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 September 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)
(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:
157,213,803 shares, par value $0.0001 per share, were outstanding as of
November 20, 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 number of private civil engineering firms throughout the
Western United States. In late November 1993, declining revenues led
the Company to announce major consolidation plans including the closure
and sale of many of its offices.
In July 1994, Tomahawk Construction Co., a Kansas City, Kansas
based construction company merged with the Company and became a
wholly-owned subsidiary of the Company (the "Construction Subsidiary"),
and control of the Company shifted to the pre-merger shareholders of
Tomahawk Construction Co. On September 15, 1994, Tomahawk Construction
Cephalad 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 was to acquire a 25% interest in Future Farm USA in a
stock exchange, however, the transaction has not been completed as of
November 20, 1996.
In March of 1996, the Company closed its subsidiary in San Mateo,
California (the "San Mateo Closure"). 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.
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. Key employees of the Lakewood
Office were moved to the Company's Englewood, Colorado location.
On November 15, 1996, the Company closed its Greeley, Colorado
engineering subsidiary as a result of its inability to attain
profitability for several consecutive quarters.
The Company has been negotiating to complete its acquisition of
York Engineering & Surveying, Inc. ("York"). York performs civil,
electrical and structural engineering services. The acquisition of York
would 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 $947,233 in the first three
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. As a consequence, during the third quarter, the
Company factored its accounts receivable in order to more quickly
realize revenue from operations. The Company has also met short term
cash needs through the sale of the Pueblo office and through the
reduction of employees resulting from the San Mateo and Lakewood office
closures. Closure of the Greeley office will also reduce overhead.
Much of the Company's work is seasonal, and obtaining sufficient
work during the winter has historically been difficult. 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.
The Company's cash liquidity is at a crucial juncture due to the
U.S. Internal Revenue Service's decision in October to lien all of the
assets of the Company's Colorado and California engineering subsidiaries
for failure to meet federal payroll tax obligations. The Company's
Colorado subsidiaries are behind several months on both federal and
state payroll taxes. The Company is also several months behind on its
obligations to pay rent on its offices, medical insurance for its
employees, and professional liability insurance. The Company is
attempting to resolve these matters, but faces eviction and termination
of employee and professional insurance if it is unable to do so. The
Company is currently examining as an option placing the Engineering
Subsidiary or one or more of the Engineering Subsidiary's Colorado and
California Subsidiaries in Chapter 7 or Chapter 11 bankruptcy.
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. 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
hopes 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
and be able to avoid bankruptcy. 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 hopes 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 Third Quarter 1996 With Third Quarter 1995
Third quarter net service income in 1996 was almost double the
third quarter 1995 amount. In Addition, operating and general and
administrative expenses showed a decline of 57%, and net income from
operations improved from a $1,669,005 third quarter loss in 1995 to a
$298,570 third quarter loss in 1996. These figures are primarily due to
the sale and/or closures of the Company's San Mateo, Pueblo, and
Lakewood offices in early to mid 1996.
Weighted average common shares outstanding increased from
120,286,679 shares in 1995 to 149,986,217 shares in 1996. This is a
result of the Company's continuing efforts to use stock rather than cash
to pay for debts and services whenever possible in an effort to improve
its cash flow position.
Comparison of First Nine Months of 1996 With First Nine Months of 1995
Net service income declined from $5,251,032 in the first nine
months of 1995 to $2,074,341 in the first nine months of 1996, operating
expenses declined from $4,428,306 to $1,370,451, general and
administrative expenses declined from $2,877,123 to $1,929,890, and net
loss from operations improved from $2,074,991 to $1,246,402. As with
the comparison of third quarters in 1996 and 1995, these figures are
primarily due to the downsizing of the engineering services through the
sale and/or closures of the Company's San Mateo, Pueblo, and Lakewood
offices in early to mid 1996.
Net cash in operating activities improved from a deficit of
$2,291,306 in the first three quarters of 1995 to a deficit of $869,001
in the first three quarters of 1996. Again, this is due to the sale and
closures of the Company's subsidiaries.
Net cash provided by financing activities declined from $2,070,305
in 1995 to $911,465 in 1996. This is largely a result of a shifting of
focus from the sale of debt in 1995 to the sale of equity in 1996. The
shift occurred because Company has experienced greater difficulty in
obtaining loans in 1996, due to its declining revenue streams. The
Company's apparent increased potential, brought about as a result of its
recent involvement with hydroponic operations and away from a heavy
concentration on engineering, has correspondingly increased its ability
to find equity sources of financing in 1996.
Significant Balance Sheet Changes From 1995 Year-End to Third Quarter
1996
Inventory of $225,000 is reflected on the Third Quarter Balance
Sheet, while no inventory was valued at year-end. This is a result of
the Company's 1996 acquisition of thousands of bottles of herbal pills
which it placed into its Native American Herbal Enterprises, Inc.
subsidiary. Marketable Securities at Year-End of $114,162 were sold
during 1996 to help pay for continuing operations.
Current portion of long-term debt was reduced by more than 50%
primarily as a result of payments made in connection with the sale of
the Pueblo office. Accrued payroll and withholding debt increased from
$110,686 to $474,713 as a result of the Company's continuing inability
to meet its tax obligations. Related party accrued interest increased
from $21,459 to $142,155, also due to the Company's continuing inability
to meet these obligations.
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 has attempted to maintain professional liability
insurance. However, the Company has been unable to meet the costs of
insurance premiums and deductibles and currently does not have
insurance. Action has been brought against the Company for failure to
pay insurance deductibles.
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
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 AmeriResource Technologies, 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. The SEC informed the
Company in October 1996 that no action will be taken against the Company
in this matter.
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 subsidiary 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
Arapahoe County, Colorado District Court, naming as defendants the
Company, Delmar Janovec (the Company's President and a director), J.
Larry Adams (the Company's former Executive Vice President and
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 the allegations. Trial is scheduled for
December 2, 1996.
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 engaged in the
discovery process, and trial has been scheduled for 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. This matter has been settled by allowing
a stipulated judgement.
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.
On July 9, 1996, the Comed Corporation, Norman Fast, President,
brought an action against the Company for breach of contract arising out
of construction management services the Company's Colorado Springs
subsidiary hired Mr. Fast to perform. The amount sought is $15,090 plus
interest and costs. The parties are currently attempting to settle the
matter.
On July 30, 1996, Rocky Mountain Aerial Surveys, Inc. was awarded a
default judgment against the Company in the amount of $25,051.43 for the
Company's failure to make payments to Rocky Mountain.
In October 1996, the Internal Revenue Service (the "IRS") placed
liens on the assets of all of the Company's Colorado and California
subsidiaries for failure to pay payroll taxes in 1996. The Company is
several months behind in payment and is attempting to resolve the matter
with the IRS. The Company also faces potential action by the State of
Colorado.
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. A settlement conference
between the parties is now set for the first week of December, 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 dismissed this action without prejudice.
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 made unsuccessful attempts 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
The Company's Colorado Springs, Colorado subsidiary has not been
able to maintain profitability. The personnel, and now consists of
three persons, none of which is an engineer. At this juncture it
appears that the Colorado Springs office will be closed during the
fourth quarter of 1996. However, a final decision has not been made at
this time.
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 Third Quarter.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed this 20th day of November
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
------
September December 31,
1996 1995
(Unaudited)
- -----------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 42,464 $ _
-------------- --------------
Inventory 225,050 -
Receivables:
Trade 1,349,613 1,470,621
Advances to related parties 72,920 156,881
Other receivables 48,711 2,300
Allowance for doubtful accounts (141,894) (173,322)
-------------- --------------
1,329,350 1,456,480
-------------- --------------
Earnings in excess of billings on
uncompleted projects 4,130,837 4,326,980
-------------- --------------
Prepaid insurance and other expenses 239,443 270,851
-------------- --------------
Total current assets 5,967,144 6,054,311
-------------- --------------
Fixed assets:
Furniture, fixtures and library 1,009,457 1,032,925
Equipment 2,242,113 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
-------------- --------------
3,994,039 4,006,430
Less accumulated depreciation (3,314,255) (3,384,056)
-------------- --------------
Net fixed assets 679,784 622,374
-------------- --------------
Other assets:
Notes Receivable - 5,000
Notes Receivable- Related Parties 188,712 143,152
Notes receivable -non-current -
Goodwill, less accumulated amortization 98,353 123,004
Marketable Securities 114,162
Other 55,381
--------------- --------------
Total other assets 342,446 385,318
-------------- --------------
Total assets $ 6,989,374 $ 7,062,003
============== ==============
See accompanying notes to financial statements.
F-1
AmeriResource Technologies, Inc.
Consolidated Balance Sheets
Liabilities and Stockholders Equity
September December 31,
1996 1995
(Unaudited)
--------------------------------------------------------
Current liabilities:
Accounts payable:
Trade $ 1,326,498 $ 1,270,547
Bank Overdrafts 34,017
Related parties 15,586
Current portion of long-term debt:
Related parties 107,584
Other 264,669 456,665
Accrued payroll and withholding 474,713 110,686
Accrued vacation 29,836 62,582
Accrued auditing fees 74,219
Accrued interest:
Related parties 142,155 21,459
Other 54,983 60,513
Deferred rent 19,524
Deferred compensation
Billings in Excess of Earnings 17,884 0
Other current liabilities 151,321 26,603
-------------- --------------
Total current liabilities 2,459,761 2,244,399
-------------- --------------
Long term debt:
Notes payable and capital lease obligat
Related parties 945,010 320,648
Other 2,535,039 3,414,936
Deferred rent 7,699
-------------- --------------
Total long term debt 3,487,748 3,735,584
-------------- --------------
Total Liabilities 5,947,509 5,979,983
-------------- --------------
Stockholders' equity:
Preferred stock, $.001 par value; 3,090 3,090
authorized, 10,000,000 shares:
Series A, issued and out standing,
3,089,621 at September 30, 1996 and
December 31, 1995.
Common stock, $.0001 par value; 15,497 13,016
authorized 500,000,000 shares;
issued and outstanding 144,986,217 at
September 30, 1996 and 130,175,760 shares
at December 31, 1995.
Additional paid-in capital 6,674,733 5,424,890
Common stock held in treasury; (5,625) (5,625)
30,000 shares at cost.
Accumulated deficit (5,645,830) (4,353,351)
-------------- --------------
Total stockholders' equity 1,041,865 1,082,020
-------------- --------------
Total liabilities and stockholders' equity $6,989,374 $ 7,062,003
============== ==============
See accompanying notes to financial statements.
F-2
AmeriResource Technologies, Inc.
Consolidated Statements of Operations
For the 3 Months Ended For the 6 Months Ended
------------------------- ---------------------
September September September September
30,1996 30,1995 30,1996 30,1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- --------- ----------- ----------
Net service income $ 589,430 $ 298,702 $2,074,341 $5,251,032
Operating expenses 380,688 1,130,302 1,370,451 4,428,306
General and
administrative expenses 499,351 925,261 1,929,890 2,877,123
(Gain) or Loss from investment in and disposal of
acquired companies 94,927 4,589 (15,055) 4,589
Other (income) expense:
Interest income 4,199 (4,591) 4,138 341
Other income 91,651 163,979 61,104 254,768
Interest expense 8,884 66,943 100,699 271,114
---------- ---------- -------- ---------
Net income (loss) $ (298,570) (1,669,005) (1,246,402) (2,074,991)
=========== =========== =========== ===========
Net income (loss) per
common share $ (0.01) $ (0.01) $ (0.01) $ (0.01)
========= ========== ========= ========
Weighted average common shares
outstanding 149,986,217 120,286,679 149,986,217 123,354,337
========== ========== ========== ========
See accompanying notes to financals
F-3
AmeriResource Technologies, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended
September 30, September 30,
1996 1995
(Unaudited) (Unaudited)
Cash flows from operating activities:
Cash flows from customers 2,195,349 7,612,377
Interest income received 4,138 341
Insurance proceeds received
Cash paid to suppliers and employees (3,069,076) (9,632,910)
Interest paid (14,467) (271,114)
Gain (loss) on discontinued operations 15,055
-------------- -------------
Net cash in operating activities (869,001) (2,291,306)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of debt 6,010,225
Repayment of debt 247,836 (4,045,920)
Net advances (payments) on line of cr 26,000
Proceeds from issuance of common stock 271,229 80,000
Capital contributions 392,400
Repayments on notes receivable -------------- -------------
Net cash provided by financing activities 911,465 2,070,305
-------------- -------------
Cash flows from investing activities:
Purchase of fixed assets (66,888)
Organization costs
-------------- -------------
Net cash used in investing activities 0 (66,888)
-------------- -------------
Increase (decrease) in cash 42,464 (287,889)
Cash-beginning of period 0 378,478
-------------- -------------
Cash-end of period 42,464 90,589
============== =============
See accompanying notes to financial statements
F-4
AmeriResource Technologies, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended
September 30, September 30,
1996 1995
(Unaudited) (Unaudited)
Reconciliation of net loss to cash
by (used in) operating activities
Net income (Loss) (1,246,402) (2,074,991)
Items not affecting cash:
Depreciation and amortization 81,372 135,256
Change in assets affecting operations -
(increase) decrease:
Accounts receivable 121,008 1,767,682
Other receivables 593,663
Work-in-process 196,143 1,404,121
Prepaid insurance and other expenses 31,408 (60,582)
Capital acquisition costs 12,391 (66,888)
Deferred offering costs
Other assets 42,872 (636,871)
Change in liabilities affecting operations
Increase (decrease):
Accounts payable 55,981 (3,470,128)
Accrued payroll and withholdings 364,027 (48,384)
Accrued vacation 32,746 (29,908)
Accrued auditing fees (74,219) (14,000)
Accrued interest 120,696 (978)
Deferred rent (19,524) (8,643)
Other current liabilities (587,500) 219,345
-------------- -------------
Net cash provided by (used in) operating (869,001) (2,291,306)
activities ============ =============
See accompanying notes to financial statements
F-5
AmeriResource Technologies, Inc.
Notes to Consolidated Financial Statements
September 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
AmeriResource Technologies, Inc. Englewood, CO
(Formerly KLH Engineering Group, Inc.)
KLH Engineers & Constructors, Inc. Englewood, CO
KLH Engineering of Pueblo, Inc. Pueblo, CO
KLH Engineering of Colorado 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 Kansas City, KS
Native American Herbal
Enterprises, Inc. Englewood, CO
3. Basis of Presentation & Principles of Consolidation
Th e consolidated financial statements include the combined accounts of
AmeriResource Technologies, 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
