Corporate Organization

As used herein the terms “Hendrx,” “we,” “our,” and “us” refer to Hendrx Corp. (formerly “Starsoft, Inc.”), its subsidiaries and predecessor, unless the context indicates otherwise. We were incorporated in the State of Nevada on May 4, 1998 as “Starsoft, Inc.” for the purpose of developing business software for legalized gambling applications. Due to fiscal constraints, we ceased significant business operations at the end of October in 2000. Between November of 2000 and December of 2004, we remained without significant operations.

On December 16, 2004, we concluded a Share Purchase Agreement (“Agreement”) with Eastway Global Investment Limited (“Eastway”), Fujian Yuxin Equipment Co., Ltd., (“Yuxin”), Hendrik Tjandra, and David Tjahjadi in connection with our acquisition of Eastway and its wholly owned subsidiary Yuxin, a research and development, manufacturing, marketing and distribution organization located in Fujian, China. The acquisition of Yuxin included all the intellectual property related to its product lines, the manufacturing facility in China, marketing rights, inventories, distribution agreements, and trained employees.. On March 28, 2005, we changed our name from Starsoft, Inc., to Hendrx Corp., to better reflect the contribution and innovative capability of Hendrik Tjahjadi, the developer of Hendrx’s atmospheric water generators.

Hendrx’s principal executive offices are located at 2610-1066 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3X2, and our telephone number is 1-877-Hendrx-1. Hendrx’s registered statutory office is located at Laughlin Associates, Inc., 2533 North Carson Street, Carson, Nevada, 89709.

Hendrx trades on the NASDAQ Over the Counter Bulletin Board under the symbol “HDRX.” Our reports under the Securities and Exchange Act of 1934, as amended, may be viewed on the Internet at www.sec.gov and are made available upon request..

Description of Business

Hendrx is engaged in the research and development, manufacture, marketing and world wide distribution of water generation, filtration, ionization, desalinization, and purification devices. Our main product lines include Atmospheric Water Generation (“AWG”) units, Alkaline Calcium Ionic Water Dispensers, and Reverse Osmosis (“RO”) systems.

Technology

Atmospheric Water Generation

AWG units extract and purify drinking water from the air. Retrieving moisture from the air is practical, accessible, readily available and virtually unlimited in supply for creating safe, secure, potable water that meets or surpasses the highest international standards for water quality at a competitive price.

Our AWG machines extract water from the atmosphere by (a) pulling air though a filter, (b) cooling the incoming air, thus producing condensation, (c) capturing the water, and (d) pumping the water through a series of filtration systems and germicidal Ultra Violet lights for purification.

Hendrx manufactures two types of AWG units. The first type are residential/office AWGs which include countertop and full sized upright models. These are units which will produce 5-12 gallons of water per day depending on humidity and temperature levels. AWG units are self-contained and need only a power source to produce clean drinking water throughout the day.. Residential/office AWG units can take the place of bottled water dispensers, eliminating the need for replenishment and storage of bottles.

The second type of AWG unit has commercial and industrial applications. These AWG’s are capable of producing from 83 to more than 3,500 gallons of potable water each day. Industrial units can be used in military, industrial, commercial, humanitarian, and disaster relief applications. The commercialization of industrial AWG units remains under development.

Reverse Osmosis

Hendrx also manufactures Reverse Osmosis (“RO”) units. RO is a process by which water is purified utilizing a semi-permeable membrane thereby removing impurities and minerals. RO requires four gallons of water for every one gallon of purified water it produces. Hendrx stand alone dispensers and models installed under sink units on the market.

Reverse Osmosis, also known as hyper filtration, is the finest filtration known. This process will allow the removal of particles as small as ions from a solution. RO is used to purify water and remove salts and other impurities in order to improve the color, taste or properties of the fluid. It can be used to purify fluids such as ethanol and glycol, which will pass through the reverse osmosis membrane, while rejecting other ions and contaminants from passing. The most common use for reverse osmosis is in purifying water. It is used to produce water that meets the most demanding specifications that are currently in place. RO uses a membrane that is semi-permeable, allowing the fluid that is being purified to pass through it, while rejecting the contaminants that remain. As some of the fluid passes through the membrane the rest continues downstream, sweeping the rejected species away from the membrane. The process of reverse osmosis requires a driving force to push the fluid through the membrane, and the most common force is pressure from a pump. The higher the pressure, the larger the driving force. As the concentration of the fluid being rejected increases, the driving force required to continue concentrating the fluid increases.

RO is capable of rejecting bacteria, salts, sugars, proteins, particles, dyes, and other constituents that have a molecular weight of greater than 150-250 daltons. The separation of ions with RO is aided by charged particles. This means that dissolved ions that carry a charge, such as salts, are more likely to be rejected by the membrane than those that are not charged, such as organics. The larger the charge and the larger the particle, the more likely it will be rejected.

Alkaline Ionic Water

Hendrx manufactures Alkaline Calcium Ionic Water dispensers, units designed to ionize water, which can facilitate a myriad of benefits. These units are similar to Reverse Osmosis units in that they use tap water as their main source.

Running water over positive and negative electrodes ionizes the water by gaining or losing an electron. The water is then separated into alkaline and acidic water as it passes through membranes, meaning that the pH has been adjusted up or down.

Alkaline water is full of hydroxyl ions and has many claimed internal benefits. Acidic water is full of hydrogen ions and is shone to be beneficial to skin and plants. Research shows that ionized water balances body pH, is a powerful antioxidant, and is a powerful detoxifier/hydrator. The suggested benefits of alkaline water, water with a high pH, include the following: it increases energy, boils faster, tastes better, hydrates more efficiently, promotes regularity, facilitates nutrient absorption and promotes overall health. The suggested benefits of acidic water, water with a low pH, include the following: it kills bacteria on contact, helps heal cuts, blisters, scraps, or rashes, provides excellent relief from mosquito bites, bee stings, poison ivy & poison oak, conditions skin, relieves chapped hands & dry, itchy skin, works as an astringent, is an excellent treatment for acne, eczema and athlete’s foot, promotes plant growth and extends the life of cut flowers

Desalination

We have recently started developing what we consider to be a revolutionary and technological breakthrough: portable desalination systems. These units effectively remove salt from seawater which is then transformed into fresh water for drinking.

Products

Designed with our customers first and foremost in mind, all Hendrx’s products feature high-technology design and elegance combined with user-friendly, sensible functionality.. As a pioneer in the atmospheric water industry, Hendrx has applied its experiences and knowledge in the design and engineering of all our products over the last few years. All products use quality components to ensure trouble-free operation. Each of our products includes the following features:

|X| Advanced water filtration and purification systems |X| Digital-wide screens dynamic display for convenience and ease-of-use; |X| Electronic sensors that turn certain functions of the machines "on" and "off" automatically; |X| Microcomputers to control many functions of the machines and ensure the machines' smooth and trouble-free operations; |X| Venturi fans for noise control and quiet operation; |X| Proprietary activated carbon filters for purity and taste; |X| Germicidal UV Sterilization to eliminate bacteria and other organisms; |X| Cool, warm, and hot water outputs; and |X| Dow Chemical reverse osmosis filters.

Hendrx’s products, which are manufactured in China under the strictest quality guidelines, include:

The Rainmaker

A multi-functional machine, the Rainmaker is a water generating AWG, dehumidifier, and air filter designed to fit on the countertop. The Rainmaker includes the following features:

|X| Allows for a water supply independent of local government supplier; |X| Functions as an air cleaner; |X| Can be used in a number of environments, including the home, office, hospitals, on boats, and in schools; |X| Extremely cost efficient - about 10% of the cost of bottled water; |X| 100% chemical free water creation; |X| ASMI stainless steel components; and |X| We demonstrate our commitment to quality with a one year warranty on parts and labor..

The Hendrx

The Hendrx is a full sized AWG designed for the average household or office. The features of the Hendrx are similar to those of the Rainmaker, except that it is a floor standing unit with higher storage capacity. Features include:

|X| Full size water generator capable of producing up to 29 liters of fresh water per day; |X| Three dispensers for hot, warm, and cold water; and |X| Unit is mounted on rollers and can easily be moved from room to room.

The Osmo

The Osmo is a unit using the Reverse Osmosis process in a 5-stage filtration system. The Osmo’s features include:

|X| UV lamp sterilization; |X| FDA approved materials; |X| Overheat protection; |X| Provides hot, warm, and cold water; |X| Micro-computer control system; and |X| Available in counter and floor models.

The Ionic

An upright model similar to the Osmo, the Ionic produces Ionized water using tap water as its main source.

OEM Products

Hendrx currently manufactures atmospheric water generators for two original equipment manufacturers in the United States and one in Lebanon. The products are manufactured under the following brands:

X The Aqua Maker M-10 which is manufactured for Houston based Aqua Maker. The product is an upright model for which Hendrx supplies the atmospheric water generator based on Aqua Maker's design; and X The SOHO which is manufactured for Florida based Air Water Corporation. X The Waterex or WR-2 is manufactured for the Librex Group S.A.L. based in Beruit, Lebanon.

Products in Development

In order to remain a leader in the atmospheric water industry, Hendrx is in various stages of development for additional innovative products. The following are products are currently in advanced stage of development:

X The Uti - a multi-functional unit that includes an air conditioner, space heater, dehumidifier, air purifier, water purifier, and AWG; X The Desalinator - a portable machine capable of converting sea water into fresh drinking water; X The Aquarius 10 - a top of the line residential/office upright atmospheric water generator featuring a 10-gallon stainless steel storage tank and more durable design. Hendrx intends to initially assemble the Aquarius 10 in the United States; and

X The Big Blue - these are commercial and industrial AWGs capable of producing between 83 gallons and 3,500 gallons of drinking water per day.

Hendrx also produces a host of other small water purification devices including carbon filtration systems similar to the “PUR” and “Britta” brands.

Capacity

Hendrx has 280 skilled employees at its manufacturing plant in Fujian, China with a production capacity of more than 200,000 AWG units, RO devices, and Alkaline Calcium Ionic Water devices annually. Hendrx is currently exporting these products through 11 distributors to over 40 countries including the United States, Australia, Italy, Saudi Arabia, Israel, Lebanon, Malta, Singapore, and India. Hendrx has coordinated a network of international distributors and is licensing specific geographical territories on a sales performance basis.

Research and Development

The research and development division at Hendrx has strategic US-based scientific and management relationships which have assisted with Hendrx’s products becoming ISO9002, CE, CB and CCC certified. Hendrx devotes a significant amount of time and resources to R&D activities. Hendrx’s subsidiary, Yuxin, is also a member of the Water Quality Association. In addition, Hendrx is spending considerable time on obtaining approvals on all of its models and devices for the world market.

While it is proud of its status as a global leader in AWG technology, Hendrx continues to conduct research and to develop new products and technologies. Hendrx firmly believes that fresh water and the purification of water is among the greatest challenges to mankind.

Embracing this challenge and to maintain its status as an industry leader of AWG applications, Hendrx continues to devote time and energy to research and development. The commitment to R&D will keep Hendrx focused on continually improving the efficiencies associated with water production, increasing water storage capacity, expanding the effectiveness filtration devices, and enhancing energy efficiency.

Patents and Intellectual Property

Hendrx owns two patents for atmospheric water generation in China under patent number P20030483 and utilizes four patents under sub-licenses registered in the United States under patent numbers 5,106,512, 5,149,466, 5,203,989 and 5,366,705. Further, additional PCT patents have been filed and are pending.

Competition

The water generation, water purification and bottled water industries are highly competitive. Hendrx competes against a number of firms in various industries world wide. There can be no assurance that other companies will not develop new or enhanced products that are either more effective than Hendrx products or would render Hendrx products non-competitive or obsolete. Hendrx mainly competes with tap water, bottled water and “point of use” filtration technologies such as AWG and Reverse Osmosis.

We consider our AWG products to be the hallmark of the company and see the five gallon bottled water dispenser industry as a major competitor. The five gallon bottled water market in North America exceeds $1 billion in sales. The bottled water dispenser market is booming but Hendrx believes it can compete by keeping water costs lower. The big advantages of AWG units as compared with bottled water dispensers are that they eliminate the need for delivery and storage of the bottles themselves, thus removing costs and clutter. In addition, AWG units purify surrounding air as they operate.

The RO water dispenser industry is another AWG technology competitor. Under-counter reverse osmosis systems represent a $250 million global market and are growing at the rate of 8% per year. In the U.S. alone there are 100,000 installed units per year representing $150 million in sales. The market for reverse osmosis units is very competitive, often plagued by price wars. “Big Box” retailers such as Lowes, Home Depot and Sears are the primary distribution channels for these products, with retail water treatment dealers sharing a small portion of the market. We believe that we can successfully compete for the RO market segment with some innovative solutions and design of our own RO systems and will compete using our AWG units by keeping overall water costs lower.

Another growing segment in which Hendrx is increasing market share is the segment of Alkaline Ionic Water. The feedback from industry experts and our distributors is that Alkaline Ionic Water machines are gaining popularity and may surpass the RO market segment.

Despite certain competition that has appeared within the last three years, we believe that we can retain significant market advantages because we:

X are the industry pioneer; the first company to develop and mass-produce the atmospheric water generator; the only company with almost 5 years manufacturing track record; X are the market veteran in the industry and have experience and expertise resulting in the production of high-quality and reliable products; X have a broad range of products; X have a broad range and well developed distribution channels. We have established numerous contacts with highly qualified distributors and wholesalers worldwide during the past 5 years; X have manufacturing efficiencies to keep product quality high and cost of production low; and X continue in our RandD practices and keep numerous productions under development.

The identification of market players is a subjective proposition, not only because it requires the determination of criteria to suggest involvement in the relevant market, but also because the number of peripheral players requires decisions on which companies to include and which to exclude.

Companies that distribute AWGs and companies that manufacture AWGs must be properly distinguished. Hendrx falls into the category of a “manufacturer”. As such, we have taken a broad view of market players involved in the manufacturing of AWG to include:

Residential/Office Models

X Hyflux (www.hyflux.com) is a publicly traded company based in Singapore. Hyflux's main business is in extremely large-scale water filtration and purification through membrane technology such as reverse osmosis and desalination. In January 2003, they announced that they had purchased a portion of a US company, Worldwide Water/Air2Water, and also entered into a licensing agreement to manufacture air to water generators. Hyflux's air to water generator, the Dragonfly, closely resembles the Hendrx unit both in size, appearance and specifications. Hyflux contracted the manufacturing of the Dragonfly units to a multi-billion dollar appliance manufacturer located in Qing Dao, China, called Haier. Strengths: Being a public company with large water treatment and purification projects throughout Asia amounting to over $1 billion annually and having the Singapore Government's unwavering support makes Hyflux a formidable competitor in the business. Weaknesses: Hyflux has not fully penetrated the air to water industry since the Dragonfly, time and again, has seen its formal launch into the market delayed. With almost all of the company's revenues made by carrying out massive government water treatment and purification projects, Hyflux does not appear to spend much of its resources or focus its efforts on the air to water industry. However, because of the future of the Dragonfly model, we regard them as a main competitor. X Dong Yang Co. Ltd., (www.dywater.net) is based in Kimpo, South Korea. The company has been involved with the manufacturing of residential/office water purification devices using Reverse Osmosis for 20 years. They entered the AWG water industry in 2002 with an upright full size unit known today as the M-10. This unit is 50% larger in size than the full-sized Hendrx unit. Strenghts: The M-10 is well built and uses high-quality Korean components. The company has 20 years of experience in water purification and water filtration. Weaknesses: Dong Yang had recently shrunk its operations and eliminated all other water filtration products from their lines, opting instead to concentrate on producing the air water generators. Although well-built and somewhat reliable, Hendrx considers the M-10 bulky, noisy and thus generally unsuitable for homes and offices. The company shows pictures of another countertop water machine on their website, but there is no evidence that the product is available in the market. Having only one model in the market makes Dong Yang in a difficult position to compete with Hendrx and other AWG manufacturers. X Wataire Industries (www.wataireindustries.com) is a publicly traded company on the pink sheets with its corporate office in Vancouver, Canada. Having been in the atmospheric water business for a number of years, the company has kept a very low profile, only to rise again in the past year by revamping and redesigning their products. Wataire's full-sized upright AWG, called the WII-4010, also closely resembles the Hendrx. According to the website, Wataire's manufacturing facility is located in Sydney, Australia. Additionally, Wataire also offers industrial/commercial water generators.

Industrial/Commercial Units
      X   Munters Corporation (www.munters.us) is a Swedish based company with $700 million in annual sales, and thus is the world’s largest dehumidification company. Munters’ entry into the industrial/commercial atmospheric water generators industry in 2003 was a horizontal expansion. Utilizing Munters’ base unit dehumidifier with a few modifications, they were able to deliver 18 models to the market in early 2005. In March 2005, Munters won the “Most Innovative Product” award during the Air conditioner, Heating and Refrigeration (AHR) Expo in Orlando, Florida. With 29 offices and facilities throughout the world employing over 3,000 people, the Munters atmospheric water generators are assembled in Texas, United States.
  Strengths: Munters is an expert in dehumidification technologies. The company, having been established 60 years ago, has over 300 engineers situated throughout the world to provide technical support for their machines. Munters also has established infrastructure, along with strong financial resources to back their products and continuing their research and development programs.
  Weaknesses: Munters has not really incorporated and embraced the air water generators into one of their business units, preferring instead to appoint third party entities to market and distribute the products. This move has slightly hampered the progress of penetrating the products into the market foray.
      X   Air Water Corporation (www.airwatercorp.com) is a Florida based subsidiary of the publicly traded Universal Communications Systems (under the ticker symbol “UCSY”). Although, Air Water Corporation obtains their residential/office water generator from Hendrx, they currently offer five industrial/commercial water generators producing from 120 liters to 1000 liters per day.
  Strengths: The company’s marketing is well polished and the company seems to be making an aggressive and coordinated effort to penetrate the market. The company has a good public relations mechanism and seems to be adequately financed.
  Weaknesses: The company does not currently manufacture any of its machines, although it has purchased exclusive distribution rights for some machines being manufactured in India. Without any proprietary merchandise or in-house research and development capacity, the company may find itself forced to sell antiquated, second generation machines within a very short period of time.

Dealing with Competition

When Hendrx began it AWG operations in October 2001, it was the first and only company in the world to bring the conceptual air-water generator to mass production stage and into the world market. Since then, other companies have attempted to develop similar products but have yet no products successfully into the market.

The atmospheric water technology is not extremely difficult to copy or reproduce. Other companies may soon follow in Hendrx’s footsteps and attempt to develop and market similar products. In dealing with competitors, Hendrx intends to:

1.     Focus on remaining a “market leader” and in the forefront of the atmospheric water technology .
  We must allocate sufficient funds to our research and development programs. We plan to establish a separate research and development facility in the United States. The facility’s responsibilities will include:

|X| Developing prototypes of new and innovative atmospheric water generators for other sectors of the target market such as the marine sector;

|X| Researching the commercial viability of other innovative and unique technologies that could be integrated to the products; and

|X| Improving upon existing product lines to make them more efficient and competitively priced.

2.     Focus on “industry pioneer” status to remain ahead of the competitions .
  As an industry pioneer, Hendrx must establish itself as the company that consumers seek when they intend to purchase an atmospheric water generator. We must also establish Hendrx as the company potential distributors look toward when they intend to enter into the atmospheric water business. This can be done through a series of carefully planned marketing strategies to create “brand” and “product” awareness with potential customers (end-users) and distributors in the targeted markets.

3.     Form Strategic Alliances with competitors.
  Certain companies are too large to compete with. Moreover, they may only manufacture products that compete with one or two of our products. In this case, we could increase our value and market position by forming strategic alliances with these companies by signing an agreement to cross-sell and protect each other’s products and technologies. By signing such agreements, Hendrx could direct R&D funds into particular products instead of spreading them across the development of all of our products.
  With smaller competitors, Hendrx would use its pioneer and market leader status by getting them to purchase products from Hendrx. So far, we have implemented this strategy successfully with Aqua Maker and Air Water Corporation.

Competitive Advantages

Although the sectors being targeted by Hendrx may appear to be crowded, the simple fact remains that none of these companies have capabilities – manufacturing, design, distribution – to the extent realized by Hendrx.. These distinctions and their tremendous advantages enable superior products and infrastructure and separate us from our competitors.

Marketability

When we look at the marketability of our products, we consider the following factors:

X Plain tap water, which in many countries was once the main source of drinking water, is being gradually replaced by bottled or filtered water for fear of contaminants; X Water is the most purchased non-alcoholic beverage in the United States and in many other parts of the world; X In 2004, the delivered water and bottled water market was $114 billion worldwide; X Bottled water was consumed globally at a rate of 30.8 billion gallons in 2001 and is expected to rise to 50 billion by 2008. In one decade, bottled water sales have surged from $2.6 billion to $7.7 billion in the United States alone; X The market is dominated by a small number of large companies; X The industry has come under scrutiny with regard to water quality; X Consumers are looking for alternative sources of high quality, fresh drinking water;

      X   Demand for fresh water by the world’s population is much higher than available supply — the United Nations predicts that at the current rate, the supply for fresh ground water will be severely stressed by the year 2025; and
      X   The market potential for AWG technology is estimated at hundreds of millions of dollars worldwide, with a growth of 12-15% per year.

The drinking water industry is divided into numerous different sectors ranging from water filtration companies to bottling companies. There are several types of water readily available in the market, including: filtered tap water, reverse osmosis water, natural spring water, artesian spring water, sparkling water and mineral water, all of which are bottled and available for purchase. Bottled water is also available in bulk and can be delivered to the home or office via bottled water service companies.

The Culligan Finance Corporation estimated that the total global market for water treatment products and services was estimated at over $300 billion in 2003. However, these numbers include sales from all segments of the water industry such as:
x Large scale water purification projects;

x Desalination projects;
x Point of Entry/Point of Use; x Reverse Osmosis; x Water Softeners;

x Delivered Water; and
x Bottled Water..

Hendrx’s products are not in direct competition with many segments of the water industry, but are closely associated with, and can be regarded to compete in the bottled water and delivered water industries.

According to the Beverages Marketing Corporation, the bottled and delivered water industry’s total revenue in 2002 was about $66 billion worldwide. The industry grew exponentially in the past four years and has surpassed the soft drinks market since 1998. In 2004, revenue for bottled water products worldwide had risen to almost $100 billion

Based upon this data, Hendrx has arrived at the following conclusions that serve to reinforce our potential and promise:
      x   The availability of fresh drinking water is dwindling and presents a serious challenge to city administrators and other government officials. The world’s experts are predicting that as early as 2025 the world could face a major water crisis.
      x   The search for viable alternative sources of fresh drinkable water is leading governments and world agencies to spend billions of dollars annually to upgrade and maintain water filtration plants.
      x   The bottled water market is rapidly growing and is the second largest beverage sector. This indicates that global consumers are seeking alternatives to the water supplied to their homes.
      x   Scientific understandings of the natural cycle of water, combined with new, innovative technologies, allow for the recreation of the water cycle and the production of air that is present, in abundance, in the atmosphere.

      x   Although competitors exist and the attractiveness of the market potential is likely to draw additional competitors, the inherent advantages Hendrx has, including R&D capacity, manufacturing capacity, and marketing reach, make us a formidable market leader.

Government Regulation

Hendrx’s operations are currently subject to the laws and regulations of the People’s Republic of China relating to, among other things, business licenses, imports and exports, worker safety and the use, storage, discharge and disposal of environmentally sensitive materials. Opening business operations in other locations will subject us to a variety of national, federal, provincial, state and local laws, rules and regulations relating to, among other things, imports and exports, worker safety and the use, storage, discharge and disposal of environmentally sensitive materials. The development or expansion of business operations depends upon the receipt of required licenses, permits and other governmental authorizations.

Under some of the laws regulating the use, storage, discharge and disposal of environmentally sensitive materials, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. Laws of this nature often impose liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of hazardous or toxic substances.

We believe we are in compliance in all material respects with all laws, rules, regulations and requirements that affect our business. Further, we believe that compliance with such laws, rules, regulations and requirements does not impose a material impediment on our ability to conduct business.

Risk Factors

Our future operating results are highly uncertain. Before deciding to invest in us or to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this annual report. If any of these risks actually occur, our business, financial condition or results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.

We have a history of significant operating losses and such losses may continue in the future .

Since our inception in 1998, our expenses have significantly exceeded our revenue, resulting in continuing losses and an accumulated deficit of $2,916,601 at December 31, 2005. During fiscal 2005, we recorded a net loss of $2,950,555. We believe that may continue to incur operating losses until such time as we realize the benefits of our recently revamped marketing and sales plans.

Hendrx competes against companies with larger and better-financed corporations ..

Hendrx operates in a highly competitive market with financial rewards pending on market performance. Some of our competitors are multi-million enterprises with more resources for research and development as well as marketing. If any of these competitors focused upon the AWG market, we would be at a significant disadvantage in reaping our markets’ financial rewards.

Hendrx may fail to adequately manage growth.

The strategic plan being implemented by Hendrx is expected to yield significant growth. This growth requires infrastructure and personnel, as well as expanded operations, and needs to be properly managed. Should we fail to adequately manage our growth potential, our operations could be significantly impaired.

We are dependent upon key personnel who would be difficult to replace.

Our continued operation will be largely dependent upon the efforts, knowledge and abilities of our management team. A loss of management’s strategic vision and the core of the team would be a hindrance to our prospects and success. Our future success also will depend in large part upon Hendrx’s ability to identify, attract and retain other highly qualified managerial, technical and sales and marketing personnel. Competition for these individuals is intense. The inability to identify, attract or retain qualified personnel in the future or delays in hiring qualified personnel, could make it more difficult for us to maintain our operations and meet key objectives.

We have an integral dependence on marketing.

Hendrx has an ambitious vision and has developed a well conceived plan to reach its objectives. The scope of the plan will require high profile marketing, including the possibility of joint marketing campaigns with compatible companies. Failure to initiate and successfully implement excellent marketing efforts could adversely affect our capacity to execute our plan.

Our business is largely dependent on a limited number of customers

For the year ended December 31, 2005, one customer, Librex Group S.A.L., accounted for approximately 58% of our net sales. We do have a contract with this customer though all of sales to them are made through purchase orders for OEM product.. The loss of this customer, including through an acquisition, other business combination or their loss of business from their customers could have a substantial and adverse effect on our business. We have in the past, and may in the future, lose our major customers or a substantial portion of our business with one or more major customers. If we do not sell products to customers in the quantities anticipated, or if a major customers reduces or terminates its relationship with us, market perception of our products and technology, growth prospects, and financial condition and results of operations could be harmed. Any termination of our relationship with, or significant reduction or modification of the products we manufacture for Librex would materially reduce our revenue.

The market for our stock is limited and our stock price may be volatile.

The market for our common stock has been limited due to low trading volume and the small number of brokerage firms acting as market makers. Because of the limitations of our market and volatility of the market price of our stock, investors may face difficulties in selling shares at attractive prices when they want to. The average daily trading volume for our stock has varied significantly from week to week and from month to month, and the trading volume often varies widely from day to day.

We may incur significant expenses as a result of being quoted on the Over the Counter Bulletin Board, which may negatively impact our financial performance .

We incur significant legal, accounting and other expenses as a result of being listed on the Over the Counter Bulletin Board. The Sarbanes-Oxley Act of 2002, as well as related rules implemented by the Commission has required changes in corporate governance practices of public companies. We expect that compliance with these laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 as discussed in the following risk factor, may substantially increase our expenses, including our legal and accounting costs, and make some activities more time-consuming and costly. As a result, there may be a substantial increase in legal, accounting and certain other expenses in the future, which would negatively impact our financial performance and could have a material adverse effect on our results of operations and financial condition.

Our internal controls over financial reporting may not be considered effective, which could result in a loss of investor confidence in our financial reports and in turn have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our annual report for the year ending December 31, 2007, we may be required to furnish a report by our management on our internal controls over financial reporting. Such report will contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of the year, including a statement as to whether or not our internal controls over financial reporting are effective. This assessment must include disclosure of any material weaknesses in our internal controls over financial reporting identified by management. The report will also contain a statement that our independent registered public accounting firm has issued an attestation report on management’s assessment of internal controls. If we are unable to assert that our internal controls are effective as of December 31, 2007, or if our independent registered public accounting firm is unable to attest that our management’s report is fairly stated or they are unable to express an opinion on our management’s evaluation or on the effectiveness of our internal controls, investors could lose confidence in the accuracy and completeness of our financial reports, which in turn could cause our stock price to decline.

Reports to Security Holders

Hendrx is not required to deliver an annual report to security holders and will not voluntarily deliver a copy of the annual report to the security holders. Should we choose to create an annual report, it will contain audited financial statements. Hendrx files all of its required information with the Commission

The public may read and copy any materials that we file with the Commission at the Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330. The statements and forms we file with the Commission have been filed electronically and are available for viewing or copy on the Commission maintained Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the Commission. The Internet address for this site can be found at: www.sec.gov.

Employees

Hendrx currently has 284 full time employees, 280 of which are located in the Peoples Republic of China and 4 of which (management) are located in both the United States and Canada. Hendrx also relies on the services of consultants, attorneys, and accountants as necessary, to satisfy public disclosure requirements and to pursue Hendrx’s business plan.