Note 3 – Summary of Significant Accounting Policies

9 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 3 - Summary of Significant Accounting Policies

Note 3 - Summary of Significant Accounting Policies

Patents

Capitalized patent costs represent legal fees associated with procuring and filing patent applications. The Company accounts for patents in accordance with Accounting Standards Codification ("ASC") 350-30, General Intangibles Other Than Goodwill. As of March 31, 2012, the Company recorded $117,126 in net patents comprised of $122,062 in capitalized patents and $4,935 in cumulative amortization. This compares with a net of $118,153 at June 30, 2011 comprised of $121,112 in capitalized patents and accumulated amortization of $2,963. On October 25, 2011, the Company had a patent issued for its Multi-Stage Cavitation Device the cost for which will be amortized over an estimated useful life of 4 years. The Company has been issued two patents and has eight US and nine PCT/international applications pending.

At March 31, 2012, future amortization of patent costs is estimated as follows:

Year Ended
June 30,		Amount
2012	$	7,594
2013		14,251
2014		20,611
2015		21,545
2016		15,883
Thereafter		37,242
Total	$	117,126

Related Party Advances

The Company advanced Igor Gorodnitsky, President, and Roman Gordon, Chief Technology Officer, $15,000 each for operating expenditures that will be incurred on behalf of the Company during fiscal 2012. This amount was reduced to $21,120 on March 31, 2012.

Deferred Revenue

The Company received payment of $100,000 from the Desmet Ballestra Group ("Desmet") during the nine months ended March 31, 2012 related to CTi Nano Reactors. The payment will be recognized as revenue when the system has been accepted by the end-user which is expected to occur in calendar 2012. In addition, the Company received $47,444 associated with the down-payment on a system sold to a client in Argentina.

Fair Value Measurement

ASC 820-10 requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet for which it is practicable to estimate fair value. ASC 820-10 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of March 31, 2012, the carrying value of certain accounts such as accounts receivable, inventory, accounts payable, accrued expenses, and accrued payroll which approximate fair value due to the short-term nature of such instruments and loans payable which appproximate fair value based on prevailing interest rates.

The following table presents information about the Company's assets and liabilities measured and reported in the financial statements at fair value on a recurring basis as of March 31, 2012 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. The three levels of the fair value hierarchy are as follows:

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3 - Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

		Fair Value		Fair Value Measurements at March 31, 2012
		as of		Using Fair Value Heirarchy
Financial Instruments		March 31, 2012		Level 1		Level 2		Level 3
Liabilities:
Derivative liability	$	23,034	$	-	$	-	$	23,034
Total	$	23,034	$	-	$	-	$	23,034

The following tables provide a reconciliation of the beginning and ending balances of our financial liabilities classified as Level 3:

Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
		Derivative Liability
Balance at June 30, 2011	$	121,679
Total (gains) losses included in interest expense and other		(18,489)
Creation - convertible note issuances		45,696
Settlements - note conversions		(125,852)
Balance at March 31, 2012	$	23,034

Advertising and Promotion Costs

Advertising costs (including marketing expenses) incurred in the normal course of operations are expensed as incurred. Expenses amounted to $33,339, $94,117, and $255,663, for the nine months ended March 31, 2012 and 2011, and the period from January 29, 2007 (date of inception) through March 31, 2012, respectively. Advertising expenses amounted to $6,375 and $81,836 for the three months ended March 31, 2012 and 2011, respectively.