`UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington D. C. 20549

                                    FORM 10-Q

(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities and
    Exchange Act of 1934.

                  For the quarterly period ended March 31, 2005


( ) Transition report pursuant to Section 13 or 15(d) of the Exchange Act for
the transition period from __________ to ___________ .


                       Commission File Number: 333-100099

                                 HydroFlo, Inc.
               (Exact name of registrant as specified in charter)

        North Carolina                                  56-2171767
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)


                      3721 Junction Blvd. Raleigh, NC 27603
                    (Address of principal executive offices)

                                 (919) 772-9925
              (Registrant's Telephone Number, Including Area Code)


Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.

                                 YES (X) NO ( )

State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 2005.

                                   36,495,652

Transitional Small Business Disclosure Format:
                                 YES ( ) NO (X)




                                        1




                                 HydroFlo, Inc.


                               INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

        Balance Sheets as of March 31, 2005 and June 30, 2004............... 4

        Statements of Operations for the periods ended
        March 31, 2005 and March 3 and March 31, 2004....................... 5

        Statements of Cash Flows for the periods ended
        March 31, 2005 and March 3, and 31, 2004............................ 6

        Schedule of Investments............................................. 7

        Notes to Financial Statements....................................... 8

Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations........................................... 12

Item 3. Quantitative and Qualitative Disclosure About Market Risk........... 15

Item 4. Controls and Procedures............................................. 16

PART II. OTHER INFORMATION

Item 1. Legal Proceedings................................................... 17
Item 2. Changes in Securities............................................... 17
Item 3. Defaults Upon Senior Securities..................................... 17
Item 4. Submission of Matters to a Vote of Securities Holders............... 17
Item 5. Other Information................................................... 17
Item 6. Exhibits and Reports on Form 8-K.................................... 17

Signatures                                                                   19




                                       2




                                     PART I


        In this Quarterly Report, the "Company", "we", "us" and "our" refer to
HydroFlo, Inc. unless the context otherwise requires.

        Different accounting principles are used in the preparation of financial
statements of a business development company under the Investment Company Act of
1940 and, as a result, the financial results for periods ending before March 4,
2004 are not comparable to the periods commencing after March 4, 2004 and are
not expected to be representative of our financial results in the future.

                           FORWARD-LOOKING STATEMENTS

        This Form 10-Q, press releases and certain information provided
periodically in writing or orally by our officers or our agents contain
statements which constitute forward-looking statements within the meaning of
Section 27A of the Securities Act, as amended; Section 21E of the Securities
Exchange Act of 1934; and the Private Securities Litigation Reform Act of 1995.
The words "may", "would", "could", "will", "expect", "estimate", "anticipate",
"believe", "intend", "plan", "goal", and similar expressions and variations
thereof are intended to specifically identify forward-looking statements. These
statements appear in a number of places in this Form 10-Q and include all
statements that are not statements of historical fact regarding the intent,
belief or current expectations of us, our directors or our officers, with
respect to, among other things: (i) our liquidity and capital resources; (ii)
our financing opportunities and plans; (iii) trends affecting our future
financial condition or results of operations; (iv) our growth strategy and
operating strategy; and (v) the declaration and payment of dividends.

        Investors and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various
factors. The factors that might cause such differences include, among others,
the following: (i) we have incurred significant losses since our inception, and
have experienced significant losses in the past and continue to experience
negative cash flows from operations (see Note A to the financial statements);
(ii) any material inability of us to successfully acquire additional portfolio
companies and for those companies to internally develop their products; (iii)
any adverse effect or limitations caused by Governmental regulations; (iv) any
adverse effect on our cash flow or on our ability to obtain acceptable financing
in connection with our growth plans; (v) any increased competition in our
business; (vi) any inability of us to successfully conduct our business in new
markets; and (vii) other risks including those identified in our filings with
the Securities and Exchange Commission. We undertake no obligation to publicly
update or revise the forward looking statements made in this Form 10-Q to
reflect events or circumstances after the date of this Form 10-Q or to reflect
the occurrence of unanticipated events.




                                       3




                                 HydroFlo, Inc.

                               BALANCE SHEET AS OF
____________________________________________________________________________________________

                                                          March 31,2005
                                                           (Unaudited)         June 30, 2004
ASSETS


INVESTMENT IN AND ADVANCES TO CONTROLLED COMPANIES
(at fair value with a cost of $3,567,321 and
$2,008,408, respectively)                                 $    4,220,000       $   2,011,000

REFUNDABLE DEPOSIT ON INVESTMENT COMPANY                          50,000                   -

CASH                                                              59,809             406,762

PREPAID                                                            4,600                   -

PROPERTY AND EQUIPMENT (net of accumulated
depreciation of $21,533 and $13,892, respectively)                13,131              16,363

DEPOSITS                                                           4,455                   - 

TOTAL                                                     $    4,351,995       $   2,434,125
                                                          ===============      ==============

LIABILITIES AND STOCKHOLDERS' EQUITY


CURRENT LIABILITIES -
     Accounts payable and accrued expenses                $        9,978       $      1,781 

STOCKHOLDERS' EQUITY:
  Convertible preferred stock, $.001 par value,
    5,000,000 shares authorized; 4,000,000 shares
    issued and outstanding, no liquidation value                   4,000              4,000
  Common stock, $.01 par value, 500,000,000 shares
    authorized; 36,495,652 and 28,277,912 shares
    issued and outstanding, respectively                         364,957            282,780
  Additional paid-in capital                                   4,273,168          2,590,344
  Stock subscription receivable                                 (150,000)            (2,958)
  Stock purchase warrants                                        147,834            147,834
  Deficit                                                       (297,942)          (589,656)
Total stockholders' equity                                     4,342,017          2,432,344 

TOTAL                                                     $    4,351,995       $   2,434,125
                                                          ===============      ==============

NET ASSET VALUE PER SHARE                                 $         0.12       $        0.09
                                                          ===============      ==============
____________________________________________________________________________________________

See notes to condensed financial statements.




                                       4




                                 HydroFlo, Inc.
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
_____________________________________________________________________________________________________________________________________

                                                                                  Prior to                                Prior to
                                                                                converting to                         converting to a
                                                                                 a Business                               Business
                                                                                 Development                            Development
                                                                               Company ("BDC")                        Company ("BDC")

                                                            For the Period     For the Period                          For the Period
                                         For the three       March 4, 2004        January 1,        For the nine        July 1, 2003
                                          months ended       through March       2004 through        months ended       through March
                                         March 31, 2005         31, 2004         March 3, 2004      March 31, 2005         3, 2004

REVENUE                                  $          -        $          -       $      2,600         $         -       $     109,208
COST OF GOODS SOLD                                  -                   -              8,601                   -              39,090 
GROSS MARGIN                                        -                   -             (6,001)                  -              70,118 

OPERATING EXPENSES:
Employee compensation                          29,656                   -             24,323              31,231             489,335
Management fee                                 13,800               4,600              4,600              41,400              32,200
Research and development                            -                   -                590                   -               7,018
Rent                                            4,216               1,454              1,698              12,316              11,033
Marketing                                      22,467               1,000                 57              99,350               2,608
General and administrative                     28,278             312,741            549,217             180,725             795,384 
   Total operating expenses                    98,417             319,795            580,485             365,022           1,337,578 

OPERATING LOSS                                (98,417)           (319,795)          (586,486)           (365,022)         (1,267,460)

OTHER (INCOME) EXPENSE:
Interest (income) expense                        (187)                  -                225              (3,093)                170
Other (income)                                      -                   -                  -              (3,556)                  -
Stock discount expense                              -                   -                  -                   -              30,218 
Total other (income) expense                     (187)                  -                225              (6,649)             30,388

NET UNREALIZED GAIN (LOSS) ON
INVESTMENT                                    552,869                   -                  -             650,087                   - 

NET INCOME (LOSS)                        $    454,639        $   (319,795)       $  (586,711)        $   291,714       $  (1,297,848)
                                         =============       =============       ============        ============      =============

NET INCOME (LOSS) PER SHARE
- Basic                                          0.01                (.02)              (.04)               0.01               (.08)
- Diluted                                $       0.01        $       (.02)       $      (.04)        $      0.01       $       (.08)
                                         =============       =============       ============        ============      =============

WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING -
 - Basic                                   35,495,917          16,069,600         16,033,400          32,639,897         15,916,800
 - Diluted                                 38,188,232          16,069,600         16,033,400          34,385,133         15,916,800
                                         =============       =============       ============        ============      =============
_____________________________________________________________________________________________________________________________________

See notes to condensed financial statements.




                                       5





                                 HydroFlo, Inc.
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
_________________________________________________________________________________________________________________________

                                                                                                     Prior to converting
                                                                                                        to a Business
                                                                                                     Development Company
                                                                                                          ("BDC")
                                                                                  For the Period
                                                                    For the nine   March 4, 2004       For the Period
                                                                    months ended   through March    July 1, 2003 through
                                                                   March 31, 2005    31, 2004           March 3, 2004

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                               $    291,714    $ (319,795)           $(1,297,848)
    Adjustments to reconcile net loss to net cash used in
        operating activities
     Depreciation                                                         7,902           410                 15,770
     Amortization of patent costs                                             -             -                    375
     Stock based compensation                                                 -       300,000              1,033,546
     Unrealized gain (loss) on investments                             (650,087)            -                      -
     Other non-cash expense                                               2,688             -                      -
     Gain on Insurance claim                                             (3,556)            -                      -
     Loss on impairment of patent costs                                       -             -                  5,949
     (Increase) decrease in accounts receivable                               -             -                (68,707)
     (Increase) decrease in prepaids                                     (4,600)            -                      -
     (Increase) decrease in inventory, net                                    -             -                (21,133)
     Decrease (increase) in prepaid expenses and deposits                (4,455)            -                 75,064
     Increase in accounts payable and accrued expenses - related
          parties                                                             -             -                 32,953
     Increase in accounts payable and accrued expenses                    8,197         1,527                 96,999 
   NET CASH (USED IN) OPERATING ACTIVITIES                             (352,197)      (17,858)              (127,032)

CASH FLOWS FROM INVESTING ACTIVITIES:
    Investment in controlled companies                                 (381,912)      (38,793)                     -
    Deposit on investment                                               (50,000)            -                      -
    Proceeds from insurance claim                                         4,065             -                      -
   Purchases of property and equipment                                   (4,909)            -                 (2,688)
  NET CASH (USED IN) INVESTING ACTIVITIES                              (432,756)      (38,793)                (2,688)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Issuances of common stock, net of transaction expenses              588,000             -                 55,535
    Stock subscription receipts                                        (150,000)            -                  4,000
    Proceeds from convertible notes payable                                   -        50,000                 55,000
    Proceeds from related party borrowing                                     -        20,000                 15,000 
NET CASH PROVIDED BY FINANCING ACTIVITES                                438,000        70,000                129,535 

NET (DECREASE) INCREASE IN CASH                                        (346,953)       13,349                   (185)

CASH AT BEGINNING OF PERIOD                                             406,762           532                    717 
CASH AT END OF PERIOD                                              $     59,809    $   13,881             $      532
                                                                   =============   ===========            ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid                                                  $          -    $        -             $        -
                                                                   =============   ===========            ===========
Interest paid                                                      $          -    $        -             $        -
                                                                   =============   ===========            ===========

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Preferred stock issued for related party accrued expenses
converted to note payable during the same period                   $          -    $        -             $  170,000
                                                                   =============   ===========            ===========
Commons stock issued to acquire investment                         $  1,177,000    $        -             $        -
                                                                   =============   ===========            ===========
_________________________________________________________________________________________________________________________

See notes to condensed financial statements.




                                       6




                                 HydroFlo, Inc.
                             SCHEDULE OF INVESTMENTS
                                   (Unaudited)
__________________________________________________________________________________________________________________________________________

                                                                                                            Cost of          Fair Value as
                                                                                             Percent      Investment as of    of March 31,
     Portfolio Company                             Description of Business                  Ownership     March 31, 2005         2005

HydroFlo Water Treatment, Inc.                     Waste water treatment technologies          100%        $ 2,265,998       $ 2,640,000

Metals & Arsenic Removal Technologies, Inc.        Water filtration                            100%            583,528           865,000

Safety Scan Technologies, Inc.                     Inspection of sealed liquids                100%            717,795           715,000
                                                                                                           $ 3,567,321       $ 4,220,000
__________________________________________________________________________________________________________________________________________


See notes to condensed financial statements




                                       7




                                 HydroFlo, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)
________________________________________________________________________________


Note A - Summary of Significant Accounting Policies

Nature of Operations and Background 

HydroFlo, Inc. (the "Company") was incorporated in North Carolina on December 8,
1999, to design and distribute aeration and oxygen mixing equipment specifically
designed for municipalities and industry requiring improved dissolved oxygen in
water.

From inception to June 30, 2002, the Company focused primarily on developing and
patenting this new technology for the sewage treatment industry. Beginning July
1, 2002, the Company emerged from the development stage and focused on marketing
and selling their technology to this industry.

Effective March 4, 2004, the Company became a diversified internally managed,
closed-end investment company that elected to be treated as a business
development company ("BDC") under the Investment Company Act of 1940, as
amended. As a BDC, the Company intends to provide long-term debt and equity
investment capital to support the expansion of companies in a variety of
industries. These investments are expected to generally be illiquid securities
negotiated through private transactions.

In connection with the Company's conversion to a BDC, the Company formed
Hydroflo Water Treatment, Inc., and simultaneously transferred substantially all
of its operating assets and liabilities (exclusive of cash and certain property
and equipment) to such entity. HydroFlo Water Treatment, Inc. is an
international provider of wastewater pre-treatment solutions, treating
wastewater for industrial and municipal customers. HydroFlo designs, builds, and
installs water and wastewater treatment systems and provides a full range of
related services to companies and municipalities to treat their wastewater.

Basis of Presentation

In accordance with SEC rules and regulations for BDCs, the Company does not
consolidate or use the equity method to account for its controlling investment
in HydroFlo Water Treatment, Inc. Rather, the Company's investment in such
entity is reported at fair value, and the fluctuation in such fair value since
the date of the conversion to a BDC has been reflected as an unrealized gain on
investment in the accompanying unaudited statement of operations.

Our accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and the instructions to Form 10-Q and
Regulation S-X of the Securities and Exchange Commission (the "SEC").
Accordingly, these unaudited condensed financial statements do not include all
of the footnotes required by accounting principles generally accepted in the
United States of America. In our opinion, all adjustments (consisting of normal
and recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the nine months ended March 31, 2005 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 2005. The accompanying condensed financial statements and the
notes thereto should be read in conjunction with our audited financial
statements as of and for the year ended June 30, 2004 contained in our Form
10-K.

Although the nature of the Company's operations and its reported financial
position, results of operations and cash flows are dissimilar for the periods




                                       8




prior and subsequent to becoming a BDC, its unaudited operating results and cash
flows for the periods ended March 31, 2005 and March 3 and 31, 2004 are
presented in the accompanying financial statements pursuant to Regulation S-X.

Liquidity

Our consolidated financial statements were prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has suffered
recognized net losses and negative cash flows from operations since its
inception until the last two quarters. These losses have been funded through the
sale of common stock, primarily to related parties. Until such time that the
Company can generate sustained profitable operations (for which no assurance can
be given), the Company will require additional funding to implement its business
plan. Management believes it will be able to raise any additional capital it may
need, and in fact there are unused equity commitments in place totaling
$14,050,000; however, there can be no assurance that the Company will be
successful in any such efforts or that any such financing will be on terms
favorable, or acceptable, to the Company.

The accompanying unaudited financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statement and the reported amounts of revenues and
expenses during the reporting period. Estimates that are critical to the
accompanying financial statements arise from the determination of the fair value
of the Company's investment. Because such determination involves subjective
judgment, it is at least reasonably possible that the Company's estimates could
change in the near term with respect to this matter.

Earnings (Loss) Per Share

In accordance with the provisions of SFAS No. 128, "Earnings Per Share," basic
earnings (loss) per share is computed by dividing net income (loss) by the
number of weighted-average common shares outstanding during the year. Diluted
earnings per share is computed by dividing net income (loss) by the number of
weighted average common shares outstanding adjusted to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares resulting from common stock equivalents granted had been
issued. The effect of options and warrants outstanding were not included in the
computation of diluted earnings per share in the period where we incurred a loss
because the effect on net loss per share would have been antidilutive.
Accordingly, basic and diluted net loss per share are identical for each of the
periods where we incurred losses in the accompanying statements of operations.

Stock-Based Compensation

The Company has adopted Statement of Financial Accounting Standards No. 148
"Accounting for Stock-Based Compensation - Transition and Disclosure". This
statement amends FASB statement No. 123, "Accounting for Stock Based
Compensation". It provides alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for employee
stock based compensation. It also amends the disclosure provision of FASB
statement No. 123 to require prominent disclosure about the effects on reported
net income of an entity's accounting policy decisions with respect to
stock-based employee compensation. As permitted by SFAS No. 123 and amended by
SFAS No. 148, we continue to apply the intrinsic value method under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," to account for our stock-based employee compensation arrangements.
Had our compensation expense for stock-based compensation plans been determined




                                       9




based upon fair values at the grant dates for awards under this plan in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," our net
loss and pro forma net loss per share amounts would not have been materially
different.

New Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement
Number 123 ("FAS 123 (R)"), Share-Based Payments. FAS 123 (R) requires all
entities to recognize compensation expense in an amount equal to the fair value
of shared-based payments such as stock options granted to employees. We will be
required to apply FAS 123 (R) on a modified prospective method. Under this
method, we are required to record compensation expense (as previous awards
continue to vest) for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. In addition, we may elect to adopt
FAS 123 (R) by restating previously issued financial statements, basing the
amounts on the expense previously calculated and reported in the pro forma
disclosures that had been required by FAS 123. FAS 123 (R) is effective for the
first reporting period beginning after December 15, 2005. We have not yet
definitively determined the effect that FAS 123 (R) will have on our financial
statements, however we believe this number will not be material to our
statements of operations.

Valuation of Investments and Revenue Recognition (After conversion to a BDC)

As required by the SEC's Accounting Series Release ("ASR") 118, the investment
committee of the Company is required to assign a fair value to all investments.
To comply with Section 2(a)(41) of the Investment Company Act of 1940 (the
"Act") and Rule 2a-4 under the Act, it is incumbent upon the board of directors
to satisfy themselves that all appropriate factors relevant to the value of
securities for which market quotations are not readily available have been
considered and to determine the method of arriving at the fair value of each
such security. To the extent considered necessary, the board may appoint persons
to assist them in the determination of such value, and to make the actual
calculations pursuant to the board's direction. The board must also, consistent
with this responsibility, continuously review the appropriateness of the methods
used in valuing each issue of security in the Company's portfolio. The directors
must recognize their responsibilities in this matter and whenever technical
assistance is requested from individuals who are not directors, the findings of
such individuals must be carefully reviewed by the directors in order to satisfy
themselves that the resulting valuations are fair.

Where there is not a readily available source for determining the market value
of an investment, either because the investment is not publicly traded, or is
thinly traded, and in absence of a recent appraisal, the value of the investment
shall be based on the following criteria:

        - Total amount of the Company's actual investment ("AI"). This amount
          shall include all loans, purchase price of securities, and fair value
          of securities given at the time of exchange.

        - Total revenues for the preceding twelve months ("R").

        - Earnings before interest, taxes and depreciation ("EBITD")

        - Estimate of likely sale price of investment ("ESP")

        - Net assets of investment ("NA")

        - Likelihood of investment generating positive returns (going concern).

The estimated value of each such investment shall be determined as follows:

        - Where no or limited revenues or earnings are present, then the value
          shall be the greater of the investment's a) net assets, b) estimated
          sales price, or c) total amount of actual investment.




                                       10




        - Where revenues and/or earnings are present, then the value shall be
          the greater of one time (1x) revenues or three times (3x) earnings,
          plus the greater of the net assets of the investment or the total
          amount of the actual investment.

        - Under both scenarios, the value of the investment shall be adjusted
          down if there is a reasonable expectation that the Company will not be
          able to recoup its investment or if there is reasonable doubt about
          the investee's ability to continue as a going concern.

Note B - Acquisition of Portfolio Company

On August 4, 2004 the Company acquired Arsenic Removal Technologies, Inc, a
company holding the arsenic removal technology rights developed by the
University of Wyoming. This portfolio company was purchased using 2,823,529
shares of restricted common stock of the Company, valued at approximately
$480,000 based on the fair market value of the shares issued on that date. We
hold 100% of the stock in this company and plan to develop and market the
technology throughout the world. After purchase, the company was re-incorporated
in North Carolina with a change of name to Metals & Arsenic Removal Technology,
Inc.

On December 8, 2004 the company signed a letter of intent with HERC Products,
Inc., a public company, to acquire 51% of ownership for $1,000,000 cash. The
company has patented technology that provides chemical cleaning for water pipe,
waste water systems, cooling towers, and HVAC systems, tanks and boilers and
other water-based chemical process systems. HydroFlo, Inc transferred an initial
$50,000 to HERC as a deposit until the transaction is consummated. The $50,000
deposit is secured by a non-interest bearing note due March 31, 2005 if the
transaction is not completed. On March 7, 2005, the company elected not to
invest in HERC Products, Inc. Although in default, the deposit of $50,000 is due
to be returned.

On December 20, 2004 the company acquired 100% of Safety Scan Technology, Inc.,
a company holding the rights to a patented process known as Swept Frequency
Acoustic Interferometry (SFAI) that is a non-invasive measurement technique that
uses high frequency sound waves to determine the properties of fluids in sealed
containers. The company was acquired by issuing 3,485,000 shares of restricted
common stock of the Company valued at approximately $697,000.

Note C - Stockholders' Equity

During the nine months ended March 31, 2005 we sold 1,909,209 shares of our
common stock at prices ranging from $0.05 to $0.50/share. These transactions
generated gross proceeds to the Company of $588,000.

On March 10, 2005, we sold 1,000,000 shares of our common stock to Golden Gate
Investors for $270,000. In connection with this transaction, we received a
$150,000 note receivable from Golden Gate Investors. In accordance with
accounting principles generally accepted in the United States, the unpaid
balance of the note as of March 31, 2005 has been reflected as a deduction from
stockholders' equity.

Note D - Subsequent Events

On April 12, 2005 Hydroflo, Inc. established a 100% owned portfolio company,
Ultra Choice Water, Inc. (UCW) for the purpose of providing water coolers
without bottles for offices and individual consumers. This company will provide
the water treatment systems to commercial and residential customers for a
monthly fee. Ultra Choice Water, Inc. will use water purification media supplied
by Metals and Arsenic Removal Technology, Inc. (MARTI), another portfolio
company of Hydroflo, Inc.




                                       11




Item 2. MANAGEMENT'S DISCUSSION AND PLAN OF OPERATIONS

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The information contained in this section should be read in conjunction with the
Selected Financial Data and our Financial Statements and notes thereto appearing
elsewhere in this 10Q. The 10Q, including the Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements that involve substantial risks and uncertainties.
These forward-looking statements are not historical facts, but rather are based
on current expectations, estimates and projections about our industry, our
beliefs, and our assumptions. Words such as "anticipates", "expects", "intends",
"plans", "believes", "seeks", and "estimates" and variations of these words and
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties, and other factors, some of which are beyond our control and
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements including
without limitation (1) any future economic downturn could impair our ability to
increase our non-performing assets, (2) a contraction of available credit and/or
an inability to access the equity markets could impair our investment
activities, (3) the risks associated with the possible disruption in the
Company's operations due to terrorism and (4) the risks, uncertainties and other
factors we identify from time to time in our filings with the Securities and
Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks.
Although we believe that the assumptions on which these forward-looking
statements are based are reasonable, any of those assumptions could prove to be
inaccurate, and as a result, the forward-looking statements based on those
assumptions also could be incorrect. In light of these and other uncertainties,
the inclusion of a projection or forward-looking statement in this Quarterly
Report should not be regarded as a representation by us that our plans and
objectives will be achieved. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this Quarterly
Report.

                                    OVERVIEW

The following discussion should be read in conjunction with the unaudited
condensed financial statements as of and for the nine months ended March 31,
2005 included with this Form 10Q.

Effective March 4, 2004, we converted to a Business Development Company under
the Investment Company Act of 1940. Upon completion of this conversion, we
became an internally managed, diversified, closed-end investment company. Prior
to the conversion we were an operating company. Those operations were
transferred to HydroFlo Water Treatment, Inc., a wholly owned investment of
ours. HydroFlo Water Treatment, Inc. is an international provider of wastewater
pre-treatment solutions, treating wastewater for industrial and municipal
customers. HydroFlo designs, builds, and installs water and wastewater treatment
systems and provides a full range of related services to companies and
municipalities to treat their wastewater.

Because of our conversion to a Business Development Company ("BDC") the results
of operations for the three and nine months ended March 31, 2004 (pre
conversion) are not comparable to the three and nine months ended March 31, 2005
(post conversion). The principal differences between these two reporting periods
are: (1) we no longer include the operations of our operating ("portfolio")
company in our financial statements, and (2) we now value our ownership of the
portfolio company at fair value.

Metal and Arsenic Technology, Inc. (MARTI) signed a distributorship agreement
with WAL, SA, a company incorporated in Switzerland on January 23, 2005. The
agreement is effective February 1, 2005. The agreement calls for WAL, SA to
purchase removal media from MARTI. Management expects annual quantities
purchased to be 7,000,000 units, in compliance with the agreement. MARTI will
distribute the WAL cartridges with arsenic removal capabilities in North,
Central and South America, as well as the Caribbean. Management expects those
sales to be in excess of 5,000,000 units annually. MARTI is presently developing
an online internet presence to sell units to consumers and a network of
retailers to aid in the distribution of the water filter cartridges with the
arsenic removal technology.

On March 10, 2005, we sold 1,000,000 shares of our common stock to Golden Gate
Investors for $270,000. In connection with this transaction, we received a
$150,000 note receivable from Golden Gate Investors. In accordance with
accounting principles generally accepted in the United States, the unpaid
balance of the note as of March 31, 2005 has been reflected as a deduction from
stockholders' equity.




                                       12




On April 12, 2005 Hydroflo, Inc. established a 100$ owned portfolio company,
Ultra Choice Water, Inc. (UCW) for the purpose of providing water coolers
without bottles for offices and individual consumers. This company will provide
the water treatment systems to commercial and residential customers for a
monthly fee. Ultra Choice Water, Inc. will use water purification media supplied
by Metals and Arsenic Removal Technology, Inc. (MARTI), another portfolio
company of Hydroflo, Inc.

                   THREE AND NINE MONTHS ENDED MARCH 31, 2005
             (POST-CONVERSION TO A BUSINESS DEVELOPMENT CORPORATION)

                             PORTFOLIO COMPOSITION

Our primary business is investing in businesses with equity-based investments.
The total portfolio value of investments in non-publicly traded securities was
approximately $4,220,000 at fair value at March 31, 2005.

                                   OPERATIONS

We generated no income during the three and nine months ended March 31, 2005. We
incurred approximately $98,000 and $365,000 in expenses during these two
periods, respectively. These expenses represented management fees to our CEO,
rent and other cash expenses associated with operating the BDC and seeking
additional investments.

                   NET UNREALIZED GAIN (LOSS) ON INVESTMENTS

During the nine months ended March 31, 2005, we have recorded, fiscal year to
date, approximately $650,087 in unrealized gains on our portfolio company
investments. The company had an unrealized loss of approximately $14,170 for the
three months ended September 30, 2004, approximately $111,388 unrealized gain
for the three months ended December 31, 2004, and approximately $552,869
unrealized gain for the three months ended March 31, 2005. The net gain
represents the difference between the amount our Board of Directors determined
was the fair value of the portfolio companies and the amounts we have invested
in those companies, including prior adjustments for unrealized gain or loss.

                               NET INCOME (LOSS)

As a result of the foregoing, we incurred net income of approximately $454,640
for the three months ended March 31, 2005 and net income of approximately
$291,714 for the nine months ended March 31, 2005 respectively.

                    TWO AND EIGHT MONTHS ENDED MARCH 4, 2004
           (PRIOR TO CONVERTING TO A BUSINESS DEVELOPMENT CORPORATION)

                                OPERATING INCOME

Our aggregate sales were approximately $2,600 and $109,000 for the two and eight
months ended March 31, 2004 respectively.

                               OPERATING EXPENSES

Employee compensation expenses were approximately $24,000 and $489,000 for the
two months and eight months ended March 31, 2004 respectively.

Management fees (related-party) expenses were $4,600 and $32,200 for the two
months and eight months ended March 31, 2004 respectively.

Research and development expenses were approximately $600 and $7,000 for the two
months and eight months ended March 31, 2004 respectively.

Other General and Administrative expenses were approximately $549,000 & $795,000
for the two months and eight months ended March 31, 2004 respectively.




                                       13




                                    NET LOSS

As a result of the foregoing, we incurred a loss of approximately $587,000 and
$1,298,000 for the two months and eight months ended March 31, 2004
respectively.


              FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended March 31, 2005 net cash used in operating
activities for the period was approximately $352,000 to fund our operating
expenses. Net cash used for investing activities was approximately $433,000 and
principally consisted of the following: approximately $382,000 was for
investments in controlled companies and $50,000 for a deposit on a future
acquisition. We funded these needs primarily through the sale of common stock
for approximately $438,000 net of stock subscriptions receivable and using
approximately $347,000 of our cash on hand from June 30, 2004.

As a result of the above, as of March 31, 2005, we had a cash position of
approximately $60,000.

For the next 5 months, we expect our cash on hand and cash generated from
operations to be adequate to meet our cash needs, including additional advances
to the companies we invest in. Management's plans regarding continued operations
include the possibility of raising additional equity capital via the sale of
stock which can now be accomplished due to our filing as a Business Development
Company. Aggressive sales efforts in our portfolio companies will likely
increase sales of product by the portfolio companies in the coming year and may
result in less funding we need to provide to them or may even result in a cash
return on our investment.


PRIVATE PORTFOLIO COMPANY INVESTMENTS

On December 8, 2004, we paid a deposit of $50,000 related to an intent to
purchase 51% of the outstanding shares of HERC Products, Inc. for total
consideration of $1,000,000. On March 7, 2005, the company elected not to invest
in HERC Products, Inc. Although in default, the deposit of $50,000 is due to be
returned.

On April 12, 2005 Hydroflo, Inc. established a 100% owned portfolio company,
Ultra Choice Water, Inc. (UCW) for the purpose of providing water coolers
without bottles for offices and individual consumers. This company will provide
the water treatment systems to commercial and residential customers for a
monthly fee. Ultra Choice Water, Inc. will use water purification media supplied
by Metals & Arsenic Removal Technology, Inc. (MARTI), another portfolio company
of Hydroflo, Inc.


The following is a list of the private companies in which we had an investment
and the cost and fair value of such securities at March 31, 2005:




   Name of Company                            Nature of its Principal Business           Approximate Cost       Fair Value

HydroFlo Water Treatment, Inc.                Waste water treatment solutions               $2,266,000          $2,640,000

Metals & Arsenic Removal Technology,
Inc.                                          Arsenic removal technology                     $583,500             865,000

Safety Scan Technologies, Inc.                High frequency scanning                         718,000             715,000




                                       14




ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our business activities contain elements of risk. We consider the principal
types of risk to be portfolio valuations. We consider the management of risk
essential to conducting our businesses. Accordingly, our risk management systems
and procedures are designed to identify and analyze our risks, to set
appropriate policies and limits and to continually monitor these risks and
limits by means of reliable administrative and information systems and other
policies and programs.

As a business development company, we invest in illiquid securities including
equity securities of primarily private companies. Our investments are generally
subject to restrictions on resale and generally have no established trading
market. We value substantially all of our investments at fair value as
determined in good faith by the board of directors in accordance with our
valuation policy. There is no single standard for determining fair value in good
faith. As a result, determining fair value requires that judgment be applied to
the specific facts and circumstances of each portfolio investment while
employing a consistently applied valuation process for the types of investments
we make.

We determine fair value to be the amount for which an investment could be
exchanged in an orderly disposition over a reasonable period of time between
willing parties other than in a forced or liquidation sale. Our valuation policy
considers the fact that no ready market exists for substantially all of the
securities in which we invest. Our valuation policy is intended to provide a
consistent basis for determining the fair value of the portfolio. We will record
unrealized depreciation on investments when we believe that an investment has
become impaired, including where collection of a loan or realization of an
equity security is doubtful, or when the enterprise value of the company does
not currently support the cost of our debt or equity investments. Conversely, we
will record unrealized appreciation if we believe that the underlying portfolio
company has appreciated in value and, therefore, our equity security has also
appreciated in value. The value of investments in public securities is
determined using quoted market prices discounted for restrictions on resale.
Without a readily ascertainable market value and because of the inherent
uncertainty of valuation, the fair value of our investments determined in good
faith by the board of directors may differ significantly from the values that
would have been used had a ready market existed for the investments, and the
differences could be material. In addition, the illiquidity of our investments
may adversely affect our ability to dispose of debt and equity securities at
times when it may be otherwise advantageous for us to liquidate such
investments. In addition, if we were forced to immediately liquidate some or all
of the investments in the portfolio, the proceeds of such liquidation would be
significantly less than the current value of such investments.

Impact of Inflation

We do not believe that our business is materially affected by inflation, other
than the impact that inflation may have on the securities markets, the
valuations of business enterprises and the relationship of such valuations to
underlying earnings, all of which will influence the value of our investments.




                                       15




ITEM 4 CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Corporation maintains disclosure controls and procedures designed to ensure
that information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. As of the end of the period covered
by this report, the Corporation's Chief Executive Officer and Chief Financial
Officer evaluated the effectiveness of the Corporation's disclosure controls and
procedures. Based on the evaluation, which disclosed no significant deficiencies
or material weaknesses, the Corporation's Chief Executive Officer and Chief
Financial Officer concluded that the Corporation's disclosure controls and
procedures are effective as of the end of the period covered by this report.

Changes in Internal Controls

There have been no changes in the Corporation's internal control over financial
reporting that occurred during the Corporation's most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Corporation's internal control over financial reporting. However, we intend to
continue to refine our internal controls on an ongoing basis with a view towards
continuous improvements. Grant Thornton LLP ("GT"), our previous independent
accountants, had reported to our Board of Directors certain matters involving
internal controls that GT considered to be material weaknesses under standards
established by the American Institute of Certified Public Accountants. The
identified material weaknesses related to a lack of segregation of duties within
our accounting and financial management functions and inadequate dedication of
resources to the financial review and analysis functions. Due to the size of our
organization, the early stage of our operations and significant financial
constraints, the Corporation was not able to employ the necessary resources for
proper internal financial review and analysis at that time.

The material weaknesses have been discussed in detail among our Board of
Directors and GT. We have assigned high priority to the correction of these
material weaknesses, and we are committed to addressing and resolving them
fully. As the Corporation continues its growth and strives to achieve financial
stability, management continues to devote additional resources to further
develop its financial accounting, analysis and reporting functions.

The company has appointed the Chief Executive Officer as Chief Financial Officer
and has hired a part time consultant to help address internal control issues as
well as improve processes and procedures.




                                       16





                          PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        Not Applicable.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On August 4, 2004 the Company acquired Arsenic Removal Technologies, Inc, a
company holding the arsenic removal technology rights developed by the
University of Wyoming. This portfolio company was purchased using 2,823,529
shares of restricted common stock of the Company, valued at approximately
$480,000 based on the fair market value of the shares issued on that date. We
hold 100% of the stock in this company and plan to develop and market the
technology throughout the world. After purchase, the company was re-incorporated
in North Carolina with a change of name to Metals & Arsenic Removal Technology,
Inc.

On December 20, 2004 the company acquired Safety Scan Technology, Inc, a company
holding the rights for a non-invasive measurement technique developed at Los
Alamos National Laboratories, operated by the University of California, to
determine the physical properties of fluids in sealed containers and pipes. The
portfolio company was purchased using 3,485,000 shares of restricted common
stock of the Company, valued at approximately $697,000 based on fair market
value of the shares issued on that date. We hold 100% of the stock issued in the
company and plan to develop and market the technology throughout the world.
After purchase, the company was re-incorporated in North Carolina.

During the nine months ended March 31, 2005 we sold 1,909,209 shares of our
common stock at prices ranging from $0.05 to $0.50/share. These transactions
generated gross proceeds to the Company of $588,000.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        Not Applicable.

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

        Not Applicable.

ITEM 5. OTHER INFORMATION

        Not Applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) Exhibits

The following exhibits are filed as part of this Form 10-Q.

        31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

        31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

        32.1 Section 1350 Certification of CEO

        32.2 Section 1350 Certification of CFO

        (b) Reports on Form 8-K.

        March 2, 2005 - the Company filed a report on Form 8-K regarding the
resignation of Thomas Barbee as President of the Company and the reassignment of
Mr. Barbee as COO of one of the company's portfolio companies, HydroFlo Water
Treatment, Inc.




                                       17




        March 9, 2005 - the Company filed a report on Form 8-K regarding the
termination of negotiations for the acquisition of any equity in HERC Products,
Inc.

        March 21, 2005 - the Company filed a report on Form 8-K regarding the
resignation of Steven Sanderson as Chief Financial Officer of the Company.




                                       18




SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on May 6, 2005.




                                HydroFlo, Inc.

                                /s/ DENNIS L. MAST
                                    Dennis L. Mast
                                    Chief Executive Officer and Chief Financial Officer`