##### 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 June 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
 000-09735
(Commission File No.)
 
 Amerex Group, Inc.
 (Exact name of registrant as specified in its charter)
 
 Oklahoma
(State or other jurisdiction of 
incorporation or organization)
    
    20-4898182
(IRS Employer
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 July 31, 2007Common Stock, $.001 par value
    
    18,773,596
 o þ




---



##### 



INDEX
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at June 30, 2007 and December 31, 2006 (unaudited)
    
    
    2Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2007 and 2006 (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006 (unaudited)
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Controls and Procedures
    
    
    20PART II. OTHER INFORMATIONItem 2. Changes in Securities
    
    
    20Item 4. Submission of Matters to Vote of Shareholders
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits and Reports on Form 8-K
    
    
    21SIGNATURE PAGE
    
    
    22Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   Page 1 of 23




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 
 AMEREX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETSCash and cash equivalents
    
    
    13,883
    
    
    
    60,267Restricted cash
    
    
    812,316
    
    
    
    812,666Accounts receivable, trade, net of allowance for doubtful
accounts of $32,000 at June 30, 2007 and December 31, 2006
    
    
    2,214,065
    
    
    
    2,638,897Other current assets
    
    
    348,820
    
    
    
    693,908TOTAL CURRENT ASSETS
    
    
    3,389,085
    
    
    
    4,205,738PROPERTY, PLANT AND EQUIPMENT, at cost
    
    
    3,659,237
    
    
    
    3,744,259Less accumulated depreciation and amortization
    
    
    (430,557
    )
    
    
    (295,218
    )NET PROPERTY, PLANT AND EQUIPMENT
    
    
    3,228,680
    
    
    
    3,449,041Assets held for sale
    
    
    220,889
    
    
    
    363,948Other assets
    
    
    1,030,522
    
    
    
    1,456,746TOTAL ASSETS
    
    
    7,869,176
    
    
    
    9,475,473LIABILITIES AND SHAREHOLDERS DEFICITCURRENT LIABILITIESAccounts payable
    
    
    2,182,375
    
    
    
    1,867,087Accrued expenses
    
    
    1,497,722
    
    
    
    1,738,464Accrued Acquisition Liability
    
    
    250,000
    
    
    
    Convertible Notes
    
    
    75,000
    
    
    
    Current portion of long term debt
    
    
    6,139,499
    
    
    
    5,414,421Borrowings under line of credit
    
    
    1,238,040
    
    
    
    970,811Environmental remediation liability
    
    
    173,002
    
    
    
    876,036Obligations to issue equity instruments
    
    
    5,473,500
    
    
    
    1,971,987TOTAL CURRENT LIABILITIES
    
    
    17,029,138
    
    
    
    12,838,806Long Term debt, net of debt discount
    
    
    
    
    
    
    TOTAL LIABILITIES
    
    
    17,029,138
    
    
    
    12,838,806COMMITMENTS & CONTINGENCIESSHAREHOLDERS EQUITYCommon stock - 100,000,000 shares authorized, $.001 Par Value,
18,773,596 shares issued and outstanding
    
    
    18,774
    
    
    
    18,774Additional paid-in capital
    
    
    2,840,281
    
    
    
    2,740,281Accumulated deficit
    
    
    (12,019,017
    )
    
    
    (6,122,388
    )TOTAL SHAREHOLDERS DEFICIT
    
    
    (9,159,962
    )
    
    
    (3,363,333
    )TOTAL LIABILITIES AND SHAREHOLDERS DEFICIT
    
    
    7,869,176
    
    
    
    9,475,473
   Page 2 of 23




---



##### Table of Contents



ITEM 1. Financial Statements (cont.)
 
 AMEREX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    
    2,109,309
    
    
    
    1,261,030
    
    
    
    4,257,181
    
    
    
    2,447,875Operating Expenses:Cost of services provided
    
    
    1,284,999
    
    
    
    757,506
    
    
    
    2,570,252
    
    
    
    1,505,344Selling, general and
administrative
    
    
    653,239
    
    
    
    1,057,589
    
    
    
    1,301,067
    
    
    
    1,744,455Professional fees
    
    
    146,198
    
    
    
    120,075
    
    
    
    224,341
    
    
    
    173,575Depreciation
    
    
    73,026
    
    
    
    44,693
    
    
    
    153,407
    
    
    
    60,440Amortization
    
    
    9,041
    
    
    
    5,790
    
    
    
    18,082
    
    
    
    12,714Total Operating Expenses
    
    
    2,166,503
    
    
    
    1,985,653
    
    
    
    4,267,149
    
    
    
    3,496,528Operating Income (Loss)
    
    
    (57,194
    )
    
    
    (724,623
    )
    
    
    (9,968
    )
    
    
    (1,048,653
    )Other Income (Expense):Remeasurement of Equity
Obligations
    
    
    (3,501,513
    )
    
    
    93,750
    
    
    
    (3,501,513
    )
    
    
    93,750Interest expense
    
    
    (220,191
    )
    
    
    (185,480
    )
    
    
    (407,822
    )
    
    
    (348,602
    )Amortization of debt discount
    
    
    (492,475
    )
    
    
    (399,521
    )
    
    
    (932,928
    )
    
    
    (684,379
    )Amortization of capitalized
financing fees
    
    
    (208,044
    )
    
    
    (160,293
    )
    
    
    (408,143
    )
    
    
    (296,392
    )Financing penalty fees
    
    
    (302,600
    )
    
    
    (266,502
    )
    
    
    (598,400
    )
    
    
    (512,240
    )Other income
    
    
    39,698
    
    
    
    8,832
    
    
    
    39,720
    
    
    
    12,220Loss From Continuing
Operations
    
    
    (4,742,319
    )
    
    
    (1,633,837
    )
    
    
    (5,819,054
    )
    
    
    (2,784,296
    )Income (Loss) From
Discontinued Operations
    
    
    16,136
    
    
    
    
    
    
    
    (77,575
    )
    
    
    Net Loss
    
    
    (4,726,183
    )
    
    
    (1,633,837
    )
    
    
    (5,896,629
    )
    
    
    (2,784,296
    )INCOME (LOSS) PER SHAREBasic and Diluted
    
    
    (0.25
    )
    
    
    (2.54
    )
    
    
    (0.31
    )
    
    
    (4.33
    )Weighted average number of
common shares outstanding:
    
    
    18,773,596
    
    
    
    643,594
    
    
    
    18,773,596
    
    
    
    643,594Basic and Diluted
    
    
    18,773,596
    
    
    
    643,594
    
    
    
    18,773,596
    
    
    
    643,594
   Page 3 of 23




---



##### Table of Contents



ITEM 1. Financial Statements (cont.)
 
 AMEREX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Six Months Ended June 302007
    
    
    2006Cash Flows From Operating ActivitiesNet Loss
    
    $
    (5,896,629
    )
    
    $
    (2,784,298
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activitiesLoss on discontinued operations
    
    
    77,575
    
    
    
    Depreciation and amortization
    
    
    173,413
    
    
    
    100,965Amortization of debt discount
    
    
    1,341,071
    
    
    
    684,379Gain on sale of assets
    
    
    (25,025
    )Noncash compensation
    
    
    100,000
    
    
    
    712,272Changes in:Accounts receivable
    
    
    424,831
    
    
    
    (1,066,766
    )Other current assets
    
    
    345,088
    
    
    
    3,558Other assets
    
    
    
    
    
    
    (17,501
    )Accounts payable
    
    
    315,287
    
    
    
    491,211Accrued current liabilities
    
    
    2,807,737
    
    
    
    1,514,499Net cash provided by (used in) operating activities
    
    
    (336,652
    )
    
    
    (361,681
    )Cash Flows from Investing ActivitiesAcquisition of property, plant and equipment
    
    
    (24,511
    )
    
    
    (215,050
    )Proceeds from sales of assets
    
    
    113,400
    
    
    
    Release of restricted cash
    
    
    350
    
    
    
    1,691,721Cash paid for asset acquisition
    
    
    
    
    
    
    (1,918,092
    )Net cash used by investing activities  continuing operations
    
    
    89,239
    
    
    
    (441,421
    )Net cash provided by investing activities  discontinued operations
    
    
    66,650
    
    
    
    Net cash provided by (used in) investing activities
    
    
    155,889
    
    
    
    (441,421
    )Cash flows from Financing ActivitiesDebt issue costs
    
    
    
    
    
    
    (976,161
    )Borrowings on Debt
    
    
    249,979
    
    
    
    1,119,997Repayment of Debt
    
    
    (115,600
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    134,379
    
    
    
    143,836Net increase (decrease) in cash and cash equivalents
    
    
    (46,384
    )
    
    
    (659,266
    )Cash and cash equivalents at beginning of period
    
    
    60,267
    
    
    
    729,872Cash and cash equivalents at end of period
    
    $
    13,883
    
    
    $
    70,605Supplemental disclosures  cash paid for:Interest
    
    $
    407,822
    
    
    $
    348,602Income taxes
    
    $
    
    
    
    $
    
   Page 4 of 23




---



##### Table of Contents



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 June 30, 2007 and the results of its (i) operations for the six months ended June
30, 2007 and 2006 and (ii) cash flows for the six months ended June 30, 2007 and 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 six months ended June 30, 2007.On July 5, 2006, we executed a share exchange of our 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
our common stock to the former stockholders of Amerex, the stockholders of Amerex beneficially
became the owners of 97.3% of our issued and outstanding voting securities. The acquisition of
Amerex Companies, Inc. has been treated as a reverse acquisition for accounting purposes and
reflect Amerex as the accounting acquirer of Airguide Inc. Filings with the SEC will reflect the
historical financial statements of Amerex Companies, Inc. for periods prior to the acquisition.
Therefore, unless otherwise noted, consolidated financial information presented in this document
are of Amerex Companies, Inc. 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
for the year ended December 31, 2006 and Form SB-2/A filed November 15, 2006.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 six months ended June 30, 2007 of $5,896,629 and
further losses are anticipated. As of June 30, 2007, the Company had a working capital
deficiency of $13,640,053 and stockholders deficit of $9,159,962. 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. 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.
  Page 5 of 23




---



##### Table of Contents



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 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 June 30, 2007, and
is now in default of its agreement. The debt has accordingly been
reclassified as current at June 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 June 30, 2007 and December 31, 2006 are stated at the
amount due at those dates (112.5% and 110%, 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. 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 June 30, 2007 or December 31,
2006, neither the warrants nor beneficial conversion feature were
subject to SFAS 133 derivative accounting. In accordance with EITF
00-19, SFAS 123R and SFAS 133, the classification and accounting for
the warrants and beneficial conversion feature will be reevaluated at
each reporting date and the liability for the warrants will be
remeasured until the warrants qualify for classification as equity.
This remeasurement resulting in $3,501,513 of expense being recorded in
second quarter 2007.
  Page 6 of 23




---



##### Table of Contents



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. 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 $1,423,302 at June 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 June 30, 2007 until such time the Company
has an effective registration statement under the terms of its
agreement.In early 2006, the Company was in noncompliance with certain covenants
in the Notes agreement regarding delivery of financial information.
Management obtained a waiver from the holders of the Notes, waiving
any covenant violations regarding delivery of financial information
through October 30, 2006. As of June 30, 2007, the Company was again
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.On August 14, 2007, the Company entered into a loan with Professional
Offshore Opportunity Fund, Ltd (PROOF), for $750,000. The financing
will be 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 has 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 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 2009.4.
    
    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 June 30, 2006 are 643,594. Weighted average shares
outstanding for the quarter ended June 30, 2007 were 18,773,596
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.
  Page 7 of 23




---



##### Table of Contents



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 June 30,
2007 and January 1 through June 30, 2006. As of June 30, 2006,
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), and
1,000,000 restricted and 800,000 unrestricted shares of common
stock to third parties, in addition to obligations to issue
13,130,000 shares of common stock to employees, 2,450,000 shares
of common stock to a consultant and 1,000,000 shares to other
nonemployees. These obligations to issue common stock were
fulfilled later in 2006. 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 June
30, 2006 the Company issued shares to fulfill obligations to issue
common stock made by June 30, 2006 as discussed above. The Company
awarded options to issue 100,000 common shares to an employee
during the second quarter 2007.5.
    
    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. Expense for
these awards was $450,716 for the six months ended March 31, 2006.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. Non-cash compensation in
the amount of $100,000 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%.The Company revalued its liability obligations to issue warrants and shares to its lender based on
the estimated value of the Companys stock as of June 30, 2007, and based on a Black-Scholes
valuation of warrants, using current interest rates and 57% expected volatility of the Companys
stock based in part on the volatility of comparable public companies. This revaluation resulted in
remeasurement expense of $3,501,513 during the three and six months ended June 30, 2007.
  Page 8 of 23




---



##### Table of Contents



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 6.
    
    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 remaining
cost to remediate the asbestos is now estimated to be
approximately $173,000 at June 30, 2007. As part of the asset
purchase agreement, the Company assumed all obligations for
removing the asbestos within 18 months, and was required to
provide an $800,000 letter of credit to the seller. If the
asbestos obligations have not been settled within the required
period, the seller may draw upon the letter of credit for any
costs incurred by the seller to complete the asbestos removal and
any damages permitted to be recovered under the agreement. The
Company placed approximately $800,000 in a separate bank account
as collateral to the bank issuing the letter of credit. 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 June 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.7.
    
    Related Party Transactions. During the period from
inception (May 2, 2005) through December 31, 2005, the Company
incurred and recorded consulting fees related to debt financings
of $325,000 plus expenses, and 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 number of warrants to issue was based on 10% of
the number of shares, warrants and conversion shares that may be
directly or indirectly issued upon the completion of transactions
the consulting company helped arrange, and amounted to 3,959,400
warrants. 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 six months ended June
30, 2006 was $60,500.During the six months ended June 30, 2006, the Company recorded an
additional $265,000 in consulting fees plus expenses as debt
finance costs paid to this consulting company as well as $1,500 in
rent. During the six months ended June 30, 2007 the Company
recorded $3,000 in rent owed to this consulting company.During the six months ended June 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 six months ended June 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, OK facility. The cost per month is $5,000. One of the
Companys directors is an owner of Tulsa Equipment Sales Inc.
During the six months ended June 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 an 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 Amerex stock which he owned to the treasury of Amerex 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. The agreements were finalized in August, 2007 as described below.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 PROOF. 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 the day
to day 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.
  Page 9 of 23




---



##### Table of Contents



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 8.
    
    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 six months ended June 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 six months ended June 30, 2007
is as follows:
 Waste Express
    
    
    Amerex
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    
    1,143,896
    
    
    
    3,113,285
    
    
    
    
    
    
    
    4,257,181Operating income (loss)
    
    
    (132,103
    )
    
    
    122,134
    
    
    
    
    
    
    
    (9,968
    )Other income
    
    
    0
    
    
    
    39,720
    
    
    
    
    
    
    
    39,720Remeasurement of Equity
Obligations
    
    
    0
    
    
    
    (3,501,513
    )
    
    
    
    
    
    
    (3,501,513
    )Interest
expense, penalties and amortization of debt
costs and debt discount
    
    
    0
    
    
    
    (2,347,293
    )
    
    
    
    
    
    
    (2,347,293
    )Loss from continuing operations
    
    
    (132,103
    )
    
    
    (5,686,952
    )
    
    
    
    
    
    
    (5,819,054
    )Loss from discontinued operations
    
    
    0
    
    
    
    (77,575
    )
    
    
    
    
    
    
    (77,575
    )Net income (loss)
    
    
    (132,103
    )
    
    
    (5,764,527
    )
    
    
    
    
    
    
    (5,896,629
    )Segment assets
    
    
    1,558,480
    
    
    
    6,587,890
    
    
    
    (277,195
    )
    
    
    7,869,176Expenditures for acquisitions, property and equipment
    
    
    0
    
    
    
    24,511
    
    
    
    
    
    
    
    24,511
  Waste Express
    
    
    Amerex
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    
    1,383,253
    
    
    
    1,064,622
    
    
    
    
    
    
    
    2,447,875Operating income (loss)
    
    
    72,772
    
    
    
    (1,121,425
    )
    
    
    
    
    
    
    (1,048,635
    )Other income
    
    
    (1,165
    )
    
    
    13,385
    
    
    
    
    
    
    
    12,220Remeasurement of Equity
Obligations
    
    
    0
    
    
    
    93,750
    
    
    
    
    
    
    
    93,750Interest expense, penalties
and amortization of debt
costs and debt discount
    
    
    (343
    )
    
    
    (1,941,270
    )
    
    
    
    
    
    
    (1,841,613
    )Income (Loss) from continuing
operations
    
    
    71,264
    
    
    
    (2,855,560
    )
    
    
    
    
    
    
    (2,784,296
    )Segment assets
    
    
    1,060,177
    
    
    
    8,203,953
    
    
    
    (728,657
    )
    
    
    8,535,473Expenditures for acquisitions,
property and equipment
    
    
    0
    
    
    
    2,133,142
    
    
    
    
    
    
    
    2,133,142
  Page 10 of 23




---



##### Table of Contents



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
 9.
    
    Concentrations. Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables with a variety of customers.
The Company generally does not require collateral related to receivables. During
the six months ended June 30, 2007, and the six months ended June 30, 2006, the
Company had revenue from 3 and 2 customers comprising approximately 73% and 63% of
total revenues, respectively. At June 30, 2007 and December 31, 2006 accounts
receivable from 3 and 4 customers comprised approximately 72% and 69% of total
accounts receivable, respectively.
 10.
    
    Commitments and Contingencies. The Company is a party to various legal and regulatory proceedings arising in the
ordinary course of its business, none of which, in managements opinion, will
result in judgments which would have a material adverse effect on the Companys
financial position.On December 11, 2006, a complaint was filed by a former employee and his company, alleging unjust
termination and seeking payment of his monthly salary of $10,000 for an additional 23 months and
other unquantifiable damages. Based upon the Companys initial investigation of the circumstances
of the action, management believes that the suit is without merit.On July 20, 2007, The Company received a complaint from two former employees alleging their
entitlement to incentive bonuses for their services while they were employees of the Company.
Management believes that according to the terms of these individuals employment agreements that no
incentive bonuses are due or payable.11.
    
    Recently Issued Accounting Pronouncements. In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities. This Statement permits entities to choose to measure many financial assets and
financial liabilities at fair value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company will adopt this standard effective January 1, 2008.
The Company is currently assessing the impact of SFAS No. 159 on its financial position and
results of operations.In September 2006, the FASB issued SFAS No. 157, Fair Value Measures. This Statement defines fair
value, establishes a framework for measuring fair value in generally GAAP, expands disclosures
about fair value measurements, and applies under other accounting pronouncements that require or
permit fair value measurements. SFAS No. 157 does not require any new fair value measurements.
However, the FASB anticipates that for some entities, the application of SFAS No. 157 will change
current practice. SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. The Company will adopt this standard effective January 1, 2008.
The Company is currently evaluating the impact of SFAS No. 157 on its financial statements.
  Page 11 of 23




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-looking Statements
  Critical Accounting Policies
       Page 12 of 23




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(cont.)
          Page 13 of 23




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(cont.)
 Basis of Presentation:
   Results of Operations:
 Three Months Ended June 30, 2007 Compared With Three Months Ended June 30, 2006
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedJune 30, 2007
    
    
    June 30, 2006Net Sales
    
    
    100
    %
    
    
    100
    %Cost of Sales
    
    
    61
    %
    
    
    60
    %Gross Profit
    
    
    39
    %
    
    
    40
    %Selling, General, and Administrative Expense
    
    
    42
    %
    
    
    97
    %Total Operating Expense
    
    
    103
    %
    
    
    157
    %Income (Loss) from Operations
    
    
    (3
    )%
    
    
    (57
    )%Other Income (Expense)
    
    
    (222
    )%
    
    
    (72
    )%Loss from Continuing Operations
    
    
    (225
    )%
    
    
    (130
    )%
 Six Months Ended June 30, 2007 Compared With Six Months Ended June 30, 2006
  Six Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2007
    
    
    June 30, 2006Net Sales
    
    
    100
    %
    
    
    100
    %Cost of Sales
    
    
    60
    %
    
    
    61
    %Gross Profit
    
    
    40
    %
    
    
    39
    %Selling, General, and Administrative Expense
    
    
    40
    %
    
    
    81
    %Total Operating Expense
    
    
    100
    %
    
    
    143
    %Income (Loss) from Operations
    
    
    0
    %
    
    
    (43
    )%Other Income (Expense)
    
    
    (136
    )%
    
    
    (71
    )%Loss from Continuing Operations
    
    
    (136
    )%
    
    
    (114
    )%
  Page 14 of 23




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(cont.)
 Revenues
   Cost of Services Provided
    Page 15 of 23




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(cont.)
 SG&A
   Non-Operating Expenses
 nd
   Page 16 of 23




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(cont.)
 Loss from continuing operations
  Net loss
  Segment Results of Operations
  Financial Condition, Liquidity, and Capital Resources
     Page 17 of 23




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(cont.)
   
    
    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, OK. Proceeds from this sale/leaseback, if it is concluded, will be used
to pay down the 12% Senior 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, AZ, Salt Lake City, UT,
Denver, CO and Las Vegas, NV 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, MO. 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.
   Page 18 of 23




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(cont.)
   Going Concern
   Page 19 of 23




---



##### Table of Contents



ITEM 3. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 ITEM 2. Changes in Securities
 
 ITEM 5. Other Information
 a)
    
    None.b)
    
    None.
  Page 20 of 23




---



##### Table of Contents



PART II. OTHER INFORMATION (Continued)
 
 ITEM 6. Exhibits and Reports on Form 8-K
 A. Exhibits
 Exhibit No.
    
    Description10.1
    
    Summary of Compensation Payable to Named Executives31.1
    
    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
  Page 21 of 23




---



##### Table of Contents



AMEREX GROUP, INC.Date: August 18, 2007
    By:
    /s/ Nicholas J. MalinoNicholas J. MalinoChief Executive Officer (Principal Executive Officer)Date: August18, 2007
    By:
    /s/ Bradley MorrisBradley MorrisController  Page 22 of 23




---



##### Table of Contents



Exhibit No.
    
    Description10.1
    
    Summary of Compensation Payable to Named Executives31.1
    
    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
  Page 23 of 23