LV fuel cell firm facing SEC probe

David Strow

Wednesday, Aug. 22, 2001 | 11:04 a.m.

A small Las Vegas company announced Monday it is the target of an investigation by the Securities and Exchange Commission.

In its quarterly report, Hydro Environmental Resources Inc. said it was subpoenaed for documents twice this month by the SEC.

Hydro Environmental, a development-stage company located at 5725 S. Valley View Blvd., claims to be developing a fuel cell that produces low-pressure hydrogen that can be used for the generation of electricity. Its stock trades over-the-counter.

The fuel cell can use waste water and generates electricity and distilled water as byproducts, the company claims on its Internet website.

The SEC's investigation appears targeted at numerous press releases issued by the company this year detailing its development efforts.

The SEC refuses to discuss pending investigations and a spokesman today declined to confirm or deny whether there is an investigation of Hydro Environmental.

But such investigations typically involve concerns or allegations that investors bought or sold stock based on incomplete or misleading company information; or that company statements and information were used in manipulation of a company's stock price.

In the first subpoena, the SEC ordered company officials to appear for testimony and to produce "all documents supporting the contentions made in press releases during 2001."

Specifically, the SEC said it wants documents related to the company's patents, hydrogen-powered experimental vehicle testing, draft press releases issued to the company's public relations firm, an agreement with the inventor of the fuel-cell technology, and an agreement to sell a power plant to a New Zealand lumber company that was later cancelled.

A second subpoena issued six days later demands the production of documents related to a stock purchase agreement between the company and PowerTek Holdings Ltd., a Swiss holding company. Hydro said in July it had signed an agreement to jointly develop a low-cost, hydrogen-powered fuel cell with PowerTek, and PowerTek had agreed to purchase $500,000 in stock and to lend the company up to $2 million for research and development.

Hydro said it plans to provide the SEC with the requested documents, "thus relieving it of the need to appear for testimony."

Hydro officials could not be reached for comment this morning. The company's financial documents indicate, however, that the company has five full-time employees in Las Vegas, and plans to hire as many as seven more, subject to additional financing.

Its president and founder is Jack Wynn, who has alternatively worked as chairman of an Oklahoma oil production and leasing firm, a California securities transfer firm, and a California corporate services firm, according to company SEC filings. Wynn incorporated the company in Oklahoma in November 1998, and acquired the rights to the hydrogen fuel cell from its Australian inventor for 15 million shares of stock and 5 percent of all future royalties.

Hydro has never reported revenues since its founding, and has accumulated net losses of $1.14 million since that time, including a net loss of $560,000 in the quarter ending June 30, 2001. It had just $23,000 in cash at that time; much of the company's expenses, such as legal and consulting fees, were paid for with stock in Hydro, the SEC documents state.

Until the end of 2000, Wynn was the company's only employee, and Hydro was located at his offices in Hayward, Calif. The company hired three employees in December 2000 and a fourth in April; all are now directors of the company. In February the company moved its offices to Las Vegas and reincorporated in Nevada, a move the company said was prompted by the state's "flexible corporate laws," which would make it easier for the company to sell stock and execute possible acquisition or merger deals.

Hydro made no indication that it would halt operations because of the SEC probe, and indicated it plans to continue efforts to raise additional capital in its quarterly report. However, the company has not issued a press release since July 18, after issuing eight in June and July.