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 March, 31, 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 March 31, 1997, Issuer had 5,174,316 shares of common stock
outstanding.
AMERECO, INC.
March 31, 1997
Page No.
PART I Financial Information:
Item 1.Financial Statements:
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 3
Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Stockholders' Equity
for the Three Months Ended March 31, 1997 5
Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 6
Notes to Financial Statements 7-15
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 16-17
PART II
Items 1-6 Other Information 18
Signatures 19
AMERECO, INC.
Consolidated Balance Sheets
(Unaudited)
Assets: March 31, December 31,
1997 1996
Current assets:
Cash $ 5,573 $ 39,040
Accounts receivable - trade, net 537,615 301,038
Accounts receivable - other 17,164 7,220
Inventories 1,318,680 1,648,387
Prepaid expenses 94,133 47,049
Collateral deposit 1,000,000 1,000,000
Total Current Assets 2,973,165 3,042,734
Property, Plant, and Equipment:
Machinery and equipment 14,729,004 14,330,946
Office equipment 103,746 102,396
Less accumulated depreciation (885,237) (849,546)
Land and improvements 504,837 472,757
Net Property, Plant, and Equipment 14,452,350 14,056,553
Other assets:
Loan costs 206,657 39,957
Total Assets $17,632,172 $17,139,244
See accompanying notes to financial statements
Page 3
AMERECO, INC.
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1997 1996
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes payable $ 4,349,370 $ 3,874,656
Notes payable - affiliate 1,252,000 1,197,000
Accounts payable - trade 897,880 832,960
Accounts payable - other 30,843 29,168
Accrued expenses 379,049 215,657
Amounts due to related entities 719,144 687,525
Current portion of long-term debt 62,400 60,791
Total Current Liabilities 7,690,686 6,897,757
Long-term debt 100,342 116,559
Total Liabilities 7,791,028 7,014,316
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock 5,175 5,008
Additional paid-in capital 14,637,564 14,471,031
Accumulated deficit (4,801,595) (4,351,111)
Total Stockholders' Equity 9,841,144 10,124,928
Total Liabilities and Stockholders' Equity $17,632,172 $17,139,244
See accompanying notes to financial statements.
Page 3
AMERECO, INC.
Statements of Operations
For The Three Months Ended March 31, 1997 and 1996
(Unaudited)
March 31, March 31,
1997 1996
Net Sales $ 846,579 $ 741,418
Cost of Sales 960,873 821,404
Gross Profit (Loss) (114,294) (79,986)
Operating Expenses:
Selling expenses 118,158 120,851
Management expenses 60,000 60,000
General and administrative 17,710 12,024
Total Operating Expenses 195,868 192,875
Loss from Operations (310,162) (272,861)
Other Income (Expenses):
Interest expense (153,040) (150,032)
Interest income 12,718 12,752
Miscellaneous income 0 1,749
Amortization 0 (51,349)
Total Other Income (Expenses) (140,322) (186,880)
Net Loss ($450,484) ($459,741)
Net Loss Per Share ($0.09) ($0.42)
Weighted average common shares for
computing per share data 5,035,399 1,087,806
See accompanying notes to financial statements
Page 4
AMERECO, INC.
Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 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 166,700 167 166,533 166,700
Net Loss for the
three months ended
March 31, 1997 ___________ ________ __________ (450,484) (450,484)
Balance at March
31, 1997 5,174,316 $5,175 $14,637,564 ($4,801,595) $9,841,144
See accompanying notes to financial statements
Page 5
AMERECO, INC.
Statements of Cash Flows
For The Three Months Ended March 31, 1997 and 1996
(Unaudited)
March 31, March 31,
1997 1996
Cash Flow from Operating Activities:
Net Loss ($450,484) ($459,741)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 35,691 128,666
Changes in operating assets and liabilities:
(Increase)decrease in accounts receivable-trade (236,577) (8,546)
(Increase)decrease in accounts receivable-other (9,944) (336,715)
(Increase)decrease in inventories 329,707 (153,373)
(Increase)decrease in prepaid expenses (47,084) 8,107
Increase(decrease) in notes payable 474,714 165,589
Increase(decrease) in notes payable-affiliate 55,000 0
Increase(decrease) in accounts payable-trade 64,920 (85,820)
Increase(decrease) in accounts payable-other 1,675 2,418
Increase(decrease) in accrued expenses 163,392 (29,822)
Increase(decrease) in amounts due related entities 31,619 140,618
Increase(decrease) in cur. port. of long-term debt 1,609 60,630
Net cash provided (used) by operating activities 414,238 (567,989)
Cash Flows from Investing Activities:
Increase in property and equipment (431,488) (547,500)
Cash Flows from Financing Activities:
Payment of long-term debt (16,217) (135,630)
Proceeds from issurance of long-term debt 0 223,372
Conversion of debt to equity 0 1,000,000
Net cash provided (used) by financing activities (16,217) 1,087,742
Net increase (decrease) in cash (33,467) (27,747)
Cash, beginning of period 39,040 43,130
Cash, ending of period $5,573 $15,383
Supplemental disclosure of non-cash change in
operating activities:
Common stock issued for debt and services 166,700 0
See accompanying notes to financial statements.
Page 6
AMERECO, Inc.
Notes to Financial Statements
March 31, 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 quarter ended March 31, 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. The effect on 1995 operations would have been
to decrease the operating loss by $164,690. Inventories consisted of the
following:
March 31, December 31,
1997 1996
Raw Materials $ 39,029 $ 47,336
Aggregate 834,188 1,200,233
Processed Clay 342,028 297,380
Spare parts & supplies 103,435 103,435
$1,318,680 $1,648,387
Note 4: Property and Equipment
Depreciation expense for the periods ended March 31, 1997 and 1996 were
$35,691 and $77,316, respectively.
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 March 31, 1997.
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. * $2,225,000
Note payable - Congress Financial Corporation:
The Company has a revolving line of credit due
June 15, 1997. The interest rate is prime plus
2.25% which was 10.5% at March 31, 1997.
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. 1,527,137
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 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 28,337
Unsecured note due September 8, 1987 interest
rate of 8% per annum 3,896
Total Unaffiliated Notes Payable 4,349,370
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 804,000
Unsecured note with affiliate Corporation,
interest rate of 10%, due January 10, 1997 98,000
Total Notes Payable to Affiliates 1,252,000
Total Current Notes Payable $5,601,370
Long Term Debt
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 $ 162,742
Less Current Portion (62,400)
Long Term Debt $ 100,342
* See Subsequent Event Note 13.
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 Assets $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 March 31, 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
Total 1,642,500
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 (See
Note 13.), 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 March 31, 1997 and 1996,
were $645,644 and $569,644, respectively.
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.
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. (See Note 13.)
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. 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 65% 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 been obtained more favorable
terms from unrelated 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 three months ended March 31, 1997 was
$7,179.
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, 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 13: Subsequent Event
On April 18, 1997 the Company completed debt refinancing with a 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
continue 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 VM Mortgage Lending.
On April 18, 1997 Cathay Global Investments, Inc. ("Cathay") an affiliate of
the Company, agreed to renew and extend the currently outstanding unsecured
notes with accrued interest through that date. In addition they agreed to
pay the currently outstanding unsecured note of $98,000 principal plus
accrued interest to V.M. Mortgage Corporation, also an affiliate of the
Company. The Company is required to make quarterly payments based on a
formula of profitability through March 31, 1998.
As arrangement fees in connection with such renewal from such related party,
the Company is obligated to pay 307,998 shares to Cathay and grant 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 Registration Rights Agreement between Cathay 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.
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
ightweight aggregate used in concrete block, pre-stressed and pre-cast
concrete, structural concrete, bridge floors, highway surfaces and other
uses.
Three Months Ended March 31, 1997 as Compared to the Three Months Ended March
31, 1996
AMERECO consolidated with its ORI subsidiary, recognized losses of $450,484
for the quarter ended March 31, 1997 compared to $459,741 for the quarter
ended March 31, 1996. The Company's sales increased approximately $105,000
during the first quarter of 1997 from the prior year, or a 14% increase.
The Company anticipates the loss from operations to decline substantially
both from continued increase in sales volume and from reduction of produc-
tion costs on a per unit basis due from better efficiency and longer run
times of production.
General and administrative costs increased 47% from $12,024 in 1996 to
$17,710 in 1997. The increase was due to additional financing charges from
our primary lender.
Prior to the conversion, Georgia Resources, Inc., an affiliate owned by Mr.
Wei Ming Lu, did not exercise their 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 prior year's first quarter, amortization of organization and loan
costs was $51,349 compared to $0 for the quarter ended March 31, 1997.
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 $17,632,172 at March 31,1997 and $17,139,244
at December 31, 1996. The Company's cash balance at March 31, 1997 was
$5,573. With no material change in cash between years, the decrease in
working capital was primarily a result of current loans increasing approxi-
mately $600,000.
The Company had only long-term debt obligations of $100,342 at March 31,
1997. The long-term debt obligation at December 31, 1996, for ORI was
$116,559. The decrease in long-term debt was due to a loan being amortized
with monthly principal and interest payments. On April 18, 1997 the Company
completed debt refinancing with First Federal Savings Bank of Southwest
Georgia. The term loan is for 15 years for $5,000,000 with monthly amorti-
zation 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.
AMERECO, INC.
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
Report dated February 26, 1997
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: August 4, 1997 By:________________________________________
Kenneth W. Tribbey
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
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