UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
0-20033 84-1084784
(Commission File Number) (IRS Employer Identification Number)
AMERIRESOURCE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
7400 E. Caley Avenue, Suite 210, Englewood, Colorado 80111
(Address of Principal Executive Offices) (Zip Code)
(303) 771-2411
(Issuer's telephone number)
KLH ENGINEERING GROUP, INC.
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the 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 X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
143,696,297 shares, par value $0.0001 per share, were outstanding as of
July 15, 1996.
NOTE: All references to the "Company" contained in this report shall
include AmeriResource Technologies, Inc., a Delaware corporation (the
"Parent"), as well as the Parent's subsidiaries, unless the context
indicates otherwise. References to "Tomahawk" refer to Tomahawk
Construction Company, a Missouri corporation and wholly-owned subsidiary
of the Company. References to the "Engineering Subsidiary" refer to the
remaining subsidiaries of the Company with the exception of "Extracts
Subsidiary" which refers to Native American Herbal Enterprises, Inc. a
company in the process of incorporation in the State of Colorado, and
eighty percent (80%) owned by the Company.
PART I
ITEM 1. FINANCIAL STATEMENTS
The Company's unaudited financial statements appear at the end of
this Quarterly Report on Form 10-QSB.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The Company's present name was adopted on July 16, 1996. Formerly,
the Company's name was KLH Engineering Group, Inc. The Company was
originally incorporated in 1988, and in 1990 began a strategy of rapidly
acquiring a broad spectrum of private civil engineering firms throughout
the Western United States.
In late November 1993, the Company announced major consolidation
plans including the closure of offices. By May 1994, the Company had
closed six of its subsidiaries and sold three others. The funds
realized from the sale of subsidiaries KLH Bryan & Murphy, Inc. and
Resource Consultants & Engineers, Inc. were utilized to retire debt owed
by the Company. The operations sold in 1994 reduced secured debt by
$480,000. After the effect of sales and closures of operations, the
Company posted a gain from the sale and closure of subsidiaries of
$134,915 for 1994.
On September 15, 1994, Tomahawk Construction Co. (the "Construction
Subsidiary") filed for Reorganization under the under the United States
Bankruptcy Code (the "Code"). On August 28, 1995, the Construction
Subsidiary emerged from bankruptcy by having its Plan of Reorganization
approved. The Plan of Reorganization divides Allowed Claims and Allowed
Interests in Tomahawk into various Classes which Tomahawk believes
complies with the classification requirements of the Code. Distributions
to the holders of Allowed Claims under the Plan are in full satisfaction
of those Allowed Claims. The Construction Subsidiary continues to
operate under the Plan of Reorganization. There has been no material
change in the terms or payments under the plan since the Company filed
its 1995 Annual Report on Form 10-KSB on April 22, 1996.
In July 1995, the Company made the decision to close its office
near Monterrey, Mexico. The unexpected decline in value of the Mexican
Peso and the political and economic turmoil in Mexico led to the
conclusion that the office could not be profitable in the foreseeable
future. Any work done in Mexico is now done through the Company's
offices in the United States. The Company currently has one project in
Mexico for which for which it is still awaiting payment.
In January of 1996, the Company entered into negotiations with
Future Farm, U.S.A. for the engineering and construction of Hydroponic
farming facilities. These facilities are a patented closed system
growing process for fruits and vegetables. In April 1996, the Company
entered into a contract with Hy Plains Development Corp., which holds
the right to construct and engineer the Future Farm, U.S.A. hydroponic
facilities, and to engineer and provide construction management services
for all facilities worldwide. This is an exclusive contract for all
facilities to be constructed. Several locations within the United
States should be ready for construction in 1996. Effective July 31,
1996 the Company acquired a 25% interest in Future Farm USA in a stock
exchange.
In March of 1996, the Company closed its office in San Mateo,
California (the "San Mateo Closure"). The San Mateo Closure allowed the
Company to reduce its General and Administrative expenses. This savings
will not be reflected until the second quarter of 1996. In May 1996,
the Company sold the assets of its Pueblo subsidiary (the "Pueblo Asset
Sale") to Northstar Engineering and Surveying, Inc. for $240,000. The
proceeds from the Pueblo Asset Sale were used to pay various creditors
of the Company, thereby reducing the total liabilities of the Company.
Management believes the overall affect of the San Mateo Closure and the
Pueblo Asset Sale will be positive, because the Company will be lowering
general and administrative cost while being able to maintain its same
level of services to the Company's customers through its other offices.
On May 15, 1996, the Company acquired eighty percent of the assets
and contracts of Ex-Act Extracts. The assets and contracts are to be
placed into a new corporation named Native American Herbal Enterprises,
Inc. (the "Extracts Subsidiary") which will be managed by Dan Reeter, an
expert in the field of chemistry and plant genetics and the owner of the
remaining twenty percent of the Extracts Subsidiary. This business
utilizes culls from fruits and vegetables, which are currently used for
livestock feed or discarded, to extract amino acids, flavonoid,
essential oils, volatile oils, proteins, fiber, pigments, and
concentrates. Once extracted and dehydrated, the mixtures will be sold
to manufacturers in the health care and cosmetic industries. The
Company believes that the hydroponic operations, which the Company is
now pursuing, will enable the Extracts Subsidiary to have access to the
raw material necessary to produce its products. The total purchase
price for the assets to be paid by the Company is 1.7 million shares of
the Company's restricted common stock. The value of the assets and
inventory purchased are $356,250, or approximately $.21 per share
relinquished.
On July 12, 1996, the Company closed its Lakewood, Colorado
engineering subsidiary as a result of continuously declining revenue
from that office since the fall of 1995.
During August 1996, the Company expects to complete its acquisition
of York Engineering & Surveying, Inc. ("York"). York performs civil,
electrical and structural engineering services. The acquisition of York
will allow the Company the opportunity to provide a greater diversity of
Engineering Services to its customers. York has been providing
engineering services in the Denver area for more then 15 years.
Since 1994, the Company has been able to reduce overhead through
the elimination of duplicative positions and the implementation of
various cost cutting measures. This reduction in cost has already been
seen as the Company has reduced annual administrative expense by over
$306,000 in 1994, $1,015,844 in 1995, and $521,323 in the first two
quarters of 1996. Part of this reduction was due to the elimination of
certain executives of the Engineering Subsidiary and the closure of
offices mentioned previously. The terminated executives' functions are
now handled by existing Company personnel.
Liquidity and Capital Resources
The Company receives its income on progress billings made during
the course of its engineering and construction projects. However, there
is usually a lag period of 90 to 120 days between the time the
Construction Subsidiary incurs the expense for the work and collection
from the project owner, and an average lag period of 63 days for the
Engineering Subsidiary. In March of 1996, the Company hired a credit
manager to assist with collection of its receivables. The Company is
attempting to speed up its collection process. The length of time
between providing services and collection for those services requires
the Company to maintain either substantial retained income or obtain
lines of credit from various banking institutions. In addition, since
the engineering/construction industry is somewhat seasonal (depending on
the location of the jobs), it is important to have sufficient reserve
funds, or the ability to obtain such funds, to permit the Company to
last through the winter months when business is at its slowest. It is
important to have reserves available to bid on new jobs and begin work
in the spring until revenue generated from new jobs are available to pay
overhead. During the winter of 1995/1996 the Engineering Subsidiary was
able to land new contracts which will help the Company with revenue.
During the second half of 1996, management anticipates that the new
operation of York, the Extracts Subsidiary and the hydroponic
operations will produce year round cash flow for the Company. The
Company has been able to meet short term cash needs through the sale of
the Pueblo office and through the reduction of employees resulting from
the San Mateo and Lakewood closures.
The Engineering Subsidiary typically enjoys profit margins of
7-20%, depending on the job and the engineering disciplines required.
The Company, by providing design/build services, is attempting to
increase its overall profitability margin and provide work for the
Construction Subsidiary. Some of the work currently being sought is
located on Indian Reservation and Indian Trust Lands. This work
generally focuses on providing economic development to tribes, including
truck stops, motels, recreational facilities, bingo, and casinos. In
addition, work as Construction Manager for housing projects is also
being sought.
In August 1995, the Company retained Dustan Shepherd as a
consultant to locate and work with Native American tribes. Mr. Shepherd
consults with the tribes in developing housing and economic projects on
reservations. In addition, Dustan Shepherd is the President of First
Americans Mortgage Corp., which provides financing for the development
of these housing projects. The Company will participate in the
engineering and construction management involved in the Indian Housing
Projects, and some economic development. In April 1996, the Company was
awarded its first Native American construction management contract with
a Nebraska tribe to build homes. The total value of the homes, to be
built in 1996, under this contract is approximately $1,200,000 with the
opportunity to build up to approximately $4,800,000 over the next three
year period. Construction began on the housing on July 22, 1996. On
July 25, 1996 the Company was awarded a contract to construct five
4-plex apartment buildings for the same Nebraska tribe. The total
construction value for Phase I of the 4- plex project is approximately
$1,300,000. The Company is in negotiations with other Native American
Housing groups to perform construction management services.
On August 11, 1995, the Company obtained a $1,500,000 financial
line with Industrial State Bank of Kansas City, Kansas. This line of
credit is amortized over a 15 year period, with the loan due and payable
in three years. This financial line paid off the previous obligations
of the Company with Industrial State Bank in the approximate sum of
$709,000, paid off the balance with First State Bank of Kansas in the
amount of $300,000, and paid toward the obligations arising out of the
reorganization of Tomahawk. This financial arrangement, coupled with
the purchase by Delmar A. Janovec of the Tomahawk loan held by
Industrial State Bank and the conversion of a majority of the Tomahawk
loan to preferred stock helped the Company to move forward. The Pueblo
Sale discussed above also provided short term capital needed by the
Company.
The Plan of Reorganization of Tomahawk approved on August 28, 1995
allows the Bankruptcy Court to retain jurisdiction to hear the Company's
claim against M.K. Ferguson/Department of Energy on a project in Oak
Ridge, Tennessee. This claim was presented May 29, 1996 in the
approximate amount of $4.3 million. Any funds collected, after payment
of subcontractors and materialmen on the project, by Tomahawk as a
result of these claims will substantially aid the Company in managing
its current liquidity difficulties. The Company is actively negotiating
the claim
The Company will attempt to meet needs for capital in the future by
increasing revenues, through obtaining both the design side of a project
and the building side, or by obtaining the construction management
portion of designed projects. In addition, as mentioned above, the
Company is diversifying into the manufacturing of base materials for the
health and cosmetic industry through the acquisition of the Extracts
subsidiary and the acquisition of the hydroponic farms. Management
believes this new company will provide sufficient revenues to replace
the closed operations and provide revenue on a year round basis.
Management believes that diversifying the Company will enable it to
increase not only revenues, but also resulting profits. Although
management feels it has taken steps toward increasing profitability in
the future, there can be no assurance that profitability will increase
or that the Company will be able to successfully compete in the highly
competitive industry. The Company is currently seeking merger
opportunities with engineering firms specializing in engineering
disciplines other than those in which the Company has traditionally been
involved. The Company believes that with the closing of the offices
mentioned it has sufficient resources and employees to compete for its
traditional work, and that as a result of this, coupled with the
diversification of the Company, the Company will be stronger in the
future.
Comparison of Second Quarter 1996 With Second Quarter 1995
First quarter net service income in 1996 decreased 77% over 1995.
This was primarily due to the Construction Subsidiary not having
substantial contracts during the first or second quarters of 1996, while
during the first quarter of 1995 the Construction Subsidiary was still
completing contracts which were obtained prior to filing for
reorganization. General and administrative expenses decreased 32% from
$940,970 in 1995 to $637,726 in 1996, and operating expenses decreased
74% from $1,473,872 in 1995 to $377,811 in 1996. The Company's net loss
increased from $163,621 to $418,816 as a result of the loss of revenue
from the Construction Subsidiary and the closure and write down of the
Lakewood office discussed below. Net loss per share remained constant at
$0.01.
The results from the second quarter were effected by the closure of
the Lakewood office. Since the Lakewood office was closed on July 15,
1996. The Company decided to write down the work in process in the
Lakewood office by $172,246. This sum was directly written off net
service income. If the sum of $172,246 were included in the in the net
service income for the quarter, net service income would have been
$690,391 for the quarter and net income would have been a loss of only
$246,570.
In Second Quarter 1996 the Company showed an increase in cash of
$3,771, as opposed to a decrease in cash of $217,250 in 1995. The major
item which effected this change are found in the cash from financing
section of the Cash Flow Statement . Proceeds from issuance of common
stock increased from $80,000 in 1995 to $268,748 in 1996 and capital
contributions increased from 0 in 1995 to $353,400 in 1996. The other
area of the Cash Flow Statement which shows large changes is Cash
Received from Customers, $5,913,380 in 1995 as compared to $1,455,869 in
1996. However, this large discrepancy was offset by the Cash Paid to
Suppliers and Employees, $6,486,960 in 1995 as compared to $2,446,873 in
1996. These large changes are a reflection of the lack of work in the
Construction Subsidiary during the first two quarters of 1996.
Significant Changes in Results During Second Quarter 1996
Current assets increased from $6,054,311 at the end of the 1995
fiscal year to $6,113,385 at the end of the second quarter of 1996.
This 2% increase was due to the increase in cash position from an
overdraft of $34,017 at the end of the 1995 fiscal year to a positive
cash position of $3,771 at the end of the first quarter of 1996, the
inclusion of inventory from the acquisition of the Extracts subsiduary
of $225,050. These increases offset the $29,042 decrease in Trade
Receivables and the $143,097 decrease in Earnings in Excess of Billings
on Uncompleted Projects. Total assets increased by $256,557 at the
second quarter of 1996 this gain is primarily attributable to the
acquistion of the Extracts subsiduary.
Current liabilities increased from $2,244,399 at the end of the
1995 fiscal year to $2,440,938 at the end of the first quarter of 1996.
This increase was mainly due to an increase in accrued payroll and
withholding from $110,686 at the end of the 1995 fiscal year to $371,605
at the end of the second quarter of 1996. The increase in payroll and
withholding was caused by the cash shortage during the first two
quarters of 1996; however, this shortage was reduced in May of 1996 as a
result of the Pueblo Sale, current liabilities were reduced by $266,928
from the first quarter of 1996 as a direct result of the sale of the
Pueblo office and the closure of the San Mateo office. Long term debt
has increased from $3,735,584 to $3,894,748. Total liabilities were
increased from $5,979,983 to $6,335,686 as a result of the increase in
short term debt as explained above.
Stockholders' equity declined from $1,082,020 to $982,874 as a
result of an increase in the accumulated deficit. However, shareholder
equity increased from $755,876 at the end of the first quarter of 1996
to $982,874 at the end of the second quarter of 1996. Management
believes total shareholder equity will increase during the remainder of
the year as a result of the Company's acquisition of York and the
purchase of the 25% interest in Future Farm USA. In addition the
Company is again performing construction services which will bring in
additional revenue.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company's subsidiaries are typically subject to various claims
arising in the ordinary course of business which usually relate to
claims of professional negligence or contract breaches.
Actions Against the Company
The Company believes that all pending professional liability
proceedings are adequately covered by insurance. However, due to the
nature of the Company's business, the Company faces a significant risk
of litigation.
In October 1993, the U.S. Securities and Exchange Commission (the
"SEC") began a private "order of investigation" of the Company. In a
letter dated February 14, 1995, the SEC's Central Regional Office
("CEO") informed the Company that it planned to recommend to the SEC
that a civil injunctive action for violations of federal securities
laws, alleged to have occurred during 1993, be brought against two
former Presidents and Directors of the Company, Fred Boethling and
Richard Kendall (the "Former Management"), and against the Company
itself. During the time frame of the violations alleged by the SEC, no
members of the current management of either KLH Engineering Group, Inc.
or Tomahawk were involved in any transactions with the Company or the
Company's securities, or in the preparation of any of the Company's
disclosure or sales material. The Company was given the opportunity to
submit a written statement to the SEC setting forth its positions and
arguments concerning the recommendations (a "Wells Submission"). The
Company engaged counsel independent of Former Management to prepare its
Wells Submission, which was delivered to the SEC on April 21, 1995. On
April 30, 1996, the Company submitted documents to the SEC with a
request to finalize the settlement of this matter. It is anticipated
that the Company's position in this matter will be resolved with no
monetary sanctions against the Company.
On March 18, 1994, Franklin Resources, Inc. filed a Complaint, in
Superior Court of California for the County of San Mateo, against C-REM
Engineers, Inc., a subsidiary of the Company, and against the Company,
claiming breach of contract for non payment of a note for which the
Company is a guarantor. The matter was settled by allowing a stipulated
judgement to be entered. This subsiduary has been closed and has no
assets to satisfy the stipulated judgement.
On April 19, 1995, The Canton Industrial Corporation and Canton
Industrial Corporation of Salt Lake City (the "Plaintiffs") filed a
breach of contract and fraud action against the Company. This matter
has been settled at no cost to the Company.
On June 26, 1995, Kimberly Pearce sued KLH's Pueblo office in the
District Court of Colorado. Ms. Pearce also sued Raymond Koester, a
consultant for, and former employee of, the Pueblo office. The lawsuit
alleges that Koester was negligent in preparing an engineering opinion
on the structural integrity of an old home Pearce bought. Pearce claims
that the home was not structurally sound, and that Koester should have
discovered the defects. The Company believes the structural defects
were not noticeable at the time of the sale, if they were there at all
at that time. The Company believes its exposure in this matter to be
minimal. The Company has retained outside counsel to defend this
matter.
On July 12, 1995, Thomas Neale filed a Complaint and Jury Demand in
the Arapahoe County, Colorado, District Court, naming as defendants in
the action the Company, Delmar Janovec (the Company's President and a
director), J. Larry Adams (the Company's Executive Vice President and a
director), and two of the Company's subsidiaries, KLH Engineers &
Constructors, Inc. ("E&C") and Tomahawk Construction Company. Mr. Neale
was president of E&C from July 1994 until the Company terminated his
employment in May 1995. The complaint alleges breach of employment
contract and express warranties, wrongful termination and violation of
public policy, fraudulent concealment, and piercing of the corporate
veil. The relief sought is not specified in the complaint. The Company
believes it will prevail on all of the allegations. The parties are
now conducting discovery.
On October 10, 1995, KLH brought an action against James Laraby, a
former officer and director of the Company, seeking payment on a
$150,000 promissory note made by Mr. Laraby which had matured in June of
1994. No payment has been made on the note. Mr. Laraby counterclaimed,
seeking an "accounting of records" and declaratory judgment. The
Company believes that it has no liability on the counterclaims and
expects to obtain judgment in its favor. The parties are now beginning
the discovery process, and have agreed to schedule a trial in February
of 1997.
In or about February 1996, Imperial Premium Finance filed an action
in the Superior Court of the State of California for the County of Los
Angeles (case number LC03587). This action is for premiums financed for
Errors and Omissions Coverage. The E&O policy has an Audit Provision
which requires the insurance company to audit the amount of revenue
billed by the Company during the policy period. If revenue exceeds the
policy revenue level, then an additional premium is due, if the revenue
is less then the policy revenue level, then a refund is due. The
insurance company has failed to audit the policy. The Company estimates
the return of unearned premiums is minimally $90,000. The financed
premium claimed due is approximately $47,000. This matter has been
settled and a audit of the policy is being conducted.
On or about February 10, 1996, the Bankruptcy Trustee for Scanlon
and Associates, a former subsidiary of the Company, filed an action for
Bankruptcy Preference in the United States Bankruptcy Court for the
District of New Mexico. The Trustee maintains that the Company received
a preference from the monies paid to the company by the debtor for the
one year period prior to the filing of Bankruptcy. The Company contends
that the monies were not a preference. No further action has been taken
on this matter.
On April 26, 1996, Dyer Brothers Construction Company filed an
action against the Company's Lakewood subsidiary and the subsidiary's
former President, alleging negligence in the design of roadways. The
roadways were initially approved by the county and the Company believes
its exposure is minimal. The Company is represented by outside counsel
in the lawsuit and an answer has been filed.
Actions Involving Tomahawk Construction
On September 15, 1994, the Company's Construction Subsidiary,
Tomahawk Construction Company, filed for protection pursuant to Title 11
of the U.S. Code. Tomahawk filed under Chapter 11 of Title 11 of the
U.S. Code in the Western District of Missouri, Western Division as case
number 94-42499-2-11. Tomahawk filed a plan for reorganization on or
about March 9, 1995 and an Amended Plan of Reorganization on April 29,
1995. The court confirmed the amended plan on August 28, 1995 at a
hearing called for that purpose. For more information on Tomahawk, see
"Management's Discussion and Analysis or Plan of Operation".
Tomahawk has prepared a request against M.K. Ferguson for work
completed in Oak Ridge, Tennessee. The claim is approximately $4.3
million, and includes amounts for delay, inefficiency, overtime hours
and increase in bonding. Tomahawk has agreed with its subcontractors
to sharing a percentage of the delay claim only, in exchange for
releases of monies owed by Tomahawk. Tomahawk will receive 65.56% of
the delay claim and 100% of the claims for inefficiency, overtime hours
and increase in bonding. The claim was prepared by an outside
consultant and was presented on May 29, 1996.
Litigation Against Officer, Director or 5% Shareholder
On or about April 1, 1996 Industrial State Bank filed an action
against John Larry Adams, the Company's Executive Vice President, on his
guarantee of the Company's loan with Industrial State Bank (the "Bank").
The Bank has not filed suit against the Company nor has the Bank
declared the Company in default under the loan. Mr. Adams was a
director and officer of the Company and owns more than 5% of the
outstanding common shares of the Company. Mr. Adams has retained his
own counsel to respond to the complaint and has personally sued
Industrial State Bank and its President Wilbur Hook. The Bank is
expected to dismiss the action without prejudice when the account is
brought current.
ITEM 2. CHANGES IN SECURITIES
No cash dividends have been paid on the Common Stock, and the Company
has no current plans to pay any cash dividends in the future. The
Company has outstanding 2,312,609 shares of Series A and 777,012 shares
of Series B preferred stock (the "Preferred Stock"). Each share of the
Preferred Stock may be converted by the holder to one share of common
stock. The Preferred Stock has a liquidation value of $1.25 per share
and has voting rights equivalent to one share of the Common Stock.
Dividends on the Preferred Stock accrue quarterly at the annual rate of
$0.125 per share. The Company has never paid any dividends on the
Preferred Stock and may not declare dividends on its common stock
without first paying accrued dividends to the Preferred Stock holders.
As of March 31, 1996, the total sum of dividends which must be paid to
holders of the Preferred Stock prior to issuance of dividends to holders
of the common stock is $420,003. Furthermore, the Company's cash flow
problems make it unlikely that the Company will be able to issue
dividends on the Common Stock in the foreseeable future.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has defaulted upon interest and principal with respect
to a promissory note in favor of the Olivia I. Dodge Charitable
Remainder Unitrust (the "Dodge Trust") which became due on December 31,
1995. The total due as of May 1, 1996, according to the Dodge Trust's
attorney, is $169,760.80, which sum is reflected in the accounts payable
of the Company.
The Company has defaulted upon interest and principal with respect
to a $40,818.55 note in favor of the Roy Lee Johnston Trust (the
"Johnston Trust"). The Johnston Trust has received a judgment in its
favor on the note and has begun steps to collect on the judgment. This
obligation is reflected in the accounts payable of the Company.
The Company's subsidiary KLH Engineers & Constructors, Inc. has
defaulted upon interest and principal with respect to a promissory note
in favor of Thomas Little, a former officer of the Engineering
Subsidiary, which became due upon demand made November 14, 1995. The
principal amount owed is $17,500, with interest accruing at 10% per
annum from the note's issuance on October 29, 1990. This obligation is
reflected in the accounts payable of the subsidiary.
ITEM 5. OTHER INFORMATION
On June 30, 1996 J. Larry Adams resigned as both a Officer and
Director of the Company. Mr. Adams is personally pursuing an action
against Industrial State Bank and its President (See "Legal
Proceedings"). Mr. Adams is pursuing other interest.
On July 8, 1996 Ed Blume, Chief Executive Officer of Future Farm
USA, accepted a position as Director of the Company. Mr. Blume brings
experience in the development and operation of hydroponic farms. Through
the efforts of Mr. Blume, Future Farm USA, Inc. has developed a complete
hydroponic farm process which produces vegetables in a completely closed
enviroment. The closed enviroment means that vegetables can be grown in
any climate throughout the rear, pesticide free with a lettuce crop
reaching maturity in approximately 30 days instead of 90 to 120 days in
the field.
As of July 16, 1996, the Company changed its name from "KLH
Engineering Group, Inc." to "AmeriResource Technologies, Inc." The name
of the Company was changed because of the gradual diversification of the
work of the Company away from purely engineering. In addition, the
"KLH" name, a composite of the first letters of the last names of the
Company's three founders, is no longer relevant, since the Company no
longer has any ties to these three individuals. The "KLH" names are
still being used in the Company's Colorado subsidiaries, however,
because of the name recognition and long history of the name in the
region.
In considering the name change, the Company had originally intended
to adopt the name "Tomahawk Group, Inc.", taken from the name of the
Company's Kansas subsidiary. The Company, however, chose to use a
completely different name. A planned reverse stock split was also
abandoned before it was to become effective.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
SEC Ref. # Page Document
Reports on Form 8-K
No reports on Form 8-K were filed in the second quarter.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed this 5th day of August, 1996
on its behalf by the undersigned.
AMERIRESOURCE TECHNOLOGIES, INC.
/s/ Rod Clawson
Rod Clawson
Vice President and Director
AmeriResource Technologies, Inc.
Consolidated Balance Sheets
ASSETS
------
June 30, December 31,
1996 1995
(Unaudited)
- ------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 3,771 $ _
-------------- --------------
Inventory 225,050 -
Receivables:
Trade 1,441,579 1,470,621
Advances to related parties 72,920 156,881
Other receivables 64,610 2,300
Allowance for doubtful accounts (141,894) (173,322)
-------------- --------------
1,437,215 1,456,480
-------------- --------------
Earnings in excess of billings on
uncompleted projects 4,183,893 4,326,980
-------------- --------------
Prepaid insurance and other expenses 263,456 270,851
-------------- --------------
Total current assets 6,113,385 6,054,311
-------------- --------------
Fixed assets:
Furniture, fixtures and library 1,009,457 1,032,925
Equipment 2,239,301 2,143,641
Vehicles 326,968 390,443
Leasehold improvements 188,279 189,269
Capitalized lease equipment 153,522 176,452
Land 73,700 73,700
-------------- --------------
3,991,227 4,006,430
Less accumulated depreciation (3,297,633) (3,384,056)
-------------- --------------
Net fixed assets 693,594 622,374
-------------- --------------
Other assets:
Notes Receivable - 5,000
Notes Receivable- Related Parties 100,000 143,152
Notes receivable -non-current 174,580 -
Goodwill, less accumulated amortization 106,570 123,004
Marketable Securities 113,152 114,162
Other 17,279
--------------- --------------
Total other assets 511,581 385,318
-------------- --------------
Total assets $ 7,318,560 $ 7,062,003
============== ==============
See accompanying notes to financial statements.
F-1
Liabilities and Stockholders Equity
June 30, December 31,
1996 1995
- ------------------------------------------------------------------------
Current liabilities:
Accounts payable:
Trade $ 1,225,153 $ 1,270,547
Bank Overdrafts 24,212 34,017
Related parties 20,586
Current portion of long-term debt:
Related parties 107,584
Other 329,505 456,665
Accrued payroll and withholding 371,605 110,686
Accrued vacation 32,889 62,582
Accrued auditing fees 54,219 74,219
Accrued interest:
Related parties 21,459
Other 56,804 60,513
Deferred rent 19,524
Deferred compensation
Billings in Excess of Earnings 17,884 0
Other current liabilities 308,081 26,603
-------------- --------------
Total current liabilities 2,440,938 2,244,399
-------------- --------------
Long term debt:
Notes payable and capital lease obligations
Related parties 320,648
Other 3,885,718 3,414,936
Deferred rent 9,030
-------------- --------------
Total long term debt 3,894,748 3,735,584
-------------- --------------
Total Liabilities 6,335,686 5,979,983
-------------- --------------
Stockholders' equity:
Preferred stock, $.001 par value; 3,090 3,090
authorized: 10,000,000 shares; Series A
issued and outstanding, 3,089,621 at June
30, 1996 and December 31, 1995.
Common stock, $.0001 par value; authorized 14,097 13,016
500,000,000 shares;issued and outstanding
144,986,217 at June 30, 1996 and
130,175,760 shares at December 31, 1995.
Additional paid-in capital 6,211,279 5,424,890
Common stock held in treasury; (5,625) (5,625)
30,000 shares at cost.
Accumulated deficit (5,239,967) (4,353,351)
-------------- --------------
Total stockholders' equity 982,874 1,082,020
-------------- --------------
Total liabilities and stockholders' equity $ 7,318,560 $ 7,062,003
============== =============
See accompanying notes to financial statements.
F-2
AmeriResource Technologies, Inc
Consolidated Statements of Operations
Three Months Ended Six Months Ended
---------------------- ------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
(Unaudited)(Unaudited) (Unaudited)(Unaudited)
- ---------------------- ---------- ---------- --------- ---------
Net service income $ 518,145 $2,274,689 $1,484,911 $4,952,330
Operating expenses 377,811 1,473,872 989,763 3,298,004
General and
administrative expenses 637,726 940,970 1,430,539 1,951,862
(Gain) or Loss from
investment in and
disposal of acquired
companies (109,982) - (109,982) -
Other (income) expense:
Interest income (122) (3,055) (61) (4,932)
Other income (16,023) (73,342) (30,547) (90,789)
Interest expense 47,551 99,865 91,815 204,171
-------- ------- -------- --------
Total Expense 936,961 2,438,310 2,371,527 5,358,316
--------- --------- ---------- ---------
Net income (loss)$ (418,816) (163,621) (886,616) (405,986)
========= ========= ========= =========
Net income (loss) per
common share $ (0.01) $ (0.01) $ (0.01) $ (0.01)
=========== =========== ========= ========
Weighted average
common shares
outstanding 132,636,448 120,286,679 132,636,448 120,286,679
=========== =========== =========== ===========
See accompanying notes to financals
F-3
AmeriResource Technologies, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended
June 30, June 30,
1996 1995
(Unaudited) (Unaudited)
Cash flows from operating activities:
Cash flows from customers 1,455,869 5,913,380
Interest income received 4,932
Insurance proceeds received
Cash paid to suppliers and employees (2,446,873) (6,486,960)
Interest paid (116,983) (243,714)
Gain (loss) on discontinued operations 109,982
-------------- -------------
Net cash in operating activities (998,005) (812,362)
-------------- ------------
Cash flows from financing activities:
Proceeds from issuance of debt 379,628 586,340
Repayment of debt (24,374)
Net advances (payments) on line of cr 16,000
Proceeds from issuance of common stock 268,748 80,000
Capital contributions 353,400
Repayments on notes receivable
-------------- -------------
Net cash provided by financing activities 1,001,776 657,966
-------------- -------------
Cash flows from investing activities:
Purchase of fixed assets (62,854)
Organization costs
-------------- -------------
Net cash used in investing activities 0 (62,854)
-------------- -------------
Increase (decrease) in cash 3,771 (217,250)
Cash-beginning of period 0 378,478
-------------- -------------
Cash-end of period 3,771 0
============== =============
See accompanying notes to financial statements
F-4
AmeriResource Technologies, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended
June 30, June 30,
1996 1995
(Unaudited) (Unaudited)
Reconciliation of net loss to cash
by (used in) operating activities
Net income (Loss) (886,616) (405,986)
Items not affecting cash:
Depreciation and amortization 100,460 90,861
Change in assets affecting operations -
(increase) decrease:
Accounts receivable 29,042 1,030,617
Other receivables (9,597) 293,258
Work-in-process 143,087 66,615
Prepaid insurance and other expenses 7,395 (108,661)
Capital acquisition costs 62,854
Deferred offering costs
Other assets (225,050) (439,013)
Change in liabilities affecting operations
Increase (decrease):
Accounts payable (45,394) (1,244,561)
Accrued payroll and withholdings 260,919 (100,502)
Accrued vacation (29,693) (4,193)
Accrued auditing fees (20,000) (14,000)
Accrued interest (25,168) (39,543)
Deferred rent 9,030 (108)
Other current liabilities (306,420)
-------------- -------------
Net cash provided by (used in) (998,005) (812,362)
operating activities ============ =============
See accompanying notes to financial statements
F-5
AmeriResource Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance
with the instructions of Form 10-QSB and do not include all of the
information and footnotes required by Generally Accepted Accounting
Principles for complete accounting statements. In the opinion of
Management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
2. Corporations included in the Consolidated Financial Statements
Name Location
KLH Engineering Group, Inc. Englewood, CO
(AmeriResource Technologies, Inc.
as of July 16, 1996)
KLH Engineers & Constructors, Inc. Englewood, CO
(formerly KLH Management Company, Inc.)
KLH Engineering of Pueblo, Inc. Pueblo, CO
KLH Engineering of Colo. Springs, Inc. Colorado Springs, CO
KLH Engineering of Lakewood, Inc. Lakewood, CO
KLH Engineering of Grand Junction, Inc. Grand Junction, CO
KLH Engineering of San Mateo, Inc. San Mateo, CA
KLH Engineering of Greeley, Inc. Greeley, CO
Tomahawk Construction Company, Inc. Kansas City, KS
Native American Herbal
Enterprises, Inc. (NAHE) Englewood, CO
3. Basis of Presentation & Principles of Consolidation
The consolidated financial statements include the combined accounts of
KLH Engineering Group, Inc., Tomahawk Construction Company and KLH
Engineers & Constructors, Inc. and the accounts of their subsidiaries.
All material Intercompany transactions have been eliminated in
consolidation.
F-6
