UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 
 WASHINGTON,
D.C. 20549
 
 FORM
10-K
 
 (Mark
One)
 
 x ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
fiscal year ended December 31,
2008
 
  ̈ ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
transition period from _______ to __________
 
 Commission
file
number                 000-09735
 
 Amerex
Group, Inc.
 (Name of
small business issuer in its charter)
  Oklahoma
                  
                  20-4898182(State
      or other jurisdiction of incorporation or organization)
                  
                  (IRS
      Employer Identification
No.)
 
 1105
      N. Peoria
                      Tulsa,
      Oklahoma
                    
                    74106(Address
      of principal executive offices)
                    
                    (Zip
      Code)
 
 Issuer’s
telephone number:   (918) 858-1050
 
 Securities
registered pursuant to Section 12(b) of the Exchange Act:
 
 Title
      of each class
              
              Name
      of each exchange on which registeredNone
              
              N/A
  
  Securities
registered pursuant to Section 12(g) of the Exchange Act:
 
 Common
Shares, par value $0.001
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x    No
 ̈
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
 
 Indicate
by check mark whether the registrant is a large accelerated filer, a
non-accelerated filer, or a small reporting company.  See definitions
of “large accelerated filer”, “accelerated filer”, and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check One)”:
 
 Large
      Accelerated Filer
                    o
                    
                    Accelerated
      FileroNon-Accelerated
      Filer
                    o
                    
                    Smaller
      Reporting Companyx
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes     ̈    No    x
 
 Issuer’s
revenues for its most recent fiscal
year:   $5,471,760
 
 Aggregate
market value of the voting and non-voting common equity held by non-affiliates
of the registrant, computed by reference to the closing price of such stock as
of March 18, 2009 at $0.0012 per common share, was $19,555.  For
purposes of this computation, we consider all directors, and holders of 10% or
more of our common stock, to be affiliates.  Therefore the number of
shares of our common stock held by non-affiliates as of March 18, 2009 was
16,296,189.  At June 30, 2008, the aggregate market value of the
voting and non-voting common equity held by non-affiliates of the registrant was
$5,269,138, based on 15,054,681 shares of our common stock held by
non-affiliates.
 
 Number of
shares issued and outstanding of each of the issuer’s classes of common equity
as of December 31, 2008 was 16,577,189 shares of common stock, $0.001 par
value.
 
 Transitional
Small Business Disclosure Format (Check
one):  Yes     ̈    No    x
  
 
 Part IItem
      1.
                Description
      of Business
                3Item
      1A.
                Risk
      Factors
                19Item
      1B.
                Unresolved
      Staff Comments
                33Item
      2.
                Description
      of Property
                33Item
      3.
                Legal
      Proceedings
                34Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                35Part
      IIItem
      5.
                Market
      for Common Equity and Related Stockholder Matters; Issuance of
      Unregistered Securities
                35Item
      6.
                Selected
      Financial Data
                38Item
      7.
                Management’s
      Discussion and Analysis or Plan of Operations
                38Item
      7A.
                Quantitative
      and Qualitative Disclosures About Market RiskItem
      8.
                Financial
      Statements
                61Item
      9.
                Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
                62Part
      IIIItem
      10.
                Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance with Section 16(a) of the Exchange Act
                63Item
      11.
                Executive
      Compensation
                69Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                71Item
      13.
                Certain
      Relationships and Related Transactions, and Director
      Independence
                73Item
      14.
                Principal
      Accountant Fees and Services
                73Item 15.
                Exhibits
                74Signatures
                
                79
  2
  NOTE
REGARDING FORWARD-LOOKING STATEMENTS
  Forward-looking
statements in this Form 10-K including, without limitation, statements relating
to our plans, strategies, objectives, expectations, intentions and adequacy of
resources, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. All statements made in this report,
other than statements of historical fact, are forward-looking statements. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. The
following factors, among others, could cause actual results to differ materially
from those set forth in the forward-looking statements: our ability to
successfully develop our brands and proprietary products through internal
development, licensing and/or mergers and acquisitions. Additional factors
include, but are not limited to the following: the size and growth of the market
for our products, competition, pricing pressures, market acceptance of our
products, the effect of economic conditions, intellectual property rights, the
results of financing efforts, risks in product development, other risks
identified in this report and our other periodic filings with the Securities and
Exchange Commission.
 
 PART
I
 
 ITEM
1. DESCRIPTION OF BUSINESS
 
 History of the
Company
  CDX.com
(“CDX.com CO”) was incorporated in the State of Colorado in June, 1978, and
engaged in the manufacture and sale of computerized pulmonary diagnostic
equipment used in the medical profession.
  On
November 18, 2000, Tampa Bay Financial, Inc., a Florida Venture Capital firm
that specializes in micro-cap first stage corporate investments, acquired
control of CDX.com CO and changed its business from the sale of computerized
pulmonary diagnostic equipment and bio-hazard control products to international
communications, doing business under the name of DataStream Global
Communications. At approximately the same time, and as part of the restructuring
of the company in the fall of 2000, CDX.com CO sold substantially all of its
assets used in connection with its pulmonary diagnostic equipment sales to
Cyberdiagnostics, Inc.
  3
  In
January of 2001, CDX.com CO reorganized again. Effective January 26, 2001,
Pensat International Communications, Inc., merged into CDX.com CO’s wholly-owned
subsidiary, Pensat, Inc (“Pensat”). The result of the January reorganization and
the reason for it was that CDX.com CO, through its Pensat subsidiary, acquired a
telecommunications business that was operated as a global Integrated
Communications Provider (ICP) with sales and network operations in the U.S.,
Spain, Brazil, and Syria. CDX.com CO operated its newly-acquired ICP
network through its Pensat subsidiary. Pensat’s services included voice,
Internet, and data services delivered over common network facilities. Pensat
filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in
October 2001 and, as indicated in its filing, terminated its operations in the
United States. In January 2003, the bankruptcy was converted to Chapter
7.
  CDX.com
CO reorganized again in July of 2005.  The first part of the July 2005
reorganization involved redomiciling CDX.com CO as an Oklahoma corporation. This
was done as follows:  On July 28, 2005, CDX.com CO implemented a reverse
stock split, reducing all of its outstanding stock to 1/1000th of its prior
value. Also on July 28, 2005, CDX.com CO filed Restated Articles of
Incorporation in Colorado. CDX.com CO then entered into an Agreement of Merger
with CDX.com Merger, Inc. (“CDX.com Merger OK”), an Oklahoma corporation
organized on July 26, 2005 for the purpose of re-domiciling CDX.com CO. CDX.com
Merger OK was the survivor under the merger. The common stock of CDX.com Merger
OK had identical rights, terms and privileges as the common stock of CDX.com
CO.
  The
second part of the July 2005 reorganization involved establishing Airguide, Inc.
(“Airguide”), an Oklahoma corporation organized on July 26, 2005 as a
wholly-owned subsidiary of the newly-re-domiciled CDX.com Merger OK, as a
holding company for CDX.com Merger OK. Simultaneous with the designation of
Airguide as the holding company, CDX.com Merger OK was merged into the new
Oklahoma Corporation named CDX.com, Inc. (“CDX.com OK”), a corporation created
on July 26, 2005 as a subsidiary of Airguide. This was achieved through a
three-party merger agreement between CDX.com Merger OK, Airguide, and CDX.com
OK. Under this three-party agreement, the previous public shareholders of
CDX.com Merger OK were entitled the same number of shares of Airguide that they
had previously held in CDX.com Merger OK, and their ownership of Airguide stock
occurred by operation of the terms of the three-party agreement, without any
action required on their part. Airguide became the public company as a result of
the three-party merger, and Airguide had the same public stockholder base that
CDX.com Merger OK previously had.
  Prior to
the July 2005 Reorganization, Airguide was only a subsidiary and did not
operate, manage, control, or receive any assets or benefits from its parent.
Neither at the time of the July 2005 Reorganization, nor thereafter, did
Airguide operate, manage, finance, receive assets, transfer assets, guarantee
debts or obligations, nor take any action with respect to its subsidiary CDX.com
OK. Airguides’s actions were designed to comply with Oklahoma laws allowing for
a merger between parent and subsidiary corporations in which the liabilities of
the parent are transferred by sale of an indirect subsidiary under a holding
company formation. Even though the indirect subsidiary, in this case CDX.com OK,
had liabilities of the parent company, there was a commercial value for such a
company. Accordingly, Airguide held CDX.com OK as an investment, with no action
being taken by Airguide as controlling stockholder while the stock was held on
its books prior to being sold. Airguide sold the CDX.com OK stock on August 1,
2005, and that sale was for the purpose of realizing Airguide’s
investment.
  4
  On
December 23, 2005, Amerex, a privately held company, entered into an agreement
with James Frack, our former president, treasurer, sole director, and principal
stockholder, calling for the relinquishment of 100,000 shares or 15.5% of our
outstanding common stock then owned by him, upon our entering into an agreement
to and consummating our acquisition of Amerex.
  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 19,760,074 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.
  On
January 8, 2007, Airguide, Inc. filed a Certificate of Amendment with the
Oklahoma Secretary of State in order to change its name from Airguide, Inc. to
Amerex Group, Inc. (“Amerex Group”). The name change was effective on January 8,
2007.
 
 Recent
Acquisitions
  On
September 2, 2005, we purchased the assets of Enhanced Operating Company, LLC,
which we refer to herein as EOC, relating to the development of an oil/water
separation technology business including approximately 25 acres of property
located in Harrison County, Texas, in consideration for 250,000 restricted
shares of our common stock, and all EBITDA profit in excess of 30% annually over
a three-year period until $1,000,000 was paid. The contract for this acquisition
required us to make a cash infusion of $250,000 in working capital to construct
the necessary enhancements to the site and purchase assets to launch the
business operations of EOC. These enhancements consisted of acquisition of a
salt/water separation technology which would allow us to clean the production
water to groundwater levels and to construct the piping and valves needed to
integrate the oil/water separation system which we purchased separately and the
water/salt separation technology which we have yet to acquire. The $250,000 also
included necessary testing which needed to be accomplished prior to the
implementation of the system being acquired. The contract also required us to
enter into a three year employment agreement with Michael Eppler, then president
of EOC, at a monthly salary of $10,000 and a sign-on bonus of $50,000. This
employment agreement was terminated in November 2006 and we agreed to pay Mr.
Eppler through November 30, 2006.  The Company is making efforts to
sell the 25 acres in Leigh, Texas.  The estimated fair value of the
property was $75,000 at December 31, 2008.  The Company has recognized
an impairment of real estate held for sale associated with this property at
December 31, 2008 of $290,047, in the accompanying consolidated statement of
operations.
  5
  On
September 12, 2005, we acquired all of the outstanding capital stock of Waste
Express, Inc. from its sole stockholder. The purchase price consisted of cash in
the amount of $275,000 and an installment note in the amount of $235,000, with
interest at six percent (6%). The purchase agreement also required us to pay a
fee equal to the greater of $2,500 or one percent (1%) per annum of seller’s
current $200,000 line of credit securing Waste Express’ regulatory closure plan
until it secures such plan. On November 10, 2006 we replaced the seller’s line
of credit securing the closure plan and replaced the collateral with our own
Line of Credit for $230,000. See “Overview and Business of Amerex Group, Inc. –
Acquisitions — The Waste Express, Inc., Acquisition.”
  On
September 13, 2005, we purchased certain assets consisting primarily of
oil/water separation devices, a mobile laboratory, a mobile treatment unit, and
an International Vac Truck from NES Technology LLC, which we refer to herein as
NES, and Industrial Waste Services LLC, which we refer to herein as IWS, in
consideration for the issuance of 500,000 restricted shares of our common stock
to the members of these two companies, including, Richard Coody, a former member
of our board of directors, and the assumption of certain outstanding
liabilities. We accounted for this transaction as an acquisition of
assets.
  The
assets and real property from these acquisitions were used to establish our
business operations in Tulsa, Oklahoma in November 2005. In the third quarter of
2007 Management decided to terminate those business operations and to sell the
real estate and assets fixed to the real estate used in connection with those
operations. In accordance with the Amendment to the CAMOFI senior convertible
notes, the net proceeds of this sale will be used to pay down this
indebtedness.
  6
  In
February 2006, Amerex Acquisition Corp., a wholly-owned subsidiary of Amerex,
acquired approximately 155 acres of heavily developed industrial property in
Pryor, Oklahoma from Kaiser Aluminum and Chemical Corporation in consideration
for $700,000 in cash and delivery of a cash collateralized irrevocable letter of
credit with JP Morgan Chase Bank, in the amount of $800,000, to provide
financial assurance for the removal of all asbestos and asbestos containing
materials from the property within 18 months following closing. The asbestos
removal was completed in September 2007 and we received clearance by the
Oklahoma Department of Environmental Quality and Kaiser Aluminum and Chemical
Corporation instructed JP Morgan Chase Bank to release the letter of credit. The
proceeds from the release of the cash collateralized letter of credit were
deployed in accordance with our agreements with Asbestos Handlers, Inc. and X
Interchange, Inc.  Asbestos Handlers, Inc. is an asbestos abatement
contractor based in Tulsa, Oklahoma. We engaged Asbestos Handlers, Inc. to
remove the asbestos from the Pryor facility. X Interchange, Inc. is an
intermodal transportation logistics company based in Leawood, Kansas. We engaged
X Interchange, Inc. to manage the demolition and scrap metal salvage at the
Pryor facility. We were also required to deposit $400,000 with the Oklahoma
Department of Environmental Quality through Guaranteed Abstract Company, a title
company located in Tulsa, Oklahoma, to provide financial assurance of our
ability to close the two injection wells on the Pryor property. During 2008,
$100,000 of the deposit was released to the Company to pay some vendor bills
related to the removal of asbestos.  This amount is currently being
held in escrow for the benefit of the Oklahoma Department of Environmental
Quality to secure our obligation to close the wells. We have closed the two
injection wells and we have a contractual obligation to pay the $300,000 escrow
deposit, when returned to us, to CAMOFI pursuant to the terms of the recent
amendment to the indebtedness payable to CAMOFI, as discussed in Part II, Item 6,
Management’s Discussion and Analysis or Plan of
Operations–Debt and Credit Facilities,
below.  The Company is making efforts to sell the 155 acres in Pryor,
Oklahoma.  The estimated fair value of the property was $400,000 at
December 31, 2008.  The Company has recognized an impairment of real
estate held for sale associated with this property at December 31, 2008 of
$734,203, in the accompanying consolidated statement of operations.
  On April
28, 2006, we purchased certain assets of Environmental Remediation Services,
Inc., herein referred to as ERS. The purchase was considered a purchase of
assets rather than the purchase of a business since the main purpose was to
acquire the assets and to repurpose them to service our existing customers. The
purchase price for the assets consisted of cash in the amount of $1,200,000 and
our entering into a one-year consulting agreement with Kenneth Duckworth, the
sole owner of ERS, which has since expired.
  7
  Recent
Financings
 
 CAMOFI
  On
November 21, 2005, we entered into a financing arrangement with CAMOFI Master
LDC, an affiliate of Centrecourt Asset Management LLC, which was amended on
February 23, 2006. Under the arrangement as amended, we issued CAMOFI Master LDC
a two-year convertible note in the aggregate principal amount of $6,800,000,
with interest at ten percent (10%) per annum payable monthly, convertible into
13,600,000 shares of its common stock at a conversion price of $0.50 per share,
exclusive of any accrued interest on the note, and a five-year warrant to
purchase 2,266,667 shares of our common stock at an exercise price of $0.01 per
share. The terms of the note provided for funds to be drawn down in three
tranches, with the first tranche of $2,500,000 drawn down on November 21, 2005.
Pursuant to the financing arrangement, we defaulted on our obligation to timely
file a registration statement for the shares underlying the note and
warrant.  CAMOFI Master LDC agreed to waive all penalties through
October 30, 2006 in exchange for a five-year warrant to purchase 984,000 shares
of our common stock at an exercise price of $0.01 per share. For the period of
October 30, 2006 through December 31, 2006, the Company accrued $207,400 in
liquidation damages under this agreement. We have also failed to provide CAMOFI
with periodic financial reports required under our agreement. The obligations
under the CAMOFI Master LDC note are secured by a first priority security
interest in our assets. These notes were due on November 21, 2007. However, on
December 31, 2007 we executed an agreement with CAMOFI Master LDC. Under the
terms of this agreement (a) the Maturity Date of the Note was changed from
November 21, 2007 to November 21, 2010, (b) interest payments were deferred
until April 1, 2008, (c) the Interest Rate was increased from 10% payable in
cash to 10% payable in cash and 2% payable in additional notes,  (d)
we agreed to issue a new note in the amount of $2,027,123 with the same terms as
the existing Note, to settle liquidated damages and other penalties associated
with the original note, (e) the monthly redemption amount was changed to either
$250,000 per month or $150,000 per month depending on the amount of funds that
were available to be applied to the principal amount of the Notes from the sale
of the Pryor, Oklahoma, and Leigh, Texas properties,  (f) the monthly
redemption amount was to begin on August 1, 2008, (g) the proceeds from the sale
of the Pryor and Leigh properties, as well as the proceeds from the release of
the escrowed funds of $300,000 securing the closure of the injection wells in
Pryor, Oklahoma, were to be used to pay down the indebtedness, (h) we agreed to
secure at least $2,500,000 in additional equity financing before March 31, 2008,
(i) we agreed to file a registration statement prior to June 30, 2008, (j)
CAMOFI maintained its right to convert up to 100% of the outstanding
indebtedness into Common Stock, (k) we agreed to issue CAMOFI additional shares
equal to 4.5% of its outstanding stock, (l) we agreed to extend the term of
CAMOFI’s warrants to December 31, 2012, and (m) we agreed to make our principal
officers and financial personnel available for an on-site review of the
financial condition of the Company.  On June 9, 2008, the Company
entered into an agreement with CAMOFI to defer principal and interest payments
on the CAMOFI notes to September 1, 2008 and increase the $2,027,123 note
discussed above to $5,141,648.  The increase in the note payable
included $541,294 of accrued interest and $1,954,231 of financing penalty
fees.  The Company agreed to pay CAMOFI all of the proceeds from the
sale of the Kaiser facility in Pryor, Oklahoma, proceeds from the Leigh, Texas
real estate and monies held in escrow for well closures at the Kaiser
facility.  Agents for the sale of properties were agreed to be
obtained by July 31, 2008 and contracts for sale were agreed to be obtained by
September 1, 2008.  The Company also agreed to raise $2,500,000 in
additional equity by September 1, 2008.  In September 2008, the
Company entered into agreements with CAMOFI to defer the principal and interest
payments to January 1, 2009, extended the date to retain agents for the sale of
the Company’s real property to September 1, 2008 and obtain a contract for
sale by January 1, 2009, extended the date for sale of equity of at least
$2,500,000 to January 1, 2009, require monthly EBITDA of at least $400,000 and
require annual EBITDA of at least 2,500,000 for 2008 and 2009.  Some
of the more recent violations of CAMOFI loan covenants by the Company include
not making scheduled principal and interest payments, sale of the Pryor,
Oklahoma and Leigh, Texas properties, raise $2,500,000 in additional equity,
filing a registration statement, and EBITDA requirements.  Since
CAMOFI has not issued a waiver for the violation of loan covenants, CAMOFI could
declare their indebtedness to be in default.
  8
  DCI
  On August
12, 2005, we entered into a loan agreement with DCI USA Inc., which we refer to
herein as DCI, pursuant to which DCI agreed to loan us $400,000 in consideration
for two one-year promissory notes, one in the amount of $300,000 and the other
in the amount of $100,000, each note bearing interest at fifteen percent (15%)
per annum, and a warrant to purchase 800,000 shares of our common stock at $.50
per share. Prior to September 12, 2005, DCI informed us that they were unable to
provide any funding and that Hypothecators Mortgage Company, herein referred to
as Hypothecators, agreed to fund the $300,000 note on the same terms as the note
we were to issue DCI, without any warrants.  On September 12, 2005 we
issued Hypothecators the $300,000 note in consideration for $300,000, which we
repaid in full on November 27, 2005 with the proceeds of the CAMOFI Master LDC
financing. On September 12, 2005, we also issued a promissory note in the amount
of $100,000 to NY2K International Corp. in consideration for $100,000, on the
same terms as the note we were to issue DCI, without any warrants, and secured
by our property located in Harrison County, Texas. We determined that we did not
immediately require the proceeds of the $100,000 note and returned the funds
without interest on the same day received.
 
 PTF
  On
September 2, 2005, we issued a one-year promissory note in the amount of
$450,000, with eight percent (8%) interest, to Professional Traders Fund LLC,
which we refer to herein as PTF, in consideration for $450,000. $230,840 of the
note was repaid on November 29, 2005 with proceeds from the CAMOFI Master LDC
financing, and $233,778 was repaid on March 2, 2006, representing principal and
accrued interest. Under the PTF financing, we agreed to issue restricted and
free trading shares of our common stock to PTF, with the number of shares to be
issued and the timing of such issuance to be based upon the timing of repayment
of the note. Based on the timing of repayment, we issued PTF 900,000 shares of
our common stock.
 
 CAMOFI
  On August
31, 2006 we entered into an agreement with CAMOFI Master LDC for a line of
credit with a maximum borrowing equal to the lesser of $1,500,000 or 80% of
accounts 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. 125% of the number of shares underlying the
warrant (937,500 shares) are required to be registered for resale pursuant to
the registration statement.
  OTHER
  On May 2,
2007 we issued a convertible note to an individual for $25,000. This note is
convertible into the Company’s common shares at $0.50 per share. The interest
rate on this note is 8% per annum. The note has a term of one year and the
interest is computed on the actual number of days
elapsed.  Actual interest accrued beginning 9 days from the receipt of
the loan funds and is payable on the date which is the earlier of the maturity
date or the date of any repayment of principal.  The note has been
extended and is now due May 2, 2009.
  9
  On May 4,
2007 we issued a convertible note to an individual for $50,000. This note was
convertible into the Company’s common shares at $0.50 per share. The interest
rate on this note was 8% per annum. The note had a term of one year and the
interest was computed on the actual number of days elapsed.  Actual
interest accrued beginning 9 days from the receipt of the loan funds and is
payable on the date which is the earlier of the maturity date or the date of any
repayment of principal.  This note was converted into common stock in
December 2007.
  On July
10, 2007 we issued a convertible note to an individual for $50,000. The Company
received only $40,000 of the total amount of this convertible
note.  This note is convertible into the Company’s common shares at
$0.50 per share. The interest rate on this note is 8% per annum. The note has a
term of one year and the interest is computed on the actual number of days
elapsed.  Actual interest accrued beginning 9 days from the receipt of
the loan funds and is payable on the date which is the earlier of the maturity
date or the date of any repayment of principal.  This note was
converted into common stock in December 2007.
  POOF
  On
August 14, 2007, the Company entered into a loan with Professional Offshore
Opportunity Fund, Ltd (“POOF”), 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 was in
the form of a Secured Promissory Note payable in monthly installments commencing
on September 14, 2007, and on the 10thday of
each month thereafter through February 10, 2008. The loan bore interest at
five percent (5%) per annum and was payable in cash or with shares or the
Company’s common stock discounted at 30 percent (30%) from the average bid
price for the five trading days preceding the installment.  The Company
also was obligated to pay a monthly utilization fee of 10% of the monthly
installment.  The Company did not make the scheduled payments on the
POOF loan, and verbally agreed to monthly extensions of the amount
due.
  The
Company also issued 500,000 shares of its common stock to POOF under a letter
agreement entered into in connection with the financing.  The Company
agreed to register the shares for sale or to repurchase them at specified
amounts and times.  If the shares are not registered by January 15, 2008,
the Company was obligated to repurchase the shares for $700,000.  If
the Company did not pay the amounts due the Company’s obligation to repurchase
the shares bore interest at two percent per month.  The $750,000 of
financing proceeds was allocated between the loan and related common stock
issued, based on estimated fair values of the loan and common
stock.
  10
  The
obligation of the Company also is secured by shares of the Company’s common
stock pledged to POOF by Ron Brewer and Richard Coody, former officers and
directors of the Company.  Each pledged 1,450,000 shares.  POOF can
exercise its rights as a secured party by selling the shares to apply against
the Company’s obligations to POOF in the event of a default by the Company under
the Secured Promissory Note.  POOF 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 POOF under the pledge. The funds would
be retained in an escrow account and paid in 2009.
  The
Company was notified by POOF in a letter dated May 30, 2008 that the Company was
in default of its loan agreement.  Also, in a letter dated June 20,
2008, POOF demanded the repurchase of the 500,000 shares issued to POOF for
$700,000.  On August 26, 2008, POOF obtained a default judgment
against the Company in the amount of $1,577,231 for the note payable and
redeemable common stock.  Interest will accrue on the judgment amount
at the rate of twenty percent (20%) per annum.
 
 Payroll
Tax Matters
 
 The
Internal Revenue Service and various state taxing agencies have placed a lien on
the Company’s assets for the Company’s failure to pay payroll taxes for third
and fourth quarter 2007 and first and second quarter 2008.  The
Company has also received notices of an intent to levy certain assets for the
nonpayment of payroll taxes, penalties and interest.  The Company has
entered into payment plans with various state taxing agencies to work out
payment plans which will bring the Company current on their payroll
taxes.  The Company is working with the IRS to establish a payment
plan.
 
 Environmental
Regulation
  While our
business has benefited substantially from increased governmental regulation of
hazardous waste transportation, storage and disposal, the industrial waste
management industry itself has become the subject of extensive and evolving
regulation by federal, state and local authorities. We make a continuing effort
to anticipate regulatory, political and legal developments that might affect its
operations, but are not always able to do so. We cannot predict the extent to
which any environmental legislation or regulation that may be enacted or
enforced in the future may affect our operations.
  We are
required to obtain federal, state and local licenses or approvals for each of
our hazardous waste facilities. Such licenses are difficult to obtain and, in
many instances, extensive studies, tests, and public hearings are required
before the approvals can be issued. We have acquired or are in the process of
applying for all operating licenses and approvals required for the current
operation of our business and the planned expansion or modifications of our
operations.
  11
 
 Federal
Regulation of Hazardous Waste
  The most
significant federal environmental laws affecting us are RCRA, the Superfund Act
and the Clean Water Act.
 
 RCRA
  RCRA is
the principal federal statute governing hazardous waste generation, treatment,
transportation, storage and disposal. Pursuant to RCRA, the EPA has established
a comprehensive, “cradle-to-grave” system for the management of a wide range of
materials identified as hazardous waste. States, such as Massachusetts,
Connecticut, Illinois, and Maryland, that have adopted hazardous waste
management programs with standards at least as stringent as those promulgated by
the EPA, have been authorized by the EPA to administer their facility permitting
programs in lieu of the EPA's program.
  Every
facility that treats, stores or disposes of hazardous waste must obtain a RCRA
license from the EPA or an authorized state agency and must comply with certain
operating requirements. Under RCRA, hazardous waste management facilities in
existence on November 19, 1980 were required to submit a preliminary license
application to the EPA, the so-called Part A application. By virtue of this
filing, a facility obtained Interim Status, allowing it to operate until
licensing proceedings are instituted pursuant to more comprehensive and exacting
regulations (the Part B licensing process). Interim Status facilities may
continue to operate pursuant to the Part A application until the Part B
licensing process is concluded. Our facility located in Kansas City, Missouri is
subject to RCRA licensing and has been issued a Part B license.
  RCRA
requires that Part B licenses contain a schedule of required on-site study and
cleanup activities, known as “corrective action,” including detailed compliance
schedules and provisions for assurance of financial responsibility. The EPA
estimates that there are approximately 4,300 facilities that treat, store or
dispose of hazardous wastes, which can be compelled to take corrective action
when necessary. Some facilities are very large and have extensive contamination
problems which rival the largest Superfund sites. Other facilities have
relatively minor environmental problems. Still others will not need remedial
action at all. It is the EPA's policy to compel corrective action at the “worst
sites first.” As a result, the EPA has developed a system for assessing the
relative environmental cleanup priority of RCRA facilities, called the National
Corrective Action Prioritization System, with a High, Medium or Low ranking for
each facility. Our RCRA facility located in Kansas City, Missouri does not
require any remedial action and has never been assigned a ranking since there is
no known environmental impairment of the property.
  12
 
 The
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, known as the “Superfund Act”
  The
Superfund Act provides for immediate response and removal actions, coordinated
by the EPA, to releases of hazardous substances into the environment, and
authorizes the government to respond to the release or threatened release of
hazardous substances or to order persons responsible for any such release to
perform any necessary cleanup. The statute assigns joint and several liability
for these responses and other related costs, including the cost of damage to
natural resources, to the parties involved in the generation, transportation and
disposal of such hazardous substances. Under the statute, we may be deemed
liable as a generator or transporter of a hazardous substance which is released
into the environment, or as the owner or operator of a facility from which there
is a release of a hazardous substance into the environment.
  The
Federal Water Pollution Control Act as amended by the Clean Water Act and
subsequent amendments
  This
legislation prohibits discharges to the waters of the United States without
governmental authorization. The EPA has promulgated “pretreatment” regulations
under the Clean Water Act, which establish pretreatment standards for
introduction of pollutants into publicly owned treatment works. In the course of
its treatment process, our wastewater treatment facilities generate waste water
which they discharge to publicly owned treatment works pursuant to permits
issued by the appropriate governmental authority. The Clean Water Act also
serves to create business opportunities for us in that it may prevent industrial
users from discharging their untreated wastewaters to the sewer. If these
industries cannot meet their discharge specifications, then they may utilize the
services of an off-site pretreatment facility such as ours.
 
 Other
Federal Laws
  Our
operations are also subject to the Toxic Substances Control Act, the Clean Air
Act, the U.S. Department of Transportation and the Interstate Commerce
Commission. Health and safety standards under the Occupational Safety and Health
Act are also applicable.
  The Toxic
Substances Control Act - authorizes the EPA to regulate over 60,000 commercially
produced chemical substances, including the proper disposal of polychlorinated
biphenyls, commonly known as PCBs, and has established a comprehensive
regulatory program, under the jurisdiction of the EPA, which oversees the
storage, treatment and disposal of PCBs.
  13
  The Clean
Air Act - authorizes the EPA to regulate emissions into the air of potentially
harmful substances. According to industry sources, the five industries which
produced the largest amounts of industrial hazardous wastes (by dollar amount of
spending paid for management services) in 2004 were chemicals (28.3%), oil
(15.9%), paper and pulp (13.2%), primary metals (8.7%) and automotive (5.0%).
 As a small industrial waste management firm, we have significant
advantages over many of its competitors in terms of its ability to efficiently
utilize its waste management facilities and to provide our customers with a
heightened commitment to customer service and responsiveness. In addition,
management has taken notice of important and advantageous industry trends in the
efforts by many generators of industrial wastes to decrease the number of
service providers that they utilize to a select group of industry leaders in
order to minimize potential liability inherent in using less qualified or less
responsive firms.
 
 The
U.S. Department of Transportation and the Interstate Commerce
Commission
  Our
transportation operations are regulated by the U.S. Department of Transportation
and the Interstate Commerce Commission, as well as by the regulatory agencies of
each state in which we operate or through which our trucks pass.
 
 State
Regulation of Hazardous Waste
 
 The
Missouri Hazardous Waste Management Law (MHWML)
  State
authorization is a rulemaking process through which EPA delegates the primary
responsibility of implementing the RCRA hazardous waste program to individual
states in lieu of EPA. This process ensures national consistency and minimum
standards while providing flexibility to states in implementing rules.
Currently, 50 states and territories have been granted authority to implement
the base, or initial, program. Many also are authorized to implement additional
parts of the RCRA program that EPA has since promulgated, such as Corrective
Action and the Land Disposal Restrictions. State RCRA programs must always be at
least as stringent as the federal requirements, but states can adopt more
stringent requirements as well. The State of Missouri is authorized to implement
the RCRA hazardous waste program in lieu of the EPA through the
MHWML.
  Just
prior our acquisition of Waste Express, the facility was issued a Notice of
Violation by the Missouri Department of Natural Resources for four violations:
exceeding storage capacity, exceeding the one year limit for storage of
materials on site, exceeding the 24 hour restriction in the receiving area.
 We completed corrective action during November and December of 2005,
spending approximately $88,000.  Several violations in middle 2006,
along with those prior to acquisition led to a fine of $66,000 from the Missouri
Department of Natural Resources.  The fine was negotiated to $41,000
and has been paid in full.  No major violations have been issued since
middle 2006 on each quarterly unannounced inspection.
 
 14
  The
Oklahoma Department of Environmental Quality and the Oklahoma Department of
Environmental Quality Land Management Division Rules and
Regulations
  Like
Missouri, the State of Oklahoma is authorized by the United States Environmental
Protection Agency to implement and oversee the regulations of the EPA regarding
hazardous waste transportation, treatment, storage and disposal. The Oklahoma
Department of Environmental Quality, herein referred to as the ODEQ, oversees
the enforcement of the Code of Federal regulations and the rules and regulations
of the Land Protection Division of the ODEQ. This agency will oversee the
asbestos removal and the maintenance and eventual closure of the Class I
injection wells that exist on the site of our Pryor, Oklahoma facility. The
primary regulations that we will be subject to at this location are the Oklahoma
Department of Environmental Quality Rules and Regulations sections 252:004
through Section 252:710 and in the Oklahoma Statutes, primarily Title
27A.
 
 Licenses
and Permits
  Our waste
treatment facility located in Kansas City, Missouri has been issued a RCRA Part
B license which was scheduled to expire in February 2007. The permit has been
submitted to the Missouri Department of Natural Resources for renewal. The
Department is allowing us to operate under an extension until the renewal is
approved. We expect the Department to issue the renewed permit during the second
half of 2009.
  We have
made substantial modifications and improvements to the physical plant and
treatment and process equipment at this treatment facility, consistent with our
strategy to upgrade the quality and efficiency of treatment services and to
ensure regulatory compliance. These improvements also corrected a Notice of
Violation which was issued prior to our acquisition of this facility. This
facility is inspected at least quarterly or even more often by the Missouri
Department of Natural Resources. Occasionally, the EPA as well as other city and
county inspectors will perform inspections.
 
 Management
of Risks
  We follow
a program of risk management policies and practices designed to reduce potential
liability, as well as to manage customers' ongoing regulatory responsibility.
This program includes employee training, environmental auditing, and policy
decisions restricting the types of wastes handled. Training of personnel
includes specialized training which is either performed in-house or at
accredited institutions. These include initially 40 hours of training in
hazardous waste operations and emergency response. The program curriculum is
provided by the U.S. Occupational Health and Safety Administration, commonly
referred to as OSHA. We are currently approved by OSHA to provide such training
as well as requisite annual 8-hour refresher courses. We also specialize in
training for awareness and entry into confined space for employees who may be
required to enter such areas. Our drivers are required to take a course in DOT
hazardous materials training and be in possession of valid specialized licensing
for the materials that they are carting and the type of vehicle that they are
operating. We evaluate all revenue opportunities and decline those which we
believe involve unacceptable risks. We avoid handling high-hazard waste such as
explosives, and frequently utilize specialty subcontractors to handle such
materials when confronted at a job site.
  15
  We only
dispose of wastes at facilities owned and operated by firms which we have
approved as prudent and financially sound. Typically, we apply established
technologies to the treatment, storage and recovery of hazardous wastes. We
believe our operations are conducted in a safe and prudent manner and in
substantial compliance with applicable laws and regulations.
 
 Insurance
  Federal
regulations require liability insurance coverage for all facilities that treat,
store or dispose of hazardous waste as well as pollution liability in the amount
of $2,000,000 per occurrence and $2,000,000 in aggregate per year.
  Our
pollution liability insurance policies cover potential risk in three areas: as a
contractor performing services at customer sites, as a transporter of waste and
while we handle waste at our facilities. The Company carries contractor’s
liability insurance of $1,000,000 per occurrence and $2,000,000 in the
aggregate, covering off-site remedial activities and associated liabilities, and
pollution liability coverage of waste in-transit with both single occurrence and
aggregate coverage of $2,000,000. This coverage includes liability of $2,000,000
for pollution caused by sudden or accidental occurrences during transportation
of waste to our facilities, from the time waste is picked up from the customer
until its delivery to the final disposal site.  The total insurance
costs for 2008 were $671,487 and management anticipates that there will be
an immaterial rise in insurance costs in 2009.
 
 Competition
  The
market for industrial waste management services is highly competitive. We
compete with numerous large and small companies, which are able to provide one
or more of the industrial waste management services offered by us and have
substantially greater financial, management and marketing resources than we do.
Large competitors include Clean Harbors Environmental Services Inc., Duratek,
Inc. and Perma-Fix Environmental Services, Inc. There are also a large
number of smaller competing companies that provide services similar to ours. In
the Tulsa area some of these firms are Envirosolve, Inc, and American Waste
Control, Inc.  In the Kansas City area some of our local competitors
are Phillips Services Company and Heritage Environmental.
  Competitive
factors include quality and diversity of services, technical qualifications,
reputation, geographic presence, price and the availability of key professional
personnel.
  16
  Under
applicable environmental laws and regulations (see “Business — Environmental
Regulation”), generators of hazardous wastes retain potential legal liability
for the proper treatment of such wastes through and including their ultimate
disposal. In response to these potential liability concerns, many large
generators of industrial wastes and other purchasers of waste management
services (such as general contractors on major remediation projects) have
increasingly sought to decrease the number of providers of such services that
they utilize. Waste management companies which are selected as “approved
vendors” by such large generators and other purchasers are firms, such as us,
that possess sound collection, recycling, treatment, transportation, disposal
and waste tracking capabilities and have the expertise and financial ability
necessary to comply with applicable environmental laws and regulations. By
becoming an “approved vendor” of a large waste generator or other purchaser, we
are eligible to provide waste management services to the various plants and
projects of such generator or purchaser which are located in our service areas.
However, in order to obtain such “approved vendor” status, it may be necessary
for us to bid against other qualified competitors in terms of the services and
pricing to be provided. Furthermore, large generators or other purchasers of
waste management services often periodically audit a bidder’s facilities and
operations to insure that its waste management services are performed in
compliance with applicable laws and regulations and with other criteria
established by the bidder and by such customers.
  Our
competitive advantage is our ability to offer a more comprehensive range of
industrial waste management services than any of our competitors in our service
territory, enhanced by the proximity of our facilities to hazardous waste
generators, and the barriers to enter this industry from significant capital and
licensing requirements.
  There are
numerous methods of handling and disposing of hazardous and non-hazardous waste,
of which our facilities and technology are one of the available systems.
Different or new technology may supplant us in the market. Further, predominant
companies in the field, which have substantially greater resources and market
visibility than us, may try to develop systems similar to ours.
 
 Employees
  As of
December 31, 2008, we employed 48 full-time and 3 part-time employees. Of
our 51 employees, two are executive officers. None of our employees is covered
by a collective bargaining agreement. We consider our relationship with our
employees to be good. Our services are limited to basic environmental procedures
and, as such, our field staff does not require advanced degrees or specialized
scientific expertise. They do, however, require specialized training pursuant to
various federal, state and local regulations. These include Class A Commercial
Drivers Licenses with a Hazardous Materials Endorsement for our tractor trailer
drivers, Class D Commercial Drivers Licenses with Hazardous Materials
Endorsements for operators of box trucks, and Class D Commercial Drivers
Licenses with a Tanker Endorsement for our tanker drivers. Personnel who are
expected to stop, contain, and clean up on-site releases are required to
have 24 hours of initial training. Personnel who are involved in cleanups at
waste sites-including Superfund sites, RCRA corrective action sites, or even
voluntary cleanups involving hazardous substances-must have 40 hours of initial
classroom instruction and annual 8-hour refresher courses, as well as confined
space training for those employees who make encounter such
situations.
  17
 
 Research
and Development Expenditures
  There
were no research and development expenditures incurred for the fiscal year
ending December 31, 2008.
 
 Properties
  Our
principal executive offices and production facility are located on approximately
10 acres of leased space in Tulsa, Oklahoma, including six office, storage and
special purpose buildings. We also lease approximately 7,000 square feet of
office space in Portland, Oregon.  The Tulsa lease expires in May 2011
and contains an option to renew the lease for a five year period with 60 days
prior notice. The cost of this lease is $6,750 per month and is paid to Ken
Duckworth who was the principal owner of Environmental Remediation Specialists,
Inc. The Portland, Oregon lease is a month-to-month lease, at the rate of
approximately $3,000 per month, paid to Cascade General, Inc. We own
approximately 25 acres of property in Leigh, Texas, approximately 2.5 acres of
property in Kansas City, Missouri, and approximately 155 acres of property in
Pryor, Oklahoma. We believe that these properties and facilities are adequate
for our current operations. All of our properties and facilities are
insured.  The Company is making efforts to sell the Pryor, Oklahoma
and Leigh, Texas properties.
 
 Subsidiaries
  The
Company has one wholly-owned subsidiary – Waste Express, Inc., a Missouri
Corporation based in Kansas City, Missouri.
 
 Patents
and Trademarks
  The
Company does not own, either legally or beneficially, any patents, trademarks,
copyrights, franchises, concessions, licenses or royalty
agreements.
 
 Reports
to Security Holders
  At this
time, the Company has not delivered annual reports to security
holders.  However, shareholders and the general public may view copies
of all of our filings with the SEC, by visiting the SEC website (http://www.sec.gov)
and performing a search of Amerex Group, Inc.’s electronic
filings.
  18
 
 ITEM
      1A
              RISK
      FACTORS
 
 RISKS
RELATING TO OUR BUSINESS
 
 Our
limited operating history makes evaluation of our business and our future
prospects difficult.
  Our
business is at an early stage of operation and there is no meaningful historical
financial or other information available upon which you can base your evaluation
of our business and its prospects. We have generated $5,471,760 in revenue for
the year ended December 31, 2008.
 
 We
have a history of losses and may continue to incur losses in the
future.
  To date,
we have been unable to generate revenue sufficient to cover our current expenses
and to be profitable. We had a net loss of $9,005,639, for the year ended
December 31, 2008. We expect to incur losses for the immediate foreseeable
future. There can be no assurance that we will achieve the level of revenues
needed to be profitable in the future or, if profitability is achieved, that it
will be sustained. Due to these losses, we have a continuing need for additional
capital.
 
 Our
independent auditors have expressed substantial doubt about our ability to
continue as a going concern.
 
 In their
audit opinion issued in connection with our consolidated balance sheets as of
December 31, 2008 and our related consolidated statements of operations,
stockholders’ equity, and cash flows for the year ended December 31, 2008, our
auditors have expressed substantial doubt about our ability to continue as a
going concern given our recurring net losses, negative cash flows from
operations, planned spending levels and the limited amount of funds on our
balance sheet.  We have prepared our financial statements on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.  The
consolidated financial statements do not include any adjustments that might be
necessary should we be unable to continue in existence.
 
 19
  We
will require additional funding to continue our current operations
and  for our future growth, which, if raised through issuance of
additional shares of our equity securities, could dilute existing stockholders’
equity interests; it is uncertain whether such additional funding will be
available on favorable terms, if at all.
  Our
ability to continue our current operations and our future growth will depend, to
a large extent, on our ability to secure additional debt or capital funding and
also on our ability to invest in projects which require a high amount of capital
investment. In order to obtain additional capital to develop these growth
opportunities, we may be required to issue additional shares of our equity
securities. If new shares offered to new and/or existing stockholders are
issued, they may be priced at a discount to the then prevailing market price of
our shares, in which case, existing stockholders’ equity interests may be
diluted. If we fail to utilize the new equity to generate a commensurate
increase in earnings, our earnings per share will be diluted, and this could
lead to a decline in our share price. Any additional debt financing may, apart
from increasing interest expense, contain restrictive covenants with respect to
dividends, future fund-raising exercises and other financial and operational
matters. No assurance can be given that funding will be available when needed or
that it will be available on favorable terms, if at all.
 
 CAMOFI
has provided funding to the Company from June 2008 through December 2008
totaling approximately $1,739,000.  This additional funding has been
in the form of additional notes payable to CAMOFI.  CAMOFI is not
required to provide the Company with additional funding in the
future.  Due to the financial condition of the Company, it is unlikely
that any other funding will be available.
 
 The
substantial level of our debt may require us to allocate a substantial portion
of our operating profit to service our debt and may make future borrowing more
difficult. As a result, we may not be able to expend the resources necessary to
react to changes in our business, which could place us at a competitive
disadvantage and have adverse consequences upon our business.
  Our
substantial level of debt could have important consequences to our stockholders,
including the following: (i) a substantial portion of the net cash provided by
our operations will be committed to the payment of our interest expense and
principal repayment obligations and will not be available to us for operations,
capital expenditures, acquisitions or other purposes; (ii) our ability to obtain
additional financing in the future for working capital, capital expenditures or
acquisitions may be limited; and (iii) we will be more highly leveraged than
certain of our competitors which may place us at a competitive disadvantage and
limit our flexibility in reacting to changes in our business. See “Recent
Financings” describing the CAMOFI Master LDC Note and CAMOFI Line of Credit. Our
ability to make scheduled payments or to refinance our indebtedness obligations
depends on our financial and operating performance, which, in turn, is subject
to prevailing economic conditions, financial, business and other factors beyond
our control.
 
 Limitations
imposed by CAMOFI Master LDC and CAMOFI Line of Credit indebtedness are
significant and our failure to comply with them could have a negative impact on
our operations and financial condition.
  The
documents governing our indebtedness to CAMOFI Master LDC contain significant
covenants that limit our ability to engage in various transactions. These
covenants significantly restrict our ability to borrow additional funds, which
we may require for continuing our operations. We are prohibited from additional
borrowing that would place any lender senior to our CAMOFI Master LDC debt or
CAMOFI Line of Credit, which could deter potential lenders from entering into a
financing arrangement with us. If we are unable to obtain additional financing
when required, our operations could be negatively impacted.
  20
  Failure
to comply with these restrictions and limitations could result in the
acceleration of our CAMOFI Master LDC or CAMOFI Line of Credit indebtedness,
which we would be unable to repay. See following Risk Factor: “CAMOFI Master LDC
maintains a first priority security interest in all of our assets...”
 
 CAMOFI
Master LDC maintains a first priority security interest in all of our assets and
in the assets of our subsidiaries under the convertible note we issued to CAMOFI
Master LDC.
  As of
January 1, 2009, the Company is in default with respect to the CAMOFI Master LDC
notes payable, thus, CAMOFI Master LDC may elect that the notes become
immediately due and payable in an amount equal to 125% of the principal amount
of the CAMOFI Master LDC notes, plus accrued interest thereon at the rate of 20%
per annum. In such event, we would not have the cash required to pay such
indebtedness. As a result, we may be forced to restructure, file for bankruptcy,
sell assets or cease operations, any of which would render our common stock, and
your investment, worthless. Further, our obligation under the CAMOFI Master LDC
note is secured by substantially all of our and our subsidiaries current and
future assets. Failure to fulfill our obligations under the CAMOFI Master LDC
notes and related agreements could lead to a loss of these assets, which would
be detrimental to our operations. The following events, among others,
constitute events of default under the note:
 
 · failure to pay interest and
principal payments when due;
 
 · a breach of any material
covenant or term or condition of the note, in any agreement made in connection
therewith or in any other material agreement, lease, document or instrument to
which we or our subsidiaries are bound;
 
 · a breach of any material
representation or warranty made in the note or in any agreement made in
connection therewith;
 
 · an assignment for the
benefit of creditors is made by us or any of our subsidiaries;
 
 · a custodian or the like is
appointed for us or any of our subsidiaries for any substantial part of our or
our subsidiaries’ property which shall remain undischarged or unstayed for a
period of 60 days;
 
 · we are unable to pay any of
our debts as they become due;
  21
 
 · any form of bankruptcy or
insolvency proceeding instituted by or against us or any of our
subsidiaries;
 
 · our failure to timely
deliver registered shares of our common stock when due upon conversions of the
note;
 
 · our common stock is not
eligible for quotation or trading is suspended for 5 consecutive trading days;
or
 
 · a change in
control.
 
 Loss
of certain key personnel could limit our ability to maintain relationships with
our customers and continue to operate our business, which would have a negative
impact on our financial condition.
  We depend
upon key personnel who may terminate their employment with us at any time, and
we will need to hire additional qualified personnel. Our success depends, to a
significant degree, upon the continued services of key management and technical
personnel, including Stephen Onody through Onody Associates, who is serving as a
consultant is our interim chief executive officer and a member of our board of
directors, and Craig McMahon, our vice president of operations. Our key
personnel may terminate their employment with us at any time. The loss of any of
these individuals or other key personnel could have a negative impact on our
relationships with our customers and impair our operations, revenues, prospects,
and our ability to raise additional funds. There are several key employees who
have developed unique and longstanding relationships with one or more of our
major customers, and whom, if no longer employed by the Company may redirect
some or all of these customers’ service requirements to other providers or
otherwise, diminish the Company’s relationship with the customer so as to reduce
the amount of services that we are currently providing. In addition, our
covenants under the CAMOFI Master LDC indebtedness require the continued
employment of Mr. Onody and Mr. McMahon. In the event that either of these
employees terminates their employment, a condition of default would occur and
may result in the acceleration of our debt under this agreement which we could
not pay.
  Our
future success depends on our ability to retain and expand our staff of
qualified personnel, including environmental specialists and technicians, sales
personnel, and engineers. Without qualified personnel, we may incur delays in
rendering our services or be unable to render certain services. We cannot be
certain that we will be successful in our efforts to attract and retain
qualified personnel as their availability is limited due to the demand for
hazardous waste management services and the highly competitive nature of the
hazardous waste management industry. We do not maintain key person insurance on
any of our employees, officers, or directors.
  22
  We
face intense competition and our failure to meet this competition could
adversely affect our business.
  The
market for industrial waste management services is highly competitive. We
compete with many other firms, including large multinational firms having
substantially greater financial, management and marketing resources than we
have. Competitive factors include quality and diversity of services, technical
qualifications, reputation, geographic presence, price and the availability of
key professional personnel. There are numerous methods of handling and disposing
of hazardous and non-hazardous waste, of which our facilities and technology are
one of the available systems. There can be no assurance that a different or new
technology may not supplant us in the market. Further, we cannot guarantee that
in the event that we are successful in the deployment of our systems in the
marketplace, the predominant companies in the field, which have substantially
greater resources and market visibility than us, will not try to develop
similar systems. See “Business—Competition.”
 
 If
we are not able to secure new customers our revenues and profitability may
decline and the return on your investment may be reduced.
  Our
business is project-based, though certain customers are bound to us for the
contractual periods other customers are non-recurring customers and we do not
expect them to continue to be our customers because of the nature of the
industry. If we fail to secure projects from new customers, our revenues and
profitability may decline and the return on your investment may be reduced.
  There can be no assurance that we will:
 
 · obtain additional contracts
for projects similar in scope to those previously obtained from our
clients;
 
 · be able to retain existing
clients or attract new clients;
 
 · provide services in a manner
acceptable to clients;
 
 · offer pricing for services
which is acceptable to clients; or
 
 · broaden our client base so
that we will not remain largely dependent upon a limited number of clients that
will continue to account for a substantial portion of our revenues.
 
 We
are dependent upon two key customers. Our failure to maintain, renew, or replace
these customers could significantly reduce our revenues and therefore negatively
impact our financial condition, which would adversely affect your
investment.
  In 2008,
20% of our total revenues were derived from our contracts with Safety Kleen
Systems a national provider of industrial cleaning, parts washing, waste
management and recycling services, which we refer to herein as our Industrial
Services Customer, for waste treatment projects and 40% of our revenues were
from our contracts with the Environmental Quality Company, Inc. Together, these
two clients contributed 60% of our revenues during 2008.
  23
  If we
fail to maintain, renew, or replace these contracts, our revenues could be
significantly reduced, and therefore negatively impact our financial condition
and your investment in us.  Furthermore, since these types of
contracts, generally, are submitted to a bidding process, it make take several
months to be awarded a contract after the initial bid for the work is submitted
by the Company.  This may cause results to fluctuate materially
quarter to quarter.
 
 Our
customers may make claims against us and/or terminate our services, in whole or
in part, prematurely should we fail to implement projects that fully satisfy
their requirements and expectations, which may harm our reputation, reduce our
profitability and therefore negatively impact our financial
condition.
  Failure
to implement projects that fully satisfy the requirements and expectations of
our customers or defective system structures or services as a result of design
or workmanship or due to acts of nature may lead to claims against us and/or
termination of our services, in whole or in part, prematurely. This may arise
from a variety of factors including unsatisfactory design or implementation,
staff turnover, human errors or misinterpretation of and failure to adhere to
regulations and procedures. This may harm our reputation, reduce our
profitability and therefore negatively impact our financial
condition.
 
 We
have exposure to credit risks of our customers. Defaults in payment by our
customers will affect our financial position and our profitability.
  Defaults
in payment by our customers will affect our financial position and our
profitability. As of December 31, 2008 our accounts receivable of $1,426,292
accounted for approximately 71% of our current assets. Our financial position
and profitability are dependent on the credit worthiness of our customers. We
are unable to provide assurance that risks of default by our customers would not
increase in the future, or that we will not experience cash flow problems as a
result of such defaults. Should these develop into actual events, our operations
will be adversely affected and our profitability may be reduced.
 
 24
  We
may not be able to protect our processes, technologies and systems against
claims by other parties, which could reduce our competitive advantage and
profitability and therefore adversely affect our financial
condition.
  We have
not purchased or applied for or obtained licenses to use any patents as we are
of the view that it may not be cost-effective to do so. For processes,
technologies and systems for which we have not applied for or purchased or been
licensed patents, we may have no legal recourse to protect our rights in the
event that they are replicated by other parties. If our competitors are able to
replicate our processes, technologies and systems at lower costs, we may lose
our competitive edge and our profitability may be reduced, and therefore
adversely affect our financial condition.
 
 We
may face claims for infringement of third-party intellectual property rights. As
a result, we would incur substantial costs and spend substantial amounts of time
in defending ourselves against such claims, which could adversely affect our
operations and business.
  Although
management is not aware of any issues of infringement, there is no assurance
that third parties will not assert claims to our processes, technologies and
systems. In such an event, we may need to acquire licenses to, or to contest the
validity of, issued or pending patents or claims of third parties. There can be
no assurance that any license acquired under such patents would be made
available to us on acceptable terms, if at all, or that we would prevail in any
such contest. In addition, we would incur substantial costs and spend
substantial amounts of time in defending ourselves in or contesting suits
brought against us for alleged infringement of another party’s patent rights. As
such, our operations and business may be adversely affected by such civil
actions.
 
 We
may rely on subcontractors for some of our projects. Failure on the part of
subcontractors to properly perform contracted services could compromise our
relationships with our customers and thereby adversely affect our business. In
addition, our profitability may be reduced if we are not able to secure
competitive rates from our subcontractors.
  As we
may, from time to time, subcontract parts of our services to subcontractors, we
face the risk of unreliability of work performed by them. Should any of our
subcontractors default on their contractual obligations and work specifications,
our ability to deliver service to our customers in accordance with quality
and/or timing specifications may, in turn, be adversely affected. Furthermore,
if we are unable to secure competitive rates from our subcontractors, our
profitability may be reduced.
 
 25
  If
we cannot maintain adequate insurance coverage, we will be unable to continue
certain operations, which would adversely affect our business and financial
condition.
  Our
business exposes us to various risks, including claims for causing damage to
property and injuries to persons that may involve allegations of negligence or
professional errors or omissions in the performance of our services. Such claims
could be substantial. We believe that our insurance coverage is presently
adequate and similar to, or greater than, the coverage maintained by other
companies in the industry of our size. If we are unable to obtain adequate or
required insurance coverage in the future or, if our insurance is not available
at affordable rates, we would violate our permit conditions and other
requirements of the environmental laws, rules, and regulations under which we
operate. Such violations would render us unable to continue certain of our
operations. These events would prevent us from being able to perform a
significant portion of our business services and have an adverse effect on our
financial condition.
 
 We
are subject to extensive governmental regulation with which it is frequently
difficult, expensive and time-consuming to comply.
  The waste
management industry is subject to extensive EPA, state and local laws and
regulations relating to the collection, packaging, labeling, handling,
documentation, reporting, treatment and disposal of regulated waste. Our
business requires us to comply with these extensive laws and regulations and
also to obtain and maintain permits, authorizations, approvals, certificates or
other types of governmental permission from all states and some local
jurisdictions where we operate or conduct operations.
  We
believe that we currently comply in all material respects with all applicable
laws, regulations and permitting requirements. State and local regulations
change often, however, and new regulations are frequently adopted. Changes in
the applicable regulations could require us to obtain new approvals or permits,
to change the way in which we operate. We might be unable to obtain the new
approvals or permits that we require, and the cost of compliance with new or
changed regulations could be significant. In the event we are not in compliance,
we can be subject to fines and administrative, civil or criminal sanctions or
suspension of our business.
 
 Dependence
upon permits to access disposal sites could adversely affect our ability to
continue to do business.
 
 The
Company collects, processes and disposes hazardous waste
material.  The Company relies on permits issued by various states to
conduct this business.  If these permits were to expire, or were
cancelled due to noncompliance with the permits, the Company would not be able
to continue business.
 
 Potential
liabilities arising out of environmental laws and regulations may harm our
reputation and financial condition.
  All
facets of our business are conducted in the context of a rapidly developing and
changing statutory and regulatory framework. Our operations and services are
affected by and subject to regulation by a number of federal agencies including
the EPA and the Occupational Safety and Health Administration, which we refer to
herein as OSHA, as well as applicable state and local regulatory
agencies.
  26
  The
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, which we refer to herein as the Superfund Act, addresses the cleanup of
sites at which there has been a release or threatened release of hazardous
substances into the environment. Increasingly, there are efforts to expand the
reach of the Superfund Act to make hazardous waste management companies
responsible for cleanup costs of Superfund sites not owned or operated by such
management companies by claiming that such management companies are “owners” or
“operators” (as those terms are defined in the Superfund Act) of such sites or
that such management companies arranged for “treatment, transportation or
disposal” (as those terms are defined in the Superfund Act) of hazardous
substances to or in such sites. Several recent court decisions have accepted
such claims. Should we be held responsible under the Superfund Act for cleanup
costs as a result of performing services or otherwise, we might be forced to
bear significantly more than our proportional share of such cleanup costs if
other responsible parties do not pay their share.
  The
Resource Conservation and Recovery Act of 1976, as amended, which we refer to
herein as RCRA, is the principal federal statute governing hazardous waste
generation, treatment, transportation, storage and disposal. RCRA or EPA
approved state programs are at least as stringent, govern waste handling
activities involving wastes classified as “hazardous.” See “Environmental
Regulation — Federal Regulation of Hazardous Waste.” Substantial fees and
penalties may be imposed under RCRA and similar state statutes for any violation
of such statutes and regulations.
  Although
we believe that we generally benefit from increased environmental regulations
and from enforcement of those regulations, increased regulation and enforcement
also create significant risks for us. The assessment, analysis, remediation,
transportation, handling and management of hazardous substances necessarily
involve significant risks, including the possibility of damages or personal
injuries caused by the escape of hazardous materials into the environment, and
the possibility of fines, penalties or other regulatory action. These risks
include potentially large civil and criminal liabilities to customers and to
third parties for damages arising from performing services for customers. See
“Environmental Regulation.”
 
 Potential
liabilities involving customers and third parties may harm our reputation and
financial condition.
  In
performing services for our customers, we potentially could be liable for breach
of contract, personal injury, property damage (including environmental
impairment), and negligence, including claims for lack of timely performance or
for failure to deliver the service promised (including improper or negligent
performance or design, failure to meet specifications, and breaches of express
or implied warranties). The damages available to a customer, should it prevail
in its claims, are potentially large and could include consequential
damages.
  27
  Industrial
waste management companies, in connection with work performed for customers,
also potentially face liabilities to third parties from various claims including
claims for property damage or personal injury stemming from a release of
hazardous substances or otherwise. Claims for damage to third parties could
arise in a number of ways, including: through a sudden and accidental release or
discharge of contaminants or pollutants during transportation of wastes or the
performance of services; through the inability, despite reasonable care, of a
remedial plan to contain or correct an ongoing seepage or release of pollutants;
through the inadvertent exacerbation of an existing contamination problem;
or through reliance on reports prepared by such waste management companies.
Personal injury claims could arise contemporaneously with performance of the
work or long after completion of projects as a result of alleged exposure to
toxic or hazardous substances. In addition, increasing numbers of claimants
assert that companies performing environmental remediation should be adjudged
strictly liable for damages even though their services were performed using
reasonable care, on the grounds that such services involved “abnormally
dangerous activities.”
  Customers
of industrial waste management companies frequently attempt to shift various
liabilities arising out of disposal of their wastes or remediation of their
environmental problems to contractors through contractual indemnities. Such
provisions seek to require the contractors to assume liabilities for damage or
personal injury to third parties and property, and for environmental fines and
penalties (including potential liabilities for cleanup costs arising under the
Superfund Act). Moreover, the EPA has increasingly constricted the circumstances
under which it will indemnify its contractors against liabilities incurred in
connection with cleanup of Superfund sites. While such restrictions might have
some adverse impact upon us, such impact should be immaterial because
projects relating to the cleanup of Superfund sites have historically
represented less than 2% of our business. See “Business—Services.”
  Although
we attempt to investigate thoroughly each company that we acquire, there may be
liabilities that we fail or are unable to discover, including liabilities
arising from non-compliance with environmental laws by prior owners, and for
which we, as a successor owner, might be responsible. We seek to minimize the
impact of these liabilities by obtaining indemnities and warranties from sellers
of companies which may be supported by deferring payment of or by escrowing a
portion of the purchase price. However, these indemnities and warranties, if
obtained, may not fully cover the liabilities due to their limited scope,
amounts, or duration, the financial limitations of the indemnitors or warrantors
or other reasons.
 
 28
  Changes
in environmental regulations and enforcement policies could subject us to
additional liability and adversely affect our ability to continue certain
operations.
  Because
the environmental industry continues to develop rapidly, we cannot predict the
extent to which our operations may be affected by future enforcement policies as
applied to existing laws, by changes to current environmental laws and
regulations, or by the enactment of new environmental laws and regulations. Any
predictions regarding possible liability under such laws are complicated further
by current environmental laws which provide that we could be liable, jointly and
severally, for certain activities of third parties over whom we have limited or
no control.
 
 If
environmental regulation or enforcement is relaxed, the demand for our services
may decrease, which would negatively impact our operations and financial
condition.
  The
demand for our services is substantially dependent upon the public's concern
with, and the continuation and proliferation of, the laws and regulations
governing the treatment, storage, recycling, and disposal of hazardous,
non-hazardous, and industrial waste. A decrease in the level of public concern,
the repeal or modification of these laws, or any significant relaxation of
regulations relating to the treatment, storage, recycling, and disposal of
hazardous waste and industrial waste would significantly reduce the demand for
our services which would result in reduced revenue and greater competition for
the remaining services which may possibly put downward pressure on our pricing
model and have a material adverse effect on our operations and financial
condition. We are not aware of any current federal or state government or agency
efforts in which a moratorium or limitation has been, or will be, placed upon
the creation of new hazardous waste regulations that would have a material
adverse effect on us; however, no assurance can be made that such a moratorium
or limitation will not be implemented in the future.
 
 The
Internal Revenue Service and various state taxing agencies have placed a lien
upon all of the assets of the Company.
 
 The
Internal Revenue Service and various state taxing agencies have placed a lien on
the Company’s assets for the Company’s failure to pay payroll taxes for the
period August 17, 2007 through December 31, 2007 and some payments for the
period January 1, 2008 through April 30, 2008.  The Company has
received notices of an intent to levy certain assets for the non-payment of
payroll taxes, penalties and interest for certain quarters in 2007 and
2008.  The imposition of a lien against the Company’s assets and a
levy on its bank accounts may cause a default under the Company’s indebtedness,
which could permit the Company’s lenders to demand immediate
repayment.  The Company does not have sufficient funds and may not be
able to obtain sufficient funds to repay all of its current
indebtedness.  If the lenders demand immediate repayment and the
Company is unable to repay the indebtedness, the lenders may enforce their lien
against the assets and acquire ownership of the assets.  If the
Internal Revenue Service and various state taxing agencies enforce the liens,
they may acquire ownership of the assets. In either case, the enforcement of a
lien could have a material adverse affect on the Company’s business and may
cause it to cease operations.
  29





RISKS
RELATED TO OUR SECURITIES





Our
executive officers, directors and principal stockholders have substantial
control over our business, and their interests may not be aligned with the
interests of our other stockholders.




As of
December 31, 2008, our officers and directors, together with their affiliates,
beneficially owned approximately 8.8% of our outstanding common stock.
Accordingly, these stockholders, acting together, will be able to exert
significant influence over all matters requiring stockholder approval, including
the election and removal of directors and any merger, consolidation or sale of
all or substantially all of our assets. In addition, these stockholders may
dictate the day-to-day management of our business. This concentration of
ownership could have the effect of delaying, deferring or preventing a change in
control, or impeding a merger or consolidation, takeover or other business
combination or a sale of all or substantially all of our
assets.





We
may be exposed to potential risks relating to our internal control over
financial reporting and our ability to have those controls attested to by our
independent auditors. As a result, we may face regulatory action and investors
and others may lose confidence in our reported financial information, either of
which could have an adverse effect on our stock price.




As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 (SOX 404), the
Securities and Exchange Commission adopted rules requiring public companies to
include a report of management on the company's internal control over financial
reporting in their annual reports, including Form 10-K. In addition, the
independent registered public accounting firm auditing a company's financial
statements must also attest to and report on management's assessment of the
effectiveness of the company's internal control over financial reporting as well
as the operating effectiveness of the company's other internal
controls.




If we
identify significant deficiencies or material weaknesses in our internal
controls that we cannot remediate in a timely manner or we are unable to receive
a positive attestation from our independent auditors with respect to our
internal control over financial reporting, we may face regulatory action and
investors and others may lose confidence in our reported financial information,
either of which could have an adverse effect on our stock
price.


30





Compliance
with changing regulation of corporate governance and public disclosure may
result in additional expenses, which as a smaller public company may be
disproportionately high.




Our
efforts to comply with evolving laws, regulations and standards regarding
corporate governance and public disclosure will likely result in increased
general and administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance activities. If we are
unable to fully comply with new or changed laws, regulations and standards we
may face regulatory action and investors and others may lose confidence in our
reported financial information, either of which could have an adverse effect on
our stock price.





There
is only a limited market for our common stock, which could cause our investors
to incur trading losses and fail to resell their shares at or above the price
they paid for them, or to sell them at all.




Our
common stock is quoted on the Over-the-Counter Bulletin Board (OTCBB) under the
symbol “AEXG.”  On March 18, 2009, the last reported sale price of our
common stock was $0.0012 per share. Prior to August 21, 2006, our common stock
was quoted on the pink sheets under the symbol “AGDC.”   The
symbol changed from AGDC to AEXG effective March 1, 2007 due to our name change.
Our common stock is not actively traded and there can be no assurance that an
active trading market will be developed or maintained. See “Market for Our
Common Stock.”




The OTCBB
is an inter-dealer, over-the-counter market which provides significantly less
liquidity than NASDAQ or other national or regional exchanges. Securities traded
on the OTCBB are usually thinly traded, highly volatile, have fewer market
makers and are not followed by analysts. The SEC’s order handling rules, which
apply to NASDAQ-listed securities, do not apply to securities quoted on the
OTCBB. Quotes for stocks included on the OTCBB are not listed in newspapers.
Consequently, prices for securities traded solely on the OTCBB may be difficult
to obtain and are frequent targets of fraud or market manipulation. Dealers may
dominate the market and set prices that are not based on competitive forces.
Individuals or groups may create fraudulent markets and control the sudden,
sharp increase of price and trading volume and the equally sudden collapse of
the market price for shares of our common stock. Moreover, the dealer's
spread (the difference between the bid and ask prices) may be large and may
result in substantial losses to the seller of shares of our common stock on the
OTCBB if the stock must be sold immediately and may incur an immediate “paper”
loss from the price spread.




Due to
the foregoing, demand for shares of our common stock on the OTCBB may decrease
or be eliminated and holders of our common stock may be unable to resell their
securities at or near their original acquisition price, or at any
price.


31





Investors
must contact a broker-dealer to trade OTCBB securities. As a result, you may not
be able to buy or sell our securities at the times you wish.




Even
though our securities are quoted on the OTCBB, the OTCBB may not permit our
investors to sell securities when and in the manner that they wish. Because
there are no automated systems for negotiating trades on the OTCBB, trades are
conducted via telephone. In times of heavy market volume, the limitations of
this process may result in a significant increase in the time it takes to
execute investor orders. Therefore, when investors place an order to buy or sell
a specific number of shares at the current market price it is possible for the
price of a stock to go up or down significantly during the lapse of time between
placing a market order and its execution.





Sales
of a substantial number of shares of our common stock may cause the price of our
common stock to decline.




We intend
to undertake future offerings of our stock. If our stockholders sell substantial
amounts of our common stock in the public market, including shares issued upon
conversion of the convertible note and exercise of outstanding warrants, the
market price of our common stock could fall. These sales also may make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem reasonable or appropriate.





Authorized
additional shares of our common stock available for issuance may dilute current
stockholders.




We are
authorized to issue 100,000,000 shares of our common stock. As of December 31,
2008, there were 16,577,189 shares of common stock issued and outstanding and no
shares of preferred stock authorized, issued or outstanding. However, the total
number of shares of our common stock outstanding does not include shares of our
common stock reserved in anticipation of the exercise of warrants described
herein or conversion of the CAMOFI Master LDC notes, which include the
additional CAMOFI notes for fees and additional funding. Further, in the event
that any additional financing should be in the form of, be convertible into or
exchanged for equity securities, investors may experience additional
dilution.




32




Penny
stock regulations may impose certain restrictions on the marketability of our
securities, which may adversely affect the ability of purchasers in this
offering to resell our securities.




The
Securities and Exchange Commission has adopted regulations which generally
define a “penny stock” to be any equity security that has a market price (as
defined) of less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. Our common stock is subject to rules
that impose additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with their spouse). For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of such securities and have received the
purchaser’s written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt,
the rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the “penny stock” rules may
restrict the ability of broker-dealers to sell our securities and may
affect the ability of investors to sell our securities in the secondary market
and the price at which such purchasers can sell any such
securities.





We
have never paid dividends and we do not anticipate paying dividends in the
future. If you require dividend income, you should not rely on an investment in
our company.




We do not
believe that we will pay any cash dividends on our common stock in the future.
We have never declared any cash dividends on our common stock, and if we were to
become profitable, it would be expected that all of such earnings would be
retained to support our business. Since we have no plan to pay cash dividends,
an investor would only realize income from his investment in our shares if there
is a rise in the market price of our common stock, which is uncertain and
unpredictable. In addition, our agreement with CAMOFI Master LDC requires that
we obtain their consent prior to paying any dividends. If you require dividend
income, you should not rely on an investment in our company.





ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS.





None.





ITEM
      2.
            DESCRIPTION
      OF PROPERTY




Our
principal executive offices and production facility are located on approximately
10 acres of leased space in Tulsa, Oklahoma, including six office, storage and
special purpose buildings. We also lease approximately 7,000 square feet of
office space in Portland, Oregon.  The Tulsa lease runs through May of
2011 and contains a five year option to renew with 60 days’ prior notice. The
cost of this lease is $6,750 per month and is paid to Ken Duckworth who was the
principal owner of Environmental Remediation Specialists, Inc. The Portland,
Oregon lease is a month-to-month lease paid to Cascade General, Inc. at the rate
of approximately $3,000 per month.  We own approximately 25 acres of
property in Leigh, Texas, approximately 2.5 acres of property in Kansas City,
Missouri, and approximately 155 acres of property in Pryor, Oklahoma. We believe
that these properties and facilities are adequate for our current operations.
All of our properties and facilities are insured.




33




ITEM
      3.
            LEGAL
      PROCEEDINGS





CLEAN
HARBORS ENVIRONMENTAL SERVICES, INC.





On
September 2, 2008, a default judgment was granted to Clean Harbors Environmental
Services, Inc. against the Company in the amount of $119,394, plus interest at
12% per annum and court costs for nonpayment of certain invoices.  On
February 20, 2009, the Company entered into a settlement agreement with Clean
Harbors whereby the Company agreed to make weekly payments to Clean
Harbors.





PAYROLL
TAX LIABILITIES





The
Company was notified that the Internal Revenue Service has placed a lien on the
Company’s assets.  The Company has also received a notice from the IRS
dated August 4, 2008, of an intent to levy certain assets for non-payment of
payroll taxes, penalties and interest totaling $440,698 for certain quarters in
2007 and 2008.





The State
of Missouri has placed a lien on the Company’s assets for unpaid payroll taxes,
penalties and interest of $42,381.  The Company has established a
payment plan with the State of Missouri.





The State
of Oregon has issued a warrant (court judgment) dated July 18,
2008.  The letter states that unless the past due payroll taxes,
interest and penalties due of approximately $22,000 are paid, the State of
Oregon will place a lien on the assets of the Company and commence seizure of
those assets.  The Company has established a payment plan with the
State of Oregon.





Amerex
has established a payment plan with the Oklahoma Tax Commission to stay the
immediate injunction against Amerex.  If Amerex fails to comply with
the terms of the payment plan, Amerex will be enjoined from further operations
in the State of Oklahoma.





The State
of Connecticut has issued a delinquency notice on February 9, 2009 for failure
to file withholding tax returns for certain quarters in 2006, 2007 and
2008.





DISSOLUTION
OF WASTE EXPRESS





Waste
Express, Inc. was administratively dissolved in August 2008 by the State of
Missouri for not filing an annual reporting form.  The Company has
filed the necessary paperwork in March 2009, and has been reinstated by the
State of Missouri.




34




POOF
DEFAULT JUDGMENT





The
Company was notified by POOF in a letter dated May 30, 2008 that the Company was
in default of its loan agreement.  Also, in a letter dated June 20,
2008, POOF demanded the repurchase of the 500,000 shares issued to POOF for
$700,000.  On August 26, 2008, POOF obtained a default judgment
against the Company in the amount of $1,577,231 for the note payable and
redeemable common stock.  Interest will accrue on the judgment amount
at the rate of 20% per annum.  Since the note payable to POOF is in
default, and POOF has obtained a default judgment against the Company, this
liability is due immediately.





OTHER
LITIGATION





A former
employee has filed a discrimination claim against the
Company.  Management believes that the plaintiff’s case is without
merit and will pursue a vigorous defense.





ITEM
      4.
            SUBMISSIONS
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS




During
the fiscal year ended December 31, 2008, there were no items submitted to a vote
of security holders, through the solicitation of proxies or
otherwise.





PART
II





ITEM
      5.
            MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER
  MATTERS





Market
Information




The
Company’s shares of common stock have been quoted on the OTCBB under the symbol
AEXG and the “Pink Sheets” under the symbol AGDC.  However, there is a
very limited public market for the Company’s common stock.  As of
December 31, 2008, 16,577,189 shares of common stock were
outstanding.




The
following table sets forth, for the respective periods indicated, the high and
low bid quotations for the Amerex common stock and, prior to July 2006, Airguide
common stock, for each quarter during the past three years. The market
quotations represent prices between dealers, do not include retail markup,
markdown, or commissions and may not represent actual transactions.




35




Quarter Ended
                      
                      High Bid
                      
                      
                      Low Bid12/31/08
                      
                      
                      0.04
                      
                      
                      
                      0.019/30/08
                      
                      
                      0.29
                      
                      
                      
                      0.026/30/08
                      
                      
                      0.55
                      
                      
                      
                      0.123/31/08
                      
                      
                      0.70
                      
                      
                      
                      0.1712/31/07
                      
                      
                      0.83
                      
                      
                      
                      0.599/30/07
                      
                      
                      2.40
                      
                      
                      
                      1.156/30/07
                      
                      
                      1.80
                      
                      
                      
                      0.303/31/07
                      
                      
                      1.50
                      
                      
                      
                      0.2512/31/06
                      
                      
                      1.25
                      
                      
                      
                      1.019/30/06
                      
                      
                      .16
                      
                      
                      
                      .166/30/06
                      
                      
                      .15
                      
                      
                      
                      .153/31/06
                      
                      
                      .15
                      
                      
                      
                      .15





Holders
of Our Common Stock




As of
March 19, 2009, the Company had 1,108 registered shareholders.





Stock
Option Grants and Equity Compensation Plans




On
November 13, 2007 the Board of Directors directed the officers of the Company to
adopt and implement the 2007 Incentive Stock Plan (the “Stock Plan”). The Stock
Plan reserves 3,000,000 shares of the Company’s common stock for issuance to
employees and others who may be eligible under the Stock Plan.




On
November 13, 2007 the Board of Directors consented to the issuance of common
stock under the Stock Plan to the following:




160,000
shares of common stock to Craig McMahon, our Vice President of Operations, and
60,000 shares of common stock to Paul Koons, our Manager of Emergency Response
Services, 80,000 shares of common stock to Greg Gadbois, the manager of our
Portland, Oregon office, and 66,500 shares of common stock, in the aggregate, to
19 other employees. These stock awards were made in recognition of these
employees’ performance for the fiscal year ending December 31, 2006, and made
the following option awards to directors in November 2007:




36




Optionee
            Option Amount
            VestingNicholas
      J. Malino
            522,500
            Half
      Immediately and half on first anniversary of issuanceRobert
      Roever
            445,000
            Half
      Immediately and half on first anniversary of issuanceJohn
      Smith, Esq.
            195,000
            Half
      Immediately and half on first anniversary of issuancePhilip
      Getter
            56,250
            Half
      Immediately and half on first anniversary of issuanceStephen
      Onody
            22,500
            Half
      Immediately and half on first anniversary of
  issuance




On
February 19, 2008, the Board of Directors elected to make the following stock
option awards to the Company’s directors:





Optionee
            Option Amount
            VestingNicholas
      J. Malino
            150,000
            ImmediatelyRobert
      Roever
            150,000
            ImmediatelyPhilip
      Getter
            100,000
            ImmediatelyAlex
      Ruckdaeschel
            45,000
            Half
      Immediately and half on first anniversary of issuanceStephen
      Onody
            500,000
            ImmediatelyJohn
      Smith, Esq.
            100,000
            Immediately





Dividends




There are
no restrictions in the Company’s articles of incorporation or bylaws that
prevent it from declaring dividends. The Oklahoma General Corporation Law,
however, does prohibit the Company from declaring dividends where, after giving
effect to the distribution of the dividend:





(1)
            The
      Company would not be able to pay its debts as they become due in the usual
      course of business; or





(2)
            The
      Company’s total assets would be less than the sum of its total liabilities
      plus the amount that would be needed to satisfy the rights of shareholders
      who have preferential rights superior to those receiving the
      distribution.




The
Company has not declared any dividends and it does not plan to declare any
dividends in the foreseeable future.





Recent
Sales of Unregistered Securities




On August
14, 2007, the Company issued 500,000 shares of its common stock to Professional
Offshore Opportunity Fund, Ltd. (“POOF”), under a letter agreement entered into
in connection with the contemporaneous loan provided by POOF.  (See,
Part I, Item I, Recent Financings)  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. As of
December 31, 2008, the loan remained outstanding and the shares had not been
repurchased. The $750,000 proceeds were allocated between the loan and related
redeemable common stock, based on final determinations of the fair values of the
loan and common stock.




37




The
shares were not registered in reliance upon Section 4(2) of the Act in that they
were not made available for sale to the public and are restricted against resale
until they are registered under the Act or sold under an exemption from
registration.





ITEM
      6.
            SELECTED
      FINANCIAL DATA





Not
      applicable.





ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS





Overview
and Business of Amerex Group, Inc.





General




We are
engaged, through our subsidiaries, in the industrial and hazardous waste
management services industry and the environmental remediation and abatement
services industry.




Our
industrial waste management services are conducted through Amerex Companies,
Inc, an Oklahoma corporation and our wholly-owned subsidiary, which we refer to
herein as Amerex, and Waste Express, Inc., a Missouri corporation and
wholly-owned subsidiary of Amerex.




Waste
Express is a treatment, storage and disposal facility of hazardous waste
regulated by the U.S. Department of Environmental Protection and licensed by the
U.S. Department of Environmental Protection under the Resource Conservation and
Recovery Act, of 1976, as amended, which we refer to herein as RCRA, and the
Missouri Hazardous Waste Management Law, which we refer to herein as MHWML.
Amerex conducts waste related services including, transportation of waste
materials, field service remediation and decontamination of equipment, lab pack
services and treatment of all types of industrial and municipal
wastes.




38




All of
our lab-packing, treatment, storage, processing, collection, testing,
consolidation and disposal of hazardous, non-hazardous industrial and household
waste are performed out of our Kansas City, Missouri facility. Emergency
response services are conducted principally in our Tulsa, Oklahoma and Kansas
City, Missouri facilities. Household hazardous waste collection events for
municipalities are arranged out of our Tulsa, Oklahoma facility. Logistics for
the removal and transportation of potentially hazardous and non-hazardous waste
is conducted out of our Tulsa, Oklahoma facility although the treatment,
storage, processing, testing and consolidation of these wastes are conducted out
of our Waste Express facility in Kansas City, Missouri. Logistics for the
collection of hazardous and non hazardous industrial waste and industrial
wastewater is also arranged through our facility in Portland,
Oregon.





Our
Services





Transportation,
treatment and disposal




We
transport, treat and dispose of wastes for commercial and industrial customers,
health care providers, educational and research organizations, other waste
management companies and governmental entities. The wastes handled include
substances which are classified as “hazardous” because of their corrosive,
ignitable, infectious, reactive or toxic properties, and other substances
subject to federal and state environmental regulation. Wastes are collected from
customers and transported by us to and between our facilities for treatment or
bulking for shipment to final disposal locations. In providing this service, we
utilize a variety of specially designed and constructed tank trucks and
semi-trailers, as well as other third-party transporters, including railroads.
Liquid waste is frequently transported in bulk, but may also be transported in
drums. Heavier sludge or bulk solids are transported in sealed, roll-off
containers or bulk dump trailers.




Waste
types processed or transferred in drummed or bulk quantities
include:





· flammables,
      combustibles and other organics;


· acids and
      caustics;


· cyanides and
      sulfides;


· solids and
      sludge;


· industrial
      wastewaters;


· PCB materials and
      electrical light ballasts;


· medical
      waste;


· other regulated
      wastes; and


· non-hazardous
      industrial waste.




39




Before we
receive hazardous waste from a customer, detailed paperwork and analysis are
completed to document the nature of the waste. A representative sample of the
expected waste is analyzed in our owned laboratory in order to establish a waste
profile and to enable us to recommend the best method of treatment and disposal.
Prior to unloading at our treatment facility, a representative sample of the
delivered waste is tested and analyzed to insure that it conforms to the
customer's waste profile record. Once the wastes are characterized, compatible
groups are consolidated to achieve economies in storage, handling,
transportation and ultimate treatment and disposal. At the time of acceptance of
a customer's waste at our facility, a unique computer “bar code” identification
character is assigned to each container of waste, enabling us to use
sophisticated computer systems to track and document the status, location and
disposition of the waste.




Disposal
options include reclamation, fuels blending, incineration, aqueous treatment,
and secure chemical landfills. Reclamation includes metal recycling, product
replacement and recycling of various materials to remove impurities and conform
to product specifications. Fuel blending consists of blending liquids and solids
to form a burnable material as a replacement fuel to be used in permitted cement
kiln operations. Incineration is the destruction of various toxic or hazardous
materials to remove the hazardous properties in a permitted thermal unit.
Aqueous treatment is the neutralization or fixation of characteristically
hazardous materials. Secure chemical landfills includes both hazardous and
non-hazardous permitted facilities placement of materials in lined and monitored
landfills.





Field
services




We
provide a wide range of environmental field services to maintain industrial
facilities and process equipment, as well as clean up or contain actual or
threatened releases of hazardous materials into the environment. These services
are provided primarily to large chemical, petroleum, transportation, utility,
industrial and waste management companies, and to governmental agencies. Field
services refers to the dispatching our personnel and equipment to a customer’s
site for the purpose of picking up their hazardous and industrial waste and
transporting it to our transfer facility. Field services is the initial
transportation phase of our services and also consists of completing the
requisite documentation consisting of manifests describing the material being
removed, its state and quantity. Next, we properly contain the material
consistent with prevailing regulations and lade it upon our rolling stock which
may be a roll-off truck, trailer or some specialized containment such as
specially-lined contain vehicles for certain materials. Our field services also
include property posting appropriate signage on a conspicuous location on the
outside of the vehicle to comply with prevailing regulations, typically of the
specific State’s Department of Transportation. We identify, evaluate, and solve
our customers' environmental problems, on a planned or emergency basis, by
providing a comprehensive interdisciplinary response to the specific
requirements of each project.





Lab
packs




We
provide specialized repackaging, treatment and disposal services for chemicals
and hazardous wastes. Such chemicals and wastes are put into Lab packs, which
are packages smaller than a 55-gallon drum, generally less than five gallons or
50 pounds. Our Lab pack operation services a wide variety of customers,
including:




40




· engineering and research and
development divisions of industrial companies;





· larger companies whose
primary business is the collection of hazardous and non-hazardous materials from
industries, cash washes, oil change centers, and automotive repair
shops;





· college, university and high
school labs;





· state and local
municipalities; and





· municipal residents through
household hazardous waste collection days.




We
provide a team of qualified personnel with science degrees and special training
to collect, label and package waste at the customer's site. Lab packs are then
transported to one of our facilities for consolidation into full-size
containers, which are then sent for further treatment or disposal as part
of our treatment and disposal services.





Project
management




An
increasingly important area of our operations is the management of complex
environmental remediation projects. These projects may include surface
remediation, groundwater restoration, site and facility decontamination, and
emergency response. An interdisciplinary team of managers, chemists, engineers,
and compliance experts design and implement result-oriented remedial programs,
incorporating both off-site removal and on-site treatment, as needed. The
remedial projects group functions as a single source management team, relieving
the customer of the administrative and operational burdens associated with
environmental remediation. As a full service environmental services provider, we
eliminate the need for multiple subcontractors.




These
projects vary widely in scope, duration and revenue, and they are typically
performed under service agreements with the customer. Environmental remediation
projects may be undertaken in conjunction with or lead to contracts for
additional remediation work or for hazardous waste management services, and
typically involve our analytical laboratory and engineering group.





Surface
remediation




Surface
remediation projects arise in two principal areas: the planned cleanup of
hazardous waste sites and the cleanup of accidental spills and discharges of
hazardous materials, such as those resulting from transportation and industrial
accidents. In addition, some surface remediation projects involve the cleanup
and maintenance of industrial lagoons, ponds and other surface impoundments on a
recurring basis. In all of these cases, an extremely broad range of hazardous
substances may be encountered.




41




Surface
remediation projects generally require considerable interaction among
engineering, project management and analytical services. Following the selection
of the preferred remedial alternative, the project team identifies the processes
and equipment for cleanup. Simultaneously, our health and safety staff develops
a site safety plan for the project. Remedial approaches usually include physical
removal, mechanical dewatering, stabilization or encapsulation.





Groundwater
restoration




Our
groundwater restoration services typically involve response to above-ground
spills, leaking underground tanks and lines, hazardous waste landfills and
leaking surface impoundments. Groundwater restoration efforts often require
complex recovery systems, including recovery drains or wells, air strippers,
biodegradation or carbon filtration systems, and containment barriers. These
systems and technologies can be used individually or in combination to remove a
full range of floating or dissolved organic compounds from groundwater. We
internally design and fabricate most mobile or fixed site groundwater treatment
systems.





Site
and facility decontamination




Site and
facility decontamination involves the cleanup and restoration of buildings,
equipment and other sites and facilities that have been contaminated by exposure
to hazardous materials during a manufacturing process, or by fires, process
malfunctions, spills or other accidents. Our projects have included
decontamination of electrical generating stations, electrical and electronics
components, transformer vaults and commercial, educational, industrial,
laboratory, research and manufacturing facilities.





Emergency
response




We
undertake environmental remediation projects on both a planned and emergency
basis. Emergency response actions may develop into planned remedial action
projects when soil, groundwater, buildings, or facilities are extensively
contaminated. We have established specially trained emergency response teams
which operate on a 24-hour basis from service centers covering 5 states. Our
emergency response teams operate out of our Tulsa, Oklahoma facility. We have
engaged subcontractors who address the needs of emergency situations which are
too distant geographically to permit us to provide a timely response from this
facility. In these cases, after the emergency situation is addressed we utilize
resources out of either our Tulsa, Oklahoma or Kansas City, Missouri facilities
to remove the potentially hazardous material from the subcontractor’s site and
to relocate it to our Kansas City, Missouri facility for characterization,
treatment and disposal. Many of our remediation activities result from a
response to an emergency situation by one of our response teams. These incidents
can result from transportation accidents involving chemical substances, fires at
chemical facilities or hazardous waste sites, transformer fires or explosions
involving PCBs, and other unanticipated developments when the substances
involved pose an immediate threat to public health or the environment, such as
possible groundwater contamination.




42




Emergency
response projects require trained personnel, equipped with protective gear and
specialized equipment, prepared to respond promptly whenever these situations
occur. To meet the staffing requirements for emergency response projects, we
rely in part upon a network of trained personnel who are available on a contract
basis for specific project assignments. Our health and safety specialists and
other skilled personnel closely supervise these projects during and subsequent
to the cleanup. The steps performed by us include rapid response, containment
and control procedures, analytical testing and assessment, neutralization and
treatment, collection, and transportation of the substances to an appropriate
treatment or disposal facility.





Analytical
services




Analytical
services consist primarily of analytical testing, engineering services and
personnel training. Many of our principal services as described above involve
the selection and application of various technologies. Our analytical testing
laboratories perform a wide range of quantitative and qualitative analyses to
determine the existence, nature, level, and extent of contamination in various
media. Our engineering staff identifies, evaluates and implements the
appropriate environmental solution.





Analytical
testing and engineering services




We
provide analytical testing and engineering services as technical support to
complement our primary services. For example, if we are engaged to perform an
entire environmental remediation project, we will first perform a site or
situation assessment. A site assessment begins with the determination of the
existence of contamination. If present, the nature and extent of the
contamination is defined by gathering samples and then analyzing them at our
laboratory in Kansas City, Missouri in order to establish or verify the nature
and extent of the contaminants. Our engineering staff then develops, evaluates
and presents alternative solutions to remedy the particular situation. Often
treatment systems are completely designed, engineered and fabricated by us in
house. We then implement the mitigation and decontamination program mutually
selected by the customer and us.




Analytical
testing and engineering services are also provided as a separate service if a
customer requires an analysis with respect to certain material, or if a customer
is searching for an appropriate solution to an environmental problem or if an
environmental assessment is required to allow a transfer of
property.




43




We
operate an EPA and state permitted analytical testing laboratory in Kansas City,
Missouri, which tests samples provided by customers to identify and quantify
toxic pollutants in virtually every component of the environment. Our laboratory
staff evaluates the properties of a given material to identify and characterize
the waste materials prior to acceptance for treatment and disposal, and operates
mobile laboratory facilities for field use in emergency response and remedial
action situations.





Personnel
training




We
provide comprehensive personnel training programs for our employees and those of
our customers on a commercial basis. Such programs are designed to promote safe
work practices under potential hazardous environmental conditions, whether or
not toxic chemicals are present, in compliance with stringent regulations
promulgated under RCRA and the OSHA. We provide such training at our Tulsa,
Oklahoma facility including a tank for confined space entry, exit, and
extraction, an air-system demonstration maze, respirator fit testing room, leak
and spill response equipment, and a layout of a mock decontamination zone, all
designed to fulfill the requirements of OSHA’s Hazardous Waste and Emergency
Response Standards.




We
typically only track revenues in our service segments. Disposal, which includes
waste treatment, characterization, analytical services, lab-packs, and actual
disposal, made up approximately 54% of our total revenue for the year ended
December 31, 2008. Field services, which include transportation and personnel
training, comprised approximately 23% of our revenue for the year ended
December 31, 2008. Emergency services are tracked separately and contributed
approximately 23% of our revenues during this same period. We expect that
emergency services will comprise a greater portion of our sales in
the future, as this line of business is developed.





Update
Regarding Future or Planned Services





Water
Disposal and Separation Services to the Oil and Gas Industry; Resale of the
Remaining Crude Oil




The
property and the assets associated with this business are being marketed for
sale and the net proceeds will be used to pay down the Company’s existing
indebtedness under the CAMOFI 12% Senior Convertible Notes as
amended.




44




Our
Strategy




In order
to maintain and enhance our position in the waste management industry, we have
implemented a strategy of internal growth through the increased utilization of
our existing facilities and properties, the expansion of our services, the
addition of new sales offices and service centers, and external growth through
strategic acquisitions.  To obtain profitability and positive cash
flow from operations, the Company needs to increase its revenue and customer
base.





Increased
Utilization of Waste Management Facilities




In order
to fully utilize our current waste management facility, we have the ability of
increasing our hours of operation to 24 hours a day/7 days a week, by adding
weekend shifts and two daily eight-hour work shifts to our existing daily
shift.





Sale
of Pryor, Oklahoma and Leigh, Texas Property





We are
currently attempting to sell our property in Pryor, Oklahoma and Leigh, Texas.
Management intends to utilize the proceeds from these sales to pay down the
Company’s indebtedness to CAMOFI.




Our
Pryor, Oklahoma property was an ammonia/urea fertilizer manufacturing plant,
various large industrial buildings which were used for manufacturing, drying,
mixing and bagging of fertilizer, concrete containment structures, other assets
comprised mainly of salvageable metal, and rail access.




Our
demolition and well closure began during the third quarter of 2006 with the
commencement of the demolition of the existing fertilizer manufacturing plant,
which was completed during the fourth quarter 2008.





Expansion
of our Service Mix and Diversification of our Client Base




By
expanding our current services to those described above under “Business – Future
or Planned Services,” we expect to diversify our customer base and expand our
revenue generating operations to aid in the protection from any economic down
turns in our current service offerings.





Focus
on the Development of National Clients and Strategic
Relationships




We have
developed relationships with several clients with a national or international
presence. These clients, despite their size, are considered small-quantity
generators. It is this type of client that we are targeting, since most of our
smaller competitors do not possess the national infrastructure of transportation
logistics and outlets to adequately service these customers and the large
competitors who do posses these resources prefer to provide services for larger
quantity generators. We intend to continue to focus on becoming specialists in
providing services to these types of customers.




45




Our
geographical area of operations extends generally to the southwest of a line
extending from Washington State to Florida. In order to properly service
national clients a true national presence is necessary. For this reason we have
developed strategic relationships with other providers that have a strong
presence in areas not covered by our network.




Westward
Expansion




In early
2009 we started operations in Sacramento, California and in 2009 plan to open
other locations.





Strategic
Acquisitions




Our
longer range plans involve strategic acquisitions of businesses and assets
compatible and complimentary with ours, which allow for the consolidation of
facilities and reduction of some material portion of indirect operating costs
such as occupancy costs, back office support and insurance.





Marketing
Strategy and Sales of our Services




We market
our services on an integrated basis and, in many instances, services in one area
of our business support or lead to a project undertaken in another
area.




We
acquire clients and projects (a) through the relationships that our technical
personnel and managers have developed during their professional careers, (b) by
responding to general solicitations for proposals from public and private
agencies and firms, (c) through referrals and recommendations from our existing
customers, and (d) through competitive bids with government
entities.





Customers




We
provide services to approximately 894 customers and typically do not have
written contracts with them. In addition to serving commercial and industrial
customers such as waste collectors, manufacturers, health care providers,
research organizations, and chemical companies, our customers include federal,
state and local governmental agencies, and small quantity generators that have
recurring needs for multiple services in managing their environmental
exposure.




46




Subcontractors




We have
formed a number of strategic partnerships with several environmental
subcontractors to assist us in providing services. All of our subcontractors are
licensed as hazardous waste handlers in the areas in which they operate. No
subcontractor is considered critical in the sense that they possess special
skills or licenses that could not be replaced in a reasonable period of time and
without materially adverse effects on the economics of the project or the
services we provide. Several of our subcontractors have also managed a number of
customers requiring waste disposal services and therefore have been a source of
new business.




47





MANAGEMENT’S
DISCUSSION AND ANALYSIS





OVERVIEW




Amerex
Group, Inc. and its subsidiaries are in the business of providing services to
customers who wish to efficiently manage their industrial and household
hazardous waste. These services consist primarily of collecting, treating,
storing and ultimately disposing of their hazardous and industrial waste. Amerex
also provides services to municipalities in managing collection days on which
residents of the sponsoring municipality may bring their household hazardous
waste such as paint, insect control chemicals, batteries, and light bulbs to
staging areas which Amerex establishes. Amerex would then collect and sort the
collected material and dispose of them properly. Amerex also provides emergency
response services to industrial and municipal clients to mitigate or remove
hazardous materials following motor vehicle accidents, industrial mishaps,
chemical spills and similar emergencies. These services are performed from the
Company’s Tulsa, Oklahoma location. Amerex also provides emergency response
services, field services and lab packing from the Company’s Portland, Oregon
location.  Waste Express, Inc. an operating subsidiary of Amerex
Companies, Inc. has been issued a Part B license under the Resource Conservation
and Recovery Act and operates a treatment storage and disposal facility for
Amerex. The majority of Amerex revenues are currently derived from disposal
and treatment of hazardous waste.




We have
incurred significant losses since our inception and our stockholders’ deficit
and working capital deficit at December 31, 2008 and subsequent to that date are
also significant.  The majority of the Company’s debt matures in 2010
and the Company was in default of financial or nonfinancial debt covenants as of
December 31, 2008.




The
continuation of our company as a going concern is dependent upon our company
attaining and maintaining profitable operations and raising additional
capital.  In addition, the loss of the DEA contract has had a material
adverse effect on the Company’s ability to continue as a going
concern.




Due to
the losses, stockholders’ and working capital deficits, noncompliance with debt
covenants and debt maturing, our independent public accounting firm included an
explanatory paragraph in their report on our financial statements regarding
substantial doubt regarding our ability to continue as a going
concern.  The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.  See “Liquidity and
Capital Resources”.




48




RESULTS
OF OPERATIONS





The
following is a summary of the consolidated statements of operations at December
31, 2008 and 2007:





2008
                
                
                2007Operating
      revenue
                
                $
                5,471,760
                
                
                $
                8,305,496Cost
      of services provided
                
                
                (4,425,108
                )
                
                
                (5,181,392
                )Selling,
      general and administrative
                
                
                (2,670,232
                )
                
                
                (2,532,992
                )Professional
      fees
                
                
                (737,941
                )
                
                
                (796,376
                )Non
      cash compensation
                
                
                (852,931
                )
                
                
                (1,056,896
                )Depreciation
      and amortization
                
                
                (353,564
                )
                
                
                (395,954
                )Operating
      Loss
                
                
                (3,568,016
                )
                
                
                (1,658,114
                )Interest
      expense
                
                
                (1,889,050
                )
                
                
                (1,556,340
                )Amortization
      of debt discount
                
                
                (526,299
                )
                
                
                (1,604,333
                )Amortization
      of capitalized finance fees
                
                
                (425,301
                )
                
                
                (831,487
                )Financing
      penalty fees
                
                
                (1,954,231
                )
                
                
                (1,220,600
                )Impairment
      of real estate held for sale
                
                
                (1,024,250
                )
                
                
                0Other
      income (expense)
                
                
                381,508
                
                
                
                151,684Loss
      from continuing operations
                
                
                (9,005,639
                )
                
                
                (6,719,190
                )Loss
      from discontinued operations
                
                
                0
                
                
                
                (394,908
                )Net
      loss
                
                $
                (9,005,639
                )
                
                $
                (7,114,098
                )




49




Revenues




For the
year ended December 31, 2008, we had total revenues of $5,471,760, as compared
to revenue for the year ended December 31, 2007 of $8,305,496.  This
decrease was primarily due to the elimination of the services performed for the
Drug Enforcement Agency (“DEA”) and Environmental Compliance Consultant
(“ECC”).  For the year ended December 31, 2008, revenue from both the
DEA and ECC totaled $798,590 as compared with $2,809,499 for the comparable
year ended December 31, 2007.  Also contributing to the reduction was
a decrease in revenue from the DEA and ECC subcontractors.  Revenues
for the top two customers for 2008 amounted to $3,304,060 or 60% of revenue,
compared to the top three customers for 2007 amounted to $5,904,495 or 71% of
revenue.  The primary revenue accounts that had significant variances
were disposal, labor and emergency response.  Revenue for disposal for
the year ended December 31, 2008 and 2007 was $2,953,039 and $3,587,889,
respectively.  Labor revenue was $995,921 for 2008 and $2,148,888 for
2007.  The variance is a direct result from the DEA and ECC contract
elimination, as those contracts were disposal and labor
intensive.  Emergency response revenue for the year ended December 31,
2008 and 2007 was $542,688 and $817,940, respectively.  This part of
revenue varies significantly from period to period as it is highly influenced by
accidents and weather.





Cost
of Services Provided




During
the year ended December 31, 2008, our total cost of services provided was
$4,425,108 or 81% of total revenues for a gross profit of $1,046,652 or 19% as
compared to the year ended December 31, 2007, where our total cost of services
provided was $5,181,392 or 62% of total revenues for a gross profit of
$3,124,104 or 38%. The primary reason for the decrease in cost of services
provided was cost of services for DEA subcontract costs decreased from the year
ended December 31, 2007 to the year ended December 31, 2008 by
$936,426.  The gross profit margin decreased from 38% in 2007 to 19%
in 2008, primarily to the loss of the DEA and ECC revenue, which were higher
gross margin customers.





SG&A
and Other Operating Expenses




During
the year ended December 31, 2008 our other operating expenses (which includes
selling, general and administrative, professional fees, non cash compensation,
amortization and depreciation expenses) were $4,614,668 resulting in an
operating loss of $3,568,016, compared to the year ended December 31, 2007 in
which our total operating expenses were $4,782,218 resulting in an operating
loss of $1,658,114. SG&A expenses for the year ended December 31, 2008
represented 84% of revenue as compared to 58% of revenue for the year ended
December 31, 2007. The decrease in our other operating expenses for 2008 was
primarily caused by a decrease in professional fees of $58,435 and a decrease in
non cash compensation of $203,965.  Non cash compensation expense is
dependent on the amount and timing of stock and option awards.  The
primary cause of increase in SG&A expenses was the increase from 2007 to
2008 in insurance expense of $92,188.




50




Non-Operating
Income and Expenses




During
the year ended December 31, 2008, our net non-operating expenses were $5,437,623
resulting in a loss from continuing operations of $9,005,639 as compared to the
year ended December 31, 2007, in which our net non-operating expenses were
$5,061,076 which resulted in a loss from continuing operations of $6,719,190.
Amortization of debt discount expense decreased $1,078,034, due to the debt
discount for the CAMOFI warrants and beneficial conversion feature set up in
2006, being fully amortized in 2007.  Our interest expense increased
$332,710 from 2007 to 2008 due to an increase in average debt from $9,416,144 in
2007 to $13,108,238 in 2008.  Amortization of capitalized financing
fee expense decreased by $406,186 due to full amortization of the capitalized
balance in early 2008.  Financing penalty fee expense increased by
$733,631 from 2007 to 2008.  This expense is dependent on the timing
and frequency of the refinancing of the CAMOFI debt.  The Company
recognized an impairment of real estate held for sale of $1,024,250 in 2008,
associated with the write down to fair value of the property in Pryor, Oklahoma
and Leigh, Texas.  Discontinued operations related to the sale of
certain assets held for sale at the Pryor facility was $0 for the year ended
December 31, 2008 as compared to $394,908 for the year ended December 31,
2007.  Net loss for the year ended December 31, 2008 was $9,005,639
compared to the net loss for the year ended December 31, 2007 which was
$7,114,098.





Segment
Results of Operations




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.  In the Company’s previous annual and
interim consolidated financial statements, Waste Express, Inc. and Amerex were
presented as operating segments.  After further analysis by the
Company, it was determined that Waste Express and Amerex are no longer separate
reportable segments and that the consolidated financial statements are the ones
evaluated by the chief operating decision maker.





Liquidity
and Capital Resources





At
December 31, 2008 our cash and cash equivalents amounted to $53,299 as compared
to December 31, 2007 at which time our cash and cash equivalents amounted to
$19,588. Our accounts receivable (net of allowance for doubtful accounts) at
December 31, 2008 were $1,356,292 as compared to $2,262,396 on December 31,
2007. Our accounts receivable declined by $906,104 to $1,356,292 as of December
31, 2008, which included unbilled receivables of $202,622, as compared to
accounts receivable of $2,262,396, which included unbilled receivables of
$561,926 as of December 31, 2007. Our total current assets as of December 31,
2008 were $1,995,319 as compared to $2,788,181 on December 31, 2007. The
decrease in the total current assets was due to the decrease in accounts
receivable, which decreased due to the loss of DEA and ECC revenue discussed
above.




51




At
December 31, 2008 the Company had current liabilities of $19,403,612 compared to
current liabilities of $6,326,095 at December 31, 2007, comprised principally of
the current portion of long term debt, accounts and notes payable, accrued
expenses and accrued share-based liabilities. Current liabilities increased
$13,077,517 during the period due primarily to the increase in CAMOFI notes
payable and the classification of debt as short term at December 31, 2008 due to
the violation of certain loan covenants with CAMOFI. As such, the Company has
negative working capital of $17,408,293 as of December 31, 2008 and negative
working capital of $3,537,914 as of December 31, 2007.





For the
years ended December 31, 2008, and 2007, the Company used cash in operations of
$2,663,310 and $1,343,640, respectively. For the year ended December 31, 2007,
the Company realized an overall decrease in cash and cash equivalents of $40,679
due to cash provided by financing activities of $543,089, net cash provided by
investing activities of $759,872, and the use of cash by operating activities of
$1,343,640. For the year ended December 31, 2008 the Company realized an
increase in cash and cash equivalents of $33,711, primarily due to cash provided
by investing activities of $18,330, use of cash by operating activities of
$2,663,310, partially offset by cash provided by financing activities of
$2,678,691.




We have
incurred significant losses since our inception and our stockholders’ deficit
and working capital deficit at December 31, 2008 and subsequent to that date are
also significant.  The majority of the Company’s debt matures in 2010
and the Company was in default of financial or nonfinancial debt covenants as of
December 31, 2008.




The
continuation of our company as a going concern is dependent upon our company
attaining and maintaining profitable operations and raising additional
capital.  In addition, the loss of the DEA contract has had a material
adverse effect on the Company’s ability to continue as a going
concern.




The
Internal Revenue Service and various state taxing agencies have placed a lien on
the Company’s assets for the Company’s failure to pay payroll taxes for the
third and fourth quarters of 2007 and first and second quarters of
2008.  The Company has received notices of intent to levy bank
accounts for the non-payment of payroll taxes, penalties and interest for
certain quarters in 2007 and 2008.  The imposition of a lien against
the Company’s assets and a levy on its bank accounts may cause a default under
the Company’s indebtedness, which could permit the Company’s lenders to demand
immediate repayment.  The Company does not have sufficient funds and
may not be able to obtain sufficient funds to repay all of its current
indebtedness.  If the lenders demand immediate repayment and the
Company is unable to repay the indebtedness, the lenders may enforce their lien
against the assets and acquire ownership of the assets.  If the
Internal Revenue Service and various state taxing agencies enforce the liens,
they may acquire ownership of the assets.  In either case, the
enforcement of a lien could have a material adverse affect on the Company’s
business and may cause it to cease operations.




52




The
Company's management has previously attracted additional funding in the form of
subordinated debt and a line of credit. However, there is no guarantee that the
capital raised is sufficient to execute its business plan. To the extent that
the capital raised is not sufficient, the Company's business plan and its plans
for operations will be required to be substantially modified. The Company is
currently addressing its liquidity and negative working capital issues as of
December 31, 2008 by the following actions:





§
            The
      Company continues to implement plans to increase
  revenues.




§
            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 is seeking alternatives measures of financing which may include
      equity financing or additional subordinated
  debt.




§
            The
      Company has been actively marketing the sale of our property in Pryor,
      Oklahoma and Leigh, Texas. We anticipate that the proceeds from this
      transaction will be utilized to reduce our obligations under the CAMOFI
      12% Senior Convertible Notes.




However,
there is no guarantee that any of these strategies will enable the Company to
meet its financial obligations for the foreseeable future which could have a
material adverse effect on our business, results of operations and financial
condition.




CAMOFI
has provided funding to the Company from June 2008 through December 2008
totaling approximately $1,739,000.  This additional funding has been
in the form of additional notes payable to CAMOFI.  CAMOFI is not
required to provide the Company with additional funding in the
future.  Due to the financial condition of the Company, it is unlikely
that any other funding will be available.




Going
Concern




Due to
the losses, stockholders’ and working capital deficits, noncompliance with debt
covenants and debt maturing, our independent public accounting firm included an
explanatory paragraph in their report on our financial statements regarding
substantial doubt regarding our ability to continue as a going
concern.  The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.




53




DEBT AND
CREDIT FACILITIES




On
November 21, 2005, we executed an agreement with CAMOFI Master LDC, an affiliate
of Centrecourt Asset Management LLC, for a 10% Senior Convertible Note due on
November 21, 2007. Under the terms of this agreement (the “Senior Convertible
Notes Agreement”) the Company agreed to pay interest only for the first 9 months
of the agreement and then will pay interest and principal through the remaining
term of the loan. The loan is collateralized by a first lien on all current and
future assets of the Company and its subsidiaries.  We drew down the
total amount of the note in three tranches (intervals). The first tranche of
$2,500,000 was drawn down at the closing of the transaction and the proceeds
were used to pay off then existing indebtedness of the Company and for working
capital. On February 23, 2006, this agreement was modified to increase the
principal balance from $6,000,000 to $6,800,000, to cover additional costs
associated with the purchase of the Pryor Facility. On March 5, 2006 we drew
down $2,600,000 which was used to purchase the Pryor, Oklahoma Facility and for
working capital. One April 28, 2006 we drew down the remaining $1,650,000 to
fund the purchase of the ERS assets and for working capital.




On
December 31, 2007 the Company executed an agreement with CAMOFI Master LDC.
Under the terms of this new agreement (a) the Maturity Date of the Note was
changed from November 21, 2007 to November 21, 2010 (b) the interest payments
was deferred until April 1, 2008, (c) the Interest Rate was increased from 10%
payable in cash to 10% payable in cash and 2% payable in additional notes, and;
(d) we agreed to issue a new note in the amount of $2,027,123 with the same
terms as the existing Note, to settle liquidated damages and other amounts due
under the original note agreement, (e) the monthly redemption amount was changed
to either $250,000 per month or $150,000 per month depending on the amount of
funds that are available to be applied to the principal amount of the Notes from
the sale of the Pryor, Oklahoma, and Leigh, Texas properties, and; (f) the
monthly redemption amount was to begin on August 1, 2008; (g) Amerex agreed to
use the proceeds from the sale of the Pryor and Leigh properties, as well as the
proceeds from the release of the escrowed funds of $400,000 securing the closure
of the injection wells in Pryor, Oklahoma to pay down the indebtedness; (h) we
agreed to affirmative covenants to secure at least $2,500,000 in additional
equity financing before March 31, 2008; (i) we agreed to file a registration
statement prior to June 30, 2008; (j) CAMOFI shall maintain its right to convert
up to 100% of the outstanding indebtedness into Common Stock; (k) the Company
will issue CAMOFI that number of additional shares equal to 4.5% of its
outstanding stock; (l) Amerex will extend the term of CAMOFI’s warrants to
December 31, 2012; and (m) we will make our principal officers and financial
personnel available for an on-site review of the financial condition of the
Company.  On June 9, 2008, the Company entered into an agreement with
CAMOFI to defer principal and interest payments on the CAMOFI notes to September
1, 2008 and increase the $2,027,123 note discussed above to
$5,141,648.  The increase in the note payable included $541,294 of
accrued interest and $1,954,231 of financing penalty fees.  The
Company agreed to pay CAMOFI all of the proceeds from the sale of the Kaiser
facility in Pryor, Oklahoma, proceeds from the Leigh, Texas real estate and
monies held in escrow for well closures at the Kaiser
facility.  Agents for the sale of the properties were agreed to be
obtained by July 31, 2008 and contracts for sale were agreed to be obtained by
September 1, 2008.  The Company also agreed to raise $2,500,000 in
additional equity by September 1, 2008.  In September 2008, the
Company entered into agreements with CAMOFI to defer the principal and interest
payments to January 1, 2009, extended the date to retain agents for the sale of
the Company’s real property to September 1, 2008 and obtain a contract for sale
by January 1, 2009, extended the date for sale of equity of at least $2,500,000
to January 1, 2009, require monthly EBITDA of at least $400,000 and require
annual EBITDA of at least $2,500,000 for 2008 and 2009.  Since CAMOFI
has not issued a waiver for the violation of loan covenants, CAMOFI could
declare their indebtedness to be in default.  The line of credit
matured January 1, 2009, and is currently in default.




54




The note
is convertible at any time into common stock at a fixed conversion price of
$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 of the principal balance of the note was converted into 200,000 shares
of common stock. During the fourth quarter of 2007, $100,000 of the principal
balance of the note was converted into 200,000 shares of common
stock.  In connection with the loan, the lender was 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.




A
separate agreement with holder of the note provided that the Company would pay
liquidated damages to the holder 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 holder of the note to settle such
damages, assuming the registration statement was effective by October 30,
2006.  The holder of the note is 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 which are a part of the principal sum of the new CAMOFI note, having
a principal balance of $2,027,123 at December 31, 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 December 31, 2007, until such time the Company has an effective
registration statement under the terms of its agreement. All penalties and
defaults were incorporated into the principal balance of the new CAMOFI note
financing the amount of $2,027,123.




55




On August
31, 2006 we entered into an agreement with CAMOFI Master LDC for a line of
credit 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 closed on September 21, 2006 and is secured
by our accounts receivable. The maximum borrowing on this line is the lesser of
$1,500,000 or 80% of accounts receivable aged less than 90 days. We are also
required to register shares in the amount of 125% of the number of shares
underlying the warrant.  The revolving notes provided the Company with
the right to prepay in cash all or a 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 default on the line of credit
agreement and noncompliance with certain covenants of the loan agreements as of
December 31, 2008.  CAMOFI could accelerate the amounts due under the
note agreements..




On
August 14, 2007, the Company entered into a loan with Professional Offshore
Opportunity Fund, Ltd (“POOF”), 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 10thday of
each month thereafter through February 10, 2008.  The loan bore
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 also issued 500,000 shares of its common stock to POOF 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 were to 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 was $700,000 for a
repurchase on or after January 15, 2008.  In the event the Company did
not pay the amounts due, the Company’s obligation under the letter agreement
bore interest at the rate of two percent per annum. The $750,000 proceeds has
been allocated between the loan and related common stock issued, 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 POOF by Ron Brewer and Richard Coody, former officers and
directors of the Company.  Each pledged 1,450,000 shares.  POOF can
exercise its rights as a secured party by selling the shares to apply against
the Company’s obligations to POOF in the event of a default by the Company under
the Secured Promissory Note.  POOF 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 POOF under the pledge. The funds will be
retained in an escrow account and paid in 2009.




56




The
Company was notified by POOF in a letter dated May 30, 2008 that the Company was
in default of its loan agreement.  Also, in a letter dated June 20,
2008, POOF demanded the repurchase of the 500,000 shares issued to POOF for
$700,000.  On August 26, 2008, POOF obtained a default judgment
against the Company in the amount of $1,577,231 for the note payable and
redeemable common stock.  Interest will accrue on the judgment at the
rate of 20% per annum.




We will
continue to evaluate additional funding options including equipment financing,
banking facilities, loans, government-funded grants and private and public
equity offerings. We may also require funds for future acquisitions that would
complement our existing business. Some of these financings may result in
substantial dilution to current equity holders.





CONTRACTUAL
OBLIGATIONS





We have a
Irrevocable Letter of Credit which is collateralized by a Certificate of Deposit
with UMB Bank in Kansas City Missouri in the amount of $251,116. The Letter of
Credit is required by the State of Missouri to fund the closure of the Waste
Express facility.





The
following table sets forth our contractual obligations as of December 31,
2007:





Long Term Debt
                
                
                Interest Obligations
                
                
                Operating LeaseObligations2008
                
                $
                2,230,000
                
                
                $
                1,089,745
                
                
                $
                81,0002009
                
                
                3,025,000
                
                
                
                776,259
                
                
                
                81,0002010
                
                
                4,842,324
                
                
                
                387,303
                
                
                
                81,000Total
                
                $
                10,097,324
                
                
                $
                2,253,307
                
                
                $
                243,000




The
following table sets forth our contractual obligations as of December 31,
2008:





Long Term Debt
                
                
                Interest Obligations
                
                
                Operating LeaseObligations2009
                
                $
                5,698,661
                
                
                $
                1,250,459
                
                
                $
                81,0002010
                
                
                11,454,283
                
                
                
                930,951
                
                
                
                81,0002011
                
                
                0
                
                
                
                0
                
                
                
                33,750Total
                
                $
                17,152,944
                
                
                $
                2,181,410
                
                
                $
                195,750




57




NEW
ACCOUNTING PRONOUNCEMENTS





In March
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”(“SFAS
161”).  This statement requires companies to provide enhanced
disclosures about (a) how and why they use derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect a company’s financial position,
financial performance, and cash flows.  SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008.  The Company will adopt the new disclosure
requirements on or before the required effective date and thus will provide
additional disclosures in its consolidated financial statements when adopted, to
the extent applicable.





In April
2008, FASB Staff Position No. 142-3, “Determination of the Useful Life of
Intangible Assets”(“FSP 142-3”) was
issued.  This standard amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142, Goodwill and Other
Intangible Assets.  FSP 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years.  Early adoption is
prohibited.  The Company has not determined the impact on its
financial statements of this accounting standard.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations”(“SFAS 141R”). SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation
of the nature and financial effects of the business combination. This statement
is effective for the Company beginning January 1, 2009.  The
adoption of this statement will only impact our consolidated financial
statements to the extent we enter into business acquisitions in the
future.





In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles” (“SFAS 162”). SFAS 162 is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. GAAP. SFAS 162 is effective 60 days
following the Securities and Exchange Commission’s approval of the Public
Company Accounting Oversight Board auditing amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” We do not expect SFAS 162 to have an effect on our consolidated
financial statements.




58




In
May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) (“FSP APB 14-1”). FSP ABP 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and (conversion
option) components of the instrument in a manner that reflects the issuer’s
non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years
beginning after December 15, 2008 on a retroactive basis and will be
adopted by the Company in the first quarter of fiscal year 2009. We are
currently evaluating the potential impact, if any, of the adoption of FSP APB
14-1 on our consolidated financial statements.





In
June 2008, the FASB issued EITF Issue No. 07-5 (“EITF 07-5”),
“Determining whether an Instrument (or Embedded Feature) is indexed to an
Entity’s Own Stock.” EITF No. 07-5 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. Paragraph 11(a) of SFAS No. 133
specifies that a contract that would otherwise meet the definition of a
derivative but is both (a) indexed to the Company’s own stock and
(b) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial instrument. EITF 07-5
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the SFAS No. 133 paragraph 11(a) scope exception.
We are currently evaluating the potential impact, if any, of the adoption of
EITF 07-5 on our consolidated financial statements.





In
December 2008, FASB Staff Position FAS 140-4 and FIN 46(R)-8, “Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities”were
issued.  The FSP amends Statement 140 to require public entities to
provide additional disclosures about transferors’ continuing involvements with
transferred financial assets.  It also amends Interpretation 46(R) to
require public enterprises, including sponsors that have a variable interest in
a variable interest entity, to provide additional disclosures about their
involvement with variable interest entities.  The FSP also requires
disclosures by a public enterprise that is (a) a sponsor of a qualifying
special-purpose entity (SPE) that holds a variable interest in the qualifying
SPE but was not the transferor of financial assets to the qualifying SPE and (b)
a servicer of a qualifying SPE that holds a significant variable interest in the
qualifying SPE but was not the transferor of financial assets to the qualifying
SPE.  The FSP and FIN are effective for annual and interim reporting
periods ending after December 15, 2008.  The Company does not expect
that this pronouncement will have a material effect on its consolidated
financial statements when adopted.




59




CRITICAL
ACCOUNTING POLICIES AND ESTIMATES




The
preparation of financial statements requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures. On an on-going basis, management evaluates our
estimates and assumptions, including but not limited to those related to revenue
recognition and the impairment of long-lived assets, goodwill and other
intangible assets. Management bases its estimates on historical experience and
various other assumptions that it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.





1.
Revenue recognition




The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred and services have been provided, the price is fixed and
determinable, and collection is reasonably assured. The Company’s primary source
of revenue is through the treatment and disposal of hazardous waste.
Revenue for this service is recognized when the service has been
provided.





2. Other
intangibles




Other
intangibles consist of permits acquired through acquisitions which are initially
recorded based upon their estimated fair value, and permits obtained through
operations which are stated at cost. Permit fair values are determined through
the use of external independent appraisals. Permits are amortized on a straight
line basis over their estimated useful lives, currently considered to be 10
years. The Company tests the intangibles for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable.





3.
Share-based compensation and multiple element transactions




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 to employees is the grant date for awards that qualify as
equity and the settlement date for awards considered as liabilities. The
estimated value of share-based payments for options, warrants and similar
obligations is determined using a Black-Scholes model and assumptions regarding
stock price volatility, discount rate and exercise period.  A discount
is applied to the values of stock not yet registered to account for the reduced
value associated with the shares not being liquid and readily
saleable.





The
Company engaged a third-party valuation expert to provide an opinion as to the
fair value, as of August 14, 2007, of 500,000 unregistered shares (the “Shares”)
of Amerex Group, Inc. (the “Company”) issued to a single investor in connection
with a $750,000 loan to the Company by the investor (the “POOF
Loan”).  The purpose of this opinion is to determine the appropriate
amount of debt discount to apply to the Note evidencing such loan. The third
party expert utilized the valuation guidelines provided by FASB 157. In
accordance with FASB Statement No. 157, “fair value is the price that would be
received to sell an asset...in an orderly transaction between market participants
at the measurement date.”  The opinion of the third-party expert was
thus applied to property value this instrument. However, as with many financial
analyses, it is not unlikely that experts may differ on the specific
methodologies applied and that these various methodologies may be populated with
different assumptions by different experts thereby making it likely that values
reported by different evaluators utilizing different methodologies and different
assumptions may yield different results.




60




4. Equity
obligations




The
Company has certain equity instruments and obligations to issue equity
instruments which do not meet the accounting criteria to be recorded as equity,
and therefore are recorded as liabilities and re-measured to their estimated
fair values until such time that the obligation is settled or the accounting
criteria for equity classification is met.  Such obligations are
valued largely using the methods and assumptions described in the preceding
paragraphs as applicable.




5. Accrued
liabilities and contingencies




The
Company accrues environmental remediation liabilities based on estimates of the
associated costs, as supported by assessments by external firms and specialists
as considered necessary.  The Company accrues liabilities and assesses
the adequacy of disclosures for litigation, assessments and related matters with
assistance from external attorneys to the extent considered
necessary.  Other accruals and contingencies are evaluated by
management for proper recording and disclosure, with external assistance
obtained when considered necessary.




6. Valuation
of assets held for sale and impairment of long-lived assets




The
Company owns property in Leigh, Texas (approximately 25 acres) and Pryor,
Oklahoma (approximately 155 acres).  At December 31, 2008, the Company
was holding this property for sale.  The estimated fair value of the
Leigh, Texas property was $75,000 and the Pryor, Oklahoma property was $400,000
at December 31, 2008.  The Company used estimates of fair value of
property of similar size and close proximity.  The Company recognized
an impairment of real estate held for sale at December 31, 2008 of $1,024,250,
in the accompanying consolidated statement of operations.





ITEM
      8.
            FINANCIAL
      STATEMENTS





Our
consolidated financial statements, together with the reports thereon by our
independent registered public accounting firm, begin on page F-1 of this Form
10-K.




61





Item
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL
DISCLOSURE.








Item
9A. CONTROLS AND PROCEDURES





As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end
of the period covered by the annual report, we have carried out an evaluation of
the effectiveness of the design and operation of our company’s disclosure
controls and procedures. This evaluation was carried out under the supervision
and with the participation of our company officers and directors. Based upon
that evaluation, disclosure controls and procedures are deemed adequate as of
the end of the period covered by this report. There have been no significant
changes in our internal controls over financial reporting that occurred during
our most recent fiscal year that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial
reporting.





Disclosure
controls and procedures and other procedures that are designed to ensure that
information required to be disclosed in our reports or submitted under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time period specified in the Securities and Exchange Commission’s
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 is
accumulated and communicated to management including our president and financial
officer as appropriate, to allow timely decisions regarding required
disclosure.





Management’s
Report of Internal Control over Financial Reporting.





We are
responsible for establishing and maintaining adequate internal control over
financial reporting in accordance with Exchange Act Rule 13a-15. With the
participation of our Interim Chief Executive Officer and Principal Financial and
Accounting Officer, our management conducted an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2008 based
on the criteria established in Internal Control-Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that our
internal control over financial reporting was effective as of December 31, 2008,
based on those criteria.  Management is currently addressing several
issues which may be material weaknesses in its internal control over financial
reporting – a.) The Company is currently without a CFO or senior financial
expert, b.) Management believes that the Company is in need of another
bookkeeper with experience in Quickbooks, c.) Invoicing is often slow and
receivables can be collected sooner with adequate staffing, d) The Company needs
to improve its assessment of the proper application of generally accepted
accounting principles including the timing and recognition of the impairment of
assets held for sale, and e) Due to the small number of accounting personnel,
the Company has a lack of segregation of duties.


62





A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected.





This annual report does not include
an attestation report of the Company’s registered accounting firm regarding
internal control over financial reporting. Management’s report was not subject
to attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission.





ITEM
9B.  OTHER INFORMATION





None.





PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
    ACT





(a) Our
directors and executive officers are:





Name
              
              Age
              
              Year Became An
                Executive
                Officer orDirector*
              
              PositionsStephen
      K. Onody
              
              56
              
              2007
              
              Director,
      Interim Chief Operating Officer and Principal Financial and Accounting
      OfficerCraig
      McMahon
              
              49
              
              2006
              
              Vice
      President of OperationsRobert
      Roever
              
              50
              
              2006
              
              DirectorJohn
      J. Smith
              
              58
              
              2007
              
              DirectorNicholas
      Malino
              
              58
              
              2007
              
              Director
      until July 10, 2008Philip
      Getter
              
              71
              
              2007
              
              Director
      until June 20, 2008Alexander
      Ruckdaeschel
              
              36
              
              2007
              
              Director
      until June 22, 2008


63





Set forth
below is a brief description of the background and business experience of our
executive officers and directors:





Stephen K. Onody
– Director and Interim Chief Executive Officer.   Mr.
Onody, through Onody Associates, became the Chief Operating Officer and a
Director of the Company in 2007.  In July of 2008, Mr. Onody accepted
the position of Interim Chief Executive Officer, through Onody
Associates.  Mr. Onody is a Chairman of the Board, Chief Executive and
life science entrepreneur in both publicly traded NASDAQ and privately held
companies. He has over 30 years of corporate and entrepreneurial leadership in
creating, commercializing and building value of medical technology companies in
multiple medical disciplines as well as extensive experience in turn-around
situations. Mr. Onody has a proven ability to increase financial performance and
shareholder wealth. Mr. Onody is founder, Chief Executive Officer of MEDdevice
Acquisition Corporation, a company formed to acquire medical device companies
and technologies, and Onody Associates LLC, a venture backed strategic partner
life science company providing guidance and leadership from development through
commercialization. Onody Associates also specializes in developing and
implementing strategies for accelerating corporate growth and valuation through
networks, distribution, partnerships, mergers and acquisitions and financing
strategies.  In addition, Mr. Onody is a CEO Operating Healthcare
Executive for various investment funds and private merchant banks. Mr. Onody has
been a founding partner in orthopedic, biologics, biotech and cardiovascular
company’s (Microphage, Scandius Medical, iBalance, Inc., Cascade Medical). Mr.
Onody was formerly Chairman of the Board, President and Chief Executive Officer
of Colorado MEDtech, Inc., an end-user medical imaging and minimally invasive
products company and a provider of advanced medical and biotechnology design,
software, product development and manufacturing services.





Craig McMahon –
Vice President.Mr. McMahon is our Vice President of Operations and is
responsible for the day to day technical operations of the Company. He was a key
leader at two major competitors over 20 yrs of Environmental Services and Water
Plant Experience. He also managed the largest waste fuel terminal and a key
manger for the largest hazardous waste processing facility in the country. Mr.
McMahon has a track record of providing exceptional customer service through
coordinated management of his operations team and has made key improvements in
engineering, maintenance, transportation as well as all other areas of
operations. Mr. McMahon held management positions previously with Safety-Kleen,
Rineco Chemical and Pollution Control Industries and has a Bachelor’s Degree in
Mechanical Engineering and is well versed in all aspects of environmental
regulations and operations.


64





Robert Roever –
Director.Robert Roever was made a member of the board of directors of the
Company in July 2006. Mr. Roever has spent the last ten years in investment
banking and finance in New York City.  Currently as President of Capitoline
Advisors, Inc. (2003-Present), and investment banking firm headquartered in New
York City that specializes in consulting small to mid cap public companies in
all facets of business development including strategic financing alternatives,
mergers and acquisitions , developing business plans , consulting on corporate
finance and investment banking. Additionally, Mr. Roever has served as an
independent contractor for Dodge Clark since June, 2006 to present. Prior to
Capitoline Advisors, (June 2002 to present) he operated Madison Equity, Inc.,
a  entity which he wholly-owned and which operating in the investment
banking business and was headquartered in New York City, and was an independent
contractor to Gunn Allen financial services in 2004 and 2005 and for Spencer
Clark during 2003. He served as a Senior Vice President and Managing Director at
multiple Broker Dealers with highlights at Invest Private (2001-2002), running
the Private Equity Group and a Senior Vice President at Prime Charter
(1999-2001), a boutique New York brokerage company. Mr. Roever has provided
strategic advisory and financial service for companies in the apparel, energy,
specialty construction, real estate and technology industries. Mr. Roever brings
an expertise in strategic planning, product design and development, management
with an emphasis on business development.





John J. Smith –
Director.  Mr. Smith has an extensive background in both law
and management. Prior to joining the company, John served as General Counsel of
the South Dakota Public Utilities Commission. Before that he served as General
Counsel for Streamedia Communications a publicly-traded NASDAQ company which
provided B2B Internet-based content delivery and management systems. Prior to
that, he was General Counsel and head of the M&A due diligence team for ATC
Group Services, a $160 million publicly-traded (NASDAQ:NMS) environmental
engineering and consulting firms based in New York City. ATC had 73 offices and
2,000 employees. He has represented these public corporations in numerous
successful acquisition transactions. John also had a successful tenure as an
operations manager, having maintained consistent profitability in the operations
under his control. In addition to his business experience, John served as
Secretary of the South Dakota Department of Environment and Natural Resources
and his legal experience includes environmental, utility, natural resources,
business, transaction, employment and contract law.





Nicholas Malino –
Former Director and Chief Executive Officer.  Nick Malino became a
member of our board of directors and our Chief Executive Officer on July 5, 2006
in connection with our acquisition of Amerex.  He has been a member of the
board of directors of Amerex and its Chief Executive Officer since September
2005.  Since July 2001 he has been the Managing Director of Tango Equity,
Inc., a New York City based financial advisory firm.  From November 1998
until November 2000, he was COO and CFO of Streamedia Communications, Inc., a
New York City based Internet based media and media services firm .   From
October 1992 to November 1998 he held the positions of president and CEO of ATC
Group Services, Inc., a $160 million environmental engineering services company
based in New York City. During Mr. Malino’s tenure at ATC, the company grew from
$9 million in revenues and eight offices to $160 million in revenues and 73
offices, and led the environmental engineering and consulting sector in
operating income for 12 consecutive quarters, with stockholder return exceeding
150% CAGR. Mr. Malino received a Master’s Degree in Biology in 1976 and an MBA
in Finance in1981, both from the University of Bridgeport.  He
resigned his positions as an officer and director of the Company effective July
10, 2008.


65





Philip M. Getter
– Former Director.  Mr. Getter is
the Managing Member of GEMPH Development LLC, an advisory firm. Recently he was
head of Investment Banking and a member of the Board of directors of Prime
Charter, Ltd. He was Administrative Assistant to the Director of U.S. Atomic
Energy Commission (1958-1959), and began his Wall Street career as an analyst at
Bache & Co. He was a partner with Shearson, Hammill & Company
(1961-1969) and a Senior Partner of Devon Securities, an international
investment banking and research boutique (1969-1975). Getter was President and
CEO of Generics Corporation of America, one of the largest generic drug
manufacturers in the U.S (1975- 1983). As Chairman and CEO of Wolins Pharmacal
(1977-1983), he led the reorganization and restructuring of one of the largest
direct to the profession distributors of pharmaceuticals. He has produced for
Broadway, television and film, has been a member of The League of American
Theatres and Producers, the Tony Administration Committee and Trustee of The
Kurt Weill Foundation for Music. Mr. Getter received his B.S. in Industrial
Relations from Cornell University. He serves on various boards of both public
and private organizations and is Chairman of the Audit Committees of EVCI Career
Colleges, International Consultants on Targeted Security, and Inksure
Technologies, Inc.  Mr. Getter resigned his position as a director of
the Company effective June 20, 2008.





Alexander
Ruckdaeschel – Former Director.  Mr. Ruckdaeschel had been a
member of the board of directors since 2007.  Mr. Ruckdaeschel is
co-founder and principal of Blue Rock-AG, an investment management company based
in Switzerland. He is also a partner at Alpha Plus Advisors, a US and
Swiss-based hedge fund.  Mr. Ruckdaeschel has served on the Boards of
Directors of several public and private companies in such sectors as new
technology and electronics recycling companies and other Green technology
companies. From 1992 to 2000, he served in the German Military where he
participated in NATO and UN missions, and won various honors for
service.  Mr. Ruckdaeschel resigned his position as a director of the
Company effective June 22, 2008.





Potential
Conflicts of Interest





There are
no material proceedings, business activities or relationships known to us to
which any of our directors, officers or affiliates, or any owner of record or
beneficially of more than 5% of any class of our voting securities, or any
affiliate of such persons is a party adverse to us or has a material interest
adverse to our interests. There are no family relationships known to us between
the directors and executive officers. We do not know of any legal proceedings
that are material to the evaluation of the ability or integrity of any of the
directors or executive officers.





Although
we are not subject to the rules or requirements of the American Stock Exchange
(“AMEX”), we have, generally, looked to those rules for guidance as to which
members of our Board qualify as “independent directors.” Under these rules, an
“independent director” is a person, other than an officer or employee of the
Company or any parent or subsidiary, who has been affirmatively determined by
our Board of Directors not to have a material relationship with us that would
interfere with the exercise of independent judgment. As determined by AMEX, the
following persons would not be deemed independent:


66




a)
            a
      director who is, or during the past three years was, employed by the
      Company or by any parent or subsidiary of the Company, other than prior
      employment as an interim Chairman or
CEO;


b)
            a
      director who accepts or has an immediate family member who accepts any
      payments from the Company or any parent or subsidiary of the Company in
      excess of $100,000 during the current or any of the past three fiscal
      years, other than compensation for board service, compensation paid to an
      immediate family member who is a non-executive employee, non-discretionary
      compensation, certain requirement payments and a limited number of other
      specified types of payments;


c)
            a
      director who is an immediate family member of an individual who is, or has
      been in any of the past three years, employed by the Company or any parent
      or subsidiary of the Company as an executive
  officer;


d)
            a
      director who is, or has an immediate family member who is, a partner in,
      or a controlling shareholder or an executive officer of, any organization
      to which the Company made, or from which the Company received, payments
      (other than those arising solely from investments in the Company’s
      securities or payments under non-discretionary charitable contribution
      matching programs) that exceed 5% of the organization’s consolidated gross
      revenues for that year, or $200,000, whichever is more, in any of the most
      recent three fiscal years;


e)
            a
      director who is, or has an immediate family member who is, employed as an
      executive officer or any other entity where at any time during the most
      recent three fiscal years any of the Company’s executive officers serve on
      that entity’s compensation committee;
and


f)
            a
      director who is, or has an immediate family member who is, a current
      partner of the Company’s outside auditor, or was a partner or employee of
      the Company’s outside auditor who worked on the Company’s audit at any
      time during any of the past three
years.




Our Board
has determined that each of Messrs. Roever and Smith is an “independent
director.”





Board
Composition and Compensation





Our board
of directors presently consists of three members: Our Interim Chief Executive
Officer, Stephen Onody, through Onody Associates, has no shares, but holds
options to purchase up to 872,500 shares of common stock.  Robert
Roever, owns approximately 8.3% of the current outstanding shares. John Smith
owns no shares of stock but has options to purchase 295,000
shares.  No cash compensation is provided for board
members.


67





Term
of Office





Our
Directors are appointed for a one-year term to hold office until the next annual
general meeting of our stockholders or until removed from office in accordance
with our bylaws. Our officers are appointed by our board of directors and hold
office until removed by the board.





Board
Committees





The Board
of Directors has standing Audit and Compensation Committees.





The Audit
Committee reviews with our independent accountants the scope and timing of the
accountants' audit services and any other services they are asked to perform,
their report on our financial statements following completion of their audit and
our policies and procedures with respect to internal accounting and financial
controls. In addition, the Audit Committee reviews the independence of the
independent public accountants and makes annual recommendations to the Board of
Directors for the appointment of independent public accountants for the ensuing
year. The Audit Committee consists of one independent director. The committee
consists of Mr. Smith.





The
Compensation Committee reviews and recommends to the Board of Directors the
compensation and benefits of all our officers, reviews general policy matters
relating to compensation and benefits of our employees and will review and make
recommendations with regard to any employee stock option plans that may be
considered.  The Committee adopted an employee stock option plan in the
fourth quarter of 2007. The Committee consists of Mr. Smith.





The Board
of Directors appoints other committees as needed.





Code
of Ethics





We are in
the process of adopting a formal Code of Ethics at this time.





Section
16(a)   Beneficial Ownership Reporting Compliance.





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, executive officers, and stockholders holding more than 10% of our
outstanding common stock, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in beneficial ownership of
our common stock.  Executive officers, directors and greater-than-10%
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file.  To our knowledge, based solely on
review of the copies of such reports furnished to us for the year ended
Decemeber 31, 2008, no Section 16(a) reports required to be filed by our
executive officers, directors and greater-than-10% stockholders were filed on an
untimely bases.


68





ITEM
      11.
            EXECUTIVE
      COMPENSATION





Summary
Compensation Table





The table
below summarizes all compensation awarded to, earned by, or paid to our
executive officers for all services rendered in all capacities to us through and
including the date of this report.





Name and
                                      Principal
                                      Position
                                    
                                    Year
                                    
                                    Salary
                                    
                                    
                                    Bonus
                                    
                                    
                                    Stock
                                      Awards
                                    
                                    
                                    Stock
                                      Options
                                    
                                    
                                    Non-Equity
                                      Incentive
                                      Compensation
                                    
                                    
                                    All
                                      Other
                                      Compensation
                                      (a)
                                    
                                    
                                    TotalStephen
      K. Onody,
                                    
                                    2008
                                    
                                    $
                                    180,000
                                    
                                    
                                    $
                                    0
                                    
                                    
                                    $
                                    0
                                    
                                    
                                    $
                                    92,500
                                    
                                    
                                    $
                                    0
                                    
                                    
                                    $
                                    0
                                    
                                    
                                    
                                    272,500Interim
      Chief Executive
                                    
                                    2007
                                    
                                    
                                    94,108
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    323,663
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    417,771Officer
      (1)Craig
      McMahon,
                                    
                                    2008
                                    
                                    
                                    132,000
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    50,618
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    182,618V.P.
      of Operations (2)
                                    
                                    2007
                                    
                                    
                                    132,000
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    82,800
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    214,800Nicholas
      J. Malino,
                                    
                                    2008
                                    
                                    
                                    48,462
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    27,750
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    76,212Former
      Chief Executive
                                    
                                    2007
                                    
                                    
                                    180,000
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    198,663
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    378,663Officer
      (3)





(a) There
were no prequisites or other personal benefits provided to these employees that
exceeded $10,000 in the aggregate, and there were no company contributions to
any defined contribution plans, life insurance premiums paid by the company for
the benefit of the employee or other compensation.





(1)
 Mr.Onody through Onody Associates assumed the position of Chief Operating
Officer in June 2007 as part of his initial four-month consulting agreement he
was provided with option to purchase up to 100,000 shares. Subsequently on
September 7, 2007 Mr. Onody was issued another option to purchase up to 250,000
shares.  In November 2007, Mr. Onody was granted options to purchase
22,500 shares.  In January 2008, Mr. Onody was granted options to
purchase 500,000 shares.  In July 2008, Mr. Onody through Onody
Associates was requested to take the position of Interim Chief Executive
Officer, which is a position he still holds.  See discussion of
assumptions made in valuing stock options in Note 6 to the consolidated
financial statements.


69





(2)
 Mr. McMahon receives an annual salary of $132,000. See “Employment
Agreements.”  In January 2006, Mr. McMahon received a stock award
whereby he would receive 160,000 shares of common stock of Amerex, which were
subsequently issued in 2007.  In February 2008, Mr. McMahon was
granted options to purchase 193,200 shares.  See discussion of
assumptions made in valuing stock options and stock awards in Note 6 to the
consolidated financial statements.





(3) Mr.
Malino resigned his position as an officer of the Company effective July 10,
2008.





Outstanding Equity Awards at
Fiscal Year-End Table-Executive Officers





The
following table shows the outstanding option awards outstanding held by named
executive officers at December 31, 2008 (which were fully vested):





Name
                                                    
                                                    Number of Shares
                                                    
                                                    
                                                    Exercise Price
                                                    
                                                    Expiration DateStephen
      K. Onody
                                                    
                                                    
                                                    22,500
                                                    
                                                    
                                                    $
                                                    0.76
                                                    
                                                    11/13/13500,000
                                                    
                                                    
                                                    $
                                                    0.50
                                                    
                                                    02/28/13100,000
                                                    
                                                    
                                                    $
                                                    0.50
                                                    
                                                    06/15/17250,000
                                                    
                                                    
                                                    $
                                                    1.50
                                                    
                                                    09/07/17Craig
      McMahon
                                                    
                                                    
                                                    193,200
                                                    
                                                    
                                                    $
                                                    0.50
                                                    
                                                    06/09/18Nicholas
      J. Malino
                                                    
                                                    
                                                    11,250
                                                    
                                                    
                                                    $
                                                    0.76
                                                    
                                                    11/13/13250,000
                                                    
                                                    
                                                    $
                                                    0.75
                                                    
                                                    11/26/13150,000
                                                    
                                                    
                                                    $
                                                    0.50
                                                    
                                                    02/28/13





The
following table summarizes all of the options outstanding (employees, officers
and directors) at December 31, 2008:




Exercise Price
                      
                      Number of Shares
                        Outstanding
                      
                      
                      Weighted-Average
                        Remaining
                        Contractual Life in
                        Years
                      
                      
                      Weighted-Average
                        Exercise PriceVested
      options:$.50
      - $1.50
                      
                      
                      3,421,275
                      
                      
                      
                      5.7
                      
                      
                      $
                      0.68


70





Director Compensation
Table





The
following table summarizes the compensation awarded to, earned by or paid to our
non-executive directors.





Name
                  
                  Year
                  
                  Salary
                  
                  
                  Bonus
                  
                  
                  Stock
                    Awards
                  
                  
                  Stock
                    Options
                  
                  
                  All
                    Other
                    Compensation
                  
                  
                  TotalRobert
      Roever
                  
                  2008
                  
                  $
                  0
                  
                  
                  $
                  0
                  
                  
                  $
                  0
                  
                  
                  $
                  27,750
                  
                  
                  $
                  0
                  
                  
                  $
                  27,750John
      J. Smith
                  
                  2008
                  
                  $
                  0
                  
                  
                  $
                  0
                  
                  
                  $
                  0
                  
                  
                  $
                  18,500
                  
                  
                  $
                  0
                  
                  
                  $
                  18,500





Outstanding Equity Awards at
Fiscal Year-End Table-Directors





The
following table shows the outstanding option awards outstanding held by named
directors (other than executive officers) at December 31, 2008 (which were fully
vested):





Name
                                
                                Number of Shares
                                
                                
                                Exercise Price
                                
                                Expiration DateRobert
      Roever
                                
                                
                                45,000
                                
                                
                                $
                                0.76
                                
                                11/13/13400,000
                                
                                
                                $
                                0.75
                                
                                11/26/13150,000
                                
                                
                                $
                                0.50
                                
                                02/28/13John
      J. Smith
                                
                                
                                45,000
                                
                                
                                $
                                0.76
                                
                                11/13/13150,000
                                
                                
                                $
                                0.75
                                
                                11/26/13100,000
                                
                                
                                $
                                0.50
                                
                                02/28/13





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
  MANAGEMENT





The
following table sets forth certain information regarding the beneficial
ownership of our common stock, our only class of outstanding voting securities
as of December 31, 2008, based on 16,577,189 aggregate shares of common stock
outstanding as of such date, by: (i) each person who is known by us to own
beneficially more than 5% of our outstanding common stock with the address of
each such person, (ii) each of our present directors and executive officers, and
(iii) all executive officers and directors as a group:


71





Name and Address of Beneficial
                    Owner(1)(2)(3)
                  
                  Amount of
                    Common Stock
                    Beneficially Owned(1)
                  
                  
                  Percentage of Common Stock
                    Beneficially Owned(1)CAMOFI
      Master LDC
                    350
      Madison Avenue
                    New
      York, NY 10017
                  
                  
                  32,352,735
                  (4)
                  
                  
                  61.1
                  %Nicholas
      J. Malino(5)
                  
                  
                  3,876,413
                  (6)
                  
                  
                  7.3
                  %Robert
      Roever(7)
                  
                  
                  4,421,213
                  (8)
                  
                  
                  8.3
                  %John
      Smith(9)
                  
                  
                  0
                  
                  
                  
                  0
                  %Stephen
      Onody
                  
                  
                  0
                  
                  
                  
                  0
                  %Craig
      McMahon
                  
                  
                  91,000
                  
                  
                  
                  0.2
                  %All
      officers and directors as a group (4) persons)
                  
                  
                  4,662,213
                  
                  
                  
                  8.8
                  %





(1)
            Beneficial
      ownership as reported in the table above has been determined in accordance
      with Instruction (1) to Item 403(b) of Regulation S-B of the Securities
      Exchange Act of 1934.





(2)
              Each
      stockholder, director and executive officer has sole voting power and sole
      dispositive power with respect to all shares beneficially owned by
      him.





(3)
            All
      addresses are c/o AMEREX Companies, Inc., 1105 N. Peoria, Tulsa, Oklahoma,
      74106,unless
      otherwise indicated.





(4)
            Represents
      26,840,981 shares of common stock issuable upon conversion of a 12% senior
      convertible notes, 4,000,667 shares of common stock issuable upon the
      exercise of warrants at an exercise price of $0.01 per share, 200,000
      shares issued upon the conversion of the 10% senior convertible note due
      November 21, 2007 (as amended) and 561,087 shares issued in association
      with the extension of this same Note, and 750,000 warrants issued in
      association with the Accounts Receivable Line of
  Credit.





(5)
            Nicholas
      J. Malino is a former Chief Executive Officer and a former member of our
      board of directors.





(6)
            Includes
      2,281,213 shares issuable upon exercise of a warrant issued to Mr. Malino.
       All of our securities owned by Mr. Malino are subject to a lock-up
      as required by the provisions of the December 19, 2007 extension of the
      12% senior convertible note (as
amended).





(7)
            A
      member of our board of
directors.


72





(8)
            Represents
      2,450,000 shares issued to First Equity Trust, a trust for the benefit of
      Mr. Roever, and 1,781,213 shares issuable upon exercise of a warrant
      issued to Capitoline Advisory Group, Inc., an entity wholly-owned by Mr.
      Roever.  All of our securities owned directly or indirectly by Mr.
      Roever are subject to a one-year lock-up commencing on the effectiveness
      of the registration statement filed
on.





(9)
            A
      member of our Board of Directors.





(10)
            Stephen
      Onody, through Onody Associates, is Interim Chief Executive Officer and a
      member of our Board of Directors.





(11)
            Craig
      McMahon is Vice President of
Operations.





The
persons named above have full voting and investment power with respect to the
shares indicated. Under the rules of the Securities and Exchange Commission, a
person (or group of persons) is deemed to be a “beneficial owner” of a security
if he or she, directly or indirectly, has or shares the power to vote or to
direct the voting of such security, or the power to dispose of or to direct the
disposition of such security. Accordingly, more than one person may be deemed to
be a beneficial owner of the same security. A person is also deemed to be a
beneficial owner of any security, which that person has the right to acquire
within 60 days, such as options or warrants to purchase our common
stock.





ITEM 13.
            CERTAIN RELATIONSHIPS AND
      RELATED TRANSACTIONS.





No
transactions have occurred since the beginning of our last fiscal year or are
proposed with respect to which a director, executive officer, security holder
owning of record or beneficially more than 5% of any class of our securities or
any member of the immediate families of the foregoing persons had or will have a
direct or indirect material interest.





ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEESAND SERVICES





The
following is a summary of the fees billed to the Company by Sartain Fischbein +
Co. for professional services rendered for the fiscal years ended December 31,
2008 and 2007.





Fee Category
                  
                  2008
                  
                  
                  2007Audit
      Fees (1)
                  
                  $
                  110,546
                  
                  
                  $
                  158,809Audit-Related
      Fees
                  
                  
                  0
                  
                  
                  
                  0Tax
      Fees (2)
                  
                  
                  21,650
                  
                  
                  
                  6,050All
      Other Fees
                  
                  
                  0
                  
                  
                  
                  0Total
      Fees
                  
                  $
                  132,196
                  
                  
                  $
                  164,859


73





(1) Audit
fees consist of  fees billed for professional services rendered for
the audit of the Company’s annual consolidated financial statements and fees
billed for review of the interim consolidated financial statements included in
quarterly reports and services that are normally provided by Sartain Fischbein +
Co. in connection with statutory and regulatory filings or
engagements.





(2) Tax
fees for 2007 relate to work performed in 2007 for preparation of the Company’s
2005 income tax returns.  Tax fees for 2008 relate to the preparation
of the Company’s 2006 and 2007 federal and state income tax
returns.





The
Company’s audit committee, pre-approves all accounting-relating activities,
including both audit and non-audit services, prior to the performance of any
services by an accountant or auditor.





The
percentage of hours expended on the principal accountant’s engagement to audit
Company’s financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal accountant’s
full time permanent employees was 0%.





ITEM
      15.
            EXHIBITS





(a)
Financial Statements: included in Item 7 above.





(b)
Exhibits





Exhibit
                No.
              
              Document2.1
              
              Share
      Exchange Agreement dated as of July 5, 2006 among Amerex Group, Inc.,
      James P. Frack, AMEREX Companies, Inc., and the Stockholders of AMEREX
      Companies, Inc. (incorporated by reference to Exhibit 2.1 of Form 8-K
      filed July 11, 2006)2.2
              
              Agreement
      of Merger between CDX.com Colorado and CDX.com Merger Co (Oklahoma) dated
      July 28, 2005 (incorporated by reference to Exhibit 2.1 of Form 10-QSB for
      the quarter ended September 30, 2004).2.3
              
              Stock
      Purchase Agreement between United Assurance and Amerex Group, Inc. dated
      August 1, 2005 (incorporated by reference to Exhibit 2.2 of  Form
      10-QSB for the quarter ended September 30,
2004)


74





2.4
              
              Agreement
      and Plan of Merger between Amerex Group, Inc, and CDX.com Merger, Inc.,
      and CDX.com (Oklahoma), dated July 28, 2005 (incorporated by reference to
      Exhibit 2.3 of  Form 10-QSB for the quarter ended September 30,
      2004)3.1
              
              Restated
      Articles of Incorporation filed 7/27/2005 (incorporated by reference to
      Exhibit 3.1 of  Form 10-QSB for the quarter ended September 30,
      2004)3.2
              
              Certificate
      of Incorporation of Amerex Group, Inc. (incorporated by reference to
      Exhibit 3.4 of Form 10-QSB for the quarter ended September 30,
      2004)3.3
              
              Bylaws
      of Amerex Group, Inc. (incorporated by reference to Exhibit 3.6 of
       Form 10-QSB for the year ended September 30,
2004)4.1
              
              10%
      Senior Convertible Note issued to CAMOFI Master LCD in the acquisition on
      July 5, 2006 (incorporated by reference to Exhibit 4.1of Amendment to Form
      SB-2 filed on January 17, 2007).4.2
              
              Warrant
      issued to CAMOFI Master LCD in the acquisition on July 5, 2006
      (incorporated by reference to Exhibit 4.2 of Amendment to Form 10-SB filed
      on January 17, 2007).4.3
              
              Form
      of warrant issued to former AMEREX Companies, Inc. warrant holders in the
      acquisition on July 5, 2006 (incorporated by reference to Exhibit 4.3 of
      Amendment to Form 10-SB filed on January 17, 2007).4.4
              
              AMEREX
      Companies, Inc. 8% Secured Promissory Note, dated September 2, 2005, in
      the amount of $450,000 issued to Professional Traders Fund,
      LLC.(incorporated by reference to Exhibit 4.6 of Form 8-K filed July 11,
      2006)4.5
              
              Warrant
      issued to CAMOFI Master LCD in connection with a line of credit on
      November 10, 2006 (incorporated by reference to Exhibit 4.2 of Amendment
      to Form 10-SB filed on January 17, 2007).4.6
              
              Non-Qualified
      Stock Option Award Agreement for the benefit of Stephen K. Onody, dated
      January 28, 2008, to
      be filed by the Company as an exhibit to an amended report on Form
      10-K/A5.1
              
              Opinion
      of Sichenzia Ross Friedman Ference LLP (incorporated by reference to
      Exhibit 5.1 of Amendment to Form 10-SB filed on January 17, 2007).


75





10.1
              
              Securities
      Purchase Agreement, dated November 21, 2005, between AMEREX Companies,
      Inc. and CAMOFI Master LDC. (incorporated by reference to Exhibit 10.1 of
      Amendment to Form 10-SB filed on January 17, 2007).10.2
              
              Form
      of Lock-Up Agreement dated November 21, 2005, between CAMOFI Master LCD
      and each of Richard Coody, Nick Malino, Ron Brewer, Robert Roever, John
      Smith, and Marwaan Karame. (incorporated by reference to Exhibit 10.2 of
      Form 8-K filed on July 11, 2006)10.3
              
              Registration
      Rights Agreement, dated November 21, 2005, between AMEREX Companies, Inc.
      and CAMOFI Master LDC. (incorporated by reference to Exhibit 10.3 of Form
      8-K filed on July 11, 2006)10.4
              
              Escrow
      Agreement, dated November 21, 2005, between AMEREX Companies, Inc. and
      CAMOFI Master LDC. (incorporated by reference to Exhibit 10.4 of Form 8-K
      filed on July 11, 2006)10.5
              
              Subsidiary
      Guarantee, dated November 21, 2005, of Waste Express to CAMOFI Master LDC.
      (incorporated by reference to Exhibit 10.5 of Form 8-K filed on July 11,
      2006)10.6
              
              Subsidiary
      Agreement, dated November 21, 2005, between Amerex Acquisition Corp. and
      CAMOFI Master LDC. (incorporated by reference to Exhibit 10.6 of Form 8-K
      filed on July 11, 2006)10.7
              
              Intercreditor
      Agreement, dated November 21, 2005, between CAMOFI and PTF. (incorporated
      by reference to Exhibit 10.7 of Form 8-K filed on July 11,
      2006)10.8
              
              Loan
      Agreement, dated August 12, 2005 between DCI USA Inc. and AMEREX
      Companies, Inc. (incorporated by reference to Exhibit 10.8 of Form 8-K
      filed July 11, 2006)10.9
              
              Amendment,
      dated June 30, 2006 to Contract for Sale and Purchase of Business Assets,
      dated September 1, 2005, between Enhanced Operating Co., LLC and AMEREX
      Companies, Inc. (incorporated by reference to Exhibit 10.10 of Form 8-K
      filed on July 11, 2006)


76





10.11
              
              Amendment,
      dated November 13, 2005, to Contract for Sale and Purchase of Business
      Assets, dated September 13, 2005, among NES Technology LLC, Industrial
      Waste Services LLC and AMEREX Companies, Inc. (incorporated by reference
      to Exhibit 10.13 of Form 8-K filed on July 11, 2006)10.12
              
              Employment
      Agreement, dated October 1, 2005, between AMEREX Companies, and Richard
      Coody.  (incorporated by reference to Exhibit 10.23 of Form 8-K
      filed on July 11, 2006)10.13
              
              Lease
      Agreement, dated December 1, 2005, between Amerex Companies, Inc. and
      Capitoline Advisors, Inc. (incorporated by reference to Exhibit 10.29 of
      Form 8-K filed on July 11, 2006)10.14
              
              Lease
      Agreement, dated December 30, 2005, between Amerex Companies, Inc. and
      CDI, Inc. (incorporated by reference to Exhibit 10.30 of Form 8-K filed on
      July 11, 2006)10.15
              
              Line
      of Credit with CAMOFI Master LCD. (incorporated by reference to Exhibit
      10.15 of Amendment No. 1 to Form SB-2 filed on March 20,
    2007)10.16
              
              Secured
      Loan Agreement with Professional Offshore Opportunity Fund, Ltd.
      (incorporated by reference to Exhibit 10.16 of Form 8-K filed August 16,
      2007)10.17
              
              Letter
      Agreement with Professional Offshore Opportunity Fund, Ltd. (incorporated
      by reference to Exhibit 10.17 of Form 8-K filed August 16,
      2007)10.18
              
              Pledge
      Agreement between Richard Coody and Ron Brewer and Professional Offshore
      Opportunity Fund, Ltd. (incorporated by reference to Exhibit 10.18 of Form
      8-K filed August 16, 2007)10.19
              
              Indemnification
      Agreement with Richard Coody (incorporated by reference to Exhibit 10.19
      of Form 8-K filed August 16, 2007)10.20
              
              Agreement
      with Richard Coody (incorporated by reference to Exhibit 10.20 of Form 8-K
      filed August 16, 2007)10.21
              
              Indemnification
      Agreement with Ron Brewer (incorporated by reference to Exhibit 10.21 of
      Form 8-K filed August 16, 2007)10.22
              
              Agreement
      with Ron Brewer (incorporated by reference to Exhibit 10.22 of Form 8-K
      filed August 16, 2007)


77





10.23
                
                Conformed
      Letter of Intent to purchase Perma-Fix Treatment Solutions, Inc.
      (“Perma-Fix”) of Tulsa, OK from Perma-Fix Environmental Services, Inc.
      (incorporated by reference to Exhibit 10.23 of Form 8-K filed August 29,
      2007)10.31
                
                Letter
      Agreement between Amerex Group, Inc. and CAMOFI Master LDC dated
      December 19, 2007 (incorporated by reference to Exhibit 10.31 of Form
      8-K filed January 7, 2008)10.32
                
                Letter
      Agreement, dated May 7, 2008, between the Company and Glenwood Capital
      LLC, to
      be filed by the Company as an exhibit to an amended report on Form
      10-K/A10.33
                
                Letter
      Agreement between Amerex Group, Inc. and CAMOFI Master LDC dated June 9,
      2008 (incorporated by reference to Exhibit 10.1 of Form 8-K filed June 13,
      2008)21.1
                
                Subsidiaries
      of Registrant (incorporated by reference to Exhibit 21 of Form 8-K filed
      on July 11, 2006).31.1
                
                Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a), filed
      herewith32.1
                
                Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, filed
      herewith





* * * *
*


78


SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





AMEREX
      GROUP, INC.RegistrantDate:
      April 6, 2009
                By:
                /s/   Stephen
      K. OnodyStephen
      K. OnodyPresident,
      Interim Chief Executive Officer,
                  Principal
      Financial Officer and
Director





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.





Signature
              
              Title
              
              Date/s/  Robert
      Roever
              
              Director
              
              April
      6,
    2009Robert
      Roever/s/  John J.
      Smith
              
              Director
              
              April
      6,
    2009John
      J. Smith


79





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


Amerex
Group, Inc.





We have
audited the accompanying consolidated balance sheets of Amerex Group, Inc. as of
December 31, 2008 and 2007 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended.  These consolidated financial statements are the responsibility of
the Company’s management.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Amerex Group, Inc. as
of December 31, 2008 and 2007, and the consolidated results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As shown in the financial
statements, the Company incurred a net loss of $9,005,639 during the year ended
December 31, 2008, and, as of that date, had a working capital deficiency of
$17,408,293 and stockholders’ deficit of $15,815,342.  As discussed in
Note 1 to the financial statements, the Company has experienced significant cash
flow difficulties and, at December 31, 2008, was in default on its note
agreements, which causes the balances to become due on demand.  The
Company does not currently have alternative sources of capital sufficient to
meet such demands, if made. 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.





/s/
SARTAIN FISCHBEIN & CO.


Tulsa,
Oklahoma


April 3,
2009


F-1





Amerex
Group, Inc. and Subsidiaries





Consolidated
Balance Sheets


December 31,2008
                
                
                2007AssetsCurrent
      AssetsCash
      and cash equivalents
                
                $
                53,299
                
                
                $
                19,588Accounts
      receivable, trade, net of allowance for doubtful accounts of $70,000 at
      December 31, 2008 and $15,000 at December 31, 2007
                
                
                1,356,292
                
                
                
                2,262,396Other
      current assets
                
                
                585,728
                
                
                
                506,197Total
      current assets
                
                
                1,995,319
                
                
                
                2,788,181Property
      and Equipment, at cost
                
                
                2,274,781
                
                
                
                3,898,005Less
      accumulated depreciation
                
                
                (841,260
                )
                
                
                (563,543
                )Net
      property, plant, and equipment
                
                
                1,433,521
                
                
                
                3,334,462Assets
      held for sale
                
                
                475,000
                
                
                
                -Other
      assets
                
                
                545,430
                
                
                
                686,595Total
      Assets
                
                $
                4,449,270
                
                
                $
                6,809,238Liabilities
      and Stockholders’ Equity (Deficit)Current
      Liabilities:Accounts
      payable
                
                $
                1,272,036
                
                
                $
                2,476,282Accrued
      expenses
                
                
                1,600,514
                
                
                
                1,089,133Current
      portion of long term debt
                
                
                16,249,719
                
                
                
                2,230,000Obligations
      to issue equity instruments
                
                
                443
                
                
                
                265,680Accrued
      acquisition liability
                
                
                280,900
                
                
                
                265,000Total
      current liabilities
                
                
                19,403,612
                
                
                
                6,326,095Long
      term debt
                
                
                0
                
                
                
                7,471,592Total  liabilities
                
                
                19,403,612
                
                
                
                13,797,687Redeemable
      common stock, 500,000 shares
                
                
                861,000
                
                
                
                700,000Stockholders’
      Equity (Deficit):Common
      stock - $0.001 par value, 100,000,000 shares authorized, 16,577,189 and
      15,709,683 shares issued and outstanding in 2008 and 2007, respectively,
      including redeemable common stock
                
                
                16,077
                
                
                
                15,210Additional
      paid in capital
                
                
                6,410,706
                
                
                
                5,532,827Accumulated
      deficit
                
                
                (22,242,125
                )
                
                
                (13,236,486
                )Total
      Stockholders’ Equity (Deficit)
                
                
                (15,815,342
                )
                
                
                (7,688,449
                )Total
      Liabilities and Stockholders’ Equity (Deficit)
                
                $
                4,449,270
                
                
                $
                6,809,238





The
accompanying notes are an integral part of the financial
statements.


F-2





Amerex
Group, Inc. and Subsidiaries





Consolidated
Statements of Operations


Years
Ended December 31,





2008
                
                
                2007Operating
      Revenue
                
                $
                5,471,760
                
                
                $
                8,305,496Operating
      Expenses:Cost
      of services provided
                
                
                4,425,108
                
                
                
                5,181,392Selling,
      general and administrative
                
                
                2,670,232
                
                
                
                2,532,992Professional
      fees
                
                
                737,941
                
                
                
                796,376Non
      cash compensation
                
                
                852,931
                
                
                
                1,056,896Depreciation
                
                
                317,399
                
                
                
                359,789Amortization
                
                
                36,165
                
                
                
                36,165Operating
      Loss
                
                
                (3,568,016
                )
                
                
                (1,658,114
                )Other
      Income (Expense):Interest
      expense
                
                
                (1,889,050
                )
                
                
                (1,556,340
                )Amortization
      of debt discount
                
                
                (526,299
                )
                
                
                (1,604,333
                )Amortization
      of capitalized finance fees
                
                
                (425,301
                )
                
                
                (831,487
                )Remeasurement
      of obligations to issue equity instruments
                
                
                265,237
                
                
                
                227,307Financing
      penalty fees
                
                
                (1,954,231
                )
                
                
                (1,220,600
                )Impairment
      of assets held for sale
                
                
                (1,024,250
                )
                
                
                -Other
      income (expense)
                
                
                116,271
                
                
                
                (75,623
                )Loss
      from continuing operations
                
                
                (9,005,639
                )
                
                
                (6,719,190
                )Loss
      from discontinued operations
                
                
                0
                
                
                
                (394,908
                )Net
      loss
                
                $
                (9,005,639
                )
                
                $
                (7,114,098
                )Loss
      per share:Loss
      from continuing operations
                
                $
                (0.60
                )
                
                $
                (0.44
                )Net
      loss
                
                $
                (0.60
                )
                
                $
                (0.46
                )Average
      weighted shares outstanding
                
                
                14,930,706
                
                
                
                16,734,251





The
accompanying notes are an integral part of the financial
statements.


F-3





Shares
                
                
                Common Stock
                
                
                Additional Paid-In Capital
                
                
                Accumulated
                  Deficit
                
                
                TotalsBalance
      at January 1, 2007
                
                
                18,773,594
                
                
                $
                18,774
                
                
                $
                2,740,281
                
                
                $
                (6,122,388
                )
                
                $
                (3,363,333
                )Reclassification
      of warrants from liabilities to equity due to accounting
      change
                
                
                0
                
                
                
                0
                
                
                
                1,479,000
                
                
                
                0
                
                
                
                1,479,000Return
      and cancellation of common stock previously issued
                
                
                (4,805,000
                )
                
                
                (4,805
                )
                
                
                4,805
                
                
                
                0
                
                
                
                0Issuance
      of common stock to lenders
                
                
                561,087
                
                
                
                561
                
                
                
                155,982
                
                
                
                0
                
                
                
                156,543Increase
      in beneficial conversion feature of debt
                
                
                0
                
                
                
                0
                
                
                
                156,543
                
                
                
                0
                
                
                
                156,543Conversion
      of debt to common stock
                
                
                380,000
                
                
                
                380
                
                
                
                189,620
                
                
                
                0
                
                
                
                190,000Stock
      options issued to employees
                
                
                0
                
                
                
                0
                
                
                
                708,709
                
                
                
                0
                
                
                
                708,709Fixed
      obligation to issue shares to consultants
                
                
                0
                
                
                
                0
                
                
                
                192,937
                
                
                
                0
                
                
                
                192,937Stock
      issued to employees
                
                
                300,002
                
                
                
                300
                
                
                
                154,950
                
                
                
                0
                
                
                
                155,250Increase
      in value of redeemable common stock
                
                
                0
                
                
                
                0
                
                
                
                (250,000
                )
                
                
                0
                
                
                
                (250,000
                )Net
      loss
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                (7,114,098
                )
                
                
                (7,114,098
                )Balance
      at December 31, 2007
                
                
                15,209,683
                
                
                $
                15,210
                
                
                $
                5,532,827
                
                
                $
                (13,236,486
                )
                
                $
                (7,688,449
                )Issuance
      of stock previously awarded
                
                
                245,000
                
                
                
                245
                
                
                
                (245
                )
                
                
                0
                
                
                
                0Return
      and cancellation of common stock previously issued
                
                
                (3,000,000
                )
                
                
                (3,000
                )
                
                
                3,000
                
                
                
                0
                
                
                
                0Non
      cash compensation
                
                
                3,556,006
                
                
                
                3,556
                
                
                
                322,808
                
                
                
                0
                
                
                
                326,364Stock
      options issued
                
                
                0
                
                
                
                0
                
                
                
                551,754
                
                
                
                0
                
                
                
                551,754Stock
      issued to employees
                
                
                66,500
                
                
                
                66
                
                
                
                562
                
                
                
                0
                
                
                
                628Net
      loss
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                (9,005,639
                )
                
                
                (9,005,639
                )Balance
      at December 31, 2008
                
                
                16,077,189
                
                
                $
                16,077
                
                
                $
                6,410,706
                
                
                $
                (22,242,125
                )
                
                $
                (15,815,342
                )





The
accompanying notes are an integral part of the financial
statements.


F-4


Amerex
Group, Inc. and Subsidiaries
 
 Consolidated
Statements of Cash Flows
 Years
Ended December 31,
 
 2008
                    
                    
                    2007Cash
      Flows from Operating Activities:Net
      loss
                    
                    $
                    (9,005,639
                    )
                    
                    $
                    (7,114,098
                    )Adjustments
      required to reconcile net loss to cash flows used by operating
      activities:Loss
      from discontinued operations
                    
                    
                    0
                    
                    
                    
                    394,908Share
      based compensation and remeasurement of equity obligations
                    
                    
                    852,931
                    
                    
                    
                    1,056,896Depreciation
      and amortization
                    
                    
                    353,564
                    
                    
                    
                    1,231,189Amortization
      of debt discount and capitalized finance fees
                    
                    
                    951,600
                    
                    
                    
                    1,604,333Gain
      on sale of assets
                    
                    
                    (7,689
                    )
                    
                    
                    97,776Financing
      penalty fee
                    
                    
                    1,954,231
                    
                    
                    
                    0Accrued
      interest added to notes payable
                    
                    
                    963,605
                    
                    
                    
                    0Impairment
      of real estate held for sale
                    
                    
                    1,024,250
                    
                    
                    
                    0Changes
      in Operating Assets and LiabilitiesAccounts
      receivable
                    
                    
                    906,104
                    
                    
                    
                    376,501Other
      current assets
                    
                    
                    (53,716
                    )
                    
                    
                    187,711Other
      assets
                    
                    
                    105,000
                    
                    
                    
                    (2,500
                    )Accounts
      payable
                    
                    
                    (1,204,246
                    )
                    
                    
                    609,195Other
      current liabilities
                    
                    
                    496,695
                    
                    
                    
                    214,449Net
      cash used by operating activities
                    
                    
                    (2,663,310
                    )
                    
                    
                    (1,343,640
                    )Cash
      Flows from Investing Activities:Acquisition
      of property, plant and equipment
                    
                    
                    (13,159
                    )
                    
                    
                    (69,099
                    )Proceeds
      from disposal of property, plant and equipment
                    
                    
                    31,489
                    
                    
                    
                    47,265Restricted
      cash
                    
                    
                    0
                    
                    
                    
                    812,666Net
      cash provided by investing activities – continuing
    operations
                    
                    
                    18,330
                    
                    
                    
                    790,832Net
      cash used by investing activities – discontinued
operations
                    
                    
                    0
                    
                    
                    
                    (30,960
                    )Net
      cash provided by investing activities
                    
                    
                    18,330
                    
                    
                    
                    759,872
  F-5
 
 Cash
      Flows from Financing Activities:Capitalized
      finance fees
                  
                  
                  0
                  
                  
                  
                  (94,901
                  )Proceeds
      from issuances of long term debt and related equity
                  
                  
                  2,678,691
                  
                  
                  
                  865,000Net
      repayments on line of credit
                  
                  
                  0
                  
                  
                  
                  (91,410
                  )Repayments
      of debt
                  
                  
                  0
                  
                  
                  
                  (135,600
                  )Net
      cash provided by financing activities
                  
                  
                  2,678,691
                  
                  
                  
                  543,089Net
      Increase (Decrease) in Cash and Cash Equivalents
                  
                  
                  33,711
                  
                  
                  
                  (40,679
                  )Cash
      and Cash Equivalents, Beginning of Year
                  
                  
                  19,588
                  
                  
                  
                  60,267Cash
      and Cash Equivalents, End of Year
                  
                  $
                  53,299
                  
                  
                  $
                  19,588SUPPLEMENTAL
      CASH FLOW DISCLOSURE INFORMATION:Interest
      Paid
                  
                  $
                  845,104
                  
                  
                  $
                  1,028,371NONCASH
      TRANSACTIONSNote
      payable issued as payment for accrued liabilities
                  
                  $
                  -
                  
                  
                  $
                  2,027,123Conversion
      of debt to common stock
                  
                  $
                  -
                  
                  
                  $
                  190,000Reduction
      of land for adjustment of asset retirement obligation
      liability
                  
                  $
                  73,651
                  
                  
                  $
                  -Capitalized
      finance fees added to long-term debt
                  
                  $
                  425,301
                  
                  
                  $
                  -
 
 The
accompanying notes are an integral part of the financial
statements.
  F-6







AMEREX
GROUP, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007





1.
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Nature of Operations: Amerex
Group, Inc. and Subsidiaries (the “Company”) is involved principally in
providing waste management services to private companies, government agencies
and municipalities located primarily in south central United
States.





Going Concern:The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  The Company incurred a net loss of
$9,005,639 for the year ended December 31, 2008, and further losses are
anticipated.  As of December 31, 2008, the Company had a working
capital deficiency of $17,408,293 and stockholders’ deficit of
$15,815,342.  Furthermore, the Company has experienced cash flow
difficulties, has failed to pay payroll taxes to the IRS and certain states
which could have significant repercussions on the Company, and is in default on
its note agreements, which causes them to become due on demand.  The
Company does not currently have alternative sources of capital sufficient to
meet such demands, if made.  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.





Basis of Presentation:  
The accompanying consolidated financial statements include the accounts of
Amerex and its wholly-owned subsidiary, Waste Express, Inc. (“Waste Express’).
 All significant intercompany transactions and balances have been
eliminated in consolidation, including $1,186,730 and $9,516 of receivables due
to Amerex Companies, Inc. as of December 31, 2008 and 2007,
respectively.





Cash and Cash Equivalents, Including
Restricted Cash:  For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.  Cash equivalents
do not include restricted cash.





The
Company periodically maintains certain cash and restricted cash balances at
financial institutions in excess of federally insured amounts.  At December
31, 2008, such excess amounts were $35,740. There were no such excess amounts at
December 31, 2007.





Accounts Receivable:
 Accounts receivable consists of amounts due from customers for services
provided.  Accounts receivable are uncollateralized obligations due under
normal trade terms requiring payment within 30 days from the invoice date.
 The Company establishes an allowance for doubtful accounts based on its
best estimate of probable losses in the accounts receivable balance.  At
December 31, 2008 the allowance for uncollectible accounts was $70,000. The
allowance for doubtful accounts was $15,000 as of December 31, 2007.  The
Company generally does not charge interest on delinquent accounts unless a
contract specifically indicates otherwise.





The
Company accrues for unbilled receivables pertaining primarily to services
rendered which have not yet been billed.  In these situations all of
the Company’s accounting policies with respect to revenue recognition have been
met at the time of service including the existence of pervasive evidence of an
arrangement, the price is fixed and determinable, collection is reasonably
assured and the services have been provided. As a result the Company has accrued
for this revenue and recorded an unbilled receivable included within accounts
receivable on the balance sheet. The Company bills for these services at the
time all the appropriate information is received from third party contractors.
Unbilled accounts receivable was $202,622 at December 31, 2008 and $561,926 at
December 31, 2007.




F-7




1.
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Property and Equipment:
 Property and equipment are carried at cost and depreciated using the
straight-line method over their estimated useful lives ranging from 5 years for
vehicles, 5 to 8 years for equipment and fixtures, and 10 to 15 years for
buildings.  Gain or loss on disposal of such property and equipment is
reflected in other income.  Maintenance and repairs are charged to expense
as incurred, whereas major improvements are capitalized.





Assets
held for sale are recorded at the lower of cost or estimated fair value less
costs to sell and are not depreciated.





The
Company accounts for any obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs in accordance with
SFAS No. 143, Accounting for
Asset Retirement Obligations.    The Company has
recorded an Asset Retirement Obligation of $325,000 at December 31, 2007, which
is reflected as land and accrued expenses in the accompanying consolidated
balance sheet.  As of December 31, 2008, the Company has fulfilled its
obligation associated with these retirement costs.





Permit Costs:  The cost
of the Company’s environmental permit is being amortized on a straight-line
basis over its estimated useful life of 10 years.





Impairment of Long-Lived
Assets: 
 The Company evaluates its long-lived assets for impairment when events or
changes in circumstances indicate, in management’s judgment, that the carrying
value of such assets may not be recoverable.  The determination of whether
an impairment has occurred is based on management’s estimate of undiscounted
future cash flows attributable to the assets as compared to the carrying value
of the assets.  If an impairment has occurred, the Company determines the
amount of the impairment by estimating the fair value of the assets and
recording a loss for the amount that the carrying value exceeds the estimated
fair value.





Fair Value of Financial
Instruments:During 2008, the Company adopted SFAS No. 157,
“Fair Value Measurements” (“SFAS 157”).  SFAS 157 defines fair value,
establishes a framework for measuring fair value under GAAP and enhances
disclosures about fair value measurements.  Fair value is defined
under SFAS 157 as the price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal market for the asset or
liability in an orderly transaction between market participants on the
measurement date.





Fair
market values are based on the fair value hierarchy.  The standard
describes three levels of inputs that may be used to measure fair value as
provided below.





Level
      1
                
                Quoted
      prices in active markets for identical assets or
    liabilities.Level
      2
                
                Observable
      inputs other that Level 1 prices, such as quoted prices for similar assets
      or liabilities: quoted prices in markets that are not active; or other
      inputs that are observable or can be corroborated by observable market
      data for substantially the full term of the asset or
      liability.Level
      3
                
                Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the asset or
  liability.





Assets
and liabilities measured at fair value on a recurring basis at December 31, 2008
are as follows:





Fair Value MeasurementsLevel 1
                  
                  
                  Level 2
                  
                  
                  Level 3Obligations
      to issue equity instruments
                  
                  $
                  0
                  
                  
                  $
                  443
                  
                  
                  $
                  0





F-8





1.
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Obligations
to issue equity instruments are valued based on the trading price of the shares
of the Company’s common stock.





Assets
and liabilities measured at fair value on a nonrecurring basis at December 31,
2008 are as follows:





Fair Value MeasurementsLevel 1
                      
                      
                      Level 2
                      
                      
                      Level 3Real
      estate held for sale
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      475,000





See
discussion in Note 4 as to how the fair value of real estate held for sale was
determined.





Revenue Recognition:
 Revenue is recognized when persuasive evidence of an arrangement exists,
services are rendered, the price is fixed or determinable and collection is
reasonably assured.





Income Taxes:  Income
taxes are provided for the tax effects of transactions reported in the
consolidated financial statements and consist of taxes currently payable plus
deferred taxes arising from the temporary differences between income for
financial reporting and income tax purposes.





In June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting
for Uncertainty in Income Taxes.” FIN 48 provides detailed guidance for the
financial statement recognition, measurement and disclosure of uncertain tax
positions recognized in an enterprise’s financial statements in accordance with
SFAS No. 109, “Accounting for Income Taxes.”  FIN 48
requires an entity to recognize the financial statement impact of a tax position
when it is more likely than not that the position will be sustained upon
examination.  If the tax position meets the more-likely-than-not
recognition threshold, the tax effect is recognized at the largest amount of the
benefit that is greater than 50% likely of being realized upon ultimate
settlement.  Any difference between the tax position taken in the tax
return and the tax position recognized in the financial statements using the
criteria above results in the recognition of a liability in the financial
statements for the unrecognized benefit.  Similarly, if a tax position
fails to meet the more-likely-than-not recognition threshold, the benefit taken
in the tax return will also result in the recognition of a liability in the
financial statements for the full amount of the unrecognized
benefit.  Interest expense related to tax liabilities is recognized in
the first period that it would begin to accrue according to the relevant tax
law.  The Company recognizes an expense for any applicable penalties
in the period in which the Company claims or expects to claim the position in
the tax return.  The Company creates a liability for uncertain tax
positions it believes to be a potential future obligation.  There were
no liabilities recorded for uncertain tax positions as of December 31, 2008 and
2007.





Advertising
Costs:  The Company expenses the cost of advertising as
incurred.  Advertising expense was approximately $26,000 and $31,000
for the years ended December 31, 2008 and 2007, respectively.





Debt Financing Costs and
Discounts:  Costs associated with the issuance of debt as well as
debt discounts are deferred and amortized over the term of the related debt
instrument using the interest method.




F-9




1.
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Stock-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.





Mr.Onody,
through Onody Associates, assumed the position of Chief Operating Officer in
June 2007 as part of his initial four-month consulting agreement was provided
with option to purchase up to 100,000 shares. Subsequently on September 7, 2007
Mr. Onody was issued another option to purchase up to 250,000
shares.





Use of Estimates:  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those
estimates.





The
determination of the adequacy of the allowance for doubtful accounts is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions.  The determination of accruals
for environmental remediation costs is based on cost estimates to be incurred
that are susceptible to change as more information becomes available.  As a
result, it is reasonably possible that the estimated bad debt and environmental
expenses may change materially in the near future.  However, the amount of
the change that is reasonably possible cannot be estimated.





The
estimated useful life of the permit and determination of whether an impairment
of the permit has occurred is based on management’s estimate of the cash flows
to be derived from the permit, which are based in part on management’s
assessment of the Company’s ability to maintain and renew its permit.
Determination as to whether an impairment of the Company’s other long-lived
assets has occurred is also based largely on management’s estimates of cash
flows and fair values of assets, which are subject to change.  It is
reasonably possible that an impairment of the permit could occur in the near
future.





Exchanges
of goods and services without a readily determinable value for share-based
payments are based on the estimated values of the Company’s common stock which
involves making certain assumptions and subjective judgments.  Stock
options were valued using a Black-Scholes analysis and the assumptions discussed
in the preceding section.





Multiple Element
Transactions:  The Company records transactions involving
multiple elements for cash proceeds by allocating the proceeds among the
elements based on the estimated fair values of the individual
elements.  Such elements are valued using acceptable valuation
methodologies, relying on market-based data where
possible.  Third-party specialists are utilized where considered
necessary to assist the Company in determining the estimated fair values of
individual elements.  The Company occasionally raises funds using a
combination of debt and equity financing, which requires an allocation of
proceeds between the debt and equity components, based on their estimated fair
values.




F-10




1.
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





New Accounting Pronouncements:





In March
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities(“SFAS 161”).  This
statement requires companies to provide enhanced disclosures about (a) how and
why they use derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect a company’s financial position, financial performance, and cash
flows.  SFAS 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15,
2008.  The Company will adopt the new disclosure requirements on or
before the required effective date and thus will provide additional disclosures
in its consolidated financial statements when adopted, to the extent
applicable.





In April
2008, FASB Staff Position No. 142-3, Determination of the Useful Life of
Intangible Assets(“FSP 142-3”) was issued.  This standard
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, Goodwill and Other Intangible
Assets.  FSP 142-3 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years.  Early adoption is prohibited.  The Company
has not determined the impact on its financial statements of the accounting
standard.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations”(“SFAS 141R”). SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation
of the nature and financial effects of the business combination. This statement
is effective for us beginning January 1, 2009.  The adoption of
this statement will only impact our consolidated financial statements to the
extent we enter into business acquisitions in the future.





In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles” (“SFAS 162”). SFAS 162 is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. GAAP. SFAS 162 is effective 60 days
following the Securities and Exchange Commission’s approval of the Public
Company Accounting Oversight Board auditing amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” We do not expect SFAS 162 to have an effect on our consolidated
financial statements.





In
May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) (“FSP APB 14-1”). FSP ABP 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and (conversion
option) components of the instrument in a manner that reflects the issuer’s
non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years
beginning after December 15, 2008 on a retroactive basis and will be
adopted by the Company in the first quarter of fiscal year 2009. We are
currently evaluating the potential impact, if any, of the adoption of FSP APB
14-1 on our consolidated financial statements.




F-11




1.
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





In
June 2008, the FASB issued EITF Issue No. 07-5 (“EITF 07-5”),
“Determining whether an Instrument (or Embedded Feature) is indexed to an
Entity’s Own Stock.” EITF No. 07-5 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. Paragraph 11(a) of SFAS No. 133
specifies that a contract that would otherwise meet the definition of a
derivative but is both (a) indexed to the Company’s own stock and
(b) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial instrument. EITF 07-5
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the SFAS No. 133 paragraph 11(a) scope exception.
We are currently evaluating the potential impact, if any, of the adoption of
EITF 07-5 on our consolidated financial statements.





In
December 2008, FASB Staff Position FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable
Interest Entities were issued.  The FSP amends Statement 140 to
require public entities to provide additional disclosures about transferors’
continuing involvements with transferred financial assets.  It also
amends Interpretation 46(R) to require public enterprises, including sponsors
that have a variable interest in a variable interest entity, to provide
additional disclosures about their involvement with variable interest
entities.  The FSP also requires disclosures by a public enterprise
that is (a) a sponsor of a qualifying special-purpose entity (SPE) that holds a
variable interest in the qualifying SPE but was not the transferor of financial
assets to the qualifying SPE and (b) a servicer of a qualifying SPE that holds a
significant variable interest in the qualifying SPE but was not the transferor
of financial assets to the qualifying SPE.  The SFP and FIN are
effective for annual and interim reporting periods ending after December 15,
2008.  The Company does not expect that this pronouncement will have a
material effect on its consolidated financial statements when
adopted.





Loss per Share:  Loss per
share is presented in accordance with SFAS No. 128 “Earnings Per
Share”.   Weighted average shares outstanding for the years ended
December 31, 2008 and 2007 was 14,930,706 and 16,734,251, respectively, and
reflect the issuance of shares during 2008 and 2007 to employees, consultants
and lenders.




No
outstanding stock obligations or warrants represent dilutive potential common
shares for the years ended 2008 and 2007.  In 2006, the Company committed
to issue 984,000 shares of common stock to a lender (see Note
3).  During 2007, the Company issued options to certain board members,
officers and consultants to purchase 2,041,250 shares of common
stock.  During 2008, the Company issued options to certain board
members, officers, employees and consultants to purchase 1,691,900 shares of
common stock.  These securities were not included in the computation
of diluted earnings per share since to do so would have been anti-dilutive for
the periods presented.





2.
 ACCRUED ACQUISITION LIABILITY





On
September 9, 2005, the Company acquired all of the outstanding stock of Waste
Express, a waste management service company.





The
purchase agreement provided for contingent consideration to be paid to the prior
owner to the extent that quarterly revenues of Waste Express exceed $270,000,
with payments equal to 8% of any such excess up to a maximum amount of $235,000
plus 6% interest. The liability has subsequently increased to $265,000 at
December 31, 2007 and $280,900 at December 31, 2008 due to the accrual of
interest on the obligation.




F-12




3.
 NOTES PAYABLE





Notes
payable consist of the following at December 31:





2008
              
              
              2007Note
      payable to POOF, default judgment against the Company, bearing interest at
      20%, secured by shares pledged by stockholders.
              
              $
              750,000
              
              
              $
              730,000Senior
      Secured Convertible Notes to CAMOFI
              
              
              6,435,095
              
              
              
              6,442,554Note
      payable to CAMOFI
              
              
              8,019,188
              
              
              
              2,027,123-notes
      to CAMOFI bear interest at 12%, interest  payable beginning
      January 2009 with principal payments of $250,000 per month, with final
      balloon payment due November 2010.Line
      of credit to CAMOFI, bearing interest at prime plus 4%, due January 2009
      and collateralized by accounts receivable.
              
              
              1,923,661
              
              
              
              1,186,401Convertible
      note payable
              
              
              25,000
              
              
              
              25,00017,152,944
              
              
              
              10,411,078Unamortized
      debt discount on POOF note payable
              
              
              -
              
              
              
              (112,500
              )Unamortized
      debt discount on CAMOFI notes payable
              
              
              (903,225
              )
              
              
              (596,986
              )





16,249,719
                    
                    
                    
                    9,701,592Less
      current maturities of long-term debt
                    
                    
                    16,249,719
                    
                    
                    
                    2,230,000Long-term
      debt
                    
                    $
                    -
                    
                    
                    $
                    7,471,592




F-13




3.
 NOTES PAYABLE (CONTINUED)





A roll
forward of the total amortized debt discount is as follows:





Balance
      at December 31, 2006
                  
                  $
                  2,035,979Discount
      associated with note payable to POOF, 500,000 common shares
      issued
                  
                  
                  450,000Net
      reduction in discount associated with premium on notes payable to
      CAMOFI
                  
                  
                  (485,246
                  )Discount
      associated with notes payable to CAMOFI, 561,087 common shares
      issued
                  
                  
                  156,543Discount
      associated with notes payable to CAMOFI, beneficial conversion
      interest
                  
                  
                  156,543Amortization
      of debt discount
                  
                  
                  (1,604,333
                  )Balance
      at December 31, 2007
                  
                  
                  709,486Discount
      associated with premium on new borrowings on notes payable
                  
                  
                  426,903Discount
      associated with financing penalty fees added to note
    payable
                  
                  
                  293,135Amortization
      of debt discount
                  
                  
                  (526,299
                  )Balance
      at December 31, 2008
                  
                  $
                  903,225





POOF Note
Payable and Related Redeemable Common Stock





On August
14, 2007, the Company entered into a loan with Professional Offshore Opportunity
Fund, Ltd (“POOF”), for $750,000.  The financing was used to fulfill
vendor and other obligations.  The note was originally structured to
require monthly installments commencing on September 14, 2007, and on the
10th
day of each month thereafter through February 10, 2008.  The loan bore
interest at 5% per annum and was payable in cash or with shares of Company
common stock discounted at 30% from the average bid price for the five days
preceding the installment.  The Company was also obligated to pay a
monthly utilization fee of 10% of the monthly installment.  The
Company did not make the scheduled payments on the POOF loan, and verbally
agreed to monthly extensions of the amount due.





The
Company also issued 500,000 shares of common stock to POOF in connection with
this loan.  The Company has agreed to register the shares for sale or
to repurchase them at specified amounts and times.  If the shares were
not registered by January 15, 2008, the Company was obligated to repurchase the
shares for $700,000.  If the Company did not pay the amounts due, the
Company’s obligation to repurchase shares bore interest at 2% per
month.  In accordance with EITF Topic D-98, since the redemption
feature is not entirely within the Company’s control, the redeemable common
stock is presented as temporary equity at December 31, 2007 and 2008, and has
been recorded at its redemption value at those dates, $861,000 and $700,000 as
of December 31, 2008 and 2007, respectively.





F-14





3.
 NOTES PAYABLE (CONTINUED)





The
$750,000 loan was initially recorded as $300,000 of notes payable (net of debt
discount) and $450,000 as redeemable common stock, based on the estimated fair
values of the note and common stock.  The redeemable common stock has
been adjusted to its expected redemption value plus accrued
interest.





The POOF
note payable is secured by shares of the Company’s common stock pledged by Ron
Brewer and Richard Coody, former officers and directors of the
Company.  Each pledged 1,450,000 shares of stock.  POOF can
exercise its rights by selling the shares to apply against the Company’s
obligations to POOF.  POOF also has the right to sell the shares
directly in the absence of a default.  The pledge is without recourse
to the Company.  The Company has agreed to pay Mr. Coody and Mr.
Brewer amounts equal to 22% of the proceeds of any of their shares of common
stock sold by POOF under the pledge.  The funds would be retained in
escrow and paid in 2009.





The
Company was notified by POOF in a letter dated May 30, 2008 that the Company was
in default of its loan agreement.  Also, in a letter dated June 20,
2008, POOF demanded the repurchase of the 500,000 shares issued to POOF for
$700,000.  On August 26, 2008, POOF obtained a default judgment
against the Company in the amount of $1,577,231 for the note payable and
redeemable common stock.  Interest will accrue on the judgment at the
rate of 20% per annum.





CAMOFI
Notes Payable





-Senior
Secured Convertible Notes





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 original agreement provided 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
premium increases the effective interest paid on the amounts borrowed.  The
Convertible Notes are stated at the amount due with the 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.





F-15





3.
 NOTES PAYABLE (CONTINUED)





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 through December 31, 2006. 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.





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.  The Company recorded the estimated fair value of
these shares of $1,971,987 as a liability and nonoperating expense as of
December 31, 2006.   This obligation was adjusted to its estimated fair
value of $265,680 as of December 31, 2007 and $443 as of December 31, 2008.
 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. Additional liquidated
damages continued to accrue through December 31, 2007, which were settled as
discussed below.





On
February 23, 2006, the 10% Senior Secured Convertible Notes Agreement was
amended and restated.  In connection therewith, the aggregate outstanding
principal balance of the Notes increased by $800,000 to $6,800,000 and
additional five-year warrants for the purchase of 266,667 shares of common stock
were issued.  The warrants were valued at $130,778 and the intrinsic value
of the Notes’ beneficial conversion feature was $130,778.  The percentages
and timing of premiums on principal repayment as originally stated were not
changed.  The Company’s amortization of debt discounts was adjusted
accordingly.





On
December 19, 2007, the Company executed an agreement with CAMOFI to modify the
terms of all of the notes payable to CAMOFI.  The agreement specifies,
among other things, that a new note payable in the amount of $2,027,123 would be
issued to CAMOFI for registration rights penalties and accrued
interest.  The agreement required monthly payment of interest of 10%
cash beginning April 1, 2008 and 2% increase in notes
payable.  Principal payments of $250,000 were to begin August 1, 2008,
with the remaining balance due November 10, 2010, a new note was issued in the
amount of $2,027,123 with the same terms as the existing Note, to settle
liquidated damages and other penalties associated with the original
note.  The agreement also provided for the issuance of 561,087 shares
of common stock to CAMOFI.  The issuance of the stock has been
recorded at its estimated fair value of $156,543 at December 19, 2007, and
resulted in a beneficial conversion feature with an intrinsic value of $156,543,
which was recorded consistent with the preceding discussion.  The
agreement also extended the exercise period for the warrants for an additional
five years, and required the Company to raise additional equity by March 31,
2008.  The Company agreed to pay CAMOFI all of the proceeds from the
sale of the Pryor, Oklahoma and Leigh, Texas properties, including the proceeds
from the release of the escrowed funds of $300,000 securing the closure of
injection wells in Pryor, Oklahoma.  The Company was unable to make
the scheduled principal and interest payments required by this
agreement.




F-16




3.
 NOTES PAYABLE (CONTINUED)





On June
9, 2008, the Company entered into an agreement with CAMOFI to defer principal
and interest payments on the CAMOFI Notes Payable to September 1, 2008 and
increase the $2,027,123 note discussed above to $5,141,648.  The
increase in the note payable included $541,294 of accrued interest and
$1,954,231 of financing penalty fees.  The Company agreed to pay
CAMOFI all of the proceeds from the sale of the Kaiser facility, proceeds from
Harrison County Texas real estate, and monies held in escrow for well closures
at the Kaiser facility ($300,000).  Agents for the sale of property
were agreed to be obtained by July 31, 2008 and contracts for sale were agreed
to be obtained by September 1, 2008.  The Company also agreed to raise
$2,500,000 in additional equity by September 1, 2008.





In
September 2008, the Company entered into agreements with CAMOFI to defer the
principal and interest payments to January 1, 2009, extended the date to retain
agents for the sale of the Company’s real property to September 1, 2008 and
obtain a contract for sale by January 1, 2009, extended the date for sale of
equity of at least $2,500,000 to January 1, 2009, require monthly EBITDA
(earnings before income tax, depreciation and amortization) of at least $400,000
and require annual EBITDA of at least $2,500,000 for 2008 and
2009.  As of December 31, 2008, and subsequent to that date, the
Company is in noncompliance with the note agreements with CAMOFI.





The
Company engaged Glenwood Capital to assist in the cash management of the
Company.  Until such time that the borrowing base becomes sufficient
to permit additional borrowing under the Line of Credit, we will be periodically
requesting additional funds from CAMOFI to satisfy ongoing working capital
requirements that are essential to the Company continuing as a going
concern.  CAMOFI has provided funding to the Company from June 2008
through December 2008 totaling approximately $1,739,000.  This
additional funding has been in the form of additional notes payable to
CAMOFI.  CAMOFI is not required to provide the Company with additional
funding in the future.





Line of
Credit to CAMOFI





On August
31, 2006, the Company entered into an agreement with CAMOFI Master LDC for a
line of credit secured by the Company’s accounts receivable.  The maximum
borrowing on the line of credit is the lesser of $1,500,000 or 80% of total
accounts receivable outstanding less than 90 days.  The line of credit
bears interest at prime plus 4%.





In
connection with the line of credit, the Company issued 750,000 warrants to
purchase registered shares of the Company’s common stock, exercisable for 5
years at a price of $0.01 per share which was recorded as debt discount and
obligations to issue equity instruments.  The credit facility
agreement contains debt covenants similar to those contained in the Senior
Secured Convertible Notes Agreement.  An agreement was executed with
CAMOFI in December 2007 that extended the maturity date of the line of credit to
November 10, 2010.  The Company defaulted on its debt covenants with
CAMOFI and entered into an agreement dated June 9, 2008, pursuant to which
CAMOFI agreed not to take action with regard to such defaults or enforce its
security interests prior to September 2008, and which extended the line of
credit to September 1, 2008 and increased the maximum borrowing amount to
$1,925,301.  The Company subsequently entered into an agreement to
extend the maturity date of the line of credit to January 1,
2009.  The Company is in default and in noncompliance with the CAMOFI
line of credit agreement.





The
scheduled maturities of notes payable at December 31, 2008 are as
follows:





Year
      ended December 31,
                        
                        Amount2009
                        
                        $
                        5,698,6612010
                        
                        
                        11,454,283Total
                        
                        $
                        17,152,944




F-17




4.
 Property and Equipment, including Assets Held for Sale





Components
of property and equipment consist of:





December
      31,
                            2008
                          
                          
                          December
      31,
                            2007Land
                          
                          $
                          195,255
                          
                          
                          $
                          1,071,765Buildings
                          
                          
                          189,283
                          
                          
                          
                          513,045Equipment
                          
                          
                          914,578
                          
                          
                          
                          1,008,561Vehicles
                          
                          
                          920,491
                          
                          
                          
                          960,448Office
      furniture and equipment
                          
                          
                          55,174
                          
                          
                          
                          53,514Assets
      not in service
                          
                          
                          -
                          
                          
                          
                          356,5112,274,781
                          
                          
                          
                          3,963,844Accumulated
      Depreciation
                          
                          
                          (841,260
                          )
                          
                          
                          (629,382
                          )Net
      Property and Equipment
                          
                          $
                          1,433,521
                          
                          
                          $
                          3,334,462





The
Company owns approximately 155 acres located near Pryor, Oklahoma and 25 acres
near Leigh, Texas which is considered held for sale as of December 31,
2008.  The Company purchased the properties for possible future
expansion, and has now abandoned those plans.  The properties are
expected to be sold to third parties within the next year.  The
property includes land, buildings and related equipment with a net book value of
$1,608,383 at December 31, 2007.  At December 31, 2008, the Company
has determined that the realizable value of this property was approximately
$475,000, and has taken an impairment charge of $1,024,250 in the accompanying
2008 consolidated statement of operations.  The Company has based its
estimate of fair value based on the value of comparable acreages
nearby.  The Company estimates that the expected net sales price of
the properties will be $475,000.





F-18





5.
 OTHER ASSETS





Other
current assets consist of the following at December 31:





2008
                    
                    
                    2007Prepaid
      expenses
                    
                    $
                    334,612
                    
                    
                    $
                    264,533Certificate
      of deposit maturing February 6, 2009, required by Missouri Department of
      Environmental Quality
                    
                    
                    251,116
                    
                    
                    
                    241,664Total
      other current assets
                    
                    $
                    585,728
                    
                    
                    $
                    506,197
  Other
long-term assets consist of the following:
  2008
                  
                  
                  2007Permit,
      net of accumulated amortization of $116,215 and $80,051
      respectively
                  
                  $
                  245,430
                  
                  
                  $
                  281,595Deposit
      held in escrow account as required by state in connection with certain
      environmental obligations
                  
                  
                  300,000
                  
                  
                  
                  400,000Other
                  
                  
                  0
                  
                  
                  
                  5,000Total
      other assets
                  
                  $
                  545,430
                  
                  
                  $
                  686,595





Permit
represents an intangible asset for the unamortized cost of environmental permits
held by the Company.  This permit is amortized over an estimated life of 10
years.  The permit is currently in the process of being renewed for a 10
year period.  Amortization expense was $36,165 for each of the years ended
December 31, 2008 and 2007.





The above
certificate of deposit and a corresponding letter of credit are required by the
Missouri Department of Environmental Quality to ensure that any environmental
contamination that may occur on the Company’s Waste Express property will be
remediated.





6.  NON
CASH COMPENSATION – STOCK OPTIONS





On
November 13, 2007, the Board of Directors approved the 2007 Incentive Stock Plan
(the “Plan”), which provided for the issuance of stock options, stock
appreciation rights, restricted stock, performance shares and performance units
to key employees, directors and consultants.  A Committee of the Board
of Directors was established to administer the Plan.  The maximum
number of shares that may be issued under the Plan is 3,000,000 shares, and
200,000 shares per year to each participant.  For Incentive Stock
Options (“ISO”), the exercise price is based on the fair market value of the
common stock at the date the options are granted.




F-19




6.
 NON CASH COMPENSATION – STOCK OPTIONS (CONTINUED)




During
2007, the Company granted options under the Plan to purchase 1,691,250 shares of
common stock at an exercise price of $0.75 to $0.76 per share.  The
options granted vested in one year and expire in November 2013.




In 2007,
the Company also granted options to the Company’s chief operating officer to
purchase 100,000 and 250,000 shares of common stock at an exercise price of $.50
and $1.50, respectively.  The options vested immediately and expire 10
years from the date granted.  These options were recorded at their
estimated fair value of $315,000, and expensed in 2007.




During
2008, the Company granted options under the Plan to purchase 1,691,900 shares of
common stock at an exercise price of $0.50 per share.  The options
granted vested immediately and expire February 2013.




During
2008, options to purchase 311,875 shares of common stock were
forfeited.  There were no options which expired or were exercised
during 2008.




The
Company has adopted the fair value recognition provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 123R, “Share Based Payment”, which
requires the expensing of the fair value of stock-based compensation
awards.  As permitted by SFAS 123R, the expense related to the options
granted in 2007 has been allocated over the vesting period.  The
option expense has been reflected in Non Cash Compensation Expense in the
accompanying Consolidated Statement of Operations.  As of December 31,
2008, there was no unrecognized compensation cost related to nonvested stock
options under the Plan.





The
weighted-average fair values at date of grant for all stock options granted
during 2008 was $0.21, and was estimated using the Black-Scholes option pricing
model with the following weighted-average assumptions:





Expected
      volatility
                  
                  
                  71
                  %Expected
      life in years
                  
                  
                  5Dividend
      yield
                  
                  
                  0
                  %Risk
      free interest rate
                  
                  
                  3
                  %





The
weighted-average fair values at date of grant for all stock options granted
during 2007 was $0.47, and was estimated using the Black-Scholes option pricing
model with the following weighted-average assumptions:





Expected
      volatility
                  
                  
                  57
                  %Expected
      life in years
                  
                  
                  5Dividend
      yield
                  
                  
                  0
                  %Risk
      free interest rate
                  
                  2.38 to 4.92
                  %





The
Company uses the Black-Scholes valuation model to value stock
options.  Historical stock prices were used as the basis for the
volatility assumption.  The assumed risk-free rate was based on US
Treasury rates in effect at the time of the grant.  The expected
option life represents the period of time that the options granted are expected
to be outstanding, with consideration given to the simplified method noted in
SEC Staff Accounting Bulletin No. 107.




F-20




6.
 NON CASH COMPENSATION – STOCK OPTIONS (CONTINUED)




The
Company has accounted for the stock options granted in 2007 by amortizing the
expense over the vesting period of the options.  In 2007, $708,709 has
been reflected as Non Cash Compensation Expense in the accompanying consolidated
statement of operations.  The remaining amount of $249,922 was
expensed in 2008.  All of the options that were granted during 2007
were outstanding at December 31, 2007.  No options had been forfeited,
expired or exercised during 2007.




The
Company has recognized $551,754 of options expense during 2008, which is
included in non cash compensation expense in the accompanying consolidated
statement of operations.




The
following table summarizes the options outstanding at December 31,
2008:




Exercise
      Price
                        
                        Number of Shares
                          Outstanding
                        
                        
                        Weighted-Average
                          Remaining
                          Contractual Life in
                          Years
                        
                        
                        Weighted-Average
                          Exercise PriceVested
      options:$.50
      - $1.50
                        
                        
                        3,421,275
                        
                        
                        
                        5.7
                        
                        
                        $
                        0.68





7.
 COMMITMENTS AND CONTINGENCIES





The
Company leases its Tulsa, Oklahoma offices and facility under a lease expiring
in May 2011 for $6,750 per month.  The offices and facility in
Portland, Oregon are leased on a month to month basis for approximately $3,000
per month.  The obligations for future minimum lease payments are
$81,000 for 2009, $81,000 for 2010, and $33,750 for 2011.





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.





Legal
costs associated with loss contingencies are expensed as incurred.





On
September 2, 2008, a default judgment was granted to Clean Harbors Environmental
Services, Inc. against the Company in the amount of $119,394, plus interest at
12% per annum and court costs for nonpayment of certain invoices.  On
February 20, 2009, the Company entered into a settlement agreement with Clean
Harbors whereby the Company agreed to make weekly payments to Clean
Harbors.





As
discussed in Note 9, the Company accrued but failed to pay payroll taxes for
certain quarters in 2007 and 2008.  If the Company is unable to enter
into a satisfactory arrangement with the Internal Revenue Service with regard to
the Company’s failure to pay payroll taxes for the period August 17, 2007
through December 31, 2007 and some payments for the period January 1, 2008
through April 30, 2008, the Internal Revenue Service may seize all of the assets
of the Company.  The Company has been notified that the IRS intended
to place a lien on the Company’s assets.  The Company has also
received a notice from the IRS dated August 4, 2008, of an intent to levy its
bank accounts for the non-payment of payroll taxes, penalties and interest
totaling $440,698 for certain quarters in 2007 and 2008.





F-21





7.
 COMMITMENTS AND CONTINGENCIES (CONTINUED)





The
imposition of a lien against the Company’s assets and a levy on its bank
accounts may cause a default under the Company’s indebtedness, which could
permit the Company’s lenders to demand immediate repayment.  The
Company does not have sufficient funds and may not be able to obtain sufficient
funds to repay all of its current indebtedness.  If the lenders demand
immediate repayment and the Company is unable to repay the indebtedness, the
lenders may enforce their lien against the assets and acquire ownership of the
assets.  If the IRS and various state taxing agencies enforces the
liens, it may acquire ownership of the assets.  In either case, the
enforcement of a lien could have a material adverse affect on the Company’s
business and may cause it to cease operations.  The Company also has
failed to pay payroll taxes due to several states for 2006, 2007 and
2008.





The State
of Missouri has placed a lien on the Company’s assets for unpaid payroll taxes,
penalties and interest of $42,381.  The Company has established a
payment plan with the State of Missouri.





The State
of Oregon has issued a warrant (court judgment) dated July 18,
2008.  The letter states that unless the past due payroll taxes,
interest and penalties due of approximately $22,000 are paid, the State of
Oregon will place a lien on the assets of the Company and commence seizure of
those assets.  The Company has established a payment plan with the
State of Oregon.





Amerex
has established a payment plan with the Oklahoma Tax Commission to stay the
immediate injunction against Amerex.  If Amerex fails to comply with
the terms of the payment plan, Amerex will be enjoined from further operations
in the State of Oklahoma.





The State
of Connecticut has issued a delinquency notice on February 9, 2009 for failure
to file withholding tax returns for certain quarters in 2006, 2007 and
2008.





Waste
Express, Inc. was administratively dissolved in August 2008 by the State of
Missouri for not filing an annual reporting form.  The Company has
filed the necessary paperwork in March 2009, and has been reinstated by the
State of Missouri.





The
Company was notified by POOF in a letter dated May 30, 2008 that the Company was
in default of its loan agreement.  Also, in a letter dated June 20,
2008, POOF demanded the repurchase of the 500,000 shares issued to POOF for
$700,000.  On August 26, 2008, POOF obtained a default judgment
against the Company in the amount of $1,577,231 for the note payable and
redeemable common stock.  Interest will accrue on the judgment amount
at the rate of 20% per annum.





A former
employee has filed a discrimination claim against the
Company.  Management believes that the plaintiff’s case is without
merit and will pursue a vigorous defense.





8.
 FAIR VALUE OF FINANCIAL INSTRUMENTS





For
certain of the Company’s financial instruments, including cash and cash
equivalents, restricted cash, accounts receivable, accounts payable and other
accrued liabilities, the carrying amounts approximate fair market value due
primarily to their short maturities.





The
following table shows the fair value and carrying amount of debt at December 31,
2007.





F-22





8.
 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)





2007Fair
      Value
                
                
                Carrying
      AmountPOOF
      note payable
                
                $
                292,000
                
                
                $
                617,500Notes
      payable to CAMOFI
                
                
                8,472,691
                
                
                
                8,472,691Line
      of credit to CAMOFI
                
                
                1,186,401
                
                
                
                1,186,401Convertible
      note payable
                
                
                25,000
                
                
                
                25,000





At
December 31, 2007, the estimated fair values of the notes and line of credit to
CAMOFI approximated their carrying amounts.  The estimated fair value
of the POOF debt for 2007 was based on an independent appraisal.




The fair
values of the Company’s debt instruments were estimated by the Company.  
Fair values of the CAMOFI Senior Secured Convertible Notes, notes payable and
line of credit were estimated considering that the debt was issued or amended
relatively recently (i.e. within two weeks to two months of the applicable
balance sheet date), and the absence of significant changes in interest rates or
the Company’s credit risk during that time.  Fair values of the other
notes payable were estimated to be its face value based on the terms of the
agreement and its recent issuance. The estimated fair values may not be
representative of actual values of the financial instruments that could have
been realized at year-end or may be realized in the future.





It was
not practicable to estimate the fair value of the Company’s debt due to POOF and
CAMOFI at December 31, 2008 due to the default or noncompliance on the debt,
uncertainty as to the ability to pay because of deficit working capital and lack
of cash generated from operations, and lack of quoted market
prices.  The estimated fair value of the Company’s debt is believed to
be significantly below its carrying amount due to the credit risk
issues.  Below is a summary of pertinent information regarding the
notes payable to POOF and CAMOFI at December 31, 2008.





Carrying Amount
                        
                        
                        Interest Rate
                        
                        MaturityPOOF
      note payable
                        
                        $
                        750,000
                        
                        
                        
                        20
                        %
                        Default judgmentNotes
      payable to CAMOFI
                        
                        
                        14,454,283
                        
                        
                        
                        12
                        %
                        November 10, 2010Line
      of credit to CAMOFI
                        
                        
                        1,923,661
                        
                        
                        
                        7.25
                        %
                        January 1, 2009Convertible
      note payable
                        
                        
                        25,000
                        
                        
                        
                        8
                        %
                        May 7, 2009





9.
 OTHER LIABILITIES





The
Company failed to pay certain payroll taxes to the Internal Revenue Service
during 2007 and 2008 and various states for 2006, 2007 and 2008.  The
payroll taxes due at December 31, 2007 were approximately $475,000 and estimated
penalties and interest were approximately $130,000.  At December 31,
2008, payroll taxes due were approximately $630,000 and estimated penalties and
interest were approximately $193,000.  These amounts have been
included in accrued expenses in the accompanying consolidated balance
sheets.





At
December 31, 2007, the Company recorded an Asset Retirement Obligation of
$325,000, which was recorded as land and accrued expenses in the accompanying
consolidated financial statements.  The Asset Retirement Obligation
was associated with the closure of two injection wells at the Pryor, Oklahoma
property.  The following is a summary of the activity for the Asset
Retirement Obligation liability:




F-23




9.
 OTHER LIABILITIES (CONTINUED)





Balance
      December 31, 2007
                  
                  $
                  325,000Expenditures
      related to the Asset Retirement Obligation
                  
                  
                  (251,349
                  )Reclassification
      of remaining balance to land
                  
                  
                  (73,651
                  )Balance
      December 31, 2008
                  
                  $
                  -





10.
   STOCKHOLDERS’ EQUITY





During
2008, the Company issued 66,500 shares to its employees, which was recorded at
the estimated fair value of $628.  The Company also issued common
stock in settlement of litigation of 300,000 shares, which was recorded at the
estimated fair value of $2,295.  The Company issued common stock for
payment of attorney fees of 1,043,506 shares and consulting of 2,212,500 shares,
which were recorded at their estimated fair value of $35,000 and $426,769,
respectively.





During
2007, the Company agreed to issue 245,000 shares of common stock to nonemployees
in exchange for consulting services rendered, which has been recorded at their
estimated fair value of $192,937.  During 2007, the Company issued
300,000 shares of common stock to employees for discretionary bonuses, which
were recorded at their estimated fair value of $155,250.  These
amounts are reported as non cash compensation in the accompanying consolidated
statement of operations.





11.
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.  In the Company’s previous annual and
interim consolidated financial statements, Waste Express, Inc. and Amerex were
presented as operating segments.  After further analysis by the
Company, it was determined that Waste Express and Amerex are no longer separate
reportable segments and that the consolidated financial statements are the ones
evaluated by the chief operating decision maker.




F-24




12.
 INCOME TAXES





The
Company had no income tax expense for the years ended December 31, 2008 and
2007.





Significant
components of the net deferred tax asset are as follows:





December
      31,
                              2008
                            
                            
                            December
      31,
                              2007Deferred
      tax assets:Estimated
      net operating loss carryforwards
                            
                            $
                            6,370,077
                            
                            
                            $
                            3,442,103Allowance
      for bad debts
                            
                            
                            26,600
                            
                            
                            
                            5,700Property
      and equipment
                            
                            
                            461,283
                            
                            
                            
                            127,618Start-up
      costs deferred for tax purposes
                            
                            
                            22,905
                            
                            
                            
                            24,869Gross
      deferred tax assets
                            
                            
                            6,880,865
                            
                            
                            
                            3,600,290Valuation
      allowance
                            
                            
                            (6,854,303
                            )
                            
                            
                            (3,569,743
                            )26,562
                            
                            
                            
                            30,547Deferred
      tax liabilities -Property
      and equipment
                            
                            
                            0
                            
                            
                            
                            0Intangible
      assets
                            
                            
                            (26,562
                            )
                            
                            
                            (30,547
                            )Gross
      deferred tax liabilities
                            
                            
                            (26,562
                            )
                            
                            
                            (30,547
                            )Net
      deferred tax asset
                            
                            $
                            -
                            
                            
                            $
                            -





The
valuation allowance serves to reduce net deferred tax assets to an amount that
will more likely than not be realized.





Estimated
net operating losses generated in 2005, 2006, 2007 and 2008 totalling
approximately $16,800,000 will expire in 2025, 2026, 2027 and 2028.





A
reconciliation of income taxes at the federal statutory rate to income tax
expense for the years ended December 31, 2008 and 2007 is as
follows:





2008
                  
                  
                  2007Income
      tax benefit at statutory rate
                  
                  $
                  3,151,974
                  
                  
                  $
                  2,418,793Debt
      discount amortization and
                    remeasurement
      of equity obligations
                  
                  
                  (214,109
                  )
                  
                  
                  (626,341
                  )Penalties
                  
                  
                  (14,115
                  )
                  
                  
                  (48,943
                  )Meals
      and entertainment
                  
                  
                  (9,825
                  )
                  
                  
                  (8,979
                  )State
      income taxes
                  
                  
                  351,220
                  
                  
                  
                  281,718Other
                  
                  
                  19,414
                  
                  
                  
                  (29,990
                  )Increase
      in valuation allowance
                  
                  
                  (3,284,559
                  )
                  
                  
                  (1,986,258
                  )$
                  -
                  
                  
                  $
                  -





F-25





13.
 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 years ended December 31, 2008 and 2007, the Company had revenue
from two and three customers comprising approximately 60% and 71% of total
revenues, respectively, as summarized in the following tables:





2008Customer
      A
                  
                  $
                  0Customer
      B
                  
                  
                  2,190,331Customer
      C
                  
                  
                  1,113,729





2007Customer
      A
                  
                  $
                  2,809,499Customer
      B
                  
                  
                  2,162,346Customer
      C
                  
                  
                  932,650





At
December 31, 2008 and December 31, 2007, accounts receivable from these
customers comprised approximately 45% and 61% of total accounts receivable,
respectively.




14.
 RELATED PARTY TRANSACTIONS





During
the year ended December 31, 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 year ended December 31, 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 was $5,000.
One of the Company’s directors is an owner of Tulsa Equipment Sales Inc. During
the year ended December 31, 2007, the Company incurred expenses of $15,000 under
this lease. This lease was terminated in March 2007.





During
2007, the Company agreed to issue 20,000 shares of common stock to a former
director of the Company for consulting services rendered for a total value of
$15,750.





In 2007,
the Company entered agreements with Mr. Richard Coody, a former director, and
Mr. Ron Brewer, a former director and officer, in which Mr. Coody and Mr. Brewer
agreed to return 4,805,000 shares and 3,000,000 shares, respectively, of the
Company’s stock which they owned to the Company in exchange for indemnification
against any claims that may be brought against them in their prior roles with
the Company.  Mr. Coody’s 4,805,000 shares were returned and retired
in 2007, while Mr. Brewer’s shares were returned and canceled in February
2008.  Considering the nature of the transactions involving a
nonreciprocal transfer of nonmonetary assets to owners, the Company determined
that no income recognition was appropriate and to record the transfers based on
the book value of the indemnification given, which resulted in no net entry
apart from retirement of the stock against paid-in capital.




F-26




14.
 RELATED PARTY TRANSACTIONS (CONTINUED)





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 3). 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 POOF under the pledge.  The funds will
be retained in an escrow account and disbursed during 2009.





15.
 SIGNIFICANT ASSET ACQUISITIONS AND DISCONTINUED OPERATIONS





On
February 1, 2006, the Company acquired real property and certain fixed assets
located in Pryor, Oklahoma from Kaiser Aluminum and Chemical Company for
$700,000 plus related costs of $12,070.  The property acquired contained
asbestos, which the Company initially estimated the cost to remove at $875,000,
which was recorded as an environmental remediation liability.  The total
cost to remediate the asbestos was estimated to be $923,000 at December 31,
2006.  As part of the asset purchase agreement, the Company assumed
all obligations to remove the asbestos within 18 months, and was required to
provide an $800,000 letter of credit to the seller.   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.  Since these assets were considered as a separate asset
group to be disposed, they were classified as a discontinued operation. The
Company sold all of these assets held for sale by the end of 2007. Net loss from
the disposal of these assets during 2007 are included in the caption “loss from
discontinued operations”.  Loss from discontinued operations in 2007
was $394,908 or $0.02 per share.  As discussed in Note 4, the Company
is currently trying to sell the Pryor real estate and remaining assets, and
impaired these assets during 2008.





F-27