##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 Form 10-QSB
 
 (Mark One)
 þ
    
    Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarter ended September 30, 2007
 or
 o
    
    Transition Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
 For the transition period from  to
 000-13118
(Commission File No.)
 
 Amerex Group, Inc.
 (Exact name of registrant as specified in its charter)
 
 Oklahoma
    
    20-4898182(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 1105 N. Peoria Avenue, Tulsa, OK 74106
(Address of principal executive offices, Zip Code)
 Registrants telephone number, including area code (918) 858-1050
 
 þ o
 o þ
  Class
    
    Outstanding at November 8, 2007Common Stock, $.001 par value
    
    14,968,596
 o þ




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##### 



INDEX
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at September 30, 2007 (unaudited) and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2007 and 2006 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 (unaudited)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to Vote of Shareholders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits and Reports on Form 8-K
    
    
    20SIGNATURE PAGE
    
    
    21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 AMEREX GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    93,823
    
    
    $
    60,267Restricted cash
    
    
    -0-
    
    
    
    812,666Accounts receivable, trade, net of allowance for doubtful
accounts of $15,000 at September 30, 2007 and $32,000 at
December 31, 2006
    
    
    2,524,874
    
    
    
    2,638,897Other current assets
    
    
    358,662
    
    
    
    693,908TOTAL CURRENT ASSETS
    
    
    2,977,359
    
    
    
    4,205,738PROPERTY, PLANT AND EQUIPMENT, at cost
    
    
    3,660,800
    
    
    
    3,744,259Less accumulated depreciation and amortization
    
    
    (523,865
    )
    
    
    (295,218
    )NET PROPERTY, PLANT AND EQUIPMENT
    
    
    3,136,935
    
    
    
    3,449,041Assets held for sale
    
    
    220,889
    
    
    
    363,948Other assets
    
    
    880,422
    
    
    
    1,456,746TOTAL ASSETS
    
    $
    7,215,605
    
    
    $
    9,475,473LIABILITIES AND SHAREHOLDERS DEFICITCURRENT LIABILITIESAccounts payable
    
    $
    1,871,481
    
    
    $
    1,867,087Accrued expenses
    
    
    1,489,899
    
    
    
    1,488,464Accrued Acquisition Liability
    
    
    259,761
    
    
    
    250,000Convertible Notes
    
    
    115,000
    
    
    
    0Current portion of long term debt
    
    
    6,543,551
    
    
    
    5,414,421Borrowings under line of credit
    
    
    1,274,040
    
    
    
    970,811Short-Term Loan
    
    
    177,500
    
    
    
    -0-Environmental remediation liability
    
    
    -0-
    
    
    
    876,036Obligations to issue equity instruments
    
    
    1,723,001
    
    
    
    1,971,987TOTAL CURRENT LIABILITIES
    
    
    13,454,233
    
    
    
    12,838,806Long Term debt, net of debt discount
    
    
    0
    
    
    
    0TOTAL LIABILITIES
    
    
    13,454,233
    
    
    
    12,838,806COMMITMENTS & CONTINGENCIESSHAREHOLDERS EQUITYCommon stock - 100,000,000 shares authorized, $.001 par value,14,668,596 shares issued and outstanding
    
    
    14,669
    
    
    
    18,774Additional paid-in capital
    
    
    5,677,136
    
    
    
    2,740,281Accumulated deficit
    
    
    (11,930,433
    )
    
    
    (6,122,388
    )TOTAL SHAREHOLDERS DEFICIT
    
    
    (6,238,628
    )
    
    
    (3,363,333
    )TOTAL LIABILITIES AND SHAREHOLDERS DEFICIT
    
    $
    7,215,605
    
    
    $
    9,475,473
   3




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ITEM 1. Financial Statements (cont.)
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 AMEREX GROUP, INC. AND SUBSIDIARIES
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    (Restated) 2006
    
    
    2007
    
    
    (Restated) 2006Revenue
    
    $
    2,226,849
    
    
    $
    2,296,980
    
    
    $
    6,483,843
    
    
    $
    4,744,854Operating
Expenses:Cost of Services
provided
    
    
    1,260,379
    
    
    
    1,431,437
    
    
    
    3,830,631
    
    
    
    2,935,539Selling, general
and administrative
    
    
    1,086,749
    
    
    
    758,959
    
    
    
    2,387,817
    
    
    
    2,403,382Professional fees
    
    
    291,344
    
    
    
    132,818
    
    
    
    515,685
    
    
    
    372,968Depreciation
    
    
    94,703
    
    
    
    90,160
    
    
    
    248,110
    
    
    
    179,546Amortization
    
    
    9,041
    
    
    
    5,795
    
    
    
    27,123
    
    
    
    17,375Total Operation
Expenses
    
    
    2,742,216
    
    
    
    2,419,168
    
    
    
    7,009,366
    
    
    
    5,908,810Operating Income
(Loss)
    
    
    (515,367
    )
    
    
    (122,188
    )
    
    
    (525,523
    )
    
    
    (1,163,956
    )Other Income
(Expense)Remeasurement of
Equity Obligations
    
    
    (491,501
    )
    
    
    -0-
    
    
    
    (1,230,014
    )
    
    
    93,750Interest Expense
    
    
    (290,458
    )
    
    
    (178,705
    )
    
    
    (698,280
    )
    
    
    (527,308
    )Amortization of
Debt Discount
    
    
    (712,080
    )
    
    
    (323,240
    )
    
    
    (1,645,008
    )
    
    
    (1,007,620
    )Amortization of
Capitalized
Financing Fees
    
    
    (233,559
    )
    
    
    (190,184
    )
    
    
    (641,702
    )
    
    
    (486,576
    )Financing Penalty
Fees
    
    
    (312,800
    )
    
    
    -0-
    
    
    
    (911,200
    )
    
    
    (512,240
    )Other Income
    
    
    7,655
    
    
    
    9,040
    
    
    
    47,375
    
    
    
    21,262Loss from
Continuing
Operations
    
    
    (2,518,110
    )
    
    
    (805,277
    )
    
    
    (5,604,352
    )
    
    
    (3,582,688
    )Income (Loss) From
Discontinued
Operations
    
    
    (126,118
    )
    
    
    41,479
    
    
    
    (203,693
    )
    
    
    41,479Net Loss
    
    $
    (2,674,228
    )
    
    $
    (763,798
    )
    
    $
    (5,808,045
    )
    
    
    (3,541,209
    )Income (Loss) Per
ShareBasic and Diluted
    
    $
    (0.17
    )
    
    $
    (0.26
    )
    
    $
    (0.33
    )
    
    $
    (2.50
    )Weighted Average
Number of Common
Shares Outstanding
    
    
    15,948,216
    
    
    
    2,951,946
    
    
    
    17,518,156
    
    
    
    1,418,723Basic and Diluted
    
    
    15,948,216
    
    
    
    2,951,946
    
    
    
    17,518,156
    
    
    
    1,418,723
  4




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ITEM 1. Financial Statements (cont.)
 AMEREX GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months Ended September 302007
    
    
    (Restated) 2006Cash Flows From Operating ActivitiesNet Loss
    
    $
    (5,808,045
    )
    
    $
    (3,541,209
    )Adjustments to reconcile net loss to net cash used in operating activitiesLoss on discontinued operations
    
    
    203,693
    
    
    
    0Depreciation and amortization
    
    
    275,233
    
    
    
    196,921Amortization of debt discount & finance fees
    
    
    2,286,710
    
    
    
    1,494,196Gain on sale of assets
    
    
    (17,423
    )
    
    
    0Noncash compensation
    
    
    603,750
    
    
    
    562,810Changes in:Accounts receivable
    
    
    114,023
    
    
    
    (2,012,368
    )Other current assets
    
    
    343,906
    
    
    
    (59,036
    )Other assets
    
    
    2,500
    
    
    
    (11,501
    )Accounts payable
    
    
    4,395
    
    
    
    1,044,784Accrued current liabilities
    
    
    365,173
    
    
    
    1,496,303Net cash used in operating activities
    
    
    (1,626,085
    )
    
    
    (829,100
    )Cash Flows from Investing ActivitiesAcquisition of property, plant and equipment
    
    
    (36,130
    )
    
    
    (450,346
    )Proceeds from sales of assets
    
    
    113,700
    
    
    
    65,817Release of restricted cash
    
    
    812,666
    
    
    
    1,694,664Purchase of investment
    
    
    (8,661
    )Cash paid for asset acquisition
    
    
    -0-
    
    
    
    (1,917,716
    )Net cash used by investing activities  continuing operations
    
    
    881,575
    
    
    
    (607,621
    )Net cash provided by investing activities  discontinued operations
    
    
    (56,785
    )
    
    
    0Net cash provided by (used in) investing activities
    
    
    824,790
    
    
    
    (607,621
    )Cash flows from Financing ActivitiesDebt issue costs
    
    
    (95,000
    )
    
    
    (575,649
    )Proceeds from debt and equity issuances
    
    
    1,045,451
    
    
    
    1,681,941Repayment of debt
    
    
    (115,600
    )
    
    
    (63,544
    )Net cash provided by financing activities
    
    
    834,851
    
    
    
    1,042,748Net increase (decrease) in cash and cash equivalents
    
    
    33,556
    
    
    
    (393,973
    )Cash and cash equivalents at beginning of period
    
    
    60,267
    
    
    
    729,872Cash and cash equivalents at end of period
    
    $
    93,823
    
    
    $
    335,898Supplemental
disclosures  cash paid for:Interest
    
    $
    698,280
    
    
    $
    527,308Income taxes
    
    
    
    
    
    
    Noncash TransactionsConversion of debt to equity
    
    
    100,000
    
    
    
    
  5




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AMEREX GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Basis of Presentation.In the opinion of management, the accompanying
unaudited condensed consolidated financial statements contain all
normal recurring adjustments necessary to present fairly the financial
position of Amerex Group, Inc. and its wholly-owned subsidiary, AMEREX
Companies, Inc. (Amerex), and its wholly-owned subsidiary, Waste
Express, Inc., (collectively, the Company) at September 30, 2007 and
the results of its (i) operations for the nine months ended September
30, 2007 and (restated) 2006 and (ii) cash flows for the nine months
ended September 30, 2007 and (restated) 2006. The financial
information included herein is taken from the books and records of the
Company and is unaudited.During second quarter 2007, we adjusted first quarter 2007 results to
reduce debt discount amortization that had been overstated by $144,547
for the three months ended March 31, 2007. This reduced first quarter
2007 net loss from continuing operations and net loss by $144,547, and
first quarter 2007 loss per share by $0.008. This adjustment has been
reflected in these statements of operations for the three and nine
months ended September 30, 2007.On July 5, 2006, Amerex Group, Inc. (formerly known as Airguide, Inc.) executed a share exchange of its common stock and
acquired 100% of the issued and outstanding capital stock of Amerex,
pursuant to a Share Exchange Agreement dated July 5, 2006. Pursuant to
the agreement, the stockholders of Amerex received 18,760,074 shares
of our common stock in exchange for all of the issued and outstanding
capital stock of Amerex, the 100,000 shares of our common stock issued
to James Frack were cancelled, and all warrants and convertible notes
of Amerex were exchanged for our warrants and convertible notes. In
connection with the issuance of the Companys common stock to the former
stockholders of Amerex, the stockholders of Amerex beneficially became
the owners of 97.3% of the Companys issued and outstanding voting securities.
The acquisition of Amerex has been treated as a
reverse acquisition for accounting purposes and reflect Amerex as the
accounting acquirer of Airguide Inc. Therefore, consolidated
financial information presented in this document are of Amerex
for the pre-acquisition period.Certain information and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed or omitted.
These condensed financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Companys annual
report on Form 10-KSB and Forms
10-QSB and Form 8-K filings made to date in 2007.The accompanying financial statements have been prepared assuming that the Company will continue
as a going concern. The Company incurred a net loss of $5,218,444 during the year ended
December 31, 2006, a net loss for the nine months ended September 30, 2007 of $5,808,045 and
further losses are anticipated. As of September 30, 2007, the Company had a working capital
deficiency of $10,476,874 and stockholders deficit of $6,238,628. Furthermore, the Company has
experienced cash flow difficulties, and is currently in default according to the terms of its
note agreements, which causes the balances to become due on demand. The Company does not
currently have alternate sources of capital sufficient to meet such demands, if made. Most of
the Companys debt is due in November 2007, and there are no assurances that this debt will be
renewed, although negotiations to do so are in progress. These conditions raise substantial doubt about the Companys ability to continue as a
going concern. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty. The Company is currently pursuing various alternatives to
obtain additional funding to repay short-term liabilities, including mortgaging and selling
assets, and management is taking steps to increase revenues, minimize costs and achieve
profitable operations.Restated Financial Statements: The Company has restated its consolidated financial statements
as of and for the period ending September 30, 2006 from those previously issued based in part
on comments received from the Division of Corporation Finance of the SEC.  These changes
consisted primarily of the recognition of share based compensation and the remeasurement of the
various obligations to issue equity instruments to their estimated fair value in light of the
requirements of Statement of Financial Accounting Standards (SFAS) No. 150, EITF Issue No. 00-19
and SFAS 123R. In addition the Company provided for the provision of various accrued expenses
not previously recognized. The net impact of these changes was to increase the net loss reported
by approximately $130,000 and $818,000, respectively, for the three and nine months ended
September 30, 2006.
  6




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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 In December 2006, the Financial Accounting Standards Board (FASB) issued Staff Position FSP EITF 00-19-2,
Accounting for Registration Payment Arrangements (FSP). This
pronouncement is effective for existing registration payment
arrangements as of January 1, 2007.  We adopted the provisions of this
FSP effective January 1, 2007. During third quarter 2007, we
determined that application of the FSP requires certain of our
outstanding warrants to be reclassified from a liability to equity as
of January 1, 2007.  The impact on previously issued results for the
six months ended June 30, 2007 is to decrease remeasurement of equity
obligations expense and increase net income by $2,763,000, since these
warrants should not have been remeasured during 2007.2.
    
    Line of Credit.On August 31, 2006 the Company entered into an
agreement with CAMOFI Master LDC for a line of credit with a maximum
borrowing equal to the lesser of $1.5 million or 80% of account
receivable aged less than 90 days in consideration for the issuance to
CAMOFI Master LDC of a five-year warrant to purchase 750,000 shares of
our common stock at an exercise price of $0.01 per share. This line of
credit is secured by our accounts receivable. Borrowings under this
line of credit bear interest at prime plus 4% and the term of the line
of credit is twenty four months. The Company maintains the right to
prepay in cash all of the portion of the revolving notes at 115% of
the principal amount plus accrued interest. The credit facility
agreement contains debt covenants similar to those contained in the
Senior Secured Convertible Notes Agreement. The Company was in
noncompliance with certain of these covenants as of September 30,
2007, and is now in default of its agreement. The debt has
accordingly been reclassified as current at September 30, 2007.3.
    
    Long Term Debt.The Company entered into 10% Senior Secured
Convertible Notes (the Notes) dated November 21, 2005 with CAMOFI
MASTER LDC and a limited number of Qualified Institutional Investors.
 Interest is payable monthly in arrears, in cash or, at the option of
the Company and subject to certain conditions being met, in registered
common stock.  The Notes are collateralized by a first lien on all
current and future assets of the Company and its current and future
subsidiaries.  The Notes are guaranteed by the current and future
subsidiaries of the Company.  The agreement requires the Company to
comply with certain nonfinancial covenants, including restricting the
payment of dividends.The stated principal of the Notes was $6,000,000, which was increased
to $6,800,000 on February 23, 2006.  However, the agreement provides
for repayment of the principal according to the following premiums and
schedule:  102% of principal for monthly principal repayments of 1/60
of stated principal beginning September 2006, 110% of optional
principal prepayments prior to November 21, 2006, 112.5% of optional
principal prepayments November 21, 2006 through April 20, 2007, 115%
of any principal prepayments thereafter including the required
repayment at November 21, 2007 maturity.  The effect of the premiums
increases the effective interest paid on the amounts borrowed.  The
Notes balance at September 30, 2007 and December 31, 2006 are stated
at the amount due at those dates (115% and 112.5%, respectively, of
outstanding principal) with a debt discount being amortized by the
interest method and adjusted over time to equate the amount initially
borrowed to the amount scheduled to be repaid.The Notes are convertible at any time into common stock at a fixed
conversion price. The fixed conversion price to convert the debt to
equity is set at $0.50 per share, subject to downward adjustment for
any subsequent equity transactions at prices less than $0.50 per
share. During third quarter 2007, $100,000 in notes were converted
into 200,000 shares of common stock. In connection with the issuance
of the Notes, the holders of the Notes were issued five-year warrants
to purchase 2,000,000 shares of common stock at an exercise price of
$0.01 per share.  The warrants are exercisable on a cashless basis and
include certain anti-dilution provisions. When the Notes were amended
to increase the outstanding principal to $6,800,000, the number of
warrants issued was increased to 2,266,667. In accordance with EITF
Issue No. 98-5 and No. 00-27, the $6 million proceeds received were
allocated to the Notes and warrants based on their estimated fair
values, resulting in the recording of a debt discount. The allocated
value of the warrants, which was $980,834, resulted in recording of a
debt discount and a liability to issue equity instruments. The
additional warrants issued in February 2006 increased this value by
$130,778. The determination of the fair value assumed exercise at the
end of 5 years and 17.44% stock price volatility.  Since the Notes
possess a beneficial conversion feature, an additional debt discount
and increase to additional paid-in capital of $980,834 at November
2005 and $130,778 at February 2006 were recorded based on the
intrinsic value of the conversion feature.  Since the shares of the
Companys common stock were not readily convertible to cash at
December 31, 2006, neither the warrants nor beneficial conversion
feature were subject to SFAS 133 derivative accounting. Due to the
liquidated damages discussed in the following paragraph, the warrants
were recorded as a liability through December 31, 2006 based on the
guidance in EITF 00-19. In December 2006, the FASB issued Staff
Position FSP EITF 00-19-2, Accounting for Registration Payment
Arrangements. This pronouncement was adopted by the Company effective
January 1, 2007, which resulted in reclassification of these warrants
valued at $1,479,000 at January 1, 2007, from liabilities to equity.
  7




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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 A separate agreement with holders of the Notes provided that the
Company would pay liquidated damages to the holders of the Notes if a
registration statement was not filed and declared effective by certain
dates in 2006.  In 2006, the Company agreed to issue 984,000 shares of
common stock to the holders of the Notes to settle such damages,
assuming the registration statement was effective by October 30, 2006.
 We recorded the estimated fair value of these shares of $492,000 as a
liability and nonoperating expense as of December 31, 2006 and have
reflected the obligation to issue these equity instruments at their
current market value of $1,723,001 as of September 30, 2007.  These
 shares are expected to be issued later in 2007.  Holders of the Notes
are entitled to additional liquidated damages for delays in the
effectiveness of the registration statement to register the warrants
and conversion shares beyond October 30, 2006.  Accordingly, the
Company has accrued financing penalty fees due to non compliance in
the amount of $1,118,600 at September 30, 2007, for delays in the
effectiveness of the registration statement to register the warrants
and conversion shares beyond October 30, 2006. Additional fees at the
rate of approximately $3,400 per day will be required to be accrued
for the period subsequent to September 30, 2007 until such time the
Company has an effective registration statement under the terms of its
agreement.As of September 30, 2007, the Company has been in noncompliance with
certain covenants in the Notes agreement regarding delivery of
financial information and liens on assets. The Company also has
failed to make certain principal payments in 2007. As a result, the
Company is in default of its Notes agreement and no waiver has yet
been obtained from the lender.4.
    
    Short Term Loan. On August 14, 2007, the Company entered into a loan with Professional
Offshore Opportunity Fund, Ltd (PROOF), for $750,000.  The financing
was used to fulfill vendor and other obligations.  As disclosed in
the Companys Current Report on Form 8-K filed on August 16, 2007, the
financing is in the form of a Secured Promissory Note payable in
monthly installments commencing on September 14, 2007, and on the
10th day of each month thereafter through February 10,
2008.  The loan bears interest at five percent per annum and is
payable in cash or with shares or the Companys common stock
discounted at 30 percent from the average bid price for the five
trading days preceding the installment.  The Company also is obligated
to pay a monthly utilization fee of 10% of the monthly
installment. The Company was in noncompliance with certain of these
terms as of September 30, 2007, and is now in default of its
agreement.The Company also issued 500,000 shares of its common stock to PROOF
under a letter agreement entered into in connection with the
financing.  The Company has agreed to register the shares for sale or
to repurchase them at specified amounts and times.  If the shares are
not registered by the maturity
date of the loan or the date it is
prepaid, the shares must be repurchased at $200,000 if the note is
repaid on or before September 14, 2007, and for an additional $100,000
on the fifteenth of each month thereafter through January 15, 2008.
The maximum repurchase price is $700,000 for a repurchase on or after
January 15, 2008.  In the event the Company does not pay the amounts
due, the Companys obligation under the letter agreement will bear
interest at the rate of two percent per annum. The $750,000 proceeds
has been allocated between the loan and related common stock issued
simultaneously. This allocation is subject to change during fourth
quarter 2007 based on final determinations of the fair values of the
loan and common stock.The obligation of the Company also is secured by shares of the
Companys common stock pledged to PROOF by Ron Brewer and Richard
Coody, former officers and directors of the Company.  Each pledged
1,450,000 shares.  PROOF can exercise its rights as a secured party by
selling the shares to apply against the Companys obligations to PROOF
in the event of a default by the Company under the Secured Promissory
Note.  PROOF also has the right to direct the sale of shares in the
absence of a default at its discretion.  The pledge is without
recourse to the Company.  The Company has agreed to pay to Mr. Coody
and Mr. Brewer amounts equal to 22% of the proceeds of any of their
 shares of common stock sold by PROOF under the pledge. The funds will
be retained in an escrow account and paid in 2009.5.
    
    Loss per share. Loss per share is presented in accordance with SFAS
No. 128 Earnings Per Share.  Weighted average outstanding shares for
purposes of the loss per share calculations reflect the one-for-one
exchange of Amerex stock for the common stock of Airguide, Inc., the
legal acquirer of Amerex on July 5, 2006.  Weighted average shares
outstanding for the quarter ended September 30, 2006 are 1,418,723.
 Weighted average shares outstanding for the quarter ended September
30, 2007 were 15,948,216 and reflect the effects of the merger with
Airguide, Inc. on July 5, 2006 and the issuance of shares during 2006
to employees, consultants and lender.
  8




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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 No outstanding stock obligations or warrants represent dilutive
potential common shares for the periods January 1 through September
30, 2007 and January 1 through September 30, 2007.  As of September
30, 2007, the Company had outstanding common stock warrants to issue
approximately 5,766,667 shares of common stock, and obligations to
issue 984,000 shares of common stock to a lender (see Note 3).
Additionally, the Company awarded options to issue 350,000 common
 shares to an employee during 2007 (see note 6 below). These securities
were not included in the computation of diluted earnings per share
since to do so would have been antidilutive for the period presented.
Subsequent to September 30, 2007 the Company issued shares to fulfill
obligations to issue common stock made by September 30, 2007 as
discussed above.6.
    
    Share-Based Compensation.The Company records share-based payments to nonemployees
based on the estimated value of those payments, generally measured at the date performance is
complete and expensed over the performance period.The Company records share-based payments to employees based on the estimated value of those
payments, which are expensed over the requisite service periods.  The measurement date for
share-based payments is the grant date for awards that qualify as equity and the settlement date
for awards considered as liabilities.Prior to September 2005, the Company agreed to issue 12,755,000 shares of the Companys common
stock to three founding employees and 2,450,000 shares to a consultant for work performed in
organizing the Company.  Since these individuals were legally entitled to receive the shares at
that time as no further performance was required and since the Company was considered to have
minimal value at the grant date, no compensation expense was recorded.  In first quarter 2006,
the Company agreed to issue 375,000 shares of common stock to employees and 800,000 shares to
nonemployees upon completion of a reverse merger with a public company. The Company agreed to
issue 200,000 shares to another nonemployee in second quarter 2006. All of these shares were
issued during third quarter 2006.  The estimated value of awards at the grant date for employees
and at the date of completion of performance for nonemployees was recorded to expense over the
requisite service periods. All awards were vested as of
December 31, 2006. 
On June, 2007, an award of 100,000 options to purchase common stock for $.50 per share was made to
a member of the Companys management team. On September 7, 2007, this management team member was
awarded an additional 250,000 options to purchase common stock for $1.50. Non-cash compensation in
the amount of $100,000 and $215,000 respectively was recorded to reflect this transaction. The
fair value of this award was based on a Black-Scholes valuation, which assumed an expected
volatility of 57% of the Companys stock based in part on the volatility of comparable public
companies.In July 2007, approximately 245,000 shares were awarded to
nonemployees in exchange for consulting services to be
performed. The estimated value of these services will be recorded as
non-cash compensation over the requisite service periods, most of
which were performed during third quarter 2007.On June 1, 2007 an award of 100,000 options to purchase common stock for $0.50 per share was
made to a member of Amerexs management team. On September 7, 2007 this management team member
was awarded an additional 250,000 options to purchase common stock for $1.50. Non-cash
compensation in the amount of $100,000 and $215,000 respectively was recorded to reflect this
transaction. The fair value of this award was based on a Black-Scholes valuation, which assumed
an expected volatility of 57% of the Companys stock based in part on the volatility of
comparable public companies.The Company revalued its liability obligations to issue shares to its lender based on the
estimated value of the Companys stock as of September 30, 2007. This revaluation resulted in
remeasurement expense of $491,501 and $1,230,014 during the three and nine months ended
September 30, 2007.7.
    
    Acquisition of Pryor Assets and Discontinued Operations. On February
1, 2006, the Company acquired certain fixed assets located in Pryor,
Oklahoma from Kaiser Aluminum and Chemical Company for $700,000 plus
related costs of $12,070.  Properties acquired contain asbestos, which
the Company initially estimated the cost to remove to be $875,000,
such estimate being recorded as an environmental remediation
liability.  The remediation project was completed by September 30,
2007. The $1,587,070 fixed asset cost was allocated to the
individual assets based on their estimated fair values. The Company
identified selected assets to sell, to which it assigned a cost of
$656,062. As a result of sales, this amount has been reduced to
$220,889, which is presented as assets held for sale at September 30,
2007 and included in the Amerex segment. Since these assets are
considered as a separate asset group to be disposed, they are
classified as a discontinued operation. The Company expects to sell
most or all of these remaining assets during 2007. Net proceeds from
the disposal of these assets are included in the caption loss from
discontinued operations. The Company had originally intended to
convert the property to be retained into a licensed waste management
facility. However, due to a significant increase in property values,
Management has decided to sell the property and use the proceeds to
pay down existing debt.
  9




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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 8.
    
    Related Party Transactions. During the period from inception (May 2,
2005) through December 31, 2005, the Company agreed to issue warrants to purchase shares of common stock at an
exercise price of $0.50 per share initially valued at $322,318, to a
company for which the principal of that company also serves on the
Companys board of directors. The warrants were issued in December 2006. The
consulting company agreed to give half of these warrants to the
president of the Company as compensation for work performed by the
president to the Company in 2006. In accordance with SEC Staff
Accounting Bulletin Topic 5T, the Company has recorded additional
compensation expense based on the estimated fair value of these
warrants at the grant date. Expense for the nine months ended
September 30, 2007 was $60,500.During the nine months ended September 30, 2007, the Company recorded
an additional $340,000 in consulting fees plus expenses as debt
finance costs paid to this consulting company as well as $1,500 in
rent. During the nine months ended September 30, 2007 the Company
recorded $3,000 in rent owed to this consulting company.During the nine months ended September 30, 2007, the Company paid
consulting fees of $15,000 to a board member of the Company. The
Company incurred expenses of $4,143 for miscellaneous goods and
services provided by a company partially owned by a director of the
Company during the nine months ended September 30, 2007.In August 2006 the Company entered into a month-to-month lease with
Tulsa Equipment Sales, Inc. for use of a 25 ton crane in connection
with the demolition and salvage of materials at our Pryor, Oklahoma
facility. The cost per month is $5,000. One of the Companys directors
is an owner of Tulsa Equipment Sales Inc. During the nine months ended
September 30, 2007, the Company incurred expense of $15,000 under this
lease. This lease was terminated in March 2007.On April 4, 2007, the Company entered into a preliminary agreement
with Mr. Richard Coody, then a director and consultant to the Company
in which Mr. Coody agreed to return 4,805,000 shares of the Companys common stock
which he owned to the Company in exchange for a release
from his obligations under his consulting agreement. Mr. Ron Brewer, a
former director, agreed to return 4,200,000 shares under a similar
arrangement. All agreements
were finalized in August, 2007. As of September 30, 2007, Mr. Coodys
4,805,000 shares have been returned and retired, while Mr. Brewers
4,200,000 shares remained outstanding as of September 30, 2007.On August 2, 2007, the Company entered into agreements with Mr.
Richard Coody and Mr. Ronald Brewer in which they each agreed to
pledge 1,450,000 shares of stock which they own to collateralize a
$750,000 6-month bridge loan to the Company from Professional Offshore
Opportunity Fund, LTD (See Note 4). In addition to the
pledge of the stock as collateral, Mr. Coody and Mr. Brewer agreed to
pay the Company $850,000 each in exchange for a full release from any
and all future claims the Company may have against them as a result of
a dispute among the parties with regard to management of daily operations.
Messrs. Coody and Brewer will receive credit against their respective
obligations to the Company for any shares of theirs that are sold
under the pledge. The Company has agreed to pay to Mr. Coody and Mr.
Brewer amounts equal to 22% of the proceeds of any of their shares
sold by PROOF under the pledge. The funds will be retained in an
escrow account and disbursed during 2009.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 9.
    
    Segment Reporting.The Companys operating segments are defined as
components for which separate financial information is available that is
evaluated regularly by the chief operating decision maker. The Companys
reportable segments consist of Waste Express and Amerex. Amerex revenues
for the nine months ended September 30, 2007 consist primarily of waste
management services similar to those performed by Waste Express.The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. The Company
manages its business segments primarily based on earnings before income taxes.
Selected financial information for reportable segments for the nine months
ended September 30, 2007 is as follows:
 WasteExpress
    
    
    Amerex
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    
    1,604,207
    
    
    
    4,879,636
    
    
    
    
    
    
    
    6,483,843Operating income (loss)
    
    
    (276,135
    )
    
    
    249,388
    
    
    
    
    
    
    
    (525,523
    )Other income
    
    
    8,661
    
    
    
    38,714
    
    
    
    
    
    
    
    47,375Remeasurement of equity
obligations
    
    
    0
    
    
    
    (1,230,014
    )
    
    
    
    
    
    
    (1,230,014
    )Interest expense,
penalties
and amortization of
debt
costs and debt discount
    
    
    (14,011
    )
    
    
    (3,882,179
    )
    
    
    
    
    
    
    (3,896,190
    )Loss from continuing
operations
    
    
    (281,485
    )
    
    
    (5,322,867
    )
    
    
    
    
    
    
    (5,604,352
    )Loss from discontinued
operations
    
    
    0
    
    
    
    (203,693
    )
    
    
    
    
    
    
    (203,693
    )Net income (loss)
    
    
    (281,485
    )
    
    
    (5,526,560
    )
    
    
    
    
    
    
    (5,808,045
    )Segment assets
    
    
    1,642,609
    
    
    
    6,072,405
    
    
    
    (499,409
    )
    
    
    7,215,605Expenditures for
acquisitions,
property and equipment
    
    
    0
    
    
    
    36,130
    
    
    
    
    
    
    
    36,130
 Selected financial information for reportable segments for the nine months ended September 30, 2006 is as follows:
 WasteExpress
    
    
    Amerex
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    
    2,616,435
    
    
    
    2,128,419
    
    
    
    
    
    
    
    4,744,854Operating income (loss)
    
    
    351,194
    
    
    
    (1,515,150
    )
    
    
    
    
    
    
    (1,163,956
    )Other income
    
    
    (1,165
    )
    
    
    22,426
    
    
    
    
    
    
    
    21,262Remeasurement of equity
obligations
    
    
    0
    
    
    
    93,750
    
    
    
    
    
    
    
    93,750Interest expense, penalties
and amortization of debt
costs and debt discount
    
    
    (343
    )
    
    
    (2,533,401
    )
    
    
    
    
    
    
    (2,533,744
    )Income (loss) from continuing
operations
    
    
    349,687
    
    
    
    (3,932,374
    )
    
    
    
    
    
    
    (3,582,688
    )Income from discontinued
operations
    
    
    0
    
    
    
    41,479
    
    
    
    
    
    
    
    41,479Net income (loss)
    
    
    349,687
    
    
    
    (3,890,895
    )
    
    
    
    
    
    
    (3,541,209
    )Segment assets
    
    
    1,705,249
    
    
    
    8,801,577
    
    
    
    (691,439
    )
    
    
    9,815,386Expenditures for acquisitions,
property and equipment
    
    
    285,304
    
    
    
    165,082
    
    
    
    
    
    
    
    450,386
  11




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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 10.  Concentrations
  11. Commitments and Contingencies:
       12. Recently Issued Accounting Pronouncements:
     12




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-looking Statements:
   Critical Accounting Policies
         13




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14




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Basis of Presentation:
    Three Months Ended September 30, 2007 Compared With Three Months Ended September 30, 2006
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006Net Sales
    
    
    100
    %
    
    
    100
    %Cost of Sales
    
    
    57
    %
    
    
    62
    %Gross Profit
    
    
    43
    %
    
    
    38
    %Selling, General, and Administrative Expense
    
    
    66
    %
    
    
    43
    %Total Operating Expense
    
    
    123
    %
    
    
    105
    %Income (Loss) from Operations
    
    
    (23)
    %
    
    
    (5)
    %Other Income (Expense)
    
    
    (91)
    %
    
    
    (30)
    %Loss from Continuing Operations
    
    
    (114)
    %
    
    
    (35)
    %
 Nine Months Ended September 30, 2007 Compared With Nine Months Ended September 30, 2006
  Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006Net Sales
    
    
    100
    %
    
    
    100
    %Cost of Sales
    
    
    59
    %
    
    
    62
    %Gross Profit
    
    
    41
    %
    
    
    38
    %Selling, General, and Administrative Expense
    
    
    49
    %
    
    
    63
    %Total Operating Expense
    
    
    108
    %
    
    
    125
    %Income (Loss) from Operations
    
    
    (8)
    %
    
    
    (25)
    %Other Income (Expense)
    
    
    (78)
    %
    
    
    (51)
    %Loss from Continuing Operations
    
    
    (86)
    %
    
    
    (76)
    %
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Revenues
   Cost of Services Provided
   SG&A
   Non-Operating Expenses
   16




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Loss from continuing operations
    Segment Results of Operations
  Financial Condition, Liquidity, and Capital Resources
   17




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
    
    The Company continues to implement plans to increase revenues.
    
    A bridge loan in the amount of $750,000 with Professional Offshore Opportunity Fund, Ltd
was completed in August 2007.
    
    The Company is actively soliciting parties interested in the sale/leaseback of our
property in Pryor, Oklahoma. Proceeds from this sale/leaseback, if it is concluded, will be used
to pay down the 10% Senior Secured Convertible Notes.
    
    The Company is considering the sale or sale/leaseback of its property owned in Harrison
County, Texas.
    
    The Company continues to implement plans to further reduce operating costs as a
percentage of revenue by improved process control and greater productivity.
    
    The Company will seek alternatives measures of financing which may include equity
financing or additional subordinated debt.
    
    The Company intends to open four additional offices in Phoenix, Arizona,
Salt Lake City, Utah,
Denver, Colorado, and Las Vegas, Nevada, to service an existing industrial client as well as additional
clients. These locations will result in increased revenues and improved cash flows.
    
    The Company has begun preliminary work to initiate the construction of two industrial
water treatment plants, at its existing facility in Tulsa, OK and one on its existing
facility in Kansas City, Missouri. This plant will result in increased revenues and profitability
as well as improved cash flows.
    
    The Company is considering the acquisition of an operating business which currently
provides transportation logistics services predominantly via rail. This will add a new
service line for the Company as well as providing our existing clients rail transportation
in addition to its existing trucking logistics and transportation services. The acquisition
should bring increased revenues and profitability. It is anticipated that this acquisition
will be financed by a private equity offering.
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##### Table of Contents



Going Concern
  
 ITEM 3. Controls and Procedures
 The Company has carried out an evaluation, under supervision and with the participation of the Companys management,
including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Companys disclosure
controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation,
the Companys Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2007, as a result
of material weaknesses in the Companys internal control over financial reporting discussed below, the Companys
disclosure controls and procedures were not effective in causing the material information required to be disclosed by
the Company in the reports it files or submits under the Securities Exchange Act of 1934 to be recorded, processed,
summarized and reported, to the extent applicable, within the time periods required for the Company to meet the
Securities and Exchange Commissions (SEC) filing deadlines for these reports specified in the SECs rules and form. During the quarter ended September 30, 2007, the Company and its outside auditor, Sartain Fischbein & Co., identified
material weakness in the Companys internal controls. These deficiencies included a limited number of accounting
personnel that prevented an adequate segregation of duties in many significant processes, an insufficient review of
transactions and a lack of experience in dealing with complex accounting issues. Deficiencies were also identified in
the lack of use of checklists to ensure financial statement and SEC disclosures and Audit Committee review of the
Companys disclosures. The Company has remediated, or is in the process of remediating, the identified weaknesses in
the Companys internal controls over disclosure controls and procedures. Based on a number of factors, including the
Companys internal review, efforts to remediate the material weaknesses in internal control over financial reporting
described above, and the performance of additional procedures by management designed to ensure reliability of the
financial reporting, we believe that the financial statements in this report fairly present, in all material respects,
our financial position, results of operations and cash flows as of the dates, and for the periods, presented.  
 PART II. OTHER INFORMATION
 
   ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 In July 2007 approximately 245,000 shares of the Companys common stock were awarded to nonemployees in exchange for
services performed during the third quarter of 2007. The estimated value of these services was recorded as non-cash
compensation over the requisite service periods. Of the shares issued, 225,000 were issued as of July 31, 2007, for
consulting services to the Company for the production, sale, packaging, marketing, promotion, capitalization and/or
other exploitation of the Companys brand and for email marketing services and contacting potential investors. A
second contract was entered into on July 31, 2007, for six months to provide value based management practices. The
Company issued 20,000 shares for such services. 
 ITEM 3. Defaults Upon Senior Securities The Company has reported noncompliance with the terms of 10% Senior Secured Convertible Notes dated November 21, 2005
at Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements at page 8 of this report. 
 ITEM 5. Other Information
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PART II. OTHER INFORMATION (Continued)
 
 ITEM 6. Exhibits and Reports on Form 8-K
 A. Exhibits
 Exhibit No.
    
    Description31.1
    
    Chief Executive Officer- Sarbanes-Oxley Act Section 302 Certification31.2
    
    Financial Officer- Sarbanes-Oxley Act Section 302 Certification32.1
    
    Chief Executive Officer- Sarbanes-Oxley Act Section 906 Certification32.2
    
    Chief Financial Officer- Sarbanes-Oxley Act Section 906 Certification
 B. Reports on Form 8-K
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AMEREX GROUP, INC.Date: November 19, 2007
    By:
    /s/ Nicholas J. MalinoNicholas J. MalinoChief Executive Officer (Principal Executive Officer)Date: November 19, 2007
    By:
    /s/ Bradley MorrisBradley MorrisController  21




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Exhibit No.
    
    Description31.1
    
    Chief Executive Officer- Sarbanes-Oxley Act Section 302 Certification31.2
    
    Financial Officer- Sarbanes-Oxley Act Section 302 Certification32.1
    
    Chief Executive Officer- Sarbanes-Oxley Act Section 906 Certification32.2
    
    Chief Financial Officer- Sarbanes-Oxley Act Section 906 Certification
  22