SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 0-14609
AMERECO, INC.
(Exact name of Registrant as specified in its charter)
Utah 84-0960456
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
680 Atchison Way, Suite 800 Castle Rock, Colorado 80104
(Address of principal executive offices) (Zip Code)
(303) 688-5160
(Registrant's telephone number, including area code)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the preceding 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
As of September 30, 1997, Issuer had 5,482,314 shares of common stock
outstanding.
AMERECO, INC.
September 30, 1997
Page No.
PART I Financial Information:
Item 1.Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Statements of Operations for the Three Months and
Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statement of Stockholders' Equity
for the Nine Months Ended September 30, 1997 5
Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 6
Notes to Financial Statements 7-16
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 17-18
PART II
Items 1-6 Other Information 19
Signatures 20
AMERECO, INC.
Consolidated Balance Sheets
(Unaudited)
Assets: September 30, December 31,
1997 1996
Current assets:
Cash $ 6,880 $ 39,040
Cash in escrow 266,141 0
Accounts receivable - trade, net 655,145 301,038
Accounts receivable - other 14,074 7,220
Inventories 1,496,062 1,648,387
Prepaid expenses 73,830 47,049
Collateral deposit 507,830 1,000,000
Total Current Assets 3,019,962 3,042,734
Property, Plant, and Equipment:
Machinery and equipment 15,488,918 14,330,946
Office equipment 107,850 102,396
Building improvements 16,943 0
Less accumulated depreciation (992,268) (849,546)
Land and improvements 511,319 472,757
Net Property, Plant, and Equipment 15,132,762 14,056,553
Other assets:
Loan costs, net 675,556 39,957
Total Assets $18,828,280 $17,139,244
See accompanying notes to financial statements
Page 3
AMERECO, INC.
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
1997 1996
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes payable $ 348,483 $ 3,874,656
Notes payable - affiliate 2,483,681 1,197,000
Accounts payable - trade 796,402 832,960
Accounts payable - other 29,585 29,168
Accrued expenses 210,108 215,657
Amounts due to related entities 640,143 687,525
Current portion of long-term debt 218,288 60,791
Total Current Liabilities 4,726,690 6,897,757
Long-term debt 4,868,555 116,559
Total Liabilities 9,595,245 7,014,316
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock 5,483 5,008
Additional paid-in capital 14,945,254 14,471,031
Accumulated deficit (5,717,702) (4,351,111)
Total Stockholders' Equity 9,233,035 10,124,928
Total Liabilities and Stockholders' Equity $18,828,280 $17,139,244
See accompanying notes to financial statements.
Page 3
AMERECO, INC.
Statements of Operations
(Unaudited)
Three Months Nine Months Three Months Nine Months
Ended Sept. Ended Sept. Ended June Ended Sept.
1997 1997 1996 1996
Net Sales $635,550 $2,108,903 $821,269 $2,362,872
Cost of Sales 787,596 2,435,733 600,800 1,875,224
Gross Profit (Loss) (152,046) (326,830) 220,469 487,648
Operating Expenses:
Selling expenses 115,161 348,199 129,387 389,554
Management expenses 60,000 180,000 60,000 180,000
General and administrative 16,572 40,538 21,771 46,983
Total Operating Expenses 191,733 568,737 211,158 616,537
Income (Loss) from Opers. (343,779) (895,567) 9,311 (128,889)
Other Income (Expenses):
Interest expense (186,436) (508,743) (110,958) (308,290)
Interest income 7,875 29,911 12,516 37,510
Miscellaneous income 405 7,808 0 1,749
Amortization 0 0 0 (382,037)
Total Other Inc.(Exps.) (178,156) (471,024) (98,442) (651,068)
Loss before Extraordinary item
and Cumulative Effect of
Accounting Change (521,935) (1,366,591) (89,131) (779,957)
Extraordinary item 0 0 0 91,253
Cumulative effect of
accounting change 0 0 0 164,690
Net Loss ($521,935) ($1,366,591) ($89,131) ($524,014)
Net Loss Per Share
Before extraordinary item and
cumulative effect of accounting
change ($0.10) ($0.25) ($0.08) ($0.45)
Extraordinary item 0 0 .00 .05
Cumulative effect of
accounting change 0 0 .00 .10
Net Loss Per Share ($0.10) ($0.25) ($0.08) ($0.30)
Weighted average common shares for
computing per share data 5,482,314 5,382,863 1,087,806 1,737,498
See accompanying notes to financial statements
Page 4
AMERECO, INC.
Consolidated Statement of Stockholders' Equity
For the Nine Months Ended September 30, 1997
(Unaudited)
Additional Total
Common Stock Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
Balance at
December 31,1996 5,007,616 $5,008 $14,471,031 ($4,351,111) $10,124,928
Common stock issued 166,700 $167 166,533 0 166,700
Common stock issued 307,998 $308 307,690 0 307,998
Net Loss for the
nine months ended
September 30, 1997 (1,366,591) (1,366,591)
Balance at September
30, 1997 5,482,314 $5,483 $14,945,254 ($5,717,702) $9,233,035
See accompanying notes to financial statements
Page 5
AMERECO, INC.
Statements of Cash Flows
For The Nine Months Ended September 30, 1997 and 1996
(Unaudited)
September 30, September 30,
1997 1996
Cash Flow from Operating Activities:
Net Loss ($1,366,591) ($524,014)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 148,796 581,789
Changes in operating assets and liabilities:
(Increase)decrease in cash in escrow (266,141) 0
(Increase)decrease in accounts receivable-trade (354,107) (97,053)
(Increase)decrease in accounts receivable-other (6,854) (25,724)
(Increase)decrease in inventories 152,325 (830,609)
(Increase)decrease in prepaid expenses (26,781) (183,602)
(Increase)decrease in collateral deposit 492,170 0
Increase(decrease) in notes payable (3,526,173) 0
Increase(decrease) in notes payable-affiliate 1,286,681 0
Increase(decrease) in accounts payable-trade (36,558) (114,627)
Increase(decrease) in accounts payable-other 417 (56,997)
Increase(decrease) in accrued expenses (5,549) 840,838
Increase(decrease) in amounts due related entities (47,382) (232,352)
Increase(decrease) in cur. port. of long-term debt 157,497 396,646
Net cash provided (used) by operating activities (3,398,250) (245,705)
Cash Flows from Investing Activities:
Increase in property and equipment (1,218,931) (958,336)
Cash Flows from Financing Activities:
Increase in loan costs (641,673) 0
Payment of long-term debt (248,004) (398,464)
Proceeds from issuance of long-term debt 5,000,000 224,622
Issuance of common stock 474,698 2,727,012
Conversion of debt to equity 0 (1,216,708)
Net cash provided (used) by financing activities 4,585,021 1,336,462
Net increase (decrease) in cash (32,160) 132,421
Cash, beginning of period 39,040 43,130
Cash, end of period $6,880 $175,551
Supplemental disclosure of non-cash change in
operating activities:
Common stock issued for debt and services 474,698 0
See accompanying notes to financial statements.
Page 6
AMERECO, Inc.
Notes to Financial Statements
September 30, 1997
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 of 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 purchase step 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's 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 management's assessment of the collectibility of
existing 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
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 for the nine months ended September 30, 1997.
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
the AMERECO, Inc. equity method loss was $133,340.
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. Inventories consisted of the following:
September 30, December 31,
1997 1996
Raw Materials $ 54,645 $ 47,336
Aggregate 857,838 1,200,233
Processed Clay 467,404 297,380
Spare parts & supplies 116,175 103,438
$1,496,062 $1,648,387
Note 4: Property and Equipment
Depreciation expense for the periods ended September 30, 1997 and 1996 were
$142,722 and $199,752, respectively.
Note 5: Notes Payable
Unaffiliated Notes Payable
Note payable - unsecured bearing interest rate
of 12% per annum, due August 30, 1996 100,000
Note payable - unsecured bearing interest rate
of 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 29,587
Unsecured note due September 8, 1987 interest
rate of 8% per annum 3,896
Note payable - financial institution. Line of credit
secured by accounts receivable. Interest rate is
prime plus ____%. 100,000
Total Unaffiliated Notes Payable 348,483
Notes Payable to Affiliates
Note payable - Cathay Global Investments, Inc. dated
April 18, 1997. The interest rate is prime plus 2.5%.
The note shall be amortized over 36 months commencing
May 1, 1998 with principal and interest payments.
All remaining principal and interest balances will be
due April 17, 1999. 995,026
Note payable - Cathay Global Investments, Inc. dated
June 15, 1997 due June 15, 1998. The interest rate
is prime plus 2.25% which was 10.75% at September 30,
1997 1,488,655
Total Affiliated Notes Payable 2,483,681
Total Current Notes Payable $2,832,164
Long Term Debt
Note payable - financial institution. Loan
secured by equipment, fixtures, all real
property and minerals owned by the Company and a
$500,000 Certificate of Deposit. Term is 15 years
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. $4,954,486
Note payable - financial institution. Loan
secured by specific equipment, interest rate
of 10.5% per annum, monthly principal and
interest payments of $6,378.50, due August 1,
1999 132,357
Less Current Portion (218,288)
Long Term Debt $4,868,555
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
available 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.
Non-qualified (non-employees) may be granted options at an option price
determined by a committee. During 1995, 22,500 non-qualified 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. At September 30, 1997, no options have been exercised.
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 fair 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
500,000 $ 2.00 3/17/2002
923,994 $ 2.00 4/18/2002
Total 2,566,494
Note 8: 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,
organization cost related to the partnership and partnership loan fees
previously capitalized were written-off to operations.
Note 9: Transactions with Related Parties
The Officers of the Company have accrued salaries and expenses from 1988
through 1996. The accrued salaries and expenses at September 30, 1997 and
1996, were $587,644 and $569,644, respectively.
On September 21, 1997, the Company's Board of Directors approved the one
year extension of the existing employment contract with two officers. The
duties, compensation, bonus calculations and benefits are the same, except
for the two year commitment in the original employment agreement.
On September 26, 1996, Cathay Global Investments, Inc., f/k/a Omnivest
International, 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 loan in April 1997.
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, and
$55,000 on January 13, 1997 at such interest with a maturity date of January
20, 1997.
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
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 subsequent to 1995, 1996 and through
the current date salaries have been paid. The additional certificates of
deposit were released from the FmHA/Rural Development Guaranteed Loan in
April 1997.
Effective April 18, 1997 Cathay Global Investments, Inc. ("Cathay") an
affiliate of the Company, agreed to renew and extend the currently outstand-
ing unsecured notes with accrued interest through that date. In addition
they agreed to pay the currently outstanding unsecured note of $98,000 prin-
cipal plus accrued interest to V. M. Mortgage Corporation, also an affiliate
of the Company. The new loan has a principal balance of $947,619 plus accrued
interest of $47,407 with an interest rate of 2.5% over the prime lending
rate. The Company is required to make quarterly payments based on a formula
of profitability through March 31, 1998. On May 1, 1998, the Company is
required to commence monthly payments based on the then outstanding
principal balance amortized over 36 months. On April 17, 1999 the entire
remaining principal balance and any accrued interest is due.
In addition Cathay purchased the Congress indebtedness with an outstanding
principal balance of $1,488,655 and accrued interest of $46,913 through
September 30, 1997.
As arrangement fees in connection with such renewal from such related party,
the Company paid 307,998 shares to Cathay and granted an option to purchase
923,994 shares of the Company's common stock at $2 per share through April
18, 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 April 18, 2002, pursuant to a Regis-
tration Rights Agreement between Cathay Global Investments, Inc. and the
Company. Further, the loans to the Company by Cathay were secured by the
pledge of the Company's shares in its Omnivest Resources, Inc. ("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
borrowing from Cathay, affiliated with Mr. Wei Ming Lu, who beneficially
owns approximately 69% of the Common Stock of the Company. 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.
Note 10: 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
calculation of net loss per common share since their impact is anti-dilutive.
Note 11: Lease Commitments
The Company leases office space on a month-to-month basis located in Castle
Rock, Colorado. Rent expense for the nine months ended September 30, 1997
was $22,477.
Note 12: 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 21,1997, the Company's Board of Directors approved the one year
employment contract with two officers. The duties, compensation, bonus
calculations and benefits are materially the same except for the one year
time commitment by all parties as the original employment agreement. 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.
ITEM 2. 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. 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.
Three Months Ended September 30, 1997 as Compared to the Three Months Ended
September 30, 1996
AMERECO consolidated with its ORI subsidiary, recognized a loss of $521,935
for the quarter ended September 30, 1997 compared to a profit of $89,131 for
the quarter ended September 30, 1996. This difference was due to 38% less
production during the third quarter of 1997 than in 1996, thus, higher costs
of sales plus net sales decreased 23% this quarter from the third quarter of
1996. The Company anticipates the loss from operations to decline substan-
tially both from increases in sales volume and from reduction of production
costs on a per unit basis due from better efficiency and longer run times of
production.
General and administrative costs decreased 24% from $21,771 in 1996 to
$16,572 in 1997. The decrease was due to the reduction of professional fees
from the prior year.
Interest expense increased $75,478 or 68% during the quarter ended September
1997 from 1996 due to additional proceeds from issuance of debt.
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
production. 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 $18,828,280 at September 30, 1997 and
$17,139,244 at December 31, 1996. The Company's cash balance at September
30, 1997 was $6,880. With no material change in cash between years, the
increase in working capital was primarily a result of obtaining long term
debt and reducing current liabilities.
The Company had long-term debt obligations of $4,923,312 at June 30, 1997.
The long-term debt obligation at December 31, 1996, for ORI was $116,559.
The increase in long-term debt was due to the Company completing 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 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.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
None
AMERECO, INC.
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERECO, Inc.
Date: November 14, 1997 By: /s/Kenneth W. Tribbey
Kenneth W. Tribbey
Executive Vice President and
Chief Financial Officer
