Cavitation Technologies, Inc. - Quarter Report: 2010 March (Form 10-Q)

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the quarterly period ended March 31, 2010

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

		For the transition period from to

Commission File Number: 0-29901

Cavitation Technologies, Inc.

(Exact name of Registrant as Specified in its Charter)

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

10019 CANOGA AVENUE, CHATSWORTH, CALIFORNIA 91311

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

(818) 718-0905

(Registrant’s telephone number, including area code)

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

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

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

Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

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

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

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

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

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

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

State the aggregate market value of the voting and non -voting common equity held by non-affiliates of the registrant by reference to the price at which the common equity was last sold, or of the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completely second fiscal quarter: $11,229,822 as of March 31, 2010 based on the closing price of $0.16 per share and 70,186,388 shares outstanding.

The registrant had 122,855,952 shares of Common Stock, par value $0.001 per share, outstanding at May 5, 2010.

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

TABLE OF CONTENTS

			Page
PART I - FINANCIAL INFORMATION

	ITEM 1.	FINANCIAL STATEMENTS	3

	ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	18

	ITEM 4.	CONTROLS AND PROCEDURES	18

PART II – OTHER INFORMATION

	ITEM 1.	LEGAL PROCEEDINGS	19

	ITEM 1A	RISK FACTORS

	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	19

	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	19

	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	19

	ITEM 5.	OTHER INFORMATION	19

	ITEM 6.	EXHIBITS	19

Note Regarding Forward Looking Statements

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CAVITATION TECHNOLOGIES, INC.

(A Development Stage Company)

Balance Sheets

	(Unaudited)
	March 31,			June 30,
	2010			2009

ASSETS

Current assets:
Cash and cash equivalents	$	599		$	5,038
Prepaid expenses and other current assets		3,303			2,341
Deferred cost		7,378			-
Total current assets		11,280			7,379

Property and equipment, net		71,531			62,753
Other assets		9,500			9,500
Total assets	$	92,311		$	79,632

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Bank overdraft	$	9,555		$	-
Accounts payable and accrued expenses		153,948			158,073
Accrued officer salary		354,591			224,542
Deferred revenue		50,741			26,000
Convertible notes payable, net of discounts		-			200,000
Short term loan		9,000			-
Line of credit		537,505			636,917
Total current liabilities		1,115,340			1,245,532


Commitments and contingencies

Stockholders' deficit:
Preferred stock $0.001 par value, 10,000,000 shares authorized, 111,111 shares issued and outstanding at March 31, 2010 and June 30, 2009.		111			111
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 122,503,550 and 88,984,593 shares issued and outstanding at March 31, 2010 and June 30, 2009, respectively.		50,473			29,661
Additional paid-in capital		11,020,860			4,148,926
Deficit accumulated during the development stage		(12,094,473	)		(5,344,598	)
Total stockholders' deficit		(1,023,030	)		(1,165,900	)
Total liabilities and stockholders' deficit	$	92,311		$	79,632

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

CAVITATION TECHNOLOGIES, INC.

(A Development Stage Company)

Statements of Operations (Unaudited)

	Three Months Ended				Nine Months Ended				January 29, 2007,
									Inception,
									Through
	March 31,				March 31,				March 31,
	2010		2009		2010		2009		2010

General and administrative expenses	$	2,116,779	$	460,170	$	6,444,167	$	1,469,702	$	9,030,950
Research and development expenses		47,373		79,079		202,306		257,625		2,640,804
Total operating expenses		2,164,151		539,249		6,646,473		1,727,327		11,671,753
Loss from operations		(2,164,151)		(539,249)		(6,646,473)		(1,727,327)		(11,671,753)
Interest expense		(9,614)		(48,593)		(103,362)		(69,912)		(255,895)
Loss before income taxes		(2,173,765)		(587,842)		(6,749,835)		(1,797,239)		(11,927,648)
Income tax expense		-		-		-		-		-
Net loss	$	(2,173,765)	$	(587,842)	$	(6,749,835)	$	(1,797,239)	$	(11,927,648)
Preferred stock dividend		(1,500)		-		(4,500)		(50,756)
Net loss available to common stockholders	$	(2,175,265)	$	(587,842)	$	(6,754,335)	$	(1,847,995)

Net loss available to common stockholders per share:
Basic and Diluted	$	(0.02)	$	(0.01)	$	(0.06)	$	(0.03)

Weighted average shares outstanding:
Basic and Diluted		118,653,402		85,367,766		111,013,943		73,079,217

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

Cavitation Technologies, Inc

(A Development Stage Company)

Consolidated Statements of Changes In Stockholders' Deficit

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

Issuance of common stock for services on January 29, 2007, inception						42,993,630		14,331		6,669						21,000
Net loss													(533,185	)		(533,185	)
Balance at December 31, 2007		-		-		42,993,630		14,331		6,669			(533,185	)		(512,185	)


Common stock sold for cash						2,047,200		682		499,318						500,000
Common stock issued as payment for services on March 31, 2008						6,428,904		2,143		1,128,257						1,130,400
Common stock issued as payment for services on April 16, 2008						51,180		17		8,983						9,000
Common stock issued as payment for services on April 22, 2008						102,360		34		17,966						18,000
Common stock issued as payment for services on June 18, 2008						3,787,320		1,262		664,738						666,000
Amortization of discount on convertible preferred stock										47,879			(47,879	)		-
Net loss													(2,148,597	)		(2,148,597	)
Balance at June 30, 2008		-		-		55,410,594		18,470		2,373,809			(2,729,661	)		(337,382	)


Preferred stock sold in connection with reverse merger for cash on October 3, 2008						2,149,560		717		124,283						125,000
Preferred stock sold for cash on March 17, 2009		111,111		111						99,889						100,000
Preferred stock - Beneficial Conversion Feature										11,111			(11,111	)		-
Common stock sold for cash on April 22, 2009						499,998		167		99,833						100,000
Common stock sold for cash on June 4, 2009						499,998		167		99,833						100,000
Common stock sold for cash on June 22, 2009						300,000		100		49,900						50,000
Common stock sold for cash on June 30, 2009						300,000		100		49,900						50,000
Bio shares outstanding before reverse merger						27,840,534		9,280		(9,280	)					-
Common stock issued as payment for services on September 22, 2008						150,000		50		17,950						18,000
Common stock issued as payment for services on December 3, 2008						450,000		150		187,450						187,600
Common stock issued as payment for services on December 17, 2008						300,000		100		132,000						132,100
Common stock issued as payment for services on February 27, 2009						590,565		197		157,287						157,484
Common stock issued as payment for services on March 11, 2009						86,550		29		26,910						26,939
Common stock issued as payment for services on March 22, 2009						150,000		50		50,450						50,500
Common stock issued as payment for services on April 23, 2009						29,415		10		9,305						9,315
Common stock issued as payment for services on May 28, 2009						152,379		51		39,060						39,111
Common stock issued as payment for services on June 4, 2009						37,500		13		9,863						9,875
Common stock issued as payment for services on June 30, 2009						37,500		13		8,738						8,750
Warrants issued in connection with issuance of convertible debt in December 2008 and January 2009										49,245						49,245
Amortization of discount on convertible preferred stock										107,835			(107,835	)		-
Warrants issued as payment for services on May 27, 2009										56,146						56,146
Warrants issued as payment for services on June 3, 2009										84,219						84,219
Warrants issued as payment for services on June 30, 2009										5,678						5,678
Issuance of stock options as payment for services on August 8, 2008										229,493						229,493
Issuance of stock options as payment for services on October 1, 2008										4,598						4,598
Issuance of stock options as payment for services on October 7, 2008										22,770						22,770
Issuance of stock options as payment for services on October 21, 2008										47						47
Issuance of stock options as payment for services on October 28, 2008										33						33
Issuance of stock options as payment for services on January 19, 2009										50,571						50,571
Net loss													(2,495,991	)		(2,495,991	)
Balance at June 30, 2009		111,111		111		88,984,593		29,661		4,148,926			(5,344,598	)		(1,165,900	)


Warrants issued as payment for services on July 15, 2009										5,173						5,173
Common stock issued as payment for services on July 27, 2009						17,170,500		5,674		2,662,110						2,667,783
Common stock issued as payment for services on July 30, 2009						37,500		13		9,988						10,000
Common stock issued as payment for services on August 5, 2009						165,000		55		45,045						45,100
Common stock issued as payment for services on August 17, 2009						150,000		50		39,950						40,000
Common stock issued for debt and accrued interest conversion on August 18, 2009						1,091,325		364		185,161						185,525
Common stock issued for debt and accrued interest conversion on September 11, 2009						31,050		10		5,268						5,279
Common stock issued as payment for services on September 30, 2009						190,011		63		42,336						42,399
Conversion feature on notes payable										63,601						63,601
Net Loss													(3,224,421	)		(3,224,421	)
Balance at September 30, 2009		111,111		111		107,819,979		35,890		7,207,557			(8,569,019	)		(1,325,461	)

Common stock sold for cash on October 13, 2009						208,104		208		34,156						34,364
Common stock sold for cash on October 16, 2009						2,980,734		2,981		493,808						496,789
Common stock sold for cash on November 4, 2009						217,117		217		36,183						36,400
Common stock sold for cash on November 17, 2009						421,529		422		71,748						72,170
Common stock sold for cash on December 4, 2009						352,451		352		59,565						59,917
Common stock issued as payment for services on October 7, 2009						130,500		131		42,500						42,630
Common stock issued as payment for services on October 12, 2009
Common stock issued as payment for services on October 16, 2009						100,911		101		34,209						34,310
Common stock issued as payment for services on October 23, 2009						30,000		30		9,270						9,300
Common stock issued as payment for services on October 29, 2009						37,500		38		13,463						13,500
Common stock issued as payment for services on November 3, 2009						37,500		38		13,463						13,500
Common stock issued as payment for services on November 10, 2009						35,102		35		12,251						12,286
Common stock issued as payment for services on November 16, 2009						1,505,000		1,405		406,044						407,449
Common stock issued as payment for services on November 30, 2009						60,000		60		17,340						17,400
Common stock issued as payment for services on December 4, 2009						49,157		49		12,240						12,289
Amortization of restricted stock										395,285						395,285
Dividends on preferred stock										(3,250	)					(3,250	)
Net loss													(1,351,689	)		(1,351,689	)
Balance at December 31, 2009		111,111		111		113,985,584		41,955		8,855,831			(9,920,708	)		(1,022,811	)


Sale of common stock on January 6, 2010						58,058		58		9,812						9,870
Common stock issued in lieu of cash compensation on January 11, 2010						121,286		121		30,200						30,321
Common stock issued in lieu of cash compensation on February 1, 2010						5,125,102		5,125		1,071,146						1,076,271
Common stock issued in lieu of cash compensation on February 11, 21010						500,000		500		109,500						110,000
Sale of common stock on February 14, 2010						888,235		888		150,112						151,000
Common stock issued in lieu of cash compensation on February 15, 2010						127,500		128		26,648						26,776
Common stock issued in lieu of cash compensation on February 23, 2010						135,000		135		26,865						27,000
Sale of common stock on March 2, 2010						743,746		744		125,693						126,437
Common stock issued in lieu of cash compensation on March 5, 2010						121,098		121		83,122						83,243
Common stock issued in lieu of cash compensation on March 12, 2010						295,000		295		13,230						13,525
Common stock issued in lieu of cash compensation on March 22, 2010						50,000		50		8,450						8,500
Sale of common stock on March 22, 2010						352,941		353		59,647						60,000
Amortization of restricted stock										395,285						395,285
Dividends on prefered stock										(1,500	)					(1,500	)
Warrants issued as compensation for services										56,818						56,818
Net loss													(2,173,765	)		(2,173,765	)
Balance at March 31, 2010		111,111		111		122,503,550		50,473		11,020,859			(12,094,473	)		(1,023,030	)

CAVITATION TECHNOLOGIES, INC.

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

							January 29, 2007,
							Inception,
							Through
	Nine Months Ended March 31,						March 31,
	2010			2009			2010

Operating activities:
Net loss		(6,749,835	)		(1,797,239	)		(11,927,608	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		12,343			5,641			24,961
Warrants issued in connection with convertible notes payable		-			40,147			49,245
Common and preferred stock issued for services		5,534,155			638,000			8,018,572
Stock option compensation		-			198,620			307,512
Increase in deferred revenue		24,741			26,000			50,741
Warrants issued for services		61,991			-			208,034
Amortization of loan discount		63,601			-			63,601

Effect of changes in:

Prepaid expenses and other current assets		(8,340	)		(312	)		(10,682	)
Deposits		-			-			(9,500	)
Accounts payable and accrued expenses		131,937			111,237			514,210
Bank overdraft		9,555						9,555
Net cash used in operating activities		(919,853	)		(777,906	)		(2,701,359	)
Investing activities:

Purchase of Property and Equipment		(21,121	)		-			(96,493	)
Net investing activities		(21,121	)		-			(96,493	)

Financing activities:
Proceeds from line of credit borrowings		-			9,061			636,917
Payments on line of credit		(99,412	)		-			(99,412	)
Proceeds from sales of preferred stock		-			225,000			725,000
Proceeds from convertible notes payable		-			235,000			235,000
Payments on convertible notes payable		(20,000	)					(55,000	)
Proceeds from sale of commom stock		1,033,447			-			1,333,447
Payments on short term notes payable		(5,000	)					(5,000	)
Proceeds from short term notes payable		27,500						27,500
Net cash provided by financing activities		936,535			469,061			2,798,452

Net increase (decrease) in cash		(4,439	)		(308,845	)		599
Cash, beginning of period		5,038			310,929			-
Cash, end of period		599			2,084			599

Supplemental disclosures of cash flow information:
Cash paid for interest		39,761			32,905			143,048
Cash paid for income taxes		-			-			3,469

Supplemental disclosure of non-cash investing and financing activities:
Warrants issued in connection with preferred stock		-			-			155,714
Beneficial conversion feature of preferred stock		-			-			11,111
Conversion of preferred to common shares in reverse merger		-			625,000			625,000
Dividend issued to preferred stockholders, as converted		50,756			-			50,756
Proceeds from sales of preferred stock used to purchase shares of Bio		-			-			400,000
Conversion of notes payable to common stock		204,303			-			204,303

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

CAVITATION TECHNOLOGIES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2010

Note 1 - Nature of Operations

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

The Company’s products include the "Green D+ NANO De-gumming System", an edible oil refining system, the "HydorFuel System" for producing diesel-water fuel emulsions, and the "Bioforce 9000 NANO Reactor Skid System" which performs the transesterification process during the production of biodiesel. Each reactor skid system contains one of more multi-stage continuous flow through hydrodynamic NANO reactors. To date, we have sold no products and have received no significant revenue.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation and Going Concern

The Company is a development stage entity as of March 31, 2010 as defined by the Financial Accounting Standard Board Accounting Standard Codification (ASC) 915. Successful completion of the Company’s development programs and ultimately the attainment of profitable operations are dependent on future events including, among other things, our ability to access potential markets; secure financing; develop a customer base; attract, retain, and motivate qualified personnel; and develop strategic alliances. The Company has no significant operating history and, from January 29, 2007 (inception), through March 31, 2010 generated a net loss of $11,927,648. The Company also has negative cash flow from operations and negative net equity. To date the Company has been funded by private equity and debt. Although management believes that the company will be able to successfully fund its operations, there can be no assurance that the Company will be able to do so or that the company will ever operate profitably.

Management’s plan is to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’s needs, or that the Company will be able to meet its future contractual obligations. Should management fail to obtain such financing, the Company may curtail its operations. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of the Company to continue as a going concern.

Unaudited Interim Financial Information

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

CAVITATION TECHNOLOGIES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2010

Principles of Consolidation

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

Fair Value Measurement

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

Use of Estimates

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

Revenue Recognition

Revenue is recognized when: an arrangement exists; delivery has occurred, including transfer of title and risk of loss for product sales, or services have been rendered for service revenues; the price to the buyer is fixed or determinable; and collectibility is reasonably assured. The Company recognizes revenues in accordance with ASC 605 Revenue Recognition. During the first 9 months of fiscal 2010, the Company received a deposit of $24,741 from customers relating to an order for our Bioforce 9000 NANO Reactor Skid System. Because this transaction has not yet been fully completed, this amount is included in deferred revenue on the accompanying balance sheet as of March 31, 2010. There were no deposits during the second quarter of fiscal 2010.

Cash

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

Property and Equipment

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

CAVITATION TECHNOLOGIES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2010

Share-Based Compensation

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

Income Taxes

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

Advertising costs

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

Research and Development Costs

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

Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This guidance amends the disclosure requirements related to recurring and nonrecurring fair value measurements and requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for the reporting period beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for the reporting period beginning January 1, 2011. The Company’s adoption of this updated guidance was not significant to our consolidated financial statements.

In February 2010, the FASB issued updated guidance related to subsequent events. As a result of this updated guidance, public filers must still evaluate subsequent events through the issuance date of their financial statements; however, they are not required to disclose the date in which subsequent events were evaluated in their financial statements disclosures. This amended guidance became effective upon its issuance on February 24, 2010 at which time the Company adopted this updated guidance.

CAVITATION TECHNOLOGIES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2010

Note 3 -Net Loss Per Share – Basic and Diluted

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

On March 31, 2010, the Company had 2,251,938 stock options and 11,845,618 warrants outstanding to purchase common stock that were not included in the diluted net loss per common share because their effect would be anti-dilutive. In addition, the Company had 111,111 shares of Series A Preferred Stock outstanding, which are convertible into 375,000 shares of common stock. These items were not included in the calculation of diluted net loss per common share because their effect would be anti-dilutive.

Note 4 - Property and Equipment

Property and equipment consisted of the following as of March 31, 2010 (unaudited) and June 30, 2009.

	March 31,			June 30,
	2010			2009

Leasehold improvements	$	2,475		$	2,475
Furniture and fixtures		26,837			26,837
Office equipment		1,499			1,400
Equipment		65,680			44,660

Property and Equipment (gross)		96,491			75,372
Less: accumulated depreciation		(24,961	)		(12,619	)
Property and Equipment (net)	$	71,530		$	62,753

Depreciation expense for the three and nine months ended March 31, 2010 amounted to $4,403 and $12,343, respectively. Depreciation expense for the three and nine months ended March 31, 2009 amounted to $3,379 and $5,641, respectively.

Note 5 -Bank Loan

On February 7, 2007, the Company contracted a $700,000 revolving line of credit from National Bank of California. On August 1, 2009, the revolving line of credit was replaced by a one-year variable rate loan which matures August 1, 2010. This loan bears interest at Prime + 2.75% and will be repaid with equal monthly installments of $7,396 beginning September 1, 2009. The loan is due on August 1, 2010. This loan is secured by personal guarantees of the Company’s principals and assets. The balance outstanding under the loan was $537,505 on March 31, 2010 and under the line of credit was $636,917 on June 30, 2009.

CAVITATION TECHNOLOGIES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2010

Note 6 - Convertible Notes Payable

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

Note 7 – Common and Preferred Stock, Options and Warrants

Common

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

Preferred

The holders of the Series A Preferred Stock are entitled to receive out of any funds legally available, dividends at the rate of 6% per annum, payable on September 30 and March 30. Dividends accrue and are cumulative whether or not they have been declared. Dividends may be paid in cash or through the issuance of additional shares of Series A Preferred Stock at the Company’s option. At March 31, 2010, the Company has accrued $6,250 in dividends.

Stock Options

There were 2,251,938 stock options outstanding June 30, 2009. There were no options issued during the nine months ended March 31, 2010. For details on Stock Options, please refer to our 10-K submitted September 28, 2009.

Warrants

The following tables summarize the Company’s warrant activity and related information for the nine months ended March 31, 2010 and the year ended June 30, 2009 after consideration of the 3 for 1 forward stock split which occurred on October 12, 2009.

CAVITATION TECHNOLOGIES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2010

	Warrants				Weighted Average Exercise Price
	March 31, 2010		June 30, 2009		March 31, 2010		June 30, 2009
Outstanding — Beginning		4,532,703		409,440	$	0.44	$	0.37
Granted		7,312,915		4,123,263	$	0.42		0.45
Exercised		—		—		—		—
Forfeited		—		—		—		—
Expired		—		—		—		—
Outstanding — ending		11,845,618		4,532,703	$	0.43		0.44
Exercisable		11,845,618		4,532,703	$	0.43	$	0.44

Warrants Outstanding
Range of Exercise Prices	Number of Warrants		Weighted Average Remaining Contractual Life (Years)
$0.20–0.42		9,675,622		2.73
$0.50–0.58		2,169,996		3.50
		11,845,618

The fair value of the warrants granted for services the three and nine months ended March 31, 2010 is estimated at $56,818 and $61,991, respectively. The fair value of these warrants was estimated at the date of grant using the Black-Scholes option-pricing model with the following range of assumptions:

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

Note 8 - Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Under ASC 270, Interim Financial Reporting, the Company is required to adjust its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company is also required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter based upon the mix and timing of actual earnings versus annual projections. The Company has estimated its annual effective tax rate to be zero. This is based on an expectation that the Company will generate net operating losses in the year ending June 30, 2010, and it is not more likely than not that those losses will be recovered using future taxable income. Therefore, no provision for income tax has been recorded as of and for the period ended March 31, 2010.

CAVITATION TECHNOLOGIES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2010

ASC 740-10, Accounting for Uncertainty in Income Taxes, indicates criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in the financial statements. ASC 740-10 includes a higher standard that tax benefits must meet before they can be recognized in a company’s financial statements. As the Company has no uncertain tax positions as defined in ASC 740, there are no corresponding unrecognized tax benefits. Any future changes in the unrecognized tax benefit will have no impact on the Company’s effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized tax benefit will not change significantly within the next twelve months. It is the Company’s policy to classify income tax penalties and interest, if any, as part of general and administrative expense in its Statements of Operations. The Company has not incurred any interest or penalties since inception.

The Company files income tax returns with state and federal jurisdictions. The Company’s state and federal income tax returns for the tax years ended December 31, 2009, 2008 and 2007 are subject to examination by the taxing authorities as of March 31, 2010 as well as all years in which we geenerated a loss that we claim in future years. The Company has sustained significant net operating losses since inception and has generated corresponding net operating loss carryforwards. We are in the process of evaluating those losses. At March 31, 2010 and 2009, based on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, we determined that it was more not likely that our deferred income tax assets would not be realized. Consequently we have recorded a 100% valuation allowance which is presented as a reduction of our deferred income tax asset which principally arose from our net operating loss carryforwards.

Note 9 - Lease Agreements

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

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

Note 10 – Subsequent Events

In accordance with ASC 855, “Subsequent Events”, the Company has performed a review of events subsequent to the balance sheet date through the filing date of this Form 10-Q of May 15, 2010, the date that the consolidated financial statements were issued. There were no significant or material transactions that occurred subsequent to March 31, 2010.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our financial statements and the related notes. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as its plans, objectives, expectations and intentions. Its actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.

Overview

Hydrodynamic Technology, Inc. dba Cavitation Technologies, Inc (Company) was incorporated January 29, 2007, in California. The Company is a development stage enterprise that designs and engineers environmentally friendly NANO technology based systems that employ our patents pending, multi-stage, continuous flow-through, hydrodynamic NANO Series of cavitation reactors. These systems have potential commercial applications in markets such as vegetable oil refining, renewable fuels, water purification, water-oil emulsions, alcoholic beverage enhancement, and algae oil extraction.

Products include the "Green D+ NANO De-gumming System" - an edible oil refining system, and the “Bioforce

9000 NANO Skid System” which performs the transesterification process during the production of biodiesel. Each reactor skid system contains one or more multi-stage, continuous flow-through, hydrodynamic NANO reactors which are manufactured by Canyon Engineering Products. To date the Company has sold no products and has received no revenue.

Our Green D+ De-gumming System uses a patent pending NANO Cavitation Process which removes the impurities from non-degummed vegetable oils, which assists in the refining process to achieve high quality refined oils. Lab tests indicate that our technology is able to produce a higher yield than competitive technologies due to less oil loss and a smaller consumption of the degumming reagents. The global demand for processed edible oils has grown consistently over the past five years from 118 million metric tons in 2005/6 to about 174 million metric tons in 2009/10. The global target market for our Green D+ includes approximately 7,000 worldwide vegetable oil de-gumming processors. We intend to license our technology/systems globally through a distribution network of strategic partners who are recognized leaders in their field and who design, build, install and recommend our systems. On January 15, 2010 the Company signed a worldwide license and distribution agreement with the Desmet Ballestra Group (DBG) for marketing the Company’s Green D+ Systems. With DBG’s help, we are in the process of installing a 40 gallon/minute Green D+ pilot system in a vegetable oil refining plant in South Carolina. We expect the results of these two pilot systems to be known no later than June 2010. We expect to generate meaningful revenue within 12 months of satisfactorily completing these tests. We expect to be able to compete with well-known companies that supply older, less efficient technology and equipment by offering systems with greater efficiency and productivity. To date the Company has sold no products nor recognized revenue related to our Green D+ system.

The biodiesel industry has been negatively impacted by the failure of Congress to extend the $1/gallon tax credit for more than one year. Without assurance that the credit will remain in effect, it is very difficult for biodiesel producers to be profitable. Lack of cost-effective feedstock and the relatively low price of petroleum-based diesel fuel also hamper the development of the biodiesel industry. Uncertainty in the biodiesel industry has negatively affected our business. Our Bioforce 9000 was incorporated into a biodiesel plant that was scheduled to begin operations in September 2009 in Moberly, Missouri. Due to lack of funds, the plant is not in operation. We do not know when or if this plant will become operational. Relationships with other potential partners have been slow to evolve because of the challenges facing the biodiesel industry. To date the Company has sold no products nor recognized revenue related to our Bioforce 9000.

Both the Bioforce 9000 and the Green D+ Plus Systems use our unique patents pending, continuous flow-through, hydrodynamic NANO Cavitation Technology in the form of one or more reliable, cost effective, multi-stage, continuous flow-through, hydrodynamic NANO cavitation reactors manufactured by Canyon Engineering Products. Our NANO technology process creates particles smaller than one micron (nano particles) and bonds these particles at the molecular level in nano seconds thereby creating a low cost, high quality finished product that can reduce energy requirements and other operating costs and can improve yield versus other solutions. These reactors have no moving parts and are scalable to high volumes. There are numerous competitors within the biodiesel industry and there is at least one other company that professes to offer hydrodynamic cavitation technology. Other competitors in the biodiesel industry offer what we believe are less efficient technologies. We differentiate ourselves by the designs, processes, and applications described in our patents pending applications. We compete by offering solutions that we believe can reduce operating expenses vis-à-vis current technology.

Our success depends in part on our ability to obtain patents, maintain trade secrets, and operate without infringing on the proprietary rights of others both in the United States and other countries. We have eight US and six international patent applications pending which apply to our reactors, systems, and processes. We intend to apply for new and improved patents on a regular basis. Our patents pending apply to potential commercial applications in markets such as vegetable oil processing, renewable fuels, water purification, water–oil emulsions, alcoholic beverage enhancement, and algae processing. There can be no assurances that patents issued to the Company will not be challenged, invalidated, or circumvented, or that the rights granted hereunder will provide proprietary protection or competitive advantage to the Company. Due to the nature of our products, we have incurred no costs with respect to environmental compliance.

We have no significant operating history and from January 29, 2007 (date of inception) through March 31, 2010, we generated net losses aggregating $11,870,830. Management’s plan is to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’s needs, or that the Company will be able to meet its future contractual obligations. Should management fail to obtain such financing, the Company may curtail its operations.

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

Results of Operations

The following is a comparison of the results of operations for the Company for the three and nine months ended March 31, 2010 and 2009.

	Nine Months Ended
	March 31,
	2010			2009			$ Change			% Change
General and administrative expenses	$	6,444,167		$	1,469,702		$	4,974,465			338	%
Research and development expenses		202,306			257,625			(55,319	)		-21	%
Total operating expenses		6,646,473			1,727,327			4,919,146			285	%
Loss from operations		(6,646,473	)		(1,727,327	)		(4,919,146	)		285	%
Interest expense		(103,362	)		(69,912	)		(33,450	)		48	%
Loss before income taxes		(6,749,835	)		(1,797,239	)		(4,952,596	)		276	%
Income tax expense		-			-			-			0	%
Net loss	$	(6,749,835	)	$	(1,797,239	)	$	(4,952,596	)		276	%

	Three Months Ended
	March 31,
	2010			2009			$ Change			% Change
General and administrative expenses	$	2,116,779		$	460,170		$	1,656,609			360	%
Research and development expenses		47,373			79,079			(31,706	)		-40	%
Total operating expenses		2,164,151			539,249			1,624,902			301	%
Loss from operations		(2,164,151	)		(539,249	)		(1,624,902	)		-301	%
Interest expense		(9,614	)		(48,593	)		38,979			-80	%
Loss before income taxes		(2,173,765	)		(587,842	)		(1,585,923	)		270	%
Income tax expense		-			-			-			-
Net loss	$	(2,173,765	)	$	(587,842	)		(1,585,923	)		270	%

Revenues

We had no revenue for the three and nine months ended March 31, 2010 and 2009. For the three month period ended March 31, 2010 we recorded deferred revenue of $17,261 as a deposit for a potential future sale/lease/license. This amount is included in deferred revenue on the accompanying balance sheet as of March 31, 2010. We expect to be able to achieve revenue during the fiscal year ending June 30, 2011.

General and Administrative Expenses

Our general and administrative expenses increased $1,656,609 and $4,974,465 for the three and nine months ended March 31, 2010, respectively. The increase is primarily attributed to the issuance of 6,399,986 common shares valued at $1,359,512 and 25,998,167 common shares valued at $5,088,664, as compensation for services rendered by consultants and key personnel during the three and nine months ended March 31, 2010, respectively. We issued 827,115 common shares valued at $234,923, and 255,000 stock option s valued at $50,571, during the three months ended March 31, 2009 as compensation for services rendered by consultants and key personnel. We issued 1,877,115 common shares valued at $689,523, and 930,000 stock options valued at $249,191 as compensation for services rendered by consultants and key personnel during the nine months ended March 31, 2009. Other expenses contributing to the increase in general and administrative expenses for the three ended March 31, 2010 include legal fees and salaries in the amount of $73,870 and $168,422, respectively. Legal fees and salaries for the three months ended March 31, 2009 totaled $53,538 and $162,885, respectively. Other expenses contributing to the increase in general and administrative expenses for the nine months ended March 31, 2010 include legal fees and salaries in the amounts of $226,998 and $393,746, respectively. For the nine months ended March 31, 2009, legal fees and salaries totaled $70,958 and $285,744, respectively.

Research and Development

Research and development expenses decreased by $31,706 and $55,319 for the three and nine months ended March 31, 2010 when compared to the three and nine months ended March 31, 2009, respectively. Research and development expenses decreased because we focused more resources on advertising and marketing of our existing products and we focused fewer resources on the development potential of commercial products. Nevertheless, we did continue to conduct research and development on our NANO Technology for potential commercial applications in markets such as vegetable oil refining, water recycling and desalination, alcoholic beverage enhancement, crude oil yield enhancement, and water-diesel emulsion. There were 75,000 common shares valued at $16,125 and 175,500 valued at $50,205 issued for research and development services during the three and nine months ended March 31, 2010, respectively.

Interest Expense

Interest expense decreased by $38,979 and increased by $33,450 for the three and nine months ended March 31, 2010, respectively, when compared to the three and nine months ended March 31, 2009. The decrease in interest expense for the three and nine months ended March 31, 2010 is attributed to lower bank loan levels.

Liquidity and Capital Resources

At March 31, 2010 and June 30, 2009, we had cash of $599 and $5,038, respectively. Our net cash used by operating activities increased by $141,947 from $777,906 to $919,853 during the nine months ended March 31, 2010 and 2009, respectively. Our net cash used by investing activities increased by $21,020 from $0 to $21,020 during the nine months ended March 31, 2010 and 2009, respectively. Our net cash provided by financing activities increased by $467,474 from $469,061 to $936,535 during the nine months ended March 31, 2010 and 2009, respectively.

At March 31, 2010 and June 30, 2009 we had a negative working capital, excluding the aforementioned bank loan, of $566,515 and $601,236, respectively. Our working capital improved primarily because of the conversion of the convertible notes payable to common shares offset by an increase in accounts payable and accrued expense and accrued officer salary.

It is our intent to raise additional debt and/or equity financing to fund operations. In addition, we expect to fund our operations from revenue generated in fiscal 2010. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’s needs, or that the Company will be able to meet its future contractual obligations. Should we fail to obtain such financing, the company may curtail its operations.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to stock options, warrants, and common stock issued for services, among others. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Share-Based Compensation

Income Taxes

Recently Issued Accounting Standards

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.

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

ITEM 4. Controls and Disclosures

Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of March 31, 2010, our disclosure controls and procedures were ineffective due to lack of certain policies and procedures with respect to financial reporting. These policies and procedures are currently being established and will be remediated by June 30, 2010.

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1 Legal Proceedings

We know of no material, existing or pending legal proceeding against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

We sold 2,042,980 common shares for $347,307 during the three months ended March 31, 2010.

We issued 6,474,986 common shares as compensation for services rendered during the three months ended March 31, 2010.

Item 3 – Defaults Upon Senior Securities

None

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

None

Item 5 – Other Information

None

Item 6 – Exhibits

Part I Exhibits

31.1 Principal Executive Officer Certification

31.2 Principal Financial Officer Certification

32.1 Section 1350 Certification

Part II Exhibits

None.

SIGNATURES

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

SIGNATURE	TITLE	DATE


/s/ Roman Gordon	Chief Executive Officer and Director	May 17, 2010
Roman Gordon	(Principal Executive Officer) Chairman of the Board

/s/ Igor Gorodnitsky	President	May 17, 2010
Igor Gorodnitsky


/s/ R.L. Hartshorn	Chief Financial Officer	May 17, 2010
R.L. Hartshorn	(Principal Financial Officer and Accounting Officer)