[S]
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 March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
0-20033 84-1084784
(Commission File Number) (IRS Employer Identification Number)
AMERIRESOURCES TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
8815 E. Long Street, Lenexa, Kansas 66215
(Address of Principal Executive Offices) (Zip Code)
(913) 859-9292
(Issuer's telephone number)
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:
164,213,803 shares of Common Stock, par value $0.0001 per share, were
outstanding as of May 31, 1998.
PART I
ITEM 1. FINANCIAL STATEMENTS
The Company's third quarter financials are attached to this report beginning
on page 8.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
General
During 1997 the Company has sought work through its Construction Subsidiary,
Tomahawk Construction, Inc. During the first quarter of 1998 a number of
projects have been bid and proposed. The Company continues to bid projects and
currently is in negotiation on several projects both within and outside the
Native American community.
The projects for the Native American communities consist of construction of
Hydroponics facilities, manufactured housing facilities and low income housing
projects. The Company is currently preparing a proposal for work on a
commercial construction project for a private corporation for whom Tomahawk
Construction has performed work in the past. The Company will submit the
proposal for the commercial construction as a joint venture with another
construction company. The fact that the Company has bid these projects does not
mean that the company will be successful in obtaining the projects.
Comparison of the Fiscal Year Ended December 31, 1997 and March 31, 1998
This comparison will be affected by the extraordinary events of 1996 as set
forth above in the closing of the entire Engineering Subsidiary. Many of the
obligation are obligations of the Engineering Subsidiary's.
The Company's total asset's at 1997 year end were $887,950 as compared to
$886,867 as of March 31, 1998. This decrease in assets is due from the
liquidation of the Company,s Marketable Securities during the first quarter.
The Company's liabilities increased from $2,341,033 at year end 1997 to
$2,350,911 at March 31, 1998. This increase was caused from the advances
made to the Company to meet General and Administrative expenses for the first
quarter of 1998. Accounts payable "Related Party" increased from $36,231 at
year end to $46,109 as of March 31, 1998.
Comparison of the Fiscal Year Ended December 31, 1997 and March 31, 1998
The net service income during the quarter was $805 which came from the gain on
liquidation of marketable securities during the first quarter of 1998. The
Company's expenses increased from 2,688 in the first quarter of 1997 to
11,763 for the first quarter of 1998. This increase in expenses was created
from the cost of preparing bids and proposals for future work.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company's Engineering 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. However, during November 1996 all
of the Company's subsidiaries were closed. The Engineering Subsidiaries have
not conducted any work since December 1, 1996 all pending contracts were either
transferred to other engineering firms or returned to the owners of the
project. The Company has discussed filing bankruptcy under chapter 7 or
chapter 11 of the United States Bankruptcy Code for its Engineering
Subsidiaries. The filing of the bankruptcy petitions will take place, if
necessary, during 1998.
Actions Against the Company
The Company has attempted to maintain professional liability insurance. The
Company has been able to meet the costs of insurance premiums and currently does
have insurance. However the Company has failed to pay certain insurance
deductibles and an action has been brought against the Company for failure to
pay insurance deductibles. It is believed that these actions can be settled
for little or no money since the Company does not have on going engineering
operations and has no current cash flow to met these obligations.
The Company is aware of three actions that have been filed against a closed
subsidiary of the Company, Morton Technologies, Inc. ("Morton"). The actions
against Morton arose prior to the Company acquiring Morton and the claims were
filed after Morton was closed. At this time the Company is not answering the
complaints and will file a liquidation bankruptcy proceeding for Morton if the
action proceeds towards a judgment against Morton
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 would 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. The total judgement entered against the Company is for $160,000.
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. The Company will seek bankruptcy protection for this
Engineering Subsidiary if any adverse decision is rendered.
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 was not specified in the complaint. This
matter was settled on December 2, 1996 by the Company issuing 4 million shares
of restricted Stock.
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 that 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. This matter has been dismissed for failure to
prosecute the action. The Company had no funds to maintain this action and
could not locate counsel to handle on a contingence basis.
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.
Total judgement in this matter is $60,000.
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.
In or about April 1997 the Company responded to discovery that was
served on the Company. After the response to discovery was filed the Trustee of
Scanlon and Associates agreed to dismiss the action.
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 county initially approved
the roadways and the Company believes its exposure is minimal. The Company is
represented by outside counsel in the lawsuit and an answer has been filed.
The Company will seek bankruptcy protection for this Engineering Subsidiary
if any adverse decision is rendered.
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
Company has not filed a response. The Company will seek bankruptcy protection
for this Engineering Subsidiary if any adverse decision is rendered.
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. The Company will seek bankruptcy
protection for this Engineering Subsidiary.
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 Total of the liens
through the 3rd quarter of 1996 is approximately $320,000. It is believed
that the total exposure for all quarters is approximately $480,000. As of
January 1998 the Company has not yet received a lien for the 4th quarter 1996
payroll taxes. The Company also faces potential action by the State of Colorado.
In February 1997 Enterprise Capital Corporation filed suit against the company
and certain Subsidiaries for breach of contract and fraud in the extension of
credit on a factoring agreement. The Company disputes this claim in that the
contract called for American Factors Group to purchase the receivables from
the Company on a non-recourse basis. The Company has filed a response to the
Compliant and demanded that the matter be submitted to arbitration. An
arbitrator has been appointed, but a date has not been scheduled. American
Factors Group claims it is owed $291,044 plus interest.
In July 1996 a judgement was entered in favor of Lexington Insurance Company in
the amount of $39,774 with interest (8%). In December 1997, the court entered
an order ordering the Company to appear for a hearing in aid of execution. A
hearing date is to be determined.
Actions Involving Tomahawk Construction
On September 16, 1994, the Company's Construction Subsidiary, Tomahawk
Construction Company, filed for protection pursuant to Title 11 of the U.S.
Code under Chapter 11 in the Western District of Missouri, Western Division as
case number 94-42499-2-11. 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.
Tomahawk has filed suit against M.K. Ferguson for work completed in Oak Ridge,
Tennessee. The claim was settled in May 1997 for the sum of $1,851,444.
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 has
agreed to settle with USF&G, its bonding company, by paying to USF&G the sum of
$500,000 out of the settlement for a release of approximately $2,300,000 of Bond
Claims. In addition, Tomahawk has agreed to pay Industrial State Bank the sum
of $336,000 for a release of the Banks claims on the Settlement money. The
Settlement money will also pay to the IRS the sum of approximately $22,000
for a release of all liens.
Tomahawk was named co-defendant in a lawsuit brought by private plaintiffs for
damages alleged sustained as a result of construction activity performed on a
sewer project in Johnson county, Kansas. An unspecified amount of damages was
sought. The court dismissed the action, and there is no ultimate liability to
the Company since the recovery is limited to insurance proceeds.
Litigation Against Officer, Director or 5% Shareholder
In September 1996 John Larry Adams, the Company's former Executive Vice
President, filed suit against the Company for unreimbursed expenses. The
Company has settled this matter by allowing a stipulated judgement to be entered
for $80,652 plus interest.
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. The
Company will seek bankruptcy protection for this Engineering Subsidiary if
any adverse decision is rendered.
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
declared or 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.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
In the first quarter of 1996, the Company filed a Current Report on Form 8-K
regarding the closing of the Company's San Mateo office and the Company's
continuing cash flow problems. The date of the report was March 1, 1996.
In the second quarter of 1997, the Company filed a Current Report on Form 8-K
regarding the failure and inability to file timely annual report on Form 10KSB,
closure of all Engineering Subsidiary's, resignation of Ed Blume, Chet Ellis,
Alicia Ellis and Richard White as directors of the Corporation. The date of the
report was April 8, 1997.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Annual Report on
Form 10-KSB to be executed on its behalf by the undersigned, thereunto duly
authorized.
AMERIRESOURCE TECHNOLOGIES, INC.
s/ Delmar Janovec June 8, 1998
Delmar Janovec
Chairman of the Board of Directors
and Chief Executive Officer
AMERIRESOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS March 31, Dec. 31,
1998 1997
(Unaudited) (Audited)
<TABLE>
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Current assets:
Cash and cash equivalents $3,855 $ 188
Receivables:
Trade 730,285 730,285
Related Party 14,471 14,471
Notes receivable-related party 332,904 332,904
Notes receivable - other 75,000 75,000
Other receivables 193,000 193,000
Allowance for doubtful accounts (583,855) (583,855)
Net receivables 761,805 761,805
Prepaid insurance and other assets 50,249 50,249
Total current assets 815,909 812,242
Property, Plant and Equipment:
Equipment 633,392 633,392
Furniture, fixtures and library 134,051 134,051
Vehicles 53,087 53,087
820,530 820,530
Less accumulated depreciation (749,572) (749,572)
Net property, plant and equipment 70,958 70,958
Other assets:
Marketable securities - 4,750
Total assets $886,867 887,950
</TABLE>
AMERIRESOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, Dec.31,
1998 1997
(Unaudited) (Audited)
<TABLE>
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Current liabilities:
Accounts payable:
Trade $638,084 638,084
Related party 46,109 36,231
Current portion of long-term debt:
Related party 552,849 552,849
Other 255,769 255,769
Accrued payroll and related 646,907 646,907
Accrued interest:
Related party 97,473 97,473
Other 77,760 77,760
Income Tax Payable 35,960 35,960
Total current liabilities 2,350,911 2,341,033
Long-term debt:
Notes payable:
Other 1,680,939 1,680,939
Commitments and contingencies 105,000 105,000
Total liabilities 4,136,850 4,126,972
Stockholders' equity
Preferred stock, $.001 par value;
authorized, 10,000,000 shares;
Series A, issued and outstanding,
3,089,621 shares authorized 3,090 3,090
Common Stock, $.0001 par value;
authorized, 500,000,000 shares;
issued and outstanding, 164,213,803
shares 16,420 16,420
Additional paid-in capital 6,347,954 6,347,954
Common stock held in treasury;
3,600 shares at cost (5,625) (5,625)
Accumulated deficit (9,611,822) (9,600,861)
Total stockholders' equity (3,249,983) (3,239,022)
Total liabilities and
stockholders' equity $ 886,867 887,950
</TABLE>
AMERIRESOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For three months ended March 31, 1998 and 1997
1998 1997
<TABLE>
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Net Service Income $ 802 -
Operating expenses - -
General and administrative expenses (11,763) (2,688)
Loss from sold and closed
subsidiaries - -
Operating loss (10,961) (2,688)
Other income (expense):
Gain on sale of subsidiary - -
Loss on marketable securities - -
Interest expense - -
Net loss before income tax (10,961) (2,688)
Income tax provision - -
Net loss (10,961) (2,688)
Net loss per common share ($0.00) ($0.00)
Weighted average common shares
outstanding 164,213,803 145,942,742
</TABLE>
AMERIRESOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For three months ended March 31, 1998 and 1997
<TABLE>
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1998 1997
Reconciliation of net loss
provided by (used in)
operating activities:
Net loss (10,961) (2,688)
Non-cash items:
Depreciation and amortization - -
Non-cash services through
issuance of stock - -
(Gain)/loss from sale and
closure of subsidiaries - -
Provision for bad debts - -
Loss on investments - -
Write down of goodwill - -
Loss (gain) on sale of equipment - -
Changes in assets affecting
operations - (increase) decrease
Accounts receivable - -
Other receivables - -
Work-in-process - -
Prepaid insurance and other expenses - -
Other assets - -
Changes in liabilities affecting
operations - increase (decrease)
Bank overdrafts - -
Accounts payable 9,878 -
Accrued payroll and related - (2,688)
Accrued expenses - -
Accrued interest - -
Deferred rent - -
Commitments and contingencies - -
Other current liabilities - -
Net cash provided by (used in)
operating activities $(1,083) -
</TABLE>
AMERIRESOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For three months ended March 31, 1998 and 1997
<TABLE>
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1998 1997
Cash flows from financing activities:
Proceeds from issuance of debt - -
Repayment of debt - -
Net cash provided by financing activities - -
Net cash used in investing activities 4,750 -
Increase (decrease) in cash 3,667 -
Cash - beginning of period 188 8,336
Cash - end of period 3,855 8,336
</TABLE>
AMERIRESOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
<TABLE>
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Name Locations
AmeriResource Technologies Lenexa, Kansas
KLH Engineers & Contractors, Inc. Closed
KLH Engineering of Colorado Springs, Inc. Closed
KLH Engineering of Lakewood, Inc. Closed
KLH Engineering of Grand Junction, Inc. Closed
KLH Engineering of San Mateo, Inc. Closed
KLH Engineering of Greeley, Inc. Closed
Tomahawk Construction Company, Inc. Lenexa, Kansas
</TABLE>
3. BASIS OF PRESENTATION & PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the combined accounts of
AmeriResource Technologies Inc., Tomahawk Construction and the accounts of all
the closed subsidiaries. All material intercompany transactions have been
eliminated in consolidation.
