Note 3 - Summary of Significant Accounting Policies

12 Months Ended

Jun. 30, 2013

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, 2013, the Company had incurred $147,547 in net patent costs comprised of $157,487 of gross capitalized patents and $9,940 in cumulative amortization. This compares with a net of $123,158 at June 30, 2012 comprised of $129,334 in gross capitalized costs and $6,176 in cumulative amortization. The Company has designed, developed, and patented two proprietary Nano Reactors (Nano Reactor®) and has five US and eleven PCT/international applications pending in processes such as vegetable oil refining, waste water treatment, algae oil extraction, and alcoholic beverage enhancement.

At March 31, 2013, future amortization of patent costs is estimated as follows:

Year Ended June 30,		Amount
2013	$	5,289
2014		14,771
2015		22,988
2016		25,536
2017		21,711
Thereafter		57,252
Total	$	147,547

Advertising and Promotion Costs

Advertising costs incurred in the normal course of operations are expensed as incurred. Advertising (and marketing) expenses amounted to $23,883, $33,339, and $294,435 for the nine months ended March 31, 2013 and 2012, and the period from January 29, 2007 (date of inception) through March 31, 2013, respectively.

Related Party Advances

The outstanding balance of $46,525 at March 31, 2013 corresponds to an advance of $16,500 to our CEO (who presently is the Company's Chief Technology Officer), and of $30,000 to the Company's President, plus accrued interest.

Deferred Revenue and Advances from Customer

During second quarter of fiscal 2013, we received deposits of $46,651 and $26,753 from Desmet Ballestra for new orders to be shipped to clients in the 3-rd quarter of fiscal 2013. Since the systems were shipped during current quarter, we recognized revenue for these amounts in current quarter. The balance of $36,533 in Advances from Customer account represents part of the advanced payments provided by our marketing partner Desmet Ballestra in prior periods. These amounts will remain in Deferred Revenue on the accompanying consolidated balance sheet until the systems are assembled and shipped.

Advances from Desmet

As of March 31, 2013, total advances received amounted to $1,125,000 of which $325,000 was received in current fiscal quarter. $284,337 of these advances have been applied to current period sales and recognized as revenue. The remaining balance of $840,663 will be applied to future sales.

Fair Value Measurement

FASB Accounting Standards Codification ("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, 2013 and 2012, the carrying value of certain accounts such as inventory, accounts payable, accrued expenses, accrued payroll and short-term loans approximate fair value due to the short-term nature of such instruments.

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, 2013 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, 2013
		as of		Using Fair Value Heirarchy
Financial Instruments		March 31, 2013		Level 1		Level 2		Level 3
Liabilities:
Derivative liability	$	-	$	-	$	-	$	-
Total	$	-	$	-	$	-	$	-

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, 2012	$	6,271
Total (gains) losses included in interest expense and other		(10,281)
Creation - convertible note issuances		15,149
Settlements - note conversions		(11,139)
Balance at March 31, 2013	$	-