Healthcare Solutions Management Group, Inc. - Annual Report: 2011 (Form 10-K)

U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the fiscal year ended SEPTEMBER 30, 2011

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

AQUALIV TECHNOLOGIES, INC. - (F/K/A INFRARED SYSTEMS INTERNATIONAL)

(Exact name of registrant as specified in its Charter)

Nevada		38-3767357
(State or other jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

4550 NW Newberry Hill Road, Suite 202, Silverdale WA	98383
(Address of Principal Executive Offices)	(zip code)

(360) 473-1160

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

Securities registered pursuant to section 12(g) of the Act:

Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as

defined in Rule 405 of the Securities Act.

Yes [ ] 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 [ ] No |X|

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 |X| No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ ] No [ ]

(1)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 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.

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 Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company |X|

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

Yes [ ] No |X|

The aggregate market value of the approximately 291,617, shares of the registrant's Common Stock held by nonaffiliates on September 30, 2011 was approximately $732,140 based on the average bid and asked price of such Common Stock on September 30, 2011. For purposes of this computation all officers, directors and 5% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors and beneficial owners are, in fact, affiliates of the registrant.

Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 342,117,428 shares of Common Stock and 911,618 shares of Preferred Stock as of January 10, 2012.

DOCUMENTS INCORPORATED BY REFERENCE: None

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FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED

IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE GENERALLY IDENTIFIABLE BY USE OF THE WORDS "BELIEVES," "EXPECTS," "INTENDS," "ANTICIPATES," "PLANS TO," "ESTIMATES," "PROJECTS," OR SIMILAR EXPRESSIONS. THESE FORWARD-LOOKING STATEMENTS REPRESENT MANAGEMENT'S BELIEF AS TO THE FUTURE OF INFRARED SYSTEMS INTERNATIONAL. WHETHER THOSE BELIEFS BECOME REALITY WILL DEPEND ON MANY FACTORS THAT ARE NOT UNDER MANAGEMENT'S CONTROL. MANY RISKS AND UNCERTAINTIES EXIST THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--RISK FACTORS THAT MAY AFFECT FUTURE RESULTS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO REVISE OR PUBLICLY RELEASE THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS.

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PART 1

ITEM 1. BUSINESS

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 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

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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.

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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.

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EMPLOYEES

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

PLAN OF OPERATION IN THE NEXT TWELVE MONTHS

Most of our programs are dependent on capital in excess of that which is derived from current sales for us to be able to execute on large marketing initiatives. Based on this need, we are focused on raising capital through various means, including, but not limited to, private investment, the selling of equity, convertible notes, and other acceptable means. Additionally, we continue to explore opportunities to acquire and/or merge with other entities that bring synergy to the company and its subsidiaries, are engaged in emerging markets, offer new technologies, or bring other benefits to the company and its shareholders. Many of the planned initiatives defined below will be dependent on our success in raising the proper amount of capital.

To date, extensive research, development, and testing have been conducted in both agriculture and medicine under AquaLiv, Inc. Numerous products in our pipeline are nearing marketability including AgSmart™ Potato and several varieties of NatuRx™ medicinal treatments. Because AquaLiv has been primarily focused on research and development, significant infrastructure needs to be built in order to service the tremendous size of our target markets.

Our goals and objectives over the next twelve months include, the hiring of industry veteran Vice Presidents in Agriculture and Medicine, expand offices and laboratory in Seattle and Tokyo, build a manufacturing and warehousing facility in Seattle, launch clinical HIV/AIDS study, and train sales staff to sell AgSmart™.

Recent changes with our VoIP distribution has enabled us to reduce expenses and allow for quicker product deployment. With the reduction in fixed IT expense, we will look to increase our deployment of our VoIP service to small business and hope to launch our resale marketing program during the fiscal year.

The nature of remote desktop computing (the customer outsourcing of IT), requires that we have access to IT professionals with certain qualifications. Since the reduction in our internal IT staffing, we continue to work with vendors to assist in supporting aspects of our remote desktop service. However, lacking our own engineer reduces our ability to control and quickly deploy remote desktop sessions to new customers. Additionally, as customers increase, so does our need to purchase additional hardware or seek an outsourcing partner suitable to provide these services. Similar to our VoIP outsourcing, we hope to completely (or as near as possible) outsource the physical aspects of our remote desktop service.

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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ITEM 1A. RISK FACTORS

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 September 30, 2011, we had a retained deficit of $2,527,971. During the years ended September 30, 2011 and 2010, respectively, we had net losses of $503,516 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 OTC:BB 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.

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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.

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 106,572,170 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 37% 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.

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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.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES

Since 2010, and in conjunction with the change of control, no property is owned or lease by the company from any current Officer or Director. We lease an office space for corporate purposes and pay the landlord $500 per month for the use of the space. We own no real estate nor have plans to acquire any real estate.

ITEM 3. LEGAL PROCEEDINGS

None

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

None

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDERS AND

ISSUER PURCHASES OF EQUITY SECURITIES

A REGISTRANT THAT QUALIFIES AS A SMALLER REPORTING COMPANY IS NOT REQUIRED TO PROVIDE THE PERFORMANCE GRAPH REQUIRED IN PARAGRAPH (E) OF ITEM 201 OF REGULATION S-K.

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.

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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

SECURITY HOLDERS

There are 1,371 shareholders of record of the Company's Common Stock on September 30, 2011.

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
COLUM 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.

NO STOCK REPURCHASES WERE MADE TO AQUALIV DURING THE FOURTH QUARTER OF THE 2011 FISCAL YEAR.

ITEM 6. SELECTED FINANCIAL DATA

A REGISTRANT THAT QUALIFIES AS A SMALLER REPORTING COMPANY IS NOT REQUIRED

TO PROVIDE THE INFORMATION REQUIRED BY THIS ITEM.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

OVERVIEW

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 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 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.

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CRITICAL ACCOUNTING POLICIES

We have identified the following policies below as critical to our business and results of operations. For further discussion on the application of these and other accounting policies, see Note 1 to the accompanying consolidated audited financial statements for the fiscal year ended September 30, 2011 included elsewhere in this Annual Report.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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. Since our subsidiary AquaLiv, Inc. does not currently operate with accounts receivable, we have concluded that no allowance for doubtful accounts is necessary related to AquaLiv, Inc. products and services. Appropriate allowances have been made related to the accounts receivable balance of Focus Systems, Inc. Management has estimated that no additional allowance for doubtful accounts is necessary after reviewing the remaining accounts receivable.

PROPERTY, PLANT AND EQUIPMENT

The Company records property and equipment at cost and uses straight-line depreciation methods. 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.

REVENUE RECOGNITION

SALES REVENUE

Sales revenue is derived from AquaLiv, Inc. The sales revenues are billed, paid, and shipped in the same period each month. Current sales revenue for individual accounts range from $35 to $1,695.

SERVICE REVENUE

Revenue derived from services from our Focus Systems subsidiary comes from several smaller accounts and is billed on a monthly basis. The monthly billing for these accounts range from $35 to $1,087. Service revenue is billed at the beginning of the service period and accrued until paid.

ROYALTY REVENUE

Royalty revenue was discontinued on June 22, 2011 in conjunction with the distribution of Infrared Applications, Inc. Royalty revenue had been recorded as earned in the month it was received.

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PLAN OF OPERATION IN THE NEXT TWELVE MONTHS

RESULTS OF OPERATIONS 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 (discontinued 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(having been discontinued 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..

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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.

LIQUIDITY AND CAPITAL RESOURCES

Based upon our anticipated monthly expenses, we may not have sufficient capital resources to maintain our business position. Our major priority in 2012 will be to secure the necessary funds to meet our obligations and grow our businesses.

GOING CONCERN

We have limited working capital and limited revenues from sales of products or services.. 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 is dependent on our attaining future profitable operations. Management's plans include strict restrictions on the cost of ongoing operations, such as providing minimal compensation to management, and limiting professional, travel and other operating expenses in order to remain within our budget.

OFF-BALANCE SHEET ARRANGEMENTS

The company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of its operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company is a smaller reporting company as defined by Rule 12b-2 under the Exchange Act and is not required to provide the information required under this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INFRARED SYSTEMS INTERNATIONAL

SEPTEMBER 30, 2011 CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

	Page
Reports of Independent Registered Public Accounting Firm	15

Consolidated Balance Sheets, September 30, 2011 and 2010	17

Consolidated Statements of Operations, For the Years Ended September 30, 2011 and 2010	18

Consolidated Statements of Changes in Stockholders' (Deficit), For the Years Ended September 30, 2011 and 2010	19

Consolidated Statements of Cash Flows, For the Years Ended September 30, 2011 and 2010	20

Notes to the Consolidated Financial Statements	21

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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.
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.
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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	Preferred Stock						Common Stock				Additional paid in			Retained			Noncontrolling			Total 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		—			—			20,000,000		20,000		—			—			—			20,000
Issuance of common and
preferred stock
for purchase of
Issuance of comm		250,000			250			30,000,000		30,000		279,750			—			—			310,000

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

Issuance of
common stock for
services received		—			—			5,000,000		5,000		25,000			—			—			30,000

Issuance of
common stock for
services received		—			—			5,000,000		5,000		15,000			—			—			20,000

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

Net Loss for
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		—			—			9,500,000		9,500		(4,500	)		—			—			5,000

Issuance of
preferred 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
to reduce preferred		(24,000	)		(24	)		—		—		(23,976	)		—			—			(24,000	)

Issuance of
preferred stock
for cash		90,000			90			—		—		44,910			—			—			45,000

Issuance of
preferred stock
for cash		100,000			100			—		—		49,900			—			—			50,000

Issuance of
common stock
to repay debt		—			—			10,000,000		10,000		(5,000	)		—			—			5,000

Issuance of
common stock
to repay debt		—			—			10,000,000		10,000		(5,000	)		—			—			5,000

Issuance of
common stock
to repay debt		—			—			10,000,000		10,000		(5,000	)		—			—			5,000

Issuance of
common stock
to repay debt		—			—			10,000,000		10,000		(5,000	)		—			—			5,000

Issuance of
common stock
to repay debt		—			—			3,947,368		3,947		11,053			—			—			15,000

Issuance of
common stock
to repay debt		—			—			2,380,952		2,381		7,619			—			—			10,000

Issuance of
common stock
to repay debt		—			—			3,200,000		3,200		4,800			—			—			8,000

Issuance of
common stock
to repay debt		—			—			11,500,000		11,500		(5,750	)		—			—			5,750

Issuance of
common stock
to repay debt		—			—			4,095,238		4,095		4,505			—			—			8,600

Issuance of
common stock
to repay debt		—			—			12,000,000		12,000		(6,000	)		—			—			6,000

Issuance of
common stock
to repay debt		—			—			6,500,000		6,500		(3,250	)		—			—			3,250

Issuance of
common stock
to repay debt		—			—			7,500,000		7,500		(3,750	)		—			—			3,750

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

Issuance of
preferred stock
for cash		50,000			50			—		—		24,950			—			—			25,000

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

Funds received by
subsidiary for previously
issued preferred shares		—			—			—		—		5,414			—			—			5,414

Net Loss for
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.
CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Years
	Ended September 30,

		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		2,800		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		(195,393)		(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		101,800		39,638
Payments for notes payable		(22,250)		(22,226	)
Proceeds of capital stock issuance		125,414		17,809

Net Cash Provided by Financing Activities		204,964		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	$	—

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AQUALIV TECHNOLOGIES, INC.

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.

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.

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AQUALIV TECHNOLOGIES, INC.

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 $195,316. 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.

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AQUALIV TECHNOLOGIES, INC.

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.

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AQUALIV TECHNOLOGIES, INC.

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

At fiscal year ended September 30, 2011, the Company had notes payable in the amount of $239,512, 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. The third note payable is to an unaffiliated party in the amount of $50,333, is not secured by collateral of the company, carries interest of 8%, is due May 3, 2012, and is convertible into common stock at a 45% discount to market. The Company recognizes this third note payable as a derivative liability and has accounted for it as follows:

INSERT DERIVATIVE LIABILITY SPREADSHEET

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NOTE 8 – STOCKHOLDERS’ DEFICIT (what is required to be included here)

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.

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 royalty revenue was discontinued on June 22, 2011, the Company does not expect that level of concentration related to our current products and services.

NOTE 10 - 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	$	—	$	—

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AQUALIV TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - 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 11 - 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.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable

ITEM 9A. CONTROLS AND PROCEDURES (need help with this)

(a)

Evaluation of Disclosure Controls and Procedures.

Disclosure controls and procedures are the controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to

ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including the principal executive and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

We have carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the fiscal year covered by this Annual Report.

Based on that evaluation, our principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures were not effective as of the end of the fiscal year covered by this Annual Report on Form 10-K for the reasons noted below in our management's report.

(b) Changes in internal controls.

The term "internal control over financial reporting" (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's management, with the participation of the Chief Executive Officer and Principal Financial Officer, has evaluated any changes in the Company's internal control over financial reporting that occurred during the fourth quarter of the year covered by this annual report, and they have concluded that there was a change to the Company's internal control over financial reporting that may have materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. The changes in internal controls were in correlation with the change in control of the Company’s management.

(c) Management's Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. With the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our internal control over financial reporting as of September 30, 2011 based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as well as criteria established in Items 307 and 308T of Regulation S-K.

The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that material weaknesses exist due to a lack of segregation of duties, resulting from the Company's limited resources. The Company has hired a Contract CFO to review future financial reports to avoid misstatements in the future. Management has concluded that internal controls over financial reporting are not effective(?).

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's report in this Annual Report on Form 10-K.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The officers and directors of the Company are:

NAME	AGE	POSITION WITH THE COMPANY	DIRECTOR SINCE

William M. Wright	46	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.

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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

None.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

To the best of our knowledge, during the past five 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 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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ITEM 11. 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) Consist of management fees paid as Chief Executive Officer of the Company.

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

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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.

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

The following table sets forth, as of September 30, 2011, information regarding the ownership of common stock:

o Persons who own more than 5% of our common stock;

o Each of our directors and each of our executive officers; and

o All directors and executive officers as a group.

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Each person will have sole voting and investment power with respect to the shares shown, except as noted.

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


William M. Wright (1)		9,250,000	(2)		3.1	%
Tracy D. Bushnell (1)		0			0.00	%
Gary E. Ball		106,572,170	(3)		36.5	%(3)
Big Apple Consulting		20,020,718			6.9	%
All directors and executive officers as a group (2 persons)		9,250,000	(2)		3.1	%

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

(2) Includes 9,250,000 common shares held by Take Flight Equities, Inc., of which William Wright is President,.

(3) Includes the voting rights to 106,572,170 common shares held in escrow due to a default in a promissory note from Take Flight Equities, Inc.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None known.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The following table sets forth the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Company's annual financial statements and review of financial statements included in the Company's Form 10-Q quarterly reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.

	2011		2010

Audit Fees	$	19,200	$	17,500
Audit-Related Fees	$	20,500	$	—
Tax Fees	$	—	$	—
All Other Fees	$	3,000	$	—
TOTAL	$	42,700	$	17,500

AUDIT COMMITTEE

Our auditor has not provided any non-audit services in the past and does not anticipate providing any non-audit services to the Company. In the event non-audit services are contemplated in the future, our Board of Directors, which functions in the capacity of an audit committee, will consider whether the non-audit services provided by our auditors to us would be compatible with maintaining the independence of our auditors and whether the independence of our auditors would be compromised by the provision of such services. Our Board of Directors pre-approves all auditing services and would approve any permitted non-audit services contemplated in the future, including the fees and terms of those services, to be performed for us by our independent auditor prior to engagement.

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PART IV

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

(A) CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets -- September 30, 2011 and 2010

Consolidated Statements of Operation -- Years ended September 30, 2011 and 2010

Consolidated Statements of Changes in Stockholders' Equity (Deficit) -- Years ended September 30, 2011 and 2010

Consolidated tatements of Cash Flows -- Years ended September 30, 2011 and 2010

(B) EXHIBIT LIST

3.1.1 Articles of Incorporation. - filed as an exhibit to the Company's Registration Statement on Form SB-2 (33-147367) and incorporated herein by reference.

3.2. By-laws. - filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed on September 2, 2008, and incorporated herein by reference.

10.1 Infrared Systems International 2010 Incentive Compensation Plan - filed as Exhibit 10.1 to the Company's Current Report on Form S-8 filed on July 9, 2010, and incorporated herein by reference.

31.1 Rule 13a-14(a) Certification

32.1 Section 906 Certification

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

AQUALIV TECHNOLOGIES, INC.

Date: January 13, 2012

By: /s/William M. Wright

William M. Wright, Chief Executive Officer, and Principal Financial Officer

In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated.

/s/WILLIAM M. WRIGHT

William M. Wright

Chief Executive Officer, President, Principal Financial Officer, and Director

/s/TRACY D. BUSHNELL

Tracy D. Bushnell

Director

January 13, 2012