SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1996
Commission File Number: 0-14609
AMERECO, INC.
(Exact Name of registrant as specified in its charter)
Utah 84-0960456
(State of incorporation) (IRS Employer Identification No.
680 Atchison Way, Suite 800
Castle Rock, CO 80104
(303) 688-5160
(Address, including zip code, and telephone number, including
area code of Registrant's executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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 disclosure of delinquent filers in response to Item405 of Regulation
S-B is not contained in this form, and no disclosure will be contained,to the
best of registrant's knowledge, in definitive proxy or information state-
ments incorporated by reference in Part III of this Form 10-KSB or any amend-
ment to this Form 10-KSB.[x]
Issuer's revenues for its most recent fiscal year: $3,017,182
The number of shares of the Registrant held by non-affiliates as of December
31, 1996, was 1,614,540. For purposes of this report, officers, directors and
holders of 5% or more of the Registrant's Common Stock are considered the
affiliates of the Registrant as of that date. For internal accounting pur-
poses, Registrant has determined fair market value per share as of such date
was $1.00, and were such amount to have been reflected in an active market,
the aggregate value of Common Stock held by non-affiliates as of such date
would have been $1,614,540. As of December 31, 1996, Registrant had
5,007,616 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Page 1 of 53.
Table of Contents and Cross Reference Sheet
Part I
Page No.
Item 1 Description of Business 1
Item 2 Properties 5
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of
Security Holders 6
Part II
Item 5 Market for Common Equity and Related
Shareholder Matters 6
Item 6 Management's Discussion and Analysis or
Plan of Operations 6
Item 7 Financial Statements 8
Item 8 Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 8
Part III
Item 9 Directors, Executive Officers and Compliance
with Section 16(a) of the Exchange Act 9
Item 10 Executive Compensation 11
Item 11 Security Ownership of Certain Beneficial
Owners and Management 14
Item 12 Certain Relationships and Related Transactions 15
Item 13 Exhibits and Reports on Form 8-K 20
PART I
ITEM 1. Description of Business
The Company
Amereco, Inc. (including its wholly owned subsidiary, the "Company") was
organized as a Utah corporation on October 16, 1974 under the name of Norcal
Chemical Corporation. The Company's name was changed to Amereco,Inc. in June
1995. The Company conducted no significant activities until 1984, when, in
August, it acquired all the outstanding stock of Kal-O-Mine Resources, Inc.,
a Colorado corporation. Currently, the Company's lightweight aggregate
manufacturing business operations are conducted through Omnivest Resources,
Inc., a Georgia corporation which is a wholly owned subsidiary of the
Company ("ORI").
Business of the Company
The Company, through ORI, is engaged in the operation of the lightweight
aggregate manufacturing facilities. These facilities are situated on a 462-
acre parcel with associated manufacturing facilities and equipment. The
property is adjacent to the Chattahoochee River, which is 7 miles south of
Fort Gaines, Georgia and 180 miles southwest of Atlanta, Georgia. Rail
transportation is expected to be available for shipment of lightweight
aggregate to customers and delivery of coal from suppliers by the Georgia
Southwestern Railroad in Georgetown, Georgia. An Army Corps of Engineers
permit allows the construction of a barge dock that would allow ORI to ship
product to customers along the Chattahoochee River and other customer
locations on river systems that are navigable from the Gulf of Mexico. ORI
estimates that the cost to construct the dock facility would be approximately
$250,000. During 1996, most of the finished material was shipped by indep-
endent truckers. With market area expansion, the use of rail and barge
delivery will increase significantly in future years.
ORI's manufacturing plant and associated buildings are situated on approxi-
mately 20 acres of the 462 parcel. The plant's equipment primarily consists
of crushers, conveyor systems, a 235' long x 14' diameter kiln, sizing
equipment, loading equipment, transportation vehicles and various items of
environmental protection equipment.
The aggregate is produced from clay that is removed from surface out-
croppings and conveyed to the manufacturing plant. The clay is crushed into
raw material that is processed in the rotary kiln. The resulting product
(lightweight aggregate) is an expanded, porous, hard material that is then
sized for customer specifications. The ultimate production capacity of the
plant is approximately 691,000 cubic yards (438,000 tons) of lightweight
aggregate per year. While the Company operated at approximately 50% of full
capacity in 1996, it expects to exceed 1996 production levels in 1997.
After the clay is processed through the production facilities, the resulting
lightweight aggregate is used in the manufacture of concrete construction
materials. Justification for lightweight concrete materials usage lies
principally in reduced weight without loss of strength and durability in the
concrete, improved thermal insulation and fire retardant qualities. Light-
weight aggregate is used in concrete block (masonry), structural concrete,
roofing material, ceiling and floor systems, load-bearing walls, prestressed
and pre-cast concrete, bridge floors and highway surfaces.
ORI's initial marketing strategy for its lightweight aggregate has focused
on concrete block manufacturers and structural aggregate customers located
within a 300-mile radius of its maunfacturing facility inclusive of Atlanta,
Columbus, Macon and Albany, Georgia, Birmingham and Montgomery, Alabama and
Florida markets from Pensacola to Tampa.
ORI has recently entered into an important joint venture arrangement with
Florida Mining and Materials, Inc., "FMM", a major business unit and wholly
owned subsidiary of Southdown, Inc., to blend and market lightweight
aggregate material to the Florida concrete masonry industry. The joint
venture, known as Alliance Materials Company, LLC, ("Alliance Materials"),is
owned equally by FMM and ORI. Alliance Materials was formed to capitalize
on the strengths of its owners. FMM is an industry leader in the production
of and sales of readymix concrete and concrete masonry units. FMM also has
the exclusive rights to all of the Aardelite(TM), a pelletized lightweight
aggregate made from a coal by-product, produced by a third party producer in
Florida. ORI produces Omnilite(TM) at its newly reconstructed facility
which is the closest source of high quality expanded lightweight aggregate
material to the state of Florida. Alliance Materials blends the lower cost
Aardelite(TM) material, which by itself cannot meet the same performance
standards as the Omnilite(TM) material, with Omnilite(TM) to make a cost
competitive high quality aggregate product sold as "Allite(TM)".
Competition
Other products used for the manufacture of lightweight concrete products
with which Omnivest Resources, Inc.'s (ORI) lightweight aggregate will
compete include bottom ash, which is a by-product of coal-fired power plants
and volcanic pumice. Manufacturers of concrete blocks and other concrete
materials require consistency in the lightweight materials mixed with the
concrete in order to maintain a uniform mix formula. The Company believes
that bottom ash and volcanic pumice often do not provide this required
consistency, making the use of a relatively uniform product such as ORI's
clay aggregate desirable. Additionally, bottom ash and volcanic pumice are
generally more abrasive than lightweight clay aggregate. Some customers
which have somewhat less stringent quality standards or requirements may be
attracted to bottom ash and volcanic pumice on the basis of perceived lower
costs and greater availability than ORI's lightweight aggregate.
Omnivest Resources, Inc. will also compete with other manufacturers who
produce a lightweight clay or shale aggregate and which also market their
products in the marketing radius initially targeted by the Company for
ORI's aggregate. These competing companies include Big River Industries,
Livingston, Alabama and Irwinville, Louisiana; Solite(TM), Albemarle, North
Carolina and Stalite(TM), Gold Hill, North Carolina. Each of these
competitors is well capitalized and has a national reputation and est-
ablished marketing organizations. Nevertheless, the Company's management
believes that the qualities, availability and price of the Company's
products will permit the Company to compete effectively.
Government Regulation
Omnivest Resources, Inc.'s operations are subject to various federal, state
and local regulations regarding environmental matters, land use and zoning.
Such regulations generally relate to air and water quality and other aspects
of environmental control and employee safety. ORI has all necessary federal,
state and local permits required to produce, transport and market the light-
weight aggregate from the present facilities.
The requirements imposed by governmental authorities applicable to ORI's
proposed operations are costly and time consuming. In the future, such
requirements may potentially restrict ORI's lightweight aggregate manufac-
turing operations or delay or limit expansion. Future legislation designed
to protect the environment and health and safety considerations, as well as
future interpretations of existing laws, may require substantial increases
in operating costs as well as delays and interruptions. As with any resource
based industry, the Company cannot reliably predict the effect of changes in
federal, state and local legislation, regulation or interpretations on its
future operations.
Historic Financing Activities and 1996 Partnership Interest Conversion
In 1986, the United States Bankruptcy Court for the Middle District of
Georgia approved the Plan of Reorganization (the "Plan")of Camp Lightweight,
Inc., a Georgia corporation ("Lightweight"), which provided for the sale to
the Company of Lightweight's aggregate manufacturing assets and operations
conducted on a 462-acre parcel located in Clay County, Georgia. The
principal activities of the Company and its management from 1987 through
1993 were involved with complicated legal proceedings with respect to the
Plan in the Chapter 11 proceedings, to obtain clear title to Lightweight's
assets which would permit financing for the Company's proposed lightweight
aggregate manufacturing operations.
In February 1993, the Bankruptcy Court reaffirmed its 1986 Order approving
Lightweight's Plan with the result that the Company received ownership and
unencumbered title to Lightweight's aggregate manufacturing facilities, to-
gether with licenses, construction and operating rights, government permits
and approximately 462 acres of land in Clay County, Georgia.
In March 1993, the Company formed and became the general and managing
partner of Omnivest Resources, L.P.("ORLP" or "the Partnership"). ORLP was
merged into a wholly owned subsidiary of the Company in June of 1996. ORLP
had been formed to attract needed capital to refurbish the lightweight
aggregate production facilities in Clay County, Georgia, to commence manu-
facturing operations. The Company transferred the aggregate manufacturing
facilities acquired under the Plan into ORLP. Under a Management Agreement,
the Company controlled and managed ORLP, as managing partner. On March 30,
1993, the Company and ORLP entered into a Credit Agreement with Omnivest
International Financial Services, Inc.("Omnivest" now "Cathay Global Invest-
ments, Inc." or "Cathay"),C.I.S. Resources Limited Liability Company ("CIS")
and Georgia Resources, Inc.("GRI") (GRI and CIS, collectively, "Lenders").
The Credit Agreement permitted the Lenders to convert debt to partnership
interests, and further permitted the limited partners to convert their
limited partnership interests into shares of the Common Stock of the Company.
As of December 31, 1994, pursuant to the Credit Agreement, and a subsequent
amendment to the Credit Agreement, the Lenders had advanced $6.931 million
to ORLP under the Credit Agreement. Those loan proceeds were utilized to
refurbish the aggregate manufacturing facilities contributed by the Company
to ORLP in order to commence operations. Substantially all refurbishment
activities were completed in October 1994 and the Partnership commenced
operations during the fourth quarter of 1994. In addition, GRI had committed
$1.200 million in working capital funds to ORLP.
The loans to ORLP under the Credit Agreement were secured by all of the
assets conveyed by the Company and repayment was guaranteed by the Company.
In addition, the loans were guaranteed by Messrs. Steven H. Miller and
Kenneth W. Tribbey, officers and directors of the Company. Messrs. Miller
and Tribbey's guarantees were secured by the pledge of 106,520 shares of the
Company's shares beneficially owned by a company affiliated with such
officers, together with options previously granted to such officers to
purchase a total of 400,000 shares of the Company's common stock. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Under the Partnership Agreement and the Credit Agreement, both as amended,
the Lenders were permitted to convert all, but not less than all, of the
advances to ORLP under the Credit Agreement into a 50.9% Limited Partnership
Interest for the first $3.996 million and up to an additional 27.67% Limited
Partnership Interest if the additional $3 million provided by the amended
Credit Agreement was advanced and converted. As of December 31, 1994,$2.935
million had been advanced above the $3.996 million. On June 15, 1995, the
Lenders converted $6.931 million in indebtedness to 78.13% Limited Partner-
ship ownership interest. Also in June 1996, one of the limited partners
was issued 1.75% limited partnership interest as consideration for posting
a $1.25 million letter of credit as collateral for a partnership loan
agreement. Conversion of the indebtedness to limited partnership interests
occurred after a majority of the Company's shareholders approved the trans-
fer by the Company of its lightweight aggregate manufacturing facilities
to ORLP contemplated by the Partnership Agreement. At the time of such
shareholder approval, the Company's shareholders were informed that the
partnership interests were convertible to shares of the Company's Common
Stock. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The Partnership Agreement, as amended, permitted the first $3.996 million
convertible into 50.9% Limited Partnership Interest to convert into a like
percentage of the restricted Common Stock of the Company to be outstanding
after giving effect to such conversion. Any additional Limited Partnership
Interest resulting from the conversion of advances in excess of the $3.996
million (a total of $2.935 million for 27.23% limited partnership interest)
was convertible into shares of the Company's restricted Common Stock. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Conversion of all the limited partnership interests into shares of the
Common Stock of the Company was consummated on June 1,1996, when the Company
completed a step transaction in which it issued 3,677,071 shares of its
common stock to the former limited partners of ORLP and received 100% of the
common stock of Omnivest Resources, Inc. (formerly "ORLP"), in connection
with a merger of Omnivest Resources with and into ORLP, Inc., a wholly owned
subsidiary of the Company. The business combination is reported as a reverse
purchase of AMERECO, Inc. by Omnivest Resources, Inc. Operations of Omnivest
Resources, Inc. ("ORI") are reported for all periods presented. Operations
for AMERECO, Inc. are reported from June 1, 1996, the reverse purchase date,
through December 31, 1996. The Board of Directors determined that the
purchase price approximated the fair value of the net assets acquired. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
But for the financing received in connection with the formation and subse-
quent borrowing activities of ORLP, the Company could not have proceeded
with refurbishment of its facilities and commencement of the aggregate manu-
facturing operations. Subsequent to the June 1, 1996 acquisition, the
Company has continued to manage the aggregate facility and business of ORI
under the Management Agreement between the Company and ORI, with ORI having
ORLP's former rights, duties and obligations. ORI and the Company have
continued to borrow funds from related parties and certain of such debt is
secured by the Company's shares in ORI. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
On April 18, 1997 the Company completed the long awaited debt refinancing
with First Federal Savings Bank of Southwest Georgia, for which it had
received a loan commitment in July of 1996. The term loan is for 15 years
for $5,000,000 with monthly amortization of $54,713 principal and interest
with the interest rate adjusted quarterly based on a weighted average Bond
Equivalent Rate during the prior quarter. The effective interest rate on
April 18, 1997 was 10.32%. The collateral for the loan is equipment, fix-
tures, all real property owned by the Company and a $500,000 Certificate of
Deposit. In addition, a federal rural development program guarantees appro-
ximately 80% of the outstanding indebtedness under the loan facility at any
time. $3,000,000 of the proceeds of such loan from First Federal Savings
Bank of Southwest Georgia was used to pay the balance of a term loan with
Congress Financial Corporation("Congress") and pay down the revolving credit
with Congress to approximately $1.1 million. Approximately $382,000 was used
to repay indebtedness to an unrelated corporation and $378,000 was used to
repay a portion of the Company's indebtedness to Cathay Global Investments,
Inc., a corporation controlled by Mr. Wei Ming Lu, who holds approximately
65% of the Common Stock of the Company. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS." Approximately $832,000 of the First Federal Savings
Bank of Southwest Georgia loan remains available for acquisition of capital
equipment and improvements to facilities. The remainder of the loan proceeds
has been used to pay current indebtedness to trade creditors and service
providers.
Employees
Other than its two executive officers, the Company had no other employees as
of the date of this Report. ORI has 56 employees as of the date of this
Report. ORI employees are not considered to be employees of the Company. The
Company also hires outside professional consultants to handle certain
technical aspects of the Company's business operations. Management believes
that this type of contracting for professional and administrative services
is an economical and practical means for the Company to obtain such services
at this time.
ITEM 2. Properties
The Company's executive and administrative offices are located at 680
Atchison Way, Suite 800, Castle Rock, Colorado, 80104. These premises
consist of approximately 5,000 square feet and are rented from a non-
affiliate for $2,918 per month on a month-to-month basis.The Company through
its subsidiary Omnivest Resources, Inc. owns 462 acres of land, which
includes 32,400 square feet of improved area. The property is collateral for
approximately $5.0 million in Company obligations, including a remaining
balance of available credit of $832,000,which may be used to acquire capital
equipment and make facility improvements. See also ITEM 1(d), "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" and "Subsequent Events."
ITEM 3. Legal Proceedings
Other than the routine litigation of disputed claims of certain contractors,
customers, and suppliers to ORI concerning operation of ORI's manufacturing
facilities, the Company is not a party to, nor is any of its property
subject to, any material pending legal proceeding, and the Company knows of
no material legal proceeding contemplated or threatened against it. Manage-
ment believes that all such disputed contractor, customer and supplier
claims will be resolved in the normal course of business.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the year ended December 31, 1996, the Company's shareholders voted
for election of directors and ratification of selection of accountants at a
meeting held June 28, 1996. No nominated director received less than 90% of
the vote of the holders of outstanding shares of the Company's Common Stock.
PART II
ITEM 5. Market for Common Equity and Related Shareholder Matters
In the past, the Company's common stock has been sporadically traded in the
over-the-counter market and from time to time occasional quotations have
appeared in the National Quotation Bureau's "pink sheets." At December 31,
1996, an extremely limited trading market existed and accordingly no
meaningful market information was available.
As of December 31, 1996, there were 977 record holders of the Company's
common stock.
As of January 1996, the Company's common stock is quoted on the OTC Bulletin
Board under the stock symbol "AMRM" and CUSIP number 02360P-10-4.
The Company has paid no cash dividends on its common stock and has no
present intention of paying cash dividends in the foreseeable future. It is
the present policy of the Board of Directors to retain all earnings to
provide for the Company's growth. Payment of cash dividends in the future
will depend, among other things, upon the Company's future earnings,
requirements for capital improvements and financial condition.For additional
information concerning restrictions on the Company's ability to pay
dividends, see "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
ITEM 6. Management's Discussion and Analysis or Plan of Operations
The following is management's discussion and analysis of certain significant
factors that have affected the Company's financial condition and results of
operation during the periods included in the accompanying financial
statements.
Results of Operations
AMERECO, Inc. (the "Company") was originally incorporated as Norcal Chemical
Corporation on October 16, 1974. In January and April 1986, respectively,
the Company acquired a lightweight aggregate facility and a sand and gravel
property. The business of the Company has been to manage the subsidiary's
refurbishment and start-up of the lightweight aggregate facility operation
including manufacturing and marketing of lightweight aggregate used in
concrete block, pre-stressed and pre-cast concrete, structural concrete,
bridge floors, highway surfaces and other uses.
Year Ended December 31, 1996, as Compared to Year Ended December 31, 1995
AMERECO consolidated with its subsidiary, ORI, recognized losses of
$2,176,396 in 1996 compared to $1,157,693 in 1995. This increase in losses
was primarily attributed to the write-off of $831,309 in organization and
loan costs with the conversion of all the limited partnership interest into
shares of common stock of the Company. In addition, the accounting change
from FIFO to LIFO increased cost of sales by $292,032 for 1996. The
Company's sales increased $1.7 million in 1996 or a 130% increase. The
Company anticipates the loss from operations to decline substantially both
from continued increase in sales volume and from operations of ORI and from
anticipated reduction of production costs on a per unit basis due from
better efficiency and longer run times of production.
General and administrative cost increased by 28% from $101,463 in 1995 to
$130,173 in 1996. The increase was due to the establishment of a $32,146
reserve to allow for doubtful accounts of ORI's trade receivables in 1996.
Prior to the conversion, Georgia Resources,Inc. did not exercise its right
for payment of interest for the continued benefit of the Partnership. The
accrued interest of $91,253 through the date of conversion was forgiven.
During the current year interest expense decreased by 25% as a result of
principal payments and conversion of debt to an equity investment in the
Company's Common Stock.
Seasonal Effect on Operations
Due to the Company's relatively brief operating history, the Company has
minimal historical data to calculate the seasonal effect on sales and prod-
uction. With regard to the ORI operation, it can be expected that sales
will experience some decline in growth of aggregate demand due to weather
conditions and holiday periods. The primary months which are expected to be
affected by possible seasonality in the Company's business are November
through February, traditionally slow months for the construction materials
industry in general.
Liquidity and Capital Resources
The Company had total assets of $17,139,244 at December 31, 1996, and
$16,216,276 at December 31, 1995. The Company's cash balance at year-end was
$39,040. With no material change in cash between years, the increase in
working capital was primarily a result of inventories increasing approx-
imately $400,000.
The Company had only long-term debt obligations of $116,559 at December 31,
1996. The long-term debt obligation at December 31, 1995, for ORI was
$2,300,000. The decrease in long-term debt was due primarily to all term
debt now being classified as a current liability. Part of the increase in
current debt was related party indebtedness. See "Certain Relationships and
Related Transactions." On April 18, 1997 the Company completed debt re-
financing with First Federal Savings Bank of Southwest Georgia. The term
loan is for 15 years for $5,000,000 with monthly amortization of $54,713
principal and interest with the interest rate adjusted quarterly based
on a weighted average Bond Equivalent Rate during the prior quarter.
The Company has a loss carry forward of $9,177,269, which may be used to
offset future taxable income until 2011. The deferred tax asset is not
reflected in the Company's financial statements, since realization of any
benefit is not assured in view of the Company's operating history.
ITEM 7. Financial Statements
See pages F-1 through F-7 for this information.
Index to Financial Statements
Amereco, Inc.
Page
Independent Auditors Report F-2
Consolidated Balance Sheet as of December 31, 1996 F-3
Statements of Operations for the Years
Ended December 31, 1996 and 1995 F-4
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1996 and 1995 F-5
Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995 F-6
Notes to Financial Statements F-7
Schedules to the financial statements are omitted as the required information
is inapplicable or presented in the financial statements or related notes.
ITEM 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosures
The Company's Board of Directors has engaged the accounting firm of Mason
Russell West, LLC as independent certified public accountants for the
Company for the fiscal year ended December 31, 1996. The Company's Board of
Directors made the decision to engage Mason Russell West, LLC based upon the
recommendation of management and after selection of such accountants was
ratified by vote of the Company's shareholders at the annual meeting. The
Company has no audit or similar committee. The Company did not consult with
Mason Russell West,LLC. with regard to any matter concerning the application
of accounting principles to any specific transaction, either contemplated
or proposed, or to the type of audit opinion that might be rendered with
regard to the Company's financial statements included with this Report.
There have been no disagreements concerning any matter of accounting
principle or financial statement disclosure between the Company and its
independent accountants of the type requiring disclosure hereunder.
PART III
ITEM 9. Directors, Executive Officers and Compliance with Section 16(a) of
the Exchange Act
The following table sets forth the names and ages of the Company's directors
and executive officers and the positions they held with the Company as of
December 31, 1996. All directors are elected at the annual meeting of
shareholders to serve one year or until their successors are elected and
qualified. Vacancies on the Board which occur in the interim between
meetings of the Company's shareholders may be filled by vote of the remain-
ing directors. The executive officers of the Company are elected annually,
and serve at the discretion of the Board of Directors. Each executive
officer of the Company holds office until a successor is duly elected and
qualified, death or resignation or removal in the manner provided by the
Company's Bylaws.
Director
Name Age Position Since
Steven H. Miller 47 President, Chief Executive
Officer and Director 8/88
Kenneth W. Tribbey 49 Executive Vice President,
Chief Financial Officer,
Assistant Secretary,
Treasurer and Director 8/88
Frederick V. Miale, Jr.* 44 Director and Secretary 6/96
James E. Waldrop * 50 Director and Assistant
Secretary 6/96
Michael E. Dee * 44 Director and Assistant
Secretary 6/96
* Effective February 26, 1997, Messrs. Miale, Waldrop and Dee simultan-
eously tendered their resignations as directors and officers of both
the Company and ORI, to facilitate the deliberation of the Board of
Directors on transactions involving the shareholders which had nomin-
ated such directors to the Board. The remaining Directors elected Craig
Gunter, former President of the Company and a director until June 1996,
to hold the position until the next annual meeting. Mr. Gunter resumed
service on the Board of Directors on February 28, 1997.
No director serves as a member of the board of directors of any other
company that has a class of securities registered under the Securities
Exchange Act of 1934 or which is registered as an investment company under
the Investment Company Act of 1940. There are no family relationships
between any of the directors and executive officers. There was no
arrangement or understanding between any executive officer and any other
person pursuant to which any person was selected as an executive officer.
Messrs. Miale, Waldrop and Dee were recommended to the Board of Directors by
Georgia Resources, Inc. and C.I.S. Resources,L.L.C., and at the time of such
nominations all such persons were employed by firms under common control
with GRI and CIS, but did not serve as officers or directors of either of
them.
Biographical Information
Steven H. Miller. Mr. Miller has been the President and Chief Executive
Officer of the Company and a member of its Board of Directors since August
1988, and has served as President and Chief Executive Officer of the
Company's wholly owned subsidiary, Omnivest Resources, Inc., a Georgia
corporation, since such corporation's formation in June 1996. Mr. Miller has
been licensed to practice law in the state of Colorado since 1975. From 1981
until 1988, Mr. Miller was president and a director of TREK Exploration
Company, a Colorado corporation involved in oil and gas exploration and
operations. From 1970 to 1981 Mr. Miller was employed in various positions
of increasing responsibility with The Gates Rubber Company, a diversified
company with annual sales internationally in excess of $1 billion. Positions
held included: Senior Financial Analyst; Manager of Corporate Financial
Services; House Counsel and Assistant Secretary, Labor Counsel; Director
of Corporate Employee Relations; Plant Superintendent - Wrapped Hose Prod-
ucts Division. Mr. Miller has been an officer, director and co-owner, since
December 1986, of Ventures Plus, Inc., a Colorado corporation. Until June
1996, Mr. Miller was a member of the management committee of Omnilite
Resources Limited Liability Company, a Colorado limited liability company,
formerly the special limited partner of Omnivest Resources, L.P., a Georgia
limited partnership. The Company was the managing general partner of
Omnivest Resources, L.P. Since 1988, Mr. Miller has been a member of the
executive committee of The MidCities Company, a Colorado general partnership
engaged in the development of residential, commercial and retail property
in Boulder, Colorado. Mr. Miller received a Bachelor of Science degree in
Business Administration from the University of Colorado in Boulder,Colorado
in 1971 and Juris Doctorate degree in 1974 from the University of Denver,
College of Law, Denver, Colorado. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
Kenneth W. Tribbey. Mr. Tribbey has been Executive Vice President, Chief
Financial Officer, Treasurer, Assistant Secretary and a member of the Board
of Directors of the Company since August 1988, and has served in such
positions in the Company's ORI subsidiary since that corporation's formation
in June 1996. Until June 1996, Mr. Tribbey has been a member of the manage-
ment committee of Omnilite Resources Limited Liability Company, a Colorado
limited liability company, which was the special limited partner of Omnivest
Resources, L.P., a Georgia limited partnership. From 1982 to 1988, Mr.
Tribbey served as executive vice president of finance and treasurer of TREK
Exploration Company, Englewood, Colorado. Mr. Tribbey has been a certified
public accountant in the state of Colorado since 1976. Mr. Tribbey received
his B.S./B.A. degree in Accounting from the University of Denver, Denver,
Colorado in 1974. From 1974 to 1977, he was an accountant with Siecke,
Newman & Company, certified public accountants, Denver, Colorado, where he
was involved with audits of small to medium-sized public and private
companies. From 1977 to 1982, Mr. Tribbey was president of Tribbey,
Almirall, Inc., certified public accountants located in Denver, Colorado,
where he was primarily involved with closely held corporations and public
reporting companies engaged in the construction, oil and gas, manufacturing
and distribution industries. Mr. Tribbey has been an officer, director and
co-owner of Ventures Plus, Inc., a Colorado corporation, since 1986 and
serves as a member of the executive committee of The MidCities Company since
1988. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Frederick V. Miale, Jr. Mr. Miale served as a director and secretary of the
Company from June 18, 1996 to February 26, 1997. Mr. Miale resigned from the
Board of Directors to facilitate its review of transactions involving his
former employer. Mr. Miale graduated with highest distinction from the
University of Rhode Island, and has attended graduate college at the
University of Colorado at Boulder, completing three years toward a Master of
Arts degree. Mr. Miale is a Certified Financial Planner. Mr. Miale is the
founder and currently serves as the Chief Executive Officer of Omnivest
Financial Services Network, Inc.,and is President and a director of Omnivest
International, Inc. and Omnivest Americas, Inc. In addition, Mr. Miale
serves as a director of America's Steak Experts, Inc., Omnivest Inc., PSF
Limited Liability Company, Omnivest Realty, Inc., OP International SA de CV,
and Omnivest Asia-Pacific, Inc. Mr. Miale was recommended to the Board of
Directors for nomination as a Director by Georgia Resources, Inc. and C.I.S.
Resources, L.L.C., which in the aggregate hold 3,068,631 shares, comprising
63.61% of the currently outstanding common stock of the Company. Mr. Miale
is not presently a shareholder, member, director, or officer of either
C.I.S.Resources, L.L.C. or Georgia Resources, Inc. and is no longer a share-
holder, officer, director or employee of the former Omnivest International,
Inc. which is now named Cathay Global Investments, Inc. See "CERTAIN RELAT-
IONSHIPS AND RELATED TRANSACTIONS."
James E. Waldrop. Mr. Waldrop served as a director and assistant secretary
of the Company from June 18, 1996 to February 26, 1997. Mr. Waldrop resigned
from the Board of Directors to facilitate Board review of transactions
involving entities in common control with his employer. Mr. Waldrop attended
Miami University(of Ohio), receiving a Bachelor of Science degree in systems
analysis in 1968. Later, Mr. Waldrop earned a Masters in Business Adminis-
tration from the University of Colorado in 1975, having been selected as the
1975 Outstanding Information Systems Graduate Student by the Denver Chapter
of the Society of Management Information Systems. After graduation from
Miami University, Mr. Waldrop was an officer in the United States Air
Force on active duty until 1975. Thereafter, Mr. Waldrop was employed as a
management systems analyst with TRW, Inc. in Redondo Beach, California. From
1976 to 1980, Mr. Waldrop was Manager of Application Systems for KN Energy,
an oil and gas exploration and pipeline transmission firm in Denver,
Colorado. Thereafter, Mr. Waldrop was Director of Information Systems for
Hamilton Oil Corporation in Denver, Colorado. From 1984 until 1994, Mr.
Waldrop held a variety of increasingly responsible positions in Pulte Home
Corporation. In 1987 he became President of ICM Mortgage Corporation, a
mortgage bank wholly owned by Pulte Home Corporation. In 1991, Mr. Waldrop
was promoted to Division President of one of that corporation's residential
construction divisions. In 1994, Mr.Waldrop joined Omnivest International,
Inc. as Executive Vice President and Chief Operating Officer. Mr. Waldrop
is a retired U.S. Air Force Reserve Officer, holding the permanent rank of
Lieutenant Colonel. Since 1988, Mr.Waldrop has served on the University of
Colorado at Colorado Springs School of Business Advisory Council. Since
1989, he has also served on the President's Advisory Council of Miami
University of Ohio. Mr. Waldrop was recommended to the Board of Directors
for nomination as a Director by Georgia Resources,Inc. and C.I.S. Resources,
L.L.C., which in the aggregate hold 3,068,631 shares, comprising 63.61% of
the currently outstanding common stock of the Company. Mr. Waldrop was not
at the time of his election a shareholder, member, director, or officer of
either C.I.S. Resources, L.L.C. or Georgia Resources, Inc. Mr. Waldrop was
employed by a firm which is in common control with CIS and GRI. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
Michael E. Dee. Mr. Dee served as a director and assistant secretary of the
Company from June 18, 1996 to February 26, 1997. Mr. Dee resigned from the
Board of Directors to facilitate Board review of transactions involving
entities in common control with his employer. Mr. Dee received a Bachelor
of Science degree, with a major in accounting, from the University of
Colorado, Boulder, in 1973. Upon graduation, Mr. Dee joined Arthur Andersen
& Co.'s Audit Division in Denver, Colorado as a staff auditor, and was later
promoted to Audit Senior and Manager. Mr. Dee became a Certified Public
Accountant in 1976. In 1979, Mr.Dee joined Hamilton Brothers Oil Company,
Denver, Colorado as Controller of its crude oil and petroleum products
trading and reselling subsidiary. In 1981, Mr. Dee founded, with two other
individuals, Crestone Energy Corporation, a privately held oil and gas
exploration company in Denver, Colorado. Mr. Dee served as that corp-
oration's Vice President of Finance until sale of his interest in the firm
in 1983. In 1983, Mr. Dee joined Pulte Home Corporation as Controller and
Secretary of its mortgage banking subsidiary ICM Mortgage Corporation,
headquartered in Greenwood Village, Colorado. Later, Mr. Dee was promoted
to Senior Vice President of Finance and Chief Financial Officer and Senior
Vice President - Operations. Mr.Dee served as a member of ICM Mortgage
Corporation's Executive Committee. In 1995, Mr.Dee joined Omnivest Inter-
national, Inc. as Senior Vice President of Finance. Mr. Dee is a member of
the American Institute of CPA's and the Colorado Society of CPA's. Mr. Dee
was recommended to the Board of Directors for nomination as a Director by
Georgia Resources, Inc. and C.I.S.Resources, L.L.C., which in the aggregate
hold 3,068,631 shares, comprising 63.61% of the currently outstanding common
stock of the Company. Mr. Dee is not presently a shareholder, director,
or officer of either C.I.S. Resources,L.L.C. or Georgia Resources, Inc. Mr.
Dee is employed by a firm which is in common control with CIS and GRI. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Board of Director Appointment February 28, 1997
Craig E. Gunter. Mr.Gunter has served as a director since February 28, 1997.
Previously, he served as a member of the Company's Board of Directors from
November 1984 to June 28, 1996,and as president from November 1984 to August
1988. Mr. Gunter is an owner,director and corporate secretary of A&T Produc-
tion,Inc.,Denver, Colorado, and has been employed with that company in those
positions since March 1986. A&T Production, Inc. is engaged in oil and gas
exploration. From February 1980 to March 1984,Mr.Gunter was self-employed as
a consulting geologist in Aurora, Colorado. Upon resignation of the above
Directors, Mr. Gunter was elected by the then remaining members of the Board
of Directors, and resumes services as a director on February 28, 1997, to
serve until the election and qualification of his successor or the next
annual meeting of shareholders. Mr. Gunter's share ownership is not
reflected in the chart of beneficial ownership as of December 31, 1996, be-
cause he was not then a director. Mr. Gunter holds 28,700 shares of the
Common Stock of the Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own 10% or more of the Company's
common stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and stock-
holders owning 10% or more of the Company's common stock are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms
that they file.
Based solely on review of the copies of such Forms furnished to the Company,
or written representations that no Forms 5 were required to be filed by such
persons, the Company believes that with respect to the Company's fiscal year
ended December 31, 1996, all Section 16(a) filing requirements applicable
to its officers, directors and persons who own 10% or more of the Company's
common stock have been complied with, although several of such persons'
filings were not timely filed.
ITEM 10. Executive Compensation
The table set forth below shows certain compensation information for
services rendered in all capacities during the stated fiscal years ended
December 31, by Steven H. Miller, the Chief Executive Officer, and Kenneth
W. Tribbey, Executive Vice President and Chief Financial Officer. No other
executive officer has salary and bonus which in fiscal 1996 exceeded
$100,000. This information includes the dollar value of base salaries, bonus
awards, the number of stock options granted and certain other compensation,
if any, whether paid or deferred.
Summary Compensation Table
Annual Compensation
Name and Other Annual
Principal Compensation
Position Year Salary Bonus(s) $
Steven H. Miller 1994 $120,000 None None
President and Chief *1995 $120,000 None None
Executive Officer *1996 $120,000 None None
Kenneth W. Tribbey 1994 $120,000 None None
Executive Vice *1995 $120,000 None None
President/Chief *1996 $120,000 None None
Financial Officer/
Assistant Secretary
and Treasurer
Long-Term Compensation Awards
Restricted Payouts Other
Name and Stock LTIP Compen-
Principal Award(s) Options/ Payouts sation
Position Year $ SARs(#) $ $
Steven H. Miller 1994 None None None $ _
President and Chief *1995 None 150,000 None _
Executive Officer *1996 None None None _
Kenneth W. Tribbey 1994 None None None $ _
Executive Vice *1995 None 150,000 None _
President/Chief *1996 None None None _
Financial Officer/
Assistant Secretary
and Treasurer
* Salaries from 1995 and 1996 totalling $90,000, divided equally between
Messrs. Miller and Tribbey, have been accrued for future payment by the
Company.
Subject to any changes which may be made by the Board of Directors in
the future, the contemplated cash remuneration to be paid to Mr. Miller and
Mr. Tribbey, as executive officers of the Company, during the fiscal year
ending December 31, 1997, except as noted below, is approximately the same
as that paid during the fiscal year ended December 31, 1996.
Indebtedness of the Company to Messrs. Miller and Tribbey for $400,000 in
unpaid compensation was forgiven in January 1996. Subsequently, in March
1997, Messrs. Miller and Tribbey agreed to subordinate receipt of any pay-
ments in respect to approximately $425,000 in unpaid compensation prior to
January 1995, until repayment of the Company's obligations under related
party indebtedness to one or more entities affiliated with Mr. Wei-Ming Lu.
Payment of the pre-1995 unpaid salaries cannot begin until ORI produces
profits under a specified formula and then payments will occur in equal
installments over the succeeding 36 months. In addition, when all salaries
have been paid in respect to 1995, 1996 and through the current date and all
money advanced by Messrs. Miller and Tribbey have been repaid, Messrs.
Tribbey and Miller have agreed to defer one-third of their monthly salary
until ORI produces profits under the same formula as stated provided the
Company has sufficient working capital. Such compromise of claims and
deferral of payment of previously unpaid salaries may have a detrimental
effect upon the Company's ability to retain the services of such officers,
but has been required by the related party lender as a condition of the
credit facility.
Options Grants in the Last Fiscal Year
No stock options were granted to an officer of the Company during fiscal
year ended 1996.
Set forth below is information with respect to the unexercised options to
purchase the Company's common stock granted during fiscal years ended
December 31, 1992 and 1995, held by Messrs. Steven H. Miller and Kenneth W.
Tribbey at December 31, 1996.
Aggregate Option Exercises in Last Fiscal Year
and FY-End Option Values
Value of
Unexer-
Number of cised
Unexer- In-the-
cised Money
Options Options
at at
FY-End FY-End
Shares (#) ($)
Acquired Exer- Exer-
on Value cisable/ cisable/
Exercise Realized Unexer- Unexer-
Name (#) ($) cisable cisable
Steven H. Miller _ _ 350,000/0 0/0(1)
Kenneth W. Tribbey _ _ 350,000/0 0/0(1)
(1)At December 31, 1996, there was limited market for the Company's common
stock; and, accordingly, options held by the named officers have no value
and are not in-the-money.
All of the options heretofore granted to Messrs. Miller and Tribbey, and all
shares currently held of record by either of them have been pledged to
secure indebtedness of the Company to one or more related parties controlled
by Mr. Wei-Ming Lu. Such pledge of options and shares may be detrimental to
the incentives to enhance Company performance normally considered to be
achieved by the grant of employee stock options, but has been required by
the related party lender as a condition of the credit facility.
Compensation of Directors
The Company has made no cash compensation to its directors for their
services in such capacity, but such individuals are reimbursed for expenses
incurred related to attendance at meetings of the Board of Directors.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of December 31, 1996, the names and
addresses of each person known by the Company to own beneficially more than
5% of the Company's outstanding common stock and the percentage owned based
on the total number of shares of common stock outstanding and vested options
as of such date. The table also lists beneficial ownership of common stock
by each of the named executive officers and directors and by all directors
and officers as a group. Except as otherwise indicated, each stockholder
listed below has sole voting and investment power with respect to shares
beneficially owned by it, him or her.
Amount and Percent of Shares
Nature of of Common Stock
Name and Address Beneficial Outstanding and
of Beneficial Owner Ownership Vested Options(1)
Steven H. Miller 449,123 (2) 8.4%
9104 North Corral Lane
Castle Rock, CO 80104
Kenneth W. Tribbey 448,679 (3) 8.4%
6880 South Pike Place
Larkspur, CO 80118
James H. Waldrop 313,849 (4) 6.1%
28318 Targhee Lane
Evergreen, CO 80438
Michael E. Dee 233,729 (5) 4.5%
7843 S. Locust Court
Englewood, CO 80112
Frederick V. Miale, Jr. 224,062 (6) 4.4%
6401 S. Boston St., Unit C-206
Englewood, CO 80111
Ventures Plus, Inc. 897,802 (7) 15.7%
680 Atchison Way, Suite 800
Castle Rock, CO 80104
All executive officers and 1,196,064 (8) 20.0%
directors as a group (5
persons)
---------------- ---------- ----
Wei Ming Lu 3,384,941 (9) 65.0%
3898 S. Eagle Street
Aurora, CO 80014
Fu-Mei Lu 3,384,941 (10) 65.0%
3898 S. Eagle Street
Aurora, CO 80014
Chih-Fen Lu 897,802 (11) 25.12%
13963 E. Grand Ave.
Aurora, CO 80015
Chih-Hui Lu 1,285,172 (12) 25.0%
3898 S. Eagle Street
Aurora, CO 80014
Earl Wing 1,293,060 (13) 25.12%
13963 E. Grand Ave.
Aurora, CO 80015
Georgia Resources, Inc. 2,017,188 (14) 40.28%
1401 17th Street, Penthouse
Denver, CO 80202
Cathay Global Investments, Inc. 233,729 (15) 4.5%
1401 17th Street, Suite 1520
Denver, CO 80202
WML Services Corporation 2,250,571 (16) 42.7%
1401 17th Street, Penthouse
Denver, CO 80202
C.I.S. Resources Limited
Liability Co. 1,051,443 (17) 21.0%
1401 17th Street, Penthouse
Denver, CO 80202
Continental Integrated
Services, Inc. 1,051,443 (18) 21.0%
1401 17th Street, Penthouse
Denver, CO 80202
Chih-Ru Lu 1,051,443 (19) 21.0%
3898 S. Eagle Street
Aurora, CO 80014
Chih-Chi Lu 1,051,443 (19) 21.0%
3898 S. Eagle Street
Aurora, CO 80014
Chung-Ching Lu 1,051,443 (19) 21.0%
3898 S. Eagle Street
Aurora, CO 80014
Pei-Yu 1,051,443 (19) 21.0%
3898 S. Eagle Street
Aurora, CO 80014
(1) As adjusted for the exercisable options held by identified owner. See
table "Options Exercised in Fiscal Year and Year End Values." Due to
aggregation of interests held by related parties in more than one
entry, total will exceed 100%.
(2) Represents 29,869 shares owned of record and a presently exercisable
option to purchase up to 200,000 and 150,000 shares of common stock
at $4.25 and $1.50 per share, respectively. Also includes one-half of
138,508 shares owned beneficially in the name of Ventures Plus, Inc.
Mr. Miller is an officer,director and 50% owner of Ventures Plus, Inc.
and, therefore, may be deemed to be a beneficial owner of one-half of
the shares held by it. The shares and options held of record by Mr.
Miller have been pledged to secure indebtedness of the Company to one
or more affiliates of Mr. Wei Ming Lu.
(3) Represents 29,425 shares owned of record and a presently exercisable
option to purchase up to 200,000 and 150,000 shares of common stock at
$4.25 and $1.50 per share, respectively. Also includes one-half of
138,508 shares owned beneficially in the name of Ventures Plus, Inc.
Mr. Tribbey is an officer, director and 50% owner of Ventures Plus,
Inc. and, therefore, may be deemed to be a beneficial owner of one-
half of the shares held by it. The shares and options held of record
by Mr. Tribbey have been pledged to secure indebtedness of the Company
to one or more affiliates of Mr. Wei Ming Lu.
(4) Mr. Waldrop holds options to acquire 80,000 shares of the Company's
common stock, with an exercise price of $4.25 per share. Mr. Waldrop
is a director of Cathay Global Investments, Inc. and is deemed
beneficial owner of the Company's 93,729 shares of common stock and
140,000 options to acquire common stock held by Cathay Global Invest-
ments, Inc. See 15 herein. No shares are attributed in this chart to
Mr. Waldrop with respect to share ownership by entities controlled by
Mr. Wei Ming Lu as to which Mr. Waldrop is neither a director,managing
member or officer.
(5) Mr. Dee holds no shares or options to acquire shares of the Company's
common stock. Mr. Dee is a director of Cathay Global Investments, Inc.
and is accordingly deemed beneficial owner of the Company's 93,729
shares and 140,000 options to acquire common stock held by Cathay
Global Investments, Inc. No shares are attributed in this chart to Mr.
Dee with respect to share ownership by entities controlled by Mr. Wei-
Ming Lu as to which Mr. Dee is not a director, managing member, or
officer. See 15 herein.
(6) Represents 10,333 shares of the Company's common stock and presently
exercisable options to acquire 60,000 shares of the Company's common
stock with an exercise price of $4.25. Mr. Miale until his resignation
effective December 31, 1996 was President, Director and a 25% share-
holder of Cathay Global Investments,Inc.,f/k/a Omnivest International,
Inc. and is accordingly deemed beneficial owner of 93,729 shares and
60,000 options to acquire common stock held by Cathay Global Invest-
ments, Inc. Mr. Miale's relationship with Cathay Global Investments,
Inc. and Mr.Wei Ming Lu terminated prior to certain transactions which
are included in shares attributable to Messrs. Waldrop and Dee. No
shares are attributed in this chart to Mr. Miale with respect to share
ownership by entities controlled by Mr. Wei Ming Lu as to which Mr.
Miale is neither a director, managing member, or officer. See No. 15
herein.
(7) Represents 138,508 shares beneficially owned in the name of Ventures
Plus, Inc., 59,294 shares owned by Steven H. Miller and Kenneth W.
Tribbey and options to purchase up to 700,000 shares,in the aggregate,
held by Messrs. Miller and Tribbey, which options are immediately
exercisable. Messrs. Miller and Tribbey are the officers, directors
and sole shareholders of Ventures Plus, Inc.
(8) Represents 138,508 shares beneficially owned in the name of Ventures
Plus, Inc., 59,294 shares owned by Steven H. Miller and Kenneth W.
Tribbey, 4,533 shares owned by Mr. Miale, 93,729 shares deemed bene-
ficially owned by Mr. Waldrop and Mr. Dee, and options to purchase
up to 900,000 shares, in the aggregate, held or deemed beneficially
owned by Messrs. Miller, Tribbey, Waldrop, Dee and Miale,which options
are immediately exercisable.
(9) Represents exercisable options to acquire 60,000 shares of the
Company's common stock with an exercise price of $4.25 per share. Also
includes the following of which Mr. Wei Ming Lu is deemed beneficial
owner:
(A) 2,629 shares owned by Riverbank Resources, L.L.C. of which Mr. Lu
has a 2.9% ownership interest in 90,667 shares owned by Riverbank
Resources, L.L.C.;
(B) 1,547 shares owned by Cenote L.L.C. of which Mr. Lu has a 5.8%
ownership interest in 26,667 shares owned by Cenote L.L.C.;
(C) 1,893 shares owned by Cenote L.L.C. of which Omnivest Americas,
Inc. has a 7.1% ownership in 26,667 shares owned by Cenote L.L.C.
which is owned 100% by Cathay Global Investments, Inc., which in turn
Mr. Lu has an 82% voting control through WML Services Corporation and
certain off-shore entities;
(D) 91,836 shares owned by Cathay Global Investments, Inc. ("CGII")
which Mr. Lu controls 82% of the voting stock through WML Services
Corporation and certain off-shore entities. CGII has options to
purchase 140,000 shares of the Company's common stock with an exercise
price of $4.25 per share;
(E) 2,017,188 shares owned by Georgia Resources, Inc. which Mr. Lu
controls by his 100% ownership of WML Services Corporation through
certain off-shore entities;
(F) 1,051,443 shares owned by C.I.S. Resources Limited Liability
Company which Mr. Lu controls by reason of his patriarchal position
and financial relationships with the Lu Family Investors who own 77.8%
of the equity and who constitute 7 of 9 Directors.
(G) 10,517 shares held in the name of his wife Fu-Mei Lu. Mr. Lu is
deemed beneficial owner by reason of their marital relationship.
(H) 7,888 shares held in the name of his daughter Chih-Fen Lu. Mr. Lu
is deemed beneficial owner by reason of his patriarchal position and
financial relationship.
The shares attributed to Mr. Lu in this chart include none of the
shares and options pledged by Messrs. Miller and Tribbey to one or
more entities controlled by him to secure indebtedness of the Company.
See Notes (2) and (3).
(10) Represents 10,517 shares owned by Riverbank Resources, L.L.C. which
Fu-Mei Lu has an 11.6% ownership interest in 90,667 shares owned by
Riverbank Resources, L.L.C. In addition, Fu-Mei Lu is Wei-Ming Lu's
wife and therefore his ownership is attributable to her. See 9 herein.
(11) Represents 7,888 shares owned by Riverbank Resources, L.L.C. which
Chih-Fen Lu has 8.7% ownership interest in 90,667 shares owned by
Riverbank Resources, L.L.C. Chih-Fen Lu is a director of Continental
Integrated Services, Inc., a 99.9% owner of C.I.S. Resources, L.L.C.
and therefore all 1,051,443 shares owned by C.I.S. Resources, L.L.C.
is attributed to her. Chih-Fen Lu is Earl Wing's wife and therefore
is beneficial ownership of his beneficial ownership of CGII 93,729
shares and 140,000 options to purchase shares of the Company's common
stock, as a director of CGII.
(12) Chih-Hui Lu is a Director of Continental Integrated Services, Inc.,
99.9% owner of C.I.S. Resources and therefore all 1,051,443 shares
owned by C.I.S. Resources is attributed to her. Chih-Hui Lu is a
Director of Cathay Global Investments, Inc.and is accordingly deemed
beneficial owner of 93,729 shares of common stock and 140,000 options
to acquire common stock held by Cathay Global Investments, Inc.
(13) Mr. Wing is a Director of Cathay Global Investments, Inc. and
therefore, deemed a beneficial owner of 93,729 shares and 140,000
options to acquire common stock held by Cathay Global Investments,Inc.
Chih-Fen Lu is Earl Wing's wife and therefore her ownership is
attributable to him. See No. 11 herein.
(14) Represents 2,017,188 shares of the Company's common stock received in
the business combination of Omnivest Resources, Inc.(formerly Omnivest
Resources, L.P.) and the Company. Georgia Resources, Inc.'s voting
stock is controlled 100% by Wei-Ming Lu through WML Services, Inc. and
certain off-shore entities. Wei-Ming Lu's other interests are not
aggregated with Georgia Resources, Inc. for purposes of this chart.
Subsequent to December 31, 1996, Georgia Resources,Inc. was granted
500,000 options in connection with a loan to the Company. See
"Subsequent Events." Subsequent to December 31, 1996, Georgia
Resources, Inc. was granted 500,000 options and issued 166,700 shares
as "arrangement fees" in connection with a loan to the Company. See
"Subsequent Events." See No. 9 herein.
(15) Represents 91,836 shares of common stock owned by Cathay Global
Investments, Inc. and 1,893 shares owned by Omnivest Americas, Inc.
which owns 7.1% of Cenote Inc., owner of 26,667 shares. In addition,
Cathay Global Investments, Inc. has options to purchase 140,000 shares
of the Company's common stock with an exercise price of $4.25 per
share. Mr. Wei-Ming Lu controls Cathay Global Investments, Inc.
through WML Services, Corporation and certain off-shore entities. Mr.
Wei-Ming Lu controls 82% of the voting stock of Cathay Global Invest-
ments, Inc. through his ownership of 99.9% of WML Services Corporation
and is a member of the Board of Directors of Cathay Global Investments,
Inc. Mr.Wei-Ming Lu's other interests are not aggregated with Cathay
Global Investments, Inc., for purposes of this chart. Cathay Global
Investments, Inc. is included herein although its holdings aggregate
constitute less than 5% of the Company,for reasons of its relationship
to Mr. Wei-Ming Lu. See No. 9 herein.
(16) Represents 2,017,188 owned beneficially through a 100% ownership
interest in Georgia Resources, Inc. and 91,836 shares owned by Cathay
Global Investments, Inc. which WML Services Corporation owns 82% of
the equity. Also included are 1,547 shares owned through a 5.8% owner-
ship interest in Cenote and 1,893 shares owned by 100% interest in
Omnivest Americas,Inc. which in turn owns 7.1% interest of Cenote's
26,667 shares. WML Services Corporation is owned 100% by Mr. Wei-Ming
Lu through certain off-shore entities. Mr. Wei-Ming Lu's other
interests are not aggregated with WML Services Corporation, for pur-
poses of this chart. See No. 9 herein.
(17) Represents 1,051,443 shares owned directly by C.I.S. Resources Limited
Liability Company. Mr. Wei-Ming Lu controls C.I.S. Resources by reason
of his patriarchal position and financial relationship with respect to
the Lu family investors who own 77.8% of the Continental Integrated
Services, Inc. which own 99.7% of C.I.S. Resources Limited Liability
Company. Mr. Wei-Ming Lu's other interests are not aggregated with
C.I.S. Resources Limited Liability Company,for purposes of this chart.
See No. 9 herein.
(18) Represents 1,051,443 shares of the Company's common stock owned
beneficially by Continental Integrated Services, Inc. through a 99.97%
ownership interest in C.I.S. Resources Limited Liability Company. Mr.
Wei-Ming Lu controls Continental Integrated Services, Inc. by reason
of his patriarchal position and financial relationship with respect to
the Lu family investors who own 77.8% of the equity. Mr. Wei-Ming Lu's
other holdings are not aggregated with the holdings of Resources
Limited Liability Company, for purposes of this chart.
(19) Chih-Ru Lu, Chih-Chi Lu, Chung-Ching Lu and Pei-Yu are all beneficial
owners of the Company's common stock due to their positions as vice
presidents and directors of Continental Integrated Services, Inc.
which owns 99.97% of C.I.S. Resources Limited Liability Company which
owns 1,051,443 shares of common stock in the Company.
ITEM 12. Certain Relationships and Related Transactions
In 1986, the United States Bankruptcy Court for the Middle District of
Georgia approved the Plan of Reorganization (the"Plan") of Camp Lightweight,
Inc., a Georgia corporation ("Lightweight"), which provided for the sale to
the Company of Lightweight's aggregate manufacturing assets and operations
conducted on a 462-acre parcel located in Clay County, Georgia.The principal
activities of the Company and its management from 1987 through 1993 were
involved with complicated legal proceedings with respect to the Plan in the
Chapter 11 proceedings, to obtain clear title to Lightweight's assets which
would permit financing for the Company's proposed lightweight aggregate
manufacturing operations.
In February 1993, the Bankruptcy Court reaffirmed its 1986 Order approving
Lightweight's Plan with the result that the Company received ownership and
unencumbered title to Lightweight's aggregate manufacturing facilities,
together with licenses, construction and operating rights,government permits
and approximately 462 acres of land in Clay County, Georgia.
In March 1993, the Company formed and became the general and managing
partner of Omnivest Resources, L.P. ("ORLP" or the"Partnership"). ORLP was
merged into a wholly owned subsidiary of the Company in June of 1996. ORLP
had been formed to attract needed capital to refurbish the lightweight
aggregate production facilities in Clay County, Georgia, to commence manu-
facturing operations. The Company transferred the aggregate manufacturing
facilities acquired under the Plan into ORLP.
Under a Management Agreement, the Company controlled and managed ORLP, as
managing partner. From 1993 to the present, the Company has managed the
facilities and operations of ORLP and its successor ORI under a Management
Agreement, which provides for compensation to the Company for the services
of its personnel in management of the manufacturing operations. The initial
two year term of the Management Agreement expired March 31, 1995, and since
such time the Management Agreement has been extended under an automatic
renewal term on a year by year basis. The Management Agreement permits up to
48 additional 1-year periods unless terminated by the Company or ORI, upon
30 days' prior written notice.
The Management Agreement provides for payment to the Company of a base fee
of $20,000 per month. The Agreement entitles the Company, as managing
partner, to a quarterly profit bonus of 4.5% of ORLP's profit,if any, during
the term of the Agreement. Mr. Steven H. Miller and Mr. Kenneth W. Tribbey
are responsible for the Company's activities under the Management Agreement,
and, as such, pursuant to their employment contracts, receive the benefit of
the health, disability and life insurance coverage, quarterly profit bonus
and severance payments under the Agreement at ORI's expense. In the event of
termination of the Agreement for any reason other than the commission of an
intentional felony by the Company, as manager, or the Company's removal as
manager pursuant to the termination provisions of the Management Agreement,
the Company is entitled to the following severance payments: (1) an amount
equal to the monthly base management fee for the preceding six months, plus
the sum of the quarterly performance bonuses earned during such six-month
period;and(2) quarterly payments for five years from the date of termination
equal to one-half of the average quarterly performance bonus for the two
quarters prior to the termination.
On March 30, 1993, the Company and ORLP entered into a Credit Agreement
with Omnivest International Financial Services, Inc. ("Omnivest" now "Cathay
Global Investments, Inc." or "Cathay"), C.I.S. Resources Limited Liability
Company ("CIS")and Georgia Resources, Inc.("GRI")(GRI and CIS, collectively,
"Lenders"). The Credit Agreement permitted the Lenders to convert debt to
partnership interests, and further permitted the limited partners to convert
their limited partnership interests into shares of Common Stock of the
Company.
As of December 31, 1994, pursuant to the Credit Agreement, and a subsequent
amendment to the Credit Agreement, the Lenders had advanced $6.931 million
to ORLP under the Credit Agreement. Those loan proceeds were utilized to
refurbish the aggregate manufacturing facilities contributed by the Company
to ORLP in order to commence operations. Substantially all refurbishment
activities were completed in October 1994 and the Partnership commenced
operations during the fourth quarter of 1994. In addition, GRI had committed
$1.200 million in working capital funds to ORLP.
The loans to ORLP under the Credit Agreement were secured by all of the
assets conveyed by the Company and repayment was guaranteed by the Company.
In addition, the loans were guaranteed by Messrs. Steven H. Miller and
Kenneth W. Tribbey, officers and directors of the Company. Messrs. Miller
and Tribbey's guarantees were secured by the pledge of 106,520 shares of
the Company's shares beneficially owned by a company affiliated with such
officers, together with the pledge of options previously granted to such
officers to purchase a total of 400,000 shares of the Company's common stock.
Under the Partnership Agreement and the Credit Agreement, both as amended,
the Lenders were permitted to convert all, but not less than all, of the
advances to ORLP under the Credit Agreement into a 50.9% Limited Partnership
Interest for the first $3.996 million and up to an additional 27.67% Limited
Partnership Interest if the additional $3 million provided by the amended
Credit Agreement was advanced and converted. As of December 31, 1994, $2.935
million had been advanced above the $3.996 million. On June 15, 1995, the
Lenders converted $6.931 million in indebtedness to a 78.13% Limited
Partnership ownership interest. The lenders did not exercise their right for
payment of interest under the Credit Agreement for the continued benefit
of the Partnership. The ORLP indebtedness so converted was accounted for as
a capital contribution. Conversion of the indebtedness to limited partner-
ship interests occurred after a majority of the Company's shareholders
approved the transfer by the Company of its lightweight aggregate manufactu-
ring facilities to ORLP contemplated by the Partnership Agreement. At the
time of such shareholder approval, the Company's shareholders were informed
that the partnership interests were convertible to shares of the Company's
Common Stock.
Upon the conversion of the lenders to Limited Partners and the additional
limited partnership interest for the Letter of Credit collateral,the Company
on June 15, 1995, reduced its General Partnership ownership interest from
99.9% to 20.02%. The resulting ORLP partnership equity increased by $6.931
million.
The Partnership Agreement, as amended, permitted the first $3.996 million
convertible into 50.9% Limited Partnership Interest to convert into a like
percentage of the restricted Common Stock of the Company to be outstanding
after giving effect to such conversion. Any additional Limited Partnership
Interest resulting from the conversion of advances in excess of the $3.996
million (a total of $2.935 million for 27.23% limited partnership interest)
was convertible into shares of the Company's restricted Common Stock.
But for the financing received in connection with the formation and subse-
quent borrowing activities of ORLP, the Company could not have proceeded
with refurbishment of its facilities and commencement of the aggregate manu-
facturing operations.
On June 15, 1995, the Partnership consummated a $4.5 million loan facility
with a lender unrelated to the Company or any affiliate. Loans pursuant to
such credit facility were secured by all the real, personal and intangible
assets of ORLP. In addition, the Company as General Partner, guaranteed the
above loan. As a requirement for the loan, a $1.25 million Letter of Credit
was obtained from an affiliate of certain limited partners, for the benefit
of ORLP.
Also in June 1995, WML Services Corporation,which holds interests in several
of former limited partners and is 100% owned by Mr. Wei-Ming Lu posted a
$1.25 million letter of credit as collateral for indebtedness of ORLP to a
third party lender. As consideration to GRI for arranging such letter of
credit, an additional 1.75% limited partnership interest was issued to GRI
from the Company. The Company issued options to Omnivest International to
purchase up to 400,000 shares of the Company's common stock exercisable at
$5.50 per share reduced to $4.25 per share at June 2, 1996. The options were
granted to Omnivest International as compensation for acting as Agent for
the Lenders in connection with the Borrowing by ORLP. The options are
exercisable until December 31, 1999, and were granted after approval by the
Company's shareholders of the transfer of the Company's lightweight
aggregate manufacturing facilities and related assets to ORLP. In connection
with such approval, the Company's shareholders were informed regarding the
contents of the Partnership Agreement and the proposed options.
On September 21, 1995, the Company's Board of Directors approved two-year
employment contracts with Messrs. Miller and Tribbey. The duties, compen-
sation, bonus calculation, benefits and severance under such contracts are
materially the same as the employment agreement they have been operating
under since March 1993. The Company's Board of Directors currently antici-
pates that such agreements will be renewed automatically at the expiration
of the two year term.
In January 1996 Messrs. Miller and Tribbey forgave $200,000 each of the pre-
viously unpaid salary, for the benefit of the Company and to improve its
balance sheet for purposes of future transactions.
Messrs. Miller and Tribbey have been employed in their current capacities
with the Company since 1988. For Messrs. Miller's and Tribbey's successful
efforts in connection with the Chapter 11 proceedings and their deferral of
a subportion of their salaries since 1988, the Company granted 200,000
options each to purchase common stock of the Company on November 10, 1992,
with an exercise price of $5.50 per share, subsequently reduced to $4.25 per
share, and exercise date prior to December 31, 1999. With net accrued
salaries still outstanding and no foreseeable means of payment in the near
future, the Company granted additional options to Messrs. Miller and Tribbey
on October 10, 1995, for 150,000 shares each,with an exercise price of $1.50
per share and an exercise date on or before December 31, 1999. All options
heretofore granted to Messrs. Miller and Tribbey have been pledged by such
officers to secure indebtedness of the Company, with the result that the in-
centives afforded to such officers by the existence of the options has been
substantially diminished.
Conversion of all limited partnership interests into shares of the Common
Stock of the Company was consummated on June 1, 1996, when the Company
completed a step transaction in which it issued 3,677,071 shares of its
common stock to the former limited partners of ORLP and received 100% of the
common stock of Omnivest Resources, Inc. (formerly "ORLP"), in connection
with a merger of Omnivest Resources with and into ORLP, Inc., a wholly owned
subsidiary of the Company. The business combination is reported as a
reverse purchase of AMERECO, Inc. by Omnivest Resources, Inc. Operations of
Omnivest Resources, Inc. ("ORI") are reported for all periods presented.
Operations for AMERECO, Inc. are reported from June 1, 1996, the reverse
purchase date, through December 31, 1996. The Board of Directors determined
that the purchase price approximated the fair value of the net assets
acquired. See "Security Ownership of Certain Beneficial Owners and
Management."
On September 26, 1996 Cathay Global Investments, Inc., f/k/a Omnivest
International, Inc. provided an unsecured loan to the Company for $350,000
with the same terms and conditions negotiated with a third party on August
30, 1996. The term of the loan was 90 days with a 90 day renewal option at
an interest rate of 13% per annum. The Company paid a non-refundable
processing fee of 45,918 shares of common stock with 45,918 shares issued on
the extension date. The Company repaid this loan with proceeds from its
borrowings from First Federal Savings Bank of Southwest Georgia in March
1997. Cathay Global Investments, Inc. is affiliated with Mr. Wei Ming Lu,
who beneficially owns approximately 65% of the Common Stock of the Company.
At the time such related party indebtedness was approved, Messers. Miale,
Waldrop and Dee, all nominees of Mr. Lu and his affiliated entities, served
on the Board of Directors of the Company. Their indirect interests in the
transactions were disclosed, and the Board of Directors of the Company,after
consideration of the terms and relative difficulty in obtaining alternate
financing determined that such borrowing by the Company was on terms no less
advantageous to the Company than could have been obtained from unrelated
third parties. Nevertheless, it is possible that the Company could have
obtained more favorable terms from unrelated third parties, dealing at arms'
length, had such credit been then available to it.
In addition, Cathay Global Investments, Inc. provided additional working
capital unsecured loans to bridge the Company's operation until the pending
$5,000,000 loan with an FmHa/Rural Development guarantee could be completed.
Cathay Global Investments, Inc. advanced an additional $549,000 unsecured
between November 29, 1996 and December 30,1996 at an interest rate of 10.25%
and a maturity date of March 13, 1997 and $200,000 at such interest, with a
maturity date of February 28, 1997. Cathay Global Investments, Inc is
affiliated with Mr. Wei Ming Lu, beneficially owns approximately 65% of the
Common Stock of the Company. At the time such related party indebtedness was
approved, Messrs. Miale, Waldrop and Dee, all nominees of Mr. Lu and his
affiliated entities, served on the Board of Directors of the Company. Their
indirect interests in the transactions were disclosed, and the Board of
Directors of the Company, after consideration of the terms and relative
difficulty in obtaining alternate financing determined that such borrowing
by the Company was on terms no less advantageous to the Company than could
have been obtained from unrelated third parties. Nevertheless, it is
possible that the Company could have obtained more favorable terms from
unrelated third parties, dealing at arms' length, had such credit been then
available to it.
Subsequent to year-end, Cathay Global Investments, Inc. advanced $55,000 on
January 13, 1997 at the same interest rate with a maturity of January 20,
1997. Cathay Global Investments, Inc. is affiliated with Mr. Wei Ming Lu,
who beneficially owns approximately 65% of the Common Stock of the Company.
At the time such related party indebtedness was approved, Messrs. Miale,
Waldrop and Dee, all nominees of Mr. Lu and his affiliated entities, served
on the Board of Directors of the Company. Their indirect interests in the
transactions were disclosed, and the Board of Directors of the Company,after
consideration of the terms and relative difficulty in obtaining alternate
financing determined that such borrowing by the Company was on terms no less
advantageous to the Company than could have been obtained from unrelated
third parties. Nevertheless, it is possible that the Company could have
obtained more favorable terms from unrelated third parties, dealing at arms'
length, had such credit been then available to it.
On March 17, 1997 VM Mortgage Lending Corporation, an affiliate of Georgia
Resources, Inc. and Mr. Wei Ming Lu entered into an agreement with its
secured lender to pledge additional Certificates of Deposit up to $1 million
which the Company could borrow against. As arrangement fees in connection
with such borrowing from such related party, the Company paid an arrangement
fee of 166,700 shares to Georgia Resources, Inc. and granted an option to
purchase 500,000 shares of the Company's common stock at $2 per share
through March 17, 2002. The shares issued and options granted pursuant to
the arrangement fee in respect of this borrowing are subject to one time
demand and multiple concurrent registration rights through March 17, 2002,
pursuant to a Registration Rights Agreement between GRI and the Company.
Further, the loans to the Company by VM Mortgage Corporation were secured by
the pledge of the Company's shares in its ORI subsidiary. The Company, under
such agreement, is required to pay the costs of registration,but not selling
costs. Both Mr. Miller and Mr.Tribbey were required to pledge their AMERECO,
Inc. common stock as additional requirements of the transaction.In addition,
such officers were required to subordinate and defer payment of unpaid
salaries with respect to periods prior to December 31, 1994 of approximately
$425,000. In addition Messrs. Miller and Tribbey agreed to defer one-third
of their monthly salary until ORI produces profits under a specified formula
and such deferral only occurs after salaries have been paid in full for
1995, 1996 and through the current date. Such deferral of payment of earned
but unpaid compensation and deferral of current compensation by Messrs.
Miller and Tribbey has been required as a condition of the Company's borrow-
ing from one or more entities affiliated with Mr.Wei Ming Lu, who benefi-
cially owns approximately 65% of the Common Stock of the Company. At the
time such related party indebtedness was approved, Messrs. Miale, Waldrop
and Dee, nominees of Mr. Lu and his affiliated entities, had resigned from
service on the Company's Board of Directors. The Board of Directors of the
Company, after consideration of the terms and relative difficulty in obtain-
ing alternate financing determined that such borrowing by the Company was
on terms no less advantageous to the Company than could have been obtained
from unrelated third parties. Nevertheless, it is possible that the Company
could have obtained more favorable terms from unrelated third parties,
dealing at arms' length, had such credit been then available to it.
On April 18, 1997 the Company completed the long awaited debt refinancing
with First Federal Savings Bank of Southwest Georgia. The term loan is for
15 years for $5,000,000 with monthly amortization of $54,713 principal and
interest with the interest rate adjusted quarterly based on a weighted
average Bond Equivalent Rate during the prior quarter.The effective interest
rate on April 18, 1997 was 10.32%. The collateral for the loan is equipment,
fixtures, all real property owned by the Company and a $500,000 Certificate
of Deposit. In addition, approximately 80% of the outstanding indebtedness
under such loan is guaranteed under a federal rural development program.
Proceeds from the above loan were used to retire the outstanding term loan
with Congress Financial Corporation ("Congress") in the remaining amount of
$1,950,000, and reduce the revolving loan with Congress from a remaining
amount of $2,150,000 to $1,100,000, which continues to be secured by the
guaranty of the Company and all assets of the Company's ORI subsidiary not
pledged or mortgaged to First Federal Savings Bank of Southwest Georgia,
including accounts receivable, inventory, as well as the $1,250,000 Letter
of Credit pledged by WML Services Corporation, a corporation affiliated with
Mr. Wei Ming Lu, who is beneficial owner of approximately 65% of the
Company's Common Stock. Upon payment to Congress of the term loan, the
additional $1,000,000 collateral C.D.'s were released back to V.M. Mortgage
Lending Corporation, another entity affiliated with Mr. Wei Ming Lu, who is
beneficial owner of approximately 65% of the Company's Common Stock.
Currently, V.M. Mortgage Lending Corporation or Cathay Global Investment,
Inc. have the right, but not the obligation, to acquire the Company's note
payable to Congress. The Congress note, under its most recent extension
remains payable in full on June 11, 1997.
The Company is currently finalizing negotiations with Cathay Global Invest-
ments, Inc. to renew and extend the notes of Cathay, to advance additional
funds to pay V.M. Mortgage Lending Corporation and to arrange for a Letter
of Credit. The Company's Board of Directors anticipates a 24 month note
with a nominal interest rate of prime plus 2.50% and an arrangement fee
involving issuance of approximately 307,998 shares of stock and grant of
options to acquire 923,994 additional shares may be required to be paid to
an entity affiliated with Mr. Wei-Ming Lu. Such shares and options are
expected to be subject to a registration rights agreement with the Company
on terms similar to those provided in respect of the shares and options
which constituted an arrangement fee in respect of the March 17, 1997 agree-
ment with VM. In addition,it is anticipated that substantial assets of the
Company will serve as collateral to the proposed loan by Cathay Global, in
either a first or second position. The Company's Board of Directors and
officers continue to search for an unrelated party source for the approxi-
mately $2.0 million which it requires in working capital financing and
repayment of the Company's note payable to Congress.
At various periods during 1996 and through April 30, 1997, all as more
particularly described above, the Company had borrowed from entities related
to Mr. Wei Ming Lu, the amounts set forth in the following chart, at the
stated rates of interest, for the periods stated:
PAYMENTS IN RESPECT OF INDEBTEDNESS TO CERTAIN
RELATED PARTIES
Borrowed Stated Rate of Period Interest Paid or Accrued and
Amount Interest Outstanding(Mos) Fees Paid or Payable(1)
$98,000 10.0% 16.0 $12,753
350,000 13.0% 6.5 27,051
749,000 10.25% 4.5 28,592
1,000,000 Fee(2) 1.0 166,700(3)
________ Total $235,096
(1) The amounts set forth in this chart do not include any amount in respect
of the contemplated borrowing described above as to which final
documents have not been executed. Nor does this chart include any
amounts previously paid in respect of the letter of credit currently
securing the Congress indebtedness, as such payments preceded the period
reflected in this chart. The interest and fees set forth herein include
not only interest but the amount of arrangement fees paid or payable to
other affiliates of Mr. Lu.
(2) This item relates to the pledge of Certificates of Deposit by related
parties, to secure the Company's indebtedness to third party lenders.
There is no stated amount of interest, but arrangement fees were payable
to an affiliate of Mr. Lu, and are treated as imputed interest, in the
amount set forth opposite this item.
(3) This represents issuance of 166,700 shares of the Company's Common
Stock, valued at $1.00 per share. No options have been included in this
chart, because the exercise price of such options is not greater than
the fair market value of the Company's Common Stock as of the date of
grant. The book value of the Company's common stock at December 31, 1996
was approximately $2.00 per share and the value per share was discounted
50% due to the current limited market of the Company's common stock.
When weighed to reflect the amounts paid in respect of such borrowed sums
for the period borrowed, the unsecured borrowings set forth in the foregoing
chart reflect an approximate effective rate of interest and other fees of
34.3% actually paid to parties affiliated with Mr. Wei Ming Lu, who controls
each of the related party lenders. The imputed interest and actual interest
payable in connection with the related party borrowing currently under
negotiation is expected to result in payments at rates in excess of the
amounts previously paid in respect of related party indebtedness. Certain
amounts included in the foregoing chart as imputed interest are not treated
on the Company's balance sheet as additional interest when paid, issued or
granted to an affiliate in respect of a loan from another affiliate of Mr.
Lu. Because the Company has required such financing and has identified no
other more favorable lending transaction, the Company's Board of Directors
has approved such transactions as being in the best interest of the Company
under the circumstances. The Board of Directors and the Company's executive
officers continue to actively seek alternative sources of financing which do
not involve related parties.
ITEM 13. Exhibits and Reports on Form 8-K
(a) Financial Statements
(b) Reports on Form 8-K
In a report on Form 8-K dated June 1, 1996 the Company reported the
Second Amendment to the Limited Partnership Agreement with ORLP and the
conversion of Limited Partnership interest into common stock of the
Company. The Company also reported on Form 8-K dated June 28, 1996 the
results of proposals voted on by shareholders at the annual meeting. The
above are summarized in Part III, Item 12 of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
AMERECO, INC.
By: /s/ Steven H. Miller
Steven H. Miller, President and
Chief Executive Officer
June 6, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, 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/ Steven H. Miller President, Chief Executive June 6, 1997
Steven H. Miller Officer and Director
/s/ Kenneth W. Tribbey Executive Vice President, June 6, 1997
Kenneth W. Tribbey Chief Financial Officer,
Chief Accounting Officer,
Treasurer, Secretary and
Director
/s/ Craig E. Gunter Director and Assistant June 6, 1997
Craig E. Gunter Secretary
This page intentionally left blank.
Amereco, Inc.
Exhibit to Financial Statements
December 31, 1996
Amereco, Inc.
Index to Financial Statements
Page
Independent Auditor's Report.................................F-2
Financial Statements
Consolidated Balance Sheet
as of December 31, 1996...................................F-3
Statements of Operations
for the years ended December 31, 1996 and 1995............F-4
Consolidated Statements of Changes
in Stockholder's Equity for the years ended
December 31, 1996 and 1995................................F-5
Statements of Cash Flows
for the years ended December 31, 1996 and 1995............F-6
Notes to Financial Statements.............................F-7
Independent Auditors' Report
The Board of Directors
AMERECO, Inc.
We have audited the accompanying consolidated balance sheet of AMERECO,
Inc. (a Utah corporation), and subsidiary, as of December 31, 1996,and the
related statements of operations, consolidated stockholders' equity and cash
flows for the years ended December 31, 1996 and 1995. These financial state-
ments are the responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and signi-
ficant 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 financial position of AMERECO, Inc. and
subsidiary as of December 31, 1996, and the results of their operations and
their cash flows for the two years then ended, in conformity with generally
accepted accounting principles.
As explained in Note 2. to the financial statements,operations are presented
consolidated from June 1, 1996 (reverse purchase date) through December 31,
1996. January 1, 1996 through May 31, 1996 and 1995 operations of Omnivest
Resources, Inc. are presented.
MASON RUSSELL WEST, LLC
/s/ Mason Russell West, LLC
Denver, Colorado
April 18, 1997
AMERECO, Inc.
Consolidated Balance Sheet
December 31, 1996
Assets
Current Assets
Cash $39,040
Accounts receivable - trade, net 301,038
Accounts receivable - other 7,220
Inventories 1,648,387
Prepaid expenses 47,049
Collateral deposit 1,000,000
Total Current Assets 3,042,734
Property, Plant, and Equipment
Machinery and equipment 14,330,946
Office equipment 102,396
Less accumulated depreciation (849,546)
Land and improvements 472,757
Net Property, Plant, and Equipment 14,056,553
Other Assets
Organization and loan costs 39,957
Total Other Assets 39,957
Total Assets $17,139,244
See accompanying notes to financial statements.
F-3
AMERECO, INC.
Consolidated Balance Sheet
December 31, 1996
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $3,874,656
Notes payable - affiliate 1,197,000
Accounts payable - trade 832,960
Accounts payable - other 29,168
Accrued expenses 215,657
Amounts due related entities 687,525
Current portion of long-term debt 60,791
Total Current Liabilities 6,897,757
Long-Term Debt 116,559
Total Liabilities 7,014,316
Commitments and contingencies 0
Stockholders' Equity
Common stock 5,008
Additional paid-in capital 14,471,031
Accumulated deficit (4,351,111)
Total Stockholders' Equity 10,124,928
Total Liabilities and Stockholders' Equity $17,139,244
See accompanying notes to financial statements
F-3
AMERECO, Inc.
Statements of Operations
For the Years Ended December 31, 1996 and 1995
1996 1995
Net sales $3,017,182 $1,313,675
Cost of sales 3,412,636 1,431,841
Gross Profit (Loss) (395,454) (118,166)
Selling expense 529,274 462,988
Management expense 140,000 263,361
General and administrative 130,173 101,463
Total Operating Expense 799,447 827,812
Loss From Operations (1,194,901) (945,978)
Other Income (Expenses)
Interest expense (409,620) (549,740)
Interest income 50,466 28,904
Miscellaneous income 14,749 37,036
Loan fees (429,272) 0
Gains (losses)on disposal of assets (28,388) 0
Intangible assets written off (402,037) 0
Amortization and other (33,336) (86,135)
Total Other Income (Expense) (1,237,438) (569,935)
Loss Before Extraordinary Item and
Cumulative Effect of Accounting Change (2,432,339) (1,515,913)
Extraordinary item 91,253 358,220
Cumulative effect of accounting change 164,690 --
Net Loss ($2,176,396) ($1,157,693)
Net Loss Per Share
Before extraordinary item and cumulative
effect of accounting change ($0.74) ($1.44)
Extraordinary item .03 .34
Cumulative effect of accounting change .05 .00
Net Loss Per Share ($0.66) ($1.10)
Weighted average common shares for
computing per share data 3,302,344 1,050,623
See accompanying notes to financial statements
F-4
AMERECO, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1996 and 1995
Common Stock
Issued and Outstanding
Shares Amount
Balance at December 31, 1994 51,216,121 $51,216
Common stock par value .001
Authorized 500,000,000 shares
Common stock issued 1,313,728 1,314
1:50 reverse split (51,479,159) (51,479)
After split 1,050,690 1,051
Commom stock issued 37,116 37
Net Loss - 1995 -- --
Balance at December 31, 1995 1,087,806 1,088
Net Income to May 31, 1996
Common stock issued to acquire all outstanding
shares of Omnivest Resources, Inc. under
conversion option and reverse purchase
May 31, 1996 3,677,071 3,677
Issuance of common stock for services
and loan fees 242,739 243
Net Loss for the year ended
December 31, 1996 -- --
Balance at December 31, 1996 5,007,616 $5,008
See accompanying notes to financial statements
F-5
Additional Total
Paid-In Accumulated Shareholders'
Capital Deficit Equity
Balance at December 31, 1994 $9,875,959 ($6,232,393) $3,694,782
Common stock par value .001
Authorized 500,000,000 shares
Common stock issued 53,792 -- 55,106
1:50 reverse split 51,479 -- --
After split 9,981,230 (6,232,393) 3,749,888
Common stock issued 148,448 -- 148,485
Net Loss - 1995 -- (768,480) (768,480)
Balance at December 31, 1995 10,129,678 (7,000,873) 3,129,893
Net Income to May 31, 1996 135,146 135,146
Common stock issued to acquired all outstanding
shares of Omnivest Resources, Inc. under
conversion option and reverse purchase
May 31, 1996 4,073,924 4,691,012 8,768,613
Issuance of common stock for
services and loan fees 267,429 -- 267,672
Net Loss for the year ended
December 31, 1996 (2,176,396) (2,176,396)
Balance at December 31, 1996 $14,471,031 ($4,351,111) $10,124,928
See accompanying notes to financial statements
F-5
AMERECO, Inc.
Statements of Cash Flow
For the Years Ended December 31, 1996 and 1995
1996 1995
Cash Flow from Operating Activities
Net loss ($2,176,396) ($1,157,693)
Adjustments to reconcile net loss to net
cash used in operating activity
Depreciation and amortization 225,093 295,656
Provision for doubtful accounts 32,146 0
(Gain)loss on disposal of property 28,388 86,135
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable-trade (2,036) (501,304)
(Increase) decrease in inventories (427,504) (728,766)
(Increase) decrease in prepaid expenses (17,642) (2,248)
(Increase) decrease in other assets 342,080 (1,339,441)
Increase (decrease) in notes payable 2,026,955 0
Increase (decrease) in accounts payable-trade (2,613) 143,250
Increase (decrease) in accounts payable-other 641,705 0
Increase (decrease) in accrued expenses 46,456 (114,587)
Net cash provided (used) by operating
activities 716,632 (3,318,998)
Cash Flow from Investing Activities
Cash payments for the purchase of assets (624,015) (1,367,706)
Cash proceeds from the sale of property 30,000 159,017
Net cash provided (used) by investing activities (594,015) (1,208,689)
Cash Flow from Financing Activities
Proceeds from issuance of long-term debt 223,372 5,183,691
Principal payments on long-term debt (346,023) (622,281)
Net cash provided (used) by financing
activities (122,651) 4,561,410
Net increase (decrease) in cash and equivalents (34) 33,723
Cash and equivalents, beginning of year 39,074 5,351
Cash and equivalents, end of year $39,040 $39,074
Supplemental disclosures:
Non-cash investing and financing activities:
Common stock issued for debt and services $276,672 $0
Notes payable converted to equity 2,216,708 6,931,000
Net assets acquired in reverse purchase 739,377 0
Total Non-cash invest. and financing activities $3,232,757 $6,931,000
Cash paid for:
Interest $552,318 $276,546
See accompanying notes to Financial Statements
F-6
AMERECO, Inc.
Notes to Financial Statements
December 31, 1996
Note 1: Summary of Significant Accounting Policies
Operations
AMERECO, Inc. ("the Company") was organized as a Utah corporation on October
16, 1974, under the name of Norcal Chemical Corporation. The Company's name
was changed to AMERECO, Inc. in June 1995. In 1986 the Company acquired
through the United States Bankruptcy Court a lightweight aggregate facility
located in Clay County, Georgia and acquired a sand and gravel property
in Columbus, Georgia. In 1988 the Company's current management was elected.
In April 1992 the Company sold the non-operating sand and gravel property
utilizing the proceeds from the sale to retire indebtedness owed to
creditors of the Company and creditors in the Chapter 11 proceeding. In
March 1993 the Company formed and became the General Partner of Omnivest
Resources, L.P. ("the Partnership") for the purpose of raising capital or
financing necessary to refurbish and place into production the lightweight
aggregate facility in Clay County, Georgia. The Company transferred to the
Partnership all the Company's title and interest in the lightweight
aggregate facility, subject to $311,250 of Company indebtedness, in exchange
for a 99.9% general partnership interest. The Company concurrently executed
a Credit Agreement with C.I.S. Resources Limited Liability Company ("CIS")
and Georgia Resources Inc.("GRI"). The Company as managing general partner
of the Partnership, managed the refurbishment of the plant and the operation
of the lightweight aggregate facility under terms of a management agreement.
In June 1995 after Company stockholder approval of the transfer of assets to
the Partnership, CIS and GRI converted the total advanced under the Credit
Agreement into a 78.13% Limited Partnership interest. The Partnership then
consummated a $4.5 million loan facility with an outside lender. The Company
as General Partner guaranteed the loan. As a requirement for the loan, a
$1.25 million Letter of Credit was obtained by GRI for the benefit of the
Partnership. As consideration to GRI, the Company issued an additional
1.75% Limited Partnership interest to GRI. With the conversion of the
lenders to Limited Partners and the additional Limited Partnership interest
for the Letter of Credit as collateral, the Company reduced its General
Partnership interest from 99.9% to 20.02%. In addition the Partnership had
capital requirements of $1.0 million which was funded by sale of additional
Limited Partnership interests. The Company's ownership interest was reduced
by 1.70% to 18.32%.
On June 1, 1996, in accordance with agreements previously approved by the
Company's shareholders, the Limited Partners converted their respective
partnership interests into shares of the Company's common stock through a
reverse merger purchase transaction in which the business owned assets were
placed in a corporation (Omnivest Resources, Inc.) which is now a wholly
owned subsidiary of the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of its 100% owned
subsidiary, Omnivest Resources, Inc. All significant intercompany trans-
actions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
The company considers all investments purchased with an original maturity
of three months or less to be cash equivalents.
Property and Equipment
The Company Property and Equipment are stated at cost. Costs other than
machinery and equipment are depreciated using the straight-line method over
the estimated useful lives of the assets.Machinery and equipment of Omnivest
Resources,Inc. are depreciated using the units-of-production method. When
assets are retired or disposed of, all applicable costs and accumulated
depreciation are retired from the accounts and any resulting gain or loss is
recognized.
Allowance for Uncollectible Accounts
The Company provides an allowance for uncollectible accounts based upon
prior experience and managements assessment of the collectibility of exist-
ing specific accounts.
Income Taxes
The Company has adopted the provisions of FASB Statement No. 109 "Accounting
for Income Taxes," which requires the asset and liability method of
accounting for income taxes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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 these
estimates.
Inventory
Inventory is valued at average cost under the last-in first-out (LIFO)method
not in excess of market.
Note 2: Business Combination
Effective June 1, 1996, AMERECO, Inc. completed a step transaction in which
it issued 3,677,071 shares of its common stock valued at $8,768,613 and
received 100% of the common stock of Omnivest Resources, Inc. (formerly
Omnivest Resources, L.P.). The business combination was accounted for as a
reverse purchase of AMERECO, Inc. by Omnivest Resources, Inc. Operations of
Omnivest Resources, Inc. are reported for all periods presented. Operations
for AMERECO,Inc. are reported from June 1, 1996 (reverse purchase date)
through December 31, 1996. The purchase price approximated the fair value
of the net assets acquired resulting in no goodwill.
Prior to June 1, 1996, AMERECO, Inc. reported its general partner interest
in Omnivest Resources, L.P. as an equity method investment. At May 31, 1996,
AMERECO, Inc.'s general partner investment in Omnivest Resources, L.P. was
20.02% and was carried at $3,793,335. From January 1, 1996 to May 31, 1996
AMERECO, Inc. equity methods loss was $133,340.
The following pro forma information represents the summarized data as though
the companies had combined at the beginning of each year presented:
1996 1995
Net Sales $3,017,182 $1,313,675
Loss before extraordinary items
and cumulative effect of
accounting change $2,063,853 $1,641,978
Net Loss $1,807,910 $1,283,758
Net Loss Per Share $.55 $1.23
Note 3: Inventories and Accounting Change
During 1996, the Company changed its method of determining the cost of
inventory from First-in, first-out (FIFO) to the last-in, first-out (LIFO)
method. The Company believes the LIFO method more closely relates current
costs with current revenue. The effect of the change was to increase
inventories at January 1, 1996 by $164,690. The effect on 1995 operations
would have been to decrease the operating loss by $164,690.
Inventories at December 31, 1996 consisted of the following:
Raw Materials $ 47,336
Aggregate 1,200,233
Processed Clay 297,380
Spare parts & supplies 103,435
$1,648,387
Note 4: Property and Equipment
Depreciation expense for the years ended December 31, 1996 was $225,093 and
$203,193 for December 31, 1995.
Note 5: Notes Payable
Unaffiliated Notes Payable
Note payable - Congress Financial Corporation:
The Company has a loan dated June 15, 1995 due
June 15, 1997. The interest rate is prime plus
2.25% which was 10.5% at December 31, 1996.
Principal payments of $25,000 plus interest are
made monthly. The Loan is secured by all assets
owned and hereafter acquired by Omnivest Resources,
Inc. and guaranteed by AMERECO, Inc. * $2,300,000
Note payable - Congress Financial Corporation:
The Company has a revolver line of credit due
June 15, 1997. The interest rate is prime plus
2.25% which was 10.5% at December 31, 1996.
Advances shall not exceed 70% of eligible accounts
receivable and 45% of eligible inventory with a
maximum availability reserve of $1.75 million.
Collateral for the loan is all assets owned and
hereafter acquired by Omnivest Resources, Inc.
and guaranteed by AMERECO, Inc. 978,048
Unsecured note due February 26, 1997, interest
rate of 13% per annum * 350,000
Note payable - unsecured bearing interest rate
of 12% per annum, due August 30, 1996 100,000
Note payable, unsecured bearing interest at
13%, due March 31, 1997 75,000
Note payable, unsecured bearing interest at
11%, interest paid semiannually, due April 15, 1997 40,000
Note payable, unsecured bearing interest at
8%, due December 31, 1996 27,712
Unsecured note due September 8, 1987 interest
rate of 8% per annum 3,896
Total Unaffiliated Notes Payable $3,874,656
Notes Payable to Affiliates
Unsecured note with affiliate due March 23, 1997,
interest rate of 13% per annum $350,000
Unsecured note with affiliate, interest rate of
10.25% per annum with $200,000 due February 28,
1997 and the balance due March 13, 1997 749,000
Unsecured note with affiliate Corporation,
interest rate of 10%, due January 10, 1997 98,000
Total Notes Payable to Affiliates $1,197,000
Total Current Notes Payable $5,071,656
Long Term Debt
Note payable - financial institution. Loan
secured by specific equipment, interest rate
of 10.5% per annum, monthly principal an interest
payments of $6,378.50, due August 1, 1999 $ 177,350
Less Current Portion (60,791)
Long Term Debt $ 116,559
Notes payable are due the following years:
Year Ending December 31, 1997 (current portion) $ 60,791
Year Ending December 31, 1998 67,491
Year Ending December 31, 1999 49,068
Total Long Term Debt $ 177,350
* See Subsequent Event Note 16.
Note 6: Income Taxes
The Company has loss carry-forward of $9,177,269 that may be offset against
future taxable income. The carry-forward expires in 2011.
A deferred tax asset has not been reflected in the financial statements
since the realization of the benefit is not assured due to the Company's
past operating history.
At December 31, 1996, the Company has net operating loss carry-overs avail-
able to offset future federal taxable income, if any. These amounts will
expire as follows:
1999 $ 70,991 2006 434,768
2000 555,816 2007 1,954,098
2001 288,190 2008 479,243
2002 394,878 2009 472,027
2003 346,704 2010 768,480
2004 568,868 2011 2,176,396
2005 666,810
Total operating loss carry-forward $9,177,269
The components of the deferred tax asset related to the operating loss
carry forward are as follows:
Deferred Tax Asset $3,120,000
Less Valuation Allowance (3,120,000)
Deferred Tax Asset $ 0
Note 7: Stock Options Stockholders Equity
In June 1995 the stockholders of the Company approved a stock option plan.
Under the plan, the Board of Directors may grant options for the purchase of
up to 100,000 common shares. The options may be exercisable for not more
than ten years and the option price must be not less than market value.
Nonqualified (non-employees) may be granted options at an option price
determined by a committee. During 1995, 22,500 nonqualified options have
been granted with an exercise price of $4.00 and an expiration year of 2001.
During 1996,no options were granted or exercised and 40,000 options expired.
Additionally, the Company granted options to officers, directors and others
for their past contributions. No options have been exercised or are in-the-
money. Since the option exercise prices were higher than firm market value
at the date of grant no compensation cost is included in operating income.
The following table represents these options outstanding:
Exercise Expiration
Granted Price Date
Officers and directors 400,000 $4.25 12/31/99
300,000 1.50 12/31/99
2,500 4.00 1/1/2001
2,500 4.00 7/1/2001
Others 400,000 4.25 12/31/99
20,000 4.75 12/31/99
17,500 4.00 7/1/2001
Total 1,142,500
Note 8: Aggregate Effect of Adjustments
The aggregate effect in net income for the fourth quarter of the year-end
adjustments was a operating loss of $1,262,042.
Note 9: Extraordinary Items and Infrequent or Unusual Items
Georgia Resources,Inc. did not exercise their right for payment of interest
on a loan to ORLP prior to conversion. The principal was converted to common
stock and the accrued interest forgiven. The accrued interest through the
date of conversion was $91,253.
As a result of the reverse purchase in 1996 and the loan restructure (See
Note 16.), organization cost related to the partnership and partnership loan
fees previously capitalized were written-off to operations.
Note 10: Transactions with Related Parties
The officers of the Company have accrued salaries and expenses from 1988
through 1996. The accrued salaries at December 31, 1996 and 1995, were
$603,144 and $961,544, respectively.
On September 21, 1995, the Company's Board of Directors approved a two year
employment contract with two officers. The duties, compensation, bonus cal-
culations and benefits are materially the same, except for the two year time
commitment by all parties, as the employment agreement they have been oper-
ating under since March 1993.
On September 26, 1996 Cathay Global Investments, Inc., f/k/a Omnivest Inter-
national, Inc. an affiliate of the Company provided an unsecured loan to the
Company for $350,000 with the same terms and conditions negotiated by the
Company with a third party on August 30, 1996. The term of the loan was 90
days with a 90 day renewal option at an interest rate of 13% per annum. The
Company paid a non-refundable processing fee of 45,918 shares of common
stock with 45,918 shares issued on the extension date. The Company repaid
this loan with proceeds from its borrowings from FmHA/Rural Development
guarantee in April 1997. (See Note No.16.)
In addition, Cathay Global Investments, Inc. an affiliate of the Company
provided additional working capital unsecured loans to bridge the Company's
operation until the pending $5,000,000 loan with an FmHA/Rural Development
guarantee could be completed. Cathay Global Investments, Inc. advanced an
additional $549,000 unsecured between November 29, 1996 and December 30,1996
at an interest rate of 10.25% and a maturity date of March 13, 1997, and
$200,000 at such interest with a maturity date of February 28, 1997.
On March 17, 1997 an affiliate of Georgia Resources,Inc. and Mr. Wei-Ming Lu
entered into an agreement with its secured lender to pledge additional
C.D.'s up to $1 million which the Company could borrow against. The Company
paid an arrangement fee of 166,700 shares to Georgia Resources, Inc. and an
option to purchase 500,000 shares of the Company's common stock at $2 per
share through March 17, 2002. (See Note No. 16.)
Note 11: Significant Concentration
The Company manufactures and sells one product (lightweight aggregate) on
credit terms to its customers. Substantially all of the customers are manu-
facturing or construction entities located in the southeast region of the
United States.
The Company conducts a substantial portion of its business with a certain
customer. For the year ended December 31, 1996, revenues from this customer
amounted to $458,630, or 15.5% of total revenue. The account receivable from
this customer at December 31, 1996 amounted to $25,680 or 8% of the total
accounts receivable balance.
Note 12: Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments as of
December 31, 1996 are as follow:
Carrying Fair
Amount Value
Assets
Cash $39,040 $39,040
Collateral deposits $1,000,000 $1,000,000
Liabilities
Short term borrowing $5,071,656 $5,071,656
Long term debt $177,350 $177,350
Note 13: Earnings Per Share
Net loss per common share is computed using the weighted average number of
common shares outstanding. Outstanding options are not included in the cal-
culation of net loss per common share since their impact is anti-dilutive.
Note 14: Lease Commitments
The Company rents office space on a month-to-month basis located in Castle
Rock, Colorado. Rent expense for the year ended December 31, 1996 was
$31,780.
The Company leases certain vehicles under lease agreements. The aggregate
minimum annual commitment under the noncancelable operating leases with
terms of one year or more are as follows for the years ending December 31:
1997 $ 21,543
1998 13,960
1999 2,338
$ 37,841
Note 15: Commitments and Contingencies
The Company's operations are subject to various federal, state, and local
laws governing protection of the environment. These laws are continually
changing and, in general,are becoming more restrictive. The Company believes
that it is in compliance with all applicable laws and regulations.
On September 21, 1995, the Company's Board of Directors approved a two-year
employment contract with two officers. The duties, compensation, bonus
calculations and benefits are materially the same except for the two-year
time commitment by all parties as the employment agreement they have been
operating under since March 1993. Under the agreement,if terminated, the two
officers would receive approximately $120,000.
The Company is periodically a defendant in legal proceedings arising in
connection with its business. In management's opinion, neither the financial
position nor the results of operations of the Company will be materially
affected by the final outcome of these legal proceedings.
Note 16: Subsequent Event
On March 17, 1997 VM Mortgage Lending Corporation, an affiliate of Georgia
Resources,Inc. entered into an agreement with its secured lender to pledge
additional Certificates of Deposit up to $1 million, which the Company could
borrow against. As arrangement fees in connection with such borrowing from
such related party, the Company paid an arrangement fee of 166,700 shares to
Georgia Resources, Inc. and granted an option to purchase 500,000 shares of
the Company's common stock at $2.00 per share through March 17, 2002. The
shares issued and options granted pursuant to the arrangement fee in respect
of this borrowing are subject to a one time demand and multiple concurrent
registration rights through March 17,2002, pursuant to a Registration Rights
Agreement between GRI and the Company. Further, the loans to the Company by
VM Mortgage Corporation were secured by the pledge of the Company's shares
in its ORI subsidiary. The Company, under such agreement, is required to pay
the costs of registration, but not selling costs. Both Mr. Miller and Mr.
Tribbey pledged their AMERECO, Inc. common stock as additional requirements
of the transaction. In addition, such officers were required to subordinate
and defer payment of unpaid salaries with respect to periods prior to Decem-
ber 31, 1994 of approximately $425,000. In addition, Messrs. Miller and
Tribbey agreed to defer one-third of their monthly salary until ORI produces
profits under a specified formula and subsequent to 1995, 1996 and through
the current date salaries have been paid.
On April 18, 1997 the Company completed debt refinancing with Southwest
Georgia Bank. The term loan is for 15 years for $5,000,000 with monthly
amortization of $54,713 principal and interest with the interest rate
adjusted quarterly based on average Bond Equivalent Rate during the prior
quarter. The effective interest rate on April 18, 1997 was 10.32%. The
collateral for the loan is equipment, fixtures, all real property owned by
the Company and a $500,000 Certificate of Deposit.
Proceeds from the above loan was used to retire the Term loan with Congress
Financial Corporation and reduce the revolver to $1,100,000 which will cont-
inue to be secured by all other assets including accounts receivable,
inventory, and $1,250,000 Letter of Credit. Upon the payment to Congress
Financial Corporation the $1 million collateral C.D.'s pledged by the
affiliate were released back to V.M. Mortgage Lending.
The Company is currently finalizing negations with Cathay Global Investments,
Inc., an affiliate, to renew and extend the notes and advance additional
funds to consolidate affiliate debt and to arrange for a letter of credit.
In addition, an arrangement fee is anticipated similar to the March 17, 1997
transaction described above.