UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
HYDRO ENVIRONMENTAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 0-27825 73-1552304
-------------- --------------- --------------
(State of Commission File (IRS Employer
incorporation) Number ID Number)
2006 Oak Creek Place
Hayward, CA 94541
(Address of principal executive offices, including zip code)
(510) 582-2720
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.001 par value
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 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. YES
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $-0-
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified price within the past 60 days. $10,095.00
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 31,300,000 shares of common
stock, $0.001 par value
<PAGE>
PART I
Item 1. Description of Business
Incorporated herein by reference to Part I, Item 1 of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
Item 2. Description of Property
Incorporated herein by reference to Part I, Item 3 of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
Item 3. Legal Proceedings
Incorporated herein by reference to Part II, Item 2 of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Incorporated herein by reference to Part II, Item 1 of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
Item 6. Management's Discussion and Analysis or Plan of Operation
Incorporated herein by reference to Part I, Item 2 of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
Item 7. Financial Statements
Incorporated herein by reference to Part F/S of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Incorporated herein by reference to Part II, Item 3 of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
Incorporated herein by reference to Part I, Item 5 of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
Item 10. Executive Compensation
Incorporated herein by reference to Part I, Item 6 of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to Part I, Item 4 of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
Item 12. Certain Relationships and Related Transactions
Incorporated herein by reference to Part I, Item 7 of the Registrant's
Amended Form 10-SB, filed March 22, 2000.
Item 13. Exhibit and Reports on Form 8-K
Exhibits
--------
23.0 Consent of Independent Accountants
27.0 Financial Data Schedule, incorporated by reference to the
Registrant's Amended Form 10-SB, filed March 22, 2000
99.1 Amended Form 10-SB, filed March 22, 2000
Reports on Form 8-K
-------------------
NONE
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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.
/s/ JACK WYNN
-----------------------------------
By: Jack Wynn, Sole Officer
and Director
Date: March 31, 2000
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Annual Report on Form
10-KSB of Hydro Environmental Resources, Inc. of our report dated February 19,
2000 for the year ended December 31, 1999, appearing in the Regulation Statement
on Form 10-SB.
/s/ CORDOVANO AND HARVEY, P.C.
- ---------------------------------
Cordovano and Harvey, P.C.
Denver, Colorado
March 17, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<OTHER-EXPENSES> (77,547)
<LOSS-PROVISION> 0
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Form 10-SB/A
Amendment No. 6
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Hydro Environmental Resources, Inc.
(Name of Small Business Issuer in its charter)
Oklahoma 73-1552304
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8908 South Yale Avenue, Suite 409
Tulsa, OK 74137
(918) 492-4125
(Address of principal executive Offices)
Securities to be registered under Section
12(b) of the Act:
NONE
Securities to be registered under Section
12(g) of the Act:
Common Stock, $0.001 par value
<PAGE>
PART I
Item 1. Description of Business
(a) Business Development. Hydro Environmental Resources, Inc. ("Company") is a
development stage corporation organized on November 10, 1998 under the laws
of the state of Oklahoma. There has been no bankruptcy, receivership, or
similar proceeding by or against the Company. In addition, there has been
no material reclassification, merger, consolidation, or purchase or sale of
a significant amount of assets not done in the ordinary course of business.
(b) Business of Issuer.
1. Principal products or services and their markets. The objective of the
Company is to design, build and manage inexpensive and environmentally
friendly fuel and power producing systems for remote areas of the world
that are without electricity, cooking fuel, fresh water or power of any
kind. On June 16,1999, the rights to the ElectroChem Hydrogen Fuel Reactor
(ECHFR), a prototype-stage technology that produces clean burning hydrogen
gas at low pressure from any water source, were assigned to the Company in
exchange for 15,000,000 shares of restricted common stock and a 5% royalty
to the inventor, Mr. James Pelto. Mr. Pelto built the prototype ECHFR and
will continue to be involved in its development and commercialization.
The ECHFR is designed to be used where there is no energy readily
available. All that is required for the ECHFR to work is water and a
proprietary mixture of dry chemicals that are readily available, light in
weight, and easily transported. The Company is not aware of another power
generation system that is similar to the ECHFR. The ECHFR is a
sophisticated mechanical reactor that creates an electrical current that
splits the water molecule, separating the two hydrogen atoms from the
oxygen atom. The ECHFR activates a formula that removes hydrogen from water
on a stand-by or as needed basis using equipment that can be portable or
stationery. The result is clean burning hydrogen gas that can be used for
cooking, heating or refrigeration.
The present prototype ECHFR unit is a portable 3-gallon system capable of
producing enough hydrogen gas to power a 2-kW electric generator for 16
hours or to power a gas stove for 8-10 days. The next stage is to develop a
larger system (50-100 gallons) capable of producing enough hydrogen power
to supply electricity, cooking fuel and purified water for a community of
100 people. Management estimates R&D for the larger ECHFR unit to be from
12-18 months. Because the ECHFR technology is still in development,
management has not yet determined production costs, therefore, the
cost-effectiveness of the ECHFR technology has yet to be determined.
Ultimately, the Company intends to build, market and operate a stationary
power site using a 3,000 gallon ECHFR system capable of supplying power for
a city of approximately 3,000 people. The Company plans to market the ECHFR
technology in places that are currently underserved by convention power
companies, including Indonesia, China, Philippines, Malaysia, Middle East
and parts of Central and South America. In addition to providing fuel,
other potential markets for the ECHFR are industrial mining and wastewater
cleansing and property restoration.
2. Distribution methods of the products or services. The Company plans to hire
approximately five employees during the next twelve months to market the
ECHFR. To date the Company has received no orders for its product and there
is no assurance that the Company will ever receive any orders for its
product.
2
<PAGE>
3. Competitive business conditions and the small business issuer's competitive
position in the industry and methods of competition. The Company believes
that its ECHFR technology is unique. There is no ECHFR or its equivalent
used to produce energy anywhere else at this time. The ECHFR uses water and
a proprietary mixture of chemicals to produce hydrogen gas for cooking,
heating and refrigeration.
A potential competing technology to the ECHFR is the hydrogen fuel cell.
Fuel cells are electro-chemical devices, similar to a battery, in which
hydrogen (either pure hydrogen gas or hydrogen extracted from a fuel that
contains the element) and oxygen from the air are combined to produce
electricity, water and a modest amount of waste heat. The conversion
efficiency can be as high as 80%, but actual values vary with fuel cell
types. Each cell produces on 0.5-0.9 volts, so a large number of cells must
be stacked together and electrically connected in a series and parallel to
achieve the desired output. Like a battery, a fuel cell stack has no moving
parts (except for small fans and pumps to remove or recover waste heat) has
near-zero emissions except for water, and is ultra-quiet. These
characteristics make the fuel cell a highly attractive power source for
automobiles and other vehicles, and for stationary power plants.
Fuel cell power systems can be classified in three groups by type of
application: 1) those intended to replace the internal combustion engine in
automobiles, trucks and buses, 2) those intended to serve as distributed
generation power plant that are at or close to homes, buildings, and
manufacturing plants; and 3) those that are intended to replace batteries
in everything from cellular telephones, flashlights, computers, radios,
golf carts, powered wheelchairs, to portable outdoor signs.
Hydrogen fuel cell technology is currently being commercialized. According
to a report documenting perspectives, insights and discussions presented by
industry leaders at a recent conference on The Business Case for Fuel Cells
(July 15-16, 1999), total worldwide R&D spending on fuel cell technology is
nearly $1 billion per year with funding provided by vehicle manufacturers,
equipment manufacturers, utilities, and government agencies in the U.S.,
Europe and Japan. About 80% of the funding is directed toward the
development of fuel cell systems for electric vehicles such as automobiles,
trucks, buses and golf carts.
Companies such as Daimler Chrysler and Ford have recognized the future
commercial potential of hydrogen fuel cells for the automotive industry and
have developed strategic alliances with and have invested over $500 million
in Ballard Power Systems, a leading company in the commercialization of the
hydrogen fuel cell. Ballard, together with its alliance partners and
associated companies, plans to bring to market their first portable power
products in 2001; their first transit bus engines in 2002; their first
stationary power products between 2002 and 2003; and their first automotive
engines between 2003 and 2005.
Manufacturers and marketers of hydrogen fuel cells include Ballard Power
Systems, DCH Technology, Inc., ONSI, Ergenics, H Power Corp.,and Powerball
Technologies. These companies produce fuel cells on a made-to-order basis.
Competitors may be able to develop technologies that are as effective as,
or more effective, easier or cheaper to use, than those offered by the
Company. The Company's existing and potential competitors have
substantially greater financial, marketing, sales, manufacturing,
distribution and technological resources than the Company. There is no
assurance that the Company will be able to successfully compete.
3
<PAGE>
4. Patents, trademarks, licenses, franchises, concessions, royalty agreements
or labor contracts. The ECHFR and the chemical formula for producing
hydrogen are both covered by pending patents. The pending patents were
filed in Australia and cover 96 international jurisdictions, including the
United States. There is no assurance that the patents will issue and there
is no assurance that if the patents issue that they will not infringe on
other patents. Management does not have an estimated time frame for the
patents to be issued. If the patents issue, their duration will be from 17
to 20 years from the date of issuance.
5. Government approval of principal product or service. Although the Company
is not aware of any government approvals required prior to or in
conjunction with its marketing of the ECHFR in Indonesia, China,
Philippines, Malaysia, Middle East and parts of Central and South America,
there is no assurance that such government approvals will not be required
in the future. In addition, compliance with government or regulatory
requirements, if any, could have a material adverse affect on the
operations of the Company.
6. Employees. The Company presently has one officer and director and no
full-time employees. The officer and director is engaged in other business
activities and devotes no more than 50% of his time to the business of the
Company. The Company has no other full-time or part-time employees. The
Company plans to hire approximately five employees during the next twelve
months to market the ECHFR and plans to retain consulting engineers on a
project-by-project basis. There is no assurance that any employees will be
hired or any consultants will be retained.
Item 2. Management's Discussion and Analysis or Plan of Operation
Plan of Operations. During the next twelve months, the Company plans to
raise approximately $2.5 million in additional capital to fund its operating
activities, which include hiring approximately five additional employees to
market the product, finding a third-party manufacturer to build the ECHFR, and
building three ECHFR units of varying sizes for demonstration. Management has
not yet determined whether the additional capital will be raised through debt
financing, the sale of common stock in a private or public offering, or a
combination of both. There is no assurance that the Company will be successful
in raising additional capital to fund its operating activities or that such
capital, if raised, will be on favorable terms.
The Company's strategic business plan and business model is subject to
many risks, including, but not necessarily limited to, the following:
1. No Operating History. The Company was organized on November 10, 1998 and
has no operating history. The Company has no products, operating revenues,
and minimal assets at this time. There is no assurance that the Company
will be able to develop, manufacture or market any products successfully,
generate net revenue from the sale of any products, or achieve or maintain
profitable operations.
4
<PAGE>
2. Product Not Developed. The Company has no products and limited assets at
this time. The business of the Company depends upon the development of the
ECHFR technology. There is no assurance that the Company's activities will
be successful or profitable.
3. Patent Position. The ECHFR is protected by pending patents in Australia and
96 international jurisdictions. There is no assurance that patents do not
infringe the rights of others, and there is no assurance that the pending
patent applications will be issued.
4. Filing, Prosecution and Maintenance of Patents. The filing, prosecution and
maintenance of all patent rights are within the sole discretion of the
Company. The Company intends to seek, obtain and maintain such patent and
other protections to the extent that it is lawfully entitled to do so, at
the Company's sole expense. There is no assurance that the Company will
have sufficient working capital to fund its efforts in those activities.
5. Need for Additional Capital. Additional capital will be required to fund
further development, file and process applications for governmental
approval, if required, develop models, identify manufacturers to build the
ECHFR, and to advertise, ship and collect for products sold and any other
costs. The Company intends to pursue additional financing. However, there
is no assurance that any additional capital will be available to the
Company on acceptable terms when needed, if at all.
6. Acceptance of ECHFR by Market. Inherent to the successful marketing of the
Company's ECHFR is the acceptance of the product by the market. There is no
assurance that the ECHFR will be accepted.
7. Competition. The alternative fuels industry is intensely competitive and
composed of large and well financed firms that are constantly developing or
acquiring rights to new products. Some competitors have established
distribution networks and sufficient marketing resources to resist attempts
to dislodge use of their products. In addition, there is no assurance that
one or more competitors will not develop or manufacture products that are
more effective or better accepted than those that the Company seeks to
commercialize. There is no assurance that the Company will be able to
compete successfully or profitably.
8. Dependence Upon Key Personnel. The Company is dependent upon the services
of Jack Wynn, sole officer and director, and of Mr. James Pelto, inventor
of the ECHFR. The loss of the services of Mr. Wynn or Mr. Pelto and the
inability to retain an acceptable substitute will have a material adverse
effect on the Company. There is no assurance that replacement of key
personnel will be possible. There is no written employment agreement with
Mr. Wynn. There is no written consulting services agreement with Mr. Pelto.
Mr. Pelto owns 47.92% of the outstanding common stock of the Company.
5
<PAGE>
9. Limited Experience of Management. Mr. Wynn, the sole officer of the
Company, has limited experience in the fuel and power producing industry.
Mr. Wynn and Mr. Pelto, inventor of the ECHFR technology, have other
business interests outside of their involvement with the Company. however,
they anticipate devoting 100% of their time to the Company's activities.
10. No Trading Market for Common Stock. There is no established liquid market
for the Company's Common Stock. The Company intends to pursue developing a
liquid market for the Common Stock as soon as practicable, with the filing
of its SEC Form 10 and its application for approval for trading its shares
on the OTC Bulletin Board. Recent changes in NASD and SEC rules will
require the Company to file with the SEC and comply with interim, quarterly
and annual reporting requirements in order for the Common Stock to be
quoted in the OTC Bulletin Board market. The Company intends to comply, but
there is no assurance it will be able to do so. There is no assurance that
a liquid market for the Common Stock will develop or, if such a market
develops, that it will be maintained. Holders of Shares of Common Stock
may, therefore, have difficulty in selling their Shares should they desire
to do so. Investors must be able to lose their entire investment in Shares
of Common Stock.
11. No Dividends. The Company has not paid any cash or other dividends on its
Common Stock and does not expect to declare or pay any such cash dividends
in the foreseeable future.
12. International Economic Conditions. Local, national, and international
economic conditions may have a substantial adverse affect on the efforts of
the Company. The Company cannot guarantee against the possible eventuality
of any potential adverse economic conditions.
13. Impact of Year 2000 on operations of the Company. The Year 2000 issue (Y2K)
is the result of computer programs written using two digits rather than
four to define the applicable year. Any of the Company's computer and
telecommunications programs that have date sensitive software may recognize
a date using "00" as the year 1900 instead of 2000. This could result in
system failure or miscalculations causing disruptions in operations,
including the ability to process transactions, send invoices, or engage in
similar normal business activities.As of December 31, 1999, the Company did
not own any software; however, the Company cannot determine the extent to
which the Company is vulnerable to third parties' failure to remediate
their own Y2K problems. As a result, there can be no guarantee that the
systems of other companies on which the Company's business relies will be
timely converted, or that failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would have a
material adverse effect on the Company. In view of the foregoing, there can
be no assurance that the Y2K issue will not have a material adverse effect
on the Company's business.
6
<PAGE>
To date the costs to the Company to address Y2K issues has been immaterial.
The Company believes the most likely worst case scenario related to Y2K is
a significant delay in the development of its product. Such an interruption
could occur due to a breakdown in the systems of third parties. The Company
currently does not have a contingency plan in the event a particular system
or vendor is not Y2K ready. There can be no assurance that unexpected Y2K
readiness problems of third parties will not materially adversely affect
the Company's business, operating results and financial condition. The
foregoing assessment represents managements best estimates at the present
time, which could change signficantly in the future.
Results of Operations. The Company has no revenues from sales and does not
expect to have revenues until it has raised sufficient capital to fund its
operations. There is no assurance that the Company will be successful in raising
additional capital.
Liquidity and Capital Resources. As of December 31, 1999, the Company had
$9,665 in cash. During the next twelve months, management intends to raise
additional capital to fund its business plan, as operating revenues will not be
generated until such time as sales of the ECHFR commence. Management has not yet
determined whether the additional capital will be raised through debt financing,
the sale of common stock in a private or public offering, or a combination of
both. There is no assurance that the Company will be successful in raising
additional capital to fund its operating activities or that such capital, if
raised, will be on favorable terms.
The Company faces considerable risks at each step in its strategic business
plan. Such things as technology, societal and economic changes, cost overruns, a
lack of interest in and/or inability to market the ECHFR, and shortfalls in
funding due to the Company's inability to raise additional capital through debt
or in the equity securities market all may have an impact on the Company. If no
additional funding is raised over the next twelve months, the Company's sole
officer and director may loan or contribute to the Company funds to cover
minimal operating expenses, however, he has no legal obligation to do so.
Although the Company's sole officer and director has made loans or contributions
of funds to the Company in the past, there is no assurance that he will do so in
the future. In such a restricted scenario, the Company would not be able to
complete all of the steps of its strategic business plan, and would therefore be
forced to delay all capital-intensive activities. It is possible that, without
necessary and sufficient cash flow during the next twelve months, the Company
would have to severely restrict its plans and abilities to move forward with its
strategic business plan.
7
<PAGE>
Item 3. Description of Property
The Company owns no property. The principal executive office of the
Company is provided free of charge by the Company's President.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The table below details the beneficial owners of more than 5% of the
Company's Common Stock as of December 31, 1999:
Amount and Nature
Name and Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
----------------------------------------------------------------------------
Common Stock Quantum Development Corp
34/30 St. Kevins
Benowa, Queensland 4217
Australia 3,055,000 9.76%
Common Stock John Wheeler
14 Kel Nagle Crt
Parkwood, Queensland 4214
Australia 2,500,000 7.99%
Common Stock James Pelto
17/30 St. Kevins Ave.
Benowa, Queensland 4217
Australia 15,000,000 47.92%
---------------------------------
Total Ownership of
Beneficial Owners 20,555,000 65.67%
---------------------------------
The table below details the ownership of the Company's Common Stock by
its sole director and officer:
Amount and Nature
Name and Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
----------------------------------------------------------------------------
Common Stock Jack Wynn
2006 Oak Creek Place
Hayward, CA 94541 650,000 2.08%
---------------------------------
Item 5. Directors, Executive Officers, Promoters and Control Persons
Jack Wynn is the sole officer and director of the Company. Prior to
founding the Company, he was Chairman of the Board of Scanner Energy, an
Oklahoma Corporation. While in Oklahoma, he formed the Oklahoma Transfer and
Registrar Corporation, which was later transferred to San Francisco, California
as Securities Transfer Pacifica Corp. Prior to Scanner Energy, he was a partner
with Scholen, Wynn & Associates, a securities and insurance brokerage business.
Mr. Wynn has over twenty years in the life insurance industry, including ten
years with Occidental Life Insurance.
Item 6. Executive Compensation
The Company's sole officer and director does not receive compensation
for his services. There are no written employment agreements.
8
<PAGE>
Item 7. Certain Relationships and Related Transactions
The Company had no transactions with related parties in excess of
$60,000.
Item 8. Description of Securities
The Company is authorized to issue 50,000,000 Shares of Common Stock, par
value $0.001 per share, of which 31,300,000 shares were outstanding at December
31, 1999. The Company is also authorized to issue 5,000,000 Shares of Preferred
Stock, par value $0.001 per share, of which there are no shares presently
outstanding. There is no present intent to issue any Preferred Stock.
Voting Rights. Holders of shares of Common Stock are entitled to one
vote per share on all matters submitted to a vote of the shareholders. Shares of
Common Stock do not have cumulative voting rights, which means that the holders
of a majority of the shareholder votes eligible to vote and voting for the
election of the Board of Directors can elect all members of the Board of
Directors. Holders of a majority of the issued and outstanding shares of Common
Stock may take action by written consent without a meeting.
Dividend Rights. Holders of record of shares of Common Stock are
entitled to receive dividends when and if declared by the Board of Directors. To
date, the Company has not paid cash dividends on its Common Stock. Holders of
Common Stock are entitled to receive such dividends as may be declared and paid
from time to time by the Board of Directors out of funds legally available
therefor. The Company intends to retain any earnings for the operation and
expansion of its business and does not anticipate paying cash dividends in the
foreseeable future. Any future determination as to the payment of cash dividends
will depend upon future earnings, results of operations, capital requirements,
The Company 's financial condition and such other factors as the Board of
Directors may consider.
Liquidation Rights. Upon any liquidation, dissolution or winding up of
the Company, holders of shares of Common Stock are entitled to receive pro rata
all of the assets of the Company available for distribution to shareholders
after liabilities are paid and distributions are made to the holders of The
Company 's Preferred Stock.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
Market Information. There is no established public trading market. The
Company plans to apply for listing on the OTC Bulletin Board at the earliest
practicable date.
Outstanding Options or Warrants. There are no outstanding options or
warrants.
Shares that could be sold pursuant to Rule 144. Approximately 11,845,000
shares of the Company's 30,300,000 common shares outstanding at December 31,
1999 are eligibile for trading under Rule 144.
Holders. The Company has approximately 77 holders of record of its Common
Stock.
9
<PAGE>
Dividends. The Registrant intends to retain any earnings for the operation
and expansion of its business and does not anticipate paying cash dividends in
the foreseeable future.
Transfer Agent. The Company's transfer agent is Nevada Agency & Trust
Company, 50 West Liberty Street, Suite 880, Reno, NV 89501.
Penny Stock Rules. The Securities and Exchange Commission has adopted Rule
15g-9 which established the definition of a "penny stock" as any equity security
that has a market price of less than $5.00 per share, or with an exercise price
of less than $5.00 per share, subject to certain exceptions. The Company's
common stock would be considered a penny stock under the regulations, which
makes it more difficult for investors to resell their common stock. For any
transaction involving a penny stock, unless exempt, the rules require: (i) that
broker or dealer approve a person's account for transactions in penny stocks;
and, (ii) the broker or dealer receive from the investor a written agreement to
the transaction, setting forth the identity and quantity of the penny stock to
be purchased. In order to approve a person's account for transactions in penny
stocks, the broker or dealer must (i) obtain financial information and
investment experience objectives of the person; and (ii) make a reasonable
determination that the transaction(s) in penny stocks are suitable for that
person and the person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prepared by the Commission relating to the penny
stock market, which, in highlighted form, (i) sets forth the basis on which the
broker or dealer made the suitability determination; and (ii) that the broker or
dealer received a signed, written agreement from the investors prior to the
transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and registered representative,
current quotations for the securities and the rights and remedies available to
an investor in case of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stocks held in the account and information on the limited market in penny
stocks.
Item 2. Legal Proceedings
None
Item 3. Changes in and Disagreements with Accountants
None
10
<PAGE>
Item 4. Recent Sales of Unregistered Securities
(a) Securities Sold
During February, 1999, the Company offered for sale 11,300,000 shares of
its $.001 par value common stock for $.001 per share pursuant to an exemption
from registration under Rule 504 of Regulation D of the Securities Act of 1933,
as amended (the "Act"). An additional 4,250,000 shares of common stock were sold
to an officer and affiliates of the Company for $4,250 ($0.001 per share). These
shares are "restricted securities" and may be sold only in compliance with Rule
144 of the Act.The Company sold all 11,300,000 shares for net proceeds of
$9,375, after deducting offering costs totaling $1,925. There were no
underwriters or commissions paid
On June, 16, 1999, the Company issued 15,000,000 shares of restricted
common stock to Mr. James Pelto, inventor, to purchase the patent rights to the
ElectroChem Hydrogen Fuel Reactor.
On July 10, 1999, the Company issued 750,000 shares of its $.001 par value
common stock in accordance with the terms of a financial advisory agreement
b. Underwriters and Other Purchasers
There was no public offering of the shares. There was no underwriter used
in connection with the offer or sale of the securities.
c. Consideration
There was no consideration paid by the Company in connection with the offer
or sale of the its securities.
d. Section under which exemption from registration was claimed.
The offering of 15,550,000 shares of the Company's common stock was exempt
from registration pursuant to Regulation D, Rule 504. Rule 504 permits a
non-reporting issuer to offer and sell securities to an unlimited number of
persons without regard to their sophistication and experience and without
delivery of any specified information. The aggregate offering price of this
exemption is limited to $1 million in any 12-month period; and certain other
offerings must be aggregated with the Rule 504 offering in determining the
available sales amount. Prior to April 7, 1999, general advertising and
solicitation were permitted for all Rule 504 offerings. Prior to April 7, 1999,
securities sold under this exemption may be resold freely by non-affiliates of
the issuer who are not otherwise acting as an underwriter.
For the issuance of 15,000,000 shares of restricted common stock to Mr.
Pelto, the Company relied upon exemptions from registration pursuant to Section
4(2) of the Securities Act of 1933. Appropriate legends were affixed to the
shares issued to Mr. Pelto.
Item 5. Indemnification of Directors and Officers
Article XI of the Company's Charter specifically provides that to the
full extent not prohibited by the law as in effect from time to time, the
Corporation shall indemnify any person (and the heirs, executors and
representatives of such person) who is or was a director, officer, employee or
agent of the Corporation, or who, at the request of this Corporation, is or was
a director, officer, employee, agent, partner, or trustee, as the case may be,
of any other corporation, partnership, proprietorship, trust, association or
other entity in which this Corporation owns an interest, against any and all
liabilities and reasonable expenses incurred by such person in connection with
or resulting from any claim, action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether civil, criminal,
administrative or investigative in nature, and in connection with an appeal
relating thereto, in which such person is a party or is threatened to be made a
party by reason of serving or having served in any such capacity.
11
<PAGE>
PART F/S
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
Index to Financial Statements
Page
Report of independent accountants..................................... F-2
Balance sheets, December 31, 1999 and December 31, 1998............... F-3
Statements of operations, for the year ended December 31, 1999,
from November 10, 1998 (inception) through December 31, 1998,
and from November 10, 1998 (inception through December 31, 1999.... F-4
Statement of shareholders' deficit, from November 10, 1998
(inception) through December 31, 1999.............................. F-5
Statements of cash flows, for the year ended December 31, 1999,
from November 10, 1998 (inception) through December 31, 1998,
and from November 10, 1998 (inception) through
December 31, 1999)................................................. F-7
Summary of significant accounting policies............................ F-9
Notes to financial statements......................................... F-12
F-1
<PAGE>
To the Board of Directors and Shareholders
of Hydro Environmental Resources, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the balance sheets of Hydro Environmental Resources, Inc. (a
development stage company) as of December 31, 1999 and December 31, 1998, and
the related statements of operations, shareholders' equity (deficit), and cash
flows for the year ended December 31, 1999, from November 10, 1998 (inception)
through December 31, 1998 and from November 10, 1998 (inception) through
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hydro Environmental Resources,
Inc. as of December 31, 1999 and December 31, 1998, and the results of its
operations and its cash flows for the year ended December 31, 1999, from
November 10, 1998 (inception) through December 31, 1998, and from November 10,
1998 (inception) through December 31, 1999, in conformity with generally
accepted accounting principles.
As explained in Note B to the financial statements, Hydro Environmental
Resources, Inc. conducted significant transactions with its president during the
periods presented.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in the Summary of Significant
Accounting Policies, the Company has no revenues, a limited history of
operations and significant operating losses since inception, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in the Summary of
Significant Accounting Policies. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ CORDOVANO AND HARVEY, P.C.
Cordovano and Harvey, P.C.
Denver, Colorado
February 19, 2000
F-2
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 1999
ASSETS
CASH ............................................. $ 9,665
PATENT RIGHTS AND INTERESTS, less $1,500 of
accumulated amortization (Note B)............... 13,500
------------
$23,165
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES
Accounts payable ................................. $ 3,937
Due to officer (Note B) .......................... 49,470
Other current liabilities......................... 2,000
------------
TOTAL LIABILITIES $55,407
------------
SHAREHOLDERS' DEFICIT (Note D)
Preferred Stock, $.001 par value;
5,000,000 shares authorized;
-0- shares issued and outstanding, ............... $ 0
Common Stock, $.001 par value;
50,000,000 shares authorized;
31,300,000 shares issued and outstanding, ........ 31,300
Additional paid in capital ............................. 15,985
Deficit accumulated during development stage............ (79,527)
------------
TOTAL SHAREHOLDERS' DEFICIT (32,242)
------------
$23,165
============
See accompanying summary of significant accounting policies and
notes to the financial statements
F-3
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
November 10, November 10,
1998 1998
For the (Inception) (Inception)
Year Ended through through
December 31, December 31, December 31,
1999 1998 1999
------------ ------------ ------------
OPERATING EXPENSES
Research and development............ $ 43,400 $ - $ 43,400
General and administrative.......... 21,397 10 21,407
Rent (Note B) ...................... 6,000 1,000 7,000
Office (Note B)..................... 6,000 - 6,000
Stock-based compensation,
financial advisory services....... 750 - 750
------------ ------------ ------------
LOSS FROM OPERATIONS (77,547) (1,010) (78,557)
INTEREST EXPENSE.................... (970) - (970)
------------ ------------ ------------
NET LOSS BEFORE INCOME TAXES (78,517) (1,010) (79,527)
INCOME TAXES (Note C) .............. - - -
------------ ------------ ------------
NET LOSS $ (78,517) $ (1,010) $ (79,527)
============ ============ ============
Basic loss per common share ........ $ * $ *
============ ============
Basic weighted average common shares
outstanding ........................ 22,075,000 -
============ ============
* Less than $.01 per share
See accompanying summary of significant accounting policies
and notes to the financial statements
F-4
<PAGE>
<TABLE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' DEFICIT
From November 10, 1998 (inception) through December 31, 1999
<CAPTION>
Deficit
Accumulated Total
Additional During the Shareholders'
Preferred Stock Common Stock Paid-In Development Equity
Shares Par Value Shares Par Value Capital Stage (Deficit)
------ ---------- ------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Office space contributed by the
president (Note B) ................ - - - - $ 1,000 $ 0 $ 1,000
Net loss for the period ended
December 31, 1998 ................. - - - - 0 (1,010) (1,010)
----- --------- ------- --------- -------- ---------- -----------
BALANCE, DECEMBER 31, 1998 - - - - 1,000 (1,010) (10)
February 25, 1999, sale of common
stock to officer and affiliates
for cash($.001/share)
(Note D) .......................... - - 4,250,000 4,250 - - 4,250
February 25, 1999, sale of common
stock, net of $1,925 of offering
costs ($.001/share) (Note D)....... - - 11,300,000 11,300 (1,925) - 9,375
March 1, 1999 capital contribution
by the president (Note B) ........ - - - - 3,210 - 3,210
May 31, 1999, expenses paid by
the president on behalf of the
Company (Note B).................. - - - - 1,700 - 1,700
June 16, 1999, shares issued in
exchange for patent interests and
rights ($.001/share) (Note B)..... - - 15,000,000 15,000 - - 15,000
July 10, 1999, shares issued in
exchange for financial advisory
agreement ($.001/share)(Note B)... - - 750,000 750 - - 750
See accompanying summary of significant accounting policies and
notes to the financial statements
F-5
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' DEFICIT
From November 10, 1998 (inception) through December 31, 1999
<CAPTION>
Deficit
Accumulated Total
Additional During the Shareholders'
Preferred Stock Common Stock Paid-In Development Equity
Shares Par Value Shares Par Value Capital Stage (Deficit)
------ ---------- ------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Services and use of equipment
contributed by the president
(Note B).......................... - - - - 6,000 - 6,000
Office space contributed by
the president (Note B)............ - - - - 6,000 - 6,000
Net loss for the year ended
December 31, 1999 ................. - - - - - (78,517) (78,517)
----- --------- ----------- --------- -------- ---------- -----------
BALANCE, December 31, 1999......... - $- 31,300,000 $ 31,300 $15,985 $(79,527) $(32,242)
===== ========= =========== ========= ======== ========== ===========
</TABLE>
See accompanying summary of significant accounting policies and
notes to the financial statements
F-6
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
November 10, November 10,
1998 1998
For The (Inception) (Inception)
Year Ended through through
December 31, December 31, December 31,
1999 1998 1999
----------- ------------ ------------
OPERATING ACTIVITIES
Net Loss............................$(78,517) $(1,010) $(79,527)
Transactions not requiring cash:
Amortization...................... 1,500 - 1,500
Office space contributed by
the President (Note B) ......... 6,000 1,000 7,000
Services and use of equipment
contributed by the President
(Note B)........................ 6,000 - 6,000
Common stock issued in exchange
for financial advisory
agreement (Note E).............. 750 - 750
Changes in operating assets and
operating liabilities:
Accounts payable and accrued
expenses........................ 6,807 100 6,907
----------- ------------ ------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (57,460) 90 (57,370)
----------- ------------ ------------
FINANCING ACTIVITIES
Capital contributions by
the president (Note B)........... 4,910 - 4,910
Proceeds from loans and advances
from the president (Note B)...... 53,600 - 53,600
Repayment of loans from the
president (Note B)............... (5,100) - (5,100)
Proceeds from issuance of
common stock .................... 15,550 - 15,550
Payment of offering costs .......... (1,925) - (1,925)
----------- ------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 67,035 - 67,035
----------- ------------ ------------
NET INCREASE IN CASH 9,575 90 9,665
Cash, beginning of period ............... 90 - -
----------- ------------ ------------
CASH, END OF PERIOD $ 9,665 $ 90 $ 9,665
=========== ============ ============
See accompanying summary of significant accounting policies and
notes to the financial statements
F-7
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
November 10, November 10,
1998 1998
For The (Inception) (Inception)
Year Ended through through
December 31, December 31, December 31,
1999 1998 1999
----------- ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .........................$ - $ - $ -
=========== ============ ============
Income Taxes......................$ - $ - $ -
=========== ============ ============
Non-cash investing and financing
transactions:
Common stock issued in exchange for
patent interests and rights
(Note B).......................$ 15,000 $ - $ 15,000
=========== ============ ============
See accompanying summary of significant accounting policies and
notes to the financial statements
F-8
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development stage company
Hydro Environmental Resources, Inc. (the Company) is in the development stage in
accordance with Statements of Financial Accounting Standard (SFAS) No. 7.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and the tax
basis of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
Earnings /(loss) per share
The Company reports earnings per share using a dual presentation of basic and
diluted earnings per share. Basic earnings per share excludes the impact of
common stock equivalents. Diluted earnings per share utilizes the average market
price per share when applying the treasury stock method in determining common
stock equivalents. However, the Company has a simple capital structure for the
period presented and, therefore, there is no variance between the basic and
diluted earnings per share.
Fair value of financial instruments
The Company has determined, based on available market information and
appropriate valuation methodologies, that the fair value of its financial
instruments approximates carrying value. The carrying amounts of cash,
receivables, payables, and other current liabilities approximate fair value due
to the short-term maturity of the instruments.
F-9
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock-based compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in October,
1995. This accounting standard permits the use of either a "fair value based
method" or the "intrinsic value method" defined in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) to account for
stock-based compensation arrangements with employees. Stock-based compensation
arrangements with non-employees are accounted for under the fair value method.
The Company had no stock-based compensation arrangements with employees and one
arrangement with an unrelated third party during the period from November 10,
1998 (inception) through December 31, 1999.
New Accounting Pronouncement
The Company adopted the following new accounting pronouncements during the
period ended December 31, 1999. There was no effect on the financial statements
presented from the adoption of the new pronouncements. SFAS No. 130, "Reporting
Comprehensive Income," requires the reporting and display of total comprehesive
income and its components in a full set of general purpose financial statements.
The Company did not have comprehensive income for the periods presented;
therefore, comprehensive income and net income are equal. SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," is based
on the "management" approach for reporting segments. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosure about the Company's
products, the geographic areas in which it earns revenue and holds long-lived
assets, and its major customers. SFAS 131 is not applicable, as the Company had
no segment reporting for the periods presented. SFAS No. 132, "Employers'
Disclosures about Pensions and Other Post-retirement Benefits," which requires
additional disclosures about pension and other post-retirement benefit plans,
but does not change the measurement or recognition of those plans. SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" requires an
entity to recognize all derivatives on a balance sheet, measured at fair value.
The Company had no derivatives at December 31, 1999. Statement of Position
("SOP") 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" requires that entities capitalize certain
internal-use software costs once certain criteria are met. SOP 98-5, "Reporting
on the Costs of Start-Up Activities" provides, among other things, guidance on
the reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. The
Company will continue to review these new accounting pronouncements over time to
determine if any additional disclosures are necessary based on evolving
circumstances.
F-10
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
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. As shown in the accompanying
financial statements, the Company is a development stage company with no
revenues, a limited history of operations, and a loss of $79,527 for the period
from November 10, 1998 (inception) through December 31, 1999. This factor, among
others, may indicate that the Company will be unable to continue as a going
concern for a 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 equity offerings and debt financings during 2000 to help fund the
Company's operations as it expands
F-11
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENT
NOTE A: BACKGROUND
The Company was incorporated under the laws of Oklahoma on November 10, 1998.
The principal activities since inception have been organizational matters and
the sale and issuance of shares of its $.001 par value common stock. The Company
was formed to design, build and manage inexpensive and environmentally friendly
fuel and power producing systems for remote areas of the world that are without
electricity or other sources of power.
NOTE B: RELATED PARTY TRANSACTIONS
The president provided office space to the Company at no charge for all periods
presented. The office space was valued at $500 per month and is included in the
accompanying financial statements as rent expense with a corresponding credit to
additional paid-in capital.
During the year ended December 31, 1999, the president contributed services and
the use of office equipment to the Company. The services and use of equipment
was valued at $500 per month and is included in the accompanying financial
statements as office expense with a corresponding credit to additional paid-in
capital.
During the year ended December 31, 1999, the president contributed $3,210 to the
Company for working capital and paid a $1,700 expense on behalf of the Company.
These amounts are included in the accompanying financial statements as
additional paid-in capital.
During the year ended December 31, 1999, the president loaned the Company
$53,600 for working capital, of which $5,100 was repaid as of December 31, 1999.
The loans bear interest at eight percent and are due on demand. The $48,500 in
outstanding advances and $970 in related accrued interest are included in the
accompanying financial statements as due to officer.
On June 16, 1999, the Company issued 15 million shares of its $.001 par value
common stock in exchange for an assignment of the interest and rights in a
patent pending in Australia for an Electro-Chem Hydrogen Fuel Reactor. The
transaction has been valued at predecessor cost in the accompanying financial
statements.
On November 17, 1998, an affiliate advanced the Company $100 to open its bank
account. The Company repaid the $100 on February 24, 1999.
F-12
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENT
NOTE C: INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the effective
rate is as follows:
December 31,
------------------------------
1999 1998
---------- ----------
U.S. federal statutory graduated rate........... 18.23% 15.00%
State income tax rate,
net of federal benefit...................... 4.91% 5.10%
Net operating loss for which no tax
benefit is currently available.............. -23.14% -20.10%
---------- ----------
0.00% 0.00%
========== ==========
At December 31, 1999, deferred taxes consisted of a net tax asset of $18,366,
due to operating loss carryforwards of $79,527, which was fully allowed for, in
the valuation allowance of $18,366. The valuation allowance offsets the net
deferred tax asset for which there is no assurance of recovery. The change in
the valuation allowance from December 31, 1998 through December 31, 1999 was
$18,163. Net operating loss carryforwards will expire through 2019.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
NOTE D: COMMON STOCK ISSUANCES
During February, 1999, the Company offered for sale 11,300,000 shares of its
$.001 par value common stock for $.001 per share pursuant to an exemption from
registration under Rule 504 of Regulation D of the Securities Act of 1933, as
amended (the "Act"). The Company sold all 11,300,000 shares for net proceeds of
$9,375, after deducting offering costs totaling $1,925.
An additional 4,250,000 shares of common stock were sold to an officer and
affiliates of the Company for $4,250 ($0.001 per share). These shares are
"restricted securities" and may be sold only in compliance with Rule 144 of the
Act.
On July 10, 1999, the Company issued 750,000 shares of its $.001 par value
common stock in accordance with the terms of a financial advisory agreement (see
Note E).
F-13
<PAGE>
HYDRO ENVIRONMENTAL RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENT
NOTE E: STOCK-BASED COMPENSATION
On July 10, 1999, the Company entered into a consulting agreement with an
unrelated third party to provide financial advisory services to the Company.
Upon signing the agreement, the Company agreed to issue the consultant 750,000
shares of its $.001 par value common stock. The transaction was valued at the
estimated fair value of the common stock on the date of issuance as determined
by the Board of Directors based on contemporaneous equity transactions and other
analysis. The Company recorded stock- based compensation in the accompanying
financial statements totaling $750.
F-14
<PAGE>
PART III
Item 1. Index to Exhibits and Description of Exhibits
2.1 Articles of Incorporation filed November 10, 1998
2.2 Bylaws
3.1 Form of Common Stock Certificate
6.1 Assignment of Patent and Intellectual Property Rights related to the
ElectroChem Hydrogen Fuel Reactor
27.0 Financial Data Schedule at December 31, 1999 (for electronic filing only)
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
HYDRO ENVIRONMENTAL RESOURCES, INC.
/s/ JACK WYNN
-----------------------------------
By: Jack Wynn, President
March 15, 2000
12
