Attached files
file | filename |
---|---|
EX-32 - EXHIBIT 32.2 - Hydrodynex, Inc. | ex322apg.htm |
EX-31 - EXHIBIT 31.1 - Hydrodynex, Inc. | ex311apg.htm |
EX-31 - EXHIBIT 31.2 - Hydrodynex, Inc. | ex312apg.htm |
EX-32 - EXHIBIT 32.1 - Hydrodynex, Inc. | ex321apg.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Amendment No. 4
[X] |
Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended December 31, 2008 |
|
|
[ ] | 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)
HYDRODYNEX, INC.
(Exact name of small business issuer as specified in its charter)
Nevada | 20-4903071 |
(State or other jurisdiction |
(IRS Employer |
of incorporation or organization) |
Identification No.) |
230 Bethany Rd. #128; Burbank, CA 91504
(Address of principal executive offices)
702-722-9496
(Registrants telephone number)
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 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 February 19, 2009, 1,765,000 shares of the registrant's common stock, par value $.001 per share, were outstanding.
Explanatory Note
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION |
| 3 | |
Item 1. | Financial Statements |
|
3 |
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
|
26 |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
| 30 |
Item 4. | Controls and Procedures |
|
30 |
PART II OTHER INFORMATION |
|
31 | |
Item 1. |
Legal Proceedings |
|
31 |
Item 1A. |
Risk Factors |
|
31 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
| 31 |
Item 3. | Defaults Upon Senior Securities |
|
31 |
Item 4. |
Submission of Matters to a Vote of Security Holders |
|
31 |
Item 5. |
Other Information |
|
31 |
Item 6. |
Exhibits |
|
32 |
SIGNATURES |
|
|
32 |
- 2 -
PART I FINANCIAL STATEMENTS
Item1. Financial Statements
Hydrodynex, Inc.
(A Development Stage Company)
December 31, 2008 and 2007
CONTENTS |
| Page(s) |
Balance Sheets at December 31, 2008 (Unaudited) and June 30, 2008 |
| 4 |
Statements of Operations for the Three Months Ended December 31, 2008 and 2007 and for the Period from May 12, 2006 (Inception) through December 31, 2008 (Unaudited) |
|
5 |
Statements of Operations for the Six Months Ended December 31, 2008 and 2007 and for the Period from May 12, 2006 (Inception) through December 31, 2008 (Unaudited) |
| 6 |
Statement of Stockholders Equity (Deficit) for the Period from May 12, 2006 (Inception) through December 31, 2008 (Unaudited) |
|
7 |
Statements of Cash Flows for the Six Months Ended December 31, 2008 and 2007 and for the Period from May 12, 2006 (Inception) through December 31, 2008 (Unaudited) |
| 8 |
Notes to the Financial Statements (Unaudited) |
|
9-25 |
- 3 -
Hydrodynex, Inc. | |||||||||||
(A Development Stage Company) | |||||||||||
Balance Sheets | |||||||||||
| |||||||||||
|
|
|
|
|
|
|
December 31, 2008 |
|
|
June 30, 2008 |
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| (As Restated) |
|
|
|
|
Assets |
|
|
|
|
|
|
|
| |||
Current Assets |
|
|
|
|
|
|
|
| |||
| Cash |
|
|
$ | 413 |
| $ |
518 |
| ||
|
Prepaid expenses |
|
|
|
- |
|
|
750 |
| ||
|
Advance on purchases |
|
|
|
26,991 |
|
|
26,991 |
| ||
|
| Total Current Assets |
|
|
|
27,404 |
|
|
28,259 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Office Equipment |
|
|
|
|
|
|
|
| |||
| Office equipment |
|
|
| 1,288 |
|
|
1,288 |
| ||
|
Less: Accumulated depreciation |
|
|
|
(178) |
|
|
(49) |
| ||
Office Equipment, net |
|
|
| 1,110 |
|
|
1,239 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
|
| |||
|
Prepaid patent application costs |
|
|
|
6,997 |
|
|
6,997 |
| ||
|
Deferred license fees |
|
|
|
68,175 |
|
|
68,175 |
| ||
|
| Total Other Assets |
|
|
|
75,172 |
|
|
75,172 |
| |
Total Assets |
|
|
$ |
103,686 |
|
$ |
104,670 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity (Deficit) |
|
|
|
|
|
|
|
| |||
Current Liabilities: |
|
|
|
|
|
|
|
| |||
| Accounts payable |
|
|
$ | 21,669 |
| $ |
16,468 |
| ||
|
Accrued expenses |
|
|
|
1,861 |
|
|
42 |
| ||
|
Accrued expenses - related party |
|
|
|
15,100 |
|
| - |
| ||
| Current portion of license fees payable |
|
|
|
28,194 |
|
|
31,598 |
| ||
|
Interest payable |
|
|
|
390 |
|
| - |
| ||
|
Notes payable - related party |
|
|
|
11,975 |
|
|
2,000 |
| ||
|
Convertible notes payable |
|
|
|
12,000 |
|
| - |
| ||
| Less: convertible notes payable debt discount |
|
|
|
(1,632) |
|
|
- |
| ||
|
| Total Current Liabilities |
|
|
| 89,557 |
|
|
50,108 |
| |
License Fees Payable, net of current portion |
|
|
|
28,194 |
|
|
31,598 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
| 117,751 |
|
| 81,706 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit) |
|
|
|
|
|
|
|
| |||
Preferred stock, $.001 par value, 5,000,000 shares authorized: |
|
|
|
|
|
|
|
| |||
|
none issued or outstanding |
|
|
|
- |
|
|
- |
| ||
Common stock, $.001 par value, 75,000,000 shares authorized, |
|
|
|
|
|
|
|
| |||
|
1,515,000 and 1,500,000 shares issued and outstanding, respectively |
| 1,515 |
|
| 1,500 |
| ||||
Additional paid-in capital |
|
|
|
117,875 |
|
| 107,750 |
| |||
Deficit accumulated during the development stage |
|
|
| (133,455) |
|
| (86,286) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity (Deficit) |
|
|
|
(14,065) |
|
|
22,964 |
| |||
Total Liabilities and Stockholders' Equity (Deficit) |
|
|
$ |
103,686 |
|
$ |
104,670 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements. |
- 4 -
Hydrodynex, Inc. | |||||||||||
(A Development Stage Company) | |||||||||||
Statements of Operations | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
| For the Three Months |
|
|
|
|
|
|
|
| Ended |
|
|
Ended |
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
| (As Restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES |
|
| $ |
- |
| $ |
- |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD |
|
|
|
- |
|
|
- |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
|
- |
|
|
- |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees |
|
|
| 7,500 |
|
|
7,500 |
| ||
| Depreciation |
|
|
|
65 |
|
| - |
| ||
| General and administrative |
|
|
| 2,643 |
|
|
574 |
| ||
| Legal and accounting |
|
|
|
11,205 |
|
| - |
| ||
| Travel |
|
|
| - |
|
|
2,568 |
| ||
| Advertising and promotion |
|
|
|
- |
|
| 5,000 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
|
|
21,413 |
|
|
15,642 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
|
|
(21,413) |
|
|
(15,642) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSES |
|
|
|
|
|
|
|
| |||
| Foreign currency transactions (gain) loss |
|
|
(1,408) |
|
|
- |
| |||
| Interest expense |
|
|
|
808 |
|
|
80 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (Income) Expenses |
|
|
|
(600) |
|
|
80 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE TAXES |
|
|
| (20,813) |
|
| (15,722) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION |
|
|
| - |
|
| - |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
|
$ |
(20,813) |
|
$ |
(15,722) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE - |
|
|
|
|
|
|
|
| |||
| BASIC AND DILUTED: |
|
|
$ |
(0.01) |
| $ |
(0.01) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted Common Shares Outstanding - |
|
|
|
|
|
|
| |||
|
| basic and diluted |
|
|
|
1,505,870 |
|
|
1,455,326 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements. |
- 5 -
Hydrodynex, Inc. | |||||||||||||
(A Development Stage Company) | |||||||||||||
Statements of Operations | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Period from |
|
|
|
|
|
|
|
For the Six Months |
|
| For the Six Months |
|
|
May 12, 2006 |
|
|
|
|
|
|
| Ended |
|
|
Ended |
|
| (inception) through |
|
|
|
|
|
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
December 31, 2008 |
|
|
|
|
|
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
|
|
|
|
|
| (As Restated) |
|
|
|
|
|
(As Restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES |
| $ |
- |
|
$ |
- |
|
$ | - |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD |
|
|
- |
|
| - |
|
|
- |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
| - |
|
|
- |
|
| - |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees |
|
| 15,000 |
|
|
7,500 |
|
| 38,500 |
| ||
| Depreciation |
|
| 129 |
|
| - |
|
| 178 |
| ||
| Board of directors fees |
|
|
- |
|
| - |
|
| 2,750 |
| ||
| General and administrative |
|
| 3,830 |
|
| 607 |
|
| 25,873 |
| ||
| Legal and accounting |
|
|
33,586 |
|
| - |
|
|
45,969 |
| ||
|
Travel |
|
|
34 |
|
|
2,568 |
|
|
10,547 |
| ||
|
Advertising and promotion |
|
|
- |
|
| 5,000 |
|
|
5,000 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
|
52,579 |
|
|
15,675 |
|
|
128,817 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
|
(52,579) |
|
| (15,675) |
|
|
(128,817) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSES |
|
|
|
|
|
|
|
|
|
| |||
|
Foreign currency transactions (gain) loss |
| (6,808) |
|
| - |
|
| 3,105 |
| |||
| Interest expense |
|
|
1,398 |
|
| 80 |
|
|
1,533 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (Income) Expenses |
|
|
(5,410) |
|
| 80 |
|
|
4,638 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE TAXES |
|
|
(47,169) |
|
| (15,755) |
|
| (133,455) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION |
|
|
- |
|
| - |
|
|
- |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
| $ |
(47,169) |
|
$ |
(15,755) |
|
$ |
(133,455) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE - |
|
|
|
|
|
|
|
|
|
| |||
|
BASIC AND DILUTED: |
| $ |
(0.03) |
|
$ |
(0.02) |
| $ |
(0.14) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted Common Shares Outstanding - |
|
|
|
|
|
|
|
|
| |||
|
|
basic and diluted |
|
|
1,502,935 |
|
|
986,196 |
|
|
973,029 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements. |
- 6 -
Hydrodynex, Inc. | ||||||||||||||||||||||||||||
(A Development Stage Company) | ||||||||||||||||||||||||||||
Statement of Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||
For the Period from May 12, 2006 (Inception) through December 31, 2008 | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
|
|
|
|
Common Stock, $0.001 Par Value |
| Additional |
| Deficit Accumulated |
| Deficit Accumulated |
| Deficit Accumulated |
| Total |
| Total |
| Total | ||||||||||
|
|
|
| Number of |
|
|
|
|
Paid-in |
| During the |
| During the |
| During the |
| Stockholders' |
| Stockholders' |
| Stockholders' | |||||||
|
|
|
|
Shares |
| Amount |
|
Capital |
| Development Stage |
|
Development Stage |
| Development Stage |
|
Equity (Deficit) |
| Equity (Deficit) |
|
Equity (Deficit) | ||||||||
|
|
|
|
|
|
|
|
|
|
| (As Previously Reported) |
| (Adjustments) |
| (As Restated) |
| (As Previously Reported) |
| (Adjustments) |
| (As Restated) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 12, 2006 (inception) |
| - |
| $ |
- |
| $ |
- |
| $ |
- |
| $ |
- |
| $ |
- |
| $ |
- |
| $ |
- |
| $ |
- | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to President for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| at $0.01 per share |
|
200,000 |
|
|
200 |
|
|
1,800 |
|
|
|
|
|
|
|
|
|
|
| 2,000 |
|
| - |
|
| 2,000 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(536) |
|
|
|
|
| (536) |
|
| (536) |
|
| - |
|
| (536) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2006 |
|
200,000 |
|
|
200 |
|
|
1,800 |
|
|
(536) |
|
|
- |
|
|
(536) |
|
|
1,464 |
|
|
- |
|
|
1,464 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to President for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| at $0.01 per share |
| 300,000 |
|
|
300 |
|
| 2,700 |
|
|
|
|
|
|
|
|
|
|
| 3,000 |
|
|
- |
|
| 3,000 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(1,296) |
|
|
|
|
|
(1,296) |
|
| (1,296) |
|
|
- |
|
| (1,296) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2007 |
| 500,000 |
|
|
500 |
|
| 4,500 |
|
|
(1,832) |
|
| - |
|
|
(1,832) |
|
| 3,168 |
|
|
- |
|
| 3,168 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash at $0.10 per share |
| 1,000,000 |
|
|
1,000 |
|
| 99,000 |
|
|
|
|
|
|
|
|
|
|
| 100,000 |
|
|
- |
|
| 100,000 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options issued for director fees |
|
|
|
|
|
|
|
2,750 |
|
|
|
|
|
|
|
|
|
|
|
2,750 |
|
| - |
|
|
2,750 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options issued for services |
|
|
|
|
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
| - |
|
|
1,500 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(74,541) |
|
| (9,913) |
|
|
(84,454) |
|
| (74,541) |
|
|
(9,913) |
|
| (84,454) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008 |
| 1,500,000 |
|
|
1,500 |
|
| 107,750 |
|
|
(76,373) |
|
| (9,913) |
|
|
(86,286) |
|
| 32,877 |
|
|
(9,913) |
|
| 22,964 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| issuance of convertible notes payable |
|
|
|
|
|
|
|
2,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,640 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection with |
| 15,000 |
|
| 15 |
|
| 4,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,200 | ||
| sale of security units for cash at $0.50 per unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with sale |
|
|
|
|
|
|
|
3,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,300 | ||
|
of security units for cash at $0.50 per unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(53,977) |
|
|
6,808 |
|
|
(47,169) |
|
|
(53,977) |
|
|
6,808 |
|
|
(47,169) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31 2008 |
|
1,515,000 |
|
$ |
1,515 |
|
$ |
117,875 |
|
$ |
(130,350) |
|
$ |
(3,105) |
|
$ |
(133,455) |
|
$ |
(21,100) |
|
$ |
(3,105) |
|
$ |
(14,065) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements. |
- 7 -
Hydrodynex, Inc. | ||||||||||||||||
(A Development Stage Company) | ||||||||||||||||
Statements of Cash Flows | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| For the Period from |
| ||
|
|
|
|
|
|
| For the Six Months |
|
|
For the Six Months |
|
| May 12, 2006 |
| ||
|
|
|
|
|
|
| Ended |
|
|
Ended |
|
| (inception) through |
| ||
|
|
|
|
|
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
December 31, 2008 |
| ||
|
|
|
|
|
|
| (Unaudited) |
|
|
(Unaudited) |
|
| (Unaudited) |
| ||
|
|
|
|
|
|
|
(As Restated) |
|
|
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Loss |
|
|
|
$ |
(47,169) |
| $ |
(15,755) |
|
$ |
(133,455) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Adjustments to reconcile net loss to net cash |
|
|
|
|
|
|
|
|
|
|
| |||||
|
used in operating activities |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Stock options issued for director fees |
|
|
|
- |
|
|
- |
|
|
2,750 |
| ||||
|
Depreciation expense |
|
|
|
129 |
|
| - |
|
|
178 |
| ||||
|
Discount on convertible notes payable |
|
|
| 1,008 |
|
| - |
|
| 1,008 |
| ||||
| Stock options issued for services |
|
|
| - |
|
|
- |
|
| 1,500 |
| ||||
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
Prepaid expenses |
|
|
| 750 |
|
|
(14,892) |
|
| 1,500 |
| |||
|
|
Advances on purchases |
|
|
|
- |
|
|
- |
|
|
(26,991) |
| |||
|
| Prepaid patent applications costs |
|
|
| - |
|
|
- |
|
| (6,997) |
| |||
|
|
Deferred license fees |
|
|
|
- |
|
|
- |
|
|
(68,175) |
| |||
|
| Accounts payable and accrued liabilities |
|
|
| 7,410 |
|
|
(3,846) |
|
| 23,920 |
| |||
|
|
License fees payable |
|
|
|
(6,808) |
|
|
- |
|
|
54,888 |
| |||
NET CASH USED IN OPERATING ACTIVITIES |
|
|
| (44,680) |
|
|
(34,493) |
|
|
(149,874) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
| Purchase of office equipment |
|
|
|
- |
|
|
- |
|
|
(1,288) |
| ||||
NET CASH USED IN INVESTING ACTIVITIES |
|
|
| - |
|
|
- |
|
|
(1,288) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
| Accrued expenses - related party |
|
|
|
15,100 |
|
|
- |
|
|
15,100 |
| ||||
|
Proceeds from note payable - related party |
|
|
|
11,975 |
|
| - |
|
|
15,821 |
| ||||
|
Repayment of note payable - related party |
|
|
| (2,000) |
|
| - |
|
| (3,846) |
| ||||
| Proceeds from convertible notes payable |
|
|
| 12,000 |
|
|
- |
|
| 12,000 |
| ||||
| Proceeds from sale of common stock and warrants |
|
|
|
7,500 |
|
|
100,000 |
|
|
112,500 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
|
44,575 |
|
|
100,000 |
|
|
151,575 |
| |||||
NET CHANGE IN CASH |
|
|
| (105) |
|
|
65,507 |
|
| 413 |
| |||||
Cash, Beginning of Period |
|
|
| 518 |
|
| 16 |
|
| - |
| |||||
Cash, End of Period |
|
| $ |
413 |
| $ |
65,523 |
| $ |
413 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURE OF |
|
|
|
|
|
|
|
|
|
|
| |||||
| CASH FLOWS INFORMATION: |
|
|
|
|
|
|
|
|
|
|
| ||||
| Interest paid |
|
|
$ |
- |
|
$ |
80 |
|
$ |
135 |
| ||||
|
Income tax paid |
|
|
$ |
- |
| $ |
- |
|
$ |
- |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
NON-CASH FINANCING AND INVESTING TRANSACTIONS: |
|
|
|
|
|
|
|
|
|
| ||||||
|
warrants issued in connection with issuance of convertible debt |
$ |
2,640 |
|
|
- |
|
$ |
2,640 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
See accompanying notes to the financial statements. |
- 8 -
Hydrodynex, Inc.
(A Development Stage Company)
December 31, 2008 and 2007
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 marketing and distribution of AO-System (Anodic Oxidation) water treatment units under an exclusive license agreement for the Territory of North America Comprising United States, Canada and Mexico.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
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 10 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, 2008 and notes thereto contained in the information as part of the Companys amended Annual Report on Form 10KA filed with the SEC on November 6, 2009.
Development stage company
The Company is a development stage company as defined by Statement of Financial Accounting Standards No. 7 Accounting and Reporting by Development Stage Enterprises (SFAS No. 7). 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 Companys development stage activities.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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. Significant estimates include the estimated useful life of office equipment and the future manufacturing of AO-System by the Company to recover prepaid patent costs and deferred license fees. Actual results could differ from those estimates.
Fiscal year
The Company elected June 30 as its fiscal year ending date upon its formation.
Reclassification
Certain amounts in the prior period balance sheet have been reclassified to conform to the current period presentation.
Cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Advance on purchases
- 9 -
Advance on purchases primarily represents amounts paid to the vendor for future delivery of products, all of which were fully or partially refundable depending upon the terms and conditions of the purchase agreements.
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.
Prepaid patent application costs
The Company has adopted the guidelines as set out in Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (SFAS No. 142) for prepaid patent application costs. Under the requirements as set out in SFAS No. 142, the Company capitalizes and amortizes patent application costs associated with the licensed product the Company intends to sell pursuant to the Exclusive License Agreement, entered into on September 3, 2007, over their remaining legal lives, estimated useful lives, or the term of the contract, whichever is shorter. All internally developed process costs incurred to the point when a patent application is to be filed are expensed as incurred and classified as research and development costs. Patent application costs, generally legal costs, thereafter incurred, are capitalized pending disposition of the individual patent application, and are subsequently either amortized based on the initial patent life granted, generally fifteen (15) to twenty (20) years for domestic patents and five (5) to twenty (20) years for foreign patents, or expensed if the patent application is rejected. The costs of defending and maintaining patents are expensed as incurred. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.
Deferred license fees
The Company has adopted the guidelines as set out in Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (SFAS No. 142) for deferred license fees. Under the requirements as set out in SFAS No. 142, the Company records all non-refundable license fees in connection with the Exclusive License Agreement, entered into on September 3, 2007, as deferred license fees recoupable from the future Product Royalty, which is 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 as the Company is in the development stage and intends to manufacture or assemble the AO-System upon the AO-System being certified and approved by the United States Environmental Protection Agency (EPA) for sale on a commercial basis in the United States. The Company will amortize deferred license fees over the remaining legal life of the patent of the AO System, or the estimated useful life, or the term of the contract, whichever is shorter. The Company will expend deferred license fees as license fees in the event that the Company decides not to manufacture or assemble the AO-System.
Impairment of long-lived assets
The Company follows Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144) for its long-lived assets. The Companys long-lived assets, which include office equipment, prepaid patent application costs and deferred license fees 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 assets 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 or amortized over the newly determined remaining estimated useful lives. The Company determined that there were no impairments of long-lived assets as of December 31, 2008 or 2007.
Fair value of financial instruments
The Company applies Statement of Financial Accounting Standards No. 107 Disclosures about fair value of Financial Instruments (SFAS No. 107) for disclosures about fair value of its financial instruments and has adopted Financial Accounting Standards Board (FASB) No. 157 Fair Value Measurements (SFAS No. 157) to measure the fair value of its financial instruments. SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, SFAS No. 157 establishes a fair value hierarchy which prioritizes the inputs to valuation
- 10 -
techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by SFAS No. 157 are described below:
Level 1 |
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
Level 2 |
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
Level 3 |
|
Pricing inputs that are generally observable inputs and not corroborated by market data. |
The carrying amounts of the Companys financial assets and liabilities, such as cash, prepaid expenses, advance on purchase, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments.
The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at December 31, 2008 or 2007, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the interim period ended December 31, 2008 or 2007 or for the period from May 12, 2006 (inception) through December 31, 2008.
Revenue recognition
The Company follows the guidance of the United States Securities and Exchange Commissions Staff Accounting Bulletin (SAB) No. 101 Revenue Recognition (SAB No. 101), as amended by SAB No. 104 (SAB No. 104) 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 has adopted the guidelines as set out in Statement of Financial Accounting Standards No. 52 Foreign currency translation (SFAS No. 52) for Foreign currency transactions. Pursuant to Paragraph 15 of SFAS No. 52, foreign currency transactions are transactions denominated in a currency other than U.S. Dollar, the Companys 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 Paragraph 16, of SFAS No. 52, for other than forward exchange contracts as defined in paragraphs 17-19 of SFAS No. 52, 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 paragraphs 26-28 of SFAS No. 52; 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 and equity instruments issued to other than employees for acquiring goods or services
The Company accounted for its stock based compensation under the recognition and measurement principles of the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (SFAS No. 123R) using the modified prospective method for transactions in which the Company obtains employee services in share-based payment transactions and the Financial Accounting Standards Board Emerging Issues Task Force Issue No. 96-18
- 11 -
Accounting For Equity Instruments That Are Issued To Other Than Employees For Acquiring, Or In Conjunction With Selling Goods Or Services (EITF 96-18) for share-based payment transactions with parties other than employees provided in SFAS No. 123R. 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 third-party performance is complete or the date on which it is probable that performance will occur.
The Companys 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 Companys policy is to issue new shares of common stock to satisfy stock option exercises.
The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing valuation model with weighted-average assumptions as discussed in each grant. The ranges of assumptions for inputs for stock options issued under the 2006 Plan during the interim period ended December 31, 2008 and 2007 are as follows:
· |
The Company uses historical data to estimate employee termination behavior. The expected life of options granted is determined using the simplified method as prescribed in SEC Staff Accounting Bulletin No. 107 (SAB 107) and represents the period of time the options are expected to be outstanding. |
· |
The expected volatility is based on a combination of the historical volatility of the comparable companies stock over the contractual life of the options. |
· |
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. |
· |
The expected dividend yield is based on the Companys current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the option. |
Income taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes (SFAS No. 109). Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when 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 Financial Accounting Standards Board (FASB) Interpretation No. 48 Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 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 FIN 48, 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. FIN 48 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 FIN 48.
Commitments and 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.
Net loss per common share
Net loss per common share is computed pursuant to Statement of Financial Accounting Standards No. 128 Earnings Per Share (SFAS No. 128). Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period to reflect the potential dilution that could occur from common shares issuable through stock options and warrants.
- 12 -
The following table shows the weighted-average number of potentially outstanding dilutive shares excluded from the diluted net loss per share calculation for the interim period ended December 31, 2008 and 2007 as they were anti-dilutive:
|
|
|
| Weighted average number of potentially outstanding dilutive shares |
| ||||||||||
|
|
|
|
|
|
|
For the Interim Period Ended December 31, 2008 |
|
|
For the Interim Period Ended December 31, 2007 |
| ||||
Stock options issued on June 30, 2008 under the 2006 Plan still outstanding |
|
|
|
|
|
|
|
|
|
70,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued and outstanding in connection with the issuance of convertible notes payable issued between July 24, 2008 and August 23, 2008 with an exercise price of $1.00 per share and expiring three (3) years from the date of issuance |
|
|
|
|
|
|
|
|
|
12,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued and outstanding in connection with the sale of 15,000 shares of its common stock on November 25, 2008 with an exercise price of $1.00 per share and expiring three (3) years from the date of issuance |
|
|
|
|
|
|
|
|
|
15,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total potentially outstanding dilutive shares |
|
|
|
|
|
|
|
|
|
97,000 |
|
|
| - |
|
Cash flows reporting
The Company has adopted Statement of Financial Accounting Standards No. 95 Statement of Cash Flows (SFAS No. 95) 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 SFAS No. 95 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.
Recently issued accounting pronouncements
In June 2003, the Securities and Exchange Commission (SEC) adopted final rules under Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404), as amended by SEC Release No. 2009-213 on October 2, 2009. Under the provisions of Section 404 of the Sarbanes-Oxley Act, public companies and their independent auditors are each required to report to the public on the effectiveness of a companys internal controls. The smallest public companies with a public float below $75 million have been given extra time to design, implement and document these internal controls before their auditors are required to attest to the effectiveness of these controls. This extension of time will expire beginning with the annual reports of companies with fiscal years ending on or after June 15, 2010. Commencing with its annual report for the fiscal year ending June 30, 2010, the Company will be required to include a report of management on its internal control over financial reporting. The internal control report must include a statement
· |
of managements responsibility for establishing and maintaining adequate internal control over its financial reporting; |
· |
of managements assessment of the effectiveness of its internal control over financial reporting as of year end; and |
· |
of the framework used by management to evaluate the effectiveness of the Companys internal control over financial reporting. |
Furthermore, it is required to file the auditors attestation report separately on the Companys internal control over financial reporting on whether it believes that the Company has maintained, in all material respects, effective internal control over financial reporting.
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133" (SFAS 161). SFAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 required qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of
- 13 -
and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. SFAS 161 is effective for fiscal years beginning after November 15, 2008 and will be effective for the Company in fiscal year 2010. Early adoption is prohibited; however, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The Company has not yet determined the effect, if any, that the adoption of this standard will have on its financial position or results of operations.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 will provide framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. SFAS 162 will be effective 60 days following the Securities and Exchange Commissions approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411. The Company does not expect the adoption of SFAS 162 will have a material impact on its financial condition or results of operation.
In May 2009, FASB issued FASB Statement No. 165 Subsequent events (SFAS No. 165) to be effective for the interim or annual financial periods ending after June15, 2009. The objective of this Statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth: 1. The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements. 2. The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements. 3. The disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The effect of adoption of SFAS No. 165 on the Companys financial position and results of operations did not have a material effect.
In June 2009, the FASB approved the FASB Accounting Standards Codification (the Codification) as the single source of authoritative nongovernmental U.S. GAAP to be launched on July 1, 2009. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the Codification will be considered non-authoritative. The Codification is effective for interim and annual periods ending after September 15, 2009. The Company does not expect the adoption to have a material impact on its consolidated financial position, results of operations or cash flows.
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 RESTATEMENTS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to the original issuance of the Companys financial statements for the interim period ended December 31, 2008 as included in its amended quarterly report on Form 10-Q/A-3 filed on May 22, 2009, the Companys management identified certain accounting misstatements during the period. As a result of issues identified in the review of its financial statements for the fiscal year ended June 30, 2008, its Board of Directors, in consultation with management and Li & Company, PC, its independent registered public accounting firm, concluded that its previously issued financial statements for the interim period ended December 31, 2008, should no longer be relied upon because of certain accounting misstatements in those financial statements. Accordingly, the Company has restated its previously issued financial statements for the period. Details of the misstatements are set out below:
- 14 -
Misstatements for the fiscal year ended June 30, 2008 carried forward to the interim period ended December 31, 2008:
|
|
Misstatements Dr. (Cr.) |
|
|
Impact to Statement of Operations |
| ||
(i) To separate prepaid patents application costs from deferred license fees |
|
|
|
|
|
|
|
|
Prepaid patent applications costs |
| $ |
6,997 |
|
|
|
|
|
Deferred license fees |
|
| (6,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii) To reclassify foreign currency transaction (gain) loss from the payment of license fees payable denominated in previously recorded as deferred license fees |
|
|
|
|
|
|
|
|
Deficit accumulated during the development stage (Foreign currency transactions (gain) loss) |
| $ |
1,257 |
|
|
|
(1,257 |
) |
Deferred license fees |
|
|
(1,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(iii) To record second and third license fee installment payments under exclusive license agreement not booked |
|
|
|
|
|
|
|
|
Deferred license fees |
| $ |
54,540 |
|
|
|
|
|
License fees payable |
|
| (54,540 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(iv) To adjust License fees payable denominated in to reflect the exchange rate at June 30, 2008 |
|
|
|
|
|
|
|
|
Deficit accumulated during the development stage (Foreign currency translation (gain) loss) |
| $ |
8,656 |
|
|
|
(8,656 |
) |
License fees payable |
|
|
(8,656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(v) To reclassify the License fee payment required to be made on November 30, 2008 from License fees payable to Current portion of License fees payable. |
|
|
|
|
|
|
|
|
License fees payable |
| $ |
31,598 |
|
|
|
|
|
Current portion of License fees payable |
|
| (31,598 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(9,913 |
) |
Misstatements for the three months ended September 30, 2008:
|
|
Misstatements Dr. (Cr.) |
|
|
Impact to Statement of Operations |
| ||
|
|
|
|
|
|
|
|
|
(vi) To adjust License fees payable denominated in to reflect the exchange rate at September 30, 2008 |
|
|
|
|
|
|
|
|
Current portion of License fees payable |
|
|
2,700 |
|
|
|
|
|
License fees payable |
|
| 2,700 |
|
|
|
|
|
Foreign currency translation (gain) loss |
| $ |
(5,400 |
) |
|
| 5,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(vii) To record the warrants issued in connection with the issuance of convertible notes payable |
|
|
|
|
|
|
|
|
Financing cost |
| $ |
2,640 |
|
|
|
|
|
Additional paid-in capital |
|
| (2,640 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(viii) To record the warrants issued in connection with the issuance of convertible notes payable |
|
|
|
|
|
|
|
|
Interest expense |
| $ |
440 |
|
|
|
(440 |
) |
Financing cost |
|
|
(440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,960 |
|
- 15 -
Misstatements for the three months ended December 31, 2008:
|
|
Misstatements Dr. (Cr.) |
|
|
Impact to Statement of Operations |
| ||
|
|
|
|
|
|
|
|
|
(ix) To adjust License fees payable denominated in to reflect the exchange rate at December 31, 2008 |
|
|
|
|
|
|
|
|
Current portion of License fees payable |
|
|
704 |
|
|
|
|
|
License fees payable |
|
| 704 |
|
|
|
|
|
Foreign currency translation (gain) loss |
| $ |
(1,408 |
) |
|
| 1,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(x) To reverse the warrants issued in connection with the issuance of convertible notes payable |
|
|
|
|
|
|
|
|
Financing cost |
| $ |
(2,640 |
) |
|
|
|
|
Additional paid-in capital |
|
| 2,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(xi) To reverse the warrants issued in connection with the issuance of convertible notes payable |
|
|
|
|
|
|
|
|
Interest expense |
| $ |
(440 |
) |
|
| 440 |
|
Financing cost |
|
|
440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,848 |
|
- 16 -
The following tables present the impact of the above mentioned adjustments to the financial information
Balance sheet information:
The restated balance sheet is set out as follows:
Hydrodynex, Inc. | |||||||||||||
(A Development Stage Company) | |||||||||||||
Balance Sheets | |||||||||||||
| |||||||||||||
|
|
|
|
|
| December 31, 2008 |
|
|
December 31, 2008 |
|
| December 31, 2008 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
| (As Previously Reported) |
|
| (Adjustments) |
|
| (As Restated) |
|
Assets |
|
|
|
|
|
|
|
|
|
| |||
Current Assets |
|
|
|
|
|
|
|
|
|
| |||
| Cash |
| $ |
413 |
| $ |
|
|
$ | 413 |
| ||
| Prepaid expenses |
|
| - |
|
|
|
|
|
- |
| ||
|
Advance on purchases |
|
|
26,991 |
|
|
|
|
|
26,991 |
| ||
|
|
Total Current Assets |
|
|
27,404 |
|
|
- |
|
|
27,404 |
| |
Office Equipment |
|
|
|
|
|
|
|
|
|
| |||
| Office equipment |
|
| 1,288 |
|
|
|
|
|
1,288 |
| ||
|
Less: Accumulated depreciation |
|
|
(178) |
|
|
|
|
|
(178) |
| ||
Office Equipment, net |
|
|
1,110 |
|
|
- |
|
|
1,110 |
| |||
Other Assets |
|
|
|
|
|
|
|
|
|
| |||
| Prepaid patent application costs |
|
| - |
|
| 6,997 |
|
| 6,997 |
| ||
| Deferred license fees |
|
|
21,889 |
|
|
46,286 |
|
|
68,175 |
| ||
|
| Total Other Assets |
|
|
21,889 |
|
|
53,283 |
|
|
75,172 |
| |
Total Assets |
|
$ |
50,403 |
|
$ |
53,283 |
|
$ |
103,686 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity (Deficit) |
|
|
|
|
|
|
|
|
|
| |||
Current Liabilities: |
|
|
|
|
|
|
|
|
|
| |||
| Accounts payable |
| $ |
21,669 |
| $ |
|
|
$ | 21,669 |
| ||
| Accrued expenses |
|
| 1,861 |
|
|
|
|
|
1,861 |
| ||
|
Accrued expenses - related party |
|
| 15,100 |
|
|
|
|
|
15,100 |
| ||
|
Current portion of license fees payable |
|
| - |
|
| 28,194 |
|
| 28,194 |
| ||
| Interest payable |
|
|
390 |
|
|
|
|
| 390 |
| ||
| Notes payable - related party |
|
| 11,975 |
|
|
|
|
|
11,975 |
| ||
|
Convertible notes payable |
|
| 12,000 |
|
|
|
|
|
12,000 |
| ||
|
Less: convertible notes payable debt discount |
|
|
(1,632) |
|
|
|
|
|
(1,632) |
| ||
|
| Total Current Liabilities |
|
|
61,363 |
|
|
28,194 |
|
|
89,557 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License Fees Payable, net of current portion |
|
|
|
|
|
28,194 |
|
|
28,194 |
| |||
Total Liabilities |
|
|
61,363 |
|
|
56,388 |
|
|
117,751 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit) |
|
|
|
|
|
|
|
|
|
| |||
Preferred stock, $.001 par value, 5,000,000 shares authorized: |
|
|
|
|
|
|
|
|
|
| |||
|
none issued or outstanding |
|
|
- |
|
|
|
|
| - |
| ||
Common stock, $.001 par value, 75,000,000 shares authorized, |
|
|
|
|
|
|
|
|
|
| |||
|
1,515,000 shares issued and outstanding |
|
|
1,515 |
|
|
|
|
| 1,515 |
| ||
Additional paid-in capital |
|
| 117,875 |
|
|
- |
|
| 117,875 |
| |||
Deficit accumulated during the development stage |
|
|
(130,350) |
|
|
(3,105) |
|
|
(133,455) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity (Deficit) |
|
|
(10,960) |
|
|
(3,105) |
|
|
(14,065) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity (Deficit) |
| $ |
50,403 |
|
$ |
53,283 |
| $ |
103,686 |
|
- 17 -
Statements of operations information:
The restated statement of operations is set out as follows:
Hydrodynex, Inc. | ||||||||||||
(A Development Stage Company) | ||||||||||||
Statements of Operations | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Six Months |
|
|
For the Six Months |
|
| For the Six Months |
|
|
|
|
|
| Ended |
|
|
Ended |
|
| Ended |
|
|
|
|
|
|
December 31, 2008 |
|
|
December 31, 2008 |
|
|
December 31, 2008 |
|
|
|
|
|
|
(Unaudited) |
|
| (Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
(As Previously Reported) |
|
|
(Adjustments) |
|
|
(As Restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES |
|
$ | - |
|
$ |
- |
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD |
|
| - |
|
| - |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
| - |
|
| - |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees |
|
| 15,000 |
|
|
|
|
|
15,000 | ||
|
Depreciation |
|
| 129 |
|
|
|
|
|
129 | ||
| Board of directors fees |
|
| - |
|
|
|
|
|
- | ||
|
General and administrative |
|
|
3,830 |
|
|
|
|
| 3,830 | ||
|
Legal and accounting |
|
|
33,586 |
|
|
|
|
| 33,586 | ||
| Travel |
|
|
34 |
|
|
|
|
| 34 | ||
|
Advertising and promotion |
|
|
- |
|
|
|
|
|
- | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
|
52,579 |
|
|
- |
|
|
52,579 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
|
(52,579) |
|
|
- |
|
|
(52,579) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSES |
|
|
|
|
|
|
|
|
| |||
| Foreign currency transactions (gain) loss |
|
|
|
| (6,808) |
|
|
(6,808) | |||
| Interest expense |
|
| 1,398 |
|
| - |
|
|
1,398 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (Income) Expenses |
|
|
1,398 |
|
|
(6,808) |
|
|
(5,410) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE TAXES |
|
| (53,977) |
|
| 6,808 |
|
| (47,169) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION |
|
| - |
|
| - |
|
|
- | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
| $ |
(53,977) |
|
$ |
6,808 |
| $ |
(47,169) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE - |
|
|
|
|
|
|
|
|
| |||
| BASIC AND DILUTED: |
| $ |
(0.04) |
| $ |
0.00 |
| $ |
(0.03) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted Common Shares Outstanding - |
|
|
|
|
|
|
|
| |||
|
|
basic and diluted |
|
|
1,502,935 |
|
|
1,502,935 |
|
|
1,502,935 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
- 18 -
Hydrodynex, Inc. | ||||||||||||
(A Development Stage Company) | ||||||||||||
Statements of Operations | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months |
|
|
For the Three Months |
|
| For the Three Months |
|
|
|
|
|
| Ended |
|
|
Ended |
|
| Ended |
|
|
|
|
|
|
December 31, 2008 |
|
|
December 31, 2008 |
|
|
December 31, 2008 |
|
|
|
|
|
|
(Unaudited) |
|
| (Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
(As Previously Reported) |
|
|
(Adjustments) |
|
|
(As Restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES |
|
$ | - |
|
$ |
- |
| $ |
- | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD |
|
| - |
|
| - |
|
| - | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
| - |
|
| - |
|
| - | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees |
|
| 7,500 |
|
|
|
|
|
7,500 | ||
|
Depreciation |
|
| 65 |
|
|
|
|
|
65 | ||
| General and administrative |
|
| 2,643 |
|
|
|
|
|
2,643 | ||
|
Legal and accounting |
|
| 11,205 |
|
|
|
|
|
11,205 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Operating Expenses |
|
|
21,413 |
|
| - |
|
|
21,413 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
|
(21,413) |
|
| - |
|
|
(21,413) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSES |
|
|
|
|
|
|
|
|
| |||
| Foreign currency transactions (gain) loss |
|
|
|
| (1,408) |
|
| (1,408) | |||
| Interest expense |
|
|
1,248 |
|
| (440) |
|
| 808 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Other (Income) Expenses |
|
|
1,248 |
|
| (1,848) |
|
|
(600) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE TAXES |
|
|
(22,661) |
|
| 1,848 |
|
|
(20,813) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION |
|
|
- |
|
| - |
|
| - | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
| $ |
(22,661) |
| $ |
1,848 |
| $ |
(20,813) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE - |
|
|
|
|
|
|
|
|
| |||
| BASIC AND DILUTED: |
|
$ |
(0.02) |
| $ |
0.00 |
|
$ |
(0.01) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Common Shares Outstanding - |
|
|
|
|
|
|
|
| |||
|
|
basic and diluted |
|
|
1,505,870 |
|
|
1,505,870 |
|
|
1,505,870 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
Statement of cash flows information:
The restated statement of cash flows is set out as follows:
Hydrodynex, Inc. | ||||||||||||||
(A Development Stage Company) | ||||||||||||||
Statements of Cash Flows | ||||||||||||||
|
| |||||||||||||
|
|
|
|
|
|
|
For the Six Months |
|
| For the Six Months |
|
|
For the Six Months |
|
|
|
|
|
|
|
| Ended |
|
|
Ended |
|
| Ended |
|
|
|
|
|
|
|
| December 31, 2008 |
|
|
December 31, 2008 |
|
| December 31, 2008 |
|
|
|
|
|
|
|
| (Unaudited) |
|
|
(Unaudited) |
|
| (Unaudited) |
|
|
|
|
|
|
|
| (As Previously Reported) |
|
| (Adjustments) |
|
| (As Restated) |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||
Net Loss |
|
|
|
$ |
(53,977) |
| $ |
6,808 |
|
$ |
(47,169) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash |
|
|
|
|
|
|
|
|
|
|
| |||
|
used in operating activities |
|
|
|
|
|
|
|
|
|
|
| ||
|
Stock options issued for director fees |
|
|
|
- |
|
|
|
|
| - |
| ||
| Depreciation expense |
|
|
| 129 |
|
|
|
|
|
129 |
| ||
|
Discount on convertible notes payable |
|
|
|
1,008 |
|
|
|
|
| 1,008 |
| ||
| Stock options issued for services |
|
|
|
|
|
|
|
|
| - |
| ||
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Prepaid expenses |
|
|
|
750 |
|
|
|
|
| 750 |
| |
|
|
Advances on purchases |
|
|
|
|
|
|
|
|
| - |
| |
|
|
Prepaid patent applications costs |
|
|
|
|
|
|
|
|
| - |
| |
|
|
Deferred license fees |
|
|
|
|
|
|
|
|
| - |
| |
|
|
Accounts payable and accrued liabilities |
|
|
|
7,410 |
|
|
|
|
|
7,410 |
| |
|
| License fees payable |
|
|
|
|
|
| (6,808) |
|
| (6,808) |
| |
|
|
Due to related party |
|
|
|
15,100 |
|
| (15,100) |
|
|
- |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES |
|
|
| (29,580) |
|
|
(15,100) |
|
|
(44,680) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||
| Accrued expenses - related party |
|
|
|
|
|
| 15,100 |
|
| 15,100 |
| ||
| Proceeds from note payable - related party |
|
|
| 11,975 |
|
|
|
|
|
11,975 |
| ||
|
Repayment of note payable - related party |
|
|
|
(2,000) |
|
|
|
|
| (2,000) |
| ||
| Proceeds from convertible notes payable |
|
|
| 12,000 |
|
|
|
|
|
12,000 |
| ||
|
Proceeds from sale of common stock and warrants |
|
|
|
7,500 |
|
|
|
|
| 7,500 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
|
29,475 |
|
|
15,100 |
|
|
44,575 |
| |||
NET CHANGE IN CASH |
|
|
| (105) |
|
|
- |
|
| (105) |
| |||
Cash, Beginning of Period |
|
|
| 518 |
|
|
|
|
|
518 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, End of Period |
|
|
$ |
413 |
| $ |
- |
| $ |
413 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF |
|
|
|
|
|
|
|
|
|
|
| |||
|
CASH FLOWS INFORMATION: |
|
|
|
|
|
|
|
|
|
|
| ||
|
Interest paid |
|
| $ |
|
|
$ |
|
|
$ |
- |
| ||
|
Income tax paid |
|
| $ |
- |
| $ |
- |
| $ |
- |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH FINANCING AND INVESTING TRANSACTIONS: |
|
|
|
|
|
|
|
|
|
| ||||
| warrants issued in connection with issuance of convertible debt |
$ |
2,640 |
|
$ |
- |
| $ |
2,640 |
|
- 20 -
NOTE 4 GOING CONCERN
As reflected in the accompanying financial statements, the Company had a deficit accumulated during the development stage of $133,455 at December 31, 2008 and had a net loss and cash used in operations of $47,169 and $44,680 for the interim period ended December 31, 2008, respectively, with no revenues since inception.
While the Company is attempting to commence operations and generate revenues, the Companys cash position may not be significant enough to support the Companys 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 revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Companys ability to further implement its business plan and generate revenues.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 5 ADVANCE ON PURCHASES
On February 22, 2008, the Company placed a purchase order to acquire an AO-System ® for Electrochemical Disinfection of Cold and Warm Drinking Water from Hydrosystemtechnik, GmbH for 35,250 (equivalent to $53,982 at February 22, 2008), 50% of which (17,625) has been paid on February 25, 2008 and the remaining balance of (17,625) is due and payable upon delivery. As of November 10, 2009 the AO-System ®.unit has not been delivered.
NOTE 6 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 June 30, 2009) 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 GRANTOR 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 Companys 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 Agencys 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 and payable on November 30, 2008 with $26,486 on January 26, 2009, respectively. The due date for the third installment of 20,000 was undeterminable pending EPA approval.
- 21 -
NOTE 7 CONVERTIBLE NOTES PAYABLE
Convertible notes payable at December 31, 2008 and June 30, 2008 consisted of the following:
|
|
December 31, 2008 |
|
|
June 30, 2008 |
| ||
Convertible notes payable of $12,000 issued to individual note holders from July 24, 2008 through August 23, 2008 with simple interest at 8.00% per annum due one (1) year from the date of issuance, convertible to common stock at $0.50 per share inclusive of warrants to purchase 12,000 shares at $1.00 per share expiring three (3) year from the date of issuance, all of which have been converted to shares of the Companys common stock when due. |
|
$ |
12,000 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued in connection with issuance of convertible note payable |
|
| (2,640 |
) |
|
| - |
|
|
|
|
|
|
|
|
|
|
Amortization of the fair value of warrants |
|
|
1,008 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
$ |
10,368 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
In connection with the issuance of convertible notes payable issued between July 24, 2008 and August 23, 2008, the Company issued warrants to purchase an aggregate of 12,000 shares of its common stock to the convertible note holders 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 fair value of these warrants granted, estimated on the date of grant, was $2,640, which has been recorded as a debit to financing cost and a credit to additional paid-in capital, using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
July 24, 2008 thru August 25, 2008 |
|
|
|
|
|
|
|
|
|
|
Expected option life (year) |
|
|
|
|
|
| 3 |
|
Expected volatility |
|
|
|
|
|
| 163.00% |
|
Risk-free interest rate |
|
|
|
|
|
| 3.23% |
|
Dividend yield |
|
|
|
|
|
| 0.00% |
|
The Company amortizes the fair value of the warrants of $2,640 over the life of the convertible notes payable of one (1) year from the date of issuance, $1,008 of which was amortized as financing cost for the interim period ended December 31, 2008.
NOTE 8 STOCKHOLDERS EQUITY (DEFICIT)
Sale of common stock
The Company was incorporated on May 12, 2006. In May 2006, 200,000 shares of its common stock were sold to the Companys founder and President at $0.01 per share for $2,000 in cash.
During fiscal year 2007, the Company sold 300,000 shares of its common stock to the Companys founder and President at $0.01 per share for $3,000 in cash.
During fiscal year 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 Companys 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:
- 22 -
|
|
|
|
|
|
| November 25, 2008 |
|
|
|
|
|
|
|
|
|
|
Expected option life (year) |
|
|
|
|
|
| 3 |
|
Expected volatility |
|
|
|
|
|
| 163.00% |
|
Risk-free interest rate |
|
|
|
|
|
| 3.34% |
|
Dividend yield |
|
|
|
|
|
| 0.00% |
|
Stock option plan
On May 19, 2006, the Companys 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 Companys common stock may be subject to, or issued pursuant to, the terms of the plan. The Companys 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 Companys policy is to issue new shares of common stock to satisfy stock option exercises.
For the fiscal year ended 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 Companys 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 December 31, 2008, the Company did not grant any stock options nor record any stock-based compensation.
The table below summarizes the Companys stock option activity for the interim period ended December 31, 2008:
|
|
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, December 31, 2008 |
|
|
70,000 |
|
|
|
$ | 0.25 |
|
|
| $ |
0.25 |
|
|
|
4,250 |
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable, December 31, 2008 |
|
|
70,000 |
|
|
|
$ | 0.25 |
|
|
| $ |
0.25 |
|
|
|
4,250 |
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2008 |
|
|
- |
|
|
|
$ | - |
|
|
| $ |
- |
|
|
|
- |
|
|
|
$ |
- |
|
- 23 -
The following table summarizes information concerning outstanding and exercisable stock options as of December 31, 2008:
|
|
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 |
|
| 4.0 |
|
$ | 0.25 |
|
| 70,000 |
|
| 5.0 |
|
$ | 0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.25 |
|
| 70,000 |
|
|
4.0 |
|
$ |
0.25 |
|
| 70,000 |
|
|
5.0 |
|
$ |
0.25 |
|
As of December 31, 2008, there were 930,000 shares of stock options available for issuance under the 2006 Plan.
Warrants
(i) 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 and 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.
(ii) 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.
The table below summarizes the Companys warrants activity for the interim period ended December 31, 2008 and 2007:
|
|
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 |
|
|
|
| - |
|
|
Canceled |
|
| - |
|
|
|
| - |
|
|
|
| - |
|
|
|
- |
|
|
|
|
- |
|
|
Exercised |
|
|
- |
|
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
Expired |
|
| - |
|
|
|
| - |
|
|
|
| - |
|
|
|
- |
|
|
|
|
- |
|
|
Balance, December 31, 2008 |
|
|
27,000 |
|
|
|
$ |
1.00 |
|
|
|
$ |
1.00 |
|
| $ |
5,940 |
|
|
| $ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned and exercisable, December 31, 2008 |
|
|
27,000 |
|
|
|
$ | 1.00 |
|
|
| $ |
1.00 |
|
| $ |
5,940 |
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2008 |
|
|
- |
|
|
|
$ | 1.00 |
|
|
| $ |
1.00 |
|
| $ |
- |
|
|
|
$ |
- |
|
|
The following table summarizes information concerning outstanding and exercisable warrants as of December 31, 2008:
|
| 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 |
| ||||||
$1.00 |
|
| 27,000 |
|
|
2.00 |
|
$ |
1.00 |
|
| 27,000 |
|
| 2.00 |
|
$ |
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.00 |
|
|
27,000 |
|
|
2.00 |
|
$ |
1.00 |
|
|
27,000 |
|
|
1.00 |
|
$ |
1.00 |
|
- 24 -
NOTE 9 RELATED PARTY TRANSACTIONS
Notes payable to stockholder
The president of the Company loaned the company $ 2,000 without interest on June 12, 2008 to be repaid before December 31, 2008. The note was fully satisfied on July 24, 2008.
During the quarter ended December 31, 2008, Mr. Edington, then president of the Company advanced the Company $1,750 to be repaid on or before January 31, 2009, and $10,225 to be repaid on or before March 31, 2009, respectively. On January 23, 2009, $11,000 was repaid on the outstanding loan due to Jerod Edington. On February 6, 2009, the balance of $975 was repaid on the outstanding loan due to Jerod Edington. Both loans have been fully satisfied as of February 6, 2009.
Consulting services from then President, Director and Stockholder
Consulting services provided by then President, Director and Stockholder for the interim period ended December 31, 2008 and 2007 is as follows:
|
|
December 31, 2008 |
|
|
December 31, 2007 |
| ||
Consulting services received and consulting fees booked |
|
$ |
15,000 |
|
|
$ |
7,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ) | ||
|
|
$ |
15,000 |
|
| $ |
7,500 |
|
|
|
|
|
|
|
|
NOTE 10 SUBSEQUENT EVENTS
The Company has evaluated all events that occurred after the balance sheet date through February 6, 2009 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:
On January 23, 2009, Hydrodynex, Inc. entered into definitive agreements relating to the private placement of $50,000 of its securities through the sale of 250,000 shares of its common stock at $0.20 per share to an accredited investor. The purchaser in the private placement was Ronald Kunisaki.
- 25 -
Item 2. Managements 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.
General
Hydrodynex, Inc. was organized under the laws of the state of Nevada on May 12, 2006 and is doing business as a marketer of AO-System ® water treatment units. We are structured expressly as a marketing entity at this time and therefore we do not engage in the design, development, or manufacturing of products. We intend to operate only in North America under the terms of our License agreement with Hydrosystemtechnik GmbH. Since commencement of operations in 2006, our efforts to date have been principally devoted to and limited primarily to organization, initial capitalization, business and product 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 will make Legionella our primary target market because of its wide prevalence and the high percentage of death resulting from infection.
Under our license agreement, as amended, with our licensor Hydrosystemtechnik, we paid two non-refundable license fees in the amount of 10,000 ($14,892) in 2007, and 20,000 ($26,486) in 2009, both of which are nonrefundable and creditable to future royalty payments. A third license fee in the amount of 20,000 will be due upon certification and approval of the AO-Systems® by the U.S. Environmental Protection Agency for commercial sales in the United States.
Under the terms of our license agreement with our licensor Hydrosystemtechnik, we paid a 50% deposit for the purchase of a test model AO-Systems® unit in the amount of 17,625 ($ 26,991) in 2008. We were required, under the original license agreement with our licensor, to make the complete purchase of a unit on September 3, 2008. Under the terms of the amended license agreement dated August 30, 2008, and with additional extensions granted, Hydrosystemtechnik agreed in writing to an extension of the purchase completion date for our test AO-Systems® unit from September 3, 2008 to April 30, 2009.
Under the terms of our license agreement with our licensor Hydrosystemtechnik we are required to gain approval from the Environmental Protection Agency by March 3, 2010, thirty months after the effective date of our license agreement. The verification and certification process leading to such approval involves extensive testing and is an expensive process. We will have to raise additional capital to pay for the independent verification and certification process leading to approval. We have
- 26 -
made contact with staff at NSF, received price quotes, and met with NSF representatives in person. We are currently awaiting additional investment capital to pay for the second 50% payment of the test AO-Systems® reactor that we have ordered from our licensor, and the $10,000 deposit required for protocol development so that we can begin the testing process with NSF. If we fail to meet the deadline for approval from the EPA for the AO-Systems® water disinfection technology, we will not be able to commercially sell it in the United States, our license will become non-exclusive and our licensor could terminate the amended license agreement.
We are currently organizing our distribution/dealer and direct marketing programs, which consist of placing our product in commercial buildings, retirement homes, cooling towers, and military installations. Our primary focus will be on establishing the defined sales channels and supporting them with meaningful marketing programs to the extent that funds are available. We have not sold any product to date and have generated no revenues from operations.
Since we are a marketing company at this stage and are not engaged in the manufacture of our products, we have not been required to invest in assets dedicated to product design and manufacturing activities. Instead, we intend to purchase finished products on an as sold basis from the manufacturer based on receipt of an order from an end user or a distributor/dealer.
We do not intend to conduct any other additional product research and development nor do we intend to purchase any additional significant equipment at this time besides the original AO-Systems® we are purchasing for technology verification purposes. We will partake in independent technology verification which is required to certify the product for distribution in the United States.
Our plan of operation for the next 12 months, assuming sufficient capital resources are available, will be the execution of our strategic business plan. Hydrodynex intends to operate in three phases as follows:
Phase 1: Finalization of the Strategic Marketing Plan, initial start-up capital realization through a second private stock offering, undertaking independent testing, securing EPA and State certification, making application to have Hydrodynex be publicly traded on the OTC-BB 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.
Phase 3: Set-up manufacturing in the U.S. when it becomes a viable, profit-increasing option.
We will 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.
In August 2008, we raised $12,000 and issued a convertible promissory note in that amount and 12,000 three year warrants exercisable at $1.00 per share to three investors as part of a $50,000 bridge loan. The convertible promissory note earns interest at a rate of 8% per annum and matures one year from the issue date. It converts automatically into common shares at $0.50 per share upon the closing of an equity financing of at least $400,000 (including funds received under the bridge loan) prior to the maturity date. If such a financing does not close prior to the maturity date of the convertible promissory note, the holders may convert their notes into common stock at $0.25 per share on the maturity date. We anticipate completing the bridge loan financing in the first quarter of 2009.
In November 2008, we raised $7,500 by securities sold in a private transaction. Shares in this transaction were sold at $0.50 for a total of 15,000 shares issued, and this included 15,000 three year warrants exercisable at $1.00 per share.
Provided that we can raise additional capital, our projected monthly rate of expenditure is estimated at $6,000 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 of $400,000. This includes approximately $30,000 for accounting, legal and auditing fees. The balance of the funds would be utilized for independent technology verification testing, purchase of AO-System®(s) for verification testing, marketing materials, advertising, insurance, employee training, travel, office lease, licenses, shipping and import costs, employee salary, and other budget costs.
- 27 -
Subsequent Events
On January 23, 2009, we raised $50,000 by securities sold in a private transaction. Shares in this transaction were sold at $0.20 for a total of 250,000 shares issued. Ronald Kunisaki, subsequently appointed as our new President and Chief Executive Officer, was the purchaser in this private placement.
On February 6, 2009, we had significant changes in our management. Our President and Chief Executive Officer, Jerod Edington, our Treasurer and Chief Financial Officer, Derek Grant, and our Vice President, Peter Schmid, each resigned those positions. Ronald Kunisaki, Esq. was appointed as the new President and Chief Executive Officer and Richard Kunisaki, CPA (the brother of Ronald Kunisaki) was appointed as our new Treasurer and Chief Financial Officer. Mr. Grant will remain the Secretary and a director of HydroDynex, Mr. Edington will become the Vice President and Chief Operating Officer as well as a director of our company, and Peter Schmid will remain a director of our company. Both Ronald and Rickard Kunisaki were also elected as members of the expanded board of directors.
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
On October 6, 2009, upon the notification by our management and in consultation with Li & Company, PC, our independent registered public accounting firm about certain accounting misstatements in our previously issued financial statements for the fiscal year ended June 30, 2008 and quarterly periods ended September 30, 2008, December 31, 2008 and March 31, 2009. Upon the notification by our management of such misstatements, our Board of Directors concluded that our previously issued financial statements for the fiscal year ended June 30, 2008 and quarterly periods ended September 30, 2008, December 31, 2008 and March 31, 2009, should no longer be relied upon due to certain accounting misstatements in those financial statements. Such misstatements include, but are not limited to, the following: (i) to separate prepaid patents application costs from deferred license fees, (ii) to reclassify foreign currency transaction (gain) loss from the payment of license fees payable denominated in previously recorded as deferred license fees, (iii) to record second and third license fee installment payments under exclusive license agreement not booked, (iv) to adjust license fees payable denominated in Euros to reflect the exchange rate at June 30, 2009. The disclosure in this Managements Discussion and Analysis of Financial Condition and Results of Operations section has been modified to reflect the changes made to our financial statements as disclosed in Note 3 of the Notes to Financial Statements on pages 9-25 of this Form 10-Q/A-4.
Net cash used in operating activities during the six months ended December 31, 2008 was $44,680 resulting in a net loss of $47,169 as compared to net cash used in operating activities during the six months ended December 31, 2007 of $34,493 resulting in a net loss of $15,755. The increase in net cash used in operating activities and net loss during the two periods was mainly due to increase in legal and accounting expenses of $ 33,586 and consulting fees of $ 7,500.
Liquidity and Capital Resources
As of December 31, 2008, we had $ 413 in cash and cash equivalents. We do not have any available lines of credit. We have financed our operations from private placements of equity securities and bridge loans since inception.
We have financed our operations from the proceeds from private placements of equity securities, through bridge loans, and through loans from an officer. In a private placement offering that closed on September 30, 2007, we raised a total of $100,000 from sale of common stock at $0.10 per share pursuant to Rule 504 of Regulation D of the Securities Act of 1933 from 40 investors. In July and August 2008, we raised $ 12,000 and issued a convertible promissory note in that amount and 12,000 three year warrants exercisable at $ 1.00 per share to three investors as part of a $50,000 bridge loan. In November 2008, we raised $ 7,500 by securities sold in a private transaction. Shares in this transaction were sold at $0.50 for a total of 15,000 shares issued, and this included 15,000 three year warrants exercisable at $1.00 per share.
In January 2009, we raised $50,000 by securities sold in a private transaction. Shares in this transaction were sold at $ 0.20 for a total of 250,000 shares issued. We will need to raise additional capital or generate revenue by April 2009 or curtail our operations. We intend to sell additional shares of common stock or units consisting of common stock and stock purchase
- 28 -
warrants in a private placement offering to secure additional capital to fund Phase I of our strategic plan. The amount we would like to raise is $750,000.
We plan to finance our needs principally from the following:
Issuance of additional convertible promissory notes and warrants as part of a $50,000 bridge loan
Private placement equity offerings
We do not have sufficient capital to carry on operations past April 2009, but we plan to secure additional capital by the additional sale of common stock in a private offering or executing a bridge loan to finance our plan of operation for at least the next twelve months. However, this is a forward-looking statement, and there may be changes that could consume available resources before such time. Our long term capital requirements will depend on many factors, including the eventual reporting company costs, public relations fees, technology verification costs, among others.
We are pursuing potential equity financing, sub-licensing and other collaborative arrangements that may generate additional capital for us. We cannot be certain that we will generate sufficient additional capital or revenues, if any, to fund our operations beyond April 2009, that any future equity financings will be successful, or that other potential financings through bank borrowings, debt or equity offerings, or otherwise, will be available on acceptable terms or at all.
We can provide no assurance to investors we will be able to find such financing when such funding is required. Obtaining additional financing would be subject to a number of factors, including investor acceptance of our product and our business model. Furthermore, there is no assurance that we will not incur further debt in the future, that we will have sufficient funds to repay our future indebtedness, or that we will not default on our future debts, thereby jeopardizing our business viability. Finally, we may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to maintain our operations, which might result in the loss of some or all of your investment in our common stock.
We cannot assure you that we will generate sufficient additional capital or revenues, if any, to fund our operations beyond April 2009, that any future equity financings will be successful, or that other potential financings through bank borrowings, debt or equity offerings, or otherwise, will be available on acceptable terms or at all. If we are unable to raise additional capital when necessary we will have to curtail or cease operations.
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. We have disclosed all significant accounting policies in Note 2 to the financial statements included in our Form 10-K. Our critical accounting policies are:
Revenue recognition
The Company follows the guidance of the United States Securities and Exchange Commissions Staff Accounting Bulletin (SAB) No. 101 Revenue Recognition (SAB No. 101), as amended by SAB No. 104 (SAB No. 104) 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 has adopted the guidelines as set out in Statement of Financial Accounting Standards No. 52 Foreign currency translation (SFAS No. 52) for Foreign currency transactions. Pursuant to Paragraph 15 of SFAS No. 52, foreign
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currency transactions are transactions denominated in a currency other than U.S. Dollar, the Companys 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 Paragraph 16, of SFAS No. 52, for other than forward exchange contracts as defined in paragraphs 17-19 of SFAS No. 52, 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 paragraphs 26-28 of SFAS No. 52; 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.
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 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 December 31, 2008. 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 December 31, 2008.
Changes in Internal Control Over Financial Reporting
As of December 31, 2008, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 31, 2008, that materially affected, or are reasonably likely to materially affect, our companys 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 3 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008.
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
On November 25, 2008, Hydrodynex, Inc. (the Company) entered into definitive agreements 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, which included 15,000 three-year stock purchase warrants exercisable at $1.00 to a single, non-accredited investor. The purchase price of the shares was set by the board of directors. The purchase price of the shares is higher than that obtained by the Company in its most recent private placements. The Purchaser in the private placement was Ryan Edington. Ryan Edington is the brother of Jerod Edington, the Vice President and COO of the Company. Upon the closing of the private placement, there will be no fees, commissions or professional fees for services rendered. The placement was undertaken by the officers of the Company. The private placement of these securities was exempt from registration under the Securities Exchange Act of 1933, as amended (the Act), pursuant to Section 4(2) thereof, and Rule 504 promulgated by the SEC under the Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit Number | Description of Exhibit |
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3.1 |
Articles of Incorporation of Registrant(1) |
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3.2 |
Bylaws of Registrant(1) |
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4.1 |
Form of 2008 Promissory Notes and Warrant Purchase Agreement (2) |
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4.2 |
Form of 2008 Common Stock Warrant Purchase Agreement (2) |
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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. |
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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. |
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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). |
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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 Registrants 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 April 21, 2009, as an exhibit, numbered as indicated above, to the Registrants Annual report on Form 10-K/A2 (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.
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Hydrodynex, Inc. | |
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| |
November 16, 2009 | By: |
/s/ Ronald Kunisaki |
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Ronald Kunisaki President and Chief Executive Officer (Principal Executive Officer) | |
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| |
November 16, 2009 |
By: |
/s/ Richard Kunisaki |
| Richard Kunisaki Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
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