suite 1800

Boca Raton, FL 33487

Attn: David Kahan, Esq.

Telephone: (561) 672-8330

Facsimile: (561) 672-8301

E-Mail: david@dkpalaw.com

(h) Applicable Law and Consent to Jurisdiction. This Agreement shall be construed in accordance with the laws of the State of Nevada, without regard to the principles of conflicts of laws, except to the extent that the validity and perfection or the perfection and the effect of perfection or non-perfection of the security interest created hereby, or remedies hereunder, in respect of any particular Collateral are governed under the Code by the law of a jurisdiction other than the State of Nevada, in which case such issues shall be governed by the laws of the jurisdiction governing such issues under the Code. The parties further agree that any action between them shall be heard in Clark County, Nevada and expressly consent to the jurisdiction and venue of the State Court sitting in Clark County, Nevada and the United States District Court for the District of Nevada for the adjudication of any civil action asserted pursuant to this Agreement, provided, however, that nothing herein shall prevent Secured Party from bringing suit or taking legal action in any other jurisdiction. By its execution hereof, the Company hereby irrevocably waives any objection and any right of immunity on the ground of venue, the convenience of the forum or the jurisdiction of such courts or from the execution of judgments resulting therefrom. The Company hereby irrevocably accepts and submits to the jurisdiction of the aforesaid courts in any such suit, action or proceeding.

(i) Survival: Successors and Assigns. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery hereof, shall survive Closing and shall continue in full force and effect until all Obligations have been paid in full, there exists no commitment by Secured Party which could give rise to any Obligations and all appropriate termination statements have been filed terminating the security interest granted Secured Party hereunder. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party. In the event that Secured Party assigns this Agreement and/or its security interest in the Collateral, Secured Party shall give written notice to the Company of any such assignment and such assignment shall be binding upon and recognized by the Company. All covenants, agreements, representations and warranties by or on behalf of the Company which are contained in this Agreement shall inure to the benefit of Secured Party, its successors and assigns. The Company may not assign this Agreement or delegate any of its rights or obligations hereunder, without the prior written consent of Secured Party, which consent may be withheld in Secured Party’s sole and absolute discretion.

(j) Severability. If any term, provision or condition, or any part thereof, of this Agreement shall for any reason be found or held invalid or unenforceable by any court or governmental authority of competent jurisdiction, such invalidity or unenforceability shall not affect the remainder of such term, provision or condition nor any other term, provision or condition, and this Agreement shall survive and be construed as if such invalid or unenforceable term, provision or condition had not been contained therein.

(k) Merger and Integration. This Agreement and the attached Schedules (if any), together with the Guaranty, the Purchase Agreement and the other Transaction Documents, contain the entire agreement of the parties hereto with respect to the matters covered and the transactions contemplated hereby and thereby, and no other agreement, statement or promise made by any party hereto or thereto, or by any employee, officer, agent or attorney of any party hereto, which is not contained herein or therein shall be valid or binding.

(l) WAIVER OF JURY TRIAL. THE COMPANY HEREBY: (a) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY; AND (b) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND SECURED PARTY MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS AGREEMENT, THE PURCHASE AGREEMENT AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS SECURITY AGREEMENT. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE COMPANY HEREBY AGREES THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. SECURED PARTY IS HEREBY AUTHORIZED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND SECURED PARTY, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. THE COMPANY REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

(m) Execution. This Agreement may be executed in one or more counterparts, all of which taken together shall be deemed and considered one and the same Agreement, and same shall become effective when counterparts have been signed by each party and each party has delivered its signed counterpart to the other party. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format file or other similar format file, such signature shall be deemed an original for all purposes and shall create a valid and binding obligation of the party executing same with the same force and effect as if such facsimile or “.pdf” signature page was an original thereof.

(n) Headings. The headings and sub-headings contained in the titling of this Agreement are intended to be used for convenience only and shall not be used or deemed to limit or diminish any of the provisions hereof.

(o) Termination. This Agreement and the security interests hereunder shall terminate on the date on which all Obligations have been indefeasibly paid or discharged in full. Upon such termination, the Secured Party, at the request and at the expense of the Company, will join in executing any termination statement with respect to any financing statement executed and filed pursuant to this Agreement.

(p) Gender and Use of Singular and Plural. All pronouns shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the party or parties or their personal representatives, successors and assigns may require.

(q) Further Assurances. The parties hereto will execute and deliver such further instruments and do such further acts and things as may be reasonably required to carry out the intent and purposes of this Agreement.

(r) Time is of the Essence. The parties hereby agree that time is of the essence with respect to performance of each of the parties’ obligations under this Agreement. The parties agree that in the event that any date on which performance is to occur falls on a Saturday, Sunday or state or national holiday, then the time for such performance shall be extended until the next business day thereafter occurring.

(s) Joint Preparation. The preparation of this Agreement has been a joint effort of the parties and the resulting documents shall not, solely as a matter of judicial construction, be construed more severely against one of the parties than the other.

(t) Increase in Obligations. It is the intent of the parties to secure payment of the Obligations, as the amount of such Obligations may increase from time to time in accordance with the terms and provisions of the Guaranty, or the Purchase Agreement, and all of the Obligations, as so increased from time to time, shall be and are secured hereby. Upon the execution hereof, the Company shall pay any and all documentary stamp taxes and/or other charges required to be paid in connection with the execution and enforcement of the Guaranty, the Purchase Agreement and this Agreement, and if, as and to the extent the Obligations are increased from time to time in accordance with the terms and provisions of the Debenture, then the Company shall immediately pay any additional documentary stamp taxes or other charges in connection therewith.

[Signatures on the following page]

IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the day and year first above written.

	COMPANY:

	FOCUS SYSTEMS, INC.

	By:________________________________
	Name:______________________________
	Title:_______________________________
	Date:_______________________________


	SECURED PARTY:

	TCA GLOBAL CREDIT MASTER FUND, LP

	By: TCA Global Credit Fund GP, Ltd., its general partner

	By: ________________________________
	Name:_____________________________
	Title:______________________________
	Date:_______________________________

EX-10.10 8 ex10_10.htm

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (“Agreement”) is made as of this [—], 2012, by and between AQUALIV TECHNOLOGIES, INC., a Nevada corporation (the “Company”), in favor of TCA GLOBAL CREDIT MASTER FUND, LP, a Cayman Islands limited partnership (the “Secured Party”).

RECITALS

WHEREAS, pursuant to a Securities Purchase Agreement dated of even date herewith between Company and the Secured Party (the “Purchase Agreement”), Company has agreed to issue to the Secured Party and the Secured Party has agreed to purchase from Company certain senior secured, redeemable, convertible debentures (the “Debentures”), as more specifically set forth in the Purchase Agreement; and

WHEREAS, in order to induce the Secured Party to purchase the Debentures, Company has agreed to execute and deliver to the Secured Party this Agreement for the benefit of the Secured Party and to grant to it a continuing, first priority security interest and lien in all of the assets and property of Company to secure the prompt payment, performance and discharge in full of all of Company’s obligations under the Debentures, the Purchase Agreement and the other Transaction Documents;

1. Recitals. The recitations set forth in the preamble of this Agreement are true and correct and incorporated herein by this reference.

(a) “Agreement” means this Security Agreement and all amendments, modifications and supplements hereto.

(c) “Business Premises” shall mean the Company’s offices located at 4550 NW Newberry Hill Road, Suite 202, Silverdale, WA 98383.

(d) “Closing” shall mean the date on which this Agreement is fully executed by both parties.

(g) “Event of Default” shall mean any of the events described in Section 4 hereof.

(h) “Obligations” shall mean any and all obligations of the Company to Secured Party, whether arising, existing or incurred under this Agreement, the Purchase Agreement or any other Transaction Documents, or any other agreement between the Company and the Secured Party, in each case, whether now or hereafter existing or incurred, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later decreased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Secured Party as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time.

3. Security.

(v) The Company shall at all times maintain its books of account and records relating to the Collateral and maintain the Collateral at the Business Premises, and the Company shall not relocate such books of account and records or Collateral, except and unless: (A) Secured Party first approves of such relocation, which approval may be withheld in Secured Party’s sole and absolute discretion; (B) evidence that appropriate financing statements and other necessary documents have been filed and recorded and other steps have been taken to create in favor of the Secured Party valid, perfected and continuing liens in the Collateral; or (C) Collateral is moved or relocated in the ordinary course of the Company’s business, consistent with past practice, provided, however, that any permanent relocation of any of the Collateral shall require Secured Party’s prior written approval in accordance with Subsection 3(b)(v)(A) above.

(vi) Upon making the filings described in the immediately following sentence, this Agreement creates, in favor of the Secured Party, a valid, perfected, first-priority security interest in the Collateral. Except for the filing of financing statements on Form-1 under the Code with the State of Nevada, no authorization or approval of, or filing with, or notice to any Governmental Authority is required either: (A) for the grant by the Company of, or the effectiveness of, the security interest granted hereby or for the execution, delivery and performance of this Agreement by the Company; or (B) for the perfection of or exercise by the Secured Party of its rights and remedies hereunder.

(vii) Simultaneous with the execution of this Agreement, the Company hereby authorizes the Secured Party to file one or more UCC financing statements, and any continuations, amendments, or assignments thereof, with respect to the security interests on the Collateral granted hereby, with the State of Nevada and in such other jurisdictions as may be requested or desired by the Secured Party.

(xxi) Company shall not file any amendments, correction statements or termination statements concerning the Collateral without the prior written consent of Secured Party.

4. Events of Default. The occurrence of any one or more of the following events shall constitute an “Event of Default” hereunder:

(a) Failure to Pay. The failure of Company to pay any sum due under or as part of the Obligations as and when due and payable (whether by acceleration, declaration, extension or otherwise).

(b) Covenants and Agreements. The failure of Company to perform, observe or comply with any and all of the covenants, promises and agreements of the Company in this Agreement, the Purchase Agreement or any other Transaction Documents, which such failure is not cured by the Company within ten (10) days after receipt of written notice thereof from Secured Party, except that there shall be no notice or cure period with respect to any failure to pay any sums due under or as part of the Obligations.

(c) Information, Representations and Warranties. If any representation or warranty made herein, in the Purchase Agreement or any other Transaction Documents, or if any information contained in any financial statement, application, schedule, report or any other document given by the Company in connection with the Obligations, with the Collateral, or with any Transaction Document, is not in all respects true, accurate and complete, or if the Company omitted to state any material fact or any fact necessary to make such information not misleading.

(e) Insolvency. Company shall be or become insolvent or unable to pay its debts as they become due, or admits in writing to such insolvency or to such inability to pay its debts as they become due.

(l) Adverse Change in Value of Collateral. The determination in good faith by Secured Party that the security for the Obligations is or has become inadequate.

(m) Prospect of Payment or Performance. The determination in good faith by Secured Party that the prospect for payment or performance of any of the Obligations is impaired for any reason.

5. Rights and Remedies.

(a) Rights and Remedies of Secured Party. Upon and after the occurrence of an Event of Default, Secured Party may, without notice or demand, exercise in any jurisdiction in which enforcement hereof is sought, the following rights and remedies, in addition to the rights and remedies available to Secured Party under the Purchase Agreement and any other Transaction Documents, the rights and remedies of a secured party under the Code, and all other rights and remedies available to Secured Party under applicable law or in equity, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently:

(v) Enforce the Company’s rights against any Persons obligated upon any of the Collateral.

(b) Power of Attorney. Effective upon the occurrence of an Event of Default, Company hereby designates and appoints Secured Party and its designees as attorney-in-fact of and for the Company, irrevocably and with full power of substitution, with authority to endorse the Company’s name on any notes, acceptances, checks, drafts, money orders, instruments or other evidences of payment or proceeds of the Collateral that may come into Secured Party’s possession; to execute proofs of claim and loss; to adjust and compromise any claims under insurance policies; and to perform all other acts necessary and advisable, in Secured Party’s sole discretion, to carry out and enforce this Agreement and the rights and remedies conferred upon the Secured Party by this Agreement, the Purchase Agreement or any other Transaction Documents. All acts of said attorney or designee are hereby ratified and approved by the Company and said attorney or designee shall not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law. This power of attorney is coupled with an interest and is irrevocable so long as any of the Obligations remain unpaid or unperformed or there exists any commitment by Secured Party which could give rise to any Obligations.

(c) Costs and Expenses. The Company agrees to pay to the Secured Party, upon demand, the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and disbursements of counsel for the Secured Party and of any experts and agents, which the Secured Party may incur in connection with: (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement; (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral; (iii) the exercise or enforcement of any of the rights of the Secured Party hereunder; or (iv) the failure by the Company to perform or observe any of the provisions hereof. Included in the foregoing shall be the amount of all expenses paid or incurred by Secured Party in consulting with counsel concerning any of its rights hereunder, under the Purchase Agreement or under applicable law, as well as such portion of Secured Party’s overhead as Secured Party shall allocate to collection and enforcement of the Obligations in Secured Party’s sole but reasonable discretion. All such costs and expenses shall bear interest from the date of outlay until paid, at the highest rate set forth in the Debenture, or if none is so stated, the highest rate allowed by law. The provisions of this Subsection shall survive the termination of this Agreement and Secured Party’s security interest hereunder and the payment of all Obligations.

6. Security Interest Absolute. All rights of the Secured Party and all Obligations of the Company hereunder, shall be absolute and unconditional, irrespective of: (i) any lack of validity or enforceability of this Agreement, the Purchase Agreement, and any other Transaction Documents or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (ii) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the terms and provisions of the Purchase Agreement, any other Transaction Documents, or any other agreement entered into in connection with the foregoing; (iii) any exchange, release or non-perfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guaranty, or any other security, for all or any of the Obligations; (iv) any action by the Secured Party to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (v) any other circumstance which might otherwise constitute any legal or equitable defense available to the Company, or a discharge of all or any part of the security interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Party shall continue even if the Obligations are barred for any reason, including, the running of the statute of limitations or bankruptcy. In the event that at any time any transfer of any Collateral or any payment received by the Secured Party hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the Bankruptcy Code or any other similar insolvency or bankruptcy laws of any jurisdiction, or shall be deemed to be otherwise due to any party other than the Secured Party, then, in any such event, the Company’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. The Company waives all right to require the Secured Party to proceed against any other Person or to apply any Collateral which the Secured Party may hold at any time, or to pursue any other remedy. The Company waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

8. Miscellaneous.

(a) Performance for Company. The Company agrees and hereby authorizes that Secured Party may, in Secured Party’s sole discretion, but Secured Party shall not be obligated to, whether or not an Event of Default shall have occurred, advance funds on behalf of the Company, without prior notice to the Company, in order to insure the Company’s compliance with any covenant, warranty, representation or agreement of the Company made in or pursuant to this Agreement, the Purchase Agreement, or any other Transaction Documents, to continue or complete, or cause to be continued or completed, performance of the Company’s obligations under any Contracts of the Company, or to preserve or protect any right or interest of Secured Party in the Collateral or under or pursuant to this Agreement, the Purchase Agreement or any other Transaction Documents, including, the payment of any insurance premiums or taxes and the satisfaction or discharge of any Claim, Obligation, Judgment or any other Encumbrance upon the Collateral or other property or Assets of Company; provided, however, that the making of any such advance by Secured Party shall not constitute a waiver by Secured Party of any Event of Default with respect to which such advance is made, nor relieve the Company of any such Event of Default. The Company shall pay to Secured Party upon demand all such advances made by Secured Party with interest thereon at the highest rate set forth in the Debenture, or if none is so stated, the highest rate allowed by law. All such advances shall be deemed to be included in the Obligations and secured by the security interest granted Secured Party hereunder; provided, however, that the provisions of this Subsection shall survive the termination of this Agreement and Secured Party’s security interest hereunder and the payment of all other Obligations.

(b) Applications of Payments and Collateral. Except as may be otherwise specifically provided in this Agreement or the Purchase Agreement, all Collateral and proceeds of Collateral coming into Secured Party’s possession and all payments made by any Person to Secured Party with respect to any Collateral may be applied by Secured Party (after payment of any amounts payable to the Secured Party pursuant to Section 5(c) hereof) to any of the Obligations, whether matured or unmatured, as Secured Party shall determine in its sole, but reasonable discretion. Any surplus held by the Secured Party and remaining after the indefeasible payment in full in cash of all of the Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct. Secured Party may defer the application of Noncash Proceeds of Collateral, to the Obligations until Cash Proceeds are actually received by Secured Party. In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Secured Party is legally entitled, the Company shall be liable for the deficiency, together with interest thereon at the highest rate specified in the Debenture for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Secured Party to collect such deficiency.

(c) Waivers by Company. The Company hereby waives, to the extent the same may be waived under applicable law: (i) notice of acceptance of this Agreement; (ii) all claims and rights of the Company against Secured Party on account of actions taken or not taken by Secured Party in the exercise of Secured Party’s rights or remedies hereunder, under the Purchase Agreement, and other Transaction Documents or under applicable law; (iii) all claims of the Company for failure of Secured Party to comply with any requirement of applicable law relating to enforcement of Secured Party’s rights or remedies hereunder, under the Purchase Agreement, under any other Transaction Documents or under applicable law; (iv) all rights of redemption of the Company with respect to the Collateral; (v) in the event Secured Party seeks to repossess any or all of the Collateral by judicial proceedings, any bond(s) or demand(s) for possession which otherwise may be necessary or required; (vi) presentment, demand for payment, protest and notice of non-payment and all exemptions applicable to any of the Collateral or the Company; (vii) any and all other notices or demands which by applicable law must be given to or made upon the Company by Secured Party; (viii) settlement, compromise or release of the obligations of any Person primarily or secondarily liable upon any of the Obligations; (ix) all rights of the Company to demand that Secured Party release account debtors or other Persons liable on any of the Collateral from further obligation to Secured Party; and (x) substitution, impairment, exchange or release of any Collateral for any of the Obligations. The Company agrees that Secured Party may exercise any or all of its rights and/or remedies hereunder, under the Purchase Agreement, the other Transaction Documents and under applicable law without resorting to and without regard to any Collateral or sources of liability with respect to any of the Obligations. Upon termination of this Agreement and Secured Party’s security interest hereunder and payment of all Obligations, within ten (10) business days following the Company’s request to Secured Party, Secured Party shall release control of any security interest in the Collateral perfected by control and Secured Party shall send Company a statement terminating any financing statement filed against the Collateral.

(d) Waivers by Secured Party. No failure or any delay on the part of Secured Party in exercising any right, power or remedy hereunder, under this Agreement, the Purchase Agreement, and other Transaction Documents or under applicable law, shall operate as a waiver thereof.

(f) Modifications, Waivers and Consents. No modifications or waiver of any provision of this Agreement, the Purchase Agreement, or any other Transaction Documents, and no consent by Secured Party to any departure by the Company therefrom, shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given, and any single or partial written waiver by Secured Party of any term, provision or right of Secured Party hereunder shall only be applicable to the specific instance to which it relates and shall not be deemed to be a continuing or future waiver of any other right, power or remedy. No notice to or demand upon the Company in any case shall entitle Company to any other or further notice or demand in the same, similar or other circumstances.

(g) Notices. All notices of request, demand and other communications hereunder shall be addressed to the parties as follows:

If to the Company: Aqualiv Technologies, Inc.

4550 NW Newberry Hill Road, Suite 202

Silverdale, WA 98383

Attn: Mr. William Wright, CEO

Telephone: (360) 536-4220

Facsimile: (360) 473-1160

E-Mail: bwright@aqualivtech.com

With a copy to: Seth Brookman, Esq.

(which shall not constitute notice) Lucosky Brookman, LLP

33 Wood Avenue South, 6^th Floor

Iselin, New Jersey 08830

Phone: (732) 395-4400

Fax: (732) 395-4401

Email: sbrookman@lucbro.com

If to the Secured Party: TCA Global Credit Master Fund, LP

1404 Rodman Street

Hollywood, FL 33020

Attn: Mr. Robert Press

Telephone: (786) 323-1650

Facsimile: (786) 323-1651

E-Mail: bpress@trafcap.com

With a copy to: David Kahan, P.A.

6420 Congress Ave., Suite 1800

Boca Raton, FL 33487

Attn: David Kahan, Esq.

Telephone: (561) 672-8330

Facsimile: (561) 672-8301

E-Mail: david@dkpalaw.com

(k) Merger and Integration. This Agreement and the attached Schedules (if any), together with the Purchase Agreement and the other Transaction Documents, contain the entire agreement of the parties hereto with respect to the matters covered and the transactions contemplated hereby and thereby, and no other agreement, statement or promise made by any party hereto or thereto, or by any employee, officer, agent or attorney of any party hereto, which is not contained herein or therein shall be valid or binding.

(t) Increase in Obligations. It is the intent of the parties to secure payment of the Obligations, as the amount of such Obligations may increase from time to time in accordance with the terms and provisions of the Purchase Agreement, and all of the Obligations, as so increased from time to time, shall be and are secured hereby. Upon the execution hereof, the Company shall pay any and all documentary stamp taxes and/or other charges required to be paid in connection with the execution and enforcement of the Purchase Agreement and this Agreement, and if, as and to the extent the Obligations are increased from time to time in accordance with the terms and provisions of the Debenture, then the Company shall immediately pay any additional documentary stamp taxes or other charges in connection therewith.

[Signatures on the following page]

IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the day and year first above written.

	COMPANY:

	AQUALIV TECHNOLOGIES, INC.

	By:________________________________
	Name:______________________________
	Title:_______________________________
	Date:_______________________________


	SECURED PARTY:

	TCA GLOBAL CREDIT MASTER FUND, LP

	By: TCA Global Credit Fund GP, Ltd., its general partner

	By: ________________________________
	Name:_____________________________
	Title:______________________________
	Date:_______________________________

EX-10.11 9 ex10_11.htm

PLEDGE AND ESCROW AGREEMENT

THIS PLEDGE AND ESCROW AGREEMENT (“Agreement”) is made and entered into as of this [—], 2012, by and between AQUALIV TECHNOLOGIES, INC., a Nevada corporation (the “Pledgor”) and TCA GLOBAL CREDIT MASTER FUND, LP, a Cayman Islands limited partnership (the “Secured Party”), with the joinder of DAVID KAHAN, P.A. (“Escrow Agent”).

RECITALS

WHEREAS, the Secured Party has purchased certain debentures from the Pledgor (the “Debentures”) in the amount of Two Hundred Thousand and No/100 Dollars ($200,000.00), all pursuant to a Securities Purchase Agreement between the Pledgor and the Secured Party dated of even date herewith (the “SPA”); and

WHEREAS, in order to secure the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all of the Pledgor’s obligations to the Secured Party, or any successor to the Secured Party, under this Agreement, the Debentures or the SPA (this Agreement, the Debentures, the SPA and all other documents and instruments executed in connection therewith hereinafter collectively referred to as the “Transaction Documents”), the Pledgor has agreed to irrevocably pledge to the Secured Party its entire ownership interest in Aqualiv, Inc., a Washington corporation (“Aqua Sub”), which entire ownership interest is represented by 50,000 shares of the common stock, $0.001 par value per share, of Aqua Sub (such shares hereinafter referred to as the “Pledged Shares”);

NOW, THEREFORE, in consideration of the mutual covenants, agreements, warranties, and representations herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Recitals. The recitations set forth in the preamble of this Agreement are true and correct and incorporated herein by this reference.

2. Pledge. In order to secure the full and timely payment and performance of all of the Company’s obligations to the Secured Party under the Transaction Documents (the “Obligations”), the Pledgor hereby transfers, pledges, assigns, sets over, delivers and grants to the Secured Party a continuing lien and security interest in and to all of the following property of the Pledgor, both now owned and existing and hereafter created, acquired and arising (all being collectively hereinafter referred to as the “Collateral”) and all right, title and interest of the Pledgor in and to the Collateral, to-wit:

(a) the Pledged Shares;

(b) any certificates representing or evidencing the Pledged Shares;

(c) any and all distributions thereon, and cash and non-cash proceeds and products thereof, including, but not limited to, all dividends, cash, income, profits, instruments, securities, stock dividends, distributions of capital stock of the Pledgor and all other property from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon conversion of the Pledged Shares, whether in connection with stock splits, recapitalizations, merger, conversions, combinations, reclassifications, exchanges of securities or otherwise; and

(d) any and all voting and other rights, powers and privileges accruing or incidental to an owner of the Pledged Shares and the other property referred to in subsections 2(a) through 2(c) above.

3. Transfer of Pledged Shares. Simultaneously with the execution of this Agreement, the Pledgor shall, or shall cause its transfer agent to, deliver to the Escrow Agent: (i) the Pledged Shares and all certificates representing or evidencing the Pledged Shares in the name of the Secured Party, or otherwise together with undated, irrevocable and duly executed stock powers executed in blank by the Pledgor (including medallion guaranteed signatures, if required to duly and properly transfer the Pledged Shares); and (ii) all other property, instruments, documents and papers comprising, representing or evidencing the Collateral, or any part thereof, together with proper instruments of assignment or endorsement, as Secured Party may request or require, duly executed by the Pledgor (collectively, the “Transfer Documents”). The Pledged Shares and other Transfer Documents (collectively, the “Pledged Materials”) shall be held by the Escrow Agent pursuant to this Agreement until the full payment and performance of all of the Obligations, the termination or expiration of this Agreement, or delivery of the Pledged Materials in accordance with this Agreement. In addition, all non-cash dividends, dividends paid or payable in cash or otherwise in connection with a partial or total liquidation or dissolution of the Pledgor, instruments, securities and any other distributions, whether paid or payable in cash or otherwise, made on or in respect of the Pledged Shares, whether resulting from a subdivision, combination, or reclassification of the outstanding capital stock of the Pledgor, or received in exchange for the Pledged Shares or any part thereof, or in redemption thereof, as a result of any merger, consolidation, acquisition, or other exchange of assets to which Pledgor may be a party or otherwise, or any other property that constitutes part of the Collateral from time to time, shall be immediately delivered or cause to be delivered by Pledgor to the Escrow Agent in the same form as so received, including, without limitation, any additional certificates representing any portion of the Collateral hereafter acquired by Pledgor, together with proper instruments of assignment or endorsement duly executed by the Pledgor.

4. Security Interest Only. The security interests in the Collateral granted to Secured Party hereunder are granted as security only and shall not subject the Secured Party to, or transfer or in any way affect or modify, any obligation or liability of the Pledgor with respect to any of the Collateral or any transaction in connection therewith.

5. Record Owner of Collateral. Secured Party shall have the right, in its sole and absolute discretion, to hold any stock certificates, notes, instruments or securities now or hereafter included in the Collateral in its own name or the name of its nominee. In addition, the parties agree that the Pledged Shares, when issued in the name of the Secured Party and delivered to Escrow Agent, shall be deemed issued and held in the name of Secured Party as of the date of issuance in the name of Secured Party. The Pledgor will promptly give to the Secured Party copies of any notices or other communications received by and with respect to Collateral registered in the name of the Pledgor.

6. Rights Related to Pledged Shares. Subject to the terms of this Agreement, unless and until an “Event of Default” (as hereinafter defined) under this Agreement shall occur:

(a) Pledgor shall be entitled to exercise any and all voting and other rights, powers and privileges accruing to an owner of the Pledged Shares, or any part thereof, for any purpose consistent with the terms of this Agreement; provided, however, such action would not materially and adversely affect the rights inuring to Secured Party under any of the Transaction Documents, or adversely affect the remedies of the Secured Party under any of the Transaction Documents, or the ability of the Secured Party to exercise same; and

(b) the Secured Party shall execute and deliver to the Pledgor, or cause to be executed and delivered to the Pledgor, all such proxies, powers of attorney, and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights, powers and privileges which it is entitled to exercise pursuant to subsection 6(a) above.

Upon the occurrence of an Event of Default, all rights of the Pledgor in and to the Pledged Shares and all other Collateral shall cease and all such rights shall immediately vest in Secured Party, as may be determined by Secured Party, although Secured Party shall not have any duty to exercise such rights or be required to sell or to otherwise realize upon the Collateral, as hereinafter authorized, or to preserve the same, and Secured Party shall not be responsible for any failure to do so or delay in doing so. To effectuate the foregoing, Pledgor hereby grants to Secured Party a proxy to vote the Pledged Shares for and on behalf of Pledgor, which proxy is irrevocable and coupled with an interest and which proxy shall be effective upon any Event of Default. Such proxy shall remain in effect so long as the Obligations remain outstanding. Pledgor hereby agrees that any vote by Pledgor in violation of this Section 6 shall be null, void and of no force or effect. Furthermore, all dividends or other distributions received by the Pledgor shall be subject to delivery to Escrow Agent in accordance with Section 3 above, and until such delivery, any of such dividends and other distributions shall be received in trust for the benefit of the Secured Party, shall be segregated from other property or funds of the Pledgor and shall be forthwith delivered to Escrow Agent in accordance with Section 3 above.

7. Release of Pledged Shares. Upon the timely payment in full of all of the Obligations in accordance with the terms thereof, Secured Party shall notify the Escrow Agent in writing to such effect. Upon receipt of such written notice, the Escrow Agent shall return all of the Pledged Materials in Escrow Agent’s possession to the Pledgor, whereupon any and all rights of Secured Party in and to the Pledged Materials and all other Collateral shall be terminated.

8. Representations, Warranties, and Covenants of the Pledgor. The Pledgor hereby covenants, warrants and represents, for the benefit of the Secured Party, as follows (the following representations and warranties shall be made as of the date of this Agreement and as of each date when Pledged Shares are delivered to Escrow Agent hereunder, as applicable):

(a) Pledgor is the owner and holder of the Pledged Shares, free and clear of any liens, claims, charges or encumbrances of any nature whatsoever, other than as created by this Agreement. The Pledge Shares represent a fifty percent (50%) ownership interest in Aqua Sub.

(b) The Pledged Shares have been duly authorized and are validly issued, fully paid and non-assessable, and are subject to no options to purchase, or any similar rights or to any restrictions on transferability.

(c) Each certificate or document of title constituting the Pledged Shares is genuine in all respects and represents what it purports to be.

(d) By virtue of the execution and delivery of this Agreement and upon delivery to Escrow Agent of the Pledged Shares in accordance with this Agreement, Secured Party will have a valid security interest in the Collateral, subject to no prior or other lien, claim, charge, pledge, security interest or encumbrance of any nature whatsoever.

(e) Pledgor covenants, that for so long as this Agreement is in effect, Pledgor will defend the Collateral and the priority of Secured Party’s security interests therein, at its sole cost and expense, against the claims and demands of all persons at anytime claiming the same or any interest therein.

(f) At its option, Secured Party may pay, for Pledgor’s account, any taxes (including documentary stamp taxes), liens, security interests, or other encumbrances at any time levied or placed on the Collateral. Pledgor agrees to reimburse Secured Party on demand for any payment made or expense incurred by Secured Party pursuant to the foregoing authorization. Any such amount, if not promptly paid upon demand therefor, shall accrue interest at the highest non-usurious rate permitted by applicable law from the date of outlay, until paid, and shall constitute an Obligation secured hereby.

(g) The Pledgor acknowledges, represents and warrants that Secured Party is not an “affiliate” of Pledgor, as such terms is used and defined under Rule 144 of the federal securities laws.

(h) The Company has the full right, power and authority to enter into this Agreement and to pledge the Pledge shares without the joinder or consent of any other party. Specifically, there is no shareholders agreement, voting agreement or any other agreement of any nature or kind affecting, restricting or encumbering the Pledge Shares or the Company’s right to pledge same as hereby contemplated.

9. Events of Default. The occurrence of any one or more of the following events shall constitute an “Event of Default” hereunder:

(a) Default. The occurrence of any breach, default or “Event of Default” (as such term may be defined in any Transaction Documents) under any of the Transaction Documents.

(b) Covenants and Agreements. The failure of Pledgor to perform, observe or comply with any and all of the covenants, promises and agreements of the Pledgor in any of the Transaction Documents.

(c) Information, Representations and Warranties. If any representation or warranty made herein or in any other Transaction Documents, or if any information contained in any financial statement, application, schedule, report or any other document given by the Pledgor in connection with the Obligations, with the Collateral, or with the Transaction Documents, is not in all material respects true, accurate and complete, or if the Pledgor omitted to state any material fact or any fact necessary to make such information not misleading.

10. Rights and Remedies. Subject, at all times, to the Uniform Commercial Code as then in effect in the State of Florida and/or the State of Nevada (as applicable), the Secured Party shall have the following rights and remedies upon the occurrence and continuation of an Event of Default:

(a) Upon and anytime after the occurrence and continuation of an Event of Default, the Secured Party shall have the right acquire the Pledged Shares and all other Collateral in accordance with the following procedure: (i) the Secured Party shall provide written notice of such Event of Default (the “Default Notice”) to the Escrow Agent, with a copy to the Pledgor; (ii) as soon as practicable after receipt of a Default Notice, the Escrow Agent shall deliver the Pledged Shares and all other Collateral, along with the applicable Transfer Documents to the Secured Party.

(b) Upon receipt of the Pledged Shares and other Collateral issued to the Secured Party, the Secured Party shall have the right to, without notice or demand to Pledgor: (i) sell the Collateral and to apply the proceeds of such sales, net of any selling commissions, to the Obligations owed to the Secured Party by the Pledgor under the Transaction Documents, including, without limitation, outstanding principal, interest, legal fees, and any other amounts owed to the Secured Party; and (ii) exercise in any jurisdiction in which enforcement hereof is sought, any rights and remedies available to Secured Party under the provisions of any of the Transaction Documents, the rights and remedies of a secured party under the Uniform Commercial Code as then in effect in the State of Florida, and all other rights and remedies available to the Secured Party, under equity or applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. In furtherance of the foregoing rights and remedies:

(i) Secured Party may sell the Pledged Shares, or any part thereof, or any other portion of the Collateral, in one or more sales, at public or private sale, conducted by any agent of, or auctioneer or attorney for Secured Party, at Secured Party’s place of business or elsewhere, or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices, all as Secured Party may deem appropriate. Secured Party may be a purchaser at any such sale of any or all of the Collateral so sold. In the event Secured Party is a purchaser at any such sale, Secured Party may apply to such purchase all or any portion of the sums then due and owing by the Pledgor to Secured Party under any of the Transaction Documents or otherwise, and the Secured Party may, upon compliance with the terms of the sale, hold, retain and dispose of such property without further accountability to the Pledgor therefore. Secured Party is authorized, in its absolute discretion, to restrict the prospective bidders or purchasers of any of the Collateral at any public or private sale as to their number, nature of business and investment intention, including, but not limited to, the restricting of bidders or purchasers to one or more persons who represent and agree, to the satisfaction of Secured Party, that they are purchasing the Collateral, or any part thereof, for their own account, for investment, and not with a view to the distribution or resale of any of such Collateral.

(ii) Upon any such sale, Secured Party shall have the right to deliver, assign and transfer to each purchaser thereof the Collateral so sold to such purchaser. Each purchaser (including Secured Party) at any such sale shall, to the full extent permitted by law, hold the Collateral so purchased absolutely free from any claim or right whatsoever, including, without limitation, any equity or right of redemption of the Pledgor, who, to the full extent that it may lawfully do so, hereby specifically waives all rights of redemption, stay, valuation or appraisal which they now have or may have under any rule of law or statute now existing or hereafter adopted.

(iii) At any such sale, the Collateral may be sold in one lot as an entirety, in separate blocks or individually as Secured Party may determine, in its sole and absolute discretion. Secured Party shall not be obligated to make any sale of any Collateral if it shall determine in its sole and absolute discretion, not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. Secured Party may, without notice or publication, adjourn any public or private sale from time to time by announcement at the time and place fixed for such sale, or any adjournment thereof, and any such sale may be made at any time or place to which the same may be so adjourned without further notice or publication.

(iv) The Pledgor acknowledges that compliance with applicable federal and state securities laws (including, without limitation, the Securities Act of 1933, as amended, blue sky or other state securities laws or similar laws now or hereafter existing analogous in purpose or effect) might very strictly limit or restrict the course of conduct of Secured Party if Secured Party were to attempt to sell or otherwise dispose of all or any part of the Collateral, and might also limit or restrict the extent to which or the manner in which any subsequent transferee of any such securities could sell or dispose of the same. The Pledgor further acknowledges that under applicable laws, Secured Party may be held to have certain general duties and obligations to the Pledgor, as pledgor of the Collateral, to make some effort toward obtaining a fair price for the Collateral even though the obligations of the Pledgor may be discharged or reduced by the proceeds of sale at a lesser price. The Pledgor understands and agrees that, to the extent allowable under applicable law, Secured Party is not to have any such general duty or obligation to the Pledgor, and the Pledgor will not attempt to hold Secured Party responsible for selling all or any part of the Collateral at an inadequate price even if Secured Party shall accept the first offer received or does not approach more than one possible purchaser. Without limiting their generality, the foregoing provisions would apply if, for example, Secured Party were to place all or any part of such securities for private placement by an investment banking firm, or if such investment banking firm purchased all or any part of such securities for its own account, or if Secured Party placed all or any part of such securities privately with a purchaser or purchasers.

(c) To the extent that the net proceeds received by the Secured Party are insufficient to satisfy the Obligations in full, the Secured Party shall be entitled to a deficiency judgment against the Pledgor for such deficiency amount. The Secured Party shall have the absolute right to sell or dispose of the Collateral, or any part thereof, in any manner it sees fit and shall have no liability to the Pledgor or any other party for selling or disposing of such Collateral even if other methods of sales or dispositions would or allegedly would result in greater proceeds than the method actually used. The Pledgor shall remain liable for all deficiencies and shortfalls, if any, that may exist after the Secured Party has exhausted all remedies hereunder.

(d) Each right, power and remedy of the Secured Party provided for in this Agreement or any other Transaction Document shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Secured Party of any one or more of the rights, powers or remedies provided for in this Agreement or any other Transaction Document, or now or hereafter existing at law or in equity or by statute or otherwise, shall not preclude the simultaneous or later exercise by the Secured Party of all such other rights, powers or remedies, and no failure or delay on the part of the Secured Party to exercise any such right, power or remedy shall operate as a waiver thereof. No notice to or demand on the Pledgor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Secured Party to any other further action in any circumstances without demand or notice. The Secured Party shall have the full power to enforce or to assign or contract its rights under this Agreement to a third party.

(e) In addition to all other remedies available to the Secured Party, upon the issuance of the Pledged Shares to the Secured Party after an Event of Default, Pledgor agrees to: (i) take such action and prepare, distribute and/or file such documents and papers, as are required or advisable in the opinion of Secured Party and/or its counsel, to permit the sale of the Pledged Shares, whether at public sale, private sale or otherwise, including, without limitation, issuing, or causing its counsel to issue, any opinion of counsel for Pledgor required to allow the Secured Party to sell the Pledged Shares or any other Collateral under Rule 144; (ii) to bear all costs and expenses of carrying out its obligations under this Section 8(e), which shall be a part of the Obligations secured hereby; and (iv) that there is no adequate remedy at law for the failure by the Pledgor to comply with the provisions of this Section 8(e) and that such failure would not be adequately compensable in damages, and therefore agrees that its agreements contained in this subsection may be specifically enforced.

11. Concerning the Escrow Agent.

(a) The Escrow Agent undertakes to perform only such duties as are expressly set forth herein and no implied duties or obligations shall be read into this Agreement against the Escrow Agent. Escrow Agent agrees to release any property held by it hereunder (the “Escrowed Property”) in accordance with the terms and conditions set forth in this Agreement.

(b) The Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes to be genuine, may assume the validity and accuracy of any statement or assertion contained in such a writing or instrument, and may assume that any person purporting to give any writing, notice, advice or instructions in connection with the provisions hereof has been duly authorized to do so. The Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner, and execution, or validity of any instrument deposited in this escrow, nor as to the identity, authority, or right of any person executing the same; and its duties hereunder shall be limited to the safekeeping of the Escrowed Property, and for the disposition of the same in accordance with this Agreement. Escrow Agent shall not be deemed to have knowledge of any matter or thing unless and until Escrow Agent has actually received written notice of such matter or thing and Escrow Agent shall not be charged with any constructive notice whatsoever.

(c) Escrow Agent shall hold in escrow, pursuant to this Agreement, the Escrowed Property actually delivered and received by Escrow Agent hereunder, but Escrow Agent shall not be obligated to ascertain the existence of (or initiate recovery of) any other property that may be part or portion of the Collateral, or to become or remain informed with respect to the possibility or probability of additional Collateral being realized upon or collected at any time in the future, or to inform any parties to this Agreement or any third party with respect to the nature and extent of any Collateral realized and received by Escrow Agent (except upon the written request of such party), or to monitor current market values of the Collateral. Further, Escrow Agent shall not be obligated to proceed with any action or inaction based on information with respect to market values of the Collateral which Escrow Agent may in any manner learn, nor shall Escrow Agent be obligated to inform the parties hereto or any third party with respect to market values of any of the Collateral at any time, Escrow Agent having no duties with respect to investment management or information, all parties hereto understanding and intending that Escrow Agent’s responsibilities are purely ministerial in nature. Any reduction in the market value or other value of the Collateral while deposited with Escrow Agent shall be at the sole risk of Pledgor and Secured Party. If all or any portion of the Escrowed Property is in the form of a check or in any other form other than cash, Escrow Agent shall deposit same as required but shall not be liable for the nonpayment thereof, nor responsible to enforce collection thereof.

(d) In the event instructions from Secured Party, Pledgor, or any other party would require Escrow Agent to expend any monies or to incur any cost, Escrow Agent shall be entitled to refrain from taking any action until it receives payment for such costs. It is agreed that the duties of Escrow Agent are purely ministerial in nature and shall be expressly limited to the safekeeping of the Escrowed Property and for the disposition of same in accordance with this Agreement. Secured Party and Pledgor, jointly and severally, each hereby indemnifies Escrow Agent and holds it harmless from and against any and all claims, liabilities, damages, costs, penalties, losses, actions, suits or proceedings at law or in equity, or any other expenses, fees or charges of any character or nature (collectively, the “Claims”), which it may incur or with which it may be threatened, directly or indirectly, arising from or in any way connected with this Agreement or which may result from Escrow Agent’s following of instructions from Secured Party or Pledgor, and in connection therewith, indemnifies Escrow Agent against any and all expenses, including attorneys’ fees and the cost of defending any action, suit, or proceeding or resisting any Claim, whether or not litigation is instituted, unless any such Claims arise as a result of Escrow Agent’s gross negligence or willful misconduct. Escrow Agent shall be vested with a lien on all Escrowed Property under the terms of this Agreement, for indemnification, attorneys’ fees, court costs and all other costs and expenses arising from any suit, interpleader or otherwise, or other expenses, fees or charges of any character or nature, which may be incurred by Escrow Agent by reason of disputes arising between Pledgor, Secured Party, or any third party as to the correct interpretation of this Agreement, and instructions given to Escrow Agent hereunder, or otherwise, with the right of Escrow Agent, regardless of the instruments aforesaid and without the necessity of instituting any action, suit or proceeding, to hold any property hereunder until and unless said additional expenses, fees and charges shall be fully paid. Any fees and costs charged by the Escrow Agent for serving hereunder shall be paid by the Pledgor.

(e) In the event Escrow Agent shall be uncertain as to its duties or rights hereunder or shall receive instructions, claims or demands from Secured Party, Pledgor or from third persons with respect to the Escrowed Property, which, in Escrow Agent’s sole opinion, are in conflict with each other or with any provision of this Agreement, Escrow Agent shall be entitled to refrain from taking any action until it shall be directed otherwise in writing by Pledgor and Secured Party and said third persons, if any, or by a final order or judgment of a court of competent jurisdiction. If any of the parties shall be in disagreement about the interpretation of this Agreement, or about the rights and obligations, or the propriety of any action contemplated by the Escrow Agent hereunder, the Escrow Agent may, at its sole discretion, deposit the Escrowed Property with a court having jurisdiction over this Agreement, and, upon notifying all parties concerned of such action, all liability on the part of the Escrow Agent shall fully cease and terminate. The Escrow Agent shall be indemnified by the Pledgor and Secured Party for all costs, including reasonable attorneys’ fees, in connection with the aforesaid proceeding, and shall be fully protected in suspending all or a part of its activities under this Agreement until a final decision or other settlement in the proceeding is received. In the event Escrow Agent is joined as a party to a lawsuit by virtue of the fact that it is holding the Escrowed Property, Escrow Agent shall, at its sole option, either: (i) tender the Collateral in its possession to the registry of the appropriate court; or (ii) disburse the Collateral in its possession in accordance with the court’s ultimate disposition of the case, and Secured Party and Pledgor hereby, jointly and severally, indemnify and hold Escrow Agent harmless from and against any damages or losses in connection therewith including, but not limited to, reasonable attorneys’ fees and court costs at all trial and appellate levels.

(f) The Escrow Agent may consult with counsel of its own choice (and the costs of such counsel shall be paid by the Pledgor and Secured Party) and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. The Escrow Agent shall not be liable for any mistakes of fact or error of judgment, or for any actions or omissions of any kind, unless caused by its willful misconduct or gross negligence.

(g) The Escrow Agent may resign upon ten (10) days’ written notice to the parties in this Agreement. If a successor Escrow Agent is not appointed by Secured Party and Pledgor within this ten (10) day period, the Escrow Agent may petition a court of competent jurisdiction to name a successor.

(h) Conflict Waiver. The Pledgor hereby acknowledges that the Escrow Agent is counsel to the Secured Party in connection with the transactions contemplated and referred herein. The Pledgor agrees that in the event of any dispute arising in connection with this Agreement or otherwise in connection with any transaction or agreement contemplated and referred herein, the Escrow Agent shall be permitted to continue to represent the Secured Party and the Pledgor will not seek to disqualify such counsel and waives any objection Pledgor might have with respect to the Escrow Agent acting as the Escrow Agent pursuant to this Agreement. Pledgor and Secured Party acknowledge and agree that nothing in this Agreement shall prohibit Escrow Agent from: (i) serving in a similar capacity on behalf of others; or (ii) acting in the capacity of attorneys for one or more of the parties hereto in connection with any matter.

12. Increase in Obligations. It is the intent of the parties to secure payment of the Obligations, as the amount of such Obligations may increase from time to time in accordance with the terms and provisions of the Transaction Documents, and all of the Obligations, as so increased from time to time, shall be and are secured hereby. Upon the execution hereof, Pledgor shall pay any and all documentary stamp taxes and/or other charges required to be paid in connection with the execution and enforcement of the Debentures and the Transaction Documents, and if, as and to the extent the Obligations are increased from time to time in accordance with the terms and provisions of the Transaction Documents, then Pledgor shall immediately pay any additional documentary stamp taxes or other charges in connection therewith.

13. Irrevocable Authorization and Instruction. Pledgor hereby authorizes and instructs its transfer agent to comply with any instruction received by it from Secured Party in writing that: (i) states that an Event of Default hereunder exists or has occurred; and (b) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from Pledgor, and Pledgor agrees that its transfer agent shall be fully protected in so complying with any such instruction from Secured Party.

14. Appointment as Attorney-in-Fact. Pledgor hereby irrevocably constitutes and appoints Secured Party and any officer or agent of Secured Party, with full power of substitution, as its true and lawful attorney-in-fact, with full irrevocable power and authority in the place and stead of Pledgor and in the name of Pledgor or in the name of Secured Party, from time to time in the discretion of Secured Party, so long as an Event of Default hereunder exists, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, including, without limitation, any financing statements, endorsements, assignments or other instruments of transfer. Pledgor hereby ratifies all that said attorneys shall lawfully do or cause to be done pursuant to the power of attorney granted in this Section 14. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until the Obligations are paid and performed in full.

15. Continuing Obligation of Pledgor. The obligations, covenants, agreements and duties of the Pledgor under this Agreement shall in no way be affected or impaired by: (i) the modification or amendment (whether material or otherwise) of any of the obligations of the Pledgor or any other person or entity, as applicable; (ii) the voluntary or involuntary bankruptcy, assignment for the benefit of creditors, reorganization, or other similar proceedings affecting the Pledgor or any other person or entity, as applicable; (iii) the release of the Pledgor or any other person or entity from the performance or observance of any of the agreements, covenants, terms or conditions contained in any Transaction Documents, by the operation of law or otherwise, including, but not limited to, the release of the Pledgor’s obligation to pay interest or attorney's fees.

Pledgor further agrees that Secured Party may take other guaranties or collateral or security to further secure the Obligations, and consents that any of the terms, covenants and conditions contained in any of the Transaction Documents may be, without Pledgor’s consent, renewed, altered, extended, changed or modified by Secured Party or may be released by Secured Party, without in any manner affecting this Agreement or releasing Pledgor herefrom, and without further consent of or notice to Pledgor, and Pledgor shall continue to be liable hereunder to pay and perform pursuant hereto, notwithstanding any such release or the taking of such other guaranties, collateral or security. This Agreement is additional and supplemental to any and all other guarantees, security agreements or collateral heretofore and hereafter executed by Pledgor for the benefit of Secured Party, whether relating to the indebtedness evidenced by any of the Transaction Documents or not, and shall not supersede or be superseded by any other document or guaranty executed by Pledgor or any other person, firm or entity for any purpose. Pledgor hereby agrees that Pledgor and any additional parties who may become liable for repayment of the sums due under the Transaction Documents, may hereafter be released from their liability hereunder and thereunder; and Secured Party may take, or delay in taking or refuse to take, any and all action with reference to any of the Transaction Documents (regardless of whether same might vary the risk or alter the rights, remedies or recourses of Pledgor), including specifically the settlement or compromise of any amount allegedly due thereunder, all without notice to, consideration to or the consent of the Pledgor, and without in any way releasing, diminishing or affecting in any way the absolute nature of Pledgor’s obligations and liabilities hereunder.

No delay on the part of the Secured Party in exercising any rights hereunder or failure to exercise the same shall operate as a waiver of such rights. Pledgor hereby waives any and all legal requirements, statutory or otherwise, that Secured Party shall institute any action or proceeding at law or in equity or exhaust its rights, remedies and recourses against Pledgor or anyone else with respect to the Debentures or any other Transaction Documents, as a condition precedent to bringing an action against Pledgor upon this Agreement or as a condition precedent to Secured Party’s rights to sell the Pledged Shares or any other Collateral. Pledgor agrees that Secured Party may simultaneously maintain an action upon this Agreement and an action or proceeding upon the Debentures or any other Transaction Documents. All remedies afforded by reason of this Agreement are separate and cumulative remedies and may be exercised serially, simultaneously and in any order, and the exercise of any of such remedies shall not be deemed an exclusion of the other remedies and shall in no way limit or prejudice any other contractual, legal, equitable or statutory remedies which Secured Party may have in the Pledged Shares, any other Collateral, or under the Transaction Documents. Until the Obligations, and all extensions, renewals and modifications thereof, are paid in full, and until each and all of the terms, covenants and conditions of this Agreement are fully performed, Pledgor shall not be released by any act or thing which might, but for this provision of this Agreement, be deemed a legal or equitable discharge of a surety, or by reason of any waiver, extension, modification, forbearance or delay of Secured Party or any obligation or agreement between Pledgor or its successors or assigns, and the then holder of the Debentures, relating to the payment of any sums evidenced or secured thereby or to any of the other terms, covenants and conditions contained therein, and Pledgor hereby expressly waives and surrenders any defense to liability hereunder based upon any of the foregoing acts, things, agreements or waivers, or any of them. Pledgor also waives any defense arising by virtue of any disability, insolvency, bankruptcy, lack of authority or power or dissolution of Pledgor, even though rendering the Debentures or any of the other Transaction Documents void, unenforceable or otherwise uncollectible, it being agreed that Pledgor shall remain liable hereunder, regardless of any claim which Pledgor might otherwise have against Secured Party by virtue of Secured Party's invocation of any right, remedy or recourse given to it hereunder, under the Debentures or any other Transaction Documents. In addition, Pledgor waives and renounces any right of subrogation, reimbursement or indemnity whatsoever, and any right of recourse to security for the Obligations of Pledgor to Secured Party, unless and until all of said Obligations have been paid in full to Secured Party.

16. Miscellaneous.

(a) Performance for Pledgor. The Pledgor agrees and hereby acknowledges that Secured Party may, in Secured Party’s sole discretion, but Secured Party shall not be obligated to, whether or not an Event of Default shall have occurred, advance funds on behalf of the Pledgor, without prior notice to the Pledgor, in order to insure the Pledgor’s compliance with any covenant, warranty, representation or agreement of the Pledgor made in or pursuant to this Agreement or the other Transaction Documents, to continue or complete, or cause to be continued or completed, performance of the Pledgor’s obligations under any contracts of the Pledgor, or to preserve or protect any right or interest of Secured Party in the Collateral or under or pursuant to this Agreement or the other Transaction Documents; provided, however, that the making of any such advance by Secured Party shall not constitute a waiver by Secured Party of any Event of Default with respect to which such advance is made, nor relieve the Pledgor of any such Event of Default. The Pledgor shall pay to Secured Party upon demand all such advances made by Secured Party with interest thereon at the highest rate set forth in the Debentures, or if none is so stated, the highest rate allowed by law. All such advances shall be deemed to be included in the Obligations and secured by the security interest granted Secured Party hereunder; provided, however, that the provisions of this Subsection shall survive the termination of this Agreement and Secured Party’s security interest hereunder and the payment of all other Obligations.

(b) Applications of Payments and Collateral. Except as may be otherwise specifically provided in this Agreement or the other Transaction Documents, all Collateral and proceeds of Collateral coming into Secured Party’s possession may be applied by Secured Party (after payment of any costs, fees and other amounts incurred by Secured Party in connection therewith) to any of the Obligations, whether matured or unmatured, as Secured Party shall determine in its sole discretion. Any surplus held by the Secured Party and remaining after the indefeasible payment in full in cash of all of the Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct. In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Secured Party is legally entitled, the Pledgor shall be liable for the deficiency, together with interest thereon at the highest rate specified in the Debentures for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Secured Party to collect such deficiency.

(c) Waivers by Pledgor. The Pledgor hereby waives, to the extent the same may be waived under applicable law: (i) notice of acceptance of this Agreement; (ii) all claims and rights of the Pledgor against Secured Party on account of actions taken or not taken by Secured Party in the exercise of Secured Party’s rights or remedies hereunder, under any other Transaction Documents or under applicable law; (iii) all claims of the Pledgor for failure of Secured Party to comply with any requirement of applicable law relating to enforcement of Secured Party’s rights or remedies hereunder, under the other Transaction Documents or under applicable law; (iv) all rights of redemption of the Pledgor with respect to the Collateral; (v) in the event Secured Party seeks to repossess any or all of the Collateral by judicial proceedings, any bond(s) or demand(s) for possession which otherwise may be necessary or required; (vi) presentment, demand for payment, protest and notice of non-payment and all exemptions applicable to any of the Collateral or the Pledgor; (vii) any and all other notices or demands which by applicable law must be given to or made upon the Pledgor by Secured Party; (viii) settlement, compromise or release of the obligations of any person or entity primarily or secondarily liable upon any of the Obligations; (ix) all rights of the Pledgor to demand that Secured Party release account debtors or other persons or entities liable on any of the Collateral from further obligation to Secured Party; and (x) substitution, impairment, exchange or release of any Collateral for any of the Obligations. The Pledgor agrees that Secured Party may exercise any or all of its rights and/or remedies hereunder and under any other Transaction Documents and under applicable law without resorting to and without regard to any Collateral or sources of liability with respect to any of the Obligations.

(d) Waivers by Secured Party. No failure or any delay on the part of Secured Party in exercising any right, power or remedy hereunder or under any other Transaction Documents or under applicable law, shall operate as a waiver thereof.

(f) Modifications, Waivers and Consents. No modifications or waiver of any provision of this Agreement or any other Transaction Documents, and no consent by Secured Party to any departure by the Pledgor therefrom, shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given, and any single or partial written waiver by Secured Party of any term, provision or right of Secured Party hereunder shall only be applicable to the specific instance to which it relates and shall not be deemed to be a continuing or future waiver of any other right, power or remedy. No notice to or demand upon the Pledgor in any case shall entitle Pledgor to any other or further notice or demand in the same, similar or other circumstances.

(g) Notices. All notices of request, demand and other communications hereunder shall be addressed to the parties as follows:

If to the Company: Aqualiv Technologies, Inc.

4550 NW Newberry Hill Road, Suite 202

Silverdale, WA 98383

Attn: Mr. William Wright, CEO

Telephone: (360) 536-4220

Facsimile: (360) 473-1160

E-Mail: bwright@aqualivtech.com

With a copy to: Seth Brookman, Esq.

(which shall not constitute notice) Lucosky Brookman, LLP

33 Wood Avenue South, 6^th Floor

Iselin, New Jersey 08830

Phone: (732) 395-4400

Fax: (732) 395-4401

Email: sbrookman@lucbro.com

If to the Buyer: TCA Global Credit Master Fund, LP

1404 Rodman Street

Hollywood, FL 33020

Attn: Mr. Robert Press

Telephone: (786) 323-1650

Facsimile: (786) 323-1651

E-Mail: bpress@trafcap.com

With a copy to: David Kahan, P.A.

6420 Congress Ave., Suite 1800

Boca Raton, FL 33487

Attn: David Kahan, Esq.

Telephone: (561) 672-8330

Facsimile: (561) 672-8301

E-Mail: david@dkpalaw.com

If to Escrow Agent: David Kahan, P.A.

6420 Congress Ave., Suite 1800

Boca Raton, FL 33487

Attn: David Kahan, Esq.

Telephone: (561) 672-8330

Facsimile: (561) 672-8301

E-Mail: david@dkpalaw.com

unless the address is changed by the party by like notice given to the other parties. Notice shall be in writing and shall be deemed received: (i) if mailed by certified mail, return receipt requested, postage prepaid and properly addressed to the address above, then three (3) business days after deposit of same in a regularly maintained U.S. Mail receptacle; or (ii) if mailed by Federal Express, UPS or other nationally recognized overnight courier service, next business morning delivery, then one (1) business day after deposit of same in a regularly maintained receptacle of such overnight courier; or (iii) if hand delivered, then upon hand delivery thereof to the address indicated on or prior to 5:00 p.m., EST, on a business day. Any notice hand delivered after 5:00 p.m., EST, shall be deemed delivered on the following business day. Notwithstanding the foregoing, notice, requests or demands or other communications referred to in this Agreement may be sent by facsimile, by e-mail or other method of delivery, but shall be deemed to have been given only when the sending party has confirmed that the receiving party has received such notice.

(h) Applicable Law and Consent to Jurisdiction. This Agreement shall be construed in accordance with the laws of the State of Nevada, without regard to the principles of conflicts of laws, except to the extent that the validity and perfection or the perfection and the effect of perfection or non-perfection of the security interest created hereby, or remedies hereunder, in respect of any particular Collateral are governed under the UCC or any other set of foreign, federal, state or local laws, rules and regulations, by the law of a jurisdiction other than the State of Nevada, in which case such issues shall be governed by the laws of the jurisdiction governing such issues under the UCC or such other set of foreign, federal, state or local laws, rules and regulations. The parties further agree that any action between them shall be heard in Clark County, Nevada and expressly consent to the jurisdiction and venue of the State Court sitting in Clark County, Nevada and the United States District Court for the District of Nevada for the adjudication of any civil action asserted pursuant to this Agreement, provided, however, that nothing herein shall prevent Secured Party from bringing suit or taking legal action in any other jurisdiction. By its execution hereof, the Pledgor hereby irrevocably waives any objection and any right of immunity on the ground of venue, the convenience of the forum or the jurisdiction of such courts or from the execution of judgments resulting therefrom. The Pledgor hereby irrevocably accepts and submits to the jurisdiction of the aforesaid courts in any such suit, action or proceeding.

(i) Survival: Successors and Assigns. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery hereof, and shall continue in full force and effect until all Obligations have been paid in full, there exists no commitment by Secured Party which could give rise to any Obligations and all appropriate termination statements have been filed terminating the security interest granted Secured Party hereunder. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party. In the event that Secured Party assigns this Agreement and/or its security interest in the Collateral, Secured Party shall give written notice to the Pledgor of any such assignment and such assignment shall be binding upon and recognized by the Pledgor. All covenants, agreements, representations and warranties by or on behalf of the Pledgor which are contained in this Agreement shall inure to the benefit of Secured Party, its successors and assigns. The Pledgor may not assign this Agreement or delegate any of its rights or obligations hereunder, without the prior written consent of Secured Party, which consent may be withheld in Secured Party’s sole and absolute discretion.

(k) Merger and Integration. This Agreement and the other Transaction Documents contain the entire agreement of the parties hereto with respect to the matters covered and the transactions contemplated hereby, and no other agreement, statement or promise made by any party hereto, or by any employee, officer, agent or attorney of any party hereto, which is not contained herein shall be valid or binding.

(l) WAIVER OF JURY TRIAL. THE PLEDGOR HEREBY: (i) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY; AND (ii) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE PLEDGOR AND SECURED PARTY MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS AGREEMENT, THE NOTE AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE PLEDGOR AND THE PLEDGOR HEREBY AGREES THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. SECURED PARTY IS HEREBY AUTHORIZED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PLEDGOR AND SECURED PARTY, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. THE PLEDGOR REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

(o) Gender and Use of Singular and Plural. All pronouns shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the party or parties or their personal representatives, successors and assigns may require.

(p) Further Assurances. The parties hereto will execute and deliver such further instruments and do such further acts and things as may be reasonably required to carry out the intent and purposes of this Agreement, including, but not limited to, the execution and filing of UCC-1 Financing Statements in any jurisdiction as Secured Party may require.

(q) Time is of the Essence. The parties hereby agree that time is of the essence with respect to performance of each of the parties’ obligations under this Agreement. The parties agree that in the event that any date on which performance is to occur falls on a Saturday, Sunday or state or national holiday, then the time for such performance shall be extended until the next business day thereafter occurring.

(r) Joint Preparation. The preparation of this Agreement has been a joint effort of the parties and the resulting documents shall not, solely as a matter of judicial construction, be construed more severely against one of the parties than the other.

(s) Prevailing Party. If any legal action or other proceeding is brought for the enforcement of this Agreement or any other Transaction Documents, or because of an alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement or any other Transaction Documents, the successful or prevailing party or parties shall be entitled to recover from the non-prevailing party, reasonable attorneys’ fees, court costs and all expenses, even if not taxable as court costs (including, without limitation, all such fees, costs and expenses incident to appeals), incurred in that action or proceeding, in addition to any other relief to which such party or parties may be entitled.

(t) Costs and Expenses. The Pledgor agrees to pay to the Secured Party, upon demand, the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and disbursements of counsel for the Secured Party and of any experts and agents, which the Secured Party may incur in connection with: (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement; (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral; (iii) the exercise or enforcement of any of the rights of the Secured Party hereunder; or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof. Included in the foregoing shall be the amount of all expenses paid or incurred by Secured Party in consulting with counsel concerning any of its rights hereunder, under the Note or any other Transaction Documents or under applicable law, as well as such portion of Secured Party’s overhead as Secured Party shall allocate to collection and enforcement of the Obligations in Secured Party’s sole but reasonable discretion. All such costs and expenses shall bear interest from the date of outlay until paid, at the highest rate set forth in the Note, or if none is so stated, the highest rate allowed by law. The provisions of this Subsection shall survive the termination of this Agreement and Secured Party’s security interest hereunder and the payment of all Obligations. Notwithstanding anything which may be contained in this Section 16(t) to the contrary, the only cash fees and expenses (other than stamp and UCC Financing Statement filing expenses) which shall be assessed by the Secured Party or the Escrow Agent upon Closing under the SPA are provided in Sections 7.4(a), (b) and (c) of the SPA.

[Signatures on the following page]

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.


	PLEDGOR:

	AQUALIV TECHNOLOGIES, INC., a Nevada corporation

	By:__________________________________
	Name:________________________________
	Title:_________________________________

	SECURED PARTY:

	TCA GLOBAL CREDIT MASTER FUND, LP

	By: TCA Global Credit Fund GP, Ltd., its general partner



	By: ________________________________
	Robert Press, Director

EX-10.12 10 ex10_12.htm

PLEDGE AND ESCROW AGREEMENT

THIS PLEDGE AND ESCROW AGREEMENT (“Agreement”) is made and entered into as of this 31^st day of March, 2012, by and between AQUALIV TECHNOLOGIES, INC., a Nevada corporation (the “Pledgor”) and TCA GLOBAL CREDIT MASTER FUND, LP, a Cayman Islands limited partnership (the “Secured Party”), with the joinder of DAVID KAHAN, P.A. (“Escrow Agent”).

RECITALS

WHEREAS, in order to secure the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all of the Pledgor’s obligations to the Secured Party, or any successor to the Secured Party, under this Agreement, the Debentures or the SPA (this Agreement, the Debentures, the SPA and all other documents and instruments executed in connection therewith hereinafter collectively referred to as the “Transaction Documents”), the Pledgor has agreed to issue and irrevocably pledge to the Secured Party 11,516,104 shares of the common stock, $0.001 par value per share, of the Company (such shares, as same may be further increased from time to time pursuant to the terms of the SPA, hereinafter referred to as the “Pledged Shares”);

1. Recitals. The recitations set forth in the preamble of this Agreement are true and correct and incorporated herein by this reference.

(a) the Pledged Shares;

(b) any certificates representing or evidencing the Pledged Shares;

(d) any and all voting and other rights, powers and privileges accruing or incidental to an owner of the Pledged Shares and the other property referred to in subsections 2(a) through 2(c) above.

3. Transfer of Pledged Shares. Simultaneously with the execution of this Agreement, the Pledgor shall, or shall cause its transfer agent to, deliver to the Escrow Agent: (i) the Pledged Shares and all certificates representing or evidencing the Pledged Shares in the name of the Secured Party; and (ii) all other property, instruments, documents and papers comprising, representing or evidencing the Collateral, or any part thereof, together with proper instruments of assignment or endorsement, as Secured Party may request or require, duly executed by the Pledgor (collectively, the “Transfer Documents”). The Pledged Shares and other Transfer Documents (collectively, the “Pledged Materials”) shall be held by the Escrow Agent pursuant to this Agreement until the full payment and performance of all of the Obligations, the termination or expiration of this Agreement, or delivery of the Pledged Materials in accordance with this Agreement. In addition, Pledgor acknowledges that pursuant to the terms of the SPA, the Pledgor may be required to pledge additional shares of its common stock as additional Pledged Shares under this Agreement in order to insure that the number of shares common stock pledged hereunder, together with any “Incentive Shares” (as defined in the SPA) owned by Secured Party as of the time of such calculation, is always the lesser of: (A) 4.99% of the then issued and outstanding shares of common stock of the Pledgor; or (B) 200% of the then outstanding amount owed pursuant to the Debentures (using VWAP as of the close of business on the day immediately prior to the date such calculation is made). In that regard, whenever such additional Pledged Shares are required to be delivered and pledged under this Agreement pursuant to the terms of the SPA, the Pledgor shall, or shall cause its transfer agent to, deliver to Escrow Agent the Pledged Materials for such additional shares within five (5) business days from the date that Secured Party notifies Pledgor of the requirement for such additional Pledged Shares under the terms of the SPA. In addition, all non-cash dividends, dividends paid or payable in cash or otherwise in connection with a partial or total liquidation or dissolution of the Pledgor, instruments, securities and any other distributions, whether paid or payable in cash or otherwise, made on or in respect of the Pledged Shares, whether resulting from a subdivision, combination, or reclassification of the outstanding capital stock of the Pledgor, or received in exchange for the Pledged Shares or any part thereof, or in redemption thereof, as a result of any merger, consolidation, acquisition, or other exchange of assets to which Pledgor may be a party or otherwise, or any other property that constitutes part of the Collateral from time to time, shall be immediately delivered or cause to be delivered by Pledgor to the Escrow Agent in the same form as so received, including, without limitation, any additional certificates representing any portion of the Collateral hereafter acquired by Pledgor, together with proper instruments of assignment or endorsement duly executed by the Pledgor.

6. Rights Related to Pledged Shares. Subject to the terms of this Agreement, unless and until an “Event of Default” (as hereinafter defined) under this Agreement shall occur:

(a) The Pledged Shares are free and clear of any liens, claims, charges or encumbrances of any nature whatsoever, other than as created by this Agreement.

(c) Each certificate or document of title constituting the Pledged Shares is genuine in all respects and represents what it purports to be.

(g) The Pledgor acknowledges, represents and warrants that Secured Party is not an “affiliate” of Pledgor, as such terms is used and defined under Rule 144 of the federal securities laws.

9. Events of Default. The occurrence of any one or more of the following events shall constitute an “Event of Default” hereunder:

(a) Default. The occurrence of any breach, default or “Event of Default” (as such term may be defined in any Transaction Documents) under any of the Transaction Documents.

(b) Covenants and Agreements. The failure of Pledgor to perform, observe or comply with any and all of the covenants, promises and agreements of the Pledgor in any of the Transaction Documents.

(f) The Pledgor acknowledges that there is no adequate remedy at law for the failure by the Pledgor to comply with Pledgor’s obligation to deliver additional Pledged Shares to Escrow Agent hereunder from time to time pursuant to the terms of the SPA and this Agreement and that such failure would not be adequately compensable in damages, and therefore agrees that such obligation may be specifically enforced.

11. Concerning the Escrow Agent.

16. Miscellaneous.

(g) Notices. All notices of request, demand and other communications hereunder shall be addressed to the parties as follows:

If to the Company: Aqualiv Technologies, Inc.

4550 NW Newberry Hill Road, Suite 202

Silverdale, WA 98383

Attn: Mr. William Wright, CEO

Telephone: (360) 536-4220

Facsimile: (360) 473-1160

E-Mail: bwright@aqualivtech.com

With a copy to: Seth Brookman, Esq.

(which shall not constitute notice) Lucosky Brookman, LLP

33 Wood Avenue South, 6^th Floor

Iselin, New Jersey 08830

Phone: (732) 395-4400

Fax: (732) 395-4401

Email: sbrookman@lucbro.com

If to the Buyer: TCA Global Credit Master Fund, LP

1404 Rodman Street

Hollywood, FL 33020

Attn: Mr. Robert Press

Telephone: (786) 323-1650

Facsimile: (786) 323-1651

E-Mail: bpress@trafcap.com

With a copy to: David Kahan, P.A.

6420 Congress Ave., Suite 1800

Boca Raton, FL 33487

Attn: David Kahan, Esq.

Telephone: (561) 672-8330

Facsimile: (561) 672-8301

E-Mail: david@dkpalaw.com

If to Escrow Agent: David Kahan, P.A.

6420 Congress Ave., Suite 1800

Boca Raton, FL 33487

Attn: David Kahan, Esq.

Telephone: (561) 672-8330

Facsimile: (561) 672-8301

E-Mail: david@dkpalaw.com

(h) Applicable Law and Consent to Jurisdiction. This Agreement shall be construed in accordance with the laws of the State of Nevada, without regard to the principles of conflicts of laws, except to the extent that the validity and perfection or the perfection and the effect of perfection or non-perfection of the security interest created hereby, or remedies hereunder, in respect of any particular Collateral are governed under the UCC or any other set of foreign, federal, state or local laws, rules and regulations, by the law of a jurisdiction other than the State of Nevada, in which case such issues shall be governed by the laws of the jurisdiction governing such issues under the UCC or such other set of foreign, federal, state or local laws, rules and regulations. The parties further agree that any action between them shall be heard in Clark County, Nevada and expressly consent to the jurisdiction and venue of the State Court sitting in Clark County, Nevada and the United States District Court for the District of Nevada for the adjudication of any civil action asserted pursuant to this Agreement, provided, however, that nothing herein shall prevent Secured Party from bringing suit or taking legal action in any other jurisdiction. By its execution hereof, the Pledgor hereby irrevocably waives any objection and any right of immunity on the ground of venue, the convenience of the forum or the jurisdiction of such courts or from the execution of judgments resulting therefrom. The Pledgor hereby irrevocably accepts and submits to the jurisdiction of the aforesaid courts in any such suit, action or proceeding.

(t) Costs and Expenses. The Pledgor agrees to pay to the Secured Party, upon demand, the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and disbursements of counsel for the Secured Party and of any experts and agents, which the Secured Party may incur in connection with: (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement; (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral; (iii) the exercise or enforcement of any of the rights of the Secured Party hereunder; or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof. Included in the foregoing shall be the amount of all expenses paid or incurred by Secured Party in consulting with counsel concerning any of its rights hereunder, under the Note or any other Transaction Documents or under applicable law, as well as such portion of Secured Party’s overhead as Secured Party shall allocate to collection and enforcement of the Obligations in Secured Party’s sole but reasonable discretion. All such costs and expenses shall bear interest from the date of outlay until paid, at the highest rate set forth in the Note, or if none is so stated, the highest rate allowed by law. The provisions of this Subsection shall survive the termination of this Agreement and Secured Party’s security interest hereunder and the payment of all Obligations. Notwithstanding anything which may be contained herein to the contrary, the only cash fees and expenses (other than stamp and UCC Financing Statement filing expenses) which shall be assessed by the Pledgee or the Escrow Agent upon Closing are provided in Sections 7.4(a), (b) and (c) of the SPA.

[Signatures on the following page]

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.


	PLEDGOR:

	AQUALIV TECHNOLOGIES, INC., a Nevada corporation

	By:__________________________________
	Name:________________________________
	Title:_________________________________

	SECURED PARTY:

	TCA GLOBAL CREDIT MASTER FUND, LP

	By: TCA Global Credit Fund GP, Ltd., its general partner



	By: ________________________________
	Robert Press, Director

EX-10.13 11 ex10_13.htm

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT is dated as of [—], 2012 (together with any amendments or modifications hereto in effect from time to time, the “Guaranty”), and is made by FOCUS SYSTEMS, INC., a Washington corporation (the “Guarantor”), in favor of TCA GLOBAL CREDIT MASTER FUND, LP (“TCA”).

WHEREAS, pursuant to a Securities Purchase Agreement dated of even date herewith between Aqualiv Technologies, Inc., a Nevada corporation (“AQLV”) and TCA (the “Purchase Agreement”), AQLV has agreed to issue to TCA and TCA has agreed to purchase from AQLV certain senior secured redeemable, convertible debentures (the “Debentures”), as more specifically set forth in the Purchase Agreement; and

WHEREAS, in order to induce TCA to purchase the Debentures, and with full knowledge that TCA would not purchase the Debentures without this Guaranty, Guarantor has agreed to execute and deliver this Guaranty to TCA, for the benefit of TCA, as security for the “Liabilities” (as hereinafter defined); and

WHEREAS, Guarantor is a wholly owned subsidiary of AQLV and will substantially benefit from TCA’s purchase of the Debentures;

1. LIABILITIES GUARANTEED.

Guarantor, jointly and severally (if more than one), hereby guarantees and becomes surety to TCA for the full, prompt and unconditional payment of the Liabilities, when and as the same shall become due, whether at the stated maturity date, by acceleration or otherwise, and the full, prompt and unconditional performance of each term and condition to be performed by AQLV under the Purchase Agreement and the other Transaction Documents. This Guaranty is a primary obligation of Guarantor and shall be a continuing inexhaustible Guaranty. This is a guaranty of payment and not of collection. TCA may require Guarantor to pay and perform its liabilities and obligations under this Guaranty and may proceed immediately against Guarantor without being required to bring any proceeding or take any action against AQLV or any other Person prior thereto; the liability of Guarantor hereunder being independent of and separate from the liability of AQLV, any other Person, and the availability of other collateral security for the Debentures and the other Transaction Documents.

2. DEFINITIONS.

All capitalized terms used in this Guaranty that are defined in the Purchase Agreement shall have the meanings assigned to them in the Purchase Agreement, unless the context of this Guaranty requires otherwise. In addition to the capitalized terms defined in the Purchase Agreement, unless the context otherwise requires, when used herein, the following capitalized terms shall have the following meanings (provided that if a capitalized term used herein is defined in the Purchase Agreement and separately defined in this Guaranty, the meaning of such term as defined in this Guaranty shall control for purposes of this Guaranty):

2.1. “Liabilities” means, collectively: (i) the repayment of all sums due under the Debentures (and all extensions, renewals, replacements, future advances and amendments thereof) and the other Transaction Documents; and (ii) the performance and observance of all terms, conditions, covenants representations and warranties set forth in the Transaction Documents.

3. REPRESENTATION AND WARRANTIES. Guarantor represents and warrants to TCA as follows:

3.1. Organization, Powers. Guarantor: (i) is a corporation, duly organized, validly existing and in good standing under the Laws of the State of Washington; (ii) has the power and authority to own its properties and Assets and to carry on its business as now being conducted and as now contemplated; and (iii) has the power and authority to execute, deliver and perform (and the officer executing this Guaranty on behalf of Guarantor has been duly authorized to so act and execute this Guaranty on behalf of the Guarantor), and by all necessary action has authorized the execution, delivery and performance of, all of its obligations under this Guaranty and any other Transaction Documents to which it is a party.

3.2. Execution of Guaranty. This Guaranty, and each other Transaction Document to which Guarantor is a party, have been duly executed and delivered by Guarantor. Execution, delivery and performance of this Guaranty and each other Transaction Document to which Guarantor is a party will not: (i) violate any provision of any Law, any Judgment of any Governmental Authority, or any provision of any Contract or other instrument to which Guarantor is a party or by which Guarantor or any of its properties or Assets are bound; (ii) result in the creation or imposition of any Encumbrance of any nature, other than the liens created by the Transaction Documents; and (iii) require any Consent from, exemption of, or filing or registration with, any Governmental Authority or any other Person.

3.3. Obligations of Guarantor. This Guaranty and each other Transaction Document to which Guarantor is a party are the legal, valid and binding obligations of Guarantor, enforceable against Guarantor in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other laws or equitable principles relating to or affecting the enforcement of creditors’ rights generally. The purchase of the Debentures by TCA and the assumption by Guarantor of its obligations hereunder and under any other Transaction Document to which Guarantor is a party will result in material benefits to Guarantor. This Guaranty was entered into by Guarantor for commercial purposes.

3.4. Litigation. There is no Proceeding at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of Guarantor, threatened, against or affecting Guarantor or any of its properties, assets or rights which, if adversely determined, would materially impair or affect: (i) the value of any collateral securing the Liabilities; (ii) Guarantor’s right to carry on its business substantially as now conducted (and as now contemplated); (iii) Guarantor’s financial condition; or (iv) Guarantor’s capacity to consummate and perform its obligations under this Guaranty or any other Transaction Document to which Guarantor is a party.

3.5. No Defaults. Guarantor is not in default beyond the expiration of any applicable grace or cure periods, in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained herein or in any Contract or other instrument to which Guarantor is a party or by which Guarantor or any of its properties or Assets are bound.

3.6. No Untrue Statements. To the knowledge of Guarantor, no Transaction Document or other document, certificate or statement furnished to TCA by or on behalf of AQLV or Guarantor contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. Guarantor acknowledges that all such statements, representations and warranties shall be deemed to have been relied upon by TCA as an inducement to purchase the Debentures.

4. NO LIMITATION OF LIABILITY.

4.1. Guarantor acknowledges that the obligations undertaken herein involve the guaranty of obligations of a Person other than Guarantor and, in full recognition of that fact, Guarantor consents and agrees that TCA may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness of this Guaranty: (i) change the manner, place or terms of payment of (including, without limitation, any increase or decrease in the principal amount of the Liabilities or the interest rate), and/or change or extend the time for payment of, or renew, supplement or modify, any of the Liabilities, any security therefor, or any of the Transaction Documents evidencing same, and the Guaranty herein made shall apply to the Liabilities and the Transaction Documents as so changed, extended, renewed, supplemented or modified; (ii) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order, any property securing the Liabilities; (iii) supplement, modify, amend or waive, or enter into or give any agreement, approval, waiver or consent with respect to, any of the Liabilities, or any part thereof, or any of the Transaction Documents, or any additional security or guaranties, or any condition, covenant, default, remedy, right, representation or term thereof or thereunder; (iv) exercise or refrain from exercising any rights against AQLV or other Persons (including Guarantor) or against any security for the Liabilities; (v) accept new or additional instruments, documents or agreements in exchange for or relative to any of the Transaction Documents or the Liabilities, or any part thereof; (vi) accept partial payments on the Liabilities; (vii) receive and hold additional security or guaranties for the Liabilities, or any part thereof; (viii) release, reconvey, terminate, waive, abandon, fail to perfect, subordinate, exchange, substitute, transfer and/or enforce any security or guaranties, and apply any security and direct the order or manner of sale thereof as TCA, in its sole and absolute discretion, may determine; (ix) add, release, settle, modify or discharge the obligation of any maker, endorser, guarantor, surety, obligor or any other Person who is in any way obligated for any of the Liabilities, or any part thereof; (x) settle or compromise any Liabilities, whether in a Proceeding or not, and whether voluntarily or involuntarily, dispose of any security therefor (with or without consideration and in whatever manner TCA deems appropriate), and subordinate the payment of any of the Liabilities, whether or not due, to the payment of liabilities owing to creditors of AQLV other than TCA and Guarantor; (xi) consent to the merger, change or any other restructuring or termination of the corporate existence of AQLV or any other Person, and correspondingly restructure the Liabilities, and any such merger, change, restructuring or termination shall not affect the liability of Guarantor or the continuing effectiveness hereof, or the enforceability hereof with respect to all or any part of the Liabilities; (xii) apply any sums it receives, by whomever paid or however realized, to any of the Liabilities and/or (xiii) take any other action which might constitute a defense available to, or a discharge of, AQLV or any other Person (including Guarantor) in respect of the Liabilities.

4.2. The invalidity, irregularity or unenforceability of all or any part of the Liabilities or any Transaction Document, or the impairment or loss of any security therefor, whether caused by any action or inaction of TCA, or otherwise, shall not affect, impair or be a defense to Guarantor’s obligations under this Guaranty.

4.3. Upon the occurrence and during the continuance of any Event of Default, TCA may enforce this Guaranty independently of any other remedy, guaranty or security TCA at any time may have or hold in connection with the Liabilities, and it shall not be necessary for TCA to marshal assets in favor of AQLV, any other guarantor of the Liabilities or any other Person or to proceed upon or against and/or exhaust any security or remedy before proceeding to enforce this Guaranty. Guarantor expressly waives any right to require TCA to marshal assets in favor of AQLV or any other Person, or to proceed against AQLV or any other guarantor of the Liabilities or any collateral provided by any Person, and agrees that TCA may proceed against any obligor (including Guarantor) and/or the collateral in such order as TCA shall determine in its sole and absolute discretion. TCA may file a separate action or actions against Guarantor, whether action is brought or prosecuted with respect to any security or against any other Person, or whether any other Person is joined in any such action or actions. Guarantor agrees that TCA and AQLV may deal with each other in connection with the Liabilities or otherwise, or alter any contracts or agreements now or hereafter existing between them, in any manner whatsoever, all without in any way altering or affecting the security of this Guaranty.

4.4. Guarantor expressly waives, to the fullest extent permitted by applicable law, any and all defenses which Guarantor shall or may have as of the date hereof arising or asserted by reason of: (i) any disability or other defense of AQLV, or any other guarantor for the Liabilities, with respect to the Liabilities; (ii) the unenforceability or invalidity of any security for or guaranty of the Liabilities or the lack of perfection or continuing perfection or failure of priority of any security for the Liabilities; (iii) the cessation for any cause whatsoever of the liability of AQLV, or any other guarantor of the Liabilities (other than by reason of the full payment and performance of all Liabilities (other than contingent indemnification obligations)); (iv) any failure of TCA to marshal assets in favor of AQLV or any other Person; (v) any failure of TCA to give notice of sale or other disposition of collateral to AQLV or any other Person or any defect in any notice that may be given in connection with any sale or disposition of collateral; (vi) any failure of TCA to comply with applicable laws in connection with the sale or other disposition of any collateral or other security for any Liabilities, including, without limitation, any failure of TCA to conduct a commercially reasonable sale or other disposition of any collateral or other security for any Liabilities; (vii) any act or omission of TCA or others that directly or indirectly results in or aids the discharge or release of AQLV or any other guarantor of the Liabilities, or of any security or guaranty therefor by operation of law or otherwise; (viii) any law which provides that the obligation of a surety or guarantor must neither be larger in amount or in other respects more burdensome than that of the principal or which reduces a surety’s or guarantor’s obligation in proportion to the principal obligation; (ix) any failure of TCA to file or enforce a claim in any bankruptcy or other proceeding with respect to any Person; (x) the election by TCA, in any bankruptcy proceeding of any Person, of the application or non-application of Section 1111(b)(2) of the United States Bankruptcy Code; (xi) any extension of credit or the grant of any lien under Section 364 of the United States Bankruptcy Code; (xii) any use of collateral under Section 363 of the United States Bankruptcy Code; (xiii) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any Person; (xiv) the avoidance of any lien or security interest in favor of TCA for any reason; (xv) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any Person, including without limitation any discharge of, or bar or stay against collecting, all or any of the Liabilities (or any interest thereon) in or as a result of any such proceeding; or (xvi) any action taken by TCA that is authorized by this Section or any other provision of any Transaction Document. Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Liabilities, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional Liabilities.

4.5. This is a continuing guaranty and shall remain in full force and effect as to all of the Liabilities until such date as all amounts owing by AQLV to TCA shall have been paid in full and all obligations of AQLV with respect to any of the Liabilities shall have terminated or expired (such date is referred to herein as the “Termination Date”).

5. LIMITATION ON SUBROGATION. Until the Termination Date, Guarantor waives any present or future right to which Guarantor is or may become entitled to be subrogated to TCA’s rights against AQLV or to seek contribution, reimbursement, indemnification, payment or the like, or participation in any claim, right or remedy of TCA against AQLV or any security which TCA now has or hereafter acquires, whether or not such claim, right or remedy arises under contract, in equity, by statute, under common law or otherwise. If, notwithstanding such waiver, any funds or property shall be paid or transferred to Guarantor on account of such subrogation, contribution, reimbursement, or indemnification at any time when all of the Liabilities have not been paid in full, Guarantor shall hold such funds or property in trust for TCA and shall forthwith pay over to TCA such funds and/or property to be applied by TCA to the Liabilities.

6. COVENANTS.

6.1. Subordination of Other Debts. Guarantor hereby: (a) subordinates the obligations now or hereafter owed by AQLV to Guarantor (“Subordinated Debt”) to any and all obligations of AQLV to TCA now or hereafter existing while this Guaranty is in effect, and hereby agrees that Guarantor will not request or accept payment of or any security for any part of the Subordinated Debt, and any proceeds of the Subordinated Debt paid to Guarantor, through error or otherwise, shall immediately be forwarded to TCA by Guarantor, properly endorsed to the order of TCA, to apply to the Liabilities.

6.2. Security for Guaranty. All of Guarantor’s obligations and liability evidenced by this Guaranty is also secured by all of the Assets and property of the Guarantor pursuant to that certain Security Agreement by and between the Guarantor and TCA made of even date herewith (the “Security Agreement”). All of the agreements, conditions, covenants, provisions, representations, warranties and stipulations contained in the Security Agreement or any other Transaction Documents to which Guarantor is a party which are to be kept and performed by the Guarantor are hereby made a part of this Guaranty to the same extent and with the same force and effect as if they were fully set forth herein, and the Guarantor covenants and agrees to keep and perform them, or cause them to be kept or performed, strictly in accordance with their terms.

7. EVENTS OF DEFAULT.

Each of the following shall constitute a default (each, an “Event of Default”) hereunder:

7.1. Non-payment when due, and after all applicable grace periods, of any sum required to be paid to TCA under any of the Transaction Documents or of any of the other Liabilities;

7.2. A breach by Guarantor of any other term, covenant, condition, obligation or agreement under this Guaranty;

7.3. Any representation or warranty made by Guarantor in this Guaranty or under the Purchase Agreement shall prove to be false, incorrect or misleading in any material respect as of the date when made;

7.4. A default by AQLV or Guarantor, after all applicable grace or notice periods, under any of the Transaction Documents; or

7.5. The occurrence of any of the following events: (i) Guarantor makes an assignment for the benefit of creditors; (ii) any order or decree is rendered by a court which appoints or requires the appointment of a receiver, liquidator or trustee for Guarantor, and the order or decree is not vacated within thirty (30) days from the date of entry thereof; (iii) any order or decree is rendered by a court adjudicating Guarantor insolvent, and the order or decree is not vacated within thirty (30) days from the date of entry thereof; (iv) Guarantor files a petition in bankruptcy under the provisions of any bankruptcy law or any insolvency act; (v) Guarantor admits, in writing, its inability to pay its debts as they become due; (vi) a proceeding or petition in bankruptcy is filed against Guarantor and such proceeding or petition is not dismissed within thirty (30) days from the date it is filed; or (vii) Guarantor files a petition or answer seeking reorganization or arrangement under the bankruptcy laws or any law or statute of the United States or any state.

8. REMEDIES.

8.1. Upon an Event of Default, all liabilities and obligations of Guarantor hereunder shall become immediately due and payable without demand or notice and, in addition to any other remedies provided by law or in equity, TCA may:

8.1.1. Enforce the obligations of Guarantor under this Guaranty.

8.1.2. To the extent not prohibited by and in addition to any other remedy provided by law or equity, setoff against any of the Liabilities any sum owed by TCA in any capacity to Guarantor whether due or not.

8.1.3. Perform any covenant or agreement of Guarantor in default hereunder (but without obligation to do so) and in that regard pay such money as may be required or as TCA may reasonably deem expedient. Any costs, expenses or fees, including reasonable attorneys’ fees and costs, incurred by TCA in connection with the foregoing shall be included in the Liabilities guaranteed hereby, and shall be due and payable on demand, together with interest at the highest non-usurious rate permitted by applicable law, such interest to be calculated from the date of such advance to the date of repayment thereof. Any such action by TCA shall not be deemed to be a waiver or release of Guarantor hereunder and shall be without prejudice to any other right or remedy of TCA.

8.2. Settlement of any claim by TCA against AQLV, whether in any Proceeding or not, and whether voluntary or involuntary, shall not reduce the amount due under the terms of this Guaranty, except to the extent of the amount actually paid by AQLV or any other obligated Person and legally retained by TCA in connection with the settlement (unless otherwise provided for herein).

9. MISCELLANEOUS.

9.1. Disclosure of Financial Information. TCA is hereby authorized to disclose any financial or other information about Guarantor to any Governmental Authority having jurisdiction over TCA or to any present, future or prospective participant or successor in interest in the Debentures. The information provided may include, without limitation, amounts, terms, balances, payment history, return item history and any financial or other information about Guarantor.

9.2. Remedies Cumulative. The rights and remedies of TCA, as provided herein and in any other Transaction Document, shall be cumulative and concurrent, may be pursued separately, successively or together, may be exercised as often as occasion therefor shall arise, and shall be in addition to any other rights or remedies conferred upon TCA at law or in equity. The failure, at any one or more times, of TCA to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. TCA shall have the right to take any action it deems appropriate without the necessity of resorting to any collateral securing this Guaranty.

9.3. Integration. This Guaranty and the other Transaction Documents constitute the sole agreement of the parties with respect to the transaction contemplated hereby and thereby and supersede all oral negotiations and prior writings with respect thereto.

9.4. Attorneys’ Fees and Expenses. If TCA retains the services of counsel by reason of a claim of an Event of Default hereunder or under any of the other Transaction Documents, or on account of any matter involving this Guaranty, or for examination of matters subject to TCA’s approval under the Transaction Documents, all costs of suit and all reasonable attorneys’ fees and such other reasonable expenses so incurred by TCA shall forthwith, on demand, become due and payable and shall be secured hereby.

9.5. No Implied Waiver. TCA shall not be deemed to have modified or waived any of its rights or remedies hereunder unless such modification or waiver is in writing and signed by TCA, and then only to the extent specifically set forth therein. A waiver in one event shall not be construed as continuing or as a waiver of or bar to such right or remedy on a subsequent event.

9.6. Waiver. Except as otherwise provided herein or in any of the Transaction Documents, Guarantor waives notice of acceptance of this Guaranty and notice of the Liabilities and waives notice of default, non-payment, partial payment, presentment, demand, protest, notice of protest or dishonor, and all other notices to which Guarantor might otherwise be entitled or which might be required by law to be given by TCA. Guarantor waives the right to any stay of execution and the benefit of all exemption laws, to the extent permitted by law, and any other protection granted by law to guarantors, now or hereafter in effect with respect to any action or proceeding brought by TCA against it. Guarantor irrevocably waives all claims of waiver, release, surrender, alteration or compromise and the right to assert against TCA any defenses, set-offs, counterclaims, or claims that Guarantor may have at any time against AQLV or any other party liable to TCA.

9.7. No Third Party Beneficiary. Except as otherwise provided herein, Guarantor and TCA do not intend the benefits of this Guaranty to inure to any third party and no third party (including AQLV) shall have any status, right or entitlement under this Guaranty.

9.8. Partial Invalidity. The invalidity or unenforceability of any one or more provisions of this Guaranty shall not render any other provision invalid or unenforceable. In lieu of any invalid or unenforceable provision, there shall be added automatically a valid and enforceable provision as similar in terms to such invalid or unenforceable provision as may be possible.

9.9. Binding Effect. The covenants, conditions, waivers, releases and agreements contained in this Guaranty shall bind, and the benefits thereof shall inure to, the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns; provided, however, that this Guaranty cannot be assigned by Guarantor without the prior written consent of TCA, and any such assignment or attempted assignment by Guarantor shall be void and of no effect with respect to the TCA.

9.10. Modifications. This Guaranty may not be supplemented, extended, modified or terminated except by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

9.11. Sales or Participations. TCA may from time to time sell or assign the Debentures, in whole or in part, or grant participations in the Debentures and/or the obligations evidenced thereby without the consent of AQLV or Guarantor, provided, however, TCA shall provide written notice to AQLV and Guarantor of any such assignment or grant of participations. The holder of any such sale, assignment or participation, if the applicable agreement between TCA and such holder so provides, shall be: (a) entitled to all of the rights, obligations and benefits of TCA (to the extent of such holder’s interest or participation); and (b) deemed to hold and may exercise the rights of setoff or banker’s lien with respect to any and all obligations of such holder to Guarantor (to the extent of such holder’s interest or participation), in each case as fully as though Guarantor was directly indebted to such holder. TCA may in its discretion give notice to Guarantor of such sale, assignment or participation; however, the failure to give such notice shall not affect any of TCA’s or such holder’s rights hereunder.

9.12. Jurisdiction. Guarantor hereby consents that any action or proceeding against him be commenced and maintained in Clark County, State of Nevada by service of process on them; and Guarantor agrees that the courts of such County shall have jurisdiction with respect to the subject matter hereof and the person of Guarantor and all collateral securing the obligations of Guarantor, provided, however, that nothing herein shall prevent TCA from bringing suit or taking legal action in any other jurisdiction. Guarantor agrees not to assert any defense to any action or proceeding initiated by TCA based upon improper venue or inconvenient forum.

9.13. Notices. All notices of request, demand and other communications hereunder shall be addressed to the parties as follows:

If to the Guarantor: Focus Systems, Inc.

4550 NW Newberry Hill Road, Suite 202

Silverdale, WA 98383

Attn: Mr. William Wright, CEO

Telephone: (360) 536-4220

Facsimile: (360) 473-1160

E-Mail: bwright@aqualivtech.com

With a copy to: Seth Brookman, Esq.

(which shall not constitute notice) Lucosky Brookman, LLP

33 Wood Avenue South, 6^th Floor

Iselin, New Jersey 08830

Phone: (732) 395-4400

Fax: (732) 395-4401

Email: sbrookman@lucbro.com

If to TCA: TCA Global Credit Master Fund, LP

1404 Rodman Street

Hollywood, FL 33020

Attn: Mr. Robert Press

Telephone: (786) 323-1650

Facsimile: (786) 323-1651

E-Mail: bpress@trafcap.com

With a copy to: David Kahan, P.A.

6420 Congress Ave., Suite 1800

Boca Raton, FL 33487

Attn: David Kahan, Esq.

Telephone: (561) 672-8330

Facsimile: (561) 672-8301

E-Mail: david@dkpalaw.com

9.14. Governing Law. This Guaranty shall be governed by and construed in accordance with the substantive laws of the State of Nevada without reference to conflict of laws principles.

9.15. Joint and Several Liability. The word “Guarantor” or “Guarantors” shall mean all of the undersigned persons, if more than one, and their liability shall be joint and several. The liability of Guarantor shall also be joint and several with the liability of any other guarantor under any other guaranty.

9.16. Continuing Enforcement. If, after receipt of any payment of all or any part of the Liabilities, TCA is compelled or reasonably agrees, for settlement purposes, to surrender such payment to any person or entity for any reason (including, without limitation, a determination that such payment is void or voidable as a preference or fraudulent conveyance, an impermissible setoff, or a diversion of trust funds), then this Guaranty shall continue in full force and effect or be reinstated, as the case may be, and Guarantor shall be liable for, and shall indemnify, defend and hold harmless TCA with respect to the full amount so surrendered. The provisions of this Section shall survive the termination of this Guaranty and shall remain effective notwithstanding the payment of the Liabilities, the cancellation or redemption of the Debentures, this Guaranty or any other Transaction Document, the release of any security interest, lien or Encumbrance securing the Liabilities or any other action which TCA may have taken in reliance upon its receipt of such payment. Any cancellation, release or other such action shall be deemed to have been conditioned upon any payment of the Liabilities having become final and irrevocable.

9.17. WAIVER OF JURY TRIAL. GUARANTOR AGREES THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT BY TCA OR GUARANTOR ON OR WITH RESPECT TO THIS GUARANTY OR ANY OTHER TRANSACTION DOCUMENT OR THE DEALINGS OF THE PARTIES WITH RESPECT HERETO OR THERETO, SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY. TCA AND GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND INTELLIGENTLY, AND WITH THE ADVICE OF THEIR RESPECTIVE COUNSEL, WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. FURTHER, GUARANTOR WAIVES ANY RIGHT THEY MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE, CONSEQUENTIAL OR OTHER DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. GUARANTOR ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS GUARANTY AND THAT TCA WOULD NOT PURCHASE THE DEBENTURES IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS GUARANTY.

[Signatures on the following page]

IN WITNESS WHEREOF, Guarantor, intending to be legally bound, has duly executed and delivered this Guaranty Agreement as of the day and year first above written.

FOCUS SYSTEMS, INC.

By:_________________________________

Name:______________________________

Title:_______________________________

EX-23.1 12 ex23_1.htm

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-1 of our report dated January 13, 2012 relating to the financial statements of AQUALIV TECHNOLOGIES, INC. AND ITS’ SUBSIDIARIES.

We also consent to the reference to our Firm under the caption "Experts" in the Registration Statement.

Bongiovanni & Associates CPA’s

Mike Bongiovanni, CPA, Principal

19720 Jetton Road, 3rd Floor

Cornelius, NC 28031

Tel: 704-892-8733

Fax: 704-892-6487

Email: mikebongiovanni@msn.com

/s/ Bongiovanni & Associates C.P.A’s

Bongiovanni & Associates C.P.A’s

June 14, 2012

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   The accompanying financial statements have been prepared by the Company in accordance with Article 8 of U.S. Securities and Exchange Commission Regulation S-X. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2012 and 2011 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Companys September 30, 2011 audited financial statements. The results of operations for the periods ended March 31, 2012 and 2011 are not necessarily indicative of the operating results for the full year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   AquaLiv Technologies, Inc. ("the Company") is a corporation organized under the laws of the State of Nevada on April 11, 2006, originally under the name of Infrared Systems International,as a wholly-owned subsidiary of China SXAN Biotech, Inc. (formerly Advance Technologies, Inc.) ("CSBI"). CSBI was organized under the laws of the State of Delaware on June 16, 1969. In July 2007, CSBI transferred the needs a space before as assets, liabilities, and operations of its technology licensing business to the Company. Because CSBI's operations are considered to be the Company's predecessor business, the consolidated financial statements include CSBI's operations from the inception of the business. In December 2008, the Company completed its spin-off by dividend to stockholders of CSBI.     In March 2010, the Company transferred the assets, liabilities, and operations of its technology licensing business to a wholly-owned subsidiary, Infrared Applications, Inc (IAI).  IAI was organized under the laws of the state of Texas on March 26, 2010. On April 14, 2010, the Company sold a majority interest in its Common stock to Take Flight Equities, Inc. (TFE), a corporation organized under the laws of the State of Washington, and control of the Company was transferred to William Wright, its current CEO. Under the terms of the Agreement, continued to operate as a wholly owned subsidiary until June 22, 2011, when IAI was distributed to the Gary Ball, the companies former CEO, under a Management and Distribution Agreement dated March 24, 2010.     Also in April 2010, the Company acquired 100% of the outstanding common stock of Focus Systems, Inc. (Focus), a company organized under the laws of the state of Washington on August 8, 2007, from ProPalms, Inc., for 3,000,000 shares of Common stock, 250,000 shares of Preferred stock, and the assumption of $283,639 in liabilities.  Focus is operated as a wholly-owned subsidiary of the Company. In addition to this agreement, the Company agreed to issue ProPalms 500,000 Preferred shares for an Investment Receivable of $250,000. Under the terms of the agreement, ProPalms was to make the investment over the course of 4 months or return the unvested stock within 1 year.  Over the course of the 4 months, ProPalms invested $17,809.  ProPalms returned the unvested portion of the stock (amounting to 464,382 Preferred shares) and the Company has accounted for it on its Change in Stockholders Deficit.  On May 14, 2010, the Company completed a 10:1 forward split of its Common stock.   On December 16, 2010 the company purchased a 50% interest in AquaLiv, Inc. from Craig Hoffman for $400,000 paid in the form of 400,000 shares of Preferred stock valued at $1.00 per share. We have concluded, pursuant to the guidance in FASB ASC 810-10-25-38 (previously FIN 46R) that AquaLiv, Inc. is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, Inc. and we are required to consolidate its financials accordingly. The remaining 50% non-controlling interest is owned by Craig Hoffman, AquaLiv, Incs President and CEO. AquaLiv, Inc. is a life sciences research and development company creating novel products for numerous industries. The company's technology alters the behavior of organisms, including plants and humans, without chemical interaction. From increased crop yields to drug-free medicine, AquaLiv is providing innovative, ingredient-free solutions to the world's largest problems.   On June 22, 2011, in accordance with Management and Distribution Agreement (Agreement) dated March 24, 2010, we completed the distribution of substantially all of the assets of Infrared Applications, Inc. (IAI), a Texas corporation. All of the outstanding stock of IAI has been transferred to Gary Ball (Ball) in accordance with the Agreement. Subsequent to this event, Ball shall be responsible to make, if any, a Subsidiary Stock Distribution to the Companys shareholders of record as of March 23, 2010, upon the earlier of the foregoing occurrence: (i) the net proceeds from the sale of substantially all of the assets of IAI or (ii) Ball elects to make a Subsidiary Stock Distribution. Any cost incurred in connection with a Subsidiary Distribution shall be the responsibility of Ball. There is no certainty as to when or if a Subsidiary Stock Distribution will occur.   On September 6, 2011, the company filed its Articles of Amendment with the State of Nevada to effect a name change to AquaLiv Technologies, Inc. and to increase its authorized common shares to 1,000,000,000. FINRA declared the corporate action effective on September 19, 2011. The name change was effected to more closely align the name with the future direction of the company.   Nature of Operations - The Companys subsidiary, AquaLiv, Inc., is a life sciences research and development company based in Seattle, Washington. The Companys technology taps into a previously undiscovered natural phenomenon that gives us significant competitive advantages in the industries of agriculture and medicine. This technology represents an entirely new way to affect the health and behavior of plants and animals, including human beings.. The Companys wholly-owned subsidiary, Focus Systems, provides remote desktop and cloud computing solutions to small businesses.  Additionally, Focus provides Voice over Internet Protocol (VoIP) phone solutions to small businesses and can deliver the service to households as well.  The Company has not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factors.   Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.   Cash and Cash Equivalents - The Company considers all highly-liquid debt investments purchased with a maturity of three months or less to be cash equivalents.   Accounts Receivable - The Company records accounts receivable at cost less allowance for doubtful accounts. The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses.  Management has estimated that $4,289 is necessary for doubtful accounts after reviewing the accounts receivable at September 30, 2011.   Property and Equipment - The Company records property and equipment at cost and uses straight-line depreciation methods over three to ten years. Maintenance, repairs, and expenditures for renewals and betterments not determined to extend the useful lives or to materially increase the productivity of the assets are expensed as incurred. Other renewals and betterments are capitalized.   Property and Equipment is that of our subsidiaries, AquaLiv, Inc. and Focus Systems, Inc., which we have been recorded at actual cost and estimated net book value, less depreciation, which was recorded under Other Expenses on our Consolidated Statements of Operations.   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr> <td style="width: 100%"> </td></tr> </table>   Revenue Recognition - The Company's revenue is derived through its subsidiaries. AquaLiv, Inc.s revenue come primarily from the sales of AquaLiv Water Systems and Infotone Face Mist. The products are sold though the subsidiarys website portal, www.aqualiv.com. Revenue is derived from AquaLiv, Inc from several smaller purchases ranging from $35 to $1,695. Revenue derived from Focus Systems comes from several smaller accounts and is billed on a monthly basis.  The monthly billing for these accounts range from $72 to $1,087. IAIs revenue came from royalties derived through licensing its technology to a single customer. The licensing agreement allowed the customer exclusively to use the subsidiarys technology in aircraft systems manufactured by the customer in exchange for a royalty fee for each system that includes the Company's technology sold by the customer for commercial sales . The royalty fee was payable quarterly and amounts to $800 per aircraft system. As of June 22, 2011, royalty revenue has been discontinued along with the distribution of the IAI assets per the Management and Distribution Agreement.     Research and Development - The Company expenses research and development costs as incurred.     Income taxes The Company adopts the ASC Topic 740, Income Taxes regarding accounting for uncertainty in income taxes which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, classification, penalties and interest, accounting in interim periods and disclosure.   For the years ended September 30, 2011 and 2010, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2011 and 2010, the Company did not have any significant unrecognized uncertain tax positions.   Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.   Comprehensive income   The Company adopted FASB Accounting Standards Codification 220 Comprehensive Income (formerly SFAS No. 130, Reporting Comprehensive income, which establishes standards for reporting and display of comprehensive income, and its components in the consolidated financial statements. Components of comprehensive income include net income and foreign currency translation adjustments. The Company has presented consolidated statements of income which includes other comprehensive income or loss.   Fair value of financial instruments   The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (Paragraph 820-10-35-37) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:   <table cellspacing="0" cellpadding="0" style="width: 100%; margin-left: 0.2in; border-collapse: collapse"> <tr style="vertical-align: top; background-color: #CCFFCC"> <td style="width: 11%; font: 11pt/115% Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Level 1</td> <td style="width: 89%; font: 11pt/115% Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.</td></tr> <tr style="vertical-align: top; background-color: #CCFFCC"> <td style="font: 11pt/115% Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Level 2</td> <td style="font: 11pt/115% Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.</td></tr> <tr style="vertical-align: top; background-color: #CCFFCC"> <td style="font: 11pt/115% Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Level 3</td> <td style="font: 11pt/115% Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Pricing inputs that are generally observable inputs and not corroborated by market data.</td></tr> </table>   The carrying amounts of the Companys financial assets and liabilities, such as cash and cash equivalents, trade accounts and other receivables, inventories, prepaid expenses, accounts payable, other payables and accrued liabilities, deposits received in advance, taxes payable, deferred tax liabilities, and short term borrowings approximate their fair values because of the short maturity of these instruments. The Companys short term borrowings approximate the fair value of such instrument based upon managements best estimate of interest rates that would be available to the Company for similar financial arrangement at September 30, 2011 and 2010.   The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at September 30, 2011 and 2010, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the year ended September 30, 2011 and 2010.   Commitments and contingencies   Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources, if applicable, are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.   Off-balance sheet arrangements   The Company does not have any off-balance sheet arrangements.   Recent Accounting Pronouncements   The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.    Fair Value Measurements and Disclosures   In January 2010, the Financial Accounting Standards Board (FASB)  issued authoritative guidance regarding fair value measures and disclosures. The guidance requires disclosure of significant transfers between level 1 and level 2 fair value measurements along with the reason for the transfer. An entity must also separately report purchases, sales, issuances and settlements within the level 3 fair value rollforward. The guidance further provides clarification of the level of disaggregation to be used within the fair value measurement disclosures for each class of assets and liabilities and clarified the disclosures required for the valuation techniques and inputs used to measure level 2 or level 3 fair value measurements. This new authoritative guidance is effective for the Company in fiscal years beginning after De   December 15, 2010, and for interim periods within those fiscal years. The adoption of this guidance will not impact the Companys consolidated results of operations or financial position.   Variable Interest Entities (VIEs)   In June 2009, the FASB issued authoritative guidance changing the approach to determine a VIEs primary beneficiary and requiring ongoing assessments of whether an enterprise is the primary beneficiary of a VIE. This guidance also requires additional disclosures about a companys involvement with VIEs and any significant changes in risk exposure due to that involvement. This guidance was adopted January 1, 2010, and did not have an impact on the Companys consolidated financial position, results of operations or cash flows.    Basis of presentation   The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America under the accrual basis of accounting. All intercompany accounts and transactions have been eliminated.   Inventories The Companys inventories (finished goods, work in process, raw materials and packaging materials) are stated at the lower of cost or market. Cost is determined on a first in first out basis. In addition, the Company estimates net realizable value based on intended use, current market value and contract terms. The Company writes down the inventories for estimated obsolescence, slow moving or unmarketable inventories equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions.   Impairment of long-lived assets   The Company evaluated the recoverability of its property, plant, equipment, and other long-lived assets in accordance with FASB Accounting Standards Codification 360 Property, Plant and Equipment (formerly SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets), which requires recognition of impairment of long-lived assets in the event the net book value of such assets exceed the estimated future undiscounted cash flows attributable to such assets or the business to which such intangible assets relate. Impairments of these types of assets were recognized during the years ended September 30, 2011 and 2010.   Loss per share   The Company reports loss per share in accordance with FASB Accounting Standards Codification 260 Earnings per Share (formerly SFAS 128, Earnings per Share). This statement requires dual presentation of basic and diluted earnings (loss) with a reconciliation of the numerator and denominator of the loss per share computations. Basic earnings per share amounts are based on the weighted average shares of common outstanding. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Accordingly, this presentation has been adopted for the periods presented. There were no adjustments required to net income for the period presented in the computation of diluted earnings per share. There were no common stock equivalents (CSE) necessary for the computation of diluted loss per share.   Inventories The Companys inventories (finished goods, work in process, raw materials and packaging materials) are stated at the lower of cost or market. Cost is determined on a first in first out basis. In addition, the Company estimates net realizable value based on intended use, current market value and contract terms. The Company writes down the inventories for estimated obsolescence, slow moving or unmarketable inventories equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions.

GOING CONCERN   The Companys financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2012, the Company had a retained deficit of $2,815,560 and current liabilities in excess of current assets by $430,908.  During the six months ended March 31, 2012, the Company incurred a net loss of $221,347 and negative cash flows from operations of $188,738. These factors create an uncertainty about the Companys ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.   The Companys continuation as a going concern is dependent upon its ability to increase revenues, decrease or contain costs, and achieve profitable operations.  In this regard, Company management is focused on the development and expansion of the Companys technology, including water filtration and purification, bioinformation and life sciences, the deployment of its technology platform in the agricultural and medical fields, the licensing of patents, remote desktop and cloud computing, and VoIP telephony, as well as exploring strategic acquisitions in the technology field. Should the Companys financial resources prove inadequate to meet the Companys needs before additional revenue sources can be realized, the Company may raise additional funds through loans or through sales of common or preferred stock. There is no assurance that the Company will be successful in achieving profitable operations or in raising any additional capital.     GOING CONCERN   The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At September 30, 2011, the Company had a retained deficit of $2,612,390 and current liabilities in excess of current assets by $439,961. During the year ended September 30, 2011, the Company incurred a net loss of $564,294 and negative cash flows from operations of $279,305. These factors create an uncertainty about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.   The Company's continuation as a going concern is dependent upon its ability to increase revenues, decrease or contain costs, and achieve profitable operations. In this regard, our ability to continue as a going concern has caused the Board of Directors to continue investigating merger and acquisition opportunities.  We will look to further diversify our holdings and sources of cash flow. Should the Company's financial resources prove inadequate to meet the Company's needs before additional revenue sources can be realized, the Company may raise additional funds through loans or through sales of common or preferred stock. There is no assurance that the Company will be successful in achieving profitable operations or in raising any additional capital.

RELATED PARTY TRANSACTIONS   Shareholder Loans - During the three months ended March 31, 2012, the Companys officer extended an additional use of credit in the amount of $713.62. The credit carries an interest rate of 15.24%.   Management Compensation - During the three months ended March 31, 2012 and 2011, respectively, the Company and its subsidiaries paid or accrued salary and management fees of $61,154 and $42,705 to its officers.

RELATED PARTY TRANSACTIONS   Revenues - Service The Company, through its wholly owned subsidiary, Focus, received $1,303 in service revenues from parties related to our CEO during the fiscal year ended September 30, 2011. The revenue was booked at the same rate as that of non-affiliated customers.   Management compensation - During the years ended September 30, 2011 and 2010, respectively, the Company paid management fees of $105,900 and $55,802 to its officers.   Consulting - During the years ended September 30, 2011 and 2010, respectively, the Company paid $30,000 and $0 for consulting services to officers and directors or entities related to or under the control of an officer or director of the Company.   Credit cards payable During the years ended September 30, 2011 and 2010, the Companys current and former officers extended credit to the Company and/or its subsidiaries  in the form of personal credit card usage in the amount of $17,187 and $46,262, respectively.   Notes payable During the fiscal year ended September 30, 2011 and 2010, a company closely held by an officer of the company, loaned the Company $23,388 and $35,588, respectively. The loan is due on demand and carries no interest.  Imputed interest is included in the accompanying Consolidated Statements of Operations.

PROPERTY AND EQUIPMENT   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td colspan="5" style="text-align: center; border-bottom: Black 1pt solid">Estimated Useful Lives</td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">March 31, 2012</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 56%; text-align: left">Optical equipment</td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">5 years</td><td style="width: 1%; text-align: left"> </td><td style="width: 4%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 16%; text-align: right">39,386</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Office equipment</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">3 - 10 years</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">8,231</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">Computers and peripherals</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">5 years</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">16,000</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Furniture and fixtures</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">5 years</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">6,873</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">70,490</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt">Less accumulated depreciation</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right"> </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(63,463)</td><td style="padding-bottom: 1pt; text-align: left"></td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">Net property and equipment</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">7,027</td><td style="text-align: left"> </td></tr> </table>   Depreciation expense for the three months ended March 31, 2012 and 2011 was $1,400 and $1,346, respectively.

PROPERTY AND EQUIPMENT    <table border="0" cellpadding="0" cellspacing="0" style="width: 100%; border-collapse: collapse; font: 11pt Times New Roman, Times, Serif"> <tr> <td style="vertical-align: bottom; width: 34%"> </td> <td style="vertical-align: bottom; width: 1%"> </td> <td style="vertical-align: bottom; text-align: center; width: 18%">Estimated Useful Lives </td> <td style="vertical-align: bottom; width: 2%"> </td> <td style="vertical-align: middle; text-align: center; width: 21%">  September 30, 2011</td> <td style="vertical-align: bottom; width: 3%"> </td> <td style="vertical-align: bottom; text-align: center; width: 21%">September 30, 2010</td></tr> <tr style="background-color: White"> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom; text-align: center"> </td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: middle; text-align: center"> </td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom"> </td></tr> <tr style="background-color: rgb(204,238,255)"> <td style="vertical-align: bottom">Optical equipment</td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom; text-align: center">  5 years </td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: middle; text-align: center; padding-left: -22pt; text-indent: -22pt">$      39,386 </td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom">$          39,386</td></tr> <tr style="background-color: White"> <td style="vertical-align: bottom">Office equipment</td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom; text-align: center">3 - 10 years</td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: middle; text-align: center">$8,231</td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom; text-align: center">$8,231</td></tr> <tr style="background-color: rgb(204,238,255)"> <td style="vertical-align: bottom">Computers and peripherals</td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom; text-align: center">5 years</td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: middle; text-align: center">7,000</td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom; text-align: center">16,000</td></tr> <tr style="background-color: White"> <td style="vertical-align: bottom">Furniture and fixtures</td> <td style="vertical-align: bottom"></td> <td style="vertical-align: bottom; text-align: center">5 years</td> <td style="vertical-align: bottom"> </td> <td style="border-bottom: windowtext 0.5pt solid; vertical-align: middle; text-align: center">6,873</td> <td style="vertical-align: bottom"></td> <td style="border-bottom: windowtext 0.5pt solid; vertical-align: bottom; text-align: center">-</td></tr> <tr style="background-color: rgb(204,238,255)"> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom; text-align: center"> </td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: middle; text-align: center">70,490</td> <td style="vertical-align: bottom"></td> <td style="vertical-align: bottom; text-align: center">63,617</td></tr> <tr style="background-color: White"> <td style="vertical-align: bottom">Less accumulated depreciation</td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom; text-align: center"> </td> <td style="vertical-align: bottom"> </td> <td style="border-bottom: windowtext 0.5pt solid; vertical-align: middle; text-align: center">(62,063)</td> <td style="vertical-align: bottom"></td> <td style="border-bottom: windowtext 0.5pt solid; vertical-align: bottom; text-align: center">(58,617)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="font-family: Calibri, Halvetica, Sans-Serif"></td> <td style="font-family: Calibri, Halvetica, Sans-Serif"></td> <td style="font-family: Calibri, Halvetica, Sans-Serif"> </td> <td style="font-family: Calibri, Halvetica, Sans-Serif"></td> <td style="font-family: Calibri, Halvetica, Sans-Serif"></td> <td style="font-family: Calibri, Halvetica, Sans-Serif"></td> <td style="font-family: Calibri, Halvetica, Sans-Serif"> </td></tr> <tr style="background-color: White"> <td style="vertical-align: bottom">Net property and equipment</td> <td style="vertical-align: bottom"> </td> <td style="vertical-align: bottom; text-align: center"> </td> <td style="vertical-align: bottom"> </td> <td style="border-bottom: windowtext 2pt double; vertical-align: middle; text-align: center">$8,427</td> <td style="vertical-align: bottom"> </td> <td style="border-bottom: windowtext 2pt double; vertical-align: bottom; text-align: center">$5,000</td></tr> </table>   Depreciation expense for the years ended September 30, 2011and 2010 was $2,800 and $1,802, respectively.

AQUALIV ACQUISITION   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">December 31, 2010</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">Acquisition value</td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 70%; padding-bottom: 1pt">Preferred shares (per contract)</td><td style="width: 10%; padding-bottom: 1pt"> </td> <td style="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</td><td style="width: 18%; border-bottom: Black 1pt solid; text-align: right">400,000</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td>Total Acquisition value</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">400,000</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Valuation classification</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: 0.25in">Physical assets</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">5,516</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-indent: 0.25in">Cash</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">79,000</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td>Goodwill</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">315,484</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-bottom: 1pt">Impairment of Goodwill</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(315,484</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Goodwill, net</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Net value</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">84,516</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>   We have concluded, pursuant to the guidance in FASB ASC 810-10-25-38 (previously FIN 46R) that AquaLiv, Inc. is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, Inc. and we are required to consolidate its financials accordingly. Additionally, the acquisition was recorded at its fair market value in that the cash, computer equipment, and inventory were recorded at their fair market value on the date of the acquisition. Impairment of goodwill from the date of acquisition was written off to its net realizable value in the accompanying statements of operations.   CONCENTRATIONS   At March 31, 2012, 39% of the Companys accounts receivable was due from a single customer. During the three months ended March 31, 2012, 31% of the Companys service revenue was generated from a single customer, and less than 2% of sales revenue was generated from a single customer. Compared to total revenue, less than 2% was generated from a single customer during the three months ended March 31, 2012, compared to the three months ended March 31, 2011, where 18% of the Companys revenues were generated from a single customer.   CONCENTRATIONS   At September 30, 2011, 92% of the Company's accounts receivable was due from custom of which two (2) customers, each accounted for 55% and 37%, respectively.  During the years ended September 30, 2011 and 2010, 17% and 59% of the Company's royalty revenues were generated through a single licensee, respectively. As the company stopped receiving royalty revenue on June 22, 2011, the Company does not expect that level of concentration related to our current products and services.

INCOME TAXES   At March 31, 2012, the Company has federal net operating loss carryovers of approximately $1,172,000 available to offset future taxable income and expiring as follows: $2,320 in 2026, $12,616 in 2027, $127,675 in 2028, $37,465 in 2029, and $428,000 in 2030 and $564,000 in 2031. The Company also has a federal contribution carryover of $150 that expires in 2029. At March 31, 2012, the Company had experienced losses since inception and had not yet generated any taxable income; therefore, the Company established a valuation allowance to offset the net deferred tax assets. The income tax provision consists of the following components for the three months ended March 31, 2012 and 2011:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="width: 56%; padding-bottom: 1pt"> </td><td style="width: 8%; padding-bottom: 1pt"> </td> <td style="width: 1%; border-bottom: Black 1pt solid; text-align: left"> </td><td style="width: 12%; border-bottom: Black 1pt solid; text-align: right">2012</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 8%; padding-bottom: 1pt"> </td> <td style="width: 1%; border-bottom: Black 1pt solid; text-align: left"> </td><td style="width: 12%; border-bottom: Black 1pt solid; text-align: right">2011</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">Current income tax expense (benefit)</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Deferred income tax expense (benefit)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt">Net income tax expense (benefit) charged to operations</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>   The income tax provision differs from the amounts that would be obtained by applying the federal statutory income tax rate to loss before income tax provision as follows for the six months ended March 31, 2011 and 2010:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">2012</td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">2011</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 59%; text-align: left">Loss before income tax provision</td><td style="width: 7%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 13%; text-align: right">(221,347)</td><td style="width: 1%; text-align: left"></td><td style="width: 2%"> </td> <td style="width: 4%; text-align: left">$</td><td style="width: 12%; text-align: right">(445,553)</td><td style="width: 1%; text-align: left"></td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Expected federal income tax rate</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">15.0</td><td style="padding-bottom: 1pt; text-align: left">%</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">15.0</td><td style="padding-bottom: 1pt; text-align: left">%</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">Expected income tax expense (benefit) at statutory rate</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">(33,202)</td><td style="text-align: left"></td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">(66,833)</td><td style="text-align: left"></td></tr> <tr style="vertical-align: bottom; background-color: White"> <td>Tax effect of:</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">Meals and entertainment</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">2,518</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">1,026</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Change in valuation allowance</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">30,684</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">65,807</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt">Net income tax expense (benefit)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>   The Companys deferred tax assets, deferred tax liabilities, and valuation allowance are as follows:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">March 31, 2012</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: center">Deferred tax assets:</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="width: 70%; text-align: left">Organization costs</td><td style="width: 10%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 18%; text-align: right">60</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">Contribution carryover</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">23</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Net operating loss carryovers</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">33,220</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt">Total deferred tax assets</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">33,303</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">Deferred tax liabilities:</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Book basis of patent application</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">(5,246</td><td style="text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt">Tax depreciation in excess of book</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(498</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Total deferred tax liabilities</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(5,744</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Total deferred tax assets</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">33,303</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left">Total deferred tax liabilities</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">(5,744</td><td style="text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Valuation allowance</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(27,559</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt">Net deferred tax asset (liability)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>   These amounts have been presented in the financial statements as follows:   <table align="center" cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="width: 70%; padding-right: 0.8pt; line-height: 115%"> </td> <td style="width: 10%; padding-right: 0.8pt; line-height: 115%"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-right: 0.8pt; line-height: 115%"> </td> <td style="width: 18%; border-bottom: black 1pt solid; padding-right: 0.8pt; line-height: 115%; text-align: right">March 31, 2012</td> <td style="width: 1%; padding-right: 0.8pt; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-right: 0.8pt; line-height: 115%">Current deferred tax asset (liability)</td> <td style="padding-right: 0.8pt; line-height: 115%"> </td> <td style="padding-right: 0.8pt; line-height: 115%">$</td> <td style="padding-right: 0.8pt; line-height: 115%; text-align: right">  </td> <td style="padding-right: 0.8pt; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-right: 0.8pt; line-height: 115%">Non-current deferred tax asset (liability)</td> <td style="padding-right: 0.8pt; line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; padding-right: 0.8pt; line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; padding-right: 0.8pt; line-height: 115%; text-align: right">  </td> <td style="padding-right: 0.8pt; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-right: 0.8pt; line-height: 115%"> </td> <td style="padding-right: 0.8pt; line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; padding-right: 0.8pt; line-height: 115%">$</td> <td style="border-bottom: black 1pt solid; padding-right: 0.8pt; line-height: 115%; text-align: right">  </td> <td style="padding-right: 0.8pt; line-height: 115%"> </td></tr></table>

INCOME TAXES   At September 30, 2011, the Company has federal net operating loss carryovers of approximately $1,172,000 available to offset future taxable income and expiring as follows:   $2,320 in 2026, $12,616 in 2027, $127,675 in 2028, $37,465 in 2029, and $428,000 in 2030 and $564,00 in 2031. The Company also has a federal contribution carryover of $150 that expires in 2029. At September 30, 2011, the Company had experienced losses since inception and had not yet generated any taxable income; therefore, the Company established a valuation allowance to offset the net deferred tax assets.   The income tax provision consists of the following components for the years ended September 30, 2011 and 2010:   <table cellpadding="0" cellspacing="0" style="width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="width: 56%; padding-bottom: 1pt"> </td><td style="width: 8%; font-weight: bold; padding-bottom: 1pt"> </td> <td style="width: 1%; border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="width: 12%; border-bottom: Black 1pt solid; font-weight: bold; text-align: right">2011</td><td style="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left"> </td><td style="width: 8%; font-weight: bold; padding-bottom: 1pt"> </td> <td style="width: 1%; border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="width: 12%; border-bottom: Black 1pt solid; font-weight: bold; text-align: right">2010</td><td style="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td>Current income tax expense (benefit)</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 1pt">Deferred income tax expense (benefit)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 1pt">Net income tax expense (benefit) charged to operations</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> </table>     The income tax provision differs from the amounts that would be obtained by applying the federal statutory income tax rate to loss before income tax provision as follows for the years ended September 30, 2011 and 2010:    <table cellpadding="0" cellspacing="0" style="width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 56%">Loss before income tax provision</td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">(564,294</td><td style="width: 1%; text-align: left">)</td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">(1,008,604</td><td style="width: 1%; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td>Expected federal income tax rate</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">15.0</td><td style="text-align: left">%</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">15.0</td><td style="text-align: left">%</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td>Expected income tax expense (benefit at statutory rate</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">(84,644</td><td style="text-align: left">)</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">(115,291</td><td style="text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td>Tax effect of</td><td> </td> <td style="text-align: left">  </td><td style="text-align: right">-</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td>Meals and entertainment</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"></td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">632</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td>Change in valuation allowance</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">84,644</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">150,659</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td>Net income tax expense (benefit)</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> </table>     The Company's deferred tax assets, deferred tax liabilities, and valuation allowance are as follows:    <table cellpadding="0" cellspacing="0" style="width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">September 30, 2011</td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">September 30, 2010</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">Deferred tax assets:</td><td> </td> <td colspan="3" style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-left: 11pt"> Organization costs</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 11pt"> Contribution carryover</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 56%; padding-bottom: 1pt; padding-left: 11pt"> Net operating loss carryovers</td><td style="width: 8%; padding-bottom: 1pt"> </td> <td style="width: 1%; border-bottom: Black 1pt solid; text-align: left"> </td><td style="width: 12%; border-bottom: Black 1pt solid; text-align: right">175,800</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 8%; padding-bottom: 1pt"> </td> <td style="width: 1%; border-bottom: Black 1pt solid; text-align: left"> </td><td style="width: 12%; border-bottom: Black 1pt solid; text-align: right">91,200</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-left: 33pt">Total deferred tax assets</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">175,800</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">91,200</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td> Deferred tax liabilities:</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 11pt">  Book basis of patent application</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-left: 11pt"> Tax depreciation in excess of book</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-left: 22pt"> Total deferred tax liabilities</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-left: 33pt">Total deferred tax assets</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">175,800</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">91,200</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 33pt">Total deferred tax liabilities</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-left: 33pt">Valuation allowance</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">(175,800</td><td style="text-align: left">)</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">(91,200</td><td style="text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-left: 22pt">Net deferred tax asset (liability)</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> </table>    These amounts have been presented in the financial statements as follows:    <table cellpadding="0" cellspacing="0" style="width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="width: 56%"> </td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">September 30, 2011</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">September 30, 2010</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td> Current deferred tax asset (liability)</td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">  </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 1pt"> Non-current deferred tax asset (liability)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-bottom: 2.5pt"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">  </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">  </td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr></table>

SUBSEQUENT EVENTS   On May 3, 2012, the Company filed Form 8-K with the Securities and Exchange Commission. On April 27, 2012, the Company finalized an equity facility (the Equity Facility) with Auctus Private Equity Fund, LLC, a Massachusetts corporation (Auctus), whereby the parties entered into (i) a drawdown equity financing agreement (the Equity Agreement) and (ii) a registration rights agreement (the Registration Rights Agreement).   Drawdown Equity Financing Agreement   On April 27, 2012, the Company entered into the Equity Agreement with Auctus. Pursuant to the terms of the Equity Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of the Registration Statement (as defined below), Auctus shall commit to purchase up to $3,500,000 of the Companys common stock, par value $0.001 per share (the Shares), pursuant to an Advance Request (as defined below) contained in a drawdown notice (Drawdown Notice), covering the Registrable Securities (as defined below). The purchase price of the Shares under the Equity Agreement is equal to ninety-three percent (93%) of the average daily bid prices of the Companys common stock during the five (5) consecutive trading days immediately following the day on which an estimated amount of advance shares have been deposited into Auctuss brokerage account pursuant to the delivery by the Company of a Drawdown Notice to Auctus in accordance with the terms of the Equity Agreement.   The Registrable Securities include (i) the Shares; and (ii) any securities issued or issuable with respect to the Shares by way of exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise.   As further consideration for Auctus entering into and structuring the Equity Facility, the Company shall pay to Auctus the following fees: (i) five percent (5%) of the Advance Request amount specified in each Drawdown Notice; (ii) a non-refundable origination fee equal to $7,500; (iii) that number of shares of the Companys common stock that is equal to $57,500.   Registration Rights Agreement   On April 27, 2012, the Company entered into the Registration Rights Agreement with Auctus. Pursuant to the terms of the Registration Rights Agreement, the Company is obligated to file a registration statement (the Registration Statement) with the U.S. Securities and Exchange Commission (the SEC) to cover the Registrable Securities within 45 days of closing. The Company must use its commercially reasonable efforts to cause the Registration Statement to be declared effective by the SEC by a date that is no later than 180 days following closing.   On May 3, 2012, the Company filed Form 8-K with the Securities and Exchange Commission. On April 27, 2012, Company entered into a securities purchase agreement (the Purchase Agreement) with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (TCA), pursuant to which TCA purchased from the Company a two hundred thousand dollar ($200,000) senior secured redeemable debenture (the Debenture). As consideration for entering into the Purchase Agreement, the Company paid to TCA (i) a transaction advisory fee in the amount of six thousand dollars ($6,000), (ii) a due diligence fee equal to four thousand dollars ($4,000), and (iii) document review and legal fees in the amount of ten thousand dollars ($10,000).   As further consideration, the Company agreed to issue to TCA that number of shares of the Companys common stock that equals twenty five thousand dollars ($25,000) (the Incentive Shares). It is the intention of the Company and TCA that the value of the Incentive Shares shall equal $25,000. In the event the value of the Incentive Shares issued to TCA does not equal $25,000 after a nine month evaluation date, the Purchase Agreement provides for an adjustment provision allowing for necessary action (either the issuance of additional shares to TCA or the return of shares previously issued to TCA to the Companys treasury) to adjust the number of Incentive Shares issued.   First Pledge and Escrow Agreement   On April 27, 2012, in connection with the Purchase Agreement, the Company entered into a pledge and escrow agreement (the First P&E Agreement), by and among the Company, TCA and David Kahan, P.A., as escrow agent (the Escrow Agent). Pursuant to the terms of the First P&E Agreement, and in order to secure the full and prompt payment when due of all of the Companys obligations to TCA under the Debenture, the Purchase Agreement and any other transaction documents, the Company agreed to issue and irrevocably pledge to TCA the lesser of (i) 4.99% of the Companys common stock and (ii) 200% of the outstanding amount under the Debenture, subject to adjustment pursuant to the terms of the Purchase Agreement. Upon timely payment in full of all obligations under the transaction documents, TCA will notify the Escrow Agent in writing and the Escrow Agent shall return the pledged materials to the Company and all of TCAs rights in and to the pledged materials and other collateral shall be terminated.   Second Pledge and Escrow Agreement   On April 27, 2012, in connection with the Purchase Agreement, the Company entered into a pledge and escrow agreement (the Second P&E Agreement), by and among the Company, TCA and the Escrow Agent. Pursuant to the terms of the Second P&E Agreement, and in order to secure the full and prompt payment when due of all of the Companys obligations to TCA under the Debenture, the Purchase Agreement and any other transaction documents, the Company agreed to irrevocably pledge to TCA its entire ownership in Aqualiv, Inc., a Washington corporation (Aqua Sub), consisting of 50,000 shares of Aqua Subs common stock. Upon timely payment in full of all obligations under the transaction documents, TCA will notify the Escrow Agent in writing and the Escrow Agent shall return the pledged materials to the Company and all of TCAs rights in and to the pledged materials and other collateral shall be terminated.   First Security Agreement   On April 27, 2012, the Company entered into a security agreement (the First Security Agreement) with TCA, related to the issuance of the Debenture. As security for the Companys obligations to TCA under the Debenture, the Purchase Agreement and any other transaction document, the First Security Agreement grants to TCA a continuing, first priority security interest in all of the Companys assets, wheresoever located and whether now existing or hereafter arising or acquired.   Second Security Agreement   On April 27, 2012, Focus Systems, Inc., a Washington corporation and wholly-owned subsidiary of the Company (Focus) entered into a security agreement (the Second Security Agreement) with TCA, related to the issuance of the Debenture. As security for the Companys obligations to TCA under the Debenture, the Purchase Agreement and any other transaction document, the Second Security Agreement grants to TCA a continuing, first priority security interest in all of the Focuss assets, wheresoever located and whether now existing or hereafter arising or acquired.   Guaranty Agreement   On April 27, 2012, Focus entered into a guaranty agreement (the Guaranty Agreement) with TCA, in connection with the Companys issuance of the Debenture. Pursuant to the terms of the Guaranty Agreement, Focus has guaranteed and is to act as surety to TCA for the payment of the Liabilities (as defined below) when they become due. The Liabilities includes, collectively, (i) the repayment of all sums due under the Debenture and other transaction documents and (ii) the performance and observance of all terms, conditions, covenants, representations and warranties set forth in the transaction documents.

SUBSEQUENT EVENTS   The Company evaluated events subsequent to September 30, 2011 through January 13, 2012, which is the date that the September 30, 2011 consolidated financial statements were available to be issued. Previously, the Company evaluated events subsequent to September 30, 2010 through January 14, 2011, which was the date that the September 30, 2010 consolidated financial statements were issued.   On December 1, 2011, the Companys independent accountant and management identified that the consolidated financial statements prepared following the Companys merger with Focus Systems, Inc. had material errors and should no longer be relied upon. Errors in the consolidated financial statements included the incorrect accounting of the purchase of Focus Systems, Inc., incorrect classification in its statement of cash flows, and accounting for the non-controlling interest of AquaLiv, Inc. The audit committee or equivalent has informed the independent auditor of these errors.  The Company immediately commenced preparation of amendments to the effected reports, which would contain the revised financials upon which the public could rely. The net effect of the changes on net loss were in material, taken as a whole. Following is a list of quarterly and annual reports that should no longer be relied upon and which will be amended and refiled:   Quarterly report for period ended June 30, 2010 Annual report for period ended September 30, 2010 Quarterly report for period ended December 31, 2010 Quarterly report for period ended March 31, 2011 Quarterly report for period ended June 30, 2011   The Company has instituted an amended internal procedure that includes a review by an independent accountant, management, and directors, or a combination thereof, to approve and authorize the filing of any report to the Commission

INVENTORY   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">March 31, 2012</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: center"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="width: 70%">Inventory - beginning of period</td><td style="width: 10%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 18%; text-align: right">764</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt">Change in inventory</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">4,759</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-bottom: 2.5pt">Inventory - end of period</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">5,523</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>

INVENTORY   <table cellpadding="0" cellspacing="0" style="width: 100%; font: 11pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td colspan="5" style="text-align: left; vertical-align: top">Inventories are comprised of the following amounts at the respective dates:</td></tr> <tr style="vertical-align: bottom"> <td style="font-size: 12pt; text-align: center"> </td><td style="font-size: 10pt; padding-bottom: 1pt"> </td> <td colspan="3" style="font-size: 10pt; text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">September 30, 2011</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td> </td> <td colspan="3" style="text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 70%">Raw materials</td><td style="width: 10%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 18%; text-align: right">4,340</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td>Work in process</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">1,447</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td>Finished goods</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">3,858</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 1pt">Provision for inventory liquidations</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(8,921</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-bottom: 2.5pt">Inventory - end of period</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">723</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>   There was no inventory as of September 30, 2010.

74353

-61111

0.00

-0.01

-18298

285618

11671700

187243870

911618

291617428

500000

400000

-24000

150000

10000

500

249500

400

150

399600

-23976

74850

4990

-23641

23641

400000

-24000

75000

5000

85350

115572170

20000000

5000000

3750000

100623558

-15273

250000 30000000 310000 250 30000 279750 -464382 -232191 -464 -231727 -18298 -18298 5414 5414   DEFINITE-LIFE INTANGIBLE ASSETS   <table cellspacing="0" cellpadding="0" style="font: 11pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr> <td style="width: 34%; vertical-align: bottom; line-height: 115%"> </td> <td style="width: 1%; vertical-align: bottom; line-height: 115%"> </td> <td style="width: 18%; vertical-align: bottom; line-height: 115%; text-align: center">Estimated Useful Lives </td> <td style="width: 2%; vertical-align: bottom; line-height: 115%; text-align: center"> </td> <td style="width: 21%; line-height: 115%; text-align: center">  September 30, 2011</td> <td style="width: 3%; vertical-align: bottom"> </td> <td style="width: 21%; vertical-align: bottom; line-height: 115%; text-align: center">September 30, 2010</td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">Pending patent application</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: center">Not applicable</td> <td> </td> <td style="line-height: 115%; text-align: center">$ -</td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center">$ 33,970</td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">Addition to assets</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center">-</td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center">1,000</td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">Less accumulated amortization </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: center"> </td> <td> </td> <td style="line-height: 115%; text-align: center">-</td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center">34,970</td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">Less impairment of asset</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center">-</td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center">(34,970)</td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td colspan="2" style="line-height: 115%">Net definite-life intangible assets  </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center">$ -</td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center">$ -</td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%; text-align: center"> </td></tr> </table>     The Company's definite-life intangile assets consisted only of a pending patent application. The Company subsidiary received patent approval in fiscal year ended September 30, 2010.  Since the patent was the property of the Companys subsidiary, IAI, and the determination of value is deemed worthless with no probably future economic benefit, the Company expensed the asset in its entirety, rather than amortize it over an undeterminable amount of time.    <table cellspacing="0" cellpadding="0" style="font: 11pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="line-height: 115%; text-align: center">Focus Systems Acquisition</td> <td style="line-height: 115%"> </td> <td colspan="3" style="border-bottom: black 1pt solid; line-height: 115%; text-align: center">September 30, 2010</td></tr> <tr style="vertical-align: bottom"> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%"> </td> <td colspan="3" style="line-height: 115%; text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td style="line-height: 115%; text-align: center">Acquisition value</td> <td style="line-height: 115%"> </td> <td colspan="3" style="line-height: 115%; text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 70%; line-height: 115%; text-indent: 9pt">Capital in excess of par</td> <td style="width: 10%; line-height: 115%"> </td> <td style="width: 1%; line-height: 115%">$</td> <td style="width: 18%; line-height: 115%; text-align: right">279,750</td> <td style="width: 1%; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%; text-indent: 9pt">Common shares 3,000,000 shares</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right">30,000</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%; text-indent: 9pt">Preferred shares 250,000 shares</td> <td style="line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%; text-align: right">250</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%; text-indent: 0.25in"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%; text-indent: 0.25in">Total Acquisition value</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="line-height: 115%; text-align: right">310,000</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">Valuation classification</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%; text-indent: 9pt">Physical Assets</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="line-height: 115%; text-align: right">10,338</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%"> Liabilities Assumed</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="line-height: 115%; text-align: right">283,639</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">     Goodwill</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right">583,301</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%; text-indent: 9pt">     Impairment of Goodwill</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right">(583,301</td> <td style="line-height: 115%">)</td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%; text-indent: 0.25in">     Goodwill, net</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right">  </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%; text-indent: 0.25in">          Net value</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="line-height: 115%; text-align: right">0</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right"> </td> <td style="line-height: 115%"> </td></tr> </table>   The Company recorded a one-time impairment of goodwill under operating expenses in the amount of $583,301 in conjunction with the acquisition of Focus Systems due to there being no probable future economic benefit and no certainty of any future cash flows.     <table cellspacing="0" cellpadding="0" style="font: 11pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="line-height: 115%; text-align: center">Note receivable to IAI</td> <td style="line-height: 115%"> </td> <td colspan="3" style="border-bottom: black 1pt solid; line-height: 115%; text-align: center">September 30, 2010</td></tr> <tr style="vertical-align: bottom"> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%"> </td> <td colspan="3" style="line-height: 115%; text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 70%; line-height: 115%">Face value of note</td> <td style="width: 10%; line-height: 115%"> </td> <td style="width: 1%; line-height: 115%">$</td> <td style="width: 18%; line-height: 115%; text-align: right">170,000</td> <td style="width: 1%; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%; text-indent: 9pt">Less impairment of note</td> <td style="line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%; text-align: right">(170,000</td> <td style="line-height: 115%">)</td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%; text-indent: 0.25in">Note receivable remaining</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="line-height: 115%; text-align: right">  </td> <td style="line-height: 115%"> </td></tr> </table>   The Company recorded a one-time impairment of the note receivable to IAI under operating expenses in the amount of $170,000 due to the total uncollectability thereof.   AquaLiv, Inc. Acquisition   <table cellspacing="0" cellpadding="0" style="font: 11pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%"> </td> <td colspan="3" style="border-bottom: black 1pt solid; line-height: 115%; text-align: center">September 30, 2011</td></tr> <tr style="vertical-align: bottom"> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%"> </td> <td colspan="3" style="line-height: 115%; text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td style="line-height: 115%; text-align: center">Acquisition value</td> <td style="line-height: 115%"> </td> <td colspan="3" style="line-height: 115%; text-align: center"> </td></tr> <tr style="vertical-align: bottom"> <td style="line-height: 115%; text-align: center"> </td> <td style="line-height: 115%"> </td> <td colspan="3" style="line-height: 115%; text-align: center"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 70%; line-height: 115%">Preferred shares (per contract)</td> <td style="width: 10%; line-height: 115%"> </td> <td style="width: 1%; border-bottom: black 1pt solid; line-height: 115%">$</td> <td style="width: 18%; border-bottom: black 1pt solid; line-height: 115%; text-align: right">400,000</td> <td style="width: 1%; line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">Total Acquisition value</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="line-height: 115%; text-align: right">400,000</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">Valuation classification</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%; text-indent: 0.25in">Physical assets</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%">$</td> <td style="line-height: 115%; text-align: right">5,516</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%; text-indent: 0.25in">Cash</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right">79,000</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">Goodwill</td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right">315,484</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%">Impairment of Goodwill</td> <td style="line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%; text-align: right">(315,484</td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">Goodwill, net</td> <td style="line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%"> </td> <td style="border-bottom: black 1pt solid; line-height: 115%; text-align: right">  </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%"> </td> <td style="line-height: 115%; text-align: right"> </td> <td style="line-height: 115%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="line-height: 115%">Net value</td> <td style="line-height: 115%"> </td> <td style="border-bottom: black 2.25pt double; line-height: 115%">$</td> <td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">84,516</td> <td style="line-height: 115%"> </td></tr> </table>    We have concluded, pursuant to the guidance in FASB ASC 810-10-25-38 (previously FIN 46R) that AquaLiv is a Variable Interest Entity, that we are the primary beneficiary with a controlling financial interest in AquaLiv, and we are required to consolidate its financials accordingly. Additionally, the acquisition was recorded at its fair market value in that the cash, computer equipment, and inventory were recorded at their fair market value on the date of the acquisition. Impairment of goodwill from the date of acquisition was written off to its net realizable value in the accompanying statements of operations   NOTES PAYABLE AND DERIVATIVE LIABILITY     At fiscal year ended September 30, 2011, the Company had notes payable in the amount of $189,179, compared to $260,695, in the prior fiscal year. The notes included a note payable to an unaffiliated party in the amount of $165,790, which is not secured by collateral of the company, carries accrued interest of 6%and is due on demand by the holder. The second note payable is to an affiliated company of our President in the amount of $23,338, is not secured by collateral of the company, carries no interest, and is due on demand by the holder.   A third note payable was issued to an unaffiliated party on August 1, 2011 in the aggregate amount of $50,000. The note carries an interest rate of 8%, is not secured by collateral of the company, and has a maturity date of May 3, 2012. The note has conversion rights beginning after month six (6). The variable conversion price is 55% of the market price, which is calculated by the average three (3) lowest closing bid prices as quoted on the applicable trading market (the OTCBB) during the previous ten (10) trading days. The note holder may not own any more than 4.99% of the companys outstanding common stock. The Company recognizes the conversion option of the note (an embedded derivative) as a derivative liability.   Derivative Liability   ASC Topic 815 (ASC 815) requires that all derivative financial instruments be recorded on the balance sheet at fair value. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.   The Company issued convertible notes and has evaluated the terms and conditions of the conversion features contained in the notes to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features contained in the notes represent freestanding derivative instruments that meet the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instruments in the notes is reflected in the Companys balance sheet as a liability. The fair value of the derivative financial instruments of the convertible notes was measured at the inception date of the notes and warrants and each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.   The Company valued the conversion features in its convertible notes using the Black-Scholes model. The Black-Scholes model values the embedded derivatives based on a risk-free rate of return ranging from 0.29% to 0.30%, grant dates at 8/1/2011 and 9/30/2011, the term of convertible note, conversion prices is 55% of stock bid price at date of note conversion, current stock prices on the measurement date ranging from $0.0028 to $0.0051, and the computed measure of the Companys stock volatility, ranging from 2,342.87% to 2,242.33%.      Included in the September 30, 2011 financial statements is a derivative liability in the amount of $111,111 to account for this transaction. There were no balances in prior periods since this liability arose in 2011. It will be revalued quarterly henceforth and adjusted as a gain or loss to the consolidated statements of operations depending on its value at that time.   Included in our Consolidated Statements of Operations for the year ended September 30, 2011 are $0 in change of fair value of derivative and $61,111 of debt discount amortization in non-cash charges pertaining to the derivative liability as it pertains to the gain on derivative liability and debt discount, respectively.      <table cellpadding="0" cellspacing="0" style="width: 100%"> <tr style="vertical-align: bottom; text-align: center"> <th> </th> <th style="text-align: center"> 30-Sep-11</th> <th style="text-align: center"> 30-Sep-10</th></tr> <tr style="vertical-align: top; text-align: left"> <td style="width: 46%"> </td> <td style="width: 21%; text-align: center"> </td> <td style="width: 33%; text-align: center"> </td></tr> <tr style="vertical-align: top; text-align: left; background-color: rgb(204,238,255)"> <td> Loss on goodwill impairment, AquaLiv</td> <td style="text-align: center"> $315,484</td> <td style="text-align: center">$ -</td></tr> <tr style="vertical-align: top; text-align: left; background-color: White"> <td> Loss on goodwill impairment, Focus </td> <td style="text-align: center"> </td> <td style="text-align: center">583,301</td></tr> <tr style="vertical-align: top; text-align: left; background-color: rgb(204,238,255)"> <td> Loss on goodwill impairment, IAI</td> <td style="text-align: center"> </td> <td style="text-align: center">34,970</td></tr> <tr style="vertical-align: top; text-align: left; background-color: White"> <td> Loss on impairment of note receivable </td> <td style="text-align: center"> </td> <td style="text-align: center">170,000</td></tr> <tr style="vertical-align: top; text-align: left; background-color: rgb(204,238,255)"> <td> Net loss on impairments</td> <td style="text-align: center">$315,484</td> <td style="text-align: center">$788,271</td></tr> <tr style="vertical-align: top; text-align: left; background-color: White"> <td> </td> <td style="text-align: center"> </td> <td style="text-align: center"> </td></tr></table>

STOCKHOLDERS DEFICIT   In December 2008, the Company completed its spin-off by distributing 1,167,170 common stock shares to stockholders of CSBI. The remaining 4,832,830 common stock shares previously owned by CSBI were returned and cancelled.   On April 12, 2010, the Company issued 115,572,170 post-split shares of Common stock for $30,000 in cash and a note receivable to the Companys subsidiary, IAI, in the amount of $170,000.  The transaction resulted in a change of control of the Company and was identified in the 8-K filed on April 16, 2010.   On May 7, 2010, the Company issued 20,000,000 post-split shares of Common stock for $20,000 in consulting services.   On May 7, 2010, the Company issued 30,000,000 post-split shares of Common stock and 250,000 shares of Preferred stock as part of an acquisition agreement for Focus Systems, Inc. from Propalms, Inc. The transaction was recorded on the Companys books at $310,000. The transaction was reported in the Companys 8-K filed April 21, 2010.   On May 7, 2010, and in conjunction with the Focus acquisition agreement, the Company issued 500,000 shares of Preferred stock for an investment receivable in the amount of $250,000.   On May 14, 2010, the Company completed a 10:1 forward split of its Common stock.   On August 2, 2010, the Company issued 5,000,000 shares of Common stock for $30,000 in consulting services.   On August 2, 2010, the Company issued 5,000,000 shares of Common stock for $20,000 in consulting services.   At September 30, 2010, the Company recorded the impairment of the unexercised investment receivable from the Preferred stock issued May 7, 2010.  464,352 shares of Preferred stock were returned to the Company.   In October 2010 the Company issued 9,500,000 shares of Common stock to repay $5,000 in debt.   In December 2010 the Company issued 400,000 shares of Preferred stock for the purchase of 50% interests in AquaLiv, Inc.   In December 2010 the Company issued 3,750,000 shares of Common stock in exchange for 24,000 shares of Preferred stock valued at $24,000.   In January 2011, the Company issued 90,000 shares of Preferred stock for $45,000 in cash.   In January 2011, the Company issued 100,000 shares of Preferred stock for $50,000 in cash.   In April 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.   In May 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.   In May 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.   In June 2011 the Company issued 10,000,000 shares of Common stock to repay $5,000 in debt.   In June 2011 the Company issued 3,947,368 shares of Common stock to repay $15,000 in debt.   In June 2011 the Company issued 2,380,952 shares of Common stock to repay $10,000 in debt.   In July 2011 the Company issued 3,200,000 shares of Common stock to repay $8,000 in debt.   In July 2011 the Company issued 11,500,000 shares of Common stock to repay $5,750 in debt.   In July 2011 the Company issued 4,095,238 shares of Common stock to repay $8,600 in debt.   In August 2011 the Company issued 12,000,000 shares of Common stock to repay $6,000 in debt.   In September 2011 the Company issued 6,500,000 shares of Common stock to repay $3,250 in debt.   In September 2011 the Company issued 7,500,000 shares of Common stock to repay $3,750 in debt.   In September 2011 the Company issued 10,000 shares of Preferred stock for $5,000 in management fees.   In September 2011 the Company issued 50,000 shares of Preferred stock for $25,000 in cash.   In September 2011 the Companys subsidiary received $5,414 in cash in exchange for previously issued Preferred stock related to the AquaLiv, Inc. acquisition.

CONTINGENCIES   The Company had no contingencies existing as of September 30, 2011 and 2010.

LOSS PER SHARE    The basic loss per share was calculated using the net loss and the weighted average number of shares outstanding during the reporting periods. All share and per share data have been adjusted to reflect the forward stock split.

SEGMENTS   The Company determined that it do not operate in any material, separately reportable operating segments as of September 30, 2011 and 2010.

583301

34970

-66168

206210

105000

204414

17809

221057

4289

-180

8174

-1000

-22250

-22226

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Entity Filer Category Entity Public Float Entity Common Stock, Shares Outstanding Document Fiscal Period Focus Document Fiscal Year Focus Statement of Financial Position [Abstract] ASSETS CURRENT ASSETS: Cash Accounts receivable Total Current Assets PROPERTY AND EQUIPMENT, net INVENTORY TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable Credit cards payable Notes payable Derivative liability Other liabilities Total Current Liabilities STOCKHOLDERS' EQUITY: Preferred stock, $0.001 par value, 50,000,000 shares authorized, 991,618 and 911,618 shares issued and outstanding, respectively Common stock, $0.001 par value, 1,000,000,000 shares authorized, 414,024,625 and 291,617,428 shares issued and outstanding, respectively Capital in excess of par value Retained earnings (Deficit) Noncontrolling interest Total Stockholders' (Deficit) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT Preferred stock par value Preferred Stock Authorized Preferred Stock Issued 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GOING CONCERN

3 Months Ended

12 Months Ended

Mar. 31, 2012

Sep. 30, 2011

GOING CONCERN

GOING CONCERN

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Consolidated Balance Sheets (Unaudited) (USD $)	Mar. 31, 2012	Sep. 30, 2011	Sep. 30, 2010
ASSETS
Cash	$ 36,942	$ 3,732	$ 1,034
Accounts receivable	3,848	1,968	16,008
Total Current Assets	40,789	5,700	17,042
PROPERTY AND EQUIPMENT, net	7,027	8,427	5,000
INVENTORY	5,523	723
TOTAL ASSETS	53,339	14,850	22,042
CURRENT LIABILITIES:
Accounts payable	120,579	107,438	100,513
Credit cards payable	18,557	17,187	46,262
Notes payable	149,354	189,179	260,695
Derivative liability	186,912	111,111
Other liabilities	8,845	20,746	36,599
Total Current Liabilities	484,247	445,661	444,069
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 991,618 and 911,618 shares issued and outstanding, respectively	992	912	286
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 414,024,625 and 291,617,428 shares issued and outstanding, respectively	414,024	291,617	187,244
Capital in excess of par value	2,006,128	1,907,365	1,414,898
Retained earnings (Deficit)	(2,815,560)	(2,612,390)	(2,024,455)
Noncontrolling interest	(36,493)	(18,315)
Total Stockholders' (Deficit)	(430,908)	(430,811)	(422,027)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 53,339	$ 14,850	$ 22,042

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Consolidated Shareholders Equity (USD $)	Preferred Stock Issuance of preferred shares for an investment receivable	Preferred Stock Issuance of preferred stock for 50% purchase of AquaLiv, Inc.	Preferred Stock Issuance to reduce preferred	Preferred Stock Issuance of preferred stock for cash	Preferred Stock Issuance of preferred stock for sevices	Preferred Stock	Common Stock Issuance of commom stock for cash and a promissory note	Common Stock Issuance of common stock for services received	Common Stock Issuance of common stock for services received2	Common Stock Issuance of common stock to repay debt	Common Stock	Additional Paid-In Capital Issuance of preferred shares for an investment receivable	Additional Paid-In Capital Issuance of preferred stock for 50% purchase of AquaLiv, Inc.	Additional Paid-In Capital Issuance to reduce preferred	Additional Paid-In Capital Issuance of preferred stock for cash	Additional Paid-In Capital Issuance of preferred stock for sevices	Additional Paid-In Capital Issuance of commom stock for cash and a promissory note	Additional Paid-In Capital Issuance of common stock for services received2	Additional Paid-In Capital Issuance of common stock to repay debt	Additional Paid-In Capital	Retained Deficit Issuance of preferred stock for 50% purchase of AquaLiv, Inc.	Retained Deficit	Noncontrolling Interest Issuance of preferred stock for 50% purchase of AquaLiv, Inc.	Noncontrolling Interest	Issuance of preferred shares for an investment receivable	Issuance of preferred stock for 50% purchase of AquaLiv, Inc.	Issuance to reduce preferred	Issuance of preferred stock for cash	Issuance of preferred stock for sevices	Issuance of commom stock for cash and a promissory note	Issuance of common stock for services received	Issuance of common stock for services received2	Issuance of common stock to repay debt	Total
Beginning Balance, Value at Sep. 30, 2009											$ 11,672									$ 992,947		$ (1,015,851)												$ (11,232)
Beginning Balance, Shares at Sep. 30, 2009											11,671,700
Preferred Stock Issued, Shares	500,000
Preferred Stock Issued, Value	500																								249,500
Common Stock Issued, Shares							115,572,170	20,000,000	5,000,000
Common Stock Issued, Value							11,572	20,000	5,000			249,500					84,428	25,000												200,000	20,000	30,000		17,809
Common and Preferred Stock Issued for purchase of Focus Systems, Shares						250,000					30,000,000
Common and Preferred Stock Issued for purchase of Focus Systems, Value						250					30,000									279,750														310,000
Cancellation of unexercised preferred stock investment, Shares						(464,382)
Cancellation of unexercised preferred stock investment, Value						(464)														(231,727)														(232,191)
Net loss of the year ended September 30, 2010																						(1,008,604)												(1,008,604)
Ending Balance, Value at Sep. 30, 2010						286					187,244									1,414,898		(2,024,455)												(422,027)
Ending Balance, Shares at Sep. 30, 2010						285,618					187,243,870
Preferred Stock Issued, Shares		400,000	(24,000)	150,000	10,000
Preferred Stock Issued, Value		400	24	150	10								399,600	(23,976)	74,850	4,990					(23,641)		23,641			400,000	(24,000)	75,000	5,000
Common Stock Issued, Shares										100,623,558	3,750,000									(15,273)														85,350
Common Stock Issued, Value										100,623	3,750								(4,500)	20,250													5,000	24,000
Net loss of the year ended September 30, 2010																						(564,294)		(41,956)										(564,294)
Distribution of IAI assets, net																				(18,298)														(18,298)
Other Capital Contributions																				5,414														5,414
Ending Balance, Value at Sep. 30, 2011						$ 912					$ 291,617									$ 1,907,365		$ (2,612,390)		$ (18,315)										$ (430,811)
Ending Balance, Shares at Sep. 30, 2011						911,618					291,617,428

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SEGMENTS

12 Months Ended

Sep. 30, 2011

SEGMENTS

SEGMENTS

The Company determined that it do not operate in any material, separately reportable operating segments as of September 30, 2011 and 2010.

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

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Consolidated Shareholders Equity (Parenthetical) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012	Mar. 31, 2011	Sep. 30, 2011	Sep. 30, 2010
Statement of Stockholders' Equity [Abstract]
Net loss of the year ended September 30, 2010	$ (124,626)	$ (62,723)	$ (203,170)	$ (437,947)	$ (564,294)	$ (1,008,604)

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 03

-Paragraph 19

-Article 5

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-Name Accounting Standards Codification

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-Number 210

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-Number 51

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-Appendix A

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-Name Accounting Research Bulletin (ARB)

-Number 51

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+ Details

XML 29 R3.htm IDEA: XBRL DOCUMENT

Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2012	Sep. 30, 2011	Sep. 30, 2010
Statement of Financial Position [Abstract]
Preferred stock par value	$ 0.001	$ 0.001	$ 0.001
Preferred Stock Authorized	50,000,000	50,000,000	50,000,000
Preferred Stock Issued	991,618	911,618	285,618
Preferred Stock Outstanding	991,618	911,618	285,618
Common stock par value	$ 0.001	$ 0.001	$ 0.001
Common Stock Authorized	1,000,000,000	1,000,000,000	1,000,000,000
Common Stock Issued	414,024,625	291,618,428	187,243,870
Common Stock Outstanding	414,024,625	291,618,428	187,243,870

Number of shares of common stock outstanding. Common stock represent the ownership interest in a corporation.

+ References+ Details

Face amount or stated value per share of nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer); generally not indicative of the fair market value per share.

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XML 30 R17.htm IDEA: XBRL DOCUMENT

DEFINITE-LIFE INTANGIBLE ASSETS

12 Months Ended

Sep. 30, 2011

DEFINITE-LIFE INTANGIBLE ASSETS

DEFINITE-LIFE INTANGIBLE ASSETS

	Estimated Useful Lives	September 30, 2011	September 30, 2010

Pending patent application	Not applicable	$ -	$ 33,970
Addition to assets		-	1,000

Less accumulated amortization		-	34,970
Less impairment of asset		-	(34,970)

Net definite-life intangible assets		$ -	$ -

Focus Systems Acquisition	September 30, 2010

Acquisition value
Capital in excess of par	$	279,750
Common shares 3,000,000 shares		30,000
Preferred shares 250,000 shares		250

Total Acquisition value	$	310,000

Valuation classification
Physical Assets	$	10,338
Liabilities Assumed	$	283,639

Goodwill		583,301
Impairment of Goodwill		(583,301	)
Goodwill, net		—

Net value	$	0

Note receivable to IAI	September 30, 2010

Face value of note	$	170,000
Less impairment of note		(170,000	)
Note receivable remaining	$	—

The Company recorded a one-time impairment of the note receivable to IAI under operating expenses in the amount of $170,000 due to the total uncollectability thereof.

AquaLiv, Inc. Acquisition

	September 30, 2011

Acquisition value

Preferred shares (per contract)	$	400,000
Total Acquisition value	$	400,000

Valuation classification
Physical assets	$	5,516
Cash		79,000

Goodwill		315,484
Impairment of Goodwill		(315,484
Goodwill, net		—

Net value	$	84,516

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Document and Entity Information (USD $)	3 Months Ended
Document and Entity Information (USD $)	Mar. 31, 2012	May 07, 2012 Common Stock	May 07, 2012 Preferred Stock
Entity Registrant Name	AquaLiv Technologies, Inc.
Entity Central Index Key	0001418115
Document Type	S-1
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Public Float	$ 267,123,022
Entity Common Stock, Shares Outstanding		414,024,625	991,618
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2012

XML 32 R18.htm IDEA: XBRL DOCUMENT

NOTES PAYABLE

12 Months Ended

Sep. 30, 2011

NOTES PAYABLE

NOTES PAYABLE AND DERIVATIVE LIABILITY

Derivative Liability

	30-Sep-11	30-Sep-10

Loss on goodwill impairment, AquaLiv	$315,484	$ -
Loss on goodwill impairment, Focus		583,301
Loss on goodwill impairment, IAI		34,970
Loss on impairment of note receivable		170,000
Net loss on impairments	$315,484	$788,271

XML 33 R4.htm IDEA: XBRL DOCUMENT

Consolidated Statements of Operations (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
Consolidated Statements of Operations (USD $)	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012	Mar. 31, 2011	Sep. 30, 2011	Sep. 30, 2010
Income Statement [Abstract]
Sales	$ 117,134	$ 119,993	$ 246,318	$ 234,210	$ 446,053
Service	7,313	10,255	17,849	22,018	44,085	30,108
Royalty		28,800		46,400	100,000	109,190
Total Revenues	124,448	159,048	264,168	302,628	590,138	139,298
COST OF GOODS SOLD	38,138	59,522	71,809	106,046	193,430	5,834
GROSS PROFIT	86,309	99,527	192,358	196,583	396,708	133,464
Bad Debt	0	0	0	0	4,289	(180)
Consulting fees	19,655	7,053	30,485	22,128	60,819	72,361
Management fees	30,000	24,030	60,000	44,920	105,900	55,802
Payroll expense	47,930	28,730	91,714	53,503	127,455	126
Professional fees	25,233	27,261	37,315	58,918	88,683	93,302
Research and development	68	4,663	987	7,097	9,936	577
Travel, meals, and entertainment	11,613	3,453	16,787	6,840	20,333	5,070
Loss on goodwill impairment, AquaLiv				315,484	315,484
Other general and administrative	64,435	92,804	146,554	146,302	287,412	122,509
Total Operating Expenses	198,933	187,994	383,842	655,192	1,020,310	1,138,018
LOSS FROM OPERATIONS	(112,624)	(88,467)	(191,484)	(458,609)	(623,602)	(1,004,554)
Recapture prior expense	884	19,400	12,522	19,400	19,400
Interest expense	(20,917)	(3,767)	(42,386)	(6,344)	(15,290)	(4,050)
Gain on distribution of IAI, net					74,353
Loss on derivative liability					(61,111)
LOSS BEFORE INCOME TAX PROVISION	(132,657)	(72,834)	(221,347)	(445,553)	(606,250)	(1,008,604)
PROVISION FOR INCOME TAXES
CONSOLIDATED NET LOSS	(132,657)	(72,834)	(221,347)	(445,553)	(606,250)	(1,008,604)
Net loss (income) attributable to non-controlling interest, AquaLiv	8,031	10,111	18,177	7,606	41,956
NET LOSS ATTRIBUTABLE TO COMPANY	$ (124,626)	$ (62,723)	$ (203,170)	$ (437,947)	$ (564,294)	$ (1,008,604)
BASIC AND DILUTED LOSS PER SHARE	$ 0	$ 0	$ 0	$ 0	$ 0.00	$ (0.01)
WEIGHTED AVERAGE SHARES OUTSTANDING	379,418,249	200,493,870	352,774,805	200,493,870	228,052,093	91,957,785

XML 34 R12.htm IDEA: XBRL DOCUMENT

AQUALIV ACQUISITION

3 Months Ended

Mar. 31, 2012

AQUALIV ACQUISITION

AQUALIV ACQUISITION

	December 31, 2010

Acquisition value

Preferred shares (per contract)	$	400,000
Total Acquisition value	$	400,000

Valuation classification
Physical assets	$	5,516
Cash		79,000

Goodwill		315,484
Impairment of Goodwill		(315,484	)
Goodwill, net		—

Net value	$	84,516

XML 35 R11.htm IDEA: XBRL DOCUMENT

PROPERTY AND EQUIPMENT

3 Months Ended

12 Months Ended

Mar. 31, 2012

Sep. 30, 2011

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

Estimated Useful Lives		March 31, 2012

Optical equipment	5 years	$	39,386
Office equipment	3 - 10 years		8,231
Computers and peripherals	5 years		16,000
Furniture and fixtures	5 years		6,873

			70,490
Less accumulated depreciation			(63,463)

Net property and equipment		$	7,027

Depreciation expense for the three months ended March 31, 2012 and 2011 was $1,400 and $1,346, respectively.

PROPERTY AND EQUIPMENT

	Estimated Useful Lives	September 30, 2011	September 30, 2010

Optical equipment	5 years	$ 39,386	$ 39,386
Office equipment	3 - 10 years	$8,231	$8,231
Computers and peripherals	5 years	7,000	16,000
Furniture and fixtures	5 years	6,873	-
		70,490	63,617
Less accumulated depreciation		(62,063)	(58,617)

Net property and equipment		$8,427	$5,000

Depreciation expense for the years ended September 30, 2011and 2010 was $2,800 and $1,802, respectively.

The entire disclosure for long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale. Examples include land, buildings, machinery and equipment, and other types of furniture and equipment including, but not limited to, office equipment, furniture and fixtures, and computer equipment and software. This disclosure may include property plant and equipment accounting policies and methodology, a schedule of property, plant and equipment gross, additions, deletions, transfers and other changes, depreciation, depletion and amortization expense, net, accumulated depreciation, depletion and amortization expense and useful lives, income statement disclosures, assets held for sale and public utility disclosures.

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XML 36 R19.htm IDEA: XBRL DOCUMENT

STOCKHOLDERS' DEFICIT

12 Months Ended

Sep. 30, 2011