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: September 30, 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 58,612,581
------ ----------
Class Number of shares outstanding at September 30, 2003
This document is comprised of 11 pages.
1
FORM 10 QSB
3RD QUARTER
INDEX
PART I FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Condensed balance sheet - September 30, 2003 (unaudited).................... 3
Condensed statements of operations - Three and nine months ended
September 30, 2003 (unaudited) and 2002 (unaudited), and November
10, 1998 (inception) through September 30, 2003 (unaudited)............. 4
Condensedstatements of cash flows - Nine months ended September 30,
2003 (unaudited) and 2002 (unaudited), and November 10, 1998
(inception) through September 30, 2003 (unaudited)....................... 5
Notes to condensed financial statements (unaudited)......................... 6
Item 2. Plan of operation.................................................. 9
Item 3. Controls and procedures............................................ 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)
SEPTEMBER 30, 2003
ASSETS
Current Assets:
Cash....................................................... $ 17,989
------------
Total current assets........................... 17,989
Property and equipment, net...................................... 25,267
Patent rights and interests, net................................. 2,250
------------
$ 45,506
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued liabilities................... $ 135,077
Due to former officer (Note 2)............................. 235,484
Notes payable, convertible to common stock (Note 4)........ 25,000
Accrued interest on notes payable (Note 4)................. 5,250
Loan payable, convertible to common stock.................. 75,000
------------
Total current liabilities...................... 475,811
------------
Shareholders' deficit (Note 5):
Preferred stock............................................ --
Common stock............................................... 58,613
Additional paid-in capital................................. 2,918,566
Deficit accumulated during development stage............... (3,407,484)
------------
Total shareholders' deficit.................... (430,305)
------------
$ 45,506
============
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 FOR THE NINE MONTHS ENDED (INCEPTION)
SEPTEMBER 30, SEPTEMBER 30, THROUGH
---------------------------- ---------------------------- SEPTEMBER 30,
2003 2002 2003 2002 2003
------------- ------------- ------------- ------------- -------------
Operating Expenses:
Research and development............. $ -- $ -- $ 2,470 $ -- $ 116,666
General and administrative:
Stock-based compensation:
Consulting services (Note 5):
Officers and directors...... -- 15,000 24,750 102,000 137,250
Shareholders................ -- -- -- 141,067 178,567
Other....................... 101,655 -- 145,325 170,883 1,529,221
Legal services................. -- -- -- 57,000 235,000
Other.......................... -- -- 6,000 -- 45,300
Related parties................... -- -- -- -- 37,000
Compensation...................... 11,615 24,052 91,741 31,352 288,024
Professional and consulting
services....................... 2,752 18,649 14,992 61,105 450,605
Other............................. 14,091 24,527 81,433 49,157 616,445
------------- ------------- ------------- ------------- -------------
Total operating expenses..... 130,113 82,228 366,711 612,564 3,634,078
------------- ------------- ------------- ------------- -------------
Loss from operations......... (130,113) (82,228) (366,711) (612,564) (3,634,078)
Non-operating income:
Gain on debt settlements............. -- -- -- 43,363 309,004
Other................................ -- -- -- 300 1,300
Interest Expense:
Related parties (Note 2)............. (2,915) (2,915) (8,745) (8,745) (41,147)
Amortization of debt issue costs..... -- -- -- -- (26,250)
Other................................ (500) (823) (1,500) (1,823) (16,313)
------------- ------------- ------------- ------------- -------------
Loss before income taxes..... (133,528) (85,966) (376,956) (579,469) (3,407,484)
Income tax provision (Note 3)........... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Net loss..................... $ (133,528) $ (85,966) $ (376,956) $ (579,469) $ (3,407,484)
============= ============= ============= ============= =============
Basic and diluted loss per share........ $ (0.00) $ (0.00) $ (0.00) $ (0.03)
============= ============= ============= =============
Basic and diluted weighted average
common shares outstanding............ 57,737,581 41,063,124 51,483,079 22,338,791
------------- ------------- ------------- -------------
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
(INCEPTION)
FOR THE NINE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------
2003 2002 2003
----------- ---------------------------
Net cash used in operating activities .... $ (213,888) $ (109,133) $ (1,342,364)
----------- ----------- -------------
Cash flows from investing activities:
Purchases of equipment .................................. (17,443) -- (35,208)
----------- ----------- -------------
Net cash used in financing activities .... (17,443) -- (35,208)
----------- ----------- -------------
Cash flows from financing activities:
Capital contributions from the president ................ -- -- 4,910
Proceeds from advances from the Company's president ..... -- 4,500 238,178
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) ........ -- (260,300) (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) ............. 214,500 310,650 770,606
Payment of offering costs ............................... -- -- (1,925)
----------- ----------- -------------
Net cash provided by financing activities: 214,500 123,360 1,394,561
----------- ----------- -------------
Net change in cash ....................... (16,831) 14,227 16,989
Cash, beginning of period .................................. 34,820 311 --
----------- ----------- -------------
Cash, end of period ........................................ $ 17,989 $ 14,538 $ 16,989
=========== =========== =============
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 and nine months ended September 30,
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 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
During May 2003, the Company issued 825,000 shares of its common stock to
officers as payment for salaries. The market value of the common stock on
the transaction date was $.03 per share. The stock issuances are recognized
in the accompanying financial statements as stock-based compensation
expense at a value of $24,750.
During July 2003, the Company issued 2,325,000 shares of its common stock
to officers as payment for salaries. The market value of the common stock
on the transaction date was $.04 per share. The stock issuances are
recognized in the accompanying financial statements as stock-based
compensation expense at a value of $93,000.
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 September 30, 2003, the Company had repaid $23,099. As of September 30,
2003, accrued interest payable on the advances totaled $41,147. The
$235,484 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):
6
Patent rights................................... $ 15,000
Accumulated amortization........................ (12,750)
----------------
$ 2,250
================
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 $1,500 was
recognized in the accompanying condensed financial statements for the nine
months ended September 30, 2003. Accrued interest payable on the notes
totaled $5,250 as of September 30, 2003. The notes are in default.
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 and nine
months ended September 30, 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 $15,000 ($.04 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).
On April 15, 2003, the Company sold 2,000,000 shares of its common stock
for $50,000 ($.025 per share).
On April 23, 2003, the Company sold 666,664 shares of its common stock for
$20,000 ($.03 per share).
On April 30, 2003, the Company sold 333,333 shares of its common stock for
$10,000 ($.03 per share).
During April 2003, the Company issued 219,000 shares of its common stock to
unrelated third parties in exchange for public relations and other
consulting services. The market value of the common stock on the
transaction date was $.03 per share. Stock-based compensation expense of
$6,570 was recognized in the accompanying financial statements for the
three and nine months ended September 30, 2003.
On May 28, 2003, the Company sold 500,000 shares of its common stock for
$15,000 ($.03 per share).
During May 2003, the Company issued 25,000 shares of its common stock to an
unrelated third party in exchange for consulting services. The market value
of the common stock on the transaction date was $.03 per share. Stock-based
compensation expense of $750 was recognized in the accompanying financial
statements for the three and nine months ended September 30, 2003.
On June 6, 2003, the Company sold 799,997 shares of its common stock for
$23,500 ($.03 per share).
On June 30, 2003, the Company sold 283,332 shares of its common stock for
$8,500 ($.03 per share).
During June 2003, the Company issued 25,000 shares of its common stock to
an unrelated third party in exchange for consulting services. The market
value of the common stock on the transaction date was $.03 per share.
Stock-based compensation expense of $750 was recognized in the accompanying
financial statements for the three and nine months ended September 30,
2003.
7
On July 22, 2003, the Company sold 250,000 shares of its common stock for
$5,000 ($.02 per share).
During July 2003, the Company issued 216,375 shares of its common stock to
unrelated third parties in exchange for web development and other
consulting services. The market value of the common stock on the
transaction date was $.04 per share. Stock-based compensation expense of
$8,655 was recognized in the accompanying financial statements for the
three and nine months ended September 30, 2003.
On September 23, 2003, the Company sold 1,050,000 shares of its common
stock for $22,500 ($.02 per share).
Following is a statement of changes in shareholders' deficit for the nine
months ended September 30, 2003:
Deficit
Accumulated
Additional During the
Paid-in Development
Preferred Stock Common Stock Capital Stage Total
----------------------- -------------------------- ------------ ------------- ----------
Shares Par Value Shares $ Par Value
-------- -------------------------- ----------- ------------ ------------- ----------
Balance, January 1, 2003... -- $ -- 46,934,474 $ 46,935 $ 2,539,669 $ (3,030,528) $ (443,924)
Shares issued in exchange
for consulting services... -- -- 1,005,375 1,005 57,320 -- 58,325
Shares issued to officers
in exchange for salaries.. -- -- 3,150,000 3,150 114,600 -- 117,750
Sale of common stock....... -- -- 7,522,732 7,523 206,977 -- 214,500
Net loss for the nine
months ended
September 30, 2003........ -- -- -- -- -- (376,956) (376,956)
-------- ----------- ------------ ----------- ------------ ------------- ----------
Balance, September
30, 2003................ -- $ -- 58,612,581 $ 58,613 $ 2,918,566 $ (3,407,484) $ (430,305)
======== =========== ============ =========== ============ ============= ==========
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.
PART 1. FINANCIAL INFORMATION
ITEM 2. PLAN OF OPERATION
8
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 September 30, 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 2004. Once we have commenced production, we plan to
hire two to three additional technical personnel.
PART 1. FINANCIAL INFORMATION
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
------------------------------------------------
We maintain controls and procedures designed to ensure that information
required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, our chief executive officer and the principal financial officer
concluded that our disclosure controls and procedures were adequate.
9
(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 the evaluation of those controls by the chief executive officer and
principal financial officer.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No response required.
ITEM 2 - CHANGES IN SECURITIES
During July 2003, the Company issued 2,325,000 shares of its common stock
to officers as payment for salaries. The market value of the common stock
on the transaction date was $.04 per share. The stock issuances are
recognized in the accompanying financial statements as stock-based
compensation expense at a value of $93,000.
On July 22, 2003, the Company sold 250,000 shares of its common stock for
$5,000 ($.02 per share).
During July 2003, the Company issued 216,375 shares of its common stock to
unrelated third parties in exchange for web development and other
consulting services. The market value of the common stock on the
transaction date was $.04 per share. Stock-based compensation expense of
$8,655 was recognized in the accompanying financial statements for the
three and nine months ended September 30, 2003.
On September 23, 2003, the Company sold 1,050,000 shares of its common
stock for $22,500 ($.02 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. 31.1 Certification - CEO
2. 31.2 Certification - CFO
3. 32 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
(b) Reports on Form 8-K:
No response required.
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,
2003 have been included.
10
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: December 2, 2003 BY: /s/ DAVID ROSENBERG
---------------------- ---------------------------------
David Rosenberg, President
11