UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-K/A-3

|      |                                                                                                                                        
|----- | ---------------------------------------------------------------------------------------------------------------------------------------
|[X]   | Annual Report under Section 13
or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
June 30, 2008.                
|[   ] | Transition Report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
transition period from _____ to _____.



Commission File Number:
000-53506



[hdx10ka3063008apg001.jpg]

Hydrodynex, Inc.

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



|                                                                                                                                                                        |                                                   
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------
|Nevada
(State or other
jurisdiction of
incorporation or
organization)                                                                                                   | 20-4903071
(I.R.S.
employer
identification
number)
|230 Bethany Rd., Ste. 128,
Burbank, CA 91504
(Address of
principal executive offices and zip code)

(702) 884-2150
(Registrants
telephone number, including area code)



Securities registered pursuant to Section
12(b) of the Act: NONE



Securities registered pursuant to Section
12(g) of the Act:

Common Stock, $.001 par value



Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 YES  [  ]  NO  [X]



Indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act. YES [  ] NO [X]



Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 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 [
 ]

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Indicate by
check mark if there disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]



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 definition of accelerated
filer, larger 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]



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



The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant, as of
June 30, 2008 is $77,500 based on the sale price of the shares in a private
placement that closed on September 30, 2007 of $0.10 per share.  The shares
of our company are currently listed on the NASDAQ OTC Bulletin Board exchange,
symbol HDYX.



Number of shares outstanding of the
issuers common stock as of September 28, 2008: 1,500,000 shares.



DOCUMENTS INCORPORATED BY REFERENCE

Not Applicable.







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TABLE OF CONTENTS



|           |  |          |  |                                                                                                              |  |   
|---------- |  | -------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|           |  |          |  | Page                                                                                                        
|PART
I     |  |          |  | 4                                                                                                           
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 1.  |  | Business                                                                                                     |  | 4 
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 1A. |  | Risk
Factors                                                                                                 |  | 14
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 2.  |  | Properties                                                                                                   |  | 22
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 3.  |  | Legal
Proceedings                                                                                            |  | 22
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 4.  |  | Submission of
Matters to a Vote of Security Holders                                                          |  | 22
|           |  |          |  |                                                                                                              |  |   
|PART
II    |  |          |  | 23                                                                                                          
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 5.  |  | Market for
Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities |  | 23
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 6.  |  | Selected
Financial Data                                                                                      |  | 24
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 7.  |  | Managements
Discussion and Analysis of Financial Condition and Results of
Operations                        |  | 24
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 7A. |  | Quantitative and
Qualitative Disclosures About Market Risk                                                   |  | 26
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 8.  |  | Financial
Statements and Supplementary Data                                                                  |  | 27
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure                         |  | 39
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 9A. |  | Controls and
Procedures                                                                                      |  | 39
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 9B. |  | Other
Information                                                                                            |  | 39
|           |  |          |  |                                                                                                              |  |   
|PART
III   |  |          |  | 40                                                                                                          
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 10. |  | Directors,
Executive Officers of the Registrant                                                              |  | 40
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 11. |  | Executive
Compensation                                                                                       |  | 41
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 12. |  | Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters               |  | 42
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 13. |  | Certain
Relationships and Related Transactions, and Director Independence                                    |  | 43
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 14. |  | Principal
Accountant Fees and Services                                                                       |  | 43
|           |  |          |  |                                                                                                              |  |   
|PART
IV    |  |          |  | 44                                                                                                          
|           |  |          |  |                                                                                                              |  |   
|           |  | Item 15. |  | Exhibits and
Financial Statement Schedules                                                                   |  | 44
|           |  |          |  |                                                                                                              |  |   
|SIGNATURES |  |          |  | 45                                                                                                          





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FORWARD LOOKING STATEMENTS



This Report on Form 10-K
and the documents incorporated by reference include forward-looking
statements. To the extent that the information presented in this Report on Form
10-K discusses financial projections, information or expectations about our
business plans, results of operations, products or markets, or otherwise makes
statements about future events, such statements are forward-looking. Such
forward-looking statements can be identified by the use of words such as
intends, anticipates, believes, estimates, projects, forecasts,
expects, plans and proposes. Although we believe that the expectations
reflected in these forward-looking statements are based on reasonable
assumptions, there are a number of risks and uncertainties that could cause
actual results to differ materially from such forward-looking statements. These
include, among others, the cautionary statements in the Risk Factors and
Managements Discussion and Analysis or Plan of Operation sections of this
Report on Form 10-K. These cautionary statements identify important factors that
could cause actual results to differ materially from those described in the
forward-looking statements. When considering forward-looking statements in this
prospectus, you should keep in mind the cautionary statements in the Risk
Factors and Managements Discussion and Analysis or Plan of Operation
sections below, and other sections of this Report on Form 10-K.



The statements contained
in this Report on Form 10-K that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including, without
limitation, statements regarding our expectations, objectives, anticipations,
plans, hopes, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. It is important to note that our actual results
could differ materially from those included in such forward-looking statements.
There are many factors that could cause actual results to differ materially from
the forward looking statements. For a detailed explanation of such risks, please
see the section entitled Risk Factors beginning on page 10 of this Report on
Form 10-K. Such risks, as well as such other risks and uncertainties as are
detailed in our SEC reports and filings for a discussion of the factors that
could cause actual results to differ materially from the forward- looking
statements. Given these uncertainties, readers are cautioned not to place undue
reliance on the forward-looking statements.



The following discussion
should be read in conjunction with the audited consolidated financial statements
and the notes included in this Report on Form 10-K and the section entitled
Managements Discussion and Analysis or Plan of Operation included in this
Report on Form 10-K.



PART
I



ITEM 1.   BUSINESS.



TABLE OF CONTENTS



|                                                           |  |   
|---------------------------------------------------------- |  | --
|A.
  Hydrodynex, Inc.  Introduction and Business
Strategy |  | 4 
|B.
  Hydrodynex Exclusive Technology License Agreement    |  | 6 
|C.
  Hydrodynex Products                                   |  | 8 
|D.
  Description of Proprietary Technology                 |  | 9 
|E.
Other Competing Technologies                            |  | 8 
|F.
  Market Analysis and Competition                       |  | 10
|G.
  Marketing and Sales                                   |  | 12
|H.
  Patents, Trademarks, and Copyrights                   |  | 13
|I.
   Employees                                            |  | 13
|J.
  Governmental Regulation                               |  | 14



A.   Hydrodynex, Inc.  Introduction
and Business Strategy



Hydrodynex, Inc., a Nevada Corporation, was founded on May 12,
2006, for the purpose of acquiring an exclusive North American license for the
marketing and distribution rights of an anodic oxidation water disinfection
product commonly referred to as the AO-System® technology. The
primary objective of our company is to commercialize this technology in North
America initially through direct sales in order to gain a substantial market
penetration.  Hydrodynex has developed a strategic business plan to
introduce and market the AO-Systems® in North America.
 Hydrodynex believes that due to the innovative technology, the
AO-Systems® has the potential to be very competitive in the
 water disinfection and treatment market.

As a result of the research and development work beginning in 1985
and conducted by Hydrosystemtechnik GmbH, from whom we have been granted an
exclusive license for the anodic oxidation water disinfection product,
substantial technological discoveries were made and a mechanized water
disinfection unit was developed and improved which is collectively referred to
as the AO-System®.  Hydrosystemtechnik

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GmbH has developed and commercialized this innovative water
purification and disinfection system and has been selling these units in the
European market for the last 16 years.  In 2002, advancements to include
warm water systems were developed by Hydrosystemtechnik GmbH.  Two U.S.
patents have been granted to Hydrosystemtechnik GmbH covering the apparatus
design of a water sterilization unit that uses the principals of anodic
oxidation without adding chlorine compounds.  Hydrosystemtechnik GmbH had,
as of the end of 2007, sold and installed over 160 AO-Systems® units
of 11 different models for projects in Europe and approximately 15 other
countries worldwide.

The U.S. EPA and NSF International have partnered to form an
Environmental Technology Verification (ETV) Protocol that most states require.
 No AO system has yet been sold or is installed in the U.S., Canada or
Mexico, and no system can be sold in the U.S. without approval of the U.S.
Environmental Protection Agency (EPA), based on testing that is done by NSF
International.  In developing a testing strategy and timeline with NSF
International (NSF), the co-developer with the EPA of the required Environmental
Technology Verification (ETV) Protocol needed for sales approval, we have
estimated that a month would be required to develop the protocol, that about six
months would be needed for the ETV testing, and an additional two months would
be needed for the report formulation.  The chart below details the basic
certification process.  Once the application is submitted by our company,
our test reactor is delivered to the NSF testing facility in Ann Arbor,
Michigan, and payments are made to NSF to begin testing, the process detailed in
the chart below will be carried out by NSF.  At the end of the process, if
successfully completed, the EPA and NSF both sign the final report which will be
written by NSF.

[hdx10ka3063008apg003.gif]

CPM = Certification Project Manager

For water disinfection units that pertain to drinking water
systems, a Standard 61 leeching test is required throughout the U.S. to
determine if chemicals or compounds from the units structure are leeched into
the water.  A much simpler Standard 61 testing protocol for leeched
contaminants from the unit can be concurrently done by NSF and is estimated to
span two months.  If we decide to enter the pool and bathing water system
market, a Standard 50 testing must be undertaken.to determine if adequate
microbial eradication takes place.  Another

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regulation that is required by state certification programs is
electrical safety and grounding testing, often done by Underwriter Laboratories
(UL).  This type of approval is necessary for selling and installing any
electrical device within the United States.

B.   Hydrodynex Exclusive Technology License
Agreement

We entered into a Marketing, Distribution and License Agreement
with Hydrosystemtechnik GmbH September 3, 2007.  On August 30, 2008, we entered into an
Amended Marketing, Distribution and License Agreement, or amended license
agreement, with Hydrosystemtechnik, which has the same effective date as the
original license agreement, September 3, 2007, and supersedes the original
license agreement.  Under the amended license agreement, we were granted
the right to sell water disinfection systems based on the AO-System®
technology in all markets (except the dental market) in Canada, the United
States, and Mexico on an exclusive basis for a period of three years after the
effective date of the license agreement.  The license remains exclusive
subject to Hydrodynex (a) leasing or purchasing an AO-System® prior
to April 31, 2009, as extended by the licensor, and (b) obtaining, within 30
months of the effective date of our license agreement, September 3rd, 2007, so
due February 3rd of 2010, verification and certification of the
AO-System® technology by the U.S. EPA necessary for commercialization
and selling water disinfection systems in whole or in part within the United
States.  We plan to undertake to secure technology verification from NSF,
an independent third party testing laboratory, accredited by the EPA, to legally
sell AO-Systems® in the United States, but we have not initiated this
process because we have yet to pay the remaining balance of 17,625 for the
AO-System® test reactor unit that has been built for us by our licensor
Hydrosystemtechnik.  Once we have completed our payment for the test
reactor unit we will arrange delivery of the unit to NSF in Ann Arbor, Michigan
for testing.  When we have sufficient funds to pay the remaining balance of
the test unit, arrangements for payment and shipping to the U.S. of the test
reactor unit will be made.  The time and process for testing the test
reactor unit by NSF to meet EPA requirements is described above in Item 1.A.

In addition, in order to maintain the exclusivity of the license,
we are obligated to (a) make application to six states in the Western U.S. for
certification of the AO-System®technology within 90 days after
receiving the NSF and EPA verification, (b) sell, deliver and install at least
one AO-System® in the U.S. in the two year exclusivity period
following technology verification, and (c) we are required to demonstrate
financial responsibility in the form of a bank credit line or equity funding of
not less than $500,000 to accomplish the objectives necessary to retain the
exclusivity of the license.

We are also required, beginning year three after the effective
date, or September 3, 2009, to meet certain minimum annual sales targets, based
on net purchase value, for sales of AO-System®products in the North
American territory, which increase from 30,000 in year three to 500,000 in
year six and thereafter, in order to maintain the exclusivity of the license.
 If we fail to meet the minimum annual sales targets at the end of any
business year, the licensor, Hydrosystemtechnik GmbH, shall have the option to
revert the license agreement to a non-exclusive marketing agreement.  We
have paid a non-refundable license fee in the amount of 10,000, and we were
previously obligated to make a second non-refundable license fee in the amount
of 20,000 on June 1, 2008.  Under the terms of the amended license
agreement, Hydrosystemtechnik agreed in writing to an extension of the due date
for the second license payment from June 1, 2008 to January 31 2009, and the
second license payment was paid in full by that deadline.  A third license
fee in the amount of 20,000 will be due upon certification and approval of the
AO-Systems® by the US Environmental Protection Agency for commercial
sales in the United States.  We are also required to attain and maintain
minimum annual sales volume of 500,000 in order to have the right to
manufacture water disinfection systems based on the AO-System®technology and sell them in the licensed territory.  If after year
five after the effective date we do not maintain minimum annual sales volume of
500,000 in any two consecutive years, the right to manufacture will expire
automatically in the subsequent year.  We are obligated to pay a royalty on
the products actually assembled or manufactured and sold to third parties in the
amount of 10% of the net selling price on all AO-Systems®.  We
are not obligated to pay a royalty on finished AO-Systems® purchased
from Hydrosystemtechnik and resold.  We are also obligated to pay fifty
percent of the direct costs related to preparing and prosecution of patents and
patent applications in the U.S., Canada or Mexico,, including legal fees, filing
fees maintenance fees and transaction costs, so long as the license agreement
remains in effect.

The license agreement terminates after ten years, with an option
by us to extend the license for an additional ten years on an exclusive basis,
as long as the minimum annual sales volume of is maintained.  The licensor,
Hydrosystemtechnik GmbH, has the right to terminate the license agreement, after
a notice and cure period, if we are in default of any obligation in the
agreement, are adjudged bankrupt, become insolvent or similar events, or if we
do not maintain minimum annual sales volume of 100,000 in each business year
subsequent to the third year after the effective date (which means meeting the
100,000 minimum annual sales volume for each year beginning September 3,
2010).

We plan to market, sell, install, and maintain specialized
AO-Systems® on a retail basis pursuant to the license.
 Stationary-type systems will be sold and installed in facilities such as
hospitals, hotels, water cooling towers, swimming pools, etc.
 Transportable AO-

- 6 -

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Systems® and packaging units will be marketed to the
U.S. military and other associations involved in the use of portable water
treatment systems for emergency and non-emergency markets.  Hydrodynex will
purchase components on a wholesale basis from Hydrosystemtechnik to make, use,
and sell specific water disinfection systems on a custom basis for it customers.
 Hydrodynex has the option to engage in future manufacturing of the
AO-Systems® when it is deemed necessary and financially
justifiable.

Activities to date have been 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 bacteria
protection is the strongest market Hydrodynex has identified because of its wide
prevalence and the high percentage of death resulting from infection.

Our company is structured expressly as a marketing entity and
therefore we do not currently engage in the design, development or manufacturing
of products.  In phase one of our multiphase marketing plan. Subject to
receipt of approval from the EPA, of which there is no assurance, we intend to
market and sell the AO-System®, a device that disinfects potable
water systems and industrial water systems, under an OEM arrangement with our
Licensor Hydrosystemtechnik, GmbH.  To date, we have no revenues from
operations. Our expenses consist of marketing and management activities and
personnel costs.  We intend to accomplish the following:

| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Establish
effective marketing channels for our products through a network of
distributors or dealers in selected markets.                                                                                                                                       
| |  | Support
revenue generation in these channels by effectively educating the end user
and promoting the use of AO-Systems® as a means of assuring the
delivery of safe, healthy water at low costs and eliminating the
Legionella bacteria from existing buildings.
| |  | We
intend to have Hydrosystemtechnik GmbH provide the AO-Systems®
under a brand label to be determined.                                                                                                                                                         
| |  | We
intend to register Hydrodynex as a company registered
trademark.                                                                                                                                                                                             



In addition to the risk factors set forth herein, additional
obstacles, which we may encounter in launching our business model, are as
follows:

1.  If we do launch planned marketing initiatives, our target
market may not be receptive to our business and may not purchase our
products.

2.  Potential customers may not be willing to pay the price
for our products.

3.  Distributors and dealers may not continue to carry our
products if we fail to meet their standards pursuant to our agreements with
them.

4.  We may be unable to establish new distributors or dealers
in the balance of our marketing territory if our performance with those channels
during our initial launch does not demonstrate a level of opportunity consistent
with their standards.

The water treatment industry is a rapidly growing sector and a
primary component of the worlds basic needs market.  World demand
forecasts for water treatment products, chemical and non-chemical, is projected
to increase 6.4% per year to nearly $40 billion in 2011, according to World
Water Treatment Products, a new study from The Freedonia Group, Inc. (2008).
 With over 20 large target industries benefiting from clean water, i.e.;
food processing, water bottling, and swimming pools, and with an ever-present
threat of water-borne diseases and other biohazard and inorganic aquatic health
threats, along with mechanical corrosion issues, the clean water industry is
paramount in importance to the U.S. and the rest of North America.
 Competing technologies currently on the market or under development, but
none of them utilize the patented technological properties of advanced Anodic
Oxidation that our AO-System® employs.  Competing systems known
as salt electrolysis machines use a more primitive form of anodic oxidation that
requires salt to be added.  Anodic oxidation isa broad term, simply
referring to oxidant creation by an anode with electricity.  As shown by
the AO-Systems® two U.S. patents, #s 5,439,576 and 5,395,492, our
mode of anodic oxidation utilized novel technology, with specialized electrode
composition and advanced processes.  We have observed in news article
releases that several lawsuits have been filed against U.S. facilities such as
hospitals, hotels, retirement homes, and cooling towers, because people have
gotten sick or died as a result of their water system uncleanliness.

We have seen several
outbreaks of water-borne illnesses in recent years in municipal, residential and
rural water systems, including outbreaks of Cryptosporidium, E. coli,
Pseudomonas, Norovirus, Echovirus, methicillin-resistant Staphylococcus aureus,
Giardia intestinalis,

- 7 -

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Shigella sonnei,
etc.  An estimated 1400 people in the U.S. die each year from Pseudomonas
in hospital water systems.  The Center on Disease Control and Prevention
(CDC) has estimated that up to 18,000 people each year in the U.S. are infected
with water-borne Legionella bacteria, 25% of those estimated from Healthcare
environments.



Legionnaires disease, caused by Legionella bacteria, is
particularly dangerous and has already caused significant lawsuits against
hospitals, such as the Good Samaritan Hospital of Los Angeles in 2003, where the
disinfection processes used by the facility were insufficient in preventing
death to immuno-suppressed patients. The AO-Systems® technology has
been shown to permanently eliminate micro-organisms in water systems through its
short and long-term oxidative effects.  The AO-System® has been
installed to provide a solution for several existing and previously infected
water systems in closed circuits such as hot water systems in hospitals like the
Vinzenz V. Paul Hospital in Rottweil Germany, the KKH Dorfen Hospital in Dorfen,
Germany, and the KKH Prien Hospital in Prien, Germany.  However, there
exists many other commercial applications in facilities such as cooling towers
and food processing plants that could benefit from our system  providing
protection as well as preventing expensive shut-down periods for cleaning.
 Being a new technical solution with more than 160 systems installed in 15
countries, the AO-System® has a good reputation and successful track
record, as concluded by our company from contacting current owners of the
AO-System®, such as Vinzenz von Paul Hospital in Rottweil, Germany, and Hotel
Novotel in Munich, Germany. We also reviewed positive facility water testing
results from current clients such as Hotel Novatel in Munich, Germany, and the
H.I.T. Haus industrial complex in Dachau, Germany.

STRATEGY

Our
plan of operation for the next 12 months 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,
complete current audit of Hydrodynex, initial start-up capital realization
through asecond private stock offering, securing EPA and State
certification, and hiring/training sales and technical personnel.

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

Phase
3:  Set-up manufacturing in the U.S. when it becomes a viable,
profit-increasing option.

The
objectives are:

(a)
establish our product as the un-paralleled leader in water disinfection systems,

(b)
enter and cover all market segments in the U.S., Canada, and Mexico.

(c)
get the AO-System® required and mandated by local, state, and
national insurance agencies and governments.

We have entered into a Memorandum of Understanding with
Investmentberatung - Management - Financial Services (IMF), under which
we will have access to the design parameter and manufacturing right which
integrates a unique water packaging system with the AO-System®.The packaging system utilized in the mobile unit uses a proprietary
tri-layer foil in the packaging.  This material keeps the water quality
unchanged over many years.

C.   Hydrodynex Products



The AO-System® units that Hydrodynex plans to
sell utilize a novel and patented advanced technology broadly known as Anodic
Oxidation.  The AO-System® delivers this technology with 11
different reactor unit models to a wide range of water volume parameters and
applicable markets such as potable water systems in buildings, municipal water
treatment plants, and cooling tower disinfection.  The 11 different models
have essentially only two variables in their parameters, a) ability to treat
different water flow volumes, and b) ability to treat hot, cold, or both
temperatures of water systems.  Improved electrode composition, design
configurations, and process tuning, which are characteristics described in the
associated patents make this generation of AO-System®more advanced
than other AO technologies developed over the past several decades.  We
feel that the due diligence information gathering we have performed on other
current competing technologies shows that the AO-System®offers
higher disinfection standards and we have found various shortcomings in
competing technologies, as discussed below in Section E below.  When
treating water for Legionella bacteria, conventional methods consisting of
hyper-

- 8 -

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chlorination and super heat-flushing are generally known in the
industry as temporary fixes.  The AO-System® provides a viable
technical solution that can kill Legionella bacteria.

Initially, Hydrodynex will not produce any products or components;
instead it will act as an exclusive master distributor of AO-Systems®
in Canada, the United States, and Mexico.  When the volume of sales
warrants the setup of an assembly and manufacturing facility in North America,
we will enter Phase II of our business plan and take on the responsibility of
assembling and manufacturing the units by Hydrodynex or outsource the
manufacturing to a reliable subcontractor here in the U.S. or another foreign
country.

D.   Description
of Proprietary Technology



The AO-System® is generally installed as a
point-of-entry device on warm and/or cold water systems.  Water passes
through a reactor chamber of the unit which contains specially engineered
electrodes that produce oxidizing effects in the water as an electrical current
is generated to pass from the cathodes to the anodes.  Instrument observed
water flow determines the amount of electrical current generated and the
computer unit automatically controls the system.  The system can bypass
itself for regularly scheduled back-wash cleanings which prevent build-up on the
electrodes and thereby increase the longevity of the system and its
components.

Advanced Anodic Oxidation is an electrochemical in-situ
sterilization process which produces deactivating (microbiocidal) oxidants
directly from the water being treated. No chemical additives are necessary for
the treatment. The water flows into the reactor from the bottom then up through
the spaces between the electrodes, serving directly as an electrolyte. The
deactivation (killing) of microorganisms such as bacteria, fungi, algae &
viruses occurs predominantly through oxidation in the anode boundary layer (due
to short life absorbed oxidants), ultimately being optimized for maximum
effectiveness.  In operation with neutral pH, another dominant anode
mechanisms can be verified, the creation of ozone, which is a strong oxidizing
agent, and helps assist in bio-deactivation.  A secondary oxidative effect
is the synthesis of hypochlorous acid, a weak acid, but very strong long-life
oxidizer that travels out into the distal piping network and disinfects the
water and pipes and helps break down biofilm and mineral scaling.

Other benefits of the AO-System® include lowered energy
consumption by the facility by not having to raise its warm water network above
55 degrees Celsius.  Many places raise their water temperature up to 70 or
even 80 degrees Celsius at night to combat problems they encounter, which
results in the danger of scorching to consumers, highly increased pipe
corrosion, and dramatically increased energy consumption.  The
AO-System® also partially softens water by increasing the solubility
of common precipitates and removing solutes within the reactor.  It also
cleans existing pipe corrosion and breaks down scaling deposits.  The cost
of replacing a piping system in a building is a very expensive, lengthy, and
invasive process.

E.  Other Competing Technologies

Water treatment and purification systems with increasing
complexity and effectiveness have been put into operation worldwide for a number
of years.  However, conventional mechanical and chemical purification
processes, including hyperchlorination, heat flushing, copper/silver ionization,
chlorine dioxide dosing, and other means have proven to be insufficient in
preventing the distribution of diseases through this essential nutritional
element that water represents, that is why a continuing and substantial number
of water borne outbreaks and disease from potable water sources occur.
 Recognizing that special disinfection methods had to be developed to
eliminate micro-organisms such as bacteria and viruses, heavy chlorination and
other chemical treatments, and more recently UV and Ozone treatments, have been
introduced. These processes, however, each include significant disadvantages to
the AO-System®.  Some, such as hyperchlorination, chlorine
dioxide dosing, and salt electrolysis release hazardous byproducts like
chlorates and chlorites.  Some can only disinfect water that moves past a
static disinfection zone in a pipe and has no residual or distal cleaning effect
on bioslime within a system, such as in the case of UV light and Ozonation.
  Copper/Silver ionization only has a weak disinfection effect on the
water that does not have a satisfactory killing rate of robust bio-contaminants
like protozoa and Legionella bacteria.  Below is a chart of comparative
technological methods and the strengths and weaknesses of each.

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[hdx10ka3063008apg004.jpg]

*source- marketing materials of Hydrosystemtechnik GmbH

F.   Market Analysis and Competition

These facts lead to the belief that the Hydrodynex
AO-System® process has the potential to replace most of the competing
processes.  However, the replacement will be gradual due to the
fragmentation of the industry.  Of over 40 companies currently competing in
the water disinfection industry, we have found no evidence or data from our due
diligence research that suggests that any one company has a U.S. market
penetration of more than 10%,  In our correspondence with several industry
experts, we found no particular company or technology is a current front-runner
and large market share holder in the water disinfection industry.

We believe that the
AO-System®has the potential to be the market leader based on the
belief that the system has few negative attributes, has dependable technology,
and requires little maintenance.  A mid-sized AO-System uses power for
operation that is about equivalent to two microwave ovens.  There can be
traces of disinfection byproducts when a large amount of organic material is
suspended in the water being treated.  Because the created oxidants in the
system clean lime scaling and existing corrosion, metal piping material can
become thinner as the corroded layers are striped away by the oxidants.



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Hydrodynex management believes that Hydrodynex main
competitiveness is expected to be based on technological superiority and high
disinfection efficacy, rather than price.  Hydrodynex will be competing
against companies with products it believes are less efficient and that are less
expensive than the AO-System®.  These companies are much larger
than ours, have well established market reputations and have substantially more
financial resources than our company.  The main currently used disinfection
systems are based on heat and chlorination (most common), and more recently,
Copper/Silver ionization, chlorine dioxide, sodium electrolysis, UV light, and
Ozone systems.

In the last few years, several companies have introduced a
Copper/Silver Ionization process which was installed for testing in at least 16
hospitals in 5 states.  This shows that there is indeed a viable market for
more efficient disinfection systems.  It should be noted that while that
system is simpler than conventional systems, it has numerous deficiencies when
compared to the AO-System®, such as heavy maintenance and monitoring
requirements, as well as inferior disinfection efficacy as revealed in
discussions between our company representatives and a water system specialist at
UCLA Medical Center, which currently uses Copper/Silver Ionization onsite.
 Chlorine Dioxide is the other major competitor to our technology, but also
has several deficiencies when compared with advanced Anodic Oxidation.
 Examples would be such things as harmful carcinogenic byproducts, large
amounts of dangerous chemical dosing and inefficient Legionella eradication.
 Research papers like the following show these chlorine dioxide
inadequacies; Point-of-care controls for nosocomial legionellosis combined with
chlorine dioxide potable water decontamination: a two-year survey at a Welsh
teaching hospital. Journal of Hospital Infection, 2005 61(2): p.
100-106,

Electrolytic chlorinators have been seen entering the market
recently, but the statistical effects of it on Legionella and Protozoa have not
shown perfect results.  Very recently, two more competing companies have
marketed photo-oxidation and Reticulated Electro-Catalytic Oxidation
Reduction, but information on these systems is limited and the validity of
these systems is yet to be seen.

In managements opinion, at this point in time, there is no
technology similar to advanced AO-Systems® available in the United
States.  However, the market resistance against new products and new
technical solutions has to be overcome in order for the company to become
successful and there is no assurance that this will happen.  Potential
customers may be unwilling to purchase from an under-funded development stage
company such as ours that has no proven track record and is understaffed.
 But we believe that the need for our system is great and we can offer
certain advantages, as high-lighted in the above section D.

The competitive situation may adversely affect Hydrodynex sales
or capacity to retain or increase clientele or business.  There are no
assurances Hydrodynex will be able to successfully compete against these other
competitors based on these factors.  In order to compete with these other
companies, Hydrodynex plans to attempt competitive pricing, above average
customer service, high quality products and provide independent research and
testing that will provide conclusive evidence that the AO-System® is
the leading and best technology available.  In addition to the
technological advantages of the AO-System®, this system is very
competitive when it comes to operation and maintenance costs and treatment cost
per gallon of water.

Weve estimated from speaking with competing technology companies
that a 250,000 gallon/day Chlorine Dioxide system costs an average of $50,000,
with a one year warranty, $400-$16,000 per month in chemicals, and $1,000 per
month in maintenance.  The costs for a Copper-Silver ionization machine
ranges from $60,000 to $86,000, with expensive electrode replacement costs,
short 1-3 year warranties, heavy maintenance, and around $15,000 per year in
testing fees.  Our warranties would be over the five year mark and much
more attractive to consumers.  The initial purchase price of our system
could be higher than most competing systems, however our system will potentially
be leased for this water volume for around $3,000 per month, and that is
maintenance inclusive and will be very cost competitive when chemical cost, part
replacement, unit life, and maintenance difficulty are factored in.  Our
system does not use dosing chemicals and will not require frequent part
replacement.

G.   Marketing and
Sales

Once certification has been granted by the EPA, we intend to focus
our sales and marketing program directly toward certain targets of opportunity.
 The most important targets are those where water safety is paramount; in
facilities and industries where unhealthy people are exposed to additional
disease and lives are being lost, where expensive and reputation tarnishing
lawsuits are in abundance, and where other competing products are failing to
properly address these issues.  Four primary markets have been researched
and evaluated by our management.  These four areas are hospitals, hotels,
military applications and applications for mobile disaster relief.
 Secondary marketing targets are water cooling towers, food processing
facilities, retirement homes, spas, schools, industrial plants, public
fountains, pools, water slide parks, cruise ships, etc.

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The organism that is causing the greatest problems is the
Legionella bacteria, the most dangerous and most prevalent water bio-contaminant
in the market.  Hydrodynex has learned about dozens of outbreaks in the
U.S. and subsequent litigation resulting from those outbreaks.
 Legionnaire's, with an average fatality rate of 28%, is estimated by the
Center of Disease Control to be responsible for up to 20,000 cases in the United
States every year. About 35 percent of all cases are acquired in hospitals,
where the death rate from infection can be as high as 40 percent, the CDC said
 It is estimated by the U.S. Department of Labor Occupational Safety &
Health Administration that in the United States there are between 10,000 and
50,000 cases of Legionnaires' disease each year.  Because of these
staggering numbers, Legionella is the number one focus of Hydrodynex at this
time.  The primary reason that hospitals have such a high degree of
mortality is because many of the individuals in the hospitals have their immune
systems compromised due to medication, surgery, chemotherapy, etc.  This
phenomenon is also seen in retirement homes.  Below is a chart that has
been constructed with data from a Legionella study that quantifies Legionella
presence in a variety of topographical areas.

[hdx10ka3063008apg006.gif]

We will attend trade shows and undertake a direct marketing
program to key hospitals in the southwestern section of the U.S. Marketing
efforts will initially be concentrated in the states of Nevada, Arizona, and
California.  Prospective customers and marketing targets include Good
Samaritan hospital in Los Angeles, which recently weathered a Legionnaires
disease lawsuit involving two deaths.  The company is developing a
comprehensive marketing brochure to define the differences between the
AO-Systems® and other competing water treatment systems now available
on the market.  We have already created a website to begin educating the
market about the AO-System®- www.HydroDynex.com.

Hydrodynex will also
deploy a multi-channel Internet marketing strategy with the primary
intention of building brand recognition, educating the consumer of the
Hydrodynex value propositions, generating leads and increasing sales
through the following tactics:

Web Presence Development: the Hydrodynex
primary website and its supporting network websites will engage in a host of Web
marketing strategies. Such strategies will include but are not limited to:
Search Engine Optimization (SEO); consistent creation of unique, relevant
content that target specific key phrases Hydrodynex consumers are searching for;
optimized page TITLE and Meta tags, ALT tags, H1/2/3 headers, URLS, etc.; link
building through various web directory submissions and Web presence campaigns
such as article submissions, press releases, etc.

Monthly Email Newsletter and Lead
Cultivation: as prospects are added to the Hydrodynex sales pipelineand in
addition to traditional sales/marketing follow up and cultivation tacticsa
monthly newsletter will be sent to cultivate prospective clients through
value-added messaging, helpful information and sales/marketing
information,

Online Joint Venture Marketing Partnership:
Hydrodynex will identify complimentary businesses which support the Hydrodynex
model and seek out online marketing partnerships to expand Web presence and
sales/marketing objectives.

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Subject to receiving the necessary regulatory approvals from the
EPA, we will develop all the appropriate technical brochures, presentations,
marketing materials, upgrade of our website, and develop a sales team, we will
initiate meeting with potential customers and attend key trade shows.  We
intend to use an integrated plan that includes a robust and informative web
site, target advertising, trade shows and personal contact to establishments
that have a reported history of problems related to Legionella.  The
identification of potential customer will be determined by a comprehensive
analysis of the existing market.  Hydrodynex plans to attend and/or
participate in trade shows and do direct mailings and call on to potential
clients as its marketing strategy.  Relationships with scientists,
organizations, associations, insurance companies, government agencies and media
will help in marketing the product.

Each target customer will receive comprehensive marketing
communications that address the benefits from the purchase and use of the
AO-System®.  The marketing mission will be focused on educating
the potential customer and providing information  that relates to how the
system is a unique technical solution that will eliminate the deadly virus of
Legionella in hospitals, hotels, military applications, mobile disaster relief
units, water cooling towers, food processing facilities, retirement homes, spas,
schools, industrial plants, public fountains, pools, water slide parks, cruise
ships, carwashes, auto plants using water cooling machinery, fountains, ice
rinks, air-scrubbing plants, health-club showers, public pools, mines, schools,
industrial air-cleaners, prisons, stadiums, homes, cruise ships, etc.

Hydrodynex will also look to present to building construction
companies such as Ellerbe Becket and McCarthy Builders and invite them to infuse
our systems into their new and old projects.  Builders want their projects
to be problem free and safe to the tenants, so an approach such as this should
prove profitable.

H.   Patents, Trademarks, and
Copyrights



We are substantially
dependent on the ability of Hydrosystemtechnik to obtain and maintain patents
and proprietary rights for our product, and to avoid infringing the proprietary
rights of others. We have interests in two patents issued by the United States
Patent and Trademark Office.  Additional patent applications may be
forthcoming from ongoing research and development.



On September 3, 2007, we
obtained an exclusive license in Canada, the United States and Mexico from
Meinolf Schoeberl and Hydrosystemtechnik to any proprietary technology being
developed by Hydrosystemtechnik involving advanced Anodic Oxidation water
disinfection units in any markets but the dental market.



Hydrosystemtechnik GmbH,
is the owner of two U.S. patents, numbers 5,395,492 granted on March 7, 1995,
and 5,439,576, granted August 8, 1995, both entitled Apparatus for the
Sterilization of Water.  Both patents describe innovative methods of
sterilization of water using anodic oxidation.  Anodic oxidation is a
process of using anodes and cathodes inside a reactor chamber for the purpose of
conducting high electrical current, which generates over-voltage with respect to
oxygen generation, and generates chlorine equivalent oxidants.  The reactor
creates a significant amount of oxidants to sterilize the water, but does so in
a way without adding chlorine.



We have not filed for
any copyright or trademark protection to date.



I.   Employees



Our President and Chief Executive Officer of Hydrodynex, Ronald
Kunisaki sold his manufacturing company, Innovative Hockey, Inc.,  two
years ago and completed his two-year work contract with the company on December
31, 2008.  Mr. Kunisaki currently does not have other outside employment
and dedicates approximately 15 hours per week to our company with no monetary
compensation and no employment or other compensation arrangement with our
company.  Our Chief Financial Officer, and Treasurer, Richard Kunisaki, is
currently a full-time CPA and dedicates approximately five hours per week to our
company, also without compensation and without any employment or other
arrangement with our company.  Our Chief Operations Officer and Vice
President, Jerod Edington, performs employee like services for our company on a
part time basis.  Mr. Edington is a part-time business consultant and works
approximately 25 hours per week for the benefit of Hydrodynex and is paid $2,500
per month.  Derek Grant works full time for Qumu, Inc. and dedicates
approximately five hours per week to Hydrodynex with no monetary compensation.
 Peter Schmid is a part-time investment manager and dedicates approximately
five hours per week to Hydrodynex with no monetary compensation.  Mr.
Edington and Mr. Schmid were both issued five year stock options in August of
2008. All individuals besides Ronald Kunisaki have other employment and
responsibilities outside of Hydrodynex.

J.  Governmental Regulation

No AO system has yet been sold or is installed in the U.S., Canada
or Mexico, and no system can be sold in the U.S. without approval of the U.S.
Environmental Protection Agency (EPA), based on testing that is done by NSF
International.  The U.S. EPA and NSF International have partnered to form
an Environmental Technology Verification (ETV) Protocol that most states
require.  In developing a testing strategy

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and timeline with NSF International (NSF), the co-developer with
the EPA of the required Environmental Technology Verification (ETV) Protocol
needed for sales approval, we have estimated that a month would be required to
develop the protocol, that about six months would be needed for the ETV testing,
and an additional two months would be needed for the report formulation.

For water disinfection units that pertain to drinking water
systems, a Standard 61 leeching test is required throughout the U.S. to
determine if chemicals or compounds from the units structure are leeched into
the water.  A much simpler Standard 61 testing protocol for leeched
contaminants from the unit can be concurrently done by NSF and is estimated to
span two months.  Standard 61 is not overseen directly by the EPA, but is
required by individual states to allow products to be sold within their state.
 Any water treatment device that has wetted parts, or parts that come in
direct contact with drinking water, must have those parts tested for acceptable
levels of leeched contaminants into the drinking water.  Specific parts are
exposed to different water temperatures and pH level variables for certain
lengths of time to determine if any unacceptable levels of contaminants enter
the water.  Once Standard 61 testing is concluded, the tested unit category
will earn the NSF 61 mark.  Different volume flows can be bracketed so
every specific size of disinfection unit does not have to be tested.  All
of our current models of AO system units will be encompassed in two bracketed
categories, so only two particular models will need to be tested.

If we decide to enter the pool and bathing water system market, a
Standard 50 testing must be undertaken.to determine if adequate microbial
eradication takes place.  Each individual state governs its own regulations
as related to water disinfection products and the ETV Protocol.
 California, for example, requires pre-approval of the testing protocol be
used for the ETV laboratory testing of microbial eradication so that it meets
their standards, and California also requires certain Standards to be met
depending upon the use of the water disinfection unit, such as the
aforementioned Standards 51 and 60.  Other certain non-governmental
agencies might also be required to inspect the units for adequacy on such things
as seismic activity durability.

Another regulation that is required by state certification
programs is electrical safety and grounding testing, often done by Underwriter
Laboratories (UL).  This type of approval is necessary for selling and
installing any electrical device within the United States.  Due to
electrical components, motors, and wires, the AO-System® must undergo a thorough
investigation by an accredited product safety laboratory such as UL for testing
of equipment risk and certification.  This process is estimated to take two
months and could cost $25,000 or more..

ITEM 1A.  RISK FACTORS



Investing in our securities involves a high degree of risk. In
addition to other information contained in this registration statement,
prospective purchasers of the securities offered herby should consider carefully
the following factors in evaluating Hydrodynex and its business.

The securities we are offering through this registration statement
are speculative by nature and involve an extremely high degree of risk and
should be purchased only by persons who can afford to lose their entire
investment. We also caution prospective investors that the following risk
factors could cause our actual future operating results to differ materially
from those expressed in any forward looking statements, oral, written, made by
or on behalf of us. In assessing these risks, we suggest that you also refer to
other information contained in this registration statement, including our
financial statements and related notes.

RISKS
RELATED TO OUR COMPANY AND OUR INDUSTRY

We must
raise additional capital to make required license payments under our license
agreement to our licensor.

Under our original
license agreement with our licensor Hydrosystemtechnik, we were required to make
a non-refundable license payment of 20,000 on June 1, 2008, but pursuant to the
amended license agreement dated August 30, 2008, our licensor agreed to extend
the due date for the second license payment to November 30, 2008.  We do
not currently have sufficient cash resources to make the second license payment
and we will need to raise additional capital by selling equity or incurring debt
in order to make this license payment.  Our licensor could find us in
default under the license agreement and terminate the agreement if we do not
make timely payment by the extended due date.  Under the license agreement
unpaid balances bear interest at a rate of 2% above the prime rate as quoted in
the U.S. edition of the Wall Street Journal.



If we are unable to meet our milestone
and minimum annual sales obligations under the Marketing, Distribution and
License Agreement we will lose the exclusivity of the license and the licensor
could terminate the license agreement.



Under our license
agreement with our licensor Hydrosystemtechnik we are required to meet a number
of specific milestones by certain dates, which, if we fail to achieve the
required milestones, our license agreement will become non-exclusive, damaging
our competitive

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situation, or
the licensor could decide to terminate the agreement.  We have currently
not met any of our milestone obligations.  In addition, we are required to
meet certain minimum annual sales volumes based on net purchase value of sales
for calendar years beginning in 2010.  If we are unable to meet those
minimum annual sales volumes our license will become non-exclusive and in
addition, our licensor could terminate the agreement.



If we are unable to obtain approval from
the Environmental Protection Agency to commercially sell the anodic oxidation
water treatment/disinfection systems in the United States by March 3, 2010, our
license can revert to a non-exclusive license and our licensor could terminate
the license agreement.



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 made contact with staff at NSF, gotten price quotes, and
met with NSF representatives in person.  We are currently awaiting
completion of the test reactor that we have ordered from our licensor 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 System 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 must pay license fees, royalties, and
purchase products using a different currency.



Fees and royalties
to our licensor, as well as minimum annual sales targets and purchases from
Licensor are all in Euros.  We also purchase wholesale goods from our
foreign licensor in Euros.  Further weakening of the dollar could
significantly increase our cost of goods, our fees payable under the license
agreement, as well as the minimum annual sales targets we are required to
meet.



If we are able to secure approval from
the Environmental Protection Agency, we may not be able to establish sufficient
sales and marketing capabilities in the U.S. or enter into agreements with third
parties to sell and market any products due to our lack of experience in these
areas, we may not be able to generate product revenue.



We do not currently have
an organization for the sales, marketing and distribution of our product. In
order to market any products, we must build our sales, marketing, managerial and
other non-technical capabilities or make arrangements with third parties to
perform these services.  In addition, we have no experience in developing,
training or managing a sales force and will incur substantial additional
expenses in doing so. The cost of establishing and maintaining a sales force may
exceed its cost effectiveness.  Furthermore, we will compete with many
companies that currently have extensive and well-funded marketing and sales
operations.  Our marketing and sales efforts may be unable to compete
successfully against these companies.  If we are unable to establish
adequate sales, marketing and distribution capabilities, whether independently
or with third parties, we may not be able to generate product revenue and may
not become profitable.

We are initially dependent on
third-party manufacturers, over whom we have limited control.

The
manufacturing process of the AO-Systems®and any other ancillary
replacement components has initially been outsourced to the Licensor, pursuant
to the terms of the existing License Agreement between Hydrodynex and
Hydrosystemtechnik GmbH.  The Licensor is dependant upon many third party
vendors in Germany and other European countries to supply essential components,
which are assembled and tested in the Licensors manufacturing facility in
Germany.  We do not have any manufacturing facilities and expect to rely
upon Hydrosystemtechnik to properly manufacture our products.  Our
dependence upon a third party for the manufacture of our proposed products may
adversely affect our profit margins and our ability to develop and deliver
proposed products on a timely and competitive basis.  Any delays in
manufacturing and distribution will have an adverse impact on the price of our
Companys shares.

We may be subject to product liability
claims.



The sale of the
AO-Systems® may expose us to the risk of significant losses resulting
from product liability.  Although we intend to obtain and maintain product
liability insurance to offset some of this risk, we may be unable to secure such
insurance or it may not cover certain potential claims against us.



We may not be able to
afford to obtain insurance due to rising costs in insurance premiums in recent
years.  If we are able to secure insurance coverage, we may be faced with a
successful claim against us in excess of our product liability coverage that
could result in a material adverse impact on our business.  If insurance
coverage is too expensive or is unavailable to us, we may be forced to
self-insure against product-related claims.  Without insurance coverage, a
successful claim against us and any defense costs incurred in defending
ourselves may have a material adverse impact on our operations.



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As a result
of our limited operating history, we may not be able to correctly estimate our
future operating expenses, which could lead to cash shortfalls.



We have only a limited
operating history from which to evaluate our business.  We have not
generated revenue to date. Accordingly, our prospects must be considered in
light of the risks, expenses, and difficulties frequently encountered by
companies in an early stage of development.  We may not be successful in
addressing such risks, and the failure to do so could have a material adverse
effect on our business, operating results and financial condition.



Because of this limited
operating history and because of the emerging nature of the markets in which we
compete, our historical financial data is of limited value in estimating future
operating expenses.  Our budgeted expense levels are based in part on our
expectations concerning future revenues.  However, our ability to generate
revenues depends largely on purchase orders generated from hospitals, hotels, retirement homes, government
buildings, and cooling tower installations.



Moreover, if we generate
orders from hospitals, hotels, retirement homes, government buildings, and
cooling tower installations, the size of any future revenues depends on the
choices and demand of individual consumers, which are difficult to forecast
accurately.  We may be unable to adjust our operations in a timely manner
to compensate for any unexpected shortfall in revenues.  Accordingly, a
significant shortfall in demand for our products could have an immediate and
material adverse effect on our business, results of operations, and financial
condition.



Our operating results
may fluctuate as a result of a number of factors, many of which are outside of
our control.  For these reasons, comparing our operating results on a
period-to-period basis may not be meaningful, and you should not rely on our
past results as any indication of our future performance.  Our quarterly
and annual expenses are likely to increase substantially over the next several
years, and revenues from the sale of the AO-Systems® may not meet our
expectations. Our operating results in future quarters may fall below
expectations.  Any of these events could adversely impact our business
prospects and make it more difficult to raise additional equity capital at an
acceptable price per share.  Each of the risk factors listed in this Risk
Factors section may affect our operating results.



Our business, the
technology and the water treatment industry are constantly changing and evolving
over time.  Furthermore, we compete in an unpredictable industry and
regulatory environment.  Our ability to succeed depends on our ability to
receive approval from the Environmental Protection Agency and being able to
successfully compete in the water treatment market.  As such, our actual
operating results may differ substantially from our projections.

Hydrodynex has never earned a profit and is currently
operating under a net loss. There is no guarantee that we will ever earn a
profit.

From our inception on May 12, 2006 to the accounting period ended
on June 30, 2008, Hydrodynex has not generated any revenue.  Rather,
Hydrodynex operates under a net loss, and has an accumulated deficit of $76,373
as of the period ended June 30, 2008.  Hydrodynex does not currently have
any revenue producing operations. Hydrodynex is not currently operating
profitably, and it should be anticipated that it will operate at a loss at least
until such time when the production stage is achieved, if production is, in
fact, ever achieved.

If we are
unable to obtain financing in the amounts and on terms and dates acceptable to
us, we may not be able to expand or continue our operations and development and
so may be forced to scale back or cease operations or discontinue our business.
You could lose your entire investment.

We will need to obtain additional financing in order to complete
our business plan.  We currently do not have any operations and we have no
income.  We are an early stage company and we have not realized any
revenues to date. We do not have sufficient capital to enable us to commence,
implement and complete our business plan and based on our current operating
plan, we do not expect to generate revenue that is sufficient to cover our
expenses for at least the next twelve months.  We will require financing in
order to get regulatory approval and initiate operations described in the
section entitled, "Business of the Issuer. We need to raise a minimum of
$400,000 to implement and complete the first phase of our business plan.
 There will be an addition requirement of $2,000,000 to complete the second
phase of our business plan.,   There is no assurance that we will be
successful in raising these funds and in the event were are successful, there is
no assurance that the terms and conditions of these funds will be in the best
interest of our company or our shareholders.  We do not have any
arrangements for financing and we may not be able to find such financing if
required.  We will need to obtain additional financing to operate our
business for the next twelve months, and if we do not, our business will fail.
 We will raise the capital necessary to fund our business through a
Prospectus and private offering of our common stock or units consisting of
common stock and stock purchase warrants.  Obtaining additional financing
would be subject to a number of factors, including investor acceptance of
Companys business strategy, its technology and investor sentiment.  These
factors may adversely affect the timing, amount, terms, or conditions of any
financing that we may obtain or make any additional financing unavailable to
us.

- 16 -

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We do not currently have any arrangements for financing and 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.

Our company anticipates that the funds that were raised from
private placements by way of subscription agreements and funds advanced from
directors will not be sufficient to satisfy our cash requirements for the next
twelve month period.  Also, there is no assurance that actual cash
requirements will not exceed our estimates.  In particular, additional
capital may be required in the event that:

| |    |                                                                                                      
| | -- | -----------------------------------------------------------------------------------------------------
| | 1. | we incur unexpected costs in our independent
testing programs;                                       
| | 2. | we are unable to create a substantial market for
our products;                                       
| | 3. | we incur any significant unanticipated expenses;
and                                                 
| | 4. | we find that we need to spend additional funds to
educated the market and promote the new
technology.

The occurrence of any of the
aforementioned events could prevent us from pursuing our business plan,
expanding our business operations and ultimately achieving a profitable level of
operations.



We depend almost
exclusively on outside capital to pay for the continued development of our
business and the marketing of our products.  Such outside capital may
include the sale of additional stock, shareholder and director advances and/or
commercial borrowing.  There can be no assurance that capital will continue
to be available if necessary to meet these continuing development costs or, if
the capital is available, that it will be on terms acceptable to us. The
issuance of additional equity securities by us will result in a significant
dilution in the equity interests of our current stockholders. Obtaining
commercial loans, assuming those loans would be available, will increase our
liabilities and future cash commitments.



If we are unable to obtain financing in the amounts and on terms
deemed acceptable to us, we may not be able to expand or continue sales of the
AO-Systems® for the treatment of water and so may be forced to
scale back or cease operations or discontinue business and you could lose your
entire investment

Our company was recently formed, and we have not proven that we
can generate a profit. If we fail to generate income and achieve profitability
investment in our securities may be worthless.

We have no operating history and have not proved we can operate
successfully.  We face all of the risks inherent in a new business.
 If we fail, your investment in our common stock will become worthless.
 From inception of May 12, 2006 to the audited period ended on December 31,
2007 and the audited period through June 30, 2008, we incurred a net loss of
$(17,588) and $(74,540) respectively and did not earn any revenue. Hydrodynex
does not currently have any revenue producing operations.

We rely
on our senior management and will be harmed if any or all of them leave.

Our success is dependent on the efforts, experience and
relationships of Jerod Edington.  If this individual were unable to
continue in his role, the business would be adversely affected as to its
business prospects and earnings potential.  We do not currently carry any
insurance to compensate for any such loss.  Mr. Edingtons decisions and
choices may not take into account standard engineering or managerial approaches
marketing companies in the water treatment industry commonly use.
 Consequently, our operations, earnings, and ultimate financial success
could suffer irreparable harm due to management's lack of experience in this
industry.

We may find it very difficult or impossible for Hydrodynex to
find suitable employees in the future or to find third party consultants to
assist Hydrodynex.

Hydrodynex currently
relies heavily upon the services and expertise of Jerod Edington and Blaine
Davidson.  In order to implement the business plan of Hydrodynex,
management recognizes that additional management will be required at some point
in the future.  However, on a near term basis, Hydrodynex will outsource
most services and utilize independent consultants as much as possible.  The
group of three directors, which includes the two officers, are the only
personnel at the outset of operations.  The three officers can manage the
office functions until Hydrodynex can generate enough revenues to hire
additional employees.



- 17 -

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Because a small
number of existing shareholders own a large percentage of our voting stock, you
will have minimal influence over shareholder decisions.

Certain individuals have significant stock ownership in our
Company and will retain significant control of Hydrodynex in the future. We
anticipate that our founders, executive officers, directors, employees and
early-stage investors will together own 100% of the voting power of our
outstanding capital stock.  As a result of such ownership concentration,
this group will have significant influence over the management and affairs of
our business.  They will also exert considerable, ongoing influence over
matters subject to stockholder approval, including the election of directors and
significant corporate transactions, such as a merger, sale of assets or other
business combination or sale of our business.  This concentration of
ownership may have the effect of delaying, deferring, or preventing a change in
control, impeding a merger, consolidation, takeover or other business
combination involving us, or discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control of our business, even if
such a transaction would benefit other shareholders.

There
are many competitors in our market and we may not be able to effectively compete
against them.

The business of marketing water disinfection systems is highly
competitive. This market segment includes numerous technologies, manufacturers,
distributors, marketers and retailers that actively compete for the business of
commercial water treatment in North America.  In addition, the market is
highly sensitive to the introduction of new products and technologies that may
rapidly capture a significant share of the market. As a result, our ability to
remain competitive depends in part upon its successful introduction and end user
acceptance of a new product.

We are a
development stage company, which means our operations may not be
successful.

We were incorporated on May 12, 2006 and although we have certain
assets, we have not executed our business model and are considered to be in the
development stage. Our ability to maintain and achieve profitability is
dependent on the execution of our business plan to generate cash flow to fund
future growth. There can be no assurance that our results of operations or
marketing strategy will prove successful.

RISKS
RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL

If we
are unable to obtain additional capital, we may have to curtail or cease
operations.

We expect that we will need to raise funds by the end of the third
quarter of 2008 in order to meet our working capital requirements.  At
present, we believe that we can continue operations for a period of
approximately four months based upon our present monthly use of funds that were
raised from shareholders in a private placement or funds that could be provided
as loans by the officers, directors and shareholders.  We may not be able
to obtain additional financing on terms favorable to us, if at all. If adequate
funds are not available to us, we may have to curtail or cease operations after
the end of the third quarter, which would materially harm our business and
financial results. To the extent we raise additional funds through further
issuances of equity or convertible debt or equity securities, our existing
stockholders could suffer significant dilution, and any new equity securities we
issue could have rights, preferences and privileges superior to those of holders
of our common stock. Furthermore, any debt financing secured by us in the future
could involve restrictive covenants relating to our capital raising activities
and other financial and operational matters, which may make it more difficult
for us to obtain additional capital and to pursue business opportunities.

We have
no operating history that makes an evaluation of our business difficult.

Our lack of operating history makes it difficult to evaluate our
current business and prospects or to accurately predict our future revenues or
results of operations. Our business model, and accordingly our revenue and
income potential, is new and unproven. In addition, early-stage companies are
subject to risks and difficulties frequently encountered in new and rapidly
evolving markets.

We have
a new and unproven business model, a new technology and may not generate
sufficient revenues for our business to survive or be successful.

Our business model is based on the commercial viability of a new
patented technology and products not sold previously in North America.  In
order for our business to be successful, we must not only develop viable
marketing channels that directly generate revenues, but also provide educational
content to end users to create demand for our products and technology.  Our
business model assumes that end users in



- 18 -

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many markets will see the value of our technology and products and
we will be able to generate revenues through sales to end users.  Each of
these assumptions is unproven, and if any of the assumptions are incorrect, we
may be unable to generate sufficient revenues to sustain our business or to
obtain profitability.  At the present time, we have no contracts,
arrangements or agreements with either end users or distributors.

Because of our limited resources and the speculative nature of
our business, there is substantial doubt as to our ability to operate as a going
concern.

The report of our independent auditors, on our audited financial
statements for the audited period ended June 30, 2008 indicates that there are a
number of factors that raise substantial doubt about our ability to continue as
a going concern.  Our continued operations are dependent on our ability to
obtain financing and upon our ability to achieve future profitable operations
from the development of our business model.  If we are not able to continue
as a going concern, it is likely investors will lose their investment.

We have
no operating history and expect to incur losses in the future.

We have no operating history and have generated no revenues. We
have not achieved profitability and expect to incur losses for the foreseeable
future. We expect those losses to increase as we continue to incur expenses to
develop our products and services. We believe that our business depends on our
ability to significantly increase revenues and to limit our operating expenses.
If our revenues fail to grow at anticipated rates or our operating expenses
increase without a commensurate increase in our revenues, or we fail to adjust
operating expense levels appropriately, we may never be able to achieve
profitability.

Our future operating results are likely to be volatile
and may cause our equity value to fluctuate.

Our future revenues and operating results, if any, are likely to
vary from quarter to quarter due to a number of factors, many of which are
outside of our control. Factors, which may cause our revenues and operating
results to fluctuate, include the following:

| |   |                                                                                                       | 
| | - | ----------------------------------------------------------------------------------------------------- | 
| |  | the
willingness of  distributors to market our products;                                              | 
| |  | market
acceptance of our technology and AO Systems;                                                   | 
| |  | the
timing and uncertainty of sales cycles;                                                           | 
| |  | new
products and services offered by current or future competitors; and                               | 
| |  | general
economic conditions, as well as economic conditions specific to the water
treatment industry. | 

We
are subject to all of the risks and uncertainties associated with the water
treatment industry, all of which may have an adverse impact on our business and
results of operations.

Our future operating results will depend upon numerous factors
beyond our control, including the acceptability of our products and technology
by end users, national, regional and local economic conditions, changes in
demographics, the availability of alternative forms of water treatment, critical
reviews and existing competition, which change rapidly and cannot be predicted.
 If we are unable to successfully anticipate and respond to changes in
attitude by end users, our business and operating results will be adversely
affected.

Current
or future government regulations may add to our operating costs.

We may face unanticipated operating costs because of potential
changes in governmental regulations related to water treatment standards.
  We have no assurance that the independent testing to be undertaken
by NSF International will result in favorable data that will be accepted by the
Environmental Protection Agency.  Laws and regulations may be introduced
and court decisions reached that affect the water treatment standards or other
characteristics of water deemed to be disinfected.  Complying with new
regulations could increase our operating costs. Furthermore, we may be subject
to the laws of various jurisdictions where we actually conduct business. Our
failure to qualify to do business in a jurisdiction that requires us to do so
could subject us to fines or penalties and could have a material adverse impact
on our business and operations.

If we
fail to attract end users, distributors or professional sales personnel for our
products may have an adverse impact on our business.

- 19 -

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Our success depends upon our ability to attract capable
distributors and as well as in-house sales representatives to enter into
arrangements with us to sell our products to end users.  If we do not
continually augment and improve our marketing channels, we will not be able to
sustain a sales level that will support our operations without the infusion of
additional capital.

If
we do not effectively educate end users on the benefits of the
AO-Systems®, we will not have sufficient demand for our
products.

Our business plan is predicated on our company attracting active
and loyal support from end users interested in the disinfection of water,
principally hospitals.  Our target market will be end users that have a
specific need in having the safest, purest and healthiest water possible for
consumption or utilization in their commercial business. There can be no
assurance that there will be significant support from our efforts to educate end
users on this new technology of disinfection of water.  Failure to achieve
recognition and acceptance of this new technology by hospital and other
commercial end-users in a timely fashion will have a material adverse effect on
the sales cycle and may require us to incur unexpected incremental marketing
expenses to educate and inform the market place.

Delivery
of our products may be interrupted due to international political situations,
natural disasters or other causes.

Our products are manufactured in Europe and delivery can be a
problem.  We are subject to the risk that delivery of our products may be
interrupted as a result of natural disasters such as earthquakes and fires or
capacity constraints with our vendors or suppliers hardware.  Any such
interruptions may lead to a loss of customers or distributors and, accordingly,
may adversely affect our business and results of operations.

RISKS RELATED TO OUR
STOCK



There is not now, and there
may not ever be, an active market for our common stock.

There
currently is no market for our common stock.  Further, although the common
stock of Hydrodynex is quoted on the OTC Bulletin Board, trading of its common
stock may be extremely sporadic.  For example, several days may pass before
any shares are traded.  There can be no assurance that although listed on
an exchange,  a more active market for such common stock would develop.
 Accordingly, investors must therefore bear the economic risk of an
investment in our shares for an indefinite period of time.



If you purchase shares of our common
stock you will experience immediate and substantial dilution.



If you purchase shares,
you will incur immediate and substantial dilution in pro forma net tangible book
value.  If Hydrodynex sells additional shares of common stock or issues
warrants in the future and these holders of outstanding options and warrants
exercise those options and warrants, you will incur further dilution.  In
the event we obtain any additional funding, such financings are likely to have a
dilutive effect on the holders of our securities. In addition, we have adopted
an employee stock option plan under which officers, directors, consultants and
employees will be eligible to receive stock options exercisable for our
securities at exercise prices that may be lower than the Offering Price.
 Such stock option grants, if any, may dilute the value of the
securities.



If our stock trades at a relatively small volume, shareholders
may not be able to sell their shares without depressing the market price of the
shares.

If a market for our common stock is established, it may be
possible that a relatively small volume of shares will trade on a daily basis. A
small volume is indicative of an illiquid market. In the event there is a
relatively small volume of shares being traded on a daily basis, shareholders
may be unable to sell their shares without causing a depressive effect on the
price of our common stock.

Our stock is a penny stock.  Trading of our stock may be
restricted by the SEC's penny stock regulations and the NASDs sales practice
requirements, which may limit a stockholder's ability to buy and sell our
stock.

Hydrodynex common shares may be deemed to be penny stock as
that term is defined in Regulation Section 240.3a51-1 of the Securities and
Exchange Commission (the SEC).  Penny stocks are stocks: (a) with a price
of less than U.S. $5.00 per share; (b) that are not traded on a recognized
national exchange; (c) whose prices are not quoted on the NASDAQ automated
quotation system (NASDAQ - where listed stocks must still meet requirement (a)
above); or (d) in issuers with net tangible assets of less than U.S. $2,000,000
(if the issuer has been in continuous operation for at least three years) or
U.S. $5,000,000 (if in continuous operation for less than three years), or with
average revenues of less than U.S. $6,000,000 for the last three years.

- 20 -

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Section 15(g) of the United States Securities Exchange Act of
1934, as amended, and Regulation Section 240.15g(c)2 of the SEC require broker
dealers dealing in penny stocks to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed and dated
written receipt of the document before effecting any transaction in a penny
stock for the investors account.  Potential investors in Hydrodynex
common shares are urged to obtain and read such disclosure carefully before
purchasing any common shares that are deemed to be penny stock.

Moreover, Regulation Section 240.15g-9 of the SEC requires
broker dealers in penny stocks to approve the account of any investor for
transactions in such stocks before selling any penny stock to that investor.
 This procedure requires the broker dealer to: (a) obtain from the investor
information concerning his or her financial situation, investment experience and
investment objectives; (b) reasonably determine, based on that information, that
transactions in penny stocks are suitable for the investor and that the investor
has sufficient knowledge and experience as to be reasonably capable of
evaluating the risks of penny stock transactions; (c) provide the investor with
a written statement setting forth the basis on which the broker dealer made the
determination in (ii) above; and (d) receive a signed and dated copy of such
statement from the investor confirming that it accurately reflects the
investors financial situation, investment experience and investment objectives.
Compliance with these requirements may make it more difficult for investors in
Hydrodynex common shares to resell their common shares to third parties or to
otherwise dispose of them.  Stockholders should be aware that, according to
Securities and Exchange Commission Release No. 34-29093, dated April 17, 1991,
the market for penny stocks has suffered in recent years from patterns of fraud
and abuse. Such patterns include:

(i)

control of the market
for the security by one or a few broker-dealers that are often related to the
promoter or issuer



(ii)

manipulation of prices
through prearranged matching of purchases and sales and false and misleading
press releases



(iii)

boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons



(iv)

excessive and
undisclosed bid-ask differential and markups by selling broker-dealers



(v)

the wholesale dumping
of the same securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the resulting inevitable collapse of
those prices and with consequent investor losses



Our management is aware of the abuses that have occurred
historically in the penny stock market. Although we do not expect to be in a
position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities.

RISKS RELATED TO OUR INTELLECTUAL
PROPERTY

Our intellectual property rights are
valuable, and our inability to protect them could reduce the value of our
products, services and brand.



We do not own any patents or intellectual property.  We have
an exclusive license agreement with Hydrosystemtechnik GmbH, which initially
grants us the right to market the AO-Systems® in North America and in
the future, we have an option to manufacture and assemble the
AO-Systems® here in the US or by utilizing a subcontract manufacturer
in other countries.  The patents issued in the U.S. were granted in 1995.
 U.S. trademarks, trade secrets, copyrights and other intellectual property
rights are owned by the licensor, which we have access to by virtue of the terms
and conditions of the exclusive License Agreement.  This intellectual
Property is currently outside of our direct control and could jeopardize our
ability to implement our business plan.  In addition, the efforts made by
Hydrosystemtechnik, GmbH, to protect the intellectual property rights may not be
sufficient or effective.  Any significant impairment of the intellectual
property rights could harm our business indirectly or our ability to compete.
 Protecting the intellectual property rights is costly and time consuming,
and the unauthorized use of the intellectual property could cause these costs to
rise significantly and materially affect our operating results.  We are
required to pay 50% of the direct costs related to preparing and prosecution of
patents and patent applications, including legal fees, filing fees maintenance
fees and transaction costs within the licensed territory, so long as our license
agreement with Hydrosystemtechnik GmbH remains in effect.

While the goal of Hydrosystemtechnik GmbH is to obtain patent
protection for their innovations, they may not be patentable or they may choose
not to protect certain innovations that later turn out to be important for our
business.  Even if Hydrosystemtechnik GmbH does obtain protection for its
innovations, the scope of protection gained may be insufficient or a patent
issued may be deemed invalid or unenforceable, as the issuance of a patent is
not conclusive as to its validity or as to the enforceable scope of the claims
of the patent.  The patenting process, enforcement of issued patents, and
defense against claims of infringement are inherently costly and risky.

- 21 -

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Hydrosystemtechnik GmbH may not have the financial resources to
defend its patents, thereby reducing our competitive position and our business
prospects.  Specific risks associated with the patent process include the
following:

The United States Patent and Trademark Office may not grant
patents of meaningful scope based on the applications already filed and those
that may be filed in the future.

If the current patents do not adequately protect the technology
and the industrial applications, then we will not be able to prevent imitation
and the product may not be commercially viable.

Changes in or different interpretations of patent laws in the
United States may permit others to use our discoveries or to develop and
commercialize our technology and products without providing any compensation to
us.

Although we try to avoid infringement, there is the risk that we
will use a patented technology owned by another person or entity and/or be sued
for infringement.  For example, U.S. patent applications are confidential
while pending in the Patent and Trademark Office, and patent offices in foreign
countries often publish patent applications for the first time six months or
more after filing.  Further, we may not be aware of published or granted
conflicting patent rights.  Any conflicts resulting from patent
applications and patents of others could significantly reduce the coverage of
the patents and limit our ability to obtain meaningful patent protection.
 In addition, defending or indemnifying a third party against a claim of
infringement can involve lengthy and costly legal actions, and there can be no
guarantee of a successful outcome.

ITEM 2.
  PROPERTIES.



Our executive office is currently located at 230 Bethany Rd., Ste.
#128, Burbank, CA 91504. The 150 square foot office is provided by Jerod
Edington, the President of Hydrodynex at no cost to Hydrodynex.  We believe
our current premises are adequate for our current operations and we do not
anticipate that we will require any additional premises until such time as
Hydrodynex raises additional capital.

ITEM 3.   LEGAL
PROCEEDINGS.



We are not involved in
any legal proceedings, and there are no material pending legal proceedings of
which we are aware.



ITEM 4.   SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS



Hydrodynex did not
submit any matters to a vote of its stockholders in our fiscal year ending June
30, 2008.



- 22 -

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PART II



ITEM 5.   MARKET FOR REGISTRANTS
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.



Our common stock is not
trading and has never traded on any stock exchanges.



The transfer agent of
Hydrodynex is Nevada Agency and Trust Company, 50 West Liberty Street, Suite
880, Reno, Nevada 89501.



As of June 30, 2008,
there were 41 holders of record of Hydrodynex common stock, of which 1,500,000
were issued and outstanding.



As of June 30, 2008,
there were no outstanding stock options or warrants.  In August 2008, the
Board of Directors approved and granted the issuance of 85,000 non-statutory
stock options granted from the Companys 2006 Non-Qualified Stock Option Plan.
 These options expire on July 31, 2013 and vested entirely upon issue date.
 The options are exercisable at the price of $ 0.25/share.  The
purpose of granting the stock options was to encourage and enable officers,
directors, consultants, advisors, other key employees and related parties of the
Company to acquire and retain a proprietary interest in the Company by ownership
of its common stock.  Subsequently, 15,000 stock options were returned for
no considerations from former officer, Blaine Davidson.



We have never paid cash
dividends on our common stock. We presently intend to retain future earnings, if
any, to finance the expansion of our business and we do not anticipate that any
cash dividends will be paid in the foreseeable future. Our future dividend
policy will depend on our earnings, capital requirements, expansion plans,
financial condition and other relevant factors.



Recent Sales of Unregistered Securities;
Use of Proceeds From Unregistered Securities



On May 19, 2006, 500,000 shares of common stock were issued to
Jerod Edington, our President and CEO, for $0.01 per share.  Mr. Edington
originally purchased the shares for $2,000 cash and a promissory note for
$3,000, which was subsequently paid off in several payments by February 5, 2007.
 This transaction was exempt from registration under the Securities Act
pursuant to Section 4(2).

In a private placement offering between September 15, 2007 and
September 30, 2007, we issued an aggregate of 1,000,000 shares of common stock,
par value $.001, to a total of 29 non-accredited investors and 11 accredited
investors at an offering price of $0.10 per share for gross offering proceeds of
$100,000.  We issued the shares to the purchasers relying on an exemption
from registration under Regulation D, Rule 504 and/or Section 4(2) or 4(6) of
the Securities Act of 1933.  No discounts were given and no commissions
were paid as no underwriters were involved in the private placement offering.
 The proceeds of the offering have been allocated to paying license fees,
patent fees, seeking regulatory approval of our technology, administrative
costs, consulting fees, legal fees, accounting fees, travel fees, and costs
related to office expenses.

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
per share to three investors as part of a $50,000 bridge loan financing.
 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 closed the
bridge loan financing in the fourth quarter of 2008.  This transaction was
exempt from registration under the Securities Act pursuant to Section 4(2).

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.

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 a
single, accredited investor. The purchaser in the private placement was Ronald
Kunisaki.   In conjunction with the private placement, there were no
fees, commissions or professional fees for services payable.  The placement
was undertaken by the officers of Hydrodynex.  The private placement of
these securities was exempt from

- 23 -

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registration under the Securities Exchange Act of 1933, as amended
(the Act), pursuant to Section 4(2) thereof, and Rule 506 promulgated by the
SEC under the Act.

ITEM 6.   SELECTED FINANCIAL
DATA



Not
applicable.



ITEM 7.   MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.



THE FOLLOWING PLAN OF OPERATIONS SECTION
SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES
THERETO INCLUDED ON PAGES 31 THROUGH 42 FOLLOWING THE SIGNATURE PAGES OF THIS
ANNUAL REPORT ON FORM 10-K. ALL STATEMENTS IN THIS ANNUAL REPORT RELATED TO
HYDRODYNEX CHANGING FINANCIAL OPERATIONS AND EXPECTED FUTURE OPERATIONAL PLANS
CONSTITUTE FORWARD-LOOKING STATEMENTS. THE ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE ANTICIPATED OR EXPRESSED IN SUCH STATEMENTS.



A.   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 the
AO-Systems® water treatment units.  We are structured expressly
as a marketing entity 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 with our licensor Hydrosystemtechnik, we paid a non-refundable license
fee creditable to royalty payments in the amount of 10,000 Euros in 2007.
 We were required, under the original license agreement with our licensor,
to make a non-refundable license payment of 20,000 Euros on June 1, 2008.
 Hydrosystemtechnik agreed in writing to an extension of the due date for
the second license payment from June 1, 2008 to August 31, 2008.  Under the
terms of the amended license agreement dated August 30, 2008, the due date for
the second license payment was extended to November 30, 2008.  We do not
currently have sufficient funds to make this license payment and we will have to
raise additional capital by selling equity or incurring debt in order to make
this license payment.  A third license fee in the amount of 20,000 Euros
will be due upon certification and approval of the AO-Systems®by the
US Environmental Protection Agency for commercial sales in the United States



We are currently organizing our distribution/dealer and direct
marketing programs, which consists 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 and 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 manufacture
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.

Our plan of operation for the next 12 months 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,
complete the current audit of Hydrodynex, initial start-up capital realization
through asecond private stock offering, undertaking independent
testing, securing EPA and State certification, and hiring/training sales and
technical personnel.

- 24 -

---

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 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 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 fourth quarter of 2008.

Subject to raising 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 testing,
purchase of equipment for testing, marketing materials, advertising, insurance,
employee training, travel, office lease, licenses, shipping and import costs,
employee salary, and other budget costs.

B.
 Results of Operations

Since Hydrodynex was formed on May 12, 2006, it has not earned any
revenues and has incurred a net loss since its inception of $74,540 through June
30, 2008.

For
the twelve months ended June 30, 2008, our total expenses were $74,540 as
compared to $1,296 for the twelve month period ending June 30, 2007.  The
increase in expenses was due to several factors such as:



1.
 A monthly consulting fee contracted to our COO, Jerod Edington (former
CEO), in the amount of $2500 per month, which was not implemented until October
of 2007.  $0 was attributed to consulting fees in the expenses for the year
ended June 30, 2007, and this increased to $23,500 for the year ended 2008.



2.
 Our corporate website was developed at a cost of $5,000 in November 2007.
 This amount increased the total general and administrative expenses,
adding to the total expenses a cost that was not seen for the year ended June
30, 2007, when the general and administrative expenses was only $1,241.



3.
 An increase in travel expenses due to a training trip for our CEO with the
licensor and product manufacturer in Germany, and an informational meeting in
Ann Arbor, Michigan, with NSF International for technology verification
planning.  Travel and entertainment for the year ended June 30, 2007, was
$0, while for the year ended June 30, 2008, it increased to $10,513.



4.
 Our company retained a company accountant in January 2008, a corporate
attorney to oversee contracts and our public reporting obligations in January
2008, and an independent auditor in February 2008.  The legal and
accounting expenses for the year ended June 30, 2007, was $0, while the
increased legal and accounting expenses for the year ended June 30, 2008, came
to $27,012.



5.
 Payment of a license fee due to our manufacturer and licensor in the
amount of $14,892, per the Exclusive License Agreement terms.  This
increased the pre-paid royalties from $0 for the year ended June 30, 2007, to
$21,889 for the year ended June 30, 2008.  The additional increase in this
area was from two pre-paid royalties for patent expenses totaling $6,997.



We do not presently
expect the expenses listed above to increase in future periods.

- 25 -

---

C.
  Liquidity and Capital Resources.



We are currently financing our operations from the proceeds from
sales of common stock offered pursuant to our private placement, which was
closed on September 30, 2007.  As of June 30, 2008, we had cash in the
amount of $518.  We will need to raise additional capital or generate
revenue by the third quarter of 2008 or curtail our operations.  As
mentioned above, 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 per share to three investors as part of a $50,000 bridge loan.
 We intend to complete the $50,000 bridge loan and sell additional shares
of common stock or units consisting of common stock and stock purchase warrants
to secure additional capital to fund Phase I of our strategic plan.  The
amount we would like to raise is $750,000.  We raised a total of $100,000
pursuant to Rule 504 of Regulation D of the Securities Act of 1933 in December
2007.

As of June 30th, 2008,
we had $518 in cash and cash equivalents. We do not have any available lines of
credit. Since inception we have financed our operations from private placements
of equity securities and loans from shareholders.



Net cash used in
operating activities during the fiscal year ended June 30, 2008 was $98,210
resulting in a net loss of $74,540.



Net cash from financing
activities for the fiscal year ended June 30, 2008 was $100,000 from sale of
common stock at $.10 per share. This funding came from 40 investors in an
offering that ended on September 30, 2007.



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
| |  | A private placement stock
offering for shares in the company.                                    



We do not have
sufficient capital to carry on operations past September 2008, but we plan to
complete our $50,000 bridge loan and raise additional capital in a private stock
offering to secure funds needed to finance our plan of operation for at least
the next twelve months. 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 and the adequacy of our available funds 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 assure you that we
will generate sufficient additional capital or revenues, if any, to fund our
operations beyond September  2008, 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.



D.   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 this Form 10-K.  Our critical accounting policies
are:



Revenue
Recognition : Royalties will be recognized as revenue when the
amounts are contractually earned, fixed and determinable, and there is
substantial probability of collection.



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



Intangible
Assets. Hydrodynex intangible asset is composed of a license from
Hydrosystemtechnik GmbH.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK



Not applicable.

- 26 -

---



ITEM 8.   FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

|                                                               |  |      
|-------------------------------------------------------------- |  | -----
|HYDRODYNEX,
INC.
INDEX TO
FINANCIAL STATEMENTS                
|Report of Independent
Registered Public Accounting Firm        |  | 28   
|Balance Sheets for June 30,
2007 and June 30, 2008             |  | 29   
|Statements of Operations
for twelve months ended June 30, 2008 |  | 30   
|Statement of Stockholders
Equity as of June 30, 2008          |  | 31   
|Statements of Cash Flows
for twelve months ended June 30, 2008 |  | 32   
|Notes to Financial
Statements for period ended June 30, 2008   |  | 33-38



- 27 -

---

To the Board of Directors and

Stockholders of HydroDyneX , Inc.

Burbank, California



REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM



We have audited the accompanying balance sheet of HydroDyneX, Inc
as of June 30, 2008 and 2007, and the related statements of operations,
stockholders equity and cash flows for the years then ended.  These
financial statements are the responsibility of the Companys management.
 Our responsibility is to express an opinion on these financial statements
based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of HydroDyneX, Inc. as
of June 30, 2008 and 2007 and the results of its operations, stockholders equity
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern.  As discussed in Note 2
to the financial statements, the Companys significant and ongoing operating
losses raise substantial doubt about its ability to continue as a going concern.
 The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.



Williams & Webster, P.S.Certified Public
AccountantsSpokane, WashingtonSeptember 26, 2008

- 28 -

---



|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|------------------------------------------------------------------------------------------------------------------------ | ---------------------------------- |  |  | - | -------- | ------- | ------ | -------- | ----- | ----- | --------
|Hydrodynex, Inc.                                                                                                        
|(A
Development Stage Company)                                                                                           
|Balance Sheet                                                                                                           
|                                                                                                                        
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|                                                                                                                         |                                    |  |  |   |          |         |        | June 30, |       |       | June 30,
|                                                                                                                         |                                    |  |  |   |          |         |        | 2008     |       |       | 2007    
|Assets                                                                                                                   |                                    |  |  |   |          |         |        |          |       |       |         
|Current Assets                                                                                                           |                                    |  |  |   |          |         |        |          |       |      
|                                                                                                                         | Cash                               |  |  |   |          |         | $      | 518      |       | $     | 16      
|                                                                                                                         | Pre-paid Expenses                  |  |  |   |          |         | 750    |          |       |      
|                                                                                                                         | Trade Deposits                     |  |  |   |          |         | 26,990 |          |       | 0    
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|                                                                                                                         | Total Current Assets               |  |  |   |          |         | 28,258 |          |       | 16   
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|Property and Equipment                                                                                                   |                                    |  |  |   |          |         |        |          |      
|                                                                                                                         | Property Plant and Equipment (Net) |  |  |   | 1,288    |         |        | 0       
|                                                                                                                         | Less: Accumulated Depreciation     |  |  |   |          | (49)    |        |          | 0    
|                                                                                                                         | Total Property and Equipment       |  |  |   |          | 1,239   |        |          | 0    
|Other Assets                                                                                                             |                                    |  |  |   |          |         |        |          |       |      
|                                                                                                                         | Pre-paid Royalty                   |  |  |   |          |         | 21,889 |          |       | 6,997
|Total Other Assets                                                                                                       |                                    |  |  |   |          |         | 21,889 |          |       | 6,997
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|Total Assets                                                                                                             |                                    |  |  |   |          |         | 51,386 |          |       | 7,013
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|Liabilities and Stockholders Equity                                                                                      |                                    |  |  |   |          |         |        |         
|Current Liabilities:                                                                                                     |                                    |  |  |   |          |         |        |          |       |      
|                                                                                                                         | Accounts Payable                   |  |  |   |          | $       | 16,467 |          | $     | 0    
|                                                                                                                         | Accrued Expenses                   |  |  |   |          |         | 42     |          |       | 0    
|                                                                                                                         | Notes Payable-Related party        |  |  |   |          | 2,000   |        |          | 3,846
|                                                                                                                         | Total Current Liabilities          |  |  |   | $        | 18,509  |        | $        | 3,846
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|Commitments and contingencies                                                                                            |                                    |  |  |   | $        | 0       |        | $        | 0    
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|Stockholders Equity                                                                                                      |                                    |  |  |   |          |         |        |          |       |      
|Preferred stock, $.001 par value, 5,000,000 shares
authorized: no shares issued or outstanding                           |                                    |  |  |   | 0        |         |        | 0       
|Common stock, $.001 par value, 70,000,000 shares
authorized, 1,500,000, and 500,000 issued and outstanding,
respectively |                                    |  |  |   | 1,500    |         |        | 500     
|Additional Paid-In Capital                                                                                               |                                    |  |  |   |          | 107,750 |        |          | 4,500
|Deficit accumulated during development
stage                                                                             |                                    |  |  |   | (76,373) |         |        | (1,832) 
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|Total Stockholder's Equity                                                                                               |                                    |  |  |   | $        | 32,877  |        | $        | 3,168
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         
|Total Liabilities and Stockholder's
Equity                                                                               |                                    |  |  | $ | 51,386   |         | $      | 7,013   
|                                                                                                                         |                                    |  |  |   |          |         |        |          |       |       |         

The accompanying notes are an integral part
of these financial statements.



- 29 -

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|                                                            |   |           |          |         |                     |           |                     |        |                                                
|----------------------------------------------------------- | - | --------- | -------- | ------- | ------------------- | --------- | ------------------- | ------ | -----------------------------------------------
|Hydrodynex, Inc.                                           
|(A
Development Stage Company)                              
|Statements of Operations                                   
|                                                            |   |           |         
|                                                            |   |           |          |         | Twelve Months Ended |           | Twelve Months Ended |        | Period from May 12, 2006 (Date of
Inception) to
|                                                            |   |           |          |         | June 30,            |           | June 30,            |        | June 30,                                       
|                                                            |   |           |          |         | 2008                |           | 2007                |        | 2008                                           
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|Revenue                                                     |   |           |          | $       | 0                   | $         | 0                   | $      | 0                                              
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|Expenses                                                    |   |           |          |         |                     |           |                     |        |                                                
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|Consulting fees                                             |   |           |          | 23,500  |                     | 0         |                     | 23,500
|Board of directors fees                                     |   |           |          | 2,750   |                     |           |                     | 2,750 
|General and Administrative                                  |   |           | 10,685   |         | 1,241               |           | 12,463             
|Legal and accounting                                        |   |           |          | 27,012  |                     | 0         |                     | 27,012
|Travel                                                      |   |           |          |         | 10,513              |           | 0                   |        | 10,513                                         
|Interest expense                                            |   |           |          | 80      |                     | 55        |                     | 135   
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|Total Expenses                                              |   |           | $        | 74,540  | $                   | 1,296     | $                   | 76,373
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|Net Income(Loss) From Operations                            |   | $         | (74,540) | $       | (1,296)             | $         | (76,373)           
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|Basic and fully diluted loss per share                      | $ | (0.05)    | $        | nil     | $                   | (0.05)   
|                                                            |   |           |          |         |                     |           |                     |        |                                                
|Basic and fully diluted weighted
average shares outstanding |   | 1,500,000 |          | 500,000 |                     | 1,500,000
|                                                            |   |           |          |         |                     |           |                     |        |                                                

The accompanying notes are an integral part
of these financial statements.



- 30 -

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|                                           |   |         |           |              |       |       |         |            |          |             |          |        
|------------------------------------------ | - | ------- | --------- | ------------ | ----- | ----- | ------- | ---------- | -------- | ----------- | -------- | -------
|Hydrodynex, Inc.                          
|(A
Development Stage Company)             
|Statement of Stockholder's Equity         
|                                           |   |         |           |              |       |       |         |            |          |             |          |        
|                                           |   |         |           |              |       |       |         |            |          |             |          |        
|                                           |   |         |           | Common Stock |       |       |         | Additional |          |             |          |        
|                                           |   |         |           |              |       | Par   |         | Paid       |          | Accumulated |          |        
|                                           |   |         |           | Shares       |       | Value |         | In Capital |          | Deficit     |          | Total  
|                                           |   |         |           |              |       |       |         |            |          |             |          |        
|Balance - May 12, 2006 (Date of Inception) | 0 | $       | 0         | $            | 0     | $     | 0       | $          | 0       
|                                           |   |         |           |              |       |       |         |            |          |             |          |        
|Shares issued to President (Note 5)        |   | 200,000 |           | 200          |       | 1,800 |         |            |          | 2,000      
|Net loss                                   |   |         |           |              |       |       |         |            |          | (536)       |          | (536)  
|                                           |   |         |           |              |       |       |         |            |          |             |          |        
|Balance - June 30, 2006                    |   |         | 200,000   | $            | 200   | $     | 1,800   | $          | (536)    | $           | 1,464   
|                                           |   |         |           |              |       |       |         |            |          |             |          |        
|Shares issued to President (Note 5)        |   | 300,000 |           | 300          |       | 2,700 |         |            |          | 3,000      
|Net loss                                   |   |         |           |              |       |       |         |            |          | (1,296)     |          | (1,296)
|                                           |   |         |           |              |       |       |         |            |          |             |          |        
|Balance - June 30, 2007                    |   |         | 500,000   | $            | 500   | $     | 4,500   | $          | (1,832)  | $           | 3,168   
|                                           |   |         |           |              |       |       |         |            |          |             |          |        
|Shares issued                              |   |         | 1,000,000 |              | 1,000 |       | 99,000  |            |          |             | 100,000 
|Options issued for director fees           |   |         |           |              |       | 2,750 |         |            |          |            
|Options issued for services                |   |         |           |              |       | 1,500 |         |            |          |            
|Net loss for period                        |   |         |           |              |       |       |         |            | (74,540) |             | (74,540)
|                                           |   |         |           |              |       |       |         |            |          |             |          |        
|Balance - June 30, 2008                    |   |         | 1,500,000 | $            | 1,500 | $     | 107,750 | $          | (76,372) | $           | 32,878  
|                                           |   |         |           |              |       |       |         |            |          |             |          |        

The accompanying notes are an integral part
of these financial statements.



- 31 -

---



|                                      |                                                              |   |          |                     |         |                     |           |                                                
|------------------------------------- | ------------------------------------------------------------ | - | -------- | ------------------- | ------- | ------------------- | --------- | -----------------------------------------------
|Hydrodynex, Inc.                     
|(A
Development Stage Company)        
|Statements of Cash Flows             
|                                      |                                                              |  
|                                      |                                                              |  
|                                      |                                                              |   |          | Twelve Months Ended |         | Twelve Months Ended |           | Period from May 12, 2006 (Date of
Inception) to
|                                      |                                                              |   |          | June 30,            |         | June 30,            |           | June 30,                                       
|                                      |                                                              |   |          | 2008                |         | 2007                |           | 2008                                           
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                              |   |          |                     |         |                    
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|                                      | Net Loss                                                     |   | $        | (74,540)            | $       | (1,296)             | $         | (76,373)                                       
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|                                      | Depreciation and Amortization
Expense                        |   |          | 49                  |         | 0                   |           | 0                                              
|                                      | Stock options issued for
director fees                       |   | 2,750    |                     | 0       |                     | 2,750    
|                                      | Stock options issued for
services                            |   | 1,500    |                     | 0       |                     | 1,500    
|                                      | Decrease (Increase) Trade
Deposits                           |   | (26,990) |                     | 0       |                     | (26,991) 
|                                      | Decrease (Increase) Prepaid
Expenses                         |   | (15,642) |                     | (6,997) |                     | (22,639) 
|                                      | Increase (Decrease) Accounts
Payable and Accrued Liabilities |   | 16,509   |                     | 0       |                     | 16,510   
|                                      | Increase (Decrease) Due to
related Party                     |   | (1,846)  |                     | 3,518   |                     | 2,000    
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|                                      | Net Cash (Used) Provided by
Operating Activities             | $ | (98,210) | $                   | (4,775) | $                   | (103,243)
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                              |   |          |                     |         |                    
|                                      | Investment in property, plant
and equipment                  |   | (1,288)  |                     | 0       |                     | (1,239)  
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|                                      | Net Cash (Used) Provided by
Investing Activities             |   | (1,288)  |                     | 0       |                     | (1,239)  
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                              |   |          |                     |         |                    
|                                      | Proceeds from sale of common
stock                           |   | 100,000  |                     | 0       |                     | 105,000  
|                                      | Increase (Decrease) stock
subscription receivable            |   | 0        |                     | 3,000   |                     | 0        
|                                      | Net Cash Provided by (Used in)
used in Financing Activities  | $ | 100,000  | $                   | 3,000   | $                   | 105,000  
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|                                      | Net change in cash                                           |   | 502      |                     | (1,775) |                     | 518      
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|                                      | Cash, Beginning of Period                                    |   | 16       |                     | 1,792   |                     | 0        
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|                                      | Cash, End of Period                                          | $ | 519      | $                   | 17      | $                   | 518      
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|                                      |                                                              |   |          |                     |         |                     |           |                                                
|Supplement Cash Flow
Information      |                                                              |   |          |                     |         |                    
|                                      | Interest Expense Paid                                        | $ | 135      | $                   | 0       | $                   | 135      
|                                      |                                                              |   |          |                     |         |                     |           |                                                

The accompanying notes are an integral part
of these financial statements.



- 32 -

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HYDRODYNEX, INC.

(A DEVELOPMENT STAGE
COMPANY)

NOTES TO FINANCIAL
STATEMENTS

JUNE 30,
2008



NOTE 1  ORGANIZATION AND DESCRIPTION OF BUSINESS

Hydrodynex, Inc. (hereinafter the Company) was incorporated May
12, 2006 under the laws of the State of Nevada.  The primary business is to
market and sell, under an exclusive North-American license, AO-System (Anodic
Oxidation) water treatment units.  The water treatment systems are
developed and manufactured by Hydrosystemtechnik, GmbH based in Germany.

The Company is in the development stage.

The Companys fiscal year end is June 30.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies is presented to
assist in understanding the financial statements.  The financial statements
and notes are representations of the Companys management, which is responsible
for their integrity and objectivity.  These accounting policies conform to
accounting principles generally accepted in the United States of America and
have been consistently applied in the preparation of the financial
statements.

Accounting Method

The Company uses the accrual basis of accounting in accordance
with accounting principles generally accepted in the United States of
America.

Use of Estimates

The process of preparing the financial statements in conformity
with accounting principles generally accepted in the United States of America
requires the use of estimates and assumptions regarding certain types of assets,
liabilities, revenues, and expenses.  Such estimates primarily relate to
unsettled transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated
amounts.

Cash and Cash Equivalents

Cash and cash equivalents consists of cash on deposit and term
deposits with a maturity of less than three months from the date of
purchase.

Organizational costs

Costs of startup activities, including organizational and
incorporation costs are expensed as incurred.

Fair Value of Financial Instruments

The carrying value of cash, and accounts payable and accrued
liabilities approximate their fair value because of there short maturity of
these instruments.

Provision for Taxes

Income taxes are provided based upon the liability method of
accounting pursuant to SFAS No. 109 Accounting for Income Taxes.  Under
this approach, deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year end.  A
valuation allowance is recorded against deferred tax assets if management does
not believe the Company has met the more likely than not standard imposed by
SFAS No. 109 to allow recognition of such an asset.

- 33 -

---

Basic and Diluted Loss Per Share

Loss per share was computed by dividing the net loss by the
weighted average number of shares outstanding during the period.  The
weighted average number of shares was calculated by taking the number of shares
outstanding and weighting them by the amount of time that they were outstanding.
 Basic and diluted loss per share was the same, as there were no common
stock equivalents outstanding.

Going Concern

As shown in the accompanying financial statements, the Company has
no revenues, has incurred a net loss of $ 74,540 for the period ended June 30,
2008 and has an accumulated deficit of $76,373.  These factors indicate
that the Company may be unable to continue in existence.  The financial
statements do not include any adjustments related to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.

The Companys management believes that the company will have
sufficient resources to execute the current plan of operations, and meet the
budget.  Although the company currently only has $518 in cash, a bridge
loan and a second private stock offering are planned to be implemented to raise
sufficient operating capital to continue operations.

Recent Accounting Pronouncements

In May 2008, the FASB issued SFAS No. 163, Accounting for
Financial Guarantee Insurance Contracts  an interpretation of FASB Statement
No. 60.  SFAS 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default (insured event) when there is evidence
that credit deterioration has occurred in an insured financial obligation. 
This Statement also clarifies how Statement 60 applies to financial guarantee
insurance contracts, including the recognition and measurement to be used to
account for premium revenue and claim liabilities. Those clarifications will
increase comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises. This Statement requires expanded disclosures
about financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  SFAS 163 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008.  The
Company does not expect the adoption of SFAS 163 will have a material impact on
its financial condition or results of operation.

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 Commissions 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 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" (FAS 161).  FAS 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 and gains and losses on
derivative instruments, and disclosures of credit-risk-related contingent
features in hedging activities. FAS 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 December 2007, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 160, Non-controlling Interests
in Consolidated Financial Statements (FAS 160) which amends ARB 51 to
establish accounting and reporting standards for the non-controlling interest in
a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
non-controlling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. In addition to the amendments to ARB 51, this Statement
amends FASB Statement No. 128, Earnings per Share; so that earnings-per-share
data will continue to be calculated the same way those data were calculated
before this Statement was issued. This Statement is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008. The Company is currently evaluating the impact, if any, of adopting
FAS 160 on its financial position and results of operations.

In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141R, Business Combinations (FAS 141R)
which replaces FAS No. 141 and establishes principles and requirements for how
the acquirer of a business

- 34 -

---

recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquire. FAS 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. Early adoption of FAS
141R is prohibited. The Company is currently evaluating the impact, if any, of
adopting FAS 141R on its financial position and results of
operations.

In February, 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities  Including an amendment
of FASB Statement No. 115 (hereinafter SFAS No. 159). This statement permits
entities to choose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is expected to expand the
use of fair value measurement, which is consistent with the Boards long-term
measurement objectives for accounting for financial instruments. This statement
is effective as of the beginning of an entitys first fiscal year that begins
after November 15, 2007, although earlier adoption is permitted. Management has
not determined the effect that adopting this statement would have on the
Companys financial condition or results of operation.

NOTE 3  PROPERTY AND EQUIPMENT

The company records all purchases of property and equipment at
cost which is presumed to be fair value at the time.  Assets will be
depreciated over the straight-line method over the expected useful life of the
asset.  The Company has purchased a computer

The useful lives of property, plant and equipment for purposes of
computing depreciation are three to thirty-one and one half years.  The
following is a summary of equipment and accumulated depreciation at June 30,
2008 and 2007:

|                                 |  |               |  |              
|-------------------------------- |  | ------------- |  | -------------
|                                 |  | June 30, 2008 |  | June 30, 2007
|Equipment                        |  | $ 1,288       |  | -            
|Less: accumulated depreciation   |  | (49)          |  | -            
|Property, Plant & Equipment, net |  | $ 1,239       |  | -            

Depreciation expense was $ 49 for the year ended June 30, 2008
and $ 0 for the year ended June 30, 2007.

The Company evaluates the recoverability of property and equipment
when events and circumstances indicate that such assets might be impaired.
 The Company determines impairment by comparing the undiscounted cash flows
estimated to be generated by these assets as compared to the carrying
amounts.

The costs associated with maintenance will be expensed, and
replacements and betterments will be capitalized.   The cost and
related reserves of assets sold or retired are removed from the accounts, and
resulting gain or loss is reflected in results of operations.

NOTE 4  RELATED PARTY

The president of the Company loaned the company $ 2,500 with 6%
per annum interest on February 5, 2007, to be repaid before December 31, 2007.
  The note was fully satisfied on December 31, 2007.

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.

NOTE 5  EXCLUSIVE TECHNOLOGY LICENSES

On September 3, 2007, the Company acquired an exclusive technology
license for North America to market the AO-System® water treatment system (AO 
Anodic Oxidation) from Hydrosystemtechnik, GmbH, based in Germany.
  The Company has agreed to pay a licensing fee in the amount 50,000
Euros and has already paid one installment of three in the amount of 10,000
Euros.  A second installment in the amount of 20,000 Euros is due on
November 30th.  These license fee payments may be applied as
pre-paid royalties with Hydrosystemtechnik in the event the Company decides to
exercise its right to manufacture AO-Systems®.  The Company does
have the opportunity under the license to manufacture and assemble the
AO-System® in the United States for resell, after purchasing
specified parts from Hydrosystemtechnik as outlined in the license agreement..
 In the event the Company decides to enter into manufacturing of
AO-Systems®, the Company is to pay

- 35 -

---

royalties to Hydrosystemtechnik in the amount of 10% of the gross
sale on each AO-System® that the Company manufactures and sells, and
will be paid out of pre-paid royalties first when the Company begins to sell the
units within the United States.  In the event the Company decides not to
manufacture, the license fees will no longer be considered pre-paid
royalties.

NOTE 6 INCOME TAXES

Income taxes are
provided based upon the liability method of accounting pursuant to Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes
(hereinafter SFAS No. 109).  Under this approach, deferred income taxes
are recorded to reflect the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each year-end.  A valuation allowance is recorded against
deferred tax assets if management does not believe the Company has met the more
likely than not standard imposed by SFAS No. 109 to allow recognition of such
an asset.

Effective December 1, 2007, the Company adopted the 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 clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. Additionally, FIN 48 provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The adoption of FIN 48 did not have a material
impact on the Companys financial position, results of operation or liquidity.
The current Company policy classifies any interest recognized on an underpayment
of income taxes as interest expense and classifies any statutory penalties
recognized on a tax position taken as selling, general and administrative
expense.

The Company has not taken a tax position that, if challenged,
would have a material effect on the financial statements for the fiscal year
ended June 30, 2008, or during the prior three years applicable under FIN
48.

As a result of the adoption of FIN 48, we did not recognize
any adjustment to the liability for uncertain tax position and therefore did not
record any adjustment to the beginning balance of accumulated deficit on the
consolidated balance sheet.

At June 30, 2008, the Company had deferred tax assets of
approximately $ 2,310 principally arising from net operating loss carry forwards
for income tax purposes calculated at an expected rate of 34%.  As
management of the Company cannot determine that it is more likely than not that
the Company will realize the benefit of the deferred tax assets, a valuation
allowance equal to the deferred tax assets was present at June 30, 2008.

The Companys deferred tax assets are estimated as follows:

|                                       |  |               |  |              
|-------------------------------------- |  | ------------- |  | -------------
|                                       |  | June 30, 2008 |  | June 30, 2007
|Net operating loss carry forward       |  | $71,500       |  | $1,832       
|                                       |  |               |  |              
|Deferred tax asset                     |  | $24,310       |  | $623         
|Deferred tax asset valuation allowance |  | ($24,310)     |  | ($623)       
|                                       |  |               |  |              
|Net deferred tax asset                 |  | -             |  | -            

At June 30, 2008 the Company has net operating loss
carryforwards of approximately $ 71,500 which expires in the years 2026 through
2028.  The Company recognized $ 4,250 in stock options expense that cannot
be deducted for tax purposes, and are not included in the above calculation of
deferred tax assets.  The change in the allowance account from June 30,
2007 to June 30, 2008 was $ 23,687.

NOTE 7 
PREFERRED AND COMMON STOCK

The Company is authorized to issue 5,000,000 shares of $ 0.001 par
value preferred stock.  All shares have equal voting rights, are
non-assessable and have one vote per share.  Voting rights are not
cumulative and, therefore, the holders of more than 50% of the preferred stock
could, if they choose to do so, elect all of the directors of the Company.
 There are no preferred shares issued.

The Company is authorized to issue 70,000,000 shares of $ 0.001
par value common stock.  All shares have equal voting rights, are
non-assessable and have one vote per share.  Voting rights are not
cumulative and, therefore, the holders of more than 50% of the common stock
could, if they choose to do so, elect all of the directors of the
Company.

- 36 -

---

The company sold 200,000 shares of common stock to the president
for $ 2,000 in May of 2006, and then another 300,000 shares were sold during
fiscal year 2006 for $ 3,000.

During the fiscal year end June 30, 2008, the Company has sold
1,000,000 shares of common stock at a price of $ 0.10 per a share which raised
$100,000 in cash.

NOTE 8  STOCK OPTION PLAN

Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (hereinafter SFAS No. 123), defines a fair
value-based method of accounting for stock options and other equity instruments.
The Company has adopted this method, which measures compensation costs based on
the estimated fair value of the award and recognizes that cost over the service
period.

The Companys board of directors approved the adoption of the
2006 Non-Qualified Stock Option and Stock Appreciation Rights Plan by
unanimous consent on May 19, 2006.  This plan was initiated to encourage
and enable officers, directors, consultants, advisors and other key employees of
the Company to acquire and retain a proprietary interest in the Company by
ownership of its common stock.  A total of 1,000,000 of the authorized
shares of the Companys common stock may be subject to, or issued pursuant to,
the terms of the plan.

For the year ended June 30, 2008, the Board of Directors approved
and granted the issuance of 85,000 non-statutory stock options granted from the
Companys 2006 Non-Qualified Stock Option Plan.  These options expire on
July 31, 2013 and vested entirely upon issue date.  The options are
exercisable at the price of $.25/share.  The purpose of granting the stock
options was to encourage and enable officers, directors, consultants, advisors,
other key employees and related parties of the Company to acquire and retain a
proprietary interest in the Company by ownership of its common stock.

The following is a summary of stock option activity:

|                                                       |                  |        |                                |   |    
|------------------------------------------------------ | ---------------- | ------ | ------------------------------ | - | ---
|                                                       | Number of Shares |        | Weighted AverageExercise
Price
|Outstanding at June 30, 2006                           |                  |       |                                | $ |   
|Granted                                                |                  |       |                                |   |   
|Exercised                                              |                  |       |                                |   |   
|Outstanding at June 30, 2007                           |                  |       |                                | $ |   
|Granted                                                |                  |       |                                |   |   
|Exercised                                              |                  |       |                                |   |   
|Outstanding at June 30, 2008                           |                  | 85,000 |                                | $ | .25
|Options exercisable at June 30,
2008                   |                  | 85,000 |                                | $ | .25
|Fair Market Value Per Share of
Options Granted in 2008 |                  |       |                                | $ | .25

The options were valued using the Black-Scholes option pricing
model using the following assumptions as required under SFAS No. 123): risk-free
interest rate of 3.3750%; volatility of 85%; no dividends; an expected life of
no more than 5 years; and an expected exercise price of $0.25. The Company
determined that the stock option compensation was $4,250 and was recognized
during the year ended June 30, 2008.

|                        |  |                 |        |  
|----------------------- |  | --------------- | ------ | -
|                        |  | Year Ended 2008 |       
|                        |  |                 |       
|Risk-free interest rate |  |                 | 3.3750 | %
|Expected option life    |  | 5 years         |       
|Dividend yield          |  |                 | 0      | %
|Volatility              |  |                 | 85     | %
|Exercise price          |  | $               | 0.25   |  

These assumptions
were determined as follows:

| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The risk free interest rate for the
period within the contractual life of the option is based on the 5-year
U.S Treasury yield at the time of the grant                                                                                                         
| |  | The expected term of the options
granted represents the period of time that the options granted are
expected to be outstanding                                                                                                                                  
| |  | Historically, the Company has not
paid a dividend on its common shares and does not expect to do so in the
future                                                                                                                                               
| |  | The volatility assumption represents
an expectation of the volatility of the price of the underlying shares for
the expected term of the option, considering factors such as historical
stock price and stock volatility of other companies within the
industry.



- 37 -

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| |  | 
| |  | 

NOTE 9CONTINGENCIES

As of June 30, 2008 management wasnt aware of any contingencies
that needed to be included in the financial statements.

NOTE 10SUBSEQUENT EVENTS

The Company has amended its license agreement with
Hydrosystemtechnik, GmbH a German company.  A license payment of 20,000
Euros is due to Hydrosystemtechnik on November 30, 2008.

The Company is working on bridge financing of up to $50,000 from
individuals or entities.  $12,000 of bridge funding has been received since
the June 30 year end.  The promissory notes are convertible into common
stock, and also have warrants attached.   The notes are due within one
year, and include simple interest at 8%.

The Company has
amended its Articles of Incorporation to increase the number of authorized
Common Shares to 75,000,000.



- 38 -

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ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

| |      
| | -----
| | None.



ITEM 9A
 CONTROLS AND PROCEDURES



EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES

In connection with the preparation of this annual report on Form
10-K, an evaluation was carried out by our management, with the participation of
the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange
Act) as of June 30, 2008.  For purposes of this section, the term
disclosure controls and procedures means controls and other procedures of an
issuer that are designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms.  Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under the Act is accumulated and communicated to the issuer's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.

Based on that evaluation, our management concluded, as of the end
of the period covered by this report, that our disclosure controls and
procedures were effective.

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING

This annual report does not include a report of managements
assessment regarding internal control over financial reporting or an attestation
report of the companys registered public accounting firm due to a transition
period established by rules of the Securities and Exchange Commission for newly
public companies.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As of the end of the period covered by this report, 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 June 30, 2008, that
materially affected, or are reasonably likely to materially affect, our
companys internal control over financial reporting.

ITEM 9B   OTHER INFORMATION

| |      
| | -----
| | None.



- 39 -

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PART III



ITEM 10.
  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



A. Directors, Executive Officers, Promoters and
Control Persons



The current executive
officers, directors and significant employees of Hydrodynex are as follows:



|                  |  |     |  |                                                                                                                                                                                                                                                                                                                                          
|----------------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name              |  | Age |  | Position                                                                                                                                                                                                                                                                                                                                 
|                  |  |     |  |                                                                                                                                                                                                                                                                                                                                          
|Ronald Kunisaki   |  | 51  |  | Current President, Chief
Executive Officer, & Director since February 6, 2009.                                                                                                                                                                                                                                                           
|                  |  |     |  |                                                                                                                                                                                                                                                                                                                                          
|Richard Kunisaki  |  | 50  |  | Current Chief Financial
Officer, Treasurer, & Director since February 6, 2009.                                                                                                                                                                                                                                                           
|                  |  |     |  |                                                                                                                                                                                                                                                                                                                                          
|Jerod C. Edington |  | 31  |  | Current Vice President, Chief
Operating Officer & Director since February 6, 2009.
President, Chief Executive
Officer, & Director from January 10, 2008, through February 6,
2009.
President & Director from
August 18, 2007, through January 10, 2008.
Vice President, Secretary,
& Director from May 19, 2006, through August 18, 2007.
|                  |  |     |  |                                                                                                                                                                                                                                                                                                                                          
|Derek Grant       |  | 30  |  | Current Secretary, &
Director since February 6, 2008
Secretary, Chief Financial
Officer, Treasurer, & Director from November 24, 2008, through
February 6, 2008.                                                                                                                                                                         
|                  |  |     |  |                                                                                                                                                                                                                                                                                                                                          
|Peter Schmid      |  | 53  |  | Current Director Since August
18, 2007.
Vice President & Director
from August 18, 2007, through February 6, 2009.                                                                                                                                                                                                                        



Each director is elected
to hold office for a one year term or until the next annual meeting of
stockholders and until his successor is elected and qualified. The officers of
Hydrodynex serve at the pleasure of Hydrodynex Board of Directors.



The following sets forth
certain biographical information with respect to the directors and executive
officers of Hydrodynex.



Ronald Kunisaki- Director, Chief Executive Officer, and
President.  Mr. Kunisaki earned a B.A. in Economics from UCLA in 1979
and a Juris Doctor from George Washington University Law School in 1983.
 He is currently an inactive member of the California Bar Association.
 He was President and Founder of Kiyo International, an international
consulting group specializing in licensing technologies between U.S. and
Japanese companies, for nine years.  He then worked for three years as Vice
President and Co-Founder of Innovative Sports Technologies, a specialty designer
and marketer of graphite golf shafts.  For the nine years following that,
Mr. Kunisaki was the President and Founder of Innovative Hockey, Inc., a
designer, manufacturer and marketer of  graphite hockey sticks. With a
manufacturing plant in Tijuana, Mexico (over 300 employees at its peak), and
revenues in excess of $10 million.  For the last 3 years, he has acted as
the President of Warrior Sports Manufacturing.

Richard Kunisaki- Director, Chief Financial Officer, and
Treasurer.  Mr. Kunisaki earned a B.S. in Accounting Theory and
Practice at California State University of Northridge. He received his
certificate as a Certified Public Accountant from the State of California
in 1994.  Mr. Kunisaki has over 22 years of professional accounting
and financial management experience as a Certified Public Accountant and as a
Controller with a Innovative Hockey, Inc., and Warrior Sports
Manufacturing.  Mr. Kunisaki is a member of the California Society of
Certified Public Accountants.

Jerod Edington- Founder, Vice President, Chief Operating
Officer, and Director.Mr. Edington attended the University of
Washington in Seattle, Washington.  He earned a B.S. in Zoology in 2000.
 He did radiation cancer and tumor research at the University of Washington
Medical centers Radiation Oncology Dept. for two years, receiving the coveted
Mary Gates Endowment award for undergraduate research and co-authored a
front-cover research report for Biotechniques magazine.  He has also been
working in the TV/Film Production business for the past 5 years as President of
Naked Lumberjack Productions where he oversaw production of commercials, feature
films, music videos, etc.  He is also a professional actor in the Screen
Actors Guild and American Federation of TV and Radio Artists Unions.

- 40 -

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Peter Schmid-  Director.Mr. Schmid was trained
as a foreign sales businessman and received a marketing diploma from the
Volkshochshule in Munich, Germany, in 1975.  In 1993 he founded Investment
Management Financial Services, located in Aying, Germany, and acts as President
and an investment manager for the company through present day.

Derek Grant-  Secretary and Director.  Mr. Grant
earned a B.S. in Business Marketing at San Jose State University.  He
worked in the Financial Consulting business at Salomon Smith Barney before
settling at Silicon Valley based startup, Qumu, Inc., formerly Media Publisher.
 He was one of the founding members at the firm and was instrumental in
Qumu's substantial growth over the past five years where the company was
recently recognized by Inc.com and Deloitte Consulting as one of the fastest
growing company in America.  Mr. Grant currently runs Sales Operations
for the Western US & Canada.

B. Section 16(a) Beneficial Ownership Reporting
Compliance.

Hydrodynex was not
subject to Section 16(a) during its fiscal year ended June 30, 2008 as it did
not have a class of equity securities registered pursuant to section 12 of the
Exchange Act.



Code of Ethics



As of June 30, 2008, we
had not adopted a code of ethics that applies to our President and CEO
(principal executive officer), or our Chief Financial Officer (principal
accounting officer). As we plan in the future to become a publicly traded
company under SEC rules, we have subsequently dealt with this issue and adopted
a Code of Business Conduct and Ethics for Directors, Officers and Employees and
a Code of Ethics for the Chief Executive Officer and Senior Financial Officers
on August 15, 2008.  Both are exhibits to this Report on Form 10-K.
 We will provide to any person, without charge, upon request, a copy of our
Code of Business Conduct and Ethics for Directors, Officers and Employees and a
Code of Ethics for the Chief Executive Officer and Senior Financial Officers.
 Any person may make such a request by mailing such a request addressed to
our Chief Operations Officer and Vice President, Jerod Edington, at the address
of our executive offices at 230 Bethany Rd. #128, Burbank, California 91504 or
by faxing such a request to (702) -685-8887.



Audit Committee and Audit Committee Financial
Expert



We are not a publicly
traded company under SEC rules and are therefore not required to have an audit
committee comprised of independent directors.  As we are a development
stage company with minimal revenues from operations, few employees, and
relatively simple financial statements, as of June 30, 2008 we had not
constituted any board committees, including an audit committee.  On August
15, 2008, we adopted charters for an Audit Committee, a Compensation Committee,
and a Corporate Governance and Directors Nominating Committee, but will not have
these committees until we have the resources to do so.  We do not have an
audit committee financial expert who is an outside director. As our business
grows and our financial statements become more complicated, we intend to seek an
outside director who can qualify as an audit committee financial expert.



ITEM 11.
  EXECUTIVE COMPENSATION.



A.   Summary
Compensation Table



The table below sets
forth the aggregate annual and long-term compensation paid by us during our last
two fiscal years ended June 30, 2007 and June 30, 2008 to our Chief Executive
Officer (the Named Executive Officer). Other than as set forth below, no
executive officers salary and bonus exceeded $100,000 for the fiscal year
2008.



|                                 |  |          |      |                |  |               |  |                      |   |                       |  |                                                |  |                                                      |       |                                |  |               |  |  |   |  |  |   |  |  |       
|-------------------------------- |  | -------- | ---- | -------------- |  | ------------- |  | -------------------- | - | --------------------- |  | ---------------------------------------------- |  | ---------------------------------------------------- | ----- | ------------------------------ |  | ------------- |  |  | - |  |  | - |  |  | ------
|Name and
Principal
Position
(a)  |  | Year
(b) |      | Salary
($)
(c) |  | Bonus
($)
(d) |  | Stock
Awards
($)
(e) |   | Option Awards
($)
(f) |  | Non-Equity
Incentive Plan Compensation ($)
(g) |  | Non-Qualified
Deferred Compensation Earnings
($)
(h) |       | All other
Compensation
($)
(i) |  | Total
($)
(j)
|Jerod Edington
Pres. & CEO, Dir. |  |          | 2008 |                |  | 22,500        |  |                      | 0 |                       |  | 0                                              |  |                                                      | 1,250 |                                |  | 0             |  |  | 0 |  |  | 0 |  |  | 23,750
|                                 |  |          | 2007 |                |  | 0             |  |                      | 0 |                       |  | 0                                              |  |                                                      | 0     |                                |  | 0             |  |  | 0 |  |  | 0 |  |  | 0     



- 41 -

---

B. Narrative
Disclosure to Summary Compensation Table



Jerod Edington has not entered into formal written employment
agreement with HydroDynex.  Jerod Edington has been employed on an at will
basis with a base salary of $2,500 per month beginning October 2007 but with any
bonus or option compensation at the discretion of the uninterested members of
the board of directors.  Jerod Edington was not paid his entire salary for
June 2008, and such wage shortfalls shall be accrued and paid later.  On
July 31, 2008, Jerod Edington was granted a non-statutory stock option to
purchase 25,000 shares of common stock at $0.25 per share with all of the
options vesting immediately for services performed during the fiscal year ended
June 30, 2008.  Those options were valued at $1,250.

C. Outstanding Equity Awards at Fiscal Year
End



Jerod Edington had not been granted
any equity compensation, including option grants as of June 30, 2008.



D. Compensation of Directors

| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | No compensation was paid to
directors for their director services during the fiscal year ending June
30, 2008.



ITEM 12.   SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.

The following table sets forth, as of April 20, 2009 certain
information with respect to the beneficial ownership of our common stock by each
stockholder known by us to be the beneficial owner of more than 5% of our common
stock and by each of our current directors and executive officers.  The
percentage of shares beneficially owned is based on 1,765,000 shares of common
stock outstanding as of April 20, 2009.  Shares of common stock subject to
stock options and warrants that are currently exercisable or exercisable within
60 days of April 20, 2009, are deemed to be outstanding for the purpose of
computing the percentage ownership of that person but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person.  Each person has sole voting and investment power with respect to
the shares of common stock, except as otherwise indicated. Beneficial ownership
consists of a direct interest in the shares of common stock, except as otherwise
indicated.  Except as otherwise listed
below, the address of each person is 230 Bethany Rd., Ste. 128, Burbank, CA
91504.

|                                                                  |                                          |                       
|----------------------------------------------------------------- | ---------------------------------------- | ----------------------
|Name and Address
ofBeneficial Owner                               | Amount and
Nature ofBeneficial Ownership | Percentageof
Class (1)
|Jerod Edington, Vice Pres., COO,
Dir. (1)                         | 525,000
shares                           | 29.1%                 
|Ronald Kunisaki, Pres., CEO,
Dir. (2)                             | 250,000
shares                           | 14.2%                 
|Peter Schmid, Dir. (3)                                            | 140,000
shares                           | 7.9%                  
|Derek Grant, Sec, Dir.
(4)                                        | 5,000 shares                             | 0.28%                 
|Steven Espey
358 E. 69th St.,
New York, NY 10021                  | 100,000
shares                           | 5.66%                 
|Thomas Keller
4533 Lower Thomas Ranch Rd.,
Miranda, CA 95553      | 100,000
shares                           | 5.66%                 
|Karsten Behrens
Rue de LUnion 16, 1800
Vevey, Switzerland        | 100,000
shares                           | 5.66%                 
|Triax Capital Management1314 S Grand Ste.
2-176
Spokane, WA 99202 | 100,000
shares                           | 5.66%                 
|Executive officers and directors
as a group
3 persons (5)         | 920,000
shares                           | 51.0%                 



| |     |                                                                                                                                                                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Jerod Edington, Vice President, COO, and director.  The
holdings of Jerod Edington include 500,000 shares of common stock and
options to purchase 25,000 shares at $0.25 per share that are exercisable
currently or within 60 days of April 20, 2009.
| | (2) | Ronald Kunisaki, President, CEO, and director.  The
holdings of Ronald Kunisaki include 250,000 shares of common
stock.                                                                                                                               
| | (3) | Peter Schmid, director. The holdings of Mr. Schmid include
125,000 shares of common stock and options common stock and options to
purchase 15,000 shares at $0.25 per share that are exercisable currently
or within 60 days of April 20, 2009.       
| | (4) | Derek Grant, Secretary and director.  The holdings of
Mr. Grant include 5,000 shares of common stock.                                                                                                                                                 
| | (5) | The holdings of the executive officers and directors as a
group include an aggregate of 880,000 shares of common stock, and 40,000
option shares exercisable currently or within 60 days of April 20,
2009.                                           





- 42 -

---

Equity
Compensation Plan Information



The following table sets
forth information about the common stock available for issuance under
compensatory plans and arrangements as of June 30, 2008.



|                                                           |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                              |   |                                                                              |   |                                                                                                                                            |  |  |           |  |  |  |  |  |  |  |  | 
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | - | ---------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------------------------------------------------------ |  |  | --------- |  |  |  |  |  |  |  |  | 
|                                                           |                                                                                                                                                                                                                                                                                                                                                                           | (a)                                                                                          |   | (b)                                                                          |   | (c)                                                                                                                                        | 
|Plan Category                                              |                                                                                                                                                                                                                                                                                                                                                                           | Number of
securities to be issued upon exercise of outstanding options, warrants and
rights. |   | Weighted-average
exercise price of outstanding options, warrants, and rights |   | Number of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a) | 
|Equity
compensation plan approved by security holders (1)  |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                              | 0 |                                                                              | $ | 0                                                                                                                                          |  |  | 1,000,000 | 
|Equity
compensation plans not approved by security holders |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                              | 0 |                                                                              | $ | 0                                                                                                                                          |  |  |           | 
|Total                                                      |                                                                                                                                                                                                                                                                                                                                                                           |                                                                                              | 0 |                                                                              | $ | 0                                                                                                                                          |  |  | 1,000,000 | 
|(1)                                                        | On May 19, 2006
the shareholders of Hydrodynex adopted the 2006 Non-Qualified Stock Option
and Stock Appreciation Rights Plan with 1,000,000 shares of common stock
reserved for issuance under the Plan under which the board of directors
may grant incentive or non-statutory stock options to officers, directors,
employees, consultants and advisors of Hydrodynex.



ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE.



None.

Director Independence



The Board of Directors
has determined that none of its three members are currently independent
directors as that term is defined in Rule 4200(a)(15 ) of the
Marketplace Rules of the National Association of Securities Dealers.



ITEM 14.   PRINCIPAL ACCOUNTING FEES
AND SERVICES.



Audit Fees.
Aggregate fees billed for professional services rendered by Williams &
Webster, P.S. in connection with its audit of Hydrodynex financial statements
as of and for the years ended December 31, 2007, and June 30, 2008, which
included its reviews of Hydrodynex unaudited condensed consolidated interim
financial statements, and for SEC consultations and filings were $10,744.75 and
$5,383.75 thus far, respectively.



Audit-Related
Fees -  None.



Tax Fees  None



All Other Fees -
None



- 43 -

---

PART IV



ITEM 15.
  EXHIBITS



(a) 1 &
2.

Financial Statements See Item 8 in Part II of this report.

All other financial statement schedules are omitted because the
information required to be set forth therein is not applicable or because that
information is in the financial statements or notes thereto.

(a) 3.

Exhibits specified by item 601 of
Regulation S-B.



HYDRODYNEX, INC.

INDEX TO EXHIBITS

|         |  |                                                                                           
|-------- |  | ------------------------------------------------------------------------------------------
|Exhibits |  | Description of
Document                                                                   
|         |  |                                                                                           
|3.1      |  | Articles of
Incorporation of Registrant(1)                                                
|         |  |                                                                                           
|3.2      |  | Bylaws of
Registrant(1)                                                                   
|         |  |                                                                                           
|4.1      |  | Form of 2008
Promissory Notes and Warrant Purchase Agreement (2)                          
|         |  |                                                                                           
|4.2      |  | Form of 2008
Common Stock Warrant Purchase Agreement (2)                                  
|         |  |                                                                                           
|10.1     |  | Exclusive North
American license between Hydrodynex, Inc. and Hydrosystemtechnik, GmbH
(1)
|         |  |                                                                                           
|10.2     |  | 2006
Non-Qualified Stock Option and Stock Appreciation Rights Plan Dated May
19, 2006 (1) 
|         |  |                                                                                           
|10.3     |  | Corporate
Governance Guidelines (4)                                                       
|         |  |                                                                                           
|10.4     |  | Corporate
Governance and Directors Nominating Committee Charter (4)                      
|         |  |                                                                                           
|10.5     |  | Compensation Committee Charter
(4)                                                        
|         |  |                                                                                           
|10.6     |  | Audit Committee Charter
(4)                                                               
|         |  |                                                                                           
|10.7     |  | Promissory Note between Jerod
Edington and HydroDynex dated June 12, 2008 (4)(3)          
|         |  |                                                                                           
|14.1     |  | Code of Business
Conduct and Ethics (2)                                                   
|         |  |                                                                                           
|14.2     |  | Code of Ethics
for the CEO and Senior Financial Officers (2)                              
|         |  |                                                                                           
|31.1     |  | Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer (2)                     
|         |  |                                                                                           
|31.2     |  | Rule
13a-14(a)/15d-14(a) Certification of Chief Financial Officer (2)                     
|         |  |                                                                                           
|32.1     |  | Section 1350
Certifications (2)                                                           



|    |                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Filed with the
Securities and Exchange Commission on June 30, 2008 as an exhibit,
numbered as indicated above, to the Registrants registration statement on
Form S-1 (file no. 333-152052), which exhibit is incorporated herein by
reference.
|(2) | Filed
herewith.                                                                                                                                                                                                                                
|(3) | Promissory note
was paid in full on July 24, 2008                                                                                                                                                                                              
|(4) | Filed as an exhibit, numbered
as indicated above, to the Form 10-K Annual Report (file no. 333-152052)
filed on September 30, 2008, which exhibit is incorporated herein by
reference.                                                         



- 44 -

---

SIGNATURES



In accordance with
Section 13 or 15(d) of the Exchange Act of 1934, as amended, the registrant
caused this Annual Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in Burbank, CA on this 20th day of
 May, 2009.

| |                                                     |                    
| | --------------------------------------------------- | -------------------
| |                                                     |                    
| | HYDRODYNEX, INC.                                   
| |                                                     |                    
| | By:                                                 | /s/ Ronald Kunisaki
| | Ronald Kunisaki
President & Chief Executive
Officer
| |                                                    

In accordance with
Section 13 or 15(d) of the Exchange Act of 1934, as amended, this Annual Report
on Form 10-K has been signed below by the following persons on behalf of the
registrant in the capacities indicated below on this 20th day of May, 2009.



|                      |  |                                                    
|--------------------- |  | ---------------------------------------------------
|Signature             |  | Title                                              
|                      |  |                                                    
|/s/ Ronald Kunisaki   |  | Director, President & Chief
Executive Officer      
|Ronald Kunisaki       |  | (Principal Executive
Officer)                      
|                      |  |                                                    
|                      |  |                                                    
|/s/ Richard Kunisaki  |  | Director, Treasurer, &
Chief Financial Officer     
|Richard Kunisaki      |  | (Principal Financial and
Accounting Officer)       
|                      |  |                                                    
|                      |  |                                                    
|/s/ Jerod C. Edington |  | Director, Vice President, &
Chief Operating Officer
|Jerod C. Edington     |  |                                                    
|                      |  |                                                    
|                      |  |                                                    
|/s/ Derek Grant       |  | Director & Secretary                               
|Derek Grant           |  |                                                    
|                      |  |                                                    
|                      |  |                                                    
|/s/ Peter Schmid      |  | Director                                           
|Peter Schmid          |  |                                                    





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