AQUA DYNE INCORPORATED
C/- WILLIAM D. LINDBERG
23011 MOULTON PARKWAY, SUITE A-10
LAGUNA HILLS
CALIFORNIA 92653
TEL : 1 949 380 4033
FAX : 1 949 380 4033
WWW.AQUADYNE.US.COM
16 October 2006
Mr James A. Allegretto
Senior Assistant Chief Accountant
United States Securities and Exchange Commission
Washington, D.C. 20549
RE AQUA DYNE, INC.
FORM 10-KSB FOR FISCAL YEAR ENDED DECEMBER 31, 2005
FORM 10-QSB FOR QUARTERLY PERIOD ENDED MARCH 31, 2006
FORM 10 QSB FOR QUARTERLY PERIOD ENDED JUNE 30, 2006
FILE MARCH 20, 2006, MAY 11, 2006 AND AUGUST 10, 2006
FILE NO. 000-32863
Dear Mr Allegretto:
I spoke to Mr Adam Phippen on Friday 13 October and obtained his consent to our
filing this Letter of Response on Monday 16 October 2006.
Form 10-KSB for Year ended December 31, 2005
- --------------------------------------------
Item 7, Financial Statements, Page 15
- -------------------------------------
Consolidated Statements of Cash Flows, Page 22
- ----------------------------------------------
I attach an electronic copy of an Excel spreadsheet that details the Cash Flow
transactions for the Fiscal Year ended December 31, 2005.
I confirm that the Australian subsidiary receives all its funding from its US
Parent in USDollars. Because all these funds for the Australian subsidiary are
provided by the Parent company the translation amount in the cashflow is the
same as the translation gain or loss. (refer Table 1)
The Australian cash flows are compiled in accordance with SFAS 95. In the
interests of ease of understanding I have attached the Cash Flow statements for
December 2005 only. The schedule will provide you with the methodology that has
been used to compile the Filed cash flow analysis. If required by you we will
provide the comparable analysis for the March and June Quarters.
Table 1 AQUA DYNE, INC.
EXPLANATION OF WHY THE
COMPREHENSIVE GAIN (LOSS) ON TRANSLATION
IS THE SAME AS ADJUSTMENT FOR FOREIGN CURRENCY TRANSLATION
Aqua Dyne, Inc. transfers U. S. dollars to its subsidiary in Australia to pay
all of the expenses of the subsidiary. Austrialian operation does not have any
other source of local financing.
Therefore, the effect of transactions in Australian dollars (AU$) is the same as
for the U. S. $ accounts.
EXAMPLE
Aqua Dyne, Inc. U. S. transfers $100,000 to Australia. Australia converts U.S. $
to AU$ at say .7000 AU$142,857
Australian company then incurs expenses for the period of say one year in the
amount of AU$ 120,000
The result would be the following
Australian Company
Balance sheet at end of year AU$ US$ (assuming exchange rate is now 0.76
Cash 22,857 17,371 and average exchange rate is 0.73)
Total assets 22,857 17,371
Payable to Aqua Dyne, Inc. U.S. 142,857 108,571
Loss for the year (120,000) (87,600)
Comprehensive gain (3,600)
Total liabilities and capital 22,857 17,371
Profit and loss for the year
Expenses 120,000 87,600
Loss for the year (120,000) (87,600)
Assume that the rate during the year went form .7000 to .7600 with the average
being .7300. In accordance with translation principles the average rate would be
used to translate the profit and loss for the year into U.S. $
Cash flow for the year
Net loss (120,000) (87,600)
Financing activity
Loan from U.S parent 142,857 108,571
Comprehensive gain on translation - (3,600)
Net increase (decrease) in cash 22,857 17,371
As can be seen from the example the change in the Balance Sheet comprehensive
gain and the Cash Flow comprehensive gain on translation are the same.
Conclusion:
When all of the funds are provided to a foreign subsidiary, and the foreign
subsidiary does not provide any of its funds, the comprehensive gain or loss on
translation is the same for the Balance Sheet as the Cash Flow because it all
originates in U.S. $
Comprehensive gain pertaining to cash consists of (using formula per FAS 95):
Cash ending balance
At yearend rate a $17,371
At loan date rate b $16,000 $1,371 (a-b)
-------
Change in Due to Aqua Dyne US
At AUD 142,857
At USD (issue date) c 100,000
At yearend USD rate d 108,571 (8,571) (c-d)
Net loss at AUD (120,000)
Net loss at average USD rate e (87,600)
Net loss at yearend USD rate f (91,200) 3,600 (e-f)
EFFECT OF TRANSLATION ON CASH (3,600)
EXHIBIT 31
2. The following Exhibit 31 with the deletion of the word "Registrant" and
insertion of "small business issuer" is reflected in the following.
This exhibit will be inserted in the proposed Amended filings. The
following is intended to illustrate our understanding of the changes
you are seeking under Item 601(b)(31) of Regulation S-B.
"EXHIBIT 31
CERTIFICATIONS
I, Murray Bailey, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of Aqua Dyne, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Small Business
Issuer as of, and for, the periods presented in this report;
4. The Small Business Issuer's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Small Business Issuer and
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision, to
ensure that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to me by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the Small Business Issuer's
disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the Small Business Issuer's
internal control over financial reporting that occurred during the Small
Business Issuer's most recent fiscal quarter (the Small Business Issuer's fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, The Small Business Issuer's internal
control over financial reporting.
5. The Small Business Issuer's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the Small Business Issuer's auditors and the audit committee of
Small Business Issuer's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Small Business Issuer's ability to record,
process, summarize and report financial information;
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's internal control
over financial reporting;
Date: October 16, 2006 /s/ Murray Bailey
--------------------------------------
Murray Bailey, Chief Executive Officer
and Chief Financial Officer
Form 10-QSB for Quarterly Period ended June 30, 2006
- ----------------------------------------------------
Item 1, Financial Statements, Page 3
- ------------------------------------
Statement of Changes in stockholders' Equity, page 5
- ----------------------------------------------------
3. In June 2006 the company incurred costs associated with the provision
of services by external parties. These costs were the subject of
contractual arrangements. As the obligations did not fall due until 30
June it was impossible to facilitate the issuance of the stock
certificates by 30 June. The company accounted for the liability as an
issuance of stock but with the proviso that the actual certificates did
not issue until July 3. This approach meets the need to match expense
and liabilities at the time of the obligation. The event only occurs
when there is an obligation at the end of a quarter. The company
understands that the accounts need to reflect the effect of the
transaction. The anomaly occurs when the stock reconciliation is
correlated to the accounts. If we were to provide a Note to the
Accounts this may meet the SEC requirements.
In the event that the staff has any further requests or matters seeking
clarification, please feel free to contact our Company Secretary Mr Ian
Hutcheson at your earliest convenience on 61 7 3832 9883, fax 61 7 3832 1336.
Sincerely,
/S/ MURRAY BAILEY
- -----------------------
Murray Bailey
Chief Executive Officer
Chief Financial Officer
AQUA DYNE AUSTRALIA
2004 BALANCES 2005 BALANCES
Yearend rate 0.7805 A 0.740864
Average rate
BALANCE SHEET AUD USD AUD USD
Cash 457,776 357,294 2,468 1,828
Prepaid expenses 63,502 49,563 26,809 19,862
Fixed assets 64,546 47,000 46,607 34,089
Intellectual property - - - -
-------------------------- --------------------------
TOTAL ASSETS 585,824 453,857 75,884 55,779
========================== ==========================
Accounts payable 106,420 81,138 222,621 164,932
Payroll taxes payable
Shareholder loans 147,059 108,950
Due to Aqua Dyne US 2,797,047 1,866,218 3,850,383 2,874,595
-------------------------- --------------------------
Total liabilities 2,903,467 1,947,356 4,220,063 3,148,477
-------------------------- --------------------------
Capital - par value
Capital - paid in
Common stock subscribed
Translation gain(loss) 159,540 B 10,999
Accumulated losses (2,317,643) (1,653,038) (4,144,179) (3,103,696) C
-------------------------- --------------------------
Total equity (2,317,643) (1,493,498) (4,144,179) (3,092,697)
-------------------------- --------------------------
TOTAL LIABILITIES AND EQUITY 585,824 453,858 75,884 55,780
========================== ==========================
- (0) - (1)
2004 BALANCES 2005 BALANCES
INCOME STATEMENT AUD USD AUD USD
Operating expenses
General and administrative 1,766,669 1,277,190 1,898,479 1,454,095
Research and development - - - -
Impairment loss on intellectual property - - - -
-------------------------- --------------------------
TOTAL OPERATING EXPENSES 1,766,669 1,277,190 1,898,479 1,454,095
-------------------------- --------------------------
LOSS FROM OPERATIONS (1,766,669) (1,277,190) (1,898,479) (1,454,095)
-------------------------- --------------------------
OTHER INCOME (EXPENSES)
Interest income 15,940 11,924 4,443 3,437
Loss on disposition of fixed asset - - - -
Interest expense - - - -
Provision for taxes - - - -
-------------------------- --------------------------
15,940 11,924 4,443 3,437
-------------------------- --------------------------
NET LOSS (1,750,729) (1,265,266) (1,894,036) (1,450,658)
========================== ==========================
A A
A The average exchange rate for each income statement line item is not consistent from one
line item to another because the client used an average rate for each quarter, then on a
subsequent quarter, they would take the average rate for that quarter and add it the
translated amount of the previous quarter.
2005 BALANCES
CASH FLOW AUD USD
CASH FLOW FROM OPERATING ACTIVITIES
Net loss (1,894,036) (1,450,658)
Depreciation and amortization 23,759 17,441
Shares issued for services
Change in assets and liabilities:
Prepaid expenses 36,693 29,701
Accounts payable 116,201 83,794
Payroll taxes payable
--------------------------
Net cash from operating activities (1,717,383) (1,319,721)
--------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Disposition (acquisition) of equipment (5,820) (4,530)
--------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock
Common shares subscribed
Loan from shareholder 214,559 108,950
Due to Aqua Dyne US 1,053,336 1,008,377
--------------------------
Net cash from financing activities 1,267,895 1,117,327
--------------------------
Effect of exchange rate on cash - (148,541)
--------------------------
Net increase(decrease) in cash (455,308) (355,465)
Cash, beginning balance 427,010 457,776 357,294
--------------------------
Cash, ending balance 2,468 1,829
==========================
Per FS 2,468 1,828
Difference - 1
Beginning cash balance 457,776
-------------
Ending exchange rate 0.7409
Beginning exchange rate 0.7805
-------------
Change in exchange rate (0.0396)
-------------
Effect of exchange rate on cash