UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For Quarter Ended: September 30, 2001

[ ] 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 (I.R.S. Employer
of incorporation or organization) Identification No.)

5725 S. Valley View Blvd, Suite 3, Las Vegas, NV 89118
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip code)

(702) 597-9070
----------------------------------------------------
(Registrant's telephone number, including area code)

(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 Securities Exchange Act of 1934 during
the past 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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

Common 10,858,124
------ ----------------------------
Class Number of shares outstanding
at November 9, 2001

This document is comprised of 17 pages.

INDEX
Page
----
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed balance sheet - September 30, 2001 (Unaudited)................. 3

Condensed statements of operations - Three and nine months ended
September 30, 2001 (Unaudited) and 2000 (Unaudited), and
November 10, 1998 (inception) through September 30, 2001 (Unaudited).. 4

Condensed statements of cash flows - Six months ended
September 30, 2001 (Unaudited) and 2000 (Unaudited), and
November 10, 1998 (inception) through September 30, 2001 (Unaudited).. 5

Notes to condensed financial statements (Unaudited)...................... 6

Item 2. Plan of Operation............................................... 12

PART II - OTHER INFORMATION

Item 1. Legal Proceedings............................................... 13

Item 2. Changes In Securities........................................... 13

Item 3. Defaults Upon Senior Securities................................. 14

Item 4. Submission of Matters to a Vote of Security Holders............. 14

Item 5. Other Information............................................... 15

Item 6. Exhibits and Reports on Form 8-K................................ 15

Signatures................................................................... 16

-2-

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)

Condensed Balance Sheet

September 30, 2001
(Unaudited)

<Table> <c>
<s>
Assets

Cash............................................... $ 2,343
Computer equipment, net............................ 3,709
Intangible assets, net (Note 3).................... 8,250
---------
$ 14,302
=========

Liabilities and Shareholders' Deficit

Liabilities:
Accounts payable and accrued expenses........... $ 55,082
Due to officer (Note 2)......................... 200,145
Due to shareholders (Note 2).................... 247,510
Notes payable, convertible into common
stock (Note 4)................................. 25,000
Accrued interest, notes payable (Note 4)........ 1,250
Loans payable, convertible into common
stock (Note 8)................................. 183,000
Accrued interest, loans payable (Note 8)........ 5,788
----------
Total liabilities 717,775
----------

Shareholders' deficit (Note 5):
Preferred stock................................. -
Common stock.................................... 8,179
Additional paid-in capital...................... 831,554
Deficit accumulated during development stage.... (1,543,206)
-----------
Total shareholders' deficit (703,473)
-----------

$ 14,302
===========
</Table>

The accompanying notes are an integral part of the condensed
financial statements.
-3-

HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Developmental Stage Company)

Condensed Statements of Operations
(Unaudited)

<Table> <c> <c> <c> <c> <c>
<s>
November 10,
For the Three Months For the Nine Months 1998
Ended Ended (Inception)
September 30, September 30, through
----------------------- ---------------------- September 30,
2001 2000 2001 2000 2001
---------- --------- ---------- --------- -----------

Operating expenses:

Research and development..................... $ - $ 2,700 $ - $ 34,894 $ 80,881

General and administrative:
Stock-based compensation (Note 5):
Consulting services................... 200,000 - 506,198 - 506,948
Legal services........................ 60,000 - 112,000 - 112,000
Debt issue costs (Note 4)............. - - 26,250 - 26,250
Other................................. - - 37,500 - 37,500
Related parties (Note 3)................. 3,000 3,000 9,000 9,000 34,000
Other.................................... 135,243 12,999 534,193 55,891 720,433
--------- --------- ------------ ---------- -----------
Total operating expenses 398,243 18,699 1,225,141 99,785 1,518,012
--------- --------- ------------ ---------- -----------
Operating loss (398,243) (18,699) (1,225,141) (99,785) (1,518,012)

Non-operating income.......................... 700 - 700 - 700

Interest expense:
Related party (Note 2)....................... (2,699) (3,107) (8,061) (6,295) (18,156)
Other........................................ (4,850) - (7,038) - (7,738)
---------- ---------- ------------ ---------- -----------
Loss before income taxes (405,092) (21,806) (1,239,540) (106,080) (1,543,206)

Income taxes (Note 6)......................... - - - - -
---------- ---------- ------------ ---------- ------------
Net loss $(405,092) $ (21,806) $(1,239,540) $(106,080) $(1,543,206)
========== ========== ============ ========== ============

Basic and diluted loss per share.............. $ (0.06) $ * $ (0.18) $ (0.02)
========== ========== ============ ==========
Basic and diluted weighted average
number of common shares
outstanding **............................... 7,345,687 6,260,000 6,817,125 6,260,000
========== ========== ============ ==========

* Less than $.01 per share
** Restated for August 16, 2001 reverse stock split
</Table>

The accompanying notes are an integral part of the condensed
financial statements.
-4-

HYDRO ENVIRONMENTAL RESOURCES, INC.
(A Development Stage Company)

Condensed Statements of Cash Flows
(Unaudited)

<Table>
<s> <c> <c> <c>
November 10,
1998
For the Nine Months Ended (Inception)
September 30, through
---------------------------- September 30,
2001 2000 2001
------------ ----------- ------------

Net cash used in operating activities.......... $ (501,401) $ (103,348) $ (747,589)
------------ ----------- ------------
Cash flows from investing activities:
Equipment purchases.................................. (4,727) - (4,727)
------------ ----------- ------------
Net cash used in investing activities............. (4,727) - (4,727)
------------ ----------- ------------

Cash flows from financing activities:
Capital contributions................................ - - 4,910
Proceeds from officer loans (Note 2)................. 16,929 105,133 214,213
Retirement of officer loans (Note 2)................. - (7,094) (23,099)
Proceeds from notes payable (Note 4)................. 25,000 - 25,000
Proceeds from working capital advances (Note 2)..... 275,760 - 275,760
Retirement of working capital advances (Note 2)...... (28,250) - (28,250)
Proceeds from loans payable (Note 8)................. 183,000 - 183,000
Proceeds from the sale of common stock,
net of offering costs............................. 29,500 - 103,125
------------ ----------- ------------
Net cash provided by financing activities...... 501,939 98,039 754,659
------------ ----------- ------------

Net change in cash (4,189) (5,309) 2,343
Cash at beginning of period............................ 6,532 9,665 -
------------ ----------- ------------
Cash at end of period $ 2,343 $ 4,356 $ 2,343
============ =========== ============

Supplemental disclosure of cash flow information:

Cash paid for:
Interest.......................................... $ - $ - $ -
============ =========== ============
Income taxes...................................... $ - $ - $ -
============ =========== ============

Noncash investing and financing activities:
Common stock issued for patent rights............. $ - $ - $ 15,000
============ =========== ============

</Table>
The accompanying notes are an integral part of the condensed financial
statements.

-5-

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 and nine months ended September 30, 2001 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 a loss of
$1,543,206 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

The President of the Company provided office space to the Company
at no charge for the nine months ended September 30, 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 nine months ended September 30, 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 $16,929 for
working capital, during the nine months ended September 30, 2001.
The loans owed to the president bear interest at six percent and
are due on demand. The $181,989 in outstanding loans and $18,156
in related accrued interest is included in the accompanying
financial statements as due to officer.

During the nine months ended September 30, 2001, shareholders
advanced the Company $275,760 for working capital. The advances
are do not carry an interest rate and are due on demand. The
Company repaid $28,250 as of September 30, 2001. The $247,510
balance owed at September 30, 2001 is included in the
accompanying unaudited, condensed financial statements as due to
shareholders.

HYDRO ENVIRONMENTAL RESOURCES, INC.
Notes to Condensed Financial Statements
(Unaudited)

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.................................... (6,750)
---------
$ 8,250
=========

Note 4: Notes payable

Promissory notes
----------------
During the nine months ended September 30, 2001, the Company received
$25,000 in exchange for promissory notes and 125,000 shares of the
Company's $.001 par value common stock. The promissory notes were as
follows:

Note payable to individual, dated February 12, 2001,
interest rate at 8.00 percent, maturing August 5, 2001..... $ 5,000
Note payable to individual, dated February 12, 2001,
interest rate at 8.00 percent, maturing August 5, 2001..... 5,000
Note payable to individual, dated February 12, 2001,
interest rate at 8.00 percent, maturing August 5, 2001..... 5,000
Note payable to individual, dated February 12, 2001,
interest rate at 8.00 percent, maturing August 5, 2001..... 5,000
Note payable to individual, dated February 12, 2001,
interest rate at 8.00 percent, maturing August 5, 2001..... 5,000
---------
$ 25,000
=========

On May 17, 2001, the Company issued 125,000 shares of its
restricted common stock to promissory note holders as debt issue
costs for the notes. The market value of the common stock on the
transaction date was $.21 per share. Debt issue costs of $26,250
were recognized in the accompanying financial statements for the
nine months ended September 30, 2001. Interest expense of $1,250
was recognized in the accompanying financial statements for the
nine months ended September 30, 2001.

Each $5,000 note is convertible into 125,000 shares of the
Company's $.001 par value common stock.

The notes were in default as of September 30, 2001. As of the
date of this filing, the note holders had not demanded payment or
conversion into common stock.

PowerTek loans
--------------
As part of a Stock Purchase Agreement (see Note 8), PowerTek
Holdings LTD ("PowerTek"), a Swiss holding company, agreed to
loan the Company funds for working capital at an interest rate of
ten percent. As of September 30, 2001, the Company owed PowerTek
$183,000 for loans advanced during the nine months ended
September 30, 2001, and $5,788 of accrued interest related to the
loans.

HYDRO ENVIRONMENTAL RESOURCES, INC.
Notes to Condensed Financial Statements
(Unaudited)

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 market value of the common stock on the transaction
date was $.26 per share. Stock-based compensation expense of
$52,000 was recognized in the accompanying financial statements
for the nine months ended September 30, 2001.

On May 17, 2001, the Company issued 345,526 shares of its
restricted common stock to unrelated third parties in exchange
for consulting services. The market value of the common stock on
the transaction date was $.21 per share. Stock-based
compensation expense of $72,560 was recognized in the
accompanying financial statements for the nine months ended
September 30, 2001. These shares were deemed to be exempt from
registration pursuant to Regulation S under the Securities Act
and Section 4(2) of the Securities Act on the basis that the
transaction did not involve a public offering.

On May 31, 2001, the Company gifted 150,000 shares of its
restricted common stock to a shareholder. The market value of the
common stock on the transaction date was $.25 per share. Stock-
based compensation expense of $37,500 was recognized in the
accompanying financial statements for the nine months ended
September 30, 2001. These shares are "restricted securities" and
may be sold only in compliance with Rule 144 of the Securities
Act of 1933, as amended.

On May 31, 2001, the Company issued 934,552 shares of its
restricted common stock to unrelated third parties in exchange
for consulting services. The market value of the common stock on
the transaction date was $.25 per share. Stock-based
compensation expense of $233,638 was recognized in the
accompanying financial statements for the nine months ended
September 30, 2001. These shares are "restricted securities" and
may be sold only in compliance with Rule 144 of the Securities
Act of 1933, as amended.

On June 19, 2001, the Company sold 590,000 shares of its
restricted common stock to unrelated third parties for $29,500
($.05/share). These shares are "restricted securities" and may
be sold only in compliance with Rule 144 of the Securities Act of
1933, as amended.

On August 16, 2001, subsequent to shareholder approval at the
Company's Annual Meeting of Shareholders, the Company completed
its redomiciling merger with Hydro Environmental Resources, Inc.,
a Nevada corporation, and, pursuant to the Plan of Merger, each
five (5) shares of common stock of the Oklahoma corporation was
exchanged for one share of the Nevada corporation. Following the
Plan of Merger, the Company's issued and outstanding common shares
totaled 6,929,016. The loss per share and weighted average common
shares outstanding disclosures in the accompanying unaudited
condensed financial statements have been restated to reflect the
reverse stock split.

On August 16, 2001, subsequent to shareholder approval at the
Company's Annual Meeting of Shareholders, the Company completed
its redomiciling merger with Hydro Environmental Resources, Inc.,
a Nevada corporation, and, pursuant to the Plan of Merger, each
five (5) shares of common stock of the Oklahoma corporation was
exchanged for one share of the Nevada corporation. Following the
Plan of Merger, the Company's issued and outstanding common
shares totaled 6,929,016. The loss per share and weighted
average common shares outstanding disclosures in the accompanying
unaudited condensed financial statements have been restated to
reflect the reverse stock split.

On August 24, 2001, the Company issued 200,000 shares of its
restricted common stock to its SEC attorney in exchange for legal
services. The market value of the common stock on the transaction
date was $.25 per share. Stock-based compensation expense of
$50,000 was recognized in the accompanying financial statements
for the nine months ended September 30, 2001. These shares were
issued pursuant to the Company's Registration Statement on Form
S-8.

On September 10, 2001, the Company issued 50,000 shares of its
restricted common stock to its SEC attorney in exchange for legal
services. The market value of the common stock on the transaction
date was $.20 per share. Stock-based compensation expense of
$10,000 was recognized in the accompanying financial statements
for the nine months ended September 30, 2001. These shares were
issued pursuant to the Company's Registration Statement on Form
S-8.

HYDRO ENVIRONMENTAL RESOURCES, INC.
Notes to Condensed Financial Statements
(Unaudited)

On September 10, 2001, the Company issued 1,000,000 shares of its
restricted common stock to shareholders in exchange for
consulting services. The market value of the common stock on the
transaction date was $.20 per share. Stock-based compensation
expense of $200,000 was recognized in the accompanying financial
statements for the nine months ended September 30, 2001. These
shares were issued pursuant to the Company's Registration
Statement on Form S-8.

Following is a statement of changes in shareholders' deficit for
the nine months ended September 30, 2001:
<Table>
<s> <c> <c> <c> <c> <c> <c> <c>
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
----------------------- ---------------------- Paid-in Development
Shares Par Value Shares Par Value Capital Stage Total
--------- --------- ---------- --------- -------- ----------- -----------

Balance, January 1, 2001..... - $ - 32,300,000 $ 32,300 $ 86,985 $ (303,666) $ (184,381)
March 12, 2001, shares issued
to attorney in exchange for
services.................... - - 200,000 200 51,800 - 52,000
May 17, 2001, shares issued
as debt issue costs related
to promissory notes......... - - 125,000 125 26,125 - 26,250
May 17, 2001, shares issued
in exchange for consulting
services.................... - - 345,526 345 72,215 - 72,560
May 31, 2001, shares issued
gifted to shareholder....... - - 150,000 150 37,350 - 37,500
May 31, 2001, shares issued
in exchange for consulting
services.................... - - 934,552 935 232,703 - 233,638
June 17, 2001, sale of
common stock................ - - 590,000 590 28,910 - 29,500
Reverse stock split through
Plan of Merger.............. - - (27,716,050) (27,716) 27,716 - -
August 24, 2001, shares issued
to attorney in exchange for
legal services.............. - - 200,000 200 49,800 - 50,000
September 10, 2001, shares
issued to attorney in
exchange for legal services. - - 50,000 50 9,950 - 10,000
September 10, 2001, shares
issued in exchange for
consulting srevices......... - - 1,000,000 1,000 199,000 - 200,000
Office space and equipment
contributed by officer...... - - - - 6,000 - 9,000
Net loss for the nine months
ended September 30, 2001.... - - - - - (1,239,540) (1,239,540)
--------- --------- ---------- -------- --------- ------------ ----------
Balance, September 30, 2001 - $ - 8,179,028 $ 8,179 $831,554 $(1,543,206) $(703,473)
========= ========= ========== ======== ========= ============ ==========
</Table>

HYDRO ENVIRONMENTAL RESOURCES, INC.
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 the nine months ended September 30, 2001,
resulting in a deferred tax asset, which was fully allowed for;
therefore, the net benefit and expense result in $-0- income
taxes.

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 would (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 satisfied Orini
of the above clauses, Orini would 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. The
contract was subsequently terminated.

Note 8: Stock purchase agreement

During June of 2001, the Company signed a stock purchase
agreement with PowerTek. PowerTek agreed to purchase shares of
the Company's common stock equal to the number of shares issued
and outstanding, on a fully diluted basis, on the date of closing
for $500,000. Also, PowerTek agreed to expend not less than $2
million on research and development in the field of hydrogen
powered fuel cell technology. The resulting research and
development and related technology shall be licensed to the
Company on a non-exclusive, royalty-free basis for a seven-year
period subject to various terms listed in the agreement.

Prior to closing, providing the Company is not in default of the
agreement, PowerTek agreed to loan the Company funds for working
capital at an interest rate of ten percent. Upon closing, the
amounts owed under the loans will be credited against PowerTek's
$2,000,000 research and development expenditure obligation under
the agreement. If the closing does not occur, PowerTek has the
option to demand immediate payment in full, or to convert the
loans to the Company's common stock at a price of 75 percent of
the average quoted market price of the stock at the close of the
thirty business days immediately preceding the conversion demand
date.

The agreement was terminated on September 1, 2001. As of
September 30, 2001, the Company owed PowerTek $183,000 for loans
advanced during the nine months ended September 30, 2001, and
$5,788 of accrued interest related to the loans. As of the date
of this filing, PowerTek had not demanded repayment of the loans
or issuance of the Company's common stock in exchange for the
loans.

Note 9: Contingencies

On August 1, 2001, the Company received a subpoena from the
Securities and Exchange Commission to appear, through its
custodian of records, for testimony and to produce documents (see
Item 1: Legal Proceedings). The subpoena required the Company to
produce all documents supporting the contentions made in its 2001
press releases. The Company plans to produce the required
documents, thus relieving it of the need to appear for testimony.

HYDRO ENVIRONMENTAL RESOURCES, INC.
Notes to Condensed Financial Statements
(Unaudited)

On August 6, 2001, the Company received a subpoena from the
Securities and Exchange Commission to appear, through its
custodian of records, for testimony and to produce documents (see
Item 1: Legal Proceedings). The subpoena requires the Company to
produce the September 29, 2001 Stock Purchase Agreement between
the Company and PowerTek Holdings, Ltd. and all related
agreements. The Company plans to produce the required documents,
thus relieving it of the need to appear for testimony.

Note 10: Subsequent events

Common stock
------------
On October 16, 2001, the Company issued 300,000 shares of its
restricted common stock to its SEC attorney in exchange for legal
services. The market value of the common stock on the transaction
date was $.16 per share resulting in stock-based compensation
expense of $48,000. These shares were issued pursuant to the
Company's Registration Statement on Form S-8.

On October 16, 2001, the Company issued 1,500,000 shares of its
restricted common stock to shareholders in exchange for
consulting services. The market value of the common stock on the
transaction date was $.16 per share resulting in stock-based
compensation expense of $240,000. These shares were issued
pursuant to the Company's Registration Statement on Form S-8.

On October 30, 2001, the Company issued 879,096 shares of its
restricted common stock to unrelated third parties in exchange
for consulting services. The market value of the common stock on
the transaction date was $.15 per share resulting in stock-based
compensation expense of $131,864. These shares were deemed to be
exempt from registration pursuant to Regulation S under the
Securities Act and Section 4(2) of the Securities Act on the
basis that the transaction did not involve a public offering.

License agreement
-----------------
On October 25, 2001, announced it signed a license agreement for
the marketing and manufacturing of the ECHFR System with Allied
Energy, Inc. The license is a non-exclusive worldwide license,
which provides for the commercial exploitation of the system and
for further design and development.

The license provides for a 5 percent royalty of net sales for
outside manufacture and an 8 percent royalty if manufactured by
the Company. On completion of the design and construction of the
first commercial model to the licensee's specifications, the
agreement also provides for a one-time fee of $500,000 to be paid
to the Company as well as 20 percent of the founders' stock of
the licensee company.

The license further provides for the licensee to further sub-
license on terms and conditions approved by the Company.

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 president 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 September 30, 2001, all cash infusions from the president
and principal shareholders have been classified as a liability
and are disclosed in the accompanying condensed balance sheet as
due to officer and due to shareholders, respectively.

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

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 above, 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.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

On August 1, 2001, the Company received a subpoena from the
Securities and Exchange Commission to appear, through its
custodian of records, for testimony and to produce documents.
The subpoena requires the Company to produce all documents
supporting the contentions made in press releases during 2001,
and to produce all documents related to:

* Patents
* Hydrogen-powered experimental vehicle testing
* The Assignment Agreement between the Company and James Pelto
* The Agreement and payments between the Company and Orini Lumber
* Draft press releases and other documents provided to Blue Bison
Communications for the drafting and issuance of press releases
on behalf of the Company

On August 6, 2001, the Company received a subpoena from the
Securities and Exchange Commission to appear, through its
custodian of records, for testimony and to produce documents.
The subpoena requires the Company to produce the June 29, 2001
Stock Purchase Agreement between the Company and PowerTek
Holdings, Ltd. and all related agreements.

ITEM 2 - CHANGES IN SECURITIES

On May 17, 2001, the Company issued 125,000 shares of its
restricted common stock to promissory note holders as debt issue
costs for the notes. The market value of the common stock on the
transaction date was $.21 per share. Debt issue costs of $26,250
were recognized in the accompanying financial statements for the
nine months ended September 30, 2001. These shares are
"restricted securities" and may be sold only in compliance with
Rule 144 of the Securities Act of 1933, as amended.

On September 10, 2001, the Company issued 1,000,000 shares of its
restricted common stock to shareholders in exchange for
consulting services. The market value of the common stock on the
transaction date was $.20 per share. Stock-based compensation
expense of $200,000 was recognized in the accompanying financial
statements for the nine months ended September 30, 2001. These
shares were deemed to be exempt from registration pursuant to
Regulation S under the Securities Act and Section 4(2) of the
Securities Act on the basis that the transaction did not involve
a public offering.

On October 16, 2001, the Company issued 300,000 shares of its
restricted common stock to its SEC attorney in exchange for legal
services. The market value of the common stock on the transaction
date was $.16 per share resulting in stock-based compensation
expense of $48,000. These shares were issued pursuant to the
Company's Registration Statement on Form S-8.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

No response required.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's Annual Meeting of Stockholders was held on August
15, 2001. A total of 24,415,104 shares of common stock, par
value $.001 per share, were present at the Annual Meeting, either
in person or by proxy, constituting a quorum. The matters voted
upon at the Annual Meeting by the stockholders consisted of four
proposals specifically set forth in the Company's definitive
Proxy Statement, dated July 17, 2001.

The first proposal related to the election of five persons to
serve on the Company's Board of Directors. The Board's nominees
were each elected and received, respectively, the following
votes:

Nominee For Withheld
------- --- --------

Jack H. Wynn 24,414,104 1,000
Julio P. Focaracci 24,414,104 1,000
Drew Sakson 24,414,104 1,000
Lane J. Austin 24,414,104 1,000
David A. Youngblood 24,414,104 1,000

The second proposal related to the reincorporation of the Company
in the State of Nevada. The second proposal was adopted by a
vote of 18,054,493 in favor, with 504,000 votes against, 501,150
abstentions, and 5,355,461 broker non-votes.

The third proposal related to the approval of the Stock Purchase
Agreement between the Company and PowerTek Holdings, Ltd. The
third proposal was adopted by a vote of 19,022,193 in favor, with
37,300 votes against, 150 abstentions, and 5,355,461 broker non-
votes.

The fourth proposal related to the ratification of the selection
of Cordovano and Harvey, P.C. as the Company's independent public
accountants for the year ending December 31, 2001. The fourth
proposal was adopted by a vote of 24,304,476 in favor with 1,100
votes against, 109,528 abstentions, and no broker non-votes.

ITEM 5 - OTHER INFORMATION

On July 4, 2001, the Agreement between the Company and Orini
Lumber Processors Limited of Orini New Zealand was terminated.
The Agreement was not cancelled due to default or non-performance
by either party, but was terminated by mutual agreement of the
parties.

On August 15, 2001, the Company entered into an Amendment to the
Stock Purchase Agreement with PowerTek Holdings, Ltd., a Swiss
holding company, whereby the parties agreed to extend the closing
date from August 15, 2001 to a date not later than November 15,
2001.

On September 1, 2001, the Agreement between the Company and
PowerTek Holdings, Ltd. was terminated.

To reflect the reincorporation in the State of Nevada and the 1
for 5 share exchange, the National Association of Securities
Dealers assigned the Company a new trading symbol: HYVR.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

Exhibit No. Description
----------- -----------

3.1 Articles of Incorporation (State of Nevada)
(Incorporated by reference to Exhibit 3.1 to the
registrant's quarterly report on Form 10-QSB for
the quarter ended June 30, 2001 filed with the
Commission on August 20, 2001.)

3.2 By-laws (State of Nevada)
(Incorporated by reference to Exhibit 3.2 to the
registrant's quarterly report on Form 10-QSB for
the quarter ended June 30, 2001 filed with the
Commission on August 20, 2001.)

3.3 Articles of Merger
(Incorporated by reference to Exhibit 3.2 to the
registrant's quarterly report on Form 10-QSB for
the quarter ended June 30, 2001 filed with the
Commission on August 20, 2001.)

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 to the
Registration Statement on Form 10-SB filed with the
Commission on March 22, 2000.)

10.2* License Agreement with Allied Energy, Inc.

- ------------------

* Filed herewith.

(b) Reports on Form 8-K:

July 6, 2001: On June 29, 2001, the Company entered into a
Stock Purchase Agreement with PowerTek Holdings,
Ltd. Under the Agreement, the Company plans to
sell shares of its common stock for $500,000,
acquire $2 million for research and development,
and obtain up to $200,000 in working capital loans
(see Note 8). The agreement was subsequently
terminated.

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 and
nine months ended September 30, 2001 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: November 9, 2001 BY: /s/ Jack Wynn
Jack Wynn, President