UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarter Ended: March 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from: ______________ to ______________
Commission File Number: 000-27825
Hydro Environmental Resources, Inc.
-----------------------------------
(Exact name of registrant as specified in its charter)
Nevada 73-1552304
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2903 NE 109th Avenue, Suite D, Vancouver, WA 98682-7273
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(360) 883-5949
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common 51,793,878
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Class Number of shares outstanding at April 30, 2003
This document is comprised of 11 pages.
FORM 10-QSB
1ST QUARTER
INDEX
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Condensed balance sheet - March 31, 2003 (unaudited)........................ 3
Condensed statements of operations - Three months ended
March 31, 2003 (unaudited) and 2002 (unaudited), and
November 10, 1998 (inception) through March 31, 2003 (unaudited)....... 4
Condensed statements of cash flows - Three months ended March 31, 2003
(unaudited) and 2002 (unaudited), and November 10, 1998 (inception)
through March 31, 2003 (unaudited)..................................... 5
Notes to condensed financial statements (unaudited)......................... 6
Item 2. Plan of operation.................................................. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 10
Item 2. Changes In Securities.......................................... 10
Item 3. Defaults Upon Senior Securities................................ 10
Item 4. Submission of Matters To A Vote of Security Holders............ 10
Item 5. Other Information.............................................. 10
Item 6. Exhibits and Reports on Form 8-K............................... 10
Signatures................................................................. 11
2
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)
Condensed Balance Sheet
(Unaudited)
March 31, 2003
Assets
Current Assets:
Cash $ 19,817
-----------
Total current assets 19,817
Property and equipment, net 12,681
Patent rights and interests, net 3,750
-----------
$ 36,248
===========
Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable and accrued liabilities $ 153,313
Due to former officer (Note 2) 229,654
Notes payable, convertible to common stock (Note 4) 25,000
Accrued interest on notes payable (Note 4) 4,250
Loan payable, convertible to common stock 75,000
-----------
Total current liabilities 487,217
-----------
Shareholders' deficit (Note 5):
Preferred stock --
Common stock 49,127
Additional paid-in capital 2,639,077
Deficit accumulated during development stage (3,139,173)
-----------
Total shareholders' deficit (450,969)
-----------
$ 36,248
===========
See accompanying notes to condensed financial statements
3
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
November 10,
1998
For the Three Months Ended (Inception)
March 31, Through
---------------------------- March 31,
2003 2002 2003
------------ ------------ ------------
Operating expenses:
Research and development $ -- $ -- $ 114,196
General and administrative:
Stock-based compensation:
Consulting services (Note 5):
Officers and directors -- -- 112,500
Shareholders -- 951,067 178,567
Other 41,600 136,433 1,425,496
Legal services -- 205,000 235,000
Other -- -- 39,300
Related parties -- 1,500 37,000
Compensation 34,532 -- 230,815
Professional and consulting services 4,150 37,341 439,763
Other 24,948 18,700 559,960
------------ ------------ ------------
Total operating expenses 105,230 1,350,041 3,372,597
------------ ------------ ------------
Loss from operations (105,230) (1,350,041) (3,372,597)
Non-operating income:
Gain on debt settlements -- 43,363 309,004
Other -- 300 1,300
Interest expense:
Related parties (Note 2) (2,915) (2,848) (35,317)
Amortization of debt issue costs -- -- (26,250)
Other (500) (500) (15,313)
------------ ------------ ------------
Loss before income taxes (108,645) (1,309,726) (3,139,173)
Income tax provision (Note 3) -- -- --
------------ ------------ ------------
Net loss $ (108,645) $ (1,309,726) $ (3,139,173)
============ ============ ============
Basic and diluted loss per share $ (0.00) $ (0.09)
============ ============
Basic and diluted weighted average
common shares outstanding 48,547,591 15,313,882
============ ============
See accompanying notes to condensed financial statements
4
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
November 10,
1998
For the Three Months Ended (Inception)
March 31, Through
-------------------------- March 31,
2003 2002 2003
----------- ----------- -----------
Net cash used in
operating activities $ (75,003) $ (45,828) $(1,203,479)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of equipment -- -- (17,765)
----------- ----------- -----------
Net cash used in
financing activities -- -- (17,765)
----------- ----------- -----------
Cash flows from financing activities:
Capital contributions from the president -- -- 4,910
Proceeds from advances from the Company's
president -- -- 238,178
Repayment of advances from the president (Note 2) -- -- (23,099)
Proceeds from advances from the Company's
shareholders -- 68,510 568,967
Repayment of advances from shareholders (Note 2) -- (22,900) (296,076)
Proceeds from notes and loans convertible
to common stock -- 150,000 283,000
Repayment of convertible notes and loans -- (150,000) (150,000)
Proceeds from sale of common stock (Note 5) 60,000 -- 616,106
Payment of offering costs -- -- (1,925)
----------- ----------- -----------
Net cash provided by
financing activities 60,000 45,610 1,240,061
----------- ----------- -----------
Net change in cash (15,003) (218) 18,817
Cash, beginning of period 34,820 311 --
----------- ----------- -----------
Cash, end of period $ 19,817 $ 93 $ 18,817
=========== =========== ===========
Supplemental disclosure of cash flow information:
Income taxes $ -- $ -- $ --
=========== =========== ===========
Interest $ -- $ -- $ --
=========== =========== ===========
Non-cash financing activities:
Common stock issued in exchange for patent
interests and rights $ -- $ -- $ (15,000)
=========== =========== ===========
See accompanying notes to condensed financial statements
5
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 1: Basis of presentation
The financial statements presented herein have been prepared by the
Company in accordance with the accounting policies in its annual 10-KSB
report dated December 31, 2002 and should be read in conjunction with
the notes thereto.
In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary to provide a fair
presentation of operating results for the interim period presented have
been made. The results of operations for the three months ended March
31, 2003 are not necessarily indicative of the results to be expected
for the year.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
Company is in the development stage in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 7. As shown in the
accompanying financial statements, the Company has no revenues, a
limited history of operations, and significant losses since inception.
These factors, among others, may indicate that the Company will be
unable to continue as a going concern for reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis and ultimately to attain profitability. The Company's
management intends to seek additional funding through future equity
offerings and debt financings to help fund the Company's operation.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history and historical operating
losses. The Company's future success will be dependent upon its ability
to create and provide effective and competitive services on a timely
and cost-effective basis.
Interim financial data presented herein are unaudited.
Note 2: Related party transactions
In prior years, a former officer loaned the Company $217,436 for
working capital. The loans bear interest at six percent and are due on
demand. As of March 31, 2003, the Company had repaid $23,099. As of
March 31, 2003, accrued interest payable on the advances totaled
$35,317. The $229,654 balance of outstanding advances and accrued
interest is included in the accompanying financial statements as due to
former officer.
Note 3: Intangible assets
Intangible assets consist of patent rights acquired from a related
party. The rights are being amortized at the rate of $250 per month (60
months):
Patent rights $ 15,000
Accumulated amortization (11,250)
--------
$ 3,750
========
6
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 4: Notes payable
During the year ended December 31, 2001, the Company received $25,000
in exchange for convertible promissory notes and 125,000 shares of the
Company's $.001 par value common stock. Interest expense of $500 was
recognized in the accompanying condensed financial statements for the
three months ended March 31, 2003. Accrued interest payable on the
notes totaled $4,250 as of March 31, 2003.
The notes were in default as of March 31, 2003.
Note 5: Common stock
During January 2003, the Company issued 520,000 shares of its common
stock to unrelated third parties in exchange for public relations and
business planning services. The market value of the common stock on the
transaction date was $.08 per share. Stock-based compensation expense
of $41,600 was recognized in the accompanying financial statements for
the three months ended March 31, 2003.
On January 17, 2003, the Company sold 285,715 shares of its common
stock for $10,000 ($.035 per share).
On January 30, 2003, the Company sold 500,000 shares of its common
stock for $20,000 ($.04 per share).
On February 21, 2003, the Company sold 395,358 shares of its common
stock for $15,000 ($.038 per share).
On March 18, 2003, the Company sold 125,000 shares of its common stock
for $5,000 ($.04 per share).
On March 31, 2003, the Company sold 333,333 shares of its common stock
for $10,000 ($.03 per share).
Following is a statement of changes in shareholders' deficit for the
three months ended March 31, 2003:
Deficit
Accumulated
Preferred Stock Common stock Additional During the
------------------------- ------------------------- Paid-in Development
Shares Par Value Shares Par Value Capital Stage Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, January 1, 2003 -- $ -- 46,967,808 $ 46,968 $ 2,539,636 $(3,030,528) $ (443,924)
Shares issued in exchange for
consulting services -- -- 520,000 520 41,080 -- 41,600
Sale of common stock -- -- 1,639,406 1,639 58,361 -- 60,000
Net loss for the three months
ended March 31, 2003 -- -- -- -- -- (108,645) (108,645)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2003 -- $ -- 49,127,214 $ 49,127 $ 2,639,077 $(3,139,173) $ (450,969)
=========== =========== =========== =========== =========== =========== ===========
7
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 6: Income taxes
The Company records its income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The Company incurred net operating
losses during all periods presented, resulting in a deferred tax asset,
which was fully allowed for; therefore, the net benefit and expense
result in $-0- income taxes.
Note 7: Subsequent events
During April 2003, the Company sold 2,666,664 shares of its common
stock for $70,000 ($.026 per share). Following the sale, the Company's
issued and outstanding common stock totaled 51,793,878.
8
PART 1. FINANCIAL INFORMATION
ITEM 2. PLAN OF OPERATION
HYDRO ENVIRONMENTAL RESOURCES, INC.
Special note regarding forward-looking statements
This report contains forward-looking statements within the meaning of federal
securities laws. These statements plan for or anticipate the future.
Forward-looking statements include statements about our future business plans
and strategies, statements about our need for working capital, future revenues,
results of operations and most other statements that are not historical in
nature. In this Report, forward-looking statements are generally identified by
the words "intend", "plan", "believe", "expect", "estimate", "could", "may",
"will" and the like. Investors are cautioned not to put undue reliance on
forward-looking statements. Except as otherwise required by applicable
securities statues or regulations, the Company disclaims any intent or
obligation to update publicly these forward-looking statements, whether as a
result of new information, future events or otherwise. Because forward-looking
statements involve future risks and uncertainties, these are factors that could
cause actual results to differ materially from those expressed or implied.
We plan to satisfy our cash requirements, over the next twelve months, through
cash infusions from our officers and principal shareholders, in exchange for
restricted stock. However, we will need to raise additional capital in the next
twelve months. Our management is considering the following options:
(a) a private offering and sale of our common stock;
(b) a public offering and sale of our common stock;
(c) a combination of private and public sale of our common stock;
(d) debt financings from officers, shareholders and unrelated third parties.
As of March 31, 2003, all cash infusions from the former president and other
related parties have been classified as liabilities in the accompanying
condensed balance sheet.
A summary of our product research and development for the term of the plan is as
follows:
We have performed research on the recovery and reconstruction of compounds used
by the ECHFR to produce hydrogen. It is estimated that over 40 percent of these
patented-formula compounds can be reused, possibly lowering the cost of
production by as much as 25 percent. In addition, there are several potentially
profitable by-products created by the ECHFR that we could market worldwide, such
as:
(a) An on-site power plant could possibly be designed for particular needs
where electricity and/or gas are necessary to process cooking oil; and
(b) In the treatment of wastewater at abandoned mine sites and other wastewater
dumps or quarries, the ECHFR could possibly operate the process by creating
power from the actual wastewater to be treated
Subject to the implementation and success of one or more of the financing
options discussed above, we plan to expand our capabilities to include
commencing production during 2002. Once we have commenced production, we plan to
hire two to three additional technical personnel.
9
PART II - OTHER INFORMATION
HYDRO ENVIRONMENTAL RESOURCES, INC.
ITEM 1 - LEGAL PROCEEDINGS
No response required.
ITEM 2 - CHANGES IN SECURITIES
During January 2003, the Company issued 520,000 shares of its common stock
to unrelated third parties in exchange for public relations and business
planning services. The market value of the common stock on the transaction
date was $.08 per share. Stock-based compensation expense of $41,600 was
recognized in the accompanying financial statements for the three months
ended March 31, 2003.
On January 17, 2003, the Company sold 285,715 shares of its common stock
for $10,000 ($.035 per share).
On January 30, 2003, the Company sold 500,000 shares of its common stock
for $20,000 ($.04 per share).
On February 21, 2003, the Company sold 395,358 shares of its common stock
for $15,000 ($.038 per share).
On March 18, 2003, the Company sold 125,000 shares of its common stock for
$5,000 ($.04 per share).
On March 31, 2003, the Company sold 333,333 shares of its common stock for
$10,000 ($.03 per share).
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
No response required.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No response required.
ITEM 5 - OTHER INFORMATION
No response required.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits:
1. 99.1: Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
- CEO
2. 99.2: Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
- CFO
(b) Reports on Form 8-K:
No response required.
10
HYDRO ENVIRONMENTAL RESOURCES, INC.
SIGNATURES
The financial information furnished herein has not been audited by an
independent accountant; however, in the opinion of management, all adjustments
(only consisting of normal recurring accruals) necessary for a fair presentation
of the results of operations for the three months ended March 31, 2003 have been
included.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hydro Environmental Resources, Inc.
(Registrant)
DATE: May 12, 2003 BY: /s/ David Rosenberg
-----------------------
David Rosenberg, President
11
CERTIFICATE PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002
I, David Rosenberg, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of Hydro Environmental
Resources, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's Board of Directors (or persons performing the
equivalent functions):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/ David Rosenberg
- -------------------
David Rosenberg, Director, President, and Chief Executive Officer
Hydro Environmental Resources, Inc.
12
CERTIFICATE PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002
I, David V. Harmsen, certify that:
1. I have reviewed this Quarterly Report on Form 10-KSB of Hydro Environmental
Resources, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's Board of Directors (or persons performing the
equivalent functions):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/ David V. Harmsen
- --------------------
David V. Harmsen, Chief Financial Officer
Hydro Environmental Resources, Inc.
13