UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: March 31, 2001 Commission File Number: 000-27825
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Hydro Environmental Resources, Inc.
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(Exact name of registrant as specified in its charter)
Oklahoma 73-1552304
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5725 S. Valley View Blvd, Suite 3, Las Vegas, NV 89118
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(Address of principal executive offices) (Zip code)
(702) 597-9070
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for 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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common 32,500,000
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Class Number of shares outstanding
at May 16, 2001
This document is comprised of 10 pages.
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheet - March 31, 2001 (Unaudited).................... 3
Condensed statements of operations - Three months ended
March 31, 2001 (Unaudited) and 2000 (Unaudited), and
November 10, 1998 (inception) through March 31, 2001 (Unaudited)..... 4
Condensed statements of cash flows - Three months ended
March 31, 2001 (Unaudited) and 2000 (Unaudited), and
November 10, 1998 (inception) through March 31, 2001 (Unaudited)..... 5
Notes to condensed financial statements (Unaudited)..................... 6
Item 2. Plan of Operation............................................... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................... 9
Item 2. Changes In Securities........................................... 9
Item 3. Defaults Upon Senior Securities................................. 9
Item 4. Submission of Matters to a Vote of Security Holders............. 9
Item 5. Other Information............................................... 9
Item 6. Exhibits and Reports on Form 8-K................................ 9
Signatures.............................................................. 10
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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, 2001 have been included.
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)
Condensed Balance Sheet
March 31, 2001
(Unaudited)
Assets
Cash............................................... $ 31,371
Computer equipment, net............................ 4,497
Intangible assets, net (Note 3).................... 9,750
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$ 45,618
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Liabilities and Shareholders' Deficit
Liabilities:
Accounts payable and accrued expenses........... $ 25,856
Due to officer (Note 2)......................... 181,452
Due to shareholder (Note 2)..................... 216,385
Notes payable (Note 4).......................... 25,000
Accrued interest, notes payable (Note 4)........ 250
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Total liabilities 448,943
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Shareholders' deficit (Note 5):
Preferred stock................................. -
Common stock.................................... 32,500
Additional paid-in capital...................... 152,385
Retained deficit................................ (588,210)
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Total shareholders' deficit (403,325)
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$ 45,618
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The accompanying notes are an integral part of the condensed
financial statements.
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HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Developmental Stage Company)
Condensed Statements of Operations
(Unaudited)
November 10,
1998
For the Three Months (Inception)
Ended through
March 31, March 31,
----------------------- ------------
2001 2000 2001
Operating expenses:
Research and development..................... $ - $ 29,264 $ 80,881
General and administrative:
Stock-based compensation................. 62,600 - 63,350
Related parties (Note 2)................. 3,000 3,000 28,000
Other.................................... 215,905 15,472 402,145
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Total operating expenses 281,505 47,736 574,376
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Operating loss (281,505) (47,736) (574,376)
Non-operating expenses:
Interest expense, related party (Note 2)..... 2,789 875 12,884
Interest expense, other...................... 250 77 950
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Loss before income taxes (284,544) (48,688) (588,210)
Income taxes(Note 6).......................... - - -
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Net loss $(284,544) $ (48,688) $(588,210)
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Basic and diluted loss per share.............. $ * $ *
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Basic and diluted weighted average
number of common shares
outstanding.................................. 32,360,000 31,300,000
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*Less than $.01 per share
The accompanying notes are an integral part of the condensed
financial statements.
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HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
November 10,
1998
For the Nine Months Ended (Inception)
March 31, through
---------------------------- March 31,
2001 2000 2001
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Net cash used in operating activities.......... $ (220,054) $ (53,000) $ (466,242)
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Cash flows from financing activities:
Capital contributions................................ - - 4,910
Proceeds from officer loans (Note 2)................. 3,508 62,379 200,792
Retirement of officer loans (Note 2)................. - (1,000) (23,099)
Proceeds from notes payable (Note 4)................. 25,000 - 25,000
Proceeds from working capital advances (Note 2)..... 217,885 - 217,885
Retirement of working capital advances (Note 2)...... (1,500) - (1,500)
Proceeds from the sale of common stock,
net of offering costs............................. - - 73,625
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Net cash provided by financing activities...... 244,893 61,379 497,613
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Net change in cash 24,839 8,379 31,371
Cash at beginning of period............................ 6,532 9,665 -
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Cash at end of period $ 31,371 $ 18,044 $ 31,371
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Supplemental disclosure of cash flow information:
Cash paid for:
Interest.......................................... $ - $ - $ -
============ =========== ============
Income taxes...................................... $ - $ - $ -
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Noncash investing and financing activities:
Common stock issued for patent rights............. $ - $ - $ 15,000
============ =========== ============
The accompanying notes are an integral part of the condensed financial
statements.
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HYDRO ENVIRONMENTAL RESOURCES, INC.
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, 2000 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, 2001 is 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 a loss of
$588,210 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.
The Company's year-end is December 31.
Interim financial data presented herein are unaudited.
Note 2: Related party transactions
The President of the Company provided office space to the Company
at no charge for the three months ended March 31, 2001 and 2000.
The office space was valued at $500 per month and such charges
are recognized in the accompanying unaudited, condensed financial
statements as rent expense with a corresponding credit to
additional paid-in capital.
During the three months ended March 31, 2001 and 2000, the
President of the Company contributed services and the use of
office equipment to the Company. The services and use of
equipment was valued at $500 per month and such charges are
recognized in the accompanying unaudited, condensed financial
statements as office expense with a corresponding credit to
additional paid-in capital.
The president of the Company loaned the Company $3,508 for
working capital, during the three months ended March 31, 2001.
The loans owed to the president bear interest at from six to
eight percent and are due on demand. The $168,568 in outstanding
loans and $12,884 in related accrued interest is included in the
accompanying financial statements as due to officer.
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HYDRO ENVIRONMENTAL RESOURCES, INC.
Notes to Condensed Financial Statements
(Unaudited)
During the three months ended March 31, 2001, a shareholder
advanced the Company $217,885 for working capital. As of March
31, 2001 the Company had repaid $1,500. The advances are do not
carry an interest rate and are due on demand. The $216,385
balance owed at March 31, 2001 is included in the accompanying
unaudited, condensed financial statements as due to shareholder.
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):
Note 4: Notes payable
During the three months ended March 31, 2001, the Company
received $25,000 in exchange for promissory notes as follows:
Accrued interest payable on the notes totaled $250 for the three
months ended March 31, 2001.
Note 5: Common stock
On March 12, 2001, the Company issued 200,000 shares of its
restricted common stock to its SEC attorney in exchange for legal
services. The shares were valued at the fair value of the
services. On the transaction date, the Company's common stock
had no reliable fair value. Stock-based compensation expense of
$62,600 was recognized in the accompanying financial statements
for the three months ended March 31, 2001. These shares are
"restricted securities" and may be sold only in compliance with
Rule 144 of the Securities Act of 1933, as amended.
Note 6: Income taxes
The Company records its income taxes in accordance with Statement
of Financial Accounting Standard No. 109, "Accounting for Income
Taxes". The Company incurred net operating losses during the
three months ended March 31, 2001, resulting in a deferred tax
asset, which was fully allowed for; therefore, the net benefit
and expense result in $-0- income taxes.
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HYDRO ENVIRONMENTAL RESOURCES, INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 7: Energy production agreement
During February of 2001, the Company signed a contract with Orini
Lumber Processors Limited ("Orini") of Orini, New Zealand. The
Company agreed to construct and develop an ElectroChem Hydrogen
Fuel Reactor ("ECHFR") system for the production of energy
suitable for the purposes required by Orini for $1,500,000.
Under the terms of the contract, the Company will (a) satisfy
Orini that the system is economical and financially viable and
satisfactory for long-term use for the purpose it is designed for
and (b) satisfy Orini that the system is safe and had no
hazardous or injurious side effects to the ecology or to the
environment and any by-products are capable of being disposed of
cheaply and efficiently and there is no unsatisfactory risk to
the staff operating the system. Once the Company has satisfied
Orini of the above clauses, Orini shall pay a deposit of 25
percent of the purchase price and the balance of the purchase
price upon the successful installation and operation of the
system.
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 statutes 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 principal shareholder, 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, 2001, all cash infusions from the principal
shareholder have been classified as a liability and are disclosed
in the accompanying condensed balance sheet as due to officer.
A summary of our product research and development for the term of
the plan is as follows:
We are performing on-going 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
We expect to lease larger laboratory and to purchase lab
equipment over the next twelve months.
Subject to the implementation and success of one or more of the
financing options discussed in the first paragraph, we plan to
hire four employees; an engineer; a laboratory technician, a
computer specialist, and a chief operating officer. Once in
place and subject to the implementation and success of one or
more of the financing options discussed in the first paragraph,
we plan to hire two to three additional technical personnel.
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PART II - OTHER INFORMATION
ITEM 1 - No response required
ITEM 2 - No response required
ITEM 3 - No response required
ITEM 4 - No response required
ITEM 5 - No response required
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
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3.1 Articles of Incorporation (incorporated by reference
to Exhibit 2.1 to the Registration Statement on Form
10-SB filed with the Commission on March 22, 2000).
3.2 By-laws (incorporated by reference to Exhibit 2.2 to
the Registration Statement on Form 10-SB filed with
the Commission on March 22, 2000).
4.1 Form of Common Stock Certificate (incorporated by
reference to Exhibit 3.1 to the Registration Statement
on Form 10-SB filed with the Commission on March 22,
2000).
10.1 Assignment of Patent and Intellectual Property Rights
related to the ElectroChem Hydrogen Fuel Reactor
(incorporated by reference to Exhibit 6.1 the
Registration Statement on Form 10-SB filed with the
Commission on March 22, 2000).
10.2 Agreement between the Company and Orini Lumber
Processors Limited of Orini Rd Orini New Zealand dated
February 2001 (incorporated by reference to Exhibit
10.2 to the Company's Annual Statement on Form 10-KSB
for the year ended December 31, 2000, filed with the
Commission on April 17, 2001).
(b) Reports on Form 8-K
On March 13, 2001, the Company filed a Form 8-K disclosing the terms
of the Agreement between the Company and Orini Lumber Processors
Limited of Orini Rd Orini New Zealand dated February 2001.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Hydro Environmental Resources, Inc.
By: /s/ Jack H. Wynn
Jack H. Wynn, President
Date: May 21, 2001
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