-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VB5MueewQjT6GYDR6h5ubgpjQlf+o/MS0YAIbscM8+BFbEHBYf7FMOfB+XKwh6fz 8ojd/8Tlo6CaETv4DG7PXg== 0001000096-96-000224.txt : 19960820 0001000096-96-000224.hdr.sgml : 19960820 ACCESSION NUMBER: 0001000096-96-000224 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960819 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KLS ENVIRO RESOURCES INC CENTRAL INDEX KEY: 0000894988 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS METAL ORES [1090] IRS NUMBER: 752460365 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24152 FILM NUMBER: 96617793 BUSINESS ADDRESS: STREET 1: 3220 NORTH FREEWAY STREET 2: SUITE 105 CITY: FORT WORTH STATE: TX ZIP: 76111 BUSINESS PHONE: 8176244844 FORMER COMPANY: FORMER CONFORMED NAME: KLS GOLD MINING CO DATE OF NAME CHANGE: 19930506 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 0-21998 K.L.S. ENVIRO RESOURCES, INC. ---------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 75-2460365 ----------------------------- ---------------------------------- State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3220 North Freeway, Fort Worth, Texas 76111 ---------------------------------------- --------- (Address of principal executive offices) (Zip Code) (817) 624-4844 --------------------------------------------- (Issuer's telephone number, including area code) N/A -------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Applicable only to corporate issuers: As of July 31, 1996, the Registrant had outstanding 9,812,656 shares of its common stock, par value $.0001. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. K.L.S. ENVIRO RESOURCES, INC. INDEX TO FINANCIAL INFORMATION June 30, 1996 Page No. -------- Consolidated Balance Sheets as of June 30, 1996 (unaudited) and September 30, 1995 (audited) 3 Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended June 30, 1996 and 1995 4 Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended June 30, 1996 and 1995 5 Notes To Consolidated Financial Statements 6 Management's Discussion And Analysis Of Financial Condition And Results Of Operations 8 2 K.L.S. Enviro Resources, Inc. and Subsidiaries Consolidated Balance Sheets June 30, 1996 (unaudited) and September 30, 1995 (audited) ASSETS 1996 1995 ---- ---- Current assets: Cash and cash equivalents $ 283,398 $ 174,479 Investment securities - 258,750 Accounts receivable: Trade, net of allowance for doubtful accounts of $123,402 in 1996 and 1995 700,091 528,768 Other - 15,524 Inventory 415,817 708,872 Prepaid expenses 92,102 5,655 ---------- ---------- Total current assets 1,491,408 1,692,048 Property, plant and equipment, net 2,053,664 665,128 ---------- ---------- Other assets: Other assets: Other receivables 348,750 - Intangible assets, net of accumulated amortization 51,653 80,670 Deposits and other 25,921 22,101 ---------- ---------- Total other assets 426,324 102,771 ---------- ---------- Total assets $3,971,396 $3,459,947 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable: Banks and other $ 710,000 $ 302,329 Shareholders 667,251 690,746 Current maturities of long-term debt 145,092 150,314 Accounts payable 448,859 674,301 Accrued expenses and other current liabilities 375,050 297,682 Deferred revenue - 29,616 ---------- ---------- Total current liabilities 2,346,252 2,144,988 Long-term debt 369,049 455,644 ---------- ---------- Total liabilities 2,715,301 2,600,632 ---------- ---------- Shareholders' equity: Cumulative convertible preferred stock, Series A and B,$.0001 par value; 1,000,000 shares authorized; 167,500 issued and outstanding, respectively; $5.00 stated value 17 17 Common stock, $.0001 par value; 50,000,000 shares authorized; 9,348,275 and 8,947,494 issued and outstanding, respectively 935 894 Additional paid-in capital 4,502,149 4,417,724 Accumulated deficit (3,204,293) (3,545,782) Unrealized gain on securities - 29,175 Foreign currency translation adjustments (4,213) (4,213) ---------- ---------- 1,294,595 897,815 Treasury stock-shares held in treasury, at cost (38,500 in 1996 and 1995, respectively) (38,500) (38,500) ---------- ---------- Total shareholders' equity 1,256,095 859,315 ---------- ---------- Total liabilities and shareholders' equity $3,971,396 $3,459,947 ========== ========== The accompanying notes are an integral part of these consolidated financial statements 3
K.L.S. Enviro Resources, Inc. and Subsidiaries Consolidated Statements of Operations for the Three and Nine Months ended June 30, 1996 and 1995 (Unaudited) Three Months Ended Nine Months Ended 6/30/96 6/30/95 6/30/96 6/30/95 ------- ------- ------- ------- Drilling and repair service revenues $1,313,034 $ 785,687 $3,018,511 $2,066,320 Cost of drilling and repair services 682,381 543,027 1,687,808 1,132,158 ---------- --------- ---------- ---------- Gross profit 630,653 242,660 1,330,703 934,162 ---------- --------- ---------- ---------- Selling, general and administrative expenses: Salaries, wages and related costs 208,265 68,072 459,991 272,978 Legal and professional fees 63,240 106,830 186,484 321,692 Rents 11,522 23,670 46,665 73,008 Repairs and maintenance 3,507 (5,492) 20,848 57,357 Taxes, licenses and permits 20,258 12,565 46,275 19,603 Advertising 1,444 2,301 7,635 12,362 Travel and lodging 8,489 55,380 70,229 123,282 Consulting 44,412 43,517 69,912 141,205 Exploration costs 4,733 38,638 (10,715) 303,201 Other operating expenses 52,595 57,413 192,248 223,457 Depreciation and amortization 98,009 78,353 237,552 229,755 ---------- --------- ---------- ---------- Total selling, general and administrative expenses 516,474 481,247 1,327,124 1,777,900 ---------- --------- ---------- ---------- Income (loss) from operations 114,179 (238,587) 3,579 (843,738) Other income (expenses): Interest expense (44,643) (26,578) (112,933) (76,327) Interest and other income 3,747 12,216 9,056 33,542 Gain on sale of marketable securities - 37,252 99,289 200,183 Gain on sale of assets 3,792 9,100 25,158 9,100 (Loss) gain from foreign currency translation (3,530) 43,296 9,603 62,907 ---------- --------- ---------- ---------- Income (loss) before income taxes 73,545 (163,301) 33,752 (614,333) Income taxes - - - - Income (loss) from continuing operations 73,545 (163,301) 33,752 (614,333) Discontinued operations: Income (Loss) from discontinued operations - 42,949 (34,511) (188,238) Gain on sale of subsidiary - - 379,935 - ---------- --------- ---------- ---------- Net income (loss) $ 73,545 $(120,352) $ 379,176 $(802,571) ========== ========= ========= ========= Income (loss) per weighted-average common shares outstanding: Income (loss) from continuing operations $ 0.01 $ (0.02) $ 0 $ (0.07) Income (loss) from discontinued operations $ - $ - $ 0.04 $ (0.02) Weighted-average number of shares outstanding 9,188,795 8,747,974 9,058,188 8,745,916 The accompanying notes are an integral part of these consolidated financial statements 4
K.L.S. Enviro Resources, Inc. and Subsidiaries Consolidated Statements of Cash Flows for the Nine Months ended June 30, 1996 and 1995 (Unaudited) 1996 1995 ---- ---- Cash flows from operating activities: Net income (loss) $ 379,176 $(802,571) Adjustments to reconcile net income (loss) to cash used in operating activities: Common stock for services 84,466 33,644 Depreciation and amortization 237,552 245,740 Gain on sale of marketable securities (99,289) (200,183) Gain on disposal of equipment (25,158) (9,100) Gain on sale of subsidiary (379,935) Translation gain (9,603) Changes in: Accounts and other receivables (204,507) (210,760) Inventory (13,955) (224,149) Income tax receivable - 81,649 Prepaid expenses (89,363) (2,680) Other assets (2,448) 46,143 Accounts payable (41,105) 403,046 Accrued expenses 56,099 49,273 Deferred revenue (29,616) (4,911) -------- -------- Net cash used in operating activities (137,686) (594,859) -------- -------- Cash flows from investing activities: Proceeds from sales of marketable securities 328,861 608,559 Proceeds from sale of subsidiary, net of selling costs 184,042 Proceeds from sale of equipment 20,250 9,100 Purchases of equipment (236,484) (76,753) -------- -------- Net cash provided by investing activities 296,669 540,906 -------- -------- Cash flows from financing activities: Net change in bank notes 52,559 104,802 Proceeds from long-term debt - 15,664 Principal payments on long-term debt (99,161) (59,951) Net payments to shareholders (3,495) (70,950) Dividends paid - (6,750) Cash received from stock subscriptions and sales of common stock - 170,000 -------- -------- Net cash provided by (used in) financing activities (50,097) 152,815 -------- -------- Effect of exchange rate changes on cash 33 (170,244) -------- -------- Increase (decrease) in cash 108,919 (71,382) Cash at beginning of period 174,479 177,103 -------- -------- Cash at end of period $283,398 $105,721 ======== ======== The accompanying notes are an integral part of these consolidated financial statements 5 K.L.S. Enviro Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. General The accompanying unaudited consolidated financial statements of K.L.S. Enviro Resources, Inc. and Subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, such unaudited financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments and eliminations of material intercompany sales and purchases necessary to present fairly the financial condition, results of operations and cash flows for the Company for the respective interim periods presented, have been included. Operating results for the three and nine-month periods ended June 30,1996, are not necessarily indicative of the results that may be expected for the year ending September 30, 1996. Certain amounts have been reclassified from previously presented consolidated financial statements to conform with the June 30, 1996 presentation. 2. Principles of Consolidation The accompanying unaudited consolidated financial statements contain the accounts of K.L.S. Enviro Resources, Inc., Dateline Drilling, Inc., K.L.S. Co., Inc., K.L.S. Environmental, Inc., Dateline Internacional, S.A. de C.V., Kel-Lite Industries, Inc., K.L.S. International, Inc. and Beloro, S.A. de C.V. The operations of K.L.S. Environmental, Inc. were discontinued during 1995 and Kel-Lite Industries, Inc. was sold during the second quarter of 1996, see Note 3. All significant intercompany transactions and balances have been eliminated in consolidation. 3. Discontinued Operations Effective February 1, 1996, the Company sold all of the issued and outstanding stock of Kel-Lite. As a result of the sale, activities of Kel-Lite have been accounted for as discontinued operations. A gain on this sale which includes cash received of $250,000 and the present value of future minimum royalty payments, less current expenses of the sales transaction, is approximately $380,000 and has been recorded in the Company's second quarters' results of operations. The buyer is contractually liable for aggregate minimum royalty payments of $600,000 over a ten year period, among other considerations. The present value of the future minimum royalty payments, discounted at 9.5%, is calculated at approximately $348,800 and is recorded as an other receivable with Other Assets in the accompanying consolidated balance sheet. Future minimum royalty payments, present valued, are due in periods beginning fifteen months from the date of the sale of the subsidiary. Additionally, operations of K.L.S. Environmental, Inc. were discontinued in 1995; accordingly, their results are accounted for as discontinued operations and presented as net amounts and combined with Kel-Lite in the consolidated statements of operations. 4. Income (Loss) Per Common Share Income (loss) per share of common stock is based on the weighted average number of shares outstanding during the periods ended June 30, 1996 and 1995. 6 5. Notes Payable, Other, and Loan to Satisfy Obligations to Estate of J. R. Bell As of May 14, 1996, the Company had a note payable in the amount of $710,000 payable to fonix Corporation. On August 16, 1996, the Company and fonix Corporation modified their financing arrangement pursuant to which the $710,000 note was cancelled and replaced by another $710,000 note, and the Company executed three additional notes payable to fonix Corporation in the amounts of $450,000, $150,000 and $590,000 for funds previously advanced, for an aggregate indebtedness to fonix Corporation of $1,900,000. All of these notes are payable on demand, bear interest at the rate of 12 percent per annum from the respective dates on which the funds were advanced, and are secured by all of the Company's assets except for certain real property owned by the Company. The $710,000 note to fonix Corporation is convertible at the option of fonix Corporation into 2,366,667 shares of the Company's common stock at $0.30 per share, and the other notes are converitble into an aggregate of 2,975,000 shares of common stock at $0.40 per share. The proceeds of these promissory notes were used to purchase two additional drilling rigs, to refurbish an existing rig, to purchase additional inventory and equipment for the Company's drilling and hydraulics business, and to pay certain indebtedness of the Company, including certain accounts payable and $443,000 of a $623,000 note payable to the Estate of James Robert Bell, in return for which the Estate released the Company from an obligation to pay the Estate $241,688 in accrued interest and preferred stock dividends. This transaction with the Estate was consummated on August 16, 1996. The other $180,000 of the $623,000 note payable to the Estate of James Robert Bell was transferred by the Estate to Raymond H. Kurzon, the Chief Executive Officer and a director of the Company, in exchange for a real estate limited partnership interest assigned by Mr. Kurzon to the Estate. The Company's Board of Directors and Mr. Kurzon have agreed that the Company will retire this $180,000 debt by issuing 450,000 shares of its common stock to Mr. Kurzon at the rate of $0.40 per share. 6. Subsequent Events As of May 14, 1996, the Company had a note payable in the amount of $710,000 payable to fonix Corporation. On August 16, 1996, the Company and fonix Corporation modified their financing arrangement pursuant to which the $710,000 note was cancelled and replaced by another $710,000 note, and the Company executed three additional notes payable to fonix Corporation in the amounts of $450,000, $150,000 and $590,000 for funds previously advanced, for an aggregate indebtedness to fonix Corporation of $1,900,000. All of these notes are payable on demand, bear interest at the rate of 12 percent per annum from the respective dates on which the funds were advanced, and are secured by all of the Company's assets except for certain real property owned by the Company. The $710,000 note to fonix Corporation is convertible at the option of fonix Corporation into 2,366,667 shares of the Company's common stock at $0.30 per share, and the other notes are converitble into an aggregate of 2,975,000 shares of common stock at $0.40 per share. The proceeds of these promissory notes were used to purchase two additional drilling rigs, to refurbish an existing rig, to purchase additional inventory and equipment for the Company's drilling and hydraulics business, and to pay certain indebtedness of the Company, including certain accounts payable and $443,000 of a $623,000 note payable to the Estate of James Robert Bell, in return for which the Estate released the Company from an obligation to pay the Estate $241,688 in accrued interest and preferred stock dividends. This transaction with the Estate was consummated on August 16, 1996. The other $180,000 of the $623,000 note payable to the Estate of James Robert Bell was transferred by the Estate to Raymond H. Kurzon, the Chief Executive Officer and a director of the Company, in exchange for a real estate limited partnership interest assigned by Mr. Kurzon to the Estate. The Company's Board of Directors and Mr. Kurzon have agreed that the Company will retire this $180,000 debt by issuing 450,000 shares of its common stock to Mr. Kurzon at the rate of $0.40 per share. Mr. Thomas Murdock, President, Chief Operating Officer, and a director of fonix Corporation, was elected to the Company's Board of Directors on July 10, 1996. 7 Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations. Results Of Operations --------------------- Three Months Ended June 30, 1996 Compared With Three Months Ended June 30, 1995 The Company's net income for the three months ended June 30, 1996 was $73,545 as compared to a net loss of $120,352 for the three months ended June 30, 1995. The principal differences are attributable to an increase in revenue, a decrease in expenses as a percentage of revenues, and the effects of discontinued operations. The Company's income from continuing operations for the three months ended June 30, 1996 was $73,545 as compared to a loss from continuing operations of approximately $163,300 for the comparable quarter in the prior year. The Company's income from operations before other income and expenses was $114,179 for the three months ended June 30, 1996 as compared to a loss from operations before other income and expenses of $238,587 for the same period in the prior year. The reduction in operating losses from continuing operations is reflective of increased revenue, more efficient absorption of direct and indirect costs of drilling and repair services and decreased selling, general and administrative expenses as a percentage of revenue. Total revenues from continuing operations for the three months ended June 30, 1996 were $1,313,034, an increase of $527,347 or 67.12 percent, over the three months ended June 30, 1995. The increased revenues were primarily attributable to a $ 481,278 increase in revenues from the Company's drilling services. The Company's Mexican operations accounted for $464,244 or 88.03 percent of the increase. The remainder of the increase in revenue came from the Company's repair operations. Dateline Drilling, Inc.'s operations remained at nearly the same revenue level as in the quarter ended June 30, 1995. The Company anticipates increased drilling and repair service revenues for the remainder of fiscal 1996 for each of its operations. An increase in drilling service revenues is contingent upon an increase in the utilization of existing drilling rigs and the successful and efficient use of the refurbished and new rigs being added to the Company's rig count. Total operating costs and expenses from continuing operations increased by approximately $174,581 or 17.04 percent, to $1,119,855 for the three months ended June 30, 1996, as compared to the three months ended June 30, 1995, while revenues increased by $527,347. Of the $174,581 increase in costs, costs of drilling and repair services amounted to $682,381 or an increase of $139,354 over the corresponding period in the prior year. Selling, general and administrative expenses increased by $35,227 from the three months ended June 30, 1995. The increase in costs of drilling and repair services are primarily the result of a 67.12 percent increase in drilling revenue in the third quarter of 1996 as compared to the third quarter of 1995. The increase in selling, general and administrative expenses of $35,227 is a composite of increases in salaries, wages and related costs offset primarily by decreases in the following expenses: legal and professional, rents, travel and lodging, and exploration costs. Other income and expenses decreased by $115,920, primarily the result of foreign currency transaction fluctuations, no sales of investment securities and increased interest expense. As of March 31,1996, all investment securities had been sold to assist in meeting various obligations of the Company. 8 Financial Condition ------------------- As of June 30, 1996, the Company's current liabilities exceeded its current assets by $854,844 as compared with current liabilities exceeding current assets by $452,940 as of September 30, 1995. The current ratio of assets to liabilities was .64 at June 30, 1996 as compared with .79 at September 30, 1995. Current assets decreased by $200,640 to $1,491,408 from September 30, 1995 to June 30, 1996, and current liabilities increased by $201,264 to $2,346,252 during that same period. A portion of the change in current assets and current liabilities is attributable to the sale of Kel- Lite Industries, Inc. As of the sale date, which was effective on February 1, 1996, $345,653 of current assets and $319,594 of current liabilities, formally owned by the Company and included in its consolidated financial condition, were removed from the Company's consolidated financial statements due to the sale. Another element of the working capital change is that investment securities were entirely sold since September 30, 1995 and amounted to a decrease in current assets of $258,750. The investment securities were liquidated to obtain cash for operations and other outstanding obligations. As of May 14, 1996, the Company had a note payable in the amount of $710,000 payable to fonix Corporation. On August 16, 1996, the Company and fonix Corporation modified their financing arrangement pursuant to which the $710,000 note was cancelled and replaced by another $710,000 note, and the Company executed three additional notes payable to fonix Corporation in the amounts of $450,000, $150,000 and $590,000 for funds previously advanced, for an aggregate indebtedness to fonix Corporation of $1,900,000. All of these notes are payable on demand, bear interest at the rate of 12 percent per annum from the respective dates on which the funds were advanced, and are secured by all of the Company's assets except for certain real property owned by the Company. The $710,000 note to fonix Corporation is convertible at the option of fonix Corporation into 2,366,667 shares of the Company's common stock at $0.30 per share, and the other notes are converitble into an aggregate of 2,975,000 shares of common stock at $0.40 per share. The proceeds of these promissory notes were used to purchase two additional drilling rigs, to refurbish an existing rig, to purchase additional inventory and equipment for the Company's drilling and hydraulics business, and to pay certain indebtedness of the Company, including certain accounts payable and $443,000 of a $623,000 note payable to the Estate of James Robert Bell, in return for which the Estate released the Company from an obligation to pay the Estate $241,688 in accrued interest and preferred stock dividends. This transaction with the Estate was consummated on August 16, 1996. The other $180,000 of the $623,000 note payable to the Estate of James Robert Bell was transferred by the Estate to Raymond H. Kurzon, the Chief Executive Officer and a director of the Company, in exchange for a real estate limited partnership interest assigned by Mr. Kurzon to the Estate. The Company's Board of Directors and Mr. Kurzon have agreed that the Company will retire this $180,000 debt by issuing 450,000 shares of its common stock to Mr. Kurzon at the rate of $0.40 per share. Mr. Thomas Murdock, President, Chief Operating Officer, and a director of fonix Corporation, was elected to the Company's Board of Directors on July 10, 1996. 9 Total assets increased in fiscal 1996 by $511,449 to $3,971,396, primarily with respect to the effects of recording the Kel-Lite sale, the decrease in investment securities as previously indicated and the effect of cash generated by the demand note of $710,000. The Company also decreased its long-term debt from $455,644 as at September 30, 1995 to $369,049 at June 30, 1996. As of June 30, 1996, the Company continued to be operating on a negative cash flow basis from operations. Investment securities no longer serve as a source of cash to absorb operating cash losses; therefore, the Company continues its program to improve operating results for fiscal 1996 through increased drilling and repair service activities. Additionally, the Company continues to monitor its costs with efforts to reduce costs that are not directly related to the production of increased revenues from segments with the highest profit potential. In February 1996, the Company received $250,000 in cash from the sale of its Kel-Lite subsidiary, but will still require additional capital to expand its drilling and repair operations. As of August 16, 1996, a portion of that capital has been received in the form of four demand, promissory notes from fonix Corporation aggregating $1.9 million, which are convertible into a total of 5,341,666 shares of the Company's common stock at prices ranging from $.30 to $.40 per share. These funds have provided for the acquisition of two drilling rigs, the refurbishment of a previously owned rig, the acquisition of inventory and equipment for the Company's drilling and hydraulics repair business, initial investigation of potential precious metals projects. and the repayment of certain obligations, including a repayment of shareholder notes allowing for cancellation of approximately $241,688 of accrued interest and dividends. Although the Company is endeavoring to reach a sustained break-even level for its operating activities during fiscal 1996, there is no assurance that this will occur. Even if the Company is able to reach a consistent break-even level of operations, of which there is no assurance, the Company will continue to need additional sources of funds in order to pursue the capital funding that it desires for its gold exploration and development and drilling operations. PART II - OTHER INFORMATION Item 5. Other Information. As of May 14, 1996, the Company had a note payable in the amount of $710,000 payable to fonix Corporation. On August 16, 1996, the Company and fonix Corporation modified their financing arrangement pursuant to which the $710,000 note was cancelled and replaced by another $710,000 note, and the Company executed three additional notes payable to fonix Corporation in the amounts of $450,000, $150,000 and $590,000 for funds previously advanced, for an aggregate indebtedness to fonix Corporation of $1,900,000. All of these notes are payable on demand, bear interest at the rate of 12 percent per annum from the respective dates on which the funds were advanced, and are secured by all of the Company's assets except for certain real property owned by the Company. The $710,000 note to fonix Corporation is convertible at the option of fonix Corporation into 2,366,667 shares of the Company's common stock at $0.30 per share, and the other notes are converitble into an aggregate of 2,975,000 shares of common stock at $0.40 per share. The proceeds of these promissory notes were used to purchase two additional drilling rigs, to refurbish an existing rig, to purchase additional inventory and equipment for the Company's drilling and hydraulics business, and to pay certain indebtedness of the Company, including certain accounts payable and $443,000 of a $623,000 note payable to the Estate of James Robert Bell, in return for which the Estate released the Company from an obligation to pay the Estate $241,688 in accrued interest and preferred stock dividends. This transaction with the Estate was consummated on August 16, 1996. The other $180,000 of the $623,000 note payable to the Estate of James Robert Bell was transferred by the Estate to Raymond H. Kurzon, the Chief Executive Officer and a director of the Company, in exchange for a real estate limited partnership interest assigned by Mr. Kurzon to the Estate. The Company's Board of Directors and Mr. Kurzon have agreed that the Company will retire this $180,000 debt by issuing 450,000 shares of its common stock to Mr. Kurzon at the rate of $0.40 per share. Mr. Thomas Murdock, President, Chief Operating Officer, and a director of fonix Corporation, was elected to the Company's Board of Directors on July 10, 1996. 10 Item 6. Exhibits And Reports On Form 8-K. (a) Exhibits. There are no exhibits filed as part of this report. (b) Reports on Form 8-K. During July 1996, the Company filed a Current Report on Form 8-K, reporting under Item 5 operating results for the Registrant's second quarter and a $710,000 loan. 11 SIGNATURES In accordance with the requirements of the Securities Exchange Act Of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. K.L.S. ENVIRO RESOURCES, INC. Date: August 14, 1996 By: /s/ Merlyn W. Dahlin ------------------------------------ Merlyn W. Dahlin, Vice President and Principal Financial Officer 12 SIGNATURES In accordance with the requirements of the Securities Exchange Act Of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. K.L.S. ENVIRO RESOURCES, INC. Date: August 14, 1996 By: ---------------------------- Merlyn W. Dahlin, Vice President and Principal Financial Officer 13 EX-27 2
5 9-MOS SEP-30-1996 JUN-30-1996 283,398 0 823,493 123,402 415,817 1,491,408 3,330,398 1,276,734 3,971,396 2,346,252 0 0 17 935 4,502,149 3,971,396 0 1,313,034 0 1,198,855 0 0 44,643 73,545 0 73,545 0 0 0 73,545 0.01 0.01
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