Hydrodynex 10Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


[X]	Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2013.

[ ]	Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from _______ to _______.

000-53506

(Commission file number)

[hdyx10q_033113001.jpg]

HYDRODYNEX, INC.

(Exact name of small business issuer as specified in its charter)


Nevada	20-4903071	702-722-9496
(State or other jurisdiction	(IRS Employer	(Registrant’s telephone number)
of incorporation or organization)	Identification No.)

2009 E. 30th Ave., Spokane, WA 99203

(Address of principal executive offices)

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 DataFile required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 [X] NO [ ]

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


Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]

On May 10, 2013, there were 2,299,880 outstanding shares of the registrant's common stock, par value $.001 per share.

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II – OTHER INFORMATION		25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosure [Not Applicable]	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
SIGNATURES		26

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PART I – FINANCIAL INFORMATION

Item1. Financial Statements

Hydrodynex, Inc.

(A Development Stage Company)

March 31, 2013 and 2012

Index to the Financial Statements


CONTENTS	Page
Balance Sheets at March 31, 2013 (Unaudited) and June 30, 2012	4
Statements of Operations for the Three Months and Nine Months Ended March 31, 2013 and 2012 and for the Period from May 12, 2006 (Inception) through March 31, 2013 (Unaudited)	5
Statements of Cash Flows for the Nine Months Ended March 31, 2013 and 2012 and for the Period from May 12, 2006 (Inception) through March 31, 2013 (Unaudited)	6
Notes to the Financial Statements (Unaudited)	7

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Hydrodynex, Inc.
(A Development Stage Company)
Balance Sheets
				March 31,	June 30,
				2013	2012
Assets				(Unaudited)
Current Assets
		Cash		$ 4	$ 1,230
		Prepaid expenses		1,000	1,000
			Total Current Assets	1,004	2,230

Office Equipment
	Office Equipment			1,288	1,288
	Less: Accumulated Depreciation			(1,274)	(1,081)
		Office Equipment, net		14	207

Total Assets				$ 1,018	$ 2,437


Liabilities and Stockholders' Deficit
Current Liabilities
		Accounts payable		$ 11,573	$ 5,584
Licenses fees payable				25,610	25,157
		Advances from related parties		19,350	17,050
			Total Current Liabilities	56,533	47,791

Total Liabilities				56,533	47,791

Commitments and Contingencies

Stockholders' Deficit
	Preferred stock, $0.001 par value, 5,000,000 shares authorized,
		none issued or outstanding		-	-
	Common stock, $0.001 par value, 75,000,000 shares authorized,
			2,299,980 shares issued and outstanding	2,300	2,300
	Additional paid-in capital			280,193	280,193
	Deficit accumulated during the development stage			(338,008)	(327,847)
			Total Stockholders' Deficit	(55,515)	(45,354)

	Total Liabilities and Stockholders' Deficit			$ 1,018	$ 2,437

See accompanying notes to the financial statements.

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Hydrodynex, Inc.
(A Development Stage Company)
Statements of Operations
							For the Period from
			For the Three Months	For the Three Months	For the Nine Months	For the Nine Months	May 12, 2006
			Ended	Ended	Ended	Ended	(inception) through
			March 31, 2013	March 31, 2012	March 31, 2013	March 31, 2012	March 31, 2013
			(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Operating Expense
	Advertising and promotion		$ -	$ -	$ -	$ -	$ 5,560
	Consulting fees - officer		-	-	-	-	61,000
	Depreciation		65	129	193	258	1,274
	Board of directors fees		-	-	-	-	2,750
	General and administrative		41	270	1,937	5,131	33,242
	Impairment of deferred license fees		-	-	-	-	68,175
	Patent application costs		-	-	-	-	6,997
	Travel		-	-	-	-	10,996
	Legal and accounting		845	2,363	7,578	6,726	128,462
		Total Operating Expenses	951	2,762	9,708	12,115	318,456

Loss from Operations			(951)	(2,762)	(9,708)	(12,115)	(318,456)

Other (Income) Expenses
	Foreign currency transaction (gain) loss		(759)	778	453	(2,104)	(1,187)
	Forgiveness of debt		-	-	-	(1,677)	(10,298)
	Loss of advance on purchase		-	-	-	-	26,991
	Interest expense		-	311	-	311	4,046
		Total Other (Income) Expenses	(759)	1,089	453	(3,470)	19,552

Loss Before Income Taxes			(192)	(3,851)	(10,161)	(8,645)	(338,008)

Income Tax Provision			-	-	-	-	-

Net Loss			$ (192)	$ (3,851)	$ (10,161)	$ (8,645)	(338,008)

Net Loss per Share - Basic and Diluted			$ (0.00)	$ (0.00)	$ (0.00)	$ (0.00)

Weighted Average Common Shares Outstanding,
	Basic and Diluted		2,299,880	2,299,880	2,299,880	2,191,615

See accompanying notes to the financial statements.

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Hydrodynex, Inc.
(A Development Stage Company)
Statements of Cash Flows
					From the Period from
			For the Nine Months	For the Nine Months	May 12, 2006
			Ended	Ended	(inceptions) through
			March 31, 2013	March 31, 2012	March 31, 2013
			(Unaudited)	(Unaudited)	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss		$ (10,161)	$ (8,645)	$ (338,008)
	Adjustments to reconcile net loss to net cash used in operations
		Depreciation expense	193	258	1,274
		Forgiveness of accounts payable	-	(1,677)	(1,677)
		Write-off of prepaid patent applications costs	-	-	6,997
		Loss on advance on purchase	-	-	26,991
		Impairment of deferred license fees	-	-	68,175
		Stock options issued for services	-	-	4,250
		Amortization of discount on convertible notes payable	-	-	2,640
	Changes in operating assets and liabilities:
		Advances on purchases	-	-	(26,991)
		Prepaid expenses	-	-	(1,000)
		Accounts payable and accrued expenses	5,989	(1,381)	19,958
		Interest payable	-	-	720
		License fees payable	453	(2,104)	25,610
Net cash used in operating activities			(3,526)	(13,549)	(211,061)

Cash Flows from Investing Activities
	Purchase of office equipment		-	-	(1,288)
	Prepaid patent applications costs		-	-	(6,997)
	Deferred license fees		-	-	(68,175)
Net cash used in investing activities			-	-	(76,460)

Cash Flows from Financing Activities
	Accrued expenses - related party		-	-	37,600
	Advances from officers		3,000	13,050	41,911
	Repayment of advances from officers		(700)	-	(5,986)
	Proceeds from convertible notes payable		-	-	12,000
	Repayment of convertible notes payable		-	-	(3,000)
	Proceeds from sale of common stock and warrants		-	-	205,000
Net cash provided by financing activities			2,300	13,050	287,525

Net Change in Cash			(1,226)	(499)	4
Cash, Beginning of Period			1,230	598	-
Cash, End of Period			$ 4	$ 99	$ 4

Supplemental Disclosure of Cash Flows Information
	Interest paid		$ -	$ -	$ 3,680
	Income taxes paid		$ -	$ -	$ -

Non-Cash Investing and Financing Activities
	Warrants issued in connection with issuance of convertible debt		$ -	$ -	$ 2,640
	Warrants issued for conversion of accrued expenses from officer		$ -	$ 37,600	$ 37,600
	Forgiveness of advance from officer		$ -	$ 275	$ 275
	Common shares issued for conversion of advance from officer		$ -	$ 16,300	$ 25,300
	Warrants issued for conversion of accounts payable		$ -	$ -	$ 17,385
	Common shares issued for conversion of interest payable		$ -	$ -	$ 720

See accompanying notes to the financial statements.

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Hydrodynex, Inc.

(A Development Stage Company)

March 31, 2013 and 2012

Notes to the Financial Statements

(Unaudited)

Note 1 - Organization and Operations

Hydrodynex, Inc. (a development stage company) (“Hydrodynex” or the “Company”) was incorporated on May 12, 2006 under the laws of the State of Nevada for the purpose of the marketing and distribution of AO-System (Anodic Oxidation) water treatment units under an exclusive license agreement for the Territory of North America comprising the United States, Canada and Mexico.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation– Unaudited Interim Financial Information

The accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full year. These unaudited interim financial statements should be read in conjunction with the financial statements of the Company for the fiscal year ended June 30, 2012 and notes thereto contained in the information as part of the Company’s Annual Report on Form 10-K filed with the SEC on October 15, 2012.

Development Stage Company

The Company is a development stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification. The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced. All losses accumulated since inception have been considered as part of the Company’s development stage activities.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company’s significant estimates and assumptions include the fair value of financial instruments; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to and the estimated useful lives of office equipment, income tax rate, income tax provision and valuation allowance of deferred tax assets; foreign currency exchange rate and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, if deemed appropriate, those estimates are adjusted accordingly.

Actual results could differ from those estimates.

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 has adopted 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

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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 (3) broad levels. The three (3) 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.

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

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. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts payable, approximate their fair values because of the short maturity of these instruments.

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

It is not, however, practical to determine the fair value of advances from stockholders, if any, due to their related party nature.

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include office equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

The impairment charges, if any, is included in operating expenses in the accompanying statements of operations.

Fiscal Year

The Company elected June 30 as its fiscal year ending date upon formation.

A board resolution authorized the corporate fiscal year end to be changed from June 30 to May 31 in the corporate bylaws upon majority shareholder approval. This was ratified by the shareholders as part of the proxy related to the Company's 2012 annual meeting held on December 21, 2012, effective immediately. The transitional report will be the annual report on Form 10-K for the eleven months ended May 31, 2013.

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Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Office Equipment

Office equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of office equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful life of five (5) years. Upon sale or retirement of office equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations.

Related Parties

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Commitments and Contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

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Revenue Recognition

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned less estimated future doubtful accounts. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

The Company will derive its revenue from sales contracts with customers with revenues being generated upon the shipment of goods upon the Company commencing operations. Persuasive evidence of an arrangement is demonstrated via invoice, product delivery is evidenced by warehouse shipping log as well as a signed bill of lading from the trucking company or third party carrier and title transfers upon shipment, based on free on board (“FOB”) warehouse; the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate, discount, or volume incentive.

Foreign Currency Transactions

The Company applies the guidelines as set out in Section 830-20-35 of the FASB Accounting Standards Codification (Section 830-20-35) for foreign currency transactions. Pursuant to Section 830-20-35 of the FASB Accounting Standards Codification, foreign currency transactions are transactions denominated in a currency other than U.S. Dollar, the Company’s functional currency. Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes. Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally shall be included in determining net income for the period in which the transaction is settled. The exceptions to this requirement for inclusion in net income of transaction gains and losses pertain to certain intercompany transactions and to transactions that are designated as, and effective as, economic hedges of net investments and foreign currency commitments. Pursuant to Section 830-20-25 of the FASB Accounting Standards Codification, the following shall apply to all foreign currency transactions of an enterprise and its investees: (a) At the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction shall be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date as defined in section 830-10-20 of the FASB Accounting Standards Codification; and (b) At each balance sheet date, recorded balances that are denominated in a currency other than the functional currency of the recording entity shall be adjusted to reflect the current exchange rate.

Stock-Based Compensation for Obtaining Employee Services

The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

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Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.


·	Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2 of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

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Expected volatility of the entity’s shares and the method used to estimate it. An entity that uses a method that employs different volatilities during the contractual term shall disclose the range of expected volatilities used and the weighted-average expected volatility. A thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.


·	Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option and similar instruments.

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.

Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

Income Tax Provision

The Company follows paragraph 740-10-30-2 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.

The Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13.addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-

- 12 -

13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the interim period ended March 31, 2013 or 2012.

Net Income (Loss) per Common Share

Net income (loss) per common share is computed pursuant to paragraph of 260-10-45-10 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through stock options and warrants.

The following table shows number of potentially outstanding dilutive shares excluded from the diluted net income (loss) per share calculation as they were anti-dilutive:

	Potentially Outstanding Dilutive Common Shares

	For the Interim Period Ended March 31, 2013		For the Interim Period Ended March 31, 2012

Stock Option Shares

Stock options issued on June 30, 2008 under the 2006 Plan at $0.25 per share expiring on June 30, 2013, five (5) years from the date of issuance, vested upon issuance		70,0000		70,000

Warrant Shares

Warrants issued in connection with the conversion of consulting fees on September 30, 2011 with an exercise price of $0.01 per share and expiring three (3) years from the date of issuance		752,000		752,000

Warrants issued in connection with the conversion of consulting fees on September 30, 2011 with an exercise price of $0.01 per share and expiring three (3) years from the date of issuance		167,700		167,700

Total potentially outstanding dilutive common shares		989,700		989,700

Cash Flows Reporting

The Company has adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-24 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.

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Subsequent Events

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

Recently Issued Accounting Pronouncements

FASB Accounting Standards Update No. 2011-08

In September 2011, the FASB issued the FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” (“ASU 2011-08”). This Update is to simplify how public and nonpublic entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

The guidance is effective for interim and annual periods beginning on or after December 15, 2011. Early adoption is permitted.

FASB Accounting Standards Update No. 2011-11

In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.

The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.

FASB Accounting Standards Update No. 2012-02

In July 2012, the FASB issued the FASB Accounting Standards Update No. 2012-02 “Intangibles—Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”).

This Update is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. This guidance builds upon the guidance in ASU 2011-08, entitled Testing Goodwill for Impairment. ASU 2011-08 was issued on September 15, 2011, and feedback from stakeholders during the exposure period related to the goodwill impairment testing guidance was that the guidance also would be helpful in impairment testing for intangible assets other than goodwill.

The revised standard allows an entity the option to first assess qualitatively whether it is more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired, thus necessitating that it perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired.

This Update is effective for annual and interim impairment tests performed in fiscal years beginning after September 15, 2012. Earlier implementation is permitted.

Other Recently Issued, but Not Yet Effective Accounting Pronouncements

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

Note 3 – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

As reflected in the accompanying financial statements, the Company had a deficit accumulated during the development stage at March 31, 2013 and had a net loss and net cash used in operating activities for the interim period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

- 14 -

While the Company is attempting to commence operations and generate sufficient revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to commence operations and generate sufficient revenues and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues and its ability to raise additional funds by way of a public or private offering.

The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 4 – Office Equipment

Office equipment, stated at cost, less accumulated depreciation consisted of the following:


	Estimated Useful Life (Years)	March 31, 2012			June 30, 2012

Office equipment	5	$	1,288		$	1,288
Less: accumulated depreciation			(1,274	)		(1,081	)
Office equipment, net		$	14		$	207

Depreciation expense for the interim period ended March 31, 2013 and 2012 was $193 and $258, respectively.

Note 5 – Exclusive Technology License

On September 3, 2007 (“Effective Date”), the Company acquired an exclusive technology license (“Agreement”) for the Territory of North America, comprising Canada, the United States and Mexico to manufacture or assemble and market the AO-System water treatment system (AO – Anodic Oxidation) from Hydrosystemtechnik, GmbH (“Grantor”), a German corporation. The Company has agreed to pay a licensing fee as follows: (i) €10,000 (equivalent to $13,635 at September 3, 2007) within 120 days of the Effective Date; (ii) €20,000 (equivalent to $27,270 at September 3, 2007) on November 30, 2008; and (iii) €20,000 (equivalent to $27,270 at September 3, 2007) upon AO-System being certified and approved by the United States Environmental Protection Agency (“EPA”) for selling on a commercial basis in the United States, or €50,000 (equivalent to $68,175 at September 3, 2007) in aggregate, all of which are non-refundable and may be recouped from the future Product Royalty in perpetuity at ten percent (10%) of the Net Selling Price on all AO water treatment systems assembled or manufactured by the Company or a subcontract manufacture utilized by the Company and paid for by customers of the Company due and payable quarterly within 30 days from the last day of the quarter provided the Company exercises its right to manufacture or assemble AO-Systems. In the event the Company does not manufacture or assemble AO-Systems, the Company pays no royalty on finished units purchased from the licensor and resold to customers of the Company, the license fees will no longer be considered prepaid royalties and the Company will amortize prepaid royalties over the remaining legal life of the patent of AO System, or estimated useful life, or the term of the contract, whichever is shorter in the event that the Company decides not to manufacture or assemble AO-System.

The Company’s exclusive license right to sell finished AO Units in the territory is contingent upon the Company achieving minimum annual sales volume as defined in Table 1 of Appendix B of this Agreement among other terms and conditions at the end of each business year, beginning with the third (3^rd) anniversary after the effective date of this Agreement. In the event the objectives defined in years three (3) through five (5) of Table 1 in Appendix B are not attained at the end of each business year, this agreement shall, at the option of the GRANTOR, automatically revert to a non-exclusive marketing agreement and the Company will no longer have the right in manufacturing or assembling of AO Systems.

The Company determined that the (iii) payment required under the exclusive license agreement upon approval of U.S. EPA is a contractual liability instead of contingent liability as the AO system has been certified and approved by the European Union for selling on a commercial basis in Europe and the United States Environmental Protection Agency’s certification and approval for selling on a commercial basis in the United States is a matter of procedure and recorded deferred license fees and related license fees payable of $68,175, €50,000 measured in U.S. Dollar at September 3, 2007, the transaction date upon signing of the Exclusive License Agreement.

The Company paid the first installment of €10,000 with $14,892 on December 17, 2007 and the second installment of €20,000 due on November 30, 2008 was paid with $26,486 on January 26, 2009. The due date for the third installment of €20,000 is undeterminable pending on EPA approval.

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The Company determined that since it is currently unable to secure EPA approval of the AO-System in order to begin selling in the United States within the time period specified in the agreement, the agreement has reverted to a non-exclusive marketing agreement. Consequently, the Company has impaired the entire balance of $68,175 of the deferred licensing fee on June 30, 2010.

Note 6 – Stockholders’ Deficit

Common Stock

The Company was incorporated on May 12, 2006. In May 2006, 200,000 shares of its common stock were sold to the Company’s founder and President at $0.01 per share for $2,000 in cash.

During the fiscal year ended June 30, 2007, the Company sold 300,000 shares of its common stock to the Company’s founder and President at $0.01 per share for $3,000 in cash.

During the fiscal year ended June 30, 2008, the Company sold 1,000,000 shares of its common stock at $0.10 per share for $100,000 in cash.

On November 25, 2008, the Company’s Board of Directors authorized a Regulation D, Rule 504 stock sale and entered into a definitive agreement relating to the private placement of $7,500 of its securities through the sale of 15,000 shares of its common stock at $0.50 per share inclusive of a stock warrant to purchase 15,000 shares of its common stock exercisable at $1.00 expiring three (3) years from the date of issuance with Ryan Edington, the brother of Jerod Edington, the Vice-president and Chief Operating Officer of the Company. The fair value of these warrants granted, estimated on the date of grant, was $3,300, which has been recorded as additional paid-in capital, using the Black-Scholes option-pricing model with the following weighted-average assumptions:


Expected option life (year)	3
Expected volatility	163.00	%
Risk-free interest rate	3.34	%
Dividend yield	0.00	%

On January 23, 2009, the Company sold 250,000 shares of its common stock at $0.20 per share to Ron Kunisaki, the president of the company, for $50,000 in cash.

On July 25, 2009, pursuant to the Bridge Loan Agreement entered into by an entity and Hydrodynex, Inc., dated July 24, 2008, Triax Capital Management exercised the conversion rights of the promissory note at the agreed rate of $0.25 per share. The original loan to the Company was in the amount of $4,000, and the 365 days of interest at 8% per annum of $320, equates to a conversion value of 17,280 shares.

On August 23, 2009, pursuant to the Bridge Loan Agreement entered into by a non-affiliated individual and Hydrodynex, Inc., dated August 22, 2008, the loaner exercised the conversion rights of the promissory note at the agreed rate of $0.25 per share. The original loan to the Company was in the amount of $5,000, and the 365 days of interest at 8% per annum of $400, equates to a conversion value of 21,600 shares.

On September 26, 2009, the Company sold 30,000 shares of common stock at $0.25 per share for $7,500 in cash.

On November 9, 2009, the Company sold 140,000 shares of common stock at $0.25 per share for $35,000 in cash.

On September 30, 2011, the Company converted $16,300 in advances from an officer into 326,000 shares of common stock at $0.05 per share.

On September 30, 2011, the Chief Operating Officer of the company forgave a debt of $275 which was recorded as additional paid in capital.

Stock Option Plan

On May 19, 2006, the Company’s board of directors approved the adoption of the “2006 Non-Qualified Stock Option and Stock Appreciation Rights Plan” (“2006 Plan”) by unanimous consent. The 2006 Plan was initiated to encourage and enable officers, directors, consultants, advisors and key employees of the Company to acquire and retain a proprietary interest in the Company by ownership of its common stock. A total of 1,000,000 of the authorized shares of the Company’s common stock may be subject to, or issued pursuant to, the terms of the plan. The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. Additionally, the Company’s policy is to issue new shares of common stock to satisfy stock option exercises.

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On June 30, 2008, the Board of Director of the Company approved and granted stock options to purchase an aggregate of 85,000 shares of its common stock, par value $.001 per share (the “Common Stock”) at $0.25 per share expiring on June 30, 2013, five (5) years from the date of issuance, vested upon issuance.

On November 21, 2008, an officer and director of the Company resigned and surrendered his outstanding stock option to purchase 15,000 shares of the Company’s common stock to the Company.

The fair value of each option grant estimated on the date of grant uses the Black-Scholes option-pricing model with the following weighted-average assumptions:


	June 30, 2008
Expected option life (year)		5
Expected volatility		85.000	%
Risk-free interest rate		3.375	%
Dividend yield		0.000	%

The fair value of the stock options issued in June 2008 under the 2006 Plan using the Black-Scholes Option Pricing Model was $4,250 at the date of grant, all of which have being recognized as stock based compensation and so included in the statements of operations upon issuance.

For the interim period ended March 31, 2013, the Company did not grant any stock options nor record any stock-based compensation.

The table below summarizes the Company’s stock option activity through March 31, 2013:


	Number of Option Shares			Exercise Price Range Per Share			Weighted Average Exercise Price			Fair Value at Date of Grant		Aggregate Intrinsic Value
Balance, June 30, 2007		-			$	-		$	-		-		$	-

Granted		85,000				0.25			0.25		4,250			-
Canceled		-				-			-		-			-
Exercised		-				-			-		-			-
Expired		-				-			-		-			-
Balance, June 30, 2008		85,000				0.25			0.25		4,250			-

Granted		-				-			-		-			-
Canceled		(15,000	)			0.25			0.25		-			-
Exercised		-				-			-		-			-
Expired		-				-			-		-			-
Balance, June 30, 2009		70,000				0.25			0.25		4,250			-

Granted		-				-			-		-			-
Canceled		-				-			-		-			-
Exercised		-				-			-		-			-
Expired		-				-			-		-			-
Balance, June 30, 2010		70,000				0.25			0.25		4,250			-

Granted		-				-			-		-			-
Canceled		-				-			-		-			-
Exercised		-				-			-		-			-
Expired		-				-			-		-			-
Balance, June 30, 2011		70,000				0.25			0.25		4250			-

Granted		-				-			-		-			-
Canceled		-				-			-		-			-
Exercised		-				-			-		-			-
Expired		-				-			-		-			-
Balance, June 30, 2012		70,000				0.25			0.25		4,250			-

Granted		-				-			-		-			-
Canceled		-				-			-		-			-
Exercised		-				-			-		-			-
Expired		-				-			-		-			-
Balance, March 31, 2013		70,000				0.25			0.25		4250			-

Vested and exercisable, March 31, 2013		70,000			$	0.25		$	0.25		4,250		$	-

Unvested, March 31, 2013		-			$	-		$	-		-		$	-

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The following table summarizes information concerning outstanding and exercisable stock options as of March 31, 2013:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$0.25		70,000		0.25	$	0.25		70,000		0.25	$	0.25

As of March 31, 2013, there were 930,000 shares of stock options remaining available for issuance under the 2006 Plan.

Warrants

(i)

Warrants issued in 2008

In connection with the issuance of convertible notes payable issued between July 24, 2008 and August 23, 2008, the Company issued warrants to purchase 12,000 shares of its common stock in aggregate to the note holder with an exercise price of $1.00 per share, expiring three (3) years from the date of issuance, all of which have been earned upon issuance. The Company determined the fair value of the warrants issued was $2,640 using the Black-Scholes Option Pricing Model. These warrants all expired, unexercised, during the year ending June 30, 2012.

In connection with the sale of 15,000 shares of its common stock on November 25, 2008, the Company issued warrants to purchase 15,000 shares of its common stock to the investor with an exercise price of $1.00 per share and expiring three (3) years from the date of issuance, all of which have been earned upon issuance. Company determined the fair value of the warrants issued was $3,300 using the Black-Scholes Option Pricing Model. These warrants all expired, unexercised, during the period ending December 31, 2011.

(ii)

Warrants issued in 2011

On September 30, 2011, the Company converted $37,600 in accrued expenses - officer into warrants to purchase 752,000 shares of its common stock exercisable at $0.01 per share and expiring three (3) years from the date of issuance. The Company valued these warrants issued at $30,080 on the date of grant using the Black-Scholes Option Pricing Model, and recorded both (i) the fair value of warrants of $30,080 and (ii) the difference between the fair value of warrants and accrued expenses – officer, the forgiveness of debt from officer of $7,520 as additional paid-in capital.

On September 30, 2011, the Company converted $8,385 in accounts payable into warrants to purchase 167,700 shares of its common stock exercisable at $0.01 per share, expiring thee (3) years from the date of issuance. The Company valued these warrants issued at $6,708 on the date of grant using the Black-Scholes Option Pricing Model, and recorded (1) the fair value of warrants of $6,708 as additional paid-in capital and (2) the difference between the fair value of warrants and accounts payable of $1,677 forgiveness of debt.

The fair value of each warrant grant estimated on the date of grant uses the Black-Scholes option-pricing model with the following assumptions:


	September 30, 2011
Expected option life (year)		3
Expected volatility		100.00	%
Risk-free interest rate		0.42	%
Dividend yield		0.00	%

(remainder of page left intentionally blank)

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The table below summarizes the Company’s warrants activity through March 31, 2013:


	Number of Warrant Shares	Exercise Price Range Per Share		Weighted Average Exercise Price		Fair Value at Date of Issuance		Aggregate Intrinsic Value
Balance, June 30, 2008	-	$	-	$	-	$	-	$	-

Granted	27,000		1.00		1.00		5,940.00		-
Canceled	-		-		-		-		-
Exercised	-		-		-		-		-
Expired	-		-		-		-		-
Balance, June 30, 2009	27,000		1.00		1.00		5,940.00		-

Granted	-		-		-		-		-
Canceled	-		-		-		-		-
Exercised	-		-		-		-		-
Expired	-		-		-		-		-
Balance, June 30, 2010	27,000		1.00		1.00		5,940.00		-

Granted	-		-		-		-		-
Canceled	-		-		-		-		-
Exercised	-		-		-		-		-
Expired	-		-		-		-		-
Balance, June 30, 2011	27,000		1.00		1.00		5,940.00		-

Granted	919,700		0.01		0.01		36,788		-
Canceled	-		-		-		-		-
Exercised	-		-		-		-		-
Expired	(27,000)		1.00		1.00		(5,940.00)		-
Balance, June 30, 2012	919,700		0.01		0.01		36,788		-

Granted	-		-		-		-		-
Canceled	-		-		-		-		-
Exercised	-		-		-		-		-
Expired	-		-		-		-		-
Balance, March 31, 2013	919,700	$	0.01	$	0.01	$	36,788	$	-


Earned and exercisable, March 31, 2013	919,700	$	0.01	$	0.01	$	36,788	$	-

Unvested, March 31, 2013	-	$	0.01	$	0.01	$	-	$	-

The following table summarizes information concerning outstanding and exercisable warrants as of March 31, 2013:


	Warrants Outstanding						Warrants Exercisable
Range of Exercise Prices	Number Outstanding		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$0.01		919,700		1.50	$	0.01		919,700		1.50	$	0.01

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Note 7 – Related Party Transactions

Advances from Officer

On October 11, 2011, the Chief Operating Officer of the Company advanced the Company $2,000 with no interest and an extended maturity date to June 30, 2013. $200 of this advance was paid back on November 9, 2012.

On February 17, 2012, a related party of the Company advanced the Company $5,000 with no interest and a maturity date of June 30, 2012, which was subsequently extended to June 30, 2013.

On April 3, 2012, the Chief Operating Officer of the Company advanced the Company $10,000 with no interest and an extended maturity date to June 30, 2013.

On December 28, 2012, the Chief Operating Officer of the Company advanced the Company $1,000 with no interest and a maturity date of December 31, 2013.

On January 22, 2013, $500 was repaid on the advances due to the Chief Operating Officer.

On February 12, 2013, the Chief Operating Officer of the Company advanced the Company $2,000 with no interest and a maturity date of December 31, 2013.

Free Office Space from Its Stockholder and Chief Operating Officer

The Company has been provided office space by its stockholder and Chief Operating Officer at no cost. The management determined that such cost is nominal and did not recognize the rent expense in its financial statements.

Note 8 – Subsequent Events

The Company has evaluated all events that occur after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Management of the Company determined that there were certain reportable subsequent events to be disclosed as follows:

Advances from Officer

On May 9, 2013, the Chief Operating Officer of the Company advanced the Company $5,500 with no interest and a maturity date of December 31, 2013.

(remainder of page left intentionally blank)

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

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND INVOLVE A HIGH DEGREE OF RISK AND UNCERTAINTY. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED IN OR INCORPORATED BY REFERENCE INTO THIS FORM 10-Q ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, WHEN USED IN THIS DOCUMENT, THE WORDS “ANTICIPATE,” “ESTIMATE,” “PROJECT,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS DUE TO RISKS AND UNCERTAINTIES THAT EXIST IN OUR OPERATIONS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS INCLUDING AMONG OTHERS, THE RISK THAT OUR PRODUCT DEVELOPMENT PROGRAMS WILL NOT PROVE SUCCESSFUL, THAT WE WILL NOT BE ABLE TO OBTAIN FINANCING TO COMPLETE ANY FUTURE PRODUCT DEVELOPMENT, THAT OUR PRODUCTS WILL NOT PROVE COMPETITVE IN THEIR MARKETS. THESE RISKS AND OTHERS ARE MORE FULLY DESCRIBED IN OUR ANNUAL REPORT ON FORM 10-K. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED OR PROJECTED.

ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS INCLUDED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GIVE ANY ASSURANCES THAT THESE EXPECTATIONS WILL PROVE TO BE CORRECT. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO SUCH FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

The following discussion and analysis should be read in conjunction with our financial statements and the notes thereto appearing in Part I, Item 1.

A. General.

Hydrodynex, Inc. was organized under the laws of the state of Nevada on May 12, 2006 to develop a business as a marketer of the AO-Systems^® water treatment units. We intend to sell and distribute the AO-System^® products in North America under the terms of our license agreement with Hydrosystemtechnik GmbH. Since commencement of operations in 2006, substantially all of our efforts to date have been devoted to and limited primarily to organization, initial capitalization, market research, producing marketing materials and a website, securing a marketing agreement, preparing a comprehensive business and operating plan, evaluating the regulatory requirements to sell water treatment systems in the U.S., Canada and Mexico, and undertaking a marketing feasibility study. Extensive research has been done on competing technologies and the water contaminants that most adversely affect water systems at the present time. Legionella protection is the strongest market opportunity identified by Hydrodynex to date. We plan to make Legionella our primary target market because of its wide prevalence and the high percentage of death resulting from infection.

Under our license agreement with our licensor Hydrosystemtechnik, we paid non-refundable license fees creditable to royalty payments in the aggregate amount of €30,000 in 2007 and 2009. A third license fee in the amount of €20,000 will be due upon certification and approval of the AO-Systems^®by the US Environmental Protection Agency for commercial sales in the United States.

Due to the fact that we did not meet certain milestones beginning in December 2009 and minimum annual sales targets under the license agreement with Hydrosystemtechnik, our right to manufacture the AO-System products has automatically expired and our licensor may change the agreement from an exclusive agreement to a non-exclusive agreement and may terminate the agreement at any time. In order to remedy this situation we need to raise at least $400,000 and re-negotiate the terms of the license agreement, neither of which is guaranteed or likely.

Our plan of operation for the next 12 months, if we are able to raise sufficient capital resources and re-negotiate our license agreement, will be the execution of our strategic business plan. Hydrodynex intends to operate in two phases as follows:

Phase 1: Finalization of the Strategic Marketing Plan, initial start-up capital realization through asecond private stock offering, paying for the AO-System^®test reactor unit, undertaking independent testing, securing EPA and State certification, and hiring/training sales and technical personnel.

Phase 2: Initiation of marketing and sales activities in selected markets in North America (U.S., Canada, and Mexico). Full scale commercialization of the AO-System^®, including industrialization and after-sale service agreements, for the markets covered by Hydrodynex. As part of its effort to commercialize the AO-System^®, Hydrodynex plans to offer mobile systems which may use a film pouch packaging system.

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We need to raise a minimum of $400,000 to complete the first phase of our plan of operations and $2,000,000 to complete the second phase, for a total of $2,400,000 to implement both phases of our business plan. We have not succeeded in raising sufficient capital to meet our minimum of $400,000 required to complete the first phase since 2008.

Subject to raising additional capital, our projected monthly rate of expenditure is estimated at $3,000 for general and administrative costs. We anticipate that supporting our operations and implementing Phase I of our business plan for the next 12 months will require a minimum capital raising of $400,000. This includes approximately $30,000 for accounting, legal and auditing fees. The balance of the funds would be utilized for independent testing, purchase of equipment for testing, marketing materials, advertising, insurance, employee training, travel, office lease, licenses, shipping and import costs, employee salary, and other budgeted costs.

Hydrodynex’ Exclusive Technology License Agreement

We entered into a Marketing, Distribution and License Agreement with Hydrosystemtechnik GmbH September 3, 2007. On August 30, 2008, we entered into an Amended Marketing, Distribution and License Agreement, or amended license agreement, with Hydrosystemtechnik, which has the same effective date as the original license agreement, September 3, 2007, and supersedes the original license agreement. Under the amended license agreement, we were granted the right to sell water disinfection systems based on the AO-System^® technology in all markets (except the dental market) in Canada, the United States, and Mexico on an exclusive basis for a period of three years after the effective date of the license agreement. The license was to remain exclusive subject to Hydrodynex achieving certain milestones. The main milestones were (a) leasing or purchasing an AO-System^® prior to November 30, 2009, as extended by the licensor, and (b) obtaining, by March 3, 2010, verification and certification of the AO-System^® technology by the U.S. EPA necessary for commercialization and selling water disinfection systems in whole or in part within the United States, (c) make application to six states in the Western U.S. for certification of the AO-System^®technology within 90 days after receiving the NSF and EPA verification, (d) sell, deliver and install at least one AO-System^® in the U.S. in the two year exclusivity period following technology verification, and (e) we are required to demonstrate financial responsibility in the form of a bank credit line or equity funding of not less than $500,000 The milestones were not satisfied, but the licensor has not as of this time notified us that the exclusive license has been reduced to a non-exclusive status.

We were also required, beginning in the year beginning September 3, 2009, to meet certain minimum annual sales targets, based on net purchase value, for sales of AO-System^®products in the North American territory, which increase from €30,000 in year three to €500,000 in year six and thereafter, in order to maintain the exclusivity of the license. We have failed to meet the minimum annual sales targets at in each year and the licensor, Hydrosystemtechnik GmbH, has the option to revert the license agreement to a non-exclusive marketing agreement and under the terms of the license agreement our right to manufacture has automatically expired.

We have paid a non-refundable license fees in the aggregate amount of €30,000 and a third license fee in the amount of €20,000 will be due upon certification and approval of the AO-Systems^® by the US Environmental Protection Agency for commercial sales in the United States which is indicated as a license fee payable of $25,720 in our balance sheet. We are obligated to pay a royalty on the products actually assembled or manufactured and sold to third parties in the amount of 10% of the net selling price on all AO-Systems^®. We are not obligated to pay a royalty on finished AO-Systems^® purchased from Hydrosystemtechnik and resold. We are obligated to pay fifty percent of the direct costs related to preparing and prosecution of patents and patent applications in the U.S., Canada or Mexico, including legal fees, filing fees, maintenance fees, and transaction costs, so long as the license agreement remains in effect. We have paid $6,997 for patent fees thus far and expensed the entire balance of $6,997 of the prepaid patent application costs on June 30, 2011 since we are currently unable to finance the patent application process and secure EPA approval of the AO-System in order to begin selling in the United States within the time period specified in the agreement.

We plan to re-negotiate the license agreement with Hydrosystemtechnik to get the exclusive rights extended, but that is a forward looking statement and is not likely to be successful unless certain funding can be brought into Hydrodynex and reasonable terms can be reached with the licensor.

The license agreement terminates after ten years, in September 2017, with an option by us to extend the license for an additional ten years on an exclusive basis, as long as the required minimum annual sales volume is maintained. The licensor, Hydrosystemtechnik GmbH, has the right to terminate the license agreement, after a notice and cure period, if we are in default of any obligation in the agreement, The sales volume requirements were not been reached for the three consecutive years and the agreement can be terminated by the licensor at any time.

If we can raise sufficient funds and re-negotiate the license agreement, we plan to undertake to secure technology verification from NSF, an independent third party testing laboratory, accredited by the EPA, to legally sell AO-Systems^® in the United States, but we have not initiated this process because we have yet to pay the remaining balance of €17,625 for the AO-System® test reactor unit that has been built for us by our licensor Hydrosystemtechnik. Once we have completed our payment for the test reactor unit we will arrange delivery of the unit to NSF in Ann Arbor, Michigan for testing. When we have sufficient funds to pay the remaining balance of the test unit, arrangements for payment and shipping to the U.S. of the test reactor unit will be made.

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Product Research and Development Plans

We do not plan to engage in any research and development at this time. The product has been developed by our licensor, Hydrosystemtechnik, GmbH and is ready for sale to the consumer.

Results of Operations

Since Hydrodynex was formed on May 12, 2006, it has not earned any revenues and has incurred a net loss since its inception of $338,008 through March 31, 2013. The following table provides selected financial data about our company for the period ended March 31, 2013 and June 30, 2012, respectively.


Balance Sheets Data	March 31, 2013		June 30, 2012
Cash	$	4	$	1,230
Office equipment, net		14		207
Prepaid expenses		1,000		1,000

Total assets		1,018		2,437
Total liabilities		56,533		47,791
Stockholders’ deficit		(55,515)		(45,354)

For the nine months ended March 31, 2013, our total operating expenses were $9,708 as compared to $12,115 for the nine months ended March 31, 2012, a difference of $2,407. The total operating expenses were less in the recent periods due mainly to reduced general and administrative fees. Until the company receives additional financing to carry out its business plan, we do not presently expect our expenses to increase throughout this current fiscal year as compared to the previous fiscal year. The nine months ended March 31, 2013 included the following expenses:

1. Legal and Accounting - $7,578

2. General and Administrative Fees - $1,936

3. Depreciation - $194

Our cash in the bank at March 31, 2013 was $4. Net cash used in operating activities during the nine months ended March 31, 2013 was $3,526, compared to net cash used in operating activities during the nine months ended March 31, 2012 of $13,549, a difference of $10,023.

Net cash provided by financing activities since inception through March 31, 2013 was $287,525, mainly from the sale of our common stock and warrants, advances from related parties, proceeds from convertible notes payable, and accrued expenses from a related party. Net cash provided by financing activities for the nine months ended March 31, 2013 was $2,300, compared to $13,050 for the nine months ended March 31, 2012, a difference of $10,750.

In their report on our June 30, 2012 audited financial statements, our auditors express an opinion that there is substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. We have been in the developmental stage and have had no revenues since inception. Our continuation as a going concern is dependent upon future events, including our ability to raise additional capital and to generate positive cash flows. There can be no assurances to that effect.

Liquidity and Capital Resources

Since inception, we have financed our operations from private placements of equity securities and loans from shareholders. We do not have any available lines of credit. As of March 31, 2013, we had cash in the amount of $4. Net cash provided by financing activities was $2,300 during the nine months ended March 31, 2013. We raised only $23,050 in capital during the year ended June 30, 2012 from financing activities with related parties in the form of unsecured and non-interest bearing loans and loans converted to shares. We will need to raise additional capital, take loans, or generate revenue in February 2013 or curtail or cease our basic operations. We need to raise a minimum of $400,000 to implement and complete the first phase of our business plan, as well as to renegotiate the terms of our license agreement, if possible, to allow us to continue our business plan.

Our Vice President and Chief Operating Officer advanced $18,050 to our company for working capital purposes during the year ended June 30, 2012, and $3,000 to our company for working capital purposes during the nine months ended March 31, 2013, $6,000 of this was converted into 326,000 restricted common shares at $0.05 per share. $700 was paid back during the nine months ended March 31, 2013. As of March 31, 2013, the total amount of advances from our Vice President and Chief Operating Officer were $14,350,

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which are unsecured and non-interest bearing, with $11,350 and $3,000 maturing on June 30, 2013 and December 31, 2013, respectively.

A related party advanced $5,000 to our company for working capital purposes during the year ended June 30, 2012. Such amount is unsecured, non-interest bearing, and matures on June 30, 2013.

We do not have sufficient capital resources to carry on operations past May 2013. We cannot assure you that we will generate sufficient additional capital or revenues, if any, to fund our operations beyond May 2013, but we plan to raise additional capital in a private stock offering to secure funds needed to finance our plan of operation for at least the next twelve months, or enter into loans from existing shareholders to support operations. We are pursuing potential equity financing, sub-licensing and other collaborative arrangements that may generate additional capital for us. However, these are forward-looking statements, and there may be changes that could consume available resources before such time. Our long term capital requirements and the adequacy of our available funds will depend on many factors, including the reporting company costs, public relations fees, technology verification costs, among others.

If we cannot generate sufficient financing or revenues to continue operations, we will have to suspend or cease operations. By virtue of our inability to secure financing or generate revenues over the preceding year, we will begin to seek out other sources of cash, including new investors, joint venture and strategic partners or loans from our officers or directors. If we cease operations, we do not know what we would do subsequently and we have no plans to do anything in such event. We have no plans to dissolve statutorily at this time, under any circumstances. We are engaged in general discussions with multiple companies who may be interested in acquiring us. As of this date there is no definitive agreement signed and there is no assurance that any acquisition will be feasible in the future and in the event there is an acquisition, there is no assurance that it will be in the best interest of our shareholders.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations are based on our financial statements that have been prepared under accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. All significant accounting policies have been disclosed in Note 2 to the financial statements included in this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of March 31, 2013. Based on that evaluation, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were ineffective as of March 31, 2013. The material weaknesses we identified in our annual report on Form 10-K for our fiscal year ending June 30, 2012 have not been remedied due to our lack of sufficient capital resources.

Changes in Internal Control Over Financial Reporting

As of March 31, 2013, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period ended March 31, 2013, that materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes from the disclosure provided in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Item 1A. Risk Factors

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure [Not Applicable]

Item 5. Other Information

None.

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Item 6. Exhibits


Exhibit Number	Description of Exhibit

3.1	Articles of Incorporation of Registrant(1)

3.2	Bylaws of Registrant(1)

31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).


(1)	Filed with the Securities and Exchange Commission on June 30, 2008 as an exhibit, numbered as indicated above, to the Registrant’s registration statement on Form S-1 (file no. 333-152052), which exhibit is incorporated herein by reference.
(2)	Filed with the Securities and Exchange Commission on September 28, 2009, as an exhibit, numbered as indicated above, to the Registrant’s Form 8-K (file no. 000-53506), which exhibit is incorporated herein by reference.
(3)	Filed with the Securities and Exchange Commission on April 9, 2012, as an exhibit, numbered as indicated above, to the Registrant’s Form 8-K (file no. 000-53506), which exhibit is incorporated herein by reference.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Hydrodynex, Inc.

May 10, 2013	By:	/s/ Ronald Kunisaki
		Ronald Kunisaki President and Chief Executive Officer (Principal Executive Officer)

May 10, 2013	By:	/s/ Richard Kunisaki
		Richard Kunisaki Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Avg

Hydrodynex (HDYX) Inactive 10-Q2013 Q3 Quarterly report

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