Note 5 - Stockholders' Deficit

6 Months Ended

Nov. 30, 2013

Note 5 – Stockholders’ Deficit

Shares Authorized

Upon formation the aggregate number of shares which the Company shall have authority to issue is eighty million (80,000,000) shares, consisting of two classes to be designated, respectively, “Common Stock” and “Preferred Stock,” with all of such shares having a par value of $.001 per share. The total number of shares of Preferred Stock that the Company shall have authority to issue is five million (5,000,000) shares. The total number of shares of Common Stock that the Company shall have authority to issue is seventy five million (75,000,000) shares.

Common Stock

The Company was incorporated on May 12, 2006. In May 2006, 200,000 shares of its common stock were sold to the Company’s founder and President at $0.01 per share for $2,000 in cash.

During the fiscal year ended June 30, 2007, the Company sold 300,000 shares of its common stock to the Company’s founder and President at $0.01 per share for $3,000 in cash.

During the fiscal year ended June 30, 2008, the Company sold 1,000,000 shares of its common stock at $0.10 per share for $100,000 in cash.

On November 25, 2008, the Company’s Board of Directors authorized a Regulation D, Rule 504 stock sale and entered into a definitive agreement relating to the private placement of $7,500 of its securities through the sale of 15,000 shares of its common stock at $0.50 per share inclusive of a stock warrant to purchase 15,000 shares of its common stock exercisable at $1.00 expiring three (3) years from the date of issuance with Ryan Edington, the brother of Jerod Edington, the Vice-president and Chief Operating Officer of the Company. The fair value of these warrants granted, estimated on the date of grant, was $3,300, which has been recorded as additional paid-in capital, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Expected option life (year)	3

Expected volatility	163.00	%

Risk-free interest rate	3.34	%

Dividend yield	0.00	%

On January 23, 2009, the Company sold 250,000 shares of its common stock at $0.20 per share to Ron Kunisaki, the then president of the company, for $50,000 in cash.

On July 25, 2009, pursuant to the Bridge Loan Agreement entered into by an entity and Hydrodynex, Inc., dated July 24, 2008, Triax Capital Management exercised the conversion rights of the promissory note at the agreed rate of $0.25 per share. The original loan to the Company was in the amount of $4,000, and the 365 days of interest at 8% per annum of $320, equates to a conversion value of 17,280 shares.

On August 23, 2009, pursuant to the Bridge Loan Agreement entered into by a non-affiliated individual and Hydrodynex, Inc., dated August 22, 2008, the loaner exercised the conversion rights of the promissory note at the agreed rate of $0.25 per share. The original loan to the Company was in the amount of $5,000, and the 365 days of interest at 8% per annum of $400, equates to a conversion value of 21,600 shares.

On September 26, 2009, the Company sold 30,000 shares of common stock at $0.25 per share for $7,500 in cash.

On November 9, 2009, the Company sold 140,000 shares of common stock at $0.25 per share for $35,000 in cash.

On September 30, 2011, the Company converted $16,300 in advances from an officer into 326,000 shares of common stock at $0.05 per share.

On September 30, 2011, the Chief Operating Officer of the company forgave a debt of $275 which was recorded as additional paid in capital.

On August 30, 2013, two creditors of the Company converted their loans due in the aggregate of $27,250 into common shares of the Company at $0.05 per share. A total of 545,000 shares were issued in exchange for the loans

Stock Option Plan

On May 19, 2006, the Company’s board of directors approved the adoption of the “2006 Non-Qualified Stock Option and Stock Appreciation Rights Plan” (“2006 Plan”) by unanimous consent. The 2006 Plan was initiated to encourage and enable officers, directors, consultants, advisors and key employees of the Company to acquire and retain a proprietary interest in the Company by ownership of its common stock. A total of 1,000,000 of the authorized shares of the Company’s common stock may be subject to, or issued pursuant to, the terms of the plan. The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. Additionally, the Company’s policy is to issue new shares of common stock to satisfy stock option exercises.

There are no outstanding and exercisable stock options as of November 30, 2013:

As of November 30, 2013, there were 1,000,000 shares remaining available for issuance under the 2006 Plan.

Warrants

(i) Warrants issued in 2011

On September 30, 2011, the Company converted $37,600 in accrued expenses - officer into warrants to purchase 752,000 shares of its common stock exercisable at $0.01 per share and expiring three (3) years from the date of issuance. The Company valued these warrants issued at $30,080 on the date of grant using the Black-Scholes Option Pricing Model, and recorded both (i) the fair value of warrants of $30,080 and (ii) the difference between the fair value of warrants and accrued expenses – officer, the forgiveness of debt from officer of $7,520 as additional paid-in capital.

On September 30, 2011, the Company converted $8,385 in accounts payable into warrants to purchase 167,700 shares of its common stock exercisable at $0.01 per share, expiring thee (3) years from the date of issuance. The Company valued these warrants issued at $6,708 on the date of grant using the Black-Scholes Option Pricing Model, and recorded (1) the fair value of warrants of $6,708 as additional paid-in capital and (2) the difference between the fair value of warrants and accounts payable of $1,677 forgiveness of debt.

The fair value of each warrant grant estimated on the date of grant uses the Black-Scholes option-pricing model with the following assumptions:

	September 30, 2011
Expected option life (year)		3

Expected volatility		100.00	%

Risk-free interest rate		0.42	%

Dividend yield		0.00	%

The table below summarizes the Company’s warrants activity though November 30, 2013:

	Number of Warrant Shares		Exercise Price Range Per Share			Weighted Average Exercise Price			Fair Value at Date of Issuance		Aggregate Intrinsic Value

Balance, June 30, 2008		-		$	-		$	-	$	-		$	-

Granted		27,000			1.00			1.00		5,940			-
Canceled		-			-			-		-			-
Exercised		-			-			-		-			-
Expired		-			-			-		-			-
Balance, June 30, 2009		27,000			1.00			1.00		5,940			-

Granted		-			-			-		-			-
Canceled		-			-			-		-			-
Exercised		-			-			-		-			-
Expired		-			-			-		-			-
Balance, June 30, 2010		27,000			1.00			1.00		5,940			-

Granted		-			-			-		-			-
Canceled		-			-			-		-			-
Exercised		-			-			-		-				-
Expired		-			-			-		-				-
Balance, June 30, 2011		27,000			1.00			1.00		5940			-

Granted		919,700			0.01			0.01		36,788			-
Canceled		-			-			-		-			-
Exercised		-			-			-		-			-
Expired		(27,000)			1.00			1.00		(5,940)			-
Balance, June 30, 2012		919,700		$	0.01		$	0.01	$	36,788		$	-

Granted		-			-			-		-			-
Canceled		-			-			-		-			-
Exercised		-			-			-		-			-
Expired		-			-			-		-			-
Balance, May 31, 2013		919,700		$	0.01		$	0.01	$	36,788		$	-

Granted		-			-			-		-			-
Canceled		-			-			-		-			-
Exercised		-			-			-		-			-
Expired		-			-			-		-			-
Balance, November 30, 2013		919,700		$	0.01		$	0.01	$	36,788		$	-

Earned and exercisable, November 30, 2013		919,700		$	0.01		$	0.01	$	36,788		$	-

Unvested, November 30, 2013		-		$	0.01		$	0.01	$	-		$	-

The following table summarizes information concerning outstanding and exercisable warrants as of August 31, 2013:

	Warrants Outstanding						Warrants Exercisable
Range of Exercise Prices	Number Outstanding		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$0.01		919,700		0.83	$	0.01		919,700		0.83	$	0.01

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

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+ Details

Hydrodynex, Inc. 10-Q