UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 13, 1998 (October 8,
1997)
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 0-17325 88-0218499
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification No.)
3-5 Audrey Avenue
Oyster Bay, NY 11771
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 92-4170
<PAGE>
Item 5. Other Events
Environmental Remediation Holding Corp. acquired certain assets of Unita
Oil & Gas, Inc., a subsidiary of Coconimo S.M.A., Inc. Attached as an exhibit
are the audited financial statements of Coconimo S.M.A., Inc. as of May 31,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Environmental Remediation Holding Corporation
(Registrant)
Dated: April 13, 1998
By: /s/ Noreen G. Wilson
Noreen G. Wilson
Vice President
<PAGE>
Exhibit 1
CONTENTS
Accountants' report............................................................3
Consolidated Balance Sheets....................................................4
Consolidated Statements of Operations..........................................6
Consolidated Statement of Stockholders' Equity.................................7
Consolidated Statements of Cash Flows..........................................8
Notes to Consolidated Financial Statements.....................................9
<PAGE>
CROUCH, BIERWOLF & CHISHOLM
Certified Public Accountants
50 West Broadway, Suite 1130
Salt Lake City, Utah 84101
A Partnership of Office (801) 363-1175
Professional Corporations Fax (801) 363-0615
Brent E. Crouch,CPA,PC Brent's Mobile (801) 971-0404
Nephi J. Bierwolf, CPA, PC Nephi's Mobile (801) 971-0405
Todd D. Chisholm, CPA, PC Todd's Mobile (801) 699-2180
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To the Board of Directors and Stockholders
of Coconimo S.M.A., Inc.
We have audited the accompanying consolidated balance sheets of Coconimo S.M.A.,
Inc. and subsidiaries as of May 31, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
May 31, 1997 and for the eleven months ended May 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respect, the financial position of Coconimo S.M.A., Inc.
and subsidiaries as of May 31, 1997 and 1996 and the result of its operations
and cash flows for the year ended May 31, 1997 and the eleven months ended May
31, 1996 in conformity with generally accepted accounting principles.
/s/Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
November 15, 1997
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MEMBER AMERICAN INSTITUTE OF CPAS, SEC PRACTICE SECTION,
AND UTAH ASSOCIATION OF CPAS
<PAGE>
Coconimo S.M.A., Inc.
Consolidated Balance Sheet
<TABLE>
<S> <C> <C>
May 31, May 31,
1997 1996
------------------ ------------------
ASSETS
Current Assets
Cash $ 1,869 $ 29,615
Accounts receivable 172,847 107,012
Accounts receivable - related party - 2,189
Inventory 288,754 514,573
Prepaid expenses 80,000 96,000
Other assets 13,700 1,207
------------------ ------------------
Total Current Assets 557,170 750,596
------------------ ------------------
Property Plant and Equipment
Property and disposal well 225,000 -
Equipment 119,708 9,163
Accumulated depreciation (49,285) (1,413)
------------------ ------------------
Total Property, Plant and Equipment 295,423 7,750
------------------ ------------------
Other Assets
Intangible assets - net of amortization 87,846 40,353
Net assets and discontinued operation 882,344 -
Prepaid expense - non current - 80,000
------------------ ------------------
Total Other Assets 970,190 120,353
------------------ ------------------
TOTAL ASSETS $ 1,822,783 $ 878,699
================== ==================
</TABLE>
(Continued)
4
<PAGE>
Coconimo S.M.A., Inc.
Consolidated Balance Sheet (continued)
<TABLE>
<S> <C> <C>
May 31, May 31,
1997 1996
------------------ ------------------
LIABILITIES
Current Liabilities
Accounts payable $ 397,695 $ 809,046
Accounts payable - related party - 27,836
Accrued liabilities 341,809 20,075
Note payable - related party 95,179 17,500
------------------ ------------------
Total Current Liabilities 834,683 874,457
------------------ ------------------
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value;
10,000,000 shares authorized;
4,800 and 13,143 shares issued and
outstanding at May 31, 1997 and
1996, respectively 5 13
CommonStock, $.001 Par Value; 50,000,000 Shares Authorized; 5,160,294 and
3,874,796 Shares issued and outstanding
at May 31, 1997 and 1996, repectively 5,160 3,875
Less: Common Stock Subscriptions Receivable - (147,000)
Additional paid-in capital 3,153,598 703,914
Accumulated Deficit (2,170,663) (556,560)
------------------ ------------------
Total Stockholders' Equity 988,100 4,242
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,822,783 $ 878,699
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
Coconimo S.M.A., Inc.
Consolidated Statement of Operations
<TABLE>
<S> <C> <C>
Year ended Year ended
May 31, May 31,
1997 1996
------------------- --------------------
Revenue $ 1,393,614 $ 959,938
Cost of goods sold 724,669 743,160
------------------- --------------------
Gross profit 668,945 216,778
------------------- --------------------
General Expenses
General and administrative 1,238,617 263,211
Loss on judgement and legal fees 261,077 -
Depreciation and amortization 197,854 19,060
------------------- --------------------
Total General Expenses 1,697,548 282,271
Other Expenses
Other expense 27,285 -
Interest expense 59,495 8,637
Loss of rework of hats - 406,253
Loss of exchange asset - 30,000
------------------- --------------------
Net Loss from Continuing Operations (1,115,383) (510,383)
Loss on discontinued operations (498,720) -
Provision for income taxes - 100
------------------- --------------------
NET LOSS $ (1,614,103) $ (510,483)
=================== ====================
NET LOSS PER SHARES $ (0.33) $ (0.20)
=================== ====================
WEIGHED AVERAGE SHARES 4,835,413 2,493,347
OUTSTANDING
=================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
Coconimo S.M.A., Inc.
Consolidated Statement of Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Additional
Paid-in Capital Subscriptions Accumulated
Receivable Deficit
--------------- --------------- --------------
Shares Amount Shares Amount
------- -------- ---------- ----------
Balance at July 1, 1995 - $ 2,111,898 $ 2,112 $ 46,378 $ - $ (46,077)
Issued Shares for cash 1,500,000 1,500 12,000
Issued shares for acquisition of Douglas
Financial Services 15,600 16 281,984
Issued stock for cash 35,000 35 73,465
Convert preferred stock to common
stock (2,457) (3) 34,398 34 31
Issued shares for services 24,500 25 36,725
Issued shares for subscription receivable 98,000 98 146,902 (147,000)
Issued shares for directors services 50,000 50 74,950
Issued stock for reduction of note 21,000 21 31,479
Net loss for the eleven months ended
May 31, 1996 (510,483)
------- -------- ---------- ---------- --------------- --------------- --------------
Balance at May 31, 1996 13,143 $ 13 3,874,796 $ 3,875 $ 703,914 $ (147,000) $ (556,560)
------- -------- ---------- ---------- --------------- --------------- --------------
Subscription Receivable Received 147,000
Issued stock for Payables 33,500 33 64,192
Issued Stock to Ad-HaTTeRs directors
and key employees for services 27,000 27 40,423
Issued stock per option agreement 559,196 559 559,227
Issued stock for Acquisition of
Enviro-Tec disposal well 100,000 100 329,900
Issued stock for Acquisition of Uinta Oil
and Gas 160,000 160 527,840
Issued stock for reduction of debt 14,000 14 20,986
Issued stock to Pine Valley Exploration for
increase in working interest in Oil and Gas
properties 250,000 250 824,750
Convert preferred stock to common (8,343) (8) 116,802 117 (109)
Issued stock for product distribution
rights and consulting fees 25,000 25 82,475
Net loss for Year ended May 31, 1997 (1,614,103)
------- -------- ---------- ---------- --------------- --------------- --------------
Balance at May 31, 1997 4,800 $ 5 5,160,294 $ 5,160 $ 3,153,598 $ $ (2,170,663)
======= ======== ========== ========== =============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
7
<PAGE>
Coconimo S.M.A., Inc.
Consolidated Statement of Cash Flows
For the year ended May 31, 1997 and
Eleven months ended May 31, 1996
<TABLE>
<S> <C> <C>
1997 1996
------------------- --------------------
Cash Flows From Operating Activities :
Net Loss $ (1,614,103) $ (510,483)
Adjusted for non-cash items :
Depreciation and amortization 235,798 19,060
Stock issued for expenses 104,615 214,648
Loss on exchange of asset - 30,000
Changes in operating assets and liabilities net of effects from acquisitions:
Inventory 239,594 (514,573)
Accounts receivable (16,459) (108,703)
Other current assets 1,267 -
Deposits and prepaid expenses 16,000 (309)
Accounts payable (101,703) 793,979
Accrued expenses 343,422 11,251
Increase in income taxes payable - 100
Increase in accrued interest payable - 8,535
------------------- --------------------
Net cash (Used) by Operating Activities (791,569) 56,495
------------------- --------------------
Cash Flow from Investing Activities:
Purchase of equipment - (1,709)
Cash obtained from acquisitions 57,627 -
------------------- --------------------
Net provided by (used) in Investing Activities 57,627 (1,709)
------------------- --------------------
Cash Flows From Financing Activities
Cash borrowed from related party - 9,000
Issuance of common stock for cash 706,196 73,500
------------------- --------------------
Net provided by Financing Activities 706,196 82,500
------------------- --------------------
Net Increase/(Decrease) in Cash (27,746) 24,296
Cash and Cash Equivalents at Beginning of Period 29,615 5,319
------------------- --------------------
Cash and Cash Equivalents at End of Period $ 1,869 $ 29,615
=================== ====================
Supplemental Cash Flow Information :
Cash paid for :
Interest $ 48,895 $ -
Income taxes $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements
8
<PAGE>
Coconino S.M.A., Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 - Summary of Significant Accounting Policies
a Principles of consolidation
The accompanying consolidated financial statements include the accounts
of Coconino S.M.A., Inc. (The Company or Coconino) and its wholly owned
subsidiaries.
The results of operation are included for Enviro-Tec Well Services,
Inc. (Enviro-Tec) and Uinta Oil & Gas, Inc, (Uinta) since the
acquisition date on September 1, 1996.
All material intercompany transactions and balances have been
eliminated.
b Accounting year end
During 1996, the Company changed its year end from June 30 to May 31
for financial reporting.
c Use of estimates
The preparation of the Company's consolidated financial statements in
accordance with generally accepted accounting principles requires the
use of estimates and management's judgment. While all available
information has been considered, actual amounts could differ from those
reported as assets and liabilities and related revenues, costs and
expenses and the disclosed amount of contingencies.
d Cash and cash equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
e Depreciation, depletion and amortization
Property, plant and equipment are stated at cost. Equipment having a
useful life in excess of one year is capitalized. The cost is
depreciated over the estimated useful life of the asset which is
between 5 and 7 years. Depletion of the cost of producing oil and gas
properties, and related drilling and development costs are amortized
over the life of the well.
f Recognition of revenue
The Company recognizes income and expenses on the accrual basis of
accounting.
9
<PAGE>
Coconino S.M.A., Inc. and Subsidiaries
Notes to Consolidated Financial Statements
g Earnings (loss) per share
The computation of earnings per share of common stock is based on the
average number of shares outstanding at the date of the financial
statements.
NOTE 2 - Acquisitions and Significant Agreements
Ad-HaTTeRs was incorporated on March 24, 1995 under the laws of the
State of Utah. Its primary business is to manufacture and market
hat-shaped and other trademarked products as air fresheners. Ad-HaTTeRs
and Coconino entered into a plan and agreement of reorganization on
July 15, 1995, effective June 30, 1995 whereby Coconino acquired all
the outstanding common stock of Ad-HaTTeRs and, in exchange, Ad-HaTTeRs
shareholders received newly-issued restricted common shares of
Coconino, representing approximately 95% of the outstanding shares
after reorganization. Prior to reorganization, Coconino had disposed or
otherwise discontinued all of its previous operations. As a result,
Coconino had no other business operations or material assets as of the
date of reorganization.
The reorganization was accounted for as a capitalization of Ad-HaTTeRs,
whereby the accompanying fiscal 1996 financial statements, which
include the historical financial statements of Ad-HaTTeRs, were
restated to reflect 2,000,000 shares of restricted common stock
outstanding prior to the reorganization. In addition, using the
purchase method of accounting, the 111,889 shares of common stock held
by the Coconino shareholders prior to the reorganization were accounted
for as having been issued by Ad-HaTTeRs in exchange for the assumption
of the net liabilities of Coconino. The net liabilities assumed
amounted to $1,510 and were recorded at their historical cost.
In August 1996, the Company acquired a Disposal Well by issuing 100,000
shares of restricted common stock valued at $330,000. The Disposal Well
has a Class II permit from the State of Utah and E.P.A. to dispose of
any liquid produced from oil and/or gas wells. The stock issued
resulted in the Company's 100% ownership in Enviro-Tec Well Services,
Inc. which was later renamed Enviro-Tec,Inc. Had the acquisition
occurred at the beginning of the years presented, unaudited proforma
consolidated net sales and results of continuing operations would be
seen as follows:
Fiscal Year
1997 1996
Net Sales $240,355 $230,550
Gain (loss) from continuing operations $ 27,000 $ 25,550
Uinta Oil and Gas, Inc. was incorporated on January 31, 1991 under the
laws of the State of Utah, with its primary business being the
exploration, drilling and operations of oil and gas wells in the Uinta
Basin. On September 12, 1996, Coconino acquired 100% of the common
stock of Uinta for 160,000 shares of restricted common stock. Uinta has
23 oil and gas wells
10
<PAGE>
Coconino S.M.A., Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 - Acquisitions and Significant Agreements (continued)
which are held jointly with other parties and oil and gas leasehold
acreage of approximately 11,800 acres. Uinta's interest in the oil and
gas properties range from 62.5% to 75%. In May 1997, the Company made a
decision to sell Uinta (see Note 11).
On October 14, 1996, Uinta entered into a "Participation Agreement"
with Pine Valley Exploration, Inc., (PV) and Blue Ridge Oil and Gas
Exploration, Inc. (BR). The Participation Agreement amended a previous
agreement between the parties whereby Uinta obtained a 62.5% interest
in four initial reentry wells instead of 15% interest in these wells
under a previous agreement. In addition, Uinta retained a 75% interest
in all other producing wells as opposed to PV's 225% interest. The
acreage covered by this agreement was increased to 18,960 acres.
Coconino issued 250,000 shares of restricted common stock to PV to
increase its interest in the properties defined under the Participation
Agreement. The total value the Company paid for Uinta and the related
"Participation Agreement" was $1,353,000 in common stock.
The Company's acquisitions have been accounted for as purchases.
Accordingly, allocations of the total acquisition costs to the net
assets acquired were made based on the fair value of such assets and
liabilities at the respective dates of acquisition and resulted in
goodwill of $54,193 and $758,879 for Enviro-Tec and Uinta,
respectively.
NOTE 3 - Inventory
Inventory is recorded at the lower cost or market using the first-in,
first-out method.
May 31, 1997 May 31, 1996
Raw Materials $ 172,104 $ 283,276
Finished Goods 116,650 231,297
---------------- ----------------
$ 288,754 $ 541,573
================ ================
NOTE 4 - Prepaid Expenses
A contract with a public relations firm was entered into on March 29,
1996. The contract requires public relations services to the Company
through March 1998. Preferred stock valued at $192,000 was issued for
the public relations services. Unamortized prepaid public relations
services at May 31, 1997 were $80,000.
NOTE 5 - Intangible Assets, Net of Amortization
Amortization
May 31, 1997 May 31, 1996 Period
------------ ------------ ------------
Organization Costs $ 23,000 $ 29,000 5 years
Trademark 10,653 11,353 17 years
Goodwill - Enviro-Tec 54,193 - 15 years
------------ ------------
Total Intangibles $ 87,846 $ 40,353
============ ============
Amortization expense of $37,944 was recorded for Goodwill from the
Uinta purchase. Goodwill of $720,935 from Uinta was included in net
assets of discontinued operations for Uinta at May 31, 1997.
11
<PAGE>
Coconino S.M.A., Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 6 - Notes Payable - Related Party
May 31, 1997 May 31, 1996
Note payable to shareholder;
Interest at 24% per annum;
due on demand; unsecured $ - $ 500
Note payable to shareholder;
Interest at 24% per annum;
due on demand; unsecured - 14,500
Note payable to officer;
Interest at 24% per annum;
due on demand; unsecured - 2,500
Notes payable to 3 shareholders;
due on demand; no stated interest
rate; 95,179 -
------------ ------------
Total Notes Payable $ 95,179 $ 17,500
============ ============
NOTE 7 - Provision for Income Taxes
Coconino had cumulative net operating loss carryforward of
approximately $2,100,000 on May 31, 1997, expiring at various times
through 2012. No provisions for income taxes have been recorded due to
the net operating loss carryforward. No federal income taxes have been
accrued.
NOTE 8 - Related Party Transactions
Coconino issued 25,000 shares of restricted common stock to Mont L.
Crosland for financial public relations services and the product
distribution rights to Indian Jewelry. Mont L. Crosland was a
shareholder of the Company at the time of this agreement.
12
<PAGE>
Coconino S.M.A., Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 9 - Commitments and Contingencies
On January 27, 1996, Ad-HaTTeRs filed an action against Michael J.
Chunka and AIM Tecate, Inc. for recovery of a substantial number of
hat-shaped air fresheners and damages resulting from the defendant's
breach of contract. The amount sought in this action was approximately
$1.2 million. Ad-HaTTeRs recovered the hat-shaped air fresheners
subsequent to filing this lawsuit and recorded a $406,253 loss in
fiscal 1996 on rework required to these hat-shaped air fresheners. The
complaint alleged the defendant, who was contracted to assemble and
package goods for Ad-HaTTeRs, failed to produce goods that met
Ad-HaTTeRs quality control standards, overbilled for goods and failed
to deliver goods for which Ad-HaTTeRs prepaid. In response to the
complaint, AIM Tecate, Inc., and others filed a counterclaim against
Ad-HaTTeRs. A judgment by the California Superior Court, County of San
Diego, ruled against Ad-HaTTeRs in the sum of $125,190 in unpaid
invoices, lost profits and interest and $75,000 as punitive damages.
Ad-HaTTeRs has made demand upon their liability insurance carrier, West
American Insurance Company (West American), for payment of its legal
expenses in this lawsuit.
In June 1996, the Company entered into a stock transaction that gave a
shareholder the option to purchase one million shares of the Company's
common stock at $1.00 a share. The shareholder exercised his option and
began making payments for the one million shares in the summer of 1996.
As of May 31, 1997, the Company had received approximately $559,000
from this shareholder. Because the shareholder had failed to pay for
the balance of the shares, the Company canceled 440,804 shares
previously issued to this shareholder, leaving 559,196 shares issued
under this option. This shareholder currently disputes the cancellation
of shares previously issued to him, claiming he is entitled to
additional shares for services performed and loans to the Company.
However, the Company has no agreement with this shareholder other than
the option agreement and is considering pursuing a claim against this
shareholder for damages from breach of contract for approximately
$250,000. Management believes no significant losses will be incurred as
a result of any claims by this shareholder.
NOTE 10 - Subsequent events
In May 1997, the Company settled a dispute with "former Uinta
shareholders" and entered into an agreement to sell its Uinta
operations and assets. Effective September 29, 1997, the Company
entered into an agreement with Environmental Remediation Holding
Corporation (ERHC), a public company, for the sale of its Uinta oil and
gas properties. Under the agreement, the Company received 495,000
shares of ERHC restricted common stock. The
13
<PAGE>
Coconino S.M.A., Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 10 - Subsequent Events (continued)
restriction on this stock expires evenly over three date; December 31,
1998, March 30, 1999 and June 30, 1999. ERHC also guaranteed a minimum
trading price of $2.00 a share for this stock. In addition, the Company
received 123,000 shares of its common stock from the former Uinta
shareholders. In turn, the former Uinta shareholders received 123,750
shares of ERHC stock, repurchased the remainder of Uinta Oil and Gas,
Inc. from the Company, and received $250,000 immediately to pay
existing Uinta debt and a commitment within the ERHC purchase agreement
that 4% of ERHC's gross production receipts from these properties would
be paid to Uinta's indebtedness up to $677,000. The Company estimates a
gain on disposal of its Uinta operations in fiscal 1998 of $69,000. The
net assets of the discontinued operations at May 31, 1997 are included
in the consolidated balance sheet as a single amount which consists
primarily of receivables, fixed assets, including oil and gas
properties, goodwill, accounts payable and accrued liabilities.
In August 1997, the Company's Board of Directors approved a Stock
Option Plan reserving 2,400,000 shares for future grants to Directors,
consultants and employees. Options can generally be granted at market
value on the date of grant and are exercisable at dates determined by
the Board of Directors. In October 1997,. the Board of Directors
granted options to purchase 2,000,000 shares of stock to Directors,
consultants and employees at $.15 a share. Of these options, 25% are
exercisable immediately, with the remaining 75% becoming exercisable at
the anniversary of the grant date over three years These options expire
in ten years.
Subsequent to year end, the Company has issued the following shares of
stock:
<TABLE>
<S> <C> <C> <C>
Issue Price Value of
Number of Shares Issued For of Stock Shares Issued
7,500,000 LPS Acquisition $ 0.56 $ 4,200,000
4,861,851 Cash and note receivable 0.12 561,783
2,791,250 Consulting services 0.21 578,138
163,002 Preferred stock exchange
Partial interest purchase in
680,000 various companies 0.08 56,025
1,540,000 Debt retirement 0.10 160,538
</TABLE>
In September 1997, the Company acquired LPS, Ltd. from Financial
Potential Corporation (FPC) for 7,500,000 shares of the Company's common
stock. LPS, Ltd. is a new company with no prior operational history that
was formed in September 1997 by FPC. In exchange for its shares, the
Company received net assets totaling approximately $4.2 million. The
primary component of this asset is inventory of SeaSoil, valued at $4.2
million. SeaSoil is the trade name for a natural licensed agricultural
mineral that replenishes the essential secondary and micro nutrients in
depleted soil. LPS, Ltd. is also marketing its proprietary financial and
mortgage marketing concept to mortgage companies and homeowners.
14
<PAGE>
