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HYDROPHI TECHNOLOGIES GROUP, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

February 12, 2014

Safe Harbor Statement

This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.

These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs, and risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements.

The following discusses our financial condition and results of operations based upon our financial statements which have been prepared in conformity with accounting principles generally accepted in the United States. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.

The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q.

The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.

Overview



As used herein the terms "we," "us," "our," the "Registrant," and the "Company" means, Hydrophi Technologies Group, Inc., a Florida corporation, formerly known as Big Clix Corp.

We were incorporated in the State of Florida on June 18, 2010 as Big Clix Corp.

On September 25, 2013, we consummated an amended Agreement and Plan of Merger (the "Merger Agreement") with Hydro Phi Technologies, Inc., a Delaware corporation ("Hydro Phi"), and HPT Acquisition Corp., a Delaware corporation ("HPT"), which was a wholly-owned subsidiary of the Company and established solely to implement the merger. Pursuant to the Merger Agreement, HPT merged with and into Hydro Phi, with Hydro Phi being the surviving company, in an exchange of all the equity securities of the Hydro Phi for common stock of the Company. After the merger, Hydro Phi continues to operate as before, but as a wholly-owned subsidiary of the Company. On October 2, 2013, we changed our name from Big Clix Corp. to Hydrophi Technologies Group, Inc.

Our operating subsidiary, Hydro Phi, was founded in 2008, but its origins are rooted in the preceding decade during which its founding team sought to develop new clean energy technologies. Through its Hydro Phi subsidiary, the Company makes and sells a system using water-based clean energy technologies that is engineered and functionally designed to provide fuel savings and reduced greenhouse gas emissions for the internal combustion engine. The primary market for the Hydro Phi products initially will be the transportation industry, with a focus on the trucking/logistics, heavy equipment, marine and agriculture segments, where rising fuel costs and emission regulations are driving the development of new technologies to control operating expenses. We believe that our proprietary HydroPlant technology may have additional applications in the future, such as in off-grid power generation, where there is reliance on diesel and similar types of internal combustion engines.

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Liquidity and Capital Resources

As of December 31, 2013, we had cash and cash equivalents of $123,994 and a working capital deficit of $4,659,789. As of December 31, 2013, our accumulated deficit was $30,701,432. For the nine months ended December 31, 2013, our net loss was $14,516,314, compared to net loss of $2,254,312 during the same period in 2012. The increase in net loss was mainly due to the losses recorded on settlement of debt $7,662,388 by issuing warrants and shares and stock-based compensation of $5,012,917 during the nine month period ended December 31, 2013.

We used net cash of $635,698 from operating activities for the nine months ended December 31, 2013 compared to used net cash of $1,247,450 in operating activities for the same period in 2012. The decrease of net cash used in operating activities was mainly due to the decrease of payroll expense as a result of lower average salary and the decrease of payments made for consulting expense. We did not use any money in investing activities for the nine months ended December 31, 2013 and used $850 for the same period in 2012. We received net cash of $759,575 in financing activities for the nine months ended December 31, 2013, compared to receiving net cash of $1,227,552 in financing activities for the same period in 2012. Cash received from financing activities is mainly from the issuance of convertible notes to related parties for both years.

In the opinion of our management, funds currently available will not satisfy our working capital requirements for the next twelve months. The Company will need a substantial amount of capital to fund its operations and SEC reporting obligations. It has no contracts or arrangements for any such funding. There can be no assurance that the Company will be able to raise any funding. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations. As a result of the fact that the Company financial resources are inadequate for it business operations at this time, there is a substantial doubt as to its ability to continue as a going concern.

Results of Operations for the three months ended December 31, 2013 compared to the three months ended December 31, 2012.

Revenues

Revenues increased by $54,313 to $104,784 for the three months ended December 31, 2013 compared to $50,471 for the three months ended December 31, 2012. The increase was mainly due to the $52,334 license revenue recognized during the three months ended December 31, 2013 related to the exclusive right to sell the Company's products in Mexico and Brazil granted to Energia Vehicular Limpia S.A. de C.V.

General and Administrative Expenses

General and administrative expenses decreased by $12,409 to $486,540 for the three months ended December 31, 2013 compared to $498,949 for the three months ended December 31, 2012. The decrease was mainly due to the decrease of payroll expense as a result of lower average salary, which was partially offset by the increase of consulting expense related to investor relationship.

Research and Development Expense

Research and development expense decreased by $105,077 to $55,634 for the three months ended December 31, 2013 compared to $160,711 for the three months ended December 31, 2012. The decrease was mainly due to the completion and finalization of initiatives underway during the previous six months.

Other expense

Other expense decreased by $205,113 to $25,009 for the three months ended December 31, 2013 compared to $230,122 for the three months ended December 31, 2012. The decrease was mainly due to the decrease of interest expense which was attributable the settlement of notes payable by issuing common shares in September 2013.

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Net Loss

Net loss decreased by $376,031 to $479,632 for the three months ended December 31, 2013 compared to $855,663 for the three months ended December 31, 2012. The decrease was mainly due to the decrease of payroll expense, research and development expense and interest expenses as discussed above.

Results of Operations for the nine months ended December 31, 2013 compared to the nine months ended December 31, 2012.

Revenues

Revenues increased by $27,134 to $104,784 for the nine months ended December 31, 2013 compared to $77,650 for the nine months ended December 31, 2012. The increase was mainly due to the $52,334 license revenue recognized during the three nine months ended December 31, 2013 related to the exclusive right to sell the Company's products in Mexico and Brazil granted to Energia Vehicular Limpia S.A. de C.V. The increase of revenue from license fee was partially offset by the decrease of product sale as a result of our inability to continue the manufacturing process and retain the services of outside testing facilities during the first six months of fiscal year 2014 due to the severe limitations on our finances.

General and Administrative Expenses

General and administrative expenses increased by $4,882,840 to $6,293,529 for the nine months ended December 31, 2013 compared to $1,410,689 for the nine months ended December 31, 2012. The increase was mainly due to the stock-based compensation of $5,012,917 recorded for the issuance of shares to employees and the issuance of warrants to a consultant during the nine months ended December 31, 2013.

Research and Development Expense

Research and development expense decreased by $117,194 to $184,894 for the nine months ended December 31, 2013 compared to $302,088 for the nine months ended December 31, 2012. The decrease was mainly due to the completion and finalization of initiatives underway during the previous six months.

Other expense

Other expense increased by $7,546,260 to $8,090,684 for the nine months ended December 31, 2013 compared to $544,424 for the nine months ended December 31, 2012. The increase was mainly due to the loss resulting from the settlement of accrued liabilities and notes payables by issuing shares.

Net Loss

Net loss increased by $12,262,002 to $14,516,314 for the nine months ended December 31, 2013 compared to $2,254,312 for the nine months ended December 31, 2012. The increase was mainly due to the stock-based compensation recorded for the issuance of shares to employees and a consultant and the loss on settlement of debt during the nine months ended December 31, 2013 as discussed above.

Inflation

We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.

Off-Balance Sheet Arrangements

As of December 31, 2013, we do not have any off-balance sheet arrangements, including any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

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Source: Edgar Glimpses


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