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: June 30, 2004
[ ] 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)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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 [ ] No[X]
-
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 [ ] Not Applicable [X]
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 162,545 post reverse
Class split January 24, 2005
Number of shares outstanding at March 30, 2005
Transitional Small Business Disclosure Format (check one):
Yes [] No [X]
1
This document is comprised of 11 pages.
FORM 10-QSB HYDRO ENVIRONMENTAL RESOURCES, INC.
2ND QUARTER 2004
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements - prepared by management
Condensed balance sheets at June 30, 2004 (unaudited) and December 31, 2003 3
Condensed statements of operations for the three and six months ended June 30,
2004 and 2003 and for the period from November 10, 1998 (date of inception) to
June 30, 2004 (unaudited) 4
Condensed statements of cash flows for the six months ended June 30, 2004 and
2003 and for the period from November 10, 1998 (date of inception) to June 30,
2004 (unaudited) 5
Notes to condensed financial statements
(unaudited) 6
Item 2. Management's Discussion and Analysis or Plan of operation 9
Item 3. Controls and Procedures
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 11
Signatures 11
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Hydro Environmental Resources, Inc.
Condensed Balance Sheets
June 30 December 31
2004 2003
ASSETS Unaudited
Current
Cash $ 2,389 $ 5,850
----- -----
Total Current Assets 2,389 5,850
Intangible assets 500
1,500
Property and Equipment 20,402 22,402
------ ------
Total Assets $ 23,291 $ 29,752
------ ------
LIABILITIES
Current
Accounts payable and accrued liabilities $ 157,911 $ 157,911
Due to management - note 2 12,100 -
Due to former officers - note 2 322,799 313,399
Notes payable, convertible
to common stock 25,000 25,000
Accrued interest 6,750 5,750
----- -----
Total Current Liabilities 524,560 502,060
------- -------
STOCKHOLDERS' EQUITY
Authorized
500,000,000 shares of common stock with a par
value of $0.001 each
5,000,000 shares of preferred stock with a par
value of $0.001 each
Issued and outstanding
62,390,924 shares of common stock 62,391 58,613
(58,612,581 December 31, 2003)
Additional Paid in Capital 2,953,011 2,844,339
Deficit accumulated during
the development stage (3,516,671) (3,375,260)
--------- ---------
Total Stockholders' Equity
(Deficit) (501,269) (472,308)
------- -------
Total Liabilities and
Stockholders' Equity $ 23,291 $ 29,752
------ ------
Prepared by management
3
Hydro Environmental Resources, INC.
Statements of Operations
Three and Six Months Ended June 30
Unaudited
Three Months Ended Six Months Ended
June 30 June 30
2004 2003 2004
Operating Expenses
Salaries and compensation - note 5 $ 8,450 $ 72,414 $ 96,450
Consulting - 6,000 1,200
Professional fees 6,954 8,090 10,054
Office and administration 1,646 42,394 2,187
Rent 5,655 - 11,310
Research and development 1,529 2,470 5,238
Amortization 1,500 - 3,000
Transfer agent 341 - 1,572
----- -------- -----
Total operating expenses 26,075 131,368 131,011
------ ------- -------
Net (loss) for the period (26,075) (131,368) (131,011)
Non-operating income (expense):
Gain on debt settlements - - -
Other - - -
Interest expense, related parties (5,200) (2,915) (10,400)
Amortization of debt issue costs - - -
Other - (500) -
-------- ---
Loss before income taxes (31,275) (141,411) (243,428)
Income tax provision - - -
-------- --------
Net loss $(31,275) $(134,783 $ (141,411)
------ ------- -------
Net income (loss) per share $ (0.00) $ (0.00) $ (0.00)
Weighted average number of shares
outstanding 60,482,606 12,172,468 60,178,710
Six Months Ended November 10, 1998
June 30 (inception) to
2003 June 30, 2004
Operating Expenses
Salaries and compensation - note 5 $ 148,546 $ 375,033
Consulting 6,000 1,771,811
Professional fees 12,240 768,627
Office and administration 67,342 377,809
Rent - 11,310
Research and development 2,470 200,042
Amortization - 239,386
Transfer agent - 1,572
--------- -----
Total operating expenses 236,598 3,727,965
------- ---------
Net (loss) for the period (236,598) (3,727,965)
Non-operating income (expense):
Gain on debt settlements - 325,144
Other - 1,300
Interest expense, related parties (5,830) (54,462)
Amortization of debt issue costs - (26,250)
Other (1,000)
(16,813)
Loss before income taxes (3,516,671)
Income tax provision - -
--------- ----------
Net loss $ (243,428) $ (3,516,671)
Net income (loss) per share $ (0.00)
Weighted average number of shares
outstanding 20,129,177
Prepared by management
4
Hydro Environmental Resources, Inc.
Condensed Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 2004
Unaudited
Deficit
Additional Accumulated
Common Par Paid in During the
Shares Value Capital Development Stage
Balance
December 31, 2003 58,612,581 $ 58,613 $ 2,844,339 $(3,375,260)
Common shares issued
For services
- - January 31, 2004 2,200,010 2,200 93,405 -
- - June 7, 2004 845,000 845 7,605 -
For cash - June 7, 2004 400,000 400 5,600 -
For cash - June 7, 2004 333,333 333 9,667 -
Net loss for
six months - - - (141,411)
---------------------------------------------------------------
Balance
June 30, 2004 62,390,924 $ 62,391 $ 2,953,011 $(3,516,671)
---------------------------------------------------------------
Prepared by management
5
Hydro Environmental Resources, Inc.
Condensed Statement of Cash Flows
Six Months Ended June 30, 2004 and 2003 and
for the period from November 10, 1998 (date of inception) to June 30, 2004
Unaudited
Six Months Ended
June 30
2004 2003
Operating Activities
Net (loss) $ (141,411) $ (243,428)
Adjustments to reconcile net (loss)
to net cash used by operating activities:
Amortization 3,000 -
Gain on settlement of debt - -
Issuance of common stock for services 96,450 -
Changes in operating assets and liabilities 22,500 58,286
------ ------
Net cash (used by) operating activities (19,461) (185,142)
------ -------
Investing Activity
Acquisition of property and equipment - (14,555)
--------- ------
Financing Activities
Issuance of common stock for cash 16,000 187,000
------ -------
Inflow (outflow) of cash (3,461) (12,697)
Cash, beginning of period 5,850 34,820
----- ------
Cash, end of period $ 2,389 $ 22,123
----- ------
Supplemental information
Interest paid $ - $ -
Shares issued for patent rights - -
Corporate income taxes paid $ - $ -
Prepared by management
November 10, 1998
(inception) to
June 30, 2004
Operating Activities
Net (loss) $(3,516,671)
Adjustments to reconcile net (loss)
to net cash used by operating activities:
Amortization 239,386
Gain on settlement of debt (325,144)
Issuance of common stock for services 2,385,447
Changes in operating assets and liabilities 849,704
-------
Net cash (used by) operating activities (367,278)
-------
Investing Activity
Acquisition of property and equipment (260,288)
--------
Financing Activities
Issuance of common stock for cash 629,955
-------
Inflow (outflow) of cash 2,389
Cash, beginning of period -
----------
Cash, end of period $ 2,389
-----
Supplemental information
Interest paid $ -
Shares issued for patent rights 15,000
Corporate income taxes paid $ -
Prepared by management
6
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 1: Basis of presentation
The interim financial statements presented herein for the six months ended June
30, 2004 have been prepared by the Company in accordance with the accounting
policies in its annual 10-KSB report dated December 31, 2003 and should be read
in conjunction with the notes thereto. Interim financial data presented herein
are unaudited.
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 and six months ended June 30, 2004 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 prepared by management
without audit, 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.
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.
Note 2: Related party transactions
Officers and former officers loaned the Company $269,337 for working capital.
The loans bear interest at six percent and are due on demand. As of June 30,
2004, accrued interest payable on the advances totaled $53,462. The $322,799
balance of outstanding advances and accrued interest is included in the
accompanying financial statements as due to former officers.
Officers of the Company have loaned the Company $12,100 for working capital. The
loans do not bear interest, are unsecured and are repayable on demand.
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 for 60 months:
Patent rights $ 15,000
Accumulated amortization (14,500)
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 $1,000 was recognized in the
accompanying condensed financial statements for the six months ended June 30,
2004. Accrued interest payable on the notes totaled $6,750 as of June 30, 2004.
The notes have been in default as of March 31, 2003.
7
Note 5: Common stock
During the six months ended June 30, 2004, the Company issued 3,045,010 common
shares for services provided to the Company and fairly valued by the Board of
Directors at $96,450 based on the value of services provided.
During this same period the Company issued a further 733,333 common shares for
cash of $16,000.
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.
ITEM 2. PLAN OF OPERATION
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 private offering and sale of our common stock; - a public offering and sale
of our common stock; - a combination of private and public sale of our common
stock;
- - debt financings from officers, shareholders and unrelated third parties.
As of June 30, 2004, 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:
An on-site power plant could possibly be designed for particular needs where
electricity and/or gas are necessary to process cooking oil; and
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. Once we have commenced production, we plan to hire two to
three additional technical personnel.
ITEM 3. CONTROLS AND PROCEDURES
8
(a) Evaluation of disclosure controls and procedures
Based on the evaluation of the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934) as of a date within 90 days of the filing date of this Quarterly Report on
Form 10-QSB, our chief executive officer and acting chief financial officer has
concluded that our disclosure controls and procedures are designed to ensure
that the information we are required to disclose in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms and are operating
in an effective manner.
(b) Changes in internal controls
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
most recent evaluation.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No response required.
ITEM 2 - CHANGES IN SECURITIES
During the three months ended March 31, 2004, the Company issued 2,200,010
common shares for services provided to the Company and fairly valued at $88,000
pursuant to service contracts. During the three months ended June 30, 2004, the
Company issued 845,000 common shares for services provided to the Company and
fairly valued at $8,450 pursuant to service contracts. During this same period
the Company issued a further 333,333 common shares for cash of $10,000 and
400,000 common shares for cash of $6,000.
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. 32.1: Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 - CEO and CFO 2. 31.1:
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 - CEO and CFO
(b) Reports on Form 8-K: No response required.
HYDRO ENVIRONMENTAL RESOURCES, INC.
(Respondent)
9
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 six months ended June 30, 2004 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: March 16, 2005 BY: /s/ Mark Shmulevsky
Mark Shmulevsky, President
10
302 CERTIFICATION
I, Mark Shmulevsky, Chief Executive Officer and Acting Chief Financial Officer,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Hydro Environmental
Resources, Inc.;
2. Based on my knowledge, this 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 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. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14) for the
registrant and have: designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities, particularly
during the period in which this quarterly report is being prepared; 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 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. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the 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. I have indicated in this quarterly report whether 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: March 16, 2005
/s/ Mark Shmulevsky
Chief Executive Officer and Acting Chief Financial Officer
11