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AQUENTIUM, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On August 18, 2008, the Company signed a business development agreement with Megaros, Inc. Under the terms of the agreement Megaros will receive commissions starting at five (5) percent of the first $1,000,000 of sales and decreasing one (1) percent for each $1,000,000 of additional sales of the Company’s products.

On July 28, 2009, the Company signed a joint venture agreement with an individual for the production and harvesting of algae on property owned by the individual.  Under the terms of the agreement the Company is required to raise substantial capital within twenty four months of the date of the agreement plus manage the joint venture on behalf of both parties.  The Company was obligated to a one-time fee of $15,000, which has been paid, plus an annual fee of $250,000 payable to the individual, once production commences. As there has been no activity and the obligation of the Company has not been met, the Company has impaired the investment of $15,000 at September 30, 2010.

On October 24, 2007, Aquentium formed Aquentium De Mexico, a Mexican subsidiary, to manufacture and market our low-cost housing model units in the Mexican Republic.  The Company hired an intermediary to do the necessary work for the legal formation and registration of the subsidiary in Mexico.  The Company paid the intermediary $10,000 as a service fee which included all expenses related to this matter.  In addition, the intermediary was granted 100,000 shares of the Company’s common stock at $0.23 per share with a value of $23,000. No activity has been recorded during the period ending June 30, 2011.

NOTE 12 - LEASE AGREEMENT

On October 1, 2009, the Company entered into a lease agreement with Sani-Dri, Sani-Dri is controlled by the wife of Mr. Taggatz.  The Company has exclusive distribution territories for the Sani-Dri ozone hand dryer. Under the terms of the agreement the Company is subleasing 8,000 square feet of commercial office and warehouse space for three years. They will pay the affiliate rent of $4,000 per month through the year ending September 30, 2010; $4,800 per month for year two ending September 30, 2011 and $6,000 per month for year three ending September 30, 2012.

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Reference in this report to “Aquentium’” “we,” “us,” and “our” refer to Aquentium, Inc. and its subsidiaries.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions.  This report contains these types of statements.  Words such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “project,” or “continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements.  You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report.  All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

ITEM 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Aquentium, Inc. is a holding company of nine wholly-owned subsidiaries and we have interests in joint ventures, as well as business opportunities related to ozone equipment and structural insulated panels.  During the past year, we have actively expanded our focus into providing green technologies and solutions to businesses throughout the world.  We are expanding our business in the area of alternative energy and are currently pursuing Waste-to-Energy projects throughout the world as well as the production of algae bio-fuels.   We have been focused on bringing Waste-to-Energy solutions to the countries in Europe, South America, Asia and the country of Mexico.  Management is very optimistic about the worldwide demand for such technology.

On a daily basis Aquentium plans to sell and market our complete line of ozone sanitation equipment.  This technology is designed for use in food processing, beverage processing, hotels, schools, hospitals, and veterinarian clinics. In addition to our distributors, the company also markets directly to these industries. 

As of the date of this filing we have minimal operations and have recorded minimal revenues for the past two years.  Our focus for the next twelve months will be to obtain additional funding to develop and expand our operations and new projects.   Our success will depend on our ability to obtain funding through equity and/or debt transactions.  However, with the downturn of the United States and world economies, we will encounter substantial competition for the limited financing that will be available in the market place.  If we are unable to obtain financing, then we will likely delay further business development of any of our products, marketing and other projects and joint ventures.  Potential investors must recognize that we have limited capital available for the development of our business plan and all risks inherent in a new and inexperienced enterprise are inherent in our plan to launch operations.

In summary, management continues to position the company in a way to best benefit from worldwide economic conditions, trends, events, and demand for new technologies.

Liquidity and Capital Resources

From inception (April 30, 2001) to June 30, 2011, we had an accumulated deficit of $3,142,931. We recorded a net loss of $ 80,930 and $245,820 for the three and nine months ending June 30, 2011, respectively. The net loss was $121,060 and $ 291,913 for the same periods during 2010.  The reduced

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loss was minimal in 2011 over 2010. Based on these numbers there is substantial doubt that we can continue as a going concern unless we obtain external funding.  Management plans to continue limited operations until we obtain additional funding to expand our operations.

Working capital is a negative $1,958,174 as of June 30, 2011 compared to a negative $ 1,712,353 as of September 30, 2010. Cash used in operations totaled $6,720 during the period ending June 30, 2011 compared to $9,840 during the same period in 2010. Funds provided from financing activities were $9,200 in 2011 compared to $9,840 in 2010. All financing was provided by related parties.

During the past two fiscal years we have relied primarily on related party advances and loans and the issuance of our common stock to satisfy our cash requirements.  During the nine month period ended June 30, 2011 we have received advances from our President, Mark T. Taggatz, who has a total outstanding balance of $173,637 plus an outstanding balance of $12,333 from Ozone Safe Food, Inc., a related party.  The advances are used for operational expenses in the normal course of business.  We anticipate that Mr. Taggatz or our affiliates may provide advances in the future; however, we have not entered into written agreements with any person and, therefore, no one is obligated to provide advances to us.

Management expects to continue to issue common stock to pay for acquisitions, services and agreements.  Any issuance of common stock will likely be pursuant to exemptions to the registration requirements provided by federal and state securities laws.  The purchasers and manner of issuance will be determined according to our financial needs and the available exemptions.  We do not currently intend to make a public offering of our stock.  We also note that if we issue more shares of our common stock our shareholders may experience dilution in the value per share of their common stock.  

We intend to rely on debt and equity financing, capital contributions from management and sales of our common stock to pay for costs, services, operating leases, litigation expense and future development of our business opportunities.  Accordingly, our focus for the next twelve months will be to obtain additional funding through debt or equity financing, but as of the date of this filing we have not finalized agreements for additional funding.  Our success in obtaining funding will depend upon our ability to sell our common stock or borrow on terms that are financially advantageous to us.  If we are unable to obtain financing, then expansion of our operations will be delayed and our subsidiaries may remain inactive.

Results of Operations

We recorded service income of $5,000 in the nine months ending June 30, 2011 and other income of $1,877 during the same period in 2010.  The general and administrative expense decrease during the nine months ended June 30, 2011.  Management anticipates our general and administrative expenses will increase when we launch full operations related to the business opportunities we are currently investigating.  Other expense for the nine months ended June 30, 2011 and 2010 were related to accrued salaries payable, interest expense due to outstanding loans and interest related to a legal settlement.  Management anticipates net losses will continue over the next two to three years as we develop our operations.

Off-Balance Sheet Arrangements

None.

Commitments and Contingent Liabilities

Prior to the 2007 year, we leased the Tennant Desert property in North Palm Springs, California.  We subleased portions of this building and received rental income from the subleases.  Due to a dispute with the landlord of the Tennant Desert property in August 2007, we moved to a new office.  As a result of the

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legal action brought by the landlord, a judgment was filed against Aquentium and we have recognized an accrued a liability of $177,247, plus interest of $45,518 for a total of $222,765, related to the judgment awarded to the landlord of the Tennant Desert property.

On July 28, 2009, Aquentium entered into a joint venture agreement with Clinton Jim, an individual, to produce and harvest algae on 475.450 acres of land located near Standing Rock, New Mexico.  Mr. Jim agreed to provide the land and Aquentium agreed to secure funding for the proposed budget of $44 million (US) for the development of this project.  Under the agreement Aquentium provided an initial capital contribution of $15,000 to secure the use of the land and Aquentium agreed to manage the business operations.  Also, Mr. Jim will receive an annual payment of $250,000 once production begins.   If Aquentium fails to raise the necessary funding within 24 months of the effective date of the agreement, the joint venture agreement will become void.   The joint venture agreement may be terminated by an agreed buyout, or expiration of its term, through July 27, 2108.  As of the date of this filing, we have contributed $15,000 to secure the use of the land, but have not raised the necessary funds to move forward with this project. The $15,000 was impaired during the last fiscal year.

Under the September 2007 joint venture agreement with Mootah, Aquentium has agreed to use its best efforts to raise the necessary capital to purchase and operate any and all equipment for the exploration and mining operations and provide the staff to conduct the mining operations for that joint venture.  The joint venture agreement includes an annual charge of approximately 2,863 BWP, plus minimum annual expenditures for two years equivalent to approximately $180,000 US, plus the launch of drilling operations.  As of the date of this filing, we have not secured funding to satisfy the annual expenditure requirement for the first two years.

In August 2008, Aquentium entered into a business development agreement with Megaros, Inc. related to building contracts utilizing our SIP products.  Under the terms of the agreement Megaros will receive commissions starting at five percent of the first $1,000,000 of any building contract, four percent of the second $1,000,000 of any building contract, three percent of the third $1,000,000 of any building contract, two percent of the fourth $1,000,000 of any building contract, and one (1) percent on the balance above $5,000,000 of a building contract.  All individual SIP sales are paid a commission of 7.5% percent of total sales of our products, to be paid either in cash or stock at the option of the company.  As of the date of this filing, we have not entered into any building contract which would require commissions to be paid to Megaros.

On February 2, 2010 the Company entered into agreements with two municipalities in China to convert waste material into energy.  Under the terms of the agreement the municipalities would provide the waste material to the Company, land for the Company to build the conversion plant and buy the resulting energy produced from the Company.  These projects will require substantial funding which must be arranged and provided by the Company along with the conversion plant construction and operations. As of this date no activity beyond the signing of the agreements has been completed.

On July 21, 2010, the Company entered into a joint venture with a company for construction waste to energy plants in Canada. Under the terms of the agreement the Company is responsible for the design and construction of the plants along with financing 50% of the joint venture. These projects may require substantial funding by the Company before any benefits are derived from the joint venture.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 4:  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC.  This information is accumulated to allow timely decisions regarding required disclosure.  Our Chief Executive Officer, who also acts in the capacity of principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and based on that evaluation he concluded that our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  Management conducted an evaluation of the effectiveness of our internal control over financial reporting and determined that there were no changes made in our internal control over financial reporting during the second quarter of our 2010 fiscal year that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 6.  EXHIBITS

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.