SECURITIES AND EXCHANGE COMMISSION
                    Washington, DC 20549

                         FORM 10-KSB
  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                    EXCHANGE ACT OF 1934

For the year ended December 31, 2001
Commission File No. 000-27825





             HYDRO ENVIRONMENTAL RESOURCES, INC.
   (Exact name of registrant as specified in its charter)




         Nevada                                       73-1552304
(State of organization)                 (I.R.S. Employer Identification No.)

6170 W. Lake Mead Blvd., Las Vegas, NV   89108
(Address of principal executive offices)

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

Securities registered under Section 12(g) of the Exchange Act:
                                   Common Stock, $0.001 par value per share

Check whether the issuer (1) filed all reports required to
be file by Section 13 or 15(d) of the Exchange Act during
the past 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]

Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B 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 amendments to this Form 10-KSB.  [  ]

Issuer's revenues during the year ended December 31, 2001: $-0-

As of March 28, 2002, the aggregate market value of the
voting and non-voting common equity held by non-affiliates,
approximately 17,522,124 shares of common stock, based on
the average bid and asked price of $0.015 as quoted on the
OTC Bulletin Board, was $262,831.86.

As of March 28, 2002, there were 19,088,124 shares of the
issuer's common stock outstanding.

            DOCUMENTS INCORPORATED BY REFERENCE:

                            None

                             PART I

ITEM 1.   DESCRIPTION OF BUSINESS

Development of the Company

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 $0.001 par value common stock plus research and
development of the ECHFR.  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 and other sources of power.

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 to the inventor, Mr. James Pelto. Mr.
Pelto built the prototype ECHFR and will continue to be involved
in its development and commercialization.

Business of the Company

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.

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 the
formula on a stand-by or as needed basis using equipment that can
be portable or stationary. The result is clean burning hydrogen
gas that can be used for cooking, heating or refrigeration.

Ultimately, the Company intends to build, market and operate a
stationary power site using a 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 conventional 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.

The Industry

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 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.

Patents

The Company is presently in the process of upgrading its
technical documentation and will re-apply for patents using these
upgraded procedures. 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.

Government regulation

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.

Employees

The Company presently has 2 officers and 3 directors. The
officers and directors are engaged in other business activities
and devote no more than 50% of their time to the business of the
Company.  The Company currently has 5 full-time employees and
plans to hire additional employees during the next twelve months
to market the ECHFR.  Additionally, the Company plans to retain
consulting engineers on a project-by-project basis. However,
there is no assurance that any employees will be hired or any
consultants will be retained.

ITEM 2.   DESCRIPTION OF PROPERTY

     The Company owns no property.  In March of 2002, the Company
relocated its corporate offices to 6170 W. Lake Mead Blvd., Las
Vegas, NV  89108 and is in the process of establishing a
manufacturing facility in Astoria, Oregon for the purpose of
commencing manufacturing and production.

ITEM 3.   LEGAL PROCEEDINGS

The Company is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by
or against the Company has been threatened.

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

No such matters were submitted during the most recent quarter.


                             PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS.

Market Information

The Company's Common Stock, $.001 par value, the only class of
common equity of the Company, is traded on over-the-counter under
the symbol "HYVR." Trading commenced on October 5, 2000. The
following table sets forth the range of high and low bid
quotations for the Company's common stock on the OTC Bulletin
Board for each quarter commencing October 5, 2000.

                               Low Bid    High Ask

               4th Qtr. 2000    $0.06      $1.12

               1st Qtr. 2001    $0.06      $0.50
               2nd Qtr. 2001    $0.07      $0.39
               3rd Qtr. 2001    $0.10      $1.01
               4th Qtr. 2001    $0.10      $0.30

               1st Qtr. 2002    $0.01      $0.15

The source of this information is America Online Finance
quotation services and broker-dealers making a market in the
Company's common stock.  These prices reflect inter-dealer
prices, without retail markup, markdown or commission and may not
represent actual transactions.

Holders

As of March 28, 2002, there were approximately 418 holders of
record of the Company's Common Stock (not including beneficial
owners holding in "street-name").

Dividends

The Company has paid no cash dividends on its Common Stock and
management does not anticipate that such dividends will be paid
in the foreseeable future.

Sales of Unregistered Securities

Share sold for cash

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 claimed 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.

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 6,929,028.  The loss per share and weighted
average common shares outstanding disclosures in the accompanying
financial statements have been restated to reflect the reverse
stock split.

Stock-based compensation

During the year ended December 31, 2001, the Company issued
750,000 shares of its common stock to its attorney in exchange
for legal services.  The market value of the common stock ranged
from $.20 to $.26 per share.  Stock-based compensation expense of
$178,000 was recognized in the accompanying financial statements
for the year ended December 31, 2001.

During the year ended December 31, 2001, the Company issued
4,739,174 shares of its common stock to unrelated third parties
in exchange for marketing, funding, administrative, managing, due
diligence and other consulting services.  The market value of the
common stock ranged from $.15 to $.25 per share.  Stock-based
compensation expense of $957,063 was recognized in the
accompanying financial statements for the year ended December 31,
2001.

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 year ended December 31,
2001.
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.

ITEM 6.   MANAGEMENT'S PLAN OF OPERATION

Forward-looking statements are statements that estimate the
happening of future events and are not based on historical facts.
Forward-looking statements may be identified by the use of
forward-looking terminology, such as "could", "may", "will",
"expect", "shall", "estimate", "anticipate", "probable",
"possible", "should", "continue", "intend" or similar terms,
variations of those terms or the negative of those terms. The
forward-looking statements specified in this report have been
compiled by management of the company on the basis of assumptions
made by management and considered by management to be reasonable.
Future operating results of the company, however, are impossible
to predict and no representation, guaranty, or warranty is to be
inferred from those forward-looking statements.

The assumptions used for purposes of the forward-looking
statements represent estimates of future events and are subject
to uncertainty as to possible changes in economic, legislative,
industry, and other circumstances. As a result, the
identification and interpretation of data and other information
and their use in developing and selecting assumptions from and
among reasonable alternatives require the exercise of judgment.
To the extent that the assumed events do not occur, the outcome
may vary substantially from anticipated or projected results,
and, accordingly, no opinion is expressed on the achievability of
those forward-looking statements. No assurance can be given that
any of the assumptions relating to the forward-looking statements
specified in this report are accurate, and we assume no
obligation to update any such forward-looking statements.

We plan to satisfy our cash requirements, over the next twelve
months, through cash infusions from our principal shareholder, in
exchange for restricted stock. However, we will need to raise
additional capital in the next twelve months. Our management is
considering the following options:

     (a)  a private offering and sale of our common stock;

     (b)  a public offering and sale of our common stock; or

     (c)  a combination of private and public sale of our common
          stock.

As of December 30, 2001, all cash infusions from our President,
Jack H. Wynn, and Frederic Strader have been classified as a
liability and are disclosed in the accompanying balance sheet as
due to officer.

A summary of our product research and development for the term of
the plan is as follows:

We are performing ongoing research on the recovery and
reconstruction of compounds used by the ElectroChem Hydrogen Fuel
Reactor (ECHFR) to produce hydrogen. It is estimated that over 40
percent of these formula compounds can possibly be reused,
possibly lowering the cost of production. In addition, there may
be several potentially profitable by-products created by ECHFR
that we could market worldwide, such as:

     (a)  An on-site power plant could 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
          operate the process by creating power using the actual
          wastewater to be treated

Subject to the implementation and success of one or more of the
financing options discussed in the first paragraph, we plan to
move our lab facility and expand our capabilities to include
commencing production in the first three months of 2002.

ITEM 7.   FINANCIAL STATEMENTS.

The financial statements that constitute Item 7 of this report
and a table of contents thereto commence on page F-1 through F-14,
which follow.



               HYDRO ENVIRONMENTAL RESOURCES, INC.
                  (A DEVELOPMENT STAGE COMPANY)

                  Index to Financial Statements
                                                             Page

Report of Independent Auditors ............................. F-2

Balance sheet, December 31, 2001 ........................... F-3

Statements of operations, for the years ended December 31,
   2001 and 2000, and from November 10, 1998 (inception)
   through December 31, 2001 ............................... F-4

Statement of shareholders' deficit, from November 10,
   1998 (inception) through December 31, 2001 .............. F-5

Statements of cash flows, for the years ended December 31,
   2001 and 2000, and from November 10, 1998 (inception)
   through December 31, 2001 ............................... F-6

Notes to the financial statements .......................... F-7



To the Board of Directors and Shareholders
Hydro Environmental Resources, Inc.

               REPORT OF INDEPENDENT AUDITORS

We have audited the balance sheet of Hydro Environmental
Resources, Inc. (a development stage company) as of December
31, 2001, and the related statements of operations,
shareholders' deficit, and cash flows for the years ended
December 31, 2001 and 2000, and from November 10, 1998
(inception) December 31, 2001.  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 auditing
standards generally accepted in the United States of
America.  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, 2001, and the results of its operations and its
cash flows for the years ended December 31, 2001 and 2000,
and from November 10, 1998 (inception) through December 31,
2001, in conformity with accounting principles generally
accepted in the United States of America.

As explained in Note 2 to the financial statements, Hydro
Environmental Resources, Inc. conducted significant
transactions with its president and certain shareholders
during the periods presented.

The accompanying financial statements have been prepared
assuming the Company will continue as a going concern.  As
discussed in Note 1 to the financial statements, the Company
is in default on certain loans at December 31, 2001 and has
suffered 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 Note 1.  The financial
statements do not include any adjustments that might result
from the outcome of this uncertainty.


Cordovano and Harvey, P.C.
Denver, Colorado
April 10, 2002

                               F-2


               HYDRO ENVIRONMENTAL RESOURCES, INC.
                  (A DEVELOPMENT STAGE COMPANY)

                          BALANCE SHEET

                        December 31, 2001
<Table>

                                                           <c>
                              ASSETS


  Cash.......................................................... $   311
  Computer equipment, net of $1,411 of
   accumulated depreciation (Note 1)............................   3,316
  Patent rights and interests, net of $7,500 of
   accumulated amortization (Note 2)............................   7,500
                                                                --------
                                                                 $11,127
                                                                ========

                   LIABILITIES AND SHAREHOLDERS' DEFICIT

Accounts payable and accrued liabilities........................$156,628
Due to officer (Note 2)......................................... 210,579
Due to shareholders (Note 2).................................... 356,297
Notes payable, convertible to common stock (Note 4).............  25,000
Accrued interest on notes payable (Note 4)......................   1,750
Loans payable, convertible to common stock (Note 8)............. 183,000
Accrued interest on loans payable (Note 8)......................  10,363
                                                                --------
               Total liabilities................................ 943,617
                                                                --------
Shareholders' deficit (Note 4):
  Preferred stock, $.001 par value; 5,000,000 shares
     authorized; -0- shares issued and outstanding..............       -
  Common stock, $.001 par value; 50,000,000 shares authorized;
     12,238,124 shares issued and outstanding...................  12,238
  Additional paid-in capital...................................1,592,360
  Deficit accumulated during development stage................(2,537,088)
                                                              -----------
                Total shareholders' deficit...................  (932,490)
                                                                ---------
                                                                $ 11,127
</Table>                                                        =========

 See accompanying summary of significant accounting policies and
               notes to the financial statements.

                               F-3




             HYDRO ENVIRONMENTAL RESOURCES, INC.
                (A DEVELOPMENT STAGE COMPANY)

                  STATEMENTS OF OPERATIONS
 <Table>
 
                                    <c>             <c>           <c>
                                                                  November 10,
                                                                      1998
                                          For the Years Ended     (Inception)
                                              December 31,          through
                                          -------------------     December 31,
                                            2001       2000           2001
                                          --------   --------     ------------
Operating expenses:
 Research and development............... $  33,315   $  37,481      $ 114,197
 General and administrative:
   Stock-based compensation (Note 5):
     Consulting services................ 1,202,063          --      1,202,813
     Legal services.....................   178,000          --        178,000
     Other..............................    37,500          --         37,500
     Related parties (Note 2)...........    12,000      12,000         37,000
     Payroll............................   129,352          --        129,352
     Professional and consulting
       services.........................   326,508      13,345        339,853
     Depreciation and amortization......     4,411       3,000          8,911
     Other..............................   262,263     148,488        430,658
                                          ---------  ----------    -----------
            Total operating expenses.... 2,185,412     214,314      2,478,283
                                          ---------  ----------    -----------
                Loss from operations....(2,185,412)   (214,314)    (2,478,283)

Non-operating income....................     1,000          --          1,000
Interest expense:
  Related parties (Note 2)..............   (10,647)     (9,125)       (20,742)
  Amortization of debt issue
    costs  (Note 4).....................   (26,250)         --        (26,250)
  Other.................................   (12,113)       (700)       (12,813)
                                         ----------  ----------    -----------
       Loss before income taxes.........(2,233,422)   (224,139)    (2,537,088)

Income tax provision (Note 3)...........        --          --             --
                                         ----------  ----------    -----------
                 Net loss..............$(2,233,422)  $(224,139)   $(2,537,088)
                                        ===========  ==========   ============


Basic and diluted loss per share*......$     (0.31)  $   (0.04)
                                         ==========  ==========

Basic and diluted weighted average
  common shares outstanding *..........   7,098,661   6,360,000
                                         ==========  ==========

 * Restated for August 16, 2001 reverse stock split.

 </Table>

See accompanying summary of significant accounting policies and notes
                to the financial statements.

                             F-4




                       HYDRO ENVIRONMENTAL RESOURCES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                 STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT

<Table>

                               <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, November 10, 1998
   (inception).....................    -   $     -            -    $     -    $      -    $      -     $      -
Office space contributed by
   the president (Note 2)..........    -         -            -          -         1,000         -          1,000
Net loss...........................    -         -            -          -           -       (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 2)...........   -         -      4,250,000     4,250          -           -          4,250
February 25, 1999, sale of
   common stock, net of
   $1,925 of offering costs
   ($.001/share) (Note 5)...........   -         -     11,300,000    11,300       (1,925)        -          9,375
March 1, 1999, capital contribution
   by the president (Note 2)........   -         -            -          -         3,210         -          3,210
May 31, 1999, expenses paid by
   the president on behalf of
   the Company (Note 2).............   -         -            -          -         1,700         -          1,700
June 16, 1999, shares issued in
   exchange for patent interest and
   rights ($.001/share) (Note 2)....   -         -     15,000,000    15,000           -          -         15,000
July 10, 1999, shares issued
   in exchange for financial
   advisory agreement ($.001/share)
   (Note 5).........................   -         -        750,000       750           -          -            750
Office space and use of equipment
   contributed by the president
   (Note 2).........................   -         -            -          -        12,000         -         12,000
Net loss............................   -         -            -          -            -      (78,517)     (78,517)
                                    ------- ---------  ----------   --------   ----------  ----------  -----------
       Balance, December 31, 1999      -         -     31,300,000    31,300       15,985     (79,527)     (32,242)

July 2, 2000, sale of
   common stock to an individual,
   $.05 per share ..................   -         -        800,000       800       39,200         -         40,000
July 2, 2000, sale of
   common stock to an individual,
   $.10 per share ..................   -         -        200,000       200       19,800         -         20,000
Office space and use of equipment
   contributed by the president
   (Note 2).........................   -         -            -          -        12,000         -         12,000
Net loss............................   -         -            -          -            -     (224,139)    (224,139)
                                    -------- ---------  ----------  --------     -------   ----------   ----------
       Balance, December 31, 2000      -         -      32,300,000   32,300       86,985    (303,666)    (184,381)

March 12, 2001, shares issued
   to attorney in exchange for
   legal services (Note 5)..........   -         -         200,000      200       51,800         -         52,000
May 17, 2001, shares issued as
   debt issue costs related to
   promissory notes (Note 4)........   -         -         125,000      125       26,125         -         26,250
May 17, 2001, shares issued
   in exchange for consulting
   services (Note 5)................   -         -         345,526      345       72,215         -         72,560
May 31, 2001, shares gifted to a
   shareholder (Note 5).............   -         -         150,000      150       37,350         -         37,500
May 31, 2001, shres issued
   in exchange for consulting
   services (Note 5)................   -         -         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 (Note 5)..........   -         -     (27,716,050) (27,716)      27,716         -           -
August 24, 2001, shares issued
   to attorney in exchange for
   legal services (Note 5)..........   -         -         200,000      200       49,800         -        50,000
September 10, 2001, shares
   issued to attorney in exchange
   for legal services (Note 5)......   -         -          50,000       50        9,950         -        10,000
September 10, 2001, shares issued
   to shareholders in exchange for
   consulting services (Note 5).....   -         -       1,000,000     1,000     199,000         -       200,000
October 23, 2001, shares issued
   to attorney in exchange for
   legal services (Note 5)..........   -         -         300,000       300      65,700         -        66,000
October 23,2001, shares
   issued in exchange for
   consulting services (Note 5).....   -         -       1,500,000     1,500     328,500         -       330,000
October 30, 2001, shares
   issued in exchange for
   consulting services (Note 5).....   -         -         879,096       879     130,986         -       131,865
November 6, 2001, shares
   issued in exchange for
   consulting services (Note 5).....   -         -         180,000       180      26,820         -        27,000
November 30, 2001, shares
   issued in exchange for
   consulting services (Note 5).....   -         -         900,000       900     161,100         -       162,000
December 5, 2001, shares issued to
   shareholder in exchange for
   consulting services (Note 2).....   -         -         300,000       300      44,700         -        45,000
Office spaced and use of equipment
   contributed by the president
   (Note 2).........................   -         -            -           -       12,000         -        12,000
Net loss............................   -         -            -           -         -     (2,233,422) (2,233,422)
                                    -------- ---------  ----------  --------     -------  ----------- -----------
      Balance, December 31, 2001....   -     $   -      12,238,124  $ 12,238  $1,592,360 $(2,537,088) $ (932,490)
                                    ======== =========  ==========  ========  ========== ============ ===========
</Table>

       See accompanying summary of significant accounting policies
                and notes to the financial statements.

                               F-5

               HYDRO ENVIRONMENTAL RESOURCES, INC.
                  (A DEVELOPMENT STAGE COMPANY)

                    STATEMENTS OF CASH FLOWS
 <Table>
 
                                        <c>          <c>           <c>
                                                                        November 10,
                                                                           1998
                                              For the Years Ended       (Inception)
                                                  December 31,            through
                                            ------------------------    December 31,
                                               2001         2000           2001
                                            ----------   -----------    ------------
Cash flows from operating activities:
   Net loss...............................  $(2,233,422) $(224,139)     $(2,537,088)
   Adjustments to reconcile net loss to
    net cash used by operating
    activities:
      Depreciation and amortization.......        4,411      3,000            8,911
      Stock-based compensation (Note 5)...    1,443,813        --         1,444,563
      Services contributed by
       officers (Note 2)..................         --          --            12,000
      Office space and use of equipment
       contributed by the president
       (Note 2)...........................       12,000     12,000           25,000
      Changes in operating liabilities:
       Accounts payable and accrued
        liabilities.......................      141,513     20,321          168,741
                                            ------------  ---------      -----------
               Net cash provided by
                (used in) operating
                 activities...............     (631,685)  (188,818)        (877,873)
                                            ------------  ---------      -----------

Cash flows from investing activities:
  Purchases of equipment..................       (4,727)      --             (4,727)
                                            ------------  ---------      -----------
              Net cash used in
                financing activities......       (4,727)      --             (4,727)
                                            ------------  ---------      -----------

Cash flows from financing activities:
  Capital contributions from the
    president (Note 2)....................          --        --              4,910
  Proceeds from advances from the
    Company's president (Note 2)..........       36,394    143,684          233,678
  Repayment of advances from the
    president (Note 2)....................          --     (17,999)         (23,099)
  Proceeds from advances from the
    Company's shareholders (Note 2).......      425,457       --            425,457
  Repayment of advances from
    shareholders (Note 2).................      (69,160)      --            (69,160)
  Proceeds from notes and loans
    convertible to common stock
    (Note 4)..............................      208,000       --            208,000
  Proceeds from sale of common stock......       29,500     60,000          105,050
  Payment of offering costs...............         --         --             (1,925)
                                           -------------  ---------      -----------
              Net cash provided by
                financing activities......      630,191    185,685          882,911
                                           -------------  ---------      -----------
                Net change in cash........       (6,221)    (3,133)             311

Cash, beginning of period.................        6,532      9,665              --
                                            ------------  ---------      -----------
Cash, end of period.......................  $       311   $  6,532        $     311
                                            ============  =========      ===========

Supplemental disclosure of cash flow
 information:
   Income taxes...........................  $       --    $   --          $     --
                                            ============  =========      ===========
   Interest...............................  $       --    $   --          $     --
                                            ============  =========      ===========

Non-cash financing activities:
  Common stock issued in exchange for
    patent interests and rights
    (Note 2)..............................  $       --    $   --          $ (15,000)
                                            ============  =========      ===========
</Table>

                                       F-6

                  HYDRO ENVIRONMENTAL RESOURCES, INC.
                   Notes to Financial Statements

(1)  Nature of Operations and Summary of Significant Accounting
     Policies

Nature of Operations

The Company was incorporated under the laws of Oklahoma on November
10, 1998.  The principal activities since inception have included
the acquisition of patent interests and rights for an Electro-Chem
Hydrogen Fuel Reactor ("ECHFR"), research and development of the
ECHFR, 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
and other sources of power.

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 that is in default on certain loans at
December 31, 2001 and has suffered significant operating 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 satisfy cash
requirements through cash infusions from officers and principal
shareholders in exchange for debt or restricted common stock.  In
addition, management plans to continue the policy of issuing common
stock in exchange for services.  Management is also considering (1)
a private offering and sale of common stock, (2) a public offering
and sale of common stock, or (3) a combination of the two previous
options.  The Company's future success is ultimately dependent upon
its ability to create and provide effective and competitive
services on a timely and cost-effective basis.

Development stage company

Hydro Environmental Resources, Inc. (the "Company") is in the
development stage in accordance with Financial Accounting Standards
Board ("FASB") Statements of Financial Accounting Standards
("SFAS") No. 7 "Accounting and Reporting by Development Stage
Enterprises".

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.


                                F-7


                HYDRO ENVIRONMENTAL RESOURCES, INC.
                   Notes to Financial Statements


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.
The Company had no cash equivalents at December 31, 2001.

Equipment and depreciation

Equipment is stated at cost and is depreciated over its estimated
useful life using the straight-line method.

Upon retirement or disposition of the furniture and equipment, the
cost and accumulated depreciation are removed from the accounts and
any resulting gain or loss is reflected in operations.  Repairs and
maintenance are charged to expense as incurred and expenditures for
additions and improvements are capitalized.

Intangible assets

Intangible assets are stated net of accumulated amortization and
include the patent application rights and interests to the
proprietary technology and processes involving the ECHFR valued at
$15,000.  The $15,000 is amortized on a straight-line basis over
five years.  Amortization expense for the years ended December 31,
2001 and 2000, and for the period from November 10, 1998
(inception) through December 31, 2001 totaled $3,000, $3,000, and
$7,500, respectively.

Impairments on long-lived assets

The Company evaluates the recoverability of long-lived assets in
accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of."  SFAS No. 121
requires recognition of impairment of long-lived assets in the
event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.

Debt issue costs

Debt issue costs consist of common stock issued to note holders
during the year ended December 31, 2001.  Debt issue costs are
deferred and amortized over the period of the notes.  Amortized
deferred issue costs are recorded as interest expense.  All of the
notes matured during the year ended December 31, 2001; therefore,
the debt issue costs are included in the accompanying financial
statements as interest expense.


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.

                                F-8

                HYDRO ENVIRONMENTAL RESOURCES, INC.
                   Notes to Financial Statements


Fair value of financial instruments

The Company's financial instruments, including cash and current
liabilities are carried at cost, which approximates their fair
value because of the short-term maturity of these instruments.

Loss per share

The Company reports net loss per share using a dual presentation of
basic and diluted loss per share. Basic net loss per share excludes
the impact of common stock equivalents.  Diluted net loss per share
utilizes the average market price per share when applying the
treasury stock method in determining common stock equivalents.  The
Company has a simple capital structure for all periods presented;
therefore, basic and diluted losses per share at December 31, 2001
and 2000 are equal.

Stock-based compensation

The Company accounts for stock-based employee compensation
arrangements in accordance with Accounting Principles Board ("APB")
Opinion 25, "Accounting for Stock Issued to Employees" and complies
with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation."  Under APB No. 25, compensation expense
is based on the difference, if any, on the date of grant, between
the fair value of the Company's stock and the exercise price.  The
Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123.  SFAS 123 requires the fair
value based method of accounting for stock issued to non-employees
in exchange for services.

Companies that elect to use the method provided in APB 25 are
required to disclose pro forma net income and pro forma earnings
per share information that would have resulted from the use of the
fair value based method.  The Company has elected to continue to
determine the value of stock-based compensation arrangements with
employees under the provisions of APB 25.  Pro forma disclosures
are not included in the accompanying financial statements as there
were no employee stock-based compensation arrangements as of
December 31, 2001.

(2)  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 years ended December 31, 2001 and 2000, the president
contributed the use of office equipment to the Company.  The 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, 2001, shareholders advanced the
Company $425,457 for working capital.  The advances do not carry an
interest rate and are due on demand.  The Company repaid $69,160 as
of December 31, 2001.  The $365,297 balance owed at December 31,
2001 is included in the accompanying financial statements as due to
shareholders.


                                F-9

                HYDRO ENVIRONMENTAL RESOURCES, INC.
                   Notes to Financial Statements

During the years ended December 31, 2001, 2000 and 1999, the
president loaned the Company $24,777, $134,559, and $53,600,
respectively, for working capital.  The loans bear interest at six
percent and are due on demand.  As of December 31, 2001, the
Company had repaid $23,099.  As of December 31, 2001, accrued
interest receivable on the advances totaled $20,742.  The $210,579
balance of outstanding advances and accrued interest is included in
the accompanying financial statements as due to officer.

On December 5, 2001, the Company issued 300,000 shares of its
common stock to a shareholder 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
$45,000.

On September 10, 2001, the Company issued 1,000,000 shares of its
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 year
ended December 31, 2001.

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.

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 February 25, 1999, 4,250,000 shares of common stock were sold to
an officer and affiliates of the Company for $4,250 ($.001 per
share).

On November 17, 1998, an affiliate advanced the Company $100 to
open its bank account.  The Company repaid the $100 on February 24,
1999.

(3)  Income Taxes

A  reconciliation of the U.S. statutory federal income tax rate  to
the effective rate is as follows:


                                                             December 31,
                                                     ------------------------
                                                          2001          2000
                                                     -----------  -----------

U.S. federal statutory graduated rate...............     34.00%        30.80%
State incomne tax rate,
 net of federal benefit.............................      0.00%         6.12%
Permanent differences...............................     -0.27%         0.00%
Net operating loss for which no tax
 benefit is currently available.....................     -33.73%      -36.92%
                                                      ----------     --------
                                                           0.00%        0.00%
                                                      ==========     ========


At December 31, 2001, deferred taxes consisted of a net tax asset
of $854,586, due to operating loss carryforwards of $2,462,067,
which was fully allowed for, in the valuation allowance of
$854,586.  The valuation allowance offsets the net deferred tax
asset for which there is no assurance of recovery.  The change in
the valuation allowance for the years ended December 31, 2001 and
2000 totaled $753,469 and $82,751.  Net operating loss
carryforwards will expire through 2021.

                                 F-10

                 HYDRO ENVIRONMENTAL RESOURCES, INC.
                   Notes to Financial Statements

The valuation allowance will be evaluated at each balance sheet
date, 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.

Should the Company undergo an ownership change as defined in
Section 382 of the Internal Revenue Code, the Company's tax net
operating loss carryforwards generated prior to the ownership
change will be subject to an annual limitation, which could reduce
or defer the utilization of these losses.

(4)  Notes Payable

Convertible promissory notes

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.  The 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 as
interest expense for the year ended December 31, 2001.  Interest
expense of $28,000 (including $26,250 of debt issue costs) was
recognized in the accompanying financial statements for the year
ended December 31, 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 December 31, 2001.

                               F-11

                HYDRO ENVIRONMENTAL RESOURCES, INC.
                   Notes to Financial Statements


(5)  Shareholders' Deficit

Preferred stock

The Board of Directors is authorized to issue shares of preferred
stock in series and to fix the number of shares in such series as
well as the designation, relative rights, powers, preferences,
restrictions, and limitations of all such series.  The Company had
no preferred shares issued and outstanding at December 31, 2001.

Common stock

Share sold for cash

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 claimed 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.

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 6,929,028.  The loss per share and weighted average common
shares outstanding disclosures in the accompanying financial
statements have been restated to reflect the reverse stock split.

Stock-based compensation

During the year ended December 31, 2001, the Company issued 750,000
shares of its common stock to its attorney in exchange for legal
services.  The market value of the common stock ranged from $.20 to
$.26 per share.  Stock-based compensation expense of $178,000 was
recognized in the accompanying financial statements for the year
ended December 31, 2001.

During the year ended December 31, 2001, the Company issued
4,739,174 shares of its common stock to unrelated third parties in
exchange for marketing, funding, administrative, managing, due
diligence and other consulting services.  The market value of the
common stock ranged from $.15 to $.25 per share.  Stock-based
compensation expense of $957,063 was recognized in the accompanying
financial statements for the year ended December 31, 2001.

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 year ended December 31,
2001.

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-12

                HYDRO ENVIRONMENTAL RESOURCES, INC.
                   Notes to Financial Statements

(6)  Commitments and Contingencies

Office lease

The Company entered into an operating lease for office space on
February 1, 2001.  The lease commenced February 1, 2001 and expires
January 31, 2004.  Minimum monthly payments under the lease total
$2,600.  Future minimum lease payments are as follows:

December 31,
   2002.........................................$  31,200
   2003.........................................   31,200
   2004.........................................    2,600
                                                ---------
                                                $  65,000
                                                =========


Contingencies

On August 1, 2001, the Company received a subpoena from the
Securities and Exchange Commission ("SEC") to appear, through its
custodian of records, for testimony and to produce documents.  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.  The Company received a notice from the SEC
via telephone that the informal investigation had been closed;
however, the Company has not received a written confirmation.

On August 6, 2001, the Company received a subpoena from the SEC 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.  The Company received a notice from the SEC via
telephone that the informal investigation had been closed; however,
the Company has not received a written confirmation.

(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.


                               F-13

                HYDRO ENVIRONMENTAL RESOURCES, INC.
                   Notes to Financial Statements

(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, 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 December
31, 2001, the Company owed PowerTek $183,000 for loans advanced
during the year ended December 31, 2001.  $10,363 of interest had
accrued on the loans as of December 31, 2001.  A settlement of the
debt was reached among the companies on March 13, 2002 (see Note
10).

(9)  License Agreement

On October 25, 2001, the Company 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.

(10) Subsequent events

On March 11, 2002, the Company accepted a total of $150,000 from
two shareholders in exchange for two $75,000 promissory notes.  The
notes are interest-free and mature on March 11, 2004.  The notes
may be converted into shares the Company's common stock at the
discretion of both parties.

On March 13, 2002, the Company entered into a settlement agreement
with PowerTek for the debt and accrued interest owed by the Company
to PowerTek (see Note 8).  In accordance with the settlement
agreement, the Company paid PowerTek $150,000 against the debt and
PowerTek forgave the remaining balance due.


                               F-14



ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE.

There have been no changes in or disagreements with the Company's
accountants since the formation of the Company required to be
disclosed pursuant to Item 304 of Regulation S-B.

                            PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
          PERSONS; COMPLIANCE WITH SECTION 18(a) OF THE EXCHANGE
          ACT

The members of the Board of Directors of Hydro serve until the
next annual meeting of the stockholders, or until their
successors have been elected. The officers serve at the pleasure
of the Board of Directors.

Name                       Age   Position                 Director Since
-------------------------------------------------------------------------

Jack H. Wynn               71    President and Director   November 1998

John L. Wheeler            58    Director                 December 2000

David A. Youngblood        43    Director                 July 2001




Jack H. Wynn

Mr.  Wynn has been the sole officer and a director of the Company
since  its  inception in November 1998 until December 2000.   Mr.
Wynn  helped the Company raise funds for research and development
as   well  as  developing  a  present  marketing  plan  and   was
instrumental in taking the Company public.  He also is  currently
the  owner  of  North  Bay Corporate Services  Firm  in  Hayward,
California  which  he founded in 1998.  Prior to  founding  Hydro
Environmental Resources, Inc., from 1980 to 1983,  Mr.  Wynn  was
Chairman of the Board of Scanner Energy, an Oklahoma leasing  and
oil  production corporation with leases in numerous states.  From
1984  to 1989, Mr. Wynn formed and operated the Oklahoma Transfer
and  Registrar  Corporation, which was later transferred  to  San
Francisco,    California   as   Securities   Transfer    Pacifica
Corporation.  During his years as owner and manager, the  company
contracted   and   transferred  shares   for   over   60   public
corporations.  While at the company, Mr. Wynn developed  a  state
of  the  art computer system used by many transfer agents  today.
During this time, he was also instrumental in the development and
growth  of  Power Train corporation, a company which successfully
developed  the  hydraulic power system  used  in  heavy  industry
today.  From  1972 to 1980, Mr. Wynn was a partner with  Scholen,
Wynn  &  Associates, a securities and insurance  brokerage  firm.
Mr.  Wynn  has over twenty years experience in the life insurance
industry, including ten years with Occidental Life Insurance.

John L. Wheeler

Mr. Wheeler has been qualified as an attorney at law in Australia
since 1965.  He started private practice in 1970.   Since forming
his own practice, he has been involved in many notable cases,
which have been groundbreaking legal precedents throughout the
years.  He has on numerous occasions been asked to advise the
government or opposition on proposed legislation. He has
practiced in commercial law and has advised on public company
acquisitions and mergers domestically and internationally.
Beginning in 1991 Mr. Wheeler spent several years in the United
States with an Australian group listing public corporations.
Currently he is involved in assisting in the development of
public corporations specializing in new technology.  Mr. Wheeler
was the foundation president of the Big Brother Big Sister
movement in Australia and held that position for 10 years.  He
has been a member of other charities, including Boys Town
Queensland, Pregnancy Help and Centrecare.

David A. Youngblood

David Youngblood is the Supervisor of Research at the Company.
Prior to the opening of the Company's headquarters in February
2001, he was instrumental in Finance, Human Resources, Lab Design
and many other facets of company start-up as a consultant. Since
taking the Research and Development position, he orchestrated the
development of an all-new ECHFR unit, converted hydrogen vehicle,
support systems, and is currently developing several projects not
yet released. Prior to his positions with the Company, Mr.
Youngblood from 1997-2000 accepted a R&D Technician position with
Nikon Research Corporation of America in Belmont, California. His
role was developing of concepts and projects related to
Microphotolithography manufacturing processes for optically
exposing of silicon wafers and new products with the NRCA
Engineering staff. His duties were reporting and supporting the
Director of Electronics and support of mechanical designers,
mechanical engineers and consultants. Other responsibilities
included Electromechanical packaging, quality manufacturing,
lab/facility support, equipment and component specification, Cad
Design, Mechanical and Electronic inspection, circuit board
proofing and general manufacturing practices.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), requires that the Company's
officers and directors, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities,
file reports of ownership and changes of ownership with the SEC.
Officers, directors and greater than ten percent (10%)
shareholders are required by SEC regulation to furnish the
Company with copies of all such reports they file.

Based solely on its review of the copies of such reports received
by the Company, and on written representations by the Company's
officers and directors regarding their compliance with the
applicable reporting requirements under Section 16(a) of the
Exchange Act, the Company believes that, with respect to its
fiscal year ended December 31, 2001, all of the Company's
directors and officers and all of the persons known to the
Company to own more than ten percent (10%) of the Company's
Common Stock, either failed to file, on a timely basis, or have
yet to file the required beneficial ownership reports with the
SEC.


ITEM 10.  EXECUTIVE COMPENSATION

None of the Company's officers and/or directors receive any
compensation for their respective services rendered to the
Company, nor have they received such compensation in the past.
They have agreed to act without compensation until authorized by
the Board of Directors, which is not expected to occur until the
Company has generated revenues from operations. As of the date of
this proxy statement, the Company has no funds available to pay
directors. Further, none of the directors are accruing any
compensation pursuant to any agreement with the Company.

No retirement, pension, profit sharing, stock option or insurance
programs or other similar programs have been adopted by the
Company for the benefit of its employees.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT.

The following table sets forth certain information known to the
Company with respect to the beneficial ownership of its common
stock as of March 28, 2002, by (i) each person known by the
Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director of the Company,
(iii) each named executive officer, and (iv) all directors and
officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject
to community property laws where applicable.

     Name and Address of
     Beneficial Owner (1)    Amount of Ownership (2)       Percent of Class

     Jack H. Wynn                  1,480,000                     7.8%
     John Wheeler                          0                      *
     David A. Youngblood              86,000                      *

     Officers and directors
     as a Group (3 persons)        1,566,000                     8.2%

*   constitutes less than one 1 percent (1%) of all issued and
    outstanding shares of Common Stock.

----------

(1) Unless otherwise indicated, the address of each
    beneficial owner is that of the Company.

(2) Beneficial ownership is determined in accordance with the
    rules of the SEC, based on factors including voting and
    investment power with respect to shares. Common stock
    subject to options currently exercisable, or exercisable
    within 60 days after March 28, 2002, are deemed outstanding
    for computing the percentage ownership of the person holding
    such options, but are not deemed outstanding for computing
    the percentage ownership for any other person.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED 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 years ended December 31, 2001 and 2000, the president
contributed the use of office equipment to the Company.  The 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, 2001, shareholders advanced
the Company $425,457 for working capital.  The advances do not
carry an interest rate and are due on demand.  The Company repaid
$69,160 as of December 31, 2001.  The $365,297 balance owed at
December 31, 2001 is included in the accompanying financial
statements as due to shareholders.

During the years ended December 31, 2001, 2000 and 1999, the
president loaned the Company $24,777, $134,559, and $53,600,
respectively, for working capital.  The loans bear interest at
six percent and are due on demand.  As of December 31, 2001, the
Company had repaid $23,099.  As of December 31, 2001, accrued
interest receivable on the advances totaled $20,742.  The
$210,579 balance of outstanding advances and accrued interest is
included in the accompanying financial statements as due to
officer.

On December 5, 2001, the Company issued 300,000 shares of its
common stock to a shareholder 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 $45,000.

On September 10, 2001, the Company issued 1,000,000 shares of its
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 year
ended December 31, 2001.

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.

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 February 25, 1999, 4,250,000 shares of common stock were sold
to an officer and affiliates of the Company for $4,250 ($.001 per
share).

On November 17, 1998, an affiliate advanced the Company $100 to
open its bank account.  The Company repaid the $100 on February
24, 1999.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

Financial Statements and Schedules

A list of the Financial Statements and Financial Statement
Schedules filed as part of this Report is set forth in Item 7,
and appears at page F-1 of this Report, which list is
incorporated herein by reference.

(a) Exhibits

        Number      Description

          3.1       Articles of Incorporation (State of Nevada)
                    (incorporated by reference to the Form 10-QSB
                    filed with the Commission on August 20,
                    2001).

          3.2       By-laws (State of Nevada) (incorporated by
                    reference to the Form 10-QSB filed with the
                    Commission on August 20, 2001).

          3.3       Articles of Merger (incorporated by reference
                    to the Form 10-QSB 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.
                    (incorporated by reference to Exhibit 10.2 to the
                    Form 10-QSB filed with the Commission on November 14,
                    2001).


(b) Reports on Form 8-K

The Company did not file any Current Reports on Form 8-K during
the quarter ended December 31, 2001.



                           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, thereunder duly authorized.

                           Hydro Environmental Resources, Inc.


                           By:/s/ Jack H. Wynn
                              Jack H. Wynn, President and
                              Director

                           Date: April 16, 2002


In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.



                           By: /s/ Jack H. Wynn
                              Jack H. Wynn, President and
                              Director

                           Date: April 16, 2002


                           By: /s/ John L. Wheeler
                              John L. Wheeler, Director

                           Date: April 16, 2002


                           By: /s/ David A. Youngblood
                              David A. Youngblood, Director

                           Date: April 16, 2002