<PAGE>
As filed with the Securities and Exchange Commission on April 15, 1998
Registration No. 333-43919
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- -------------------------------------------------------------------------------
Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Colorado 1301 88-0218499
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer identification no.)
incorporation or organization) classification code number)
</TABLE>
3-5 Audrey Avenue
Oyster Bay, New York 11771
telephone: (516) 922-4170; facsimile: (516) 922-4174
(Address and telephone number
of principal executive offices and principal place of business)
SAM L. BASS, JR.
President and Chief Executive Officer
Environmental Remediation Holding Corporation
3-5 Audrey Avenue
Oyster Bay, New York 11771
telephone: (516) 922-4170; facsimile: (516) 922-4174
(Name, address and telephone number of agent for service)
--------------------
Copies of communications to:
STEPHEN A. WEISS, ESQ.
SPENCER G. FELDMAN, ESQ.
Greenberg Traurig Hoffman Lipoff Rosen & Quentel
The MetLife Building
200 Park Avenue
New York, New York 10166
telephone: (212) 801-9200
facsimile: (212) 801-6400
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================
Proposed
Proposed Maximum
Aggregate Maximum Aggregate Amount of
Title of Each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered Per Unit (1) Price(1) Fee(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.0001 per share...16,482,028 shares $ 2.06/1.22 $23,227,178 $6,852.01
=============================================================================================================
</TABLE>
(1) Pursuant to Rule 457(c), the offering price and amount of registration fee
have been calculated based on the average of the quoted high and low prices
of the Registrant's Common Stock in the over-the-counter market on the OTC
Bulletin Board (a) as to 3,698,000 shares, at $2.06 per share on January 2,
1998, the date prior to the filing of the Registration Statement, and (b)
as to 12,784,028 shares, at $1.22 per share on April 8, 1998, the date
prior to the filing of Amendment No. 1 to the Registration Statement.
(2) A registration filing fee of $2,247.27 has previously been paid. A wire
transfer in the amount of $4,604.74, representing the balance of the total
registration filing fee, accompanies this Amendment No. 1 to the
Registration Statement.
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 15, 1998
PROSPECTUS
Environmental Remediation Holding Corporation
--------------------
This Prospectus relates to an aggregate of up to 16,482,028 shares (the
"Shares") of common stock, par value $.0001 per share (the "Common Stock"), of
Environmental Remediation Holding Corporation, a Colorado corporation (the
"Company"), which may be sold from time to time by the persons and entities
listed as selling shareholders herein (the "Selling Shareholders"). A maximum of
3,723,800 shares of Common Stock offered hereby are issuable by the Company to
the investors listed in the Securities Purchase Agreement (the "Investors"),
pursuant to a Securities Purchase Agreement, dated as of October 15, 1997 (the
"Securities Purchase Agreement"), upon the conversion of the Company's 5.5%
convertible senior subordinated secured notes due 2002 (the "Notes") (at a base
conversion rate of $1.25 per share, subject to certain limited conditions) and
the exercise of its warrants to purchase Common Stock (the "Warrants") (at an
exercise price of $2.83 per share) held by the Investors. The maximum number of
shares of Common Stock which may be issued by the Company upon conversion of the
Notes and the exercise of the Warrant is up to 3,440,000 shares and 283,800
shares, respectively. Because the conversion rate of the Notes is based in part
on future average trading prices of the Common Stock, the number of shares which
may actually be sold pursuant to this Prospectus could differ significantly. For
example, in the event a notice of election to convert all the Notes were to have
been received on April 8, 1998, the lowest applicable conversion rate would have
been $.96 per share (80% of the average share price for the five consecutive
trading days preceding such date), resulting in a total of 3,723,800 shares of
Common Stock issuable upon conversion (including 283,800 shares into which the
Warrants are exercisable), subject to certain conditions. The Investors acquired
the Notes and Warrants in a private placement from October to December 1997.
In addition, a maximum of 12,758,228 shares of Common Stock offered
hereby are issuable in tranches by the Company to Kingsbridge Capital Limited, a
British Virgin Islands company ("Kingsbridge"), which may receive such shares
pursuant to a Private Equity Line of Credit Agreement, dated as of March 23,
1998 (the "Investment Agreement"). The purchase price of the shares of Common
Stock issuable pursuant to the Investment Agreement is based on future market
prices at the time the shares are purchased and sold. The timing of purchases
and the amount of Common Stock sold to Kingsbridge will be determined by the
Company. Upon each purchase and sale of shares, the Company will supplement this
Prospectus to reflect the amount of shares to be resold by Kingsbridge. In
connection with entering into the Investment Agreement, the Company issued to
Kingsbridge a three-year warrant to purchase 100,000 shares of Common Stock at
an exercise price of $1.20 per share. (94% of the market price calculated as of
March 23, 1998), exercisable beginning on September 21, 1998.
The Company will not receive any proceeds from the sale of the Shares
by the Selling Shareholders. The Company will, however, receive the net proceeds
from any exercise of the warrants issued to the Investors and to Kingsbridge.
See "Selling Shareholders."
The Shares may be sold from time to time by the Selling Shareholders on
one or more exchanges or markets in ordinary brokerage transactions, or
otherwise, at then prevailing market prices or in privately negotiated
transactions. See "Plan of Distribution."
The Company's Common Stock is quoted in the over-the-counter market on
the OTC Bulletin Board (the "OTC Bulletin Board") under the symbol "ERHC." The
last sale price of the Common Stock, as quoted on the OTC Bulletin Board on
April 8, 1998, was $1.31 per share.
The Company will pay all the expenses, estimated to be approximately
$100,000, in connection with this offering, other than underwriting commissions
and discounts and counsel fees and expenses of the Selling Shareholders. The
Shares are being registered pursuant to registration rights agreements with the
Investors and Kingsbridge.
--------------------
The Shares offered hereby involve a high degree of risk. See "Risk
Factors" beginning on page 6 hereof.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is April , 1998
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes thereto appearing
elsewhere in this Prospectus. The Shares offered hereby involve a high degree of
risk and investors should carefully consider information set forth in "Risk
Factors." In addition, this Prospectus contains "forward looking statements"
that involve risks and uncertainties, including those described under "Risk
Factors." As used in this Prospectus, unless the context otherwise requires, the
term "Company" refers to Environmental Remediation Holding Corporation and its
wholly-owned subsidiary, Bass American Petroleum Company.
The Company
Environmental Remediation Holding Corporation (the "Company") is an
independent oil and gas company formed in 1995 to focus on acquiring and
servicing marginally-producing oil and natural gas properties which contain the
potential for increased value through workovers and secondary recovery
operations utilizing the Company's proprietary horizontal drilling tool. The
Company is also focused on providing a full range of environmental remediation
and "plug and abandonment" services to the oil and gas industry. More recently,
the Company has additionally begun to acquire interests in non-producing oil and
gas properties, particularly high potential international prospects in known
oil-producing areas, which could benefit from the Company's experienced
executive team in managing the development and exploitation of possible
reserves. In May 1997, the Company entered into an exclusive joint venture with
the Democratic Republic of Sao Tome & Principe ("Sao Tome"), a set of islands
located in the Gulf of Guinea off the coast of central West Africa, to manage
the exploration, exploitation and development of the potential oil and gas
reserves onshore and offshore Sao Tome, either through the venture or in
collaboration with major international oil exploration companies. The Company is
currently in the initial phase of project development and is conducting
geophysical, seismic, environmental and engineering feasibility studies. In
April 1998, the Government of Sao Tome granted approval to the joint venture to
proceed with the preparation and sale of leases of its oil concession rights,
which sales are expected to occur in late 1998. The Company believes that this
venture provides it with a significant foothold in the oil-rich Gulf of Guinea,
in which the venture is the largest single concession holder in the entire Gulf.
The Company has entered into a number of recent transactions in
connection with its workover and recovery operations. In August 1997, the
Company acquired a 37.5% interest in a 49,000 acre natural gas lease, known as
the "Nueces River Prospect," in the Nueces River area of south Texas, one of the
largest producing natural gas areas in the United States. According to
independent reserve reports separately prepared by David K. Davies and
Associates, Inc. and Sandwood Consultants, it is estimated that this area
contains 100 billion cubic feet ("BCF") of natural gas per 640 acre section. In
December 1997, the Company re-entered the first of two existing shut-in wells on
the property, and expects to ultimately recover up to 5 BCF per well using 5% of
the estimated inplace reserves. The daily production rates from these wells
cannot be determined until the completion and evaluation of the current well
testing program in spring 1998. In addition, the Company acquired in February
and March 1997 two leases in oil fields located in Rusk County and Wichita
County, Texas. These oil fields, which together comprise approximately 1,200
acres and 200 wells, have proven reserves totaling 2.5 million barrels of oil,
as verified by Joseph Shoaf, P.E., an independent reservoir engineer. The
Company estimates that, after reworking the wells using various techniques
including its proprietary drilling tool, these wells could produce from 500 to
800 cumulative barrels of oil per day. Through December 1997, the Company had
recompleted 18 oil wells and is currently producing and selling "test" oil from
the Wichita County field.
The Company also holds interests in oil and natural gas leases in Utah.
In July 1997, the Company entered into a joint venture with MIII Corporation, a
Native American oil and gas company, to workover, recomplete and operate 335
existing oil and gas wells on the Uintah and Ouray Reservation in northeastern
Utah. It is estimated that the first approximately 36 wells will be scheduled
for recompletion and stimulation in early 1998 and the Company estimates that,
after initial workover operations are completed, these wells could produce in
excess of 3,900 barrels of oil per day. A 1993 independent reserve report
prepared by Richard Stephen Shuster, P.E. indicates, based on a study of 133 of
such wells, estimated reserves of approximately 5.77 million barrels of oil and
23.4 BCF of natural gas on these sites. These estimates are subject to internal
verification by the Company. In September 1997, the Company acquired net revenue
interests ranging from 80% to 84% (and 100% working interest) in oil and gas
properties totaling 13,680 acres, located near the MIII fields,
2
<PAGE>
currently producing approximately 200 barrels of oil per day from eight
producing wells. As of December 31, 1997, these were the Company's only
commercially producing properties, which began realizing revenue for the Company
in November 1997. A 1996 independent reserve report prepared by Ralph L. Nelms
indicates that the gross recoverable reserves of these properties total
approximately 2.624 million barrels of oil and 3.302 BCF of natural gas.
Another significant aspect of the Company's current business is
providing environmental remediation services to oil and gas operators. All of
the Company's revenues during the fiscal year ended September 30, 1997 were
attributable to providing these services, which include environmental
engineering, hazardous waste (including naturally occurring radioactive
material) remediation and disposal, oil spill, soil decontamination and
non-hazardous oilfield waste cleanup, as well as "plug and abandonment" of oil
and gas wells, all in accordance with strict federal, state and local
environmental regulations. In April 1997, the Company entered into a master
service agreement with Chevron Oil Company ("Chevron") to rework, in order to
draw additional production from, approximately 400 depleting oil and gas wells
and to remediate and "plug and abandon" these and other wells when depleted, in
Chevron's oil fields in southern Louisiana along the Gulf of Mexico. The Chevron
agreement provides for a three-year work schedule, commencing upon the
completion of the Company's 140 foot "plug and abandonment" barge. The Company
has designed this specialized "plug and abandonment" barge to remediate off
shore well locations and is capable of working in coastal waters as shallow as
19 inches. In addition, through management's extensive relationships in the oil
and gas industry, the Company has obtained a ten-year concession with the Panama
Canal Commission, through a joint venture with Centram Marine Services, S.A., to
supply fuel to tankers and other commercial vessels traversing the Panama Canal.
These operations are expected to commence in mid-1998, provided adequate
financing is secured.
The Company believes that, at its current stage of development, it is
more economical and less speculative to rework and recomplete existing wells
than to drill exploratory wells in search of new oil and gas deposits. Using the
Company's proprietary horizontal drilling tool, known as the BAPCO Tool, the
Company has had, according to internal data, an 80% success ratio in increasing
the level of production from oil and natural gas wells that are suitable for
enhancement of primary recovery by use of the BAPCO tool or candidates for
secondary recovery. The Company believes that the BAPCO Tool serves as a
competitive advantage for securing new workover projects from other oil and gas
operators, for attracting joint venture partners in larger workover contracts in
the United States and internationally and for use on its own oil and gas
properties in Texas and Utah.
Beginning in the early 1990's, both secondary recovery of oil reserves
and environmental remediation of abandoned oil wells have become major items of
interest in the oil and gas industry. According to current industry statistics,
it is estimated that only 7.5% to 15% of total oil reserves are recovered in
primary drilling operations due to the significant incremental costs involved in
exploiting far-reaching reservoirs of an oil formation. Following primary
drilling operations, large independent oil companies have typically outsourced
some or all of the required "plug and abandonment" work to environmental
remediation firms, such as the Company. By conducting enhanced primary or
secondary recovery operations utilizing the BAPCO Tool on the otherwise
abandoned wells, the Company believes that it is able to effectively extend the
economic life of an oil field and increase existing oil recovery by up to 30%,
prior to formal abandonment. The Company, which provides primary and secondary
recovery, "plug and abandonment" operations and environmental remediation
services, believes that, in the United States alone, there are hundreds of oil
and natural gas fields which could benefit from these services.
The Company's goal is to maximize its value through profitable growth
in its oil and gas reserves and production. The Company has taken steps to
achieve this goal through its growth strategy of (i) acquiring
marginally-producing oil and gas properties, at favorable prices, with still
significant resource recovery potential through workovers utilizing the
Company's proprietary drilling technology, (ii) managing the exploration,
exploitation and development of non-producing properties in known oil-producing
areas, such as the Gulf of Guinea in West Africa, with industry or government
3
<PAGE>
partners, and (iii) continuing to pursue environmental remediation service
contracts for oil and gas well rework and "plug and abandonment" services in the
United States and internationally.
The Company's principal executive offices are located at 3-5 Audrey
Avenue, Oyster Bay, New York 11771, and its telephone number is (516) 922-4170.
The Company's main operational facility is located at 1686 General Mouton,
Lafayette, Louisiana 70508, and its telephone number is (318) 264-9657.
<TABLE>
<CAPTION>
The Offering
<S> <C>
Shares Offered......................................... Up to 16,482,028 shares of Common Stock.
Shares Outstanding:
Before the Offering............................... 24,858,289 shares of Common Stock.
After the Offering................................ Up to 41,340,317 shares of Common Stock,
assuming the full conversion of the Notes
and exercise of the warrants issued to the
Investors and Kingsbridge. See "Selling
Shareholders" for a description of the
conversion rate of the Notes.
Use of Proceeds........................................ Other than the exercise price of the warrants
issued to the Investors and Kingsbridge,
the Company will not receive any proceeds
from the sale of the Shares by the Selling
Shareholders.
Trading Symbol......................................... ERHC
</TABLE>
Risk Factors
An investment in the Shares offered hereby involves a high degree of
risk, including without limitation, the Company's limited operating history,
volatility of oil and natural gas prices, the uncertainty of reserve information
and future net revenue estimates, the Company's concentration in Texas and Utah,
substantial capital requirements, drilling and operating risks, reliance on its
Sao Tome joint venture, risks inherent in international operations, reserve
replacement risk, compliance with governmental and environmental regulations,
and competition. An investment in the Shares offered hereby should be considered
only by investors who can afford the loss of their entire investment. See "Risk
Factors."
4
<PAGE>
Summary Financial Information
<TABLE>
<CAPTION>
Fiscal Years ended Three Months ended
September 30, December 31,
------------------------------------------------------- ----------------------------
Statement of Operations Data: 1995(1) 1996(2) 1997(3) 1996 1997
---------------- -------------- ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Environmental remediation $0 $0 $108,944 $0 $146,083
services
Crude oil sales 0 0 0 0 96,914
Cost of sales and expenses:
Environmental remediation 0 0 53,991 0 8,511
Crude oil 0 0 0 0 35,851
Operating expenses 3,404 714,938 16,860,262 127,178 1,910,860
Other income and expenses 0 60,477 (33,456) 0 0
Income before income taxes and
extraordinary item (3,404) (654,461) (16,838,765) (127,178) (1,767,712)
Provision (benefit) for
income taxes 0 0 0 0 0
Net income (loss) (4) (3,404) (654,461) (16,838,765) (127,178) (1,767,712)
Net income (loss) per share (0.01) (0.27) (1.60) (0.04) (0.07)
Weighted average Common Shares outstanding 398,643 2,469,511 10,500,293 3,239,374 24,017,700
Balance Sheet Data (at end of period):
Property and equipment 0 $2,431,987 $2,733,274 $4,597,072
Total assets 0 2,436,987 17,749,231 23,193,689
Total liabilities 3,316 6,730 1,748,376 6,199,552
Stockholders' equity (3,316) 2,430,257 14,000,855 15,494,137
</TABLE>
- --------------------
(1) Reflects the operations of Environmental Remediation Funding Corporation
("ERFC"), the Company's predecessor, from the date of its incorporation on
September 5, 1995. See "The Company."
(2) The Company acquired 100% of the issued and outstanding common stock of
ERFC, effective August 19, 1996, in a reverse triangular merger, which has
been accounted for as a reorganization of ERFC. See Note 1 to Notes to
Consolidated Financial Statement.
(3) On April 9, 1997, the Company acquired 100% of the issued and outstanding
common stock of Bass American Petroleum Company, which was accounted for as
a purchase. See "The Company."
(4) The net cash operating loss of the Company was $1,283,900 and $83,700 for
the fiscal years ended September 30, 1997 and 1996, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
5
<PAGE>
RISK FACTORS
The Shares offered hereby involve a high degree of risk. Accordingly,
in analyzing an investment in these Shares, prospective investors should
carefully consider, along with the other matters referred to herein, the
following risk factors. No investor should participate in this offering unless
such investor can afford a complete loss of his investment.
Limited Operating History; Significant Net Loss
The Company, which was formed in September 1995, has a limited
operating history upon which investors may base their evaluation of its
performance. The Company has acquired substantially all of its oil and gas
properties within the past year. As a result of the Company's recent formation
and the brief operating history of its properties, the operating results from
the Company's operation of its properties may not be indicative of future
results that may be obtained by the Company. For the three months ended December
31, 1997 and the fiscal year ended September 30, 1997, the Company had total
revenues of $242,997 and $108,944, respectively, and net losses of $2,146,552
and $17,012,052, respectively. As of December 31, 1997 and September 30, 1997,
the Company had stockholders' equity of $15,494,137 and $14,000,855 rspectively,
and working capital deficits of $1,116,394 and $1,204,925, respectively. There
can be no assurance that the Company will generate revenues or production
attributable to its oil and gas properties. In addition, in the event the
Company does not attain certain minimum production levels over specified
timeframes of its oil and gas properties, the Company could forfeit certain
leases without receiving any revenues therefrom. Any future growth of the
Company's oil and natural gas reserves, production and operations could place
significant demands on the Company's financial, operational and administrative
resources.
Volatility of Oil and Natural Gas Prices
The Company's revenues, operating results, profitability and future
growth and the carrying value of its oil and natural gas properties will be
substantially dependent upon the prices received for its oil and natural gas.
Historically, the markets for oil and natural gas have been volatile and such
volatility may continue or recur in the future. Various factors beyond the
control of the Company will affect prices of oil and natural gas, including the
worldwide and domestic supplies of oil and natural gas, the ability of the
members of the Organization of Petroleum Exporting Countries ("OPEC") to agree
to and maintain oil price and production controls, political instability or
armed conflict in oil or natural gas producing regions, the price and level of
foreign imports, the level of consumer demand, the price, availability and
acceptance of alternative fuels, consumer demand, the price, availability and
acceptance of alternative fuels, the availability of pipeline capacity, weather
conditions, domestic and foreign governmental regulations and taxes and the
overall economic environment. Any significant decline in the price of oil or
natural gas would adversely affect the Company's revenues and operating income
and could require an impairment in the carrying value of its oil and natural gas
properties.
Uncertainty of Reserve Information and Future Net Revenue Estimates
There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves and their values, including many factors
beyond the control of the Company. Estimates of proved undeveloped reserves and
reserves recoverable through enhanced oil recovery techniques are by their
nature uncertain. The reserve information set forth in this Prospectus
represents estimates only. Although the Company believes such estimates as to
its properties to be reasonable, reserve estimates are imprecise and should be
expected to change as additional information becomes available.
Estimates of oil and natural gas reserves, by necessity, are
projections based on engineering data, and there are uncertainties inherent in
the interpretation of such data as well as the projection of future rates of
production and the timing of development expenditures. Reserve engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that are difficult to measure. The accuracy of any reserve estimate is a
function of the quality of available data, engineering and geological
interpretation and judgment. Estimates of economically recoverable oil and
natural gas reserves and of future net cash flows necessarily depend upon a
number of variable factors and assumptions, such as historical production from
the area compared with production from other producing areas, the assumed
effects of regulations by governmental agencies and assumptions concerning
future oil and natural gas prices, future operating costs, severance and excise
taxes, development costs and workover and remedial costs, all of which may in
fact vary considerably from actual results. For these reasons, estimates of the
6
<PAGE>
economically recoverable qualities of oil and natural gas attributable to any
particular group of properties, classifications of such reserves based on risk
of recovery and estimates of the future net cash flows expected therefrom may
vary substantially. Any significant variance in the assumptions could materially
affect the estimated quantity and value of the reserves. Actual production,
revenues and expenditures with respect to the Company's reserves will likely
vary from estimates, and such variances may be material.
Substantial Capital Requirements
The Company's current development plans require substantial capital
expenditures in connection with the exploration, development and exploitation of
its oil and natural gas properties. Historically, the Company has funded capital
expenditures through a combination of equity contributions and short-term
financing arrangements. The Company believes that it will require a combination
of additional financing and cash flow from operations to implement future
development plans. Although Company management is exploring the private and/or
public equity markets as potential capital sources in connection with its
development plans, the Company currently does not have any binding arrangements
with respect to, or sources of, additional financing, and there can be no
assurance that any additional financing will be available to it on reasonable
terms or at all. Future cash flows and the availability of financing will be
subject to a number of variables, such as the level of production from existing
wells, prices of oil and natural gas and success in locating and producing new
reserves. To the extent that future financing requirements are satisfied through
the issuance of equity securities, shareholders of the Company may experience
dilution that could be substantial. The incurrence of debt financing could
result in a substantial portion of operating cash flow being dedicated to the
payment of principal and interest on such indebtedness, could render the Company
more vulnerable to competitive pressures and economic downturns and could impose
restrictions on operations. If revenue were to decrease as a result of lower oil
and natural gas prices, decreased production or otherwise, and the Company had
no availability under a bank arrangement or other credit facility, the Company
could have a reduced ability to execute current development plans, replace
reserves or to maintain production levels, any of which could result in
decreased production and revenue over time.
Concentration in Texas and Utah
The Company's properties in Texas and Utah constitute all of the
Company's existing inventory of producing properties and drilling locations.
Substantially all of the Company's 1998 budget is associated with drilling in
these regions. There can be no assurance that the Company's operations in these
regions will yield positive economic returns. Failure of the properties to yield
significant quantities of economically attractive reserves and production would
have a material adverse impact on the Company's future financial condition and
results of operations.
Drilling and Operating Risks
Oil and natural gas drilling activities are subject to many risks,
including the risk that no commercially productive reservoirs will be
encountered. There can be no assurance that wells drilled by the Company will be
productive or that the Company will recover all or any portion of its drilling
costs. Drilling for oil and natural gas may involve unprofitable efforts, not
only from dry wells, but from wells that are productive but do not produce
sufficient net revenues to return a profit after drilling, operating and other
costs. The cost of drilling, recompleting and operating wells is often
uncertain. Drilling operations may be curtailed, delayed or canceled as a result
of numerous factors, many of which will be beyond the Company's control,
including economic conditions, title problems, weather conditions, compliance
with governmental requirements and shortages or delays in the delivery of
equipment and services. Future drilling activities may not be successful and, if
unsuccessful, such failure may have a material adverse effect on future results
of operations and financial condition.
Potential Risks of Insufficient Insurance Coverage
Oil and natural gas operations are subject to hazards and risks
inherent in drilling for the producing and transporting oil and natural gas,
such as fires, natural disasters, explosions, encountering formations with
abnormal pressures, blowouts, cratering, pipeline ruptures and spills, any of
which can result in the loss of hydrocarbons, environmental pollution, personal
injury claims and other damage to properties. As protection against operating
hazards, the Company currently maintains insurance coverage against some, but
7
<PAGE>
not all, potential losses. The Company may elect to self-insure in circumstances
in which management believes that the cost of insurance, although available, is
excessive relative to the risks presented. The occurrence of an event that is
not covered, or not fully covered, by third-party insurance could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Reliance on Sao Tome Joint Venture
Management of the Company expects that activities conducted pursuant to
its Sao Tome joint venture agreement and revenues therefrom will account for a
significant portion of the activities and revenues of the Company in the future.
Pursuant to the terms of the agreement, Sao Tome has the right to terminate the
agreement in the event the Company fails to make the remaining concession fee
payment of $3,000,000 at the time Sao Tome determines, and the United Nations
accepts, the 200 mile exclusive economic zone boundaries (expected to be by
March 1998) or fails to timely commence the orderly development of the national
oil and gas joint venture company. There can be no assurance that the operations
under the joint venture, even if the remaining concession fee payment is made,
as to which there can be no assurance, will be conducted on a profitable basis.
Risks Inherent in International Operations
The Company's foreign operations are subject to various risks
associated with doing business overseas, such as the possibility of armed
conflict and civil disturbance, the instability of foreign economies, currency
fluctuations and devaluation, adverse tax policies and governmental activities
that may limit or disrupt markets, restrict payments or the movement of funds or
result in the deprivation of contract rights or the expropriation of property.
Additionally, the ability of the Company to compete overseas may be adversely
affected by foreign governmental regulations that encourage or mandate the
hiring of local contractors, or by regulations that require foreign contractors
to employ citizens of, or purchase supplies from, a particular jurisdiction. The
Company is subject to taxation in many jurisdictions, and the final
determination of its tax liabilities involves the interpretation of the statutes
and requirements of various domestic and foreign taxing authorities. Foreign
income tax returns of foreign subsidiaries and related entities are routinely
examined by foreign tax authorities.
8
<PAGE>
The Company has also encountered other international risks in
connection with its joint venture with Sao Tome. The Company has been informed
that each of the countries of Gabon, Equatorial Guinea and Cameroon claim a
200-mile economic zone which results in undefined borders or common areas in
which production would be shared proportionally. In 1996, agencies of the United
Nations and a multicountry commission began to study the respective countries'
border lines and common area rights, although there has been no resolution to
date. See "Business-Managing Exploratory Activities."
Material Foreign Currency Risks
Revenues from the Company's operations in Sao Tome and
substantially all raw material purchases for use in Sao Tome will be U.S.
dollar-denominated and managed through the Company's Louisiana operational
facility. The Company believes that it will not be significantly affected by
exchange rate fluctuations in local African currencies relative to the U.S.
dollar. The Company believes that the effects of such fluctuations will be
limited to wages for local laborers and operating supplies, neither of which is
expected to be material to the Company's results of operations when the joint
venture begins more substantial operations in Sao Tome. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Overview."
Reserve Replacement Risk
The future success of the Company will depend in large part upon its
ability to find, develop or acquire additional oil and natural gas reserves that
are economically recoverable. The Company's proved reserves will generally
decline as reserves are depleted, except to the extent that the Company conducts
successful exploration or development activities or acquires properties
containing proved reserves. As of December 31, 1997, approximately 65.6% of the
Company's total proved reserves were undeveloped. In order to increase reserves
and production, the Company must continue development and exploitation drilling
programs or undertake other replacement activities. Current development plans
include increasing the Company's reserve base through continued drilling,
development and exploitation of existing properties of the Company. There can be
no assurance, however, that planned development and exploitation projects will
result in significant additional reserves or that the Company will have success
drilling productive wells at anticipated finding and development costs.
Compliance with Governmental Regulations
Oil and natural gas operations are subject to extensive federal, state
and local laws and regulations relating to the exploration for, and the
development, production and transportation of, oil and natural gas, as well as
9
<PAGE>
safety matters, which may be changed from time to time in response to economic
or political conditions. Matters subject to regulation by federal, state and
local authorities include permits for drilling operations, road and pipeline
construction, reports concerning operations, the space of wells, unitization and
pooling of properties, taxation and alterations to the Company's development
plans could have a material adverse effect on operations. From time to time,
regulatory agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and natural gas wells below actual
production capacity in order to conserve supplies of oil and natural gas.
Although the Company believes that it is in substantial compliance with all
applicable laws and regulations, the requirements imposed by such laws and
regulations are frequently changed and subject to interpretation, and the
Company cannot predict the ultimate cost of compliance with these requirements
or their effect on operations. Significant expenditures may be required to
comply with governmental laws and regulations and may have a material adverse
effect on the Company's financial condition and results of operations. See
"Business-Governmental Regulation."
Compliance with Environmental Regulations
The Company's workover and environmental remediation services routinely
involve the handling of significant amounts of waste materials, some of which
are classified as hazardous substance. The Company's operations and facilities
are subject to numerous state and federal environmental laws, rules and
regulations, including, without limitation, laws concerning the containment and
disposal of hazardous materials, oilfield waste and other waste materials, the
use of underground storage tanks and the use of underground injection wells.
Laws protecting the environment have generally become more stringent than in the
past and are expected to continue to do so. Environmental laws and regulations
typically impose "strict liability," which means that in some situations the
Company could be exposed to liability for cleanup costs and other damages as a
result of conduct of the Company that was lawful at the time it occurred or
conduct of, or conditions caused by, others. Cleanup costs and other damages
arising as a result of environmental laws, and costs associated with changes in
environmental laws and regulations, could be substantial and could have a
material adverse effect on the Company's financial condition.
Changes in federal and state environmental regulations may also
negatively impact oil and natural gas exploration and production companies,
which in turn could have a material adverse effect on the Company. For example,
legislation has been proposed from time to time in Congress which would
reclassify oil and natural gas production wastes as "hazardous wastes." If
enacted, such legislation could dramatically increase operating costs for
domestic oil and natural gas companies, and this could reduce the market for the
Company's services by making many wells and/or oilfields uneconomical to
operate. To date, such legislation has not made significant progress toward
enactment. See "Business - Environmental Regulation and Claims."
Dependence on Key Personnel
The Company's success is highly dependent on Sam L. Bass, Jr., the
Company's President and Chief Executive Officer, and James R. Callender, Sr.,
its Chief Operating Officer, and a limited number of other senior management and
technical personnel. Loss of the services of any of those individuals could have
a material adverse effect on the Company's operations. As of March 20, 1998,
none of the Company's executive officers is covered by a long-term employment
agreement and the Company does not possess any key-person life insurance
policies on the lives of any such officers. Furthermore, demands on the time of
some of its executive officers in pursuing other businesses, while not
competitive with the business of the Company, could nevertheless reduce the time
available to manage the business of the Company. See "Management."
Control by Existing Shareholders
Sam L. Bass, Jr., the Company's President and Chief Executive Officer,
and the other officers and directors of the Company beneficially own
approximately 35.0% and 8.0%, respectively, of the outstanding Common Stock on
December 31, 1997. Accordingly, Mr. Bass and such persons may be able to
control the outcome of
10
<PAGE>
shareholder votes, including votes concerning the election of directors, the
adoption or amendment of provisions in the Company's Certificate of
Incorporation or By-laws and the approval of mergers and other significant
corporate transactions.
Competition
The Company will operate in the highly competitive areas of oil and
natural gas acquisition, exploration and production with other companies, most
of which have substantially larger financial resources, operations, staffs and
facilities. In seeking to acquire desirable producing properties or new leases
for future exploration and in marketing its oil and natural gas production, the
Company will face intense competition from both major and independent oil and
natural gas companies. Many of these competitors have financial and other
resources substantially in excess of those available to the Company. The effects
of this highly competitive environment could have a material adverse effect on
the Company. In addition, although the number of available rigs has materially
decreased over the past ten years, the workover and drilling markets remain very
competitive. The number of rigs continues to exceed demand, resulting in severe
price competition. Many of the total available contracts are currently awarded
on a bid basis, which further increases competition based on price. In all of
the Company's market areas, competitive factors also include the availability,
condition and type of equipment necessary to meet both special and general
customer needs, the availability of trained personnel possessing the required
specialized skills and overall quality of service and safety record. See
"Business - Competitive Conditions."
Acquisition Risks
The Company has grown primarily through the acquisition, development
and exploitation of oil and natural gas properties. Although the Company expects
to concentrate on current activities in the near future, the Company may
evaluate and pursue from time to time acquisitions in Texas, Utah and other
areas that provide attractive investment opportunities for the addition of
production and reserves and that meet selection criteria. The successful
acquisition of producing properties and undeveloped acreage requires an
assessment of recoverable reserves, future oil and natural gas prices, operating
costs, potential environmental and other liabilities and other factors that will
be beyond the Company's control. This assessment is necessarily inexact and its
accuracy is inherently uncertain. In connection with such an assessment, the
Company will perform a review of the subject properties it believes will be
generally consistent with industry practices. This review, however, will not
reveal all existing or potential problems, nor will it permit a buyer to become
sufficiently familiar with the properties to assess fully their deficiencies and
capabilities. Inspections may not be performed on every well, and structural and
environmental problems are not necessarily observable even when an inspection is
undertaken. The Company will generally assume preclosing liabilities, including
environmental liabilities, and will generally acquire interests in the
properties on an "as is" basis. With respect to its acquisitions to date, the
Company does not have any material commitments for capital expenditures to
comply with existing environmental requirements. There can be no assurance that
any acquisitions will be successful. Any unsuccessful acquisition could have a
material adverse effect on the Company.
Absence of Dividends on Common Stock
The Company has never declared or paid cash dividends on its Common
Stock and anticipates that future earnings, if any, of the Company will be
retained for development of its business. See "Dividend Policy."
Effect of Sales of Shares on Market Price
The Shares represent approximately 68.8% of the total number of shares
of Common Stock outstanding on December 31, 1997. Sales of substantial amounts
of Shares pursuant to this Prospectus, or otherwise, could adversely affect the
market price of the Common Stock.
11
<PAGE>
Possible Stock Price Volatility
The market price of the Common Stock and the price at which the Company
may sell securities in the future could be subject to large fluctuations in
response to changes and variations in the Company's operating results,
litigation, general market conditions, the prices of oil and natural gas, the
liquidity of the Company and its ability to raise additional funds the number of
market makers for the Common Stock and other factors. In the event that the
Company's operating results are below the expectations of public market analysts
and investors in one or more future periods, it is likely that the price of the
Common Stock will be materially adversely affected. In addition, the stock
market has recently experienced significant price and value fluctuations that
have particularly affected the market prices of equity securities of many energy
companies and that often have been unrelated to the operating performance of
such companies. General market fluctuations may also adversely affect the market
price of the Shares.
Forward-Looking Statements
This Prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included or incorporated by reference in
this Prospectus which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
wells to be drilled or reworked, oil and gas prices and demand, exploitation and
exploration prospects, development and infill potential, drilling prospects,
expansion and other development trends of the oil and gas industry, business
strategy, production of oil and gas reserves, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results and developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, including the
risk factors discussed in this Prospectus; general economic, market or business
conditions; the business opportunities (or lack thereof) that may be presented
to and pursued by the Company; changes in laws or regulations; and other
factors, most of which are beyond the control of the Company. Consequently, all
of the forward-looking statements made in this Prospectus are qualified by these
cautionary statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business or operations. The Company assumes no
obligation to update any such forward-looking statements.
12
<PAGE>
THE COMPANY
The Company is an independent oil and gas company formed in 1995 to
focus on acquiring and servicing marginally-producing oil and natural gas
properties which contain the potential for increased value through workovers and
secondary recovery operations utilizing the Company's proprietary
fracture-enhancing horizontal drilling tool. The Company is also focused on
providing a full range of environmental remediation and "plug and abandonment"
services to the oil and gas industry. More recently, the Company has
additionally begun to acquire interests in non-producing oil and gas properties,
particularly high potential international prospects in known oil-producing
areas, which could benefit from the Company's experienced executive team in
managing the development and exploitation of possible reserves.
The Company's predecessor, Environmental Remediation Funding
Corporation ("ERFC"), was incorporated under the laws of the State of Delaware
in September 1995. In August 1996, the stockholders of ERFC exchanged all of
their shares of ERFC for 2,433,950 authorized and unissued shares of common
stock, representing 87.2% of such then outstanding shares, of Regional Air Group
Corporation ("RAIR"), a Colorado corporation. RAIR was a publicly-owned
corporation, which had ceased operations and as a result had only nominal assets
and liabilities. ERFC was then merged with and into RAIR. Following the
acquisition of control, the stockholders of RAIR approved the change in the
Company's name to Environmental Remediation Holding Corporation. The Company
currently contemplates reincorporating in the State of Delaware and changing its
corporate name to better reflect its primary focus in early 1998.
In April 1997, the Company acquired all of the outstanding capital
stock of Bass American Petroleum Company ("BAPCO"), a privately-held company
controlled by Sam L. Bass, Jr., who was then the Company's Chairman of the
Board, President and Chief Executive Officer. Through this acquisition, the
Company acquired, among other assets, ownership of all rights to the BAPCO Tool
and assignment of the Chevron master service agreement.
The 1997 Private Placement
From October to December 1997, the Company raised gross proceeds of
$4,300,000 in a private placement of the Company's 5.5% convertible senior
subordinated secured notes due 2002 (the "Notes") and warrants to purchase
Common Stock (the "Warrants") to a limited number of "accredited" institutional
investors. The maximum number of shares of Common Stock which may be issued by
the Company upon the conversion of the Notes (at a base conversion rate of $1.25
per share, subject to certain limited conditions) and the exercise of the
Warrants (at an exercise price of $2.83 per share) is up to 3,440,000 shares and
283,800 shares, respectively. This Prospectus covers the up to 3,723,800 total
shares of Common Stock issuable upon the conversion of the Notes and the
exercise of the Warrants. See "Selling Shareholders." The Company used a portion
of the total net proceeds of approximately $3,800,000 of the private placement
to make an initial concession fee payment of $2,000,000 in connection with its
Sao Tome joint venture. See "Business - Managing Exploratory Activities."
The Kingsbridge Equity Line of Credit Agreement
In March 1998, the Company entered into a Private Equity Line of Credit
Agreement (the "Investment Agreement") with Kingsbridge Capital Limited, a
British Virgin Islands company ("Kingsbridge"), pursuant to which the Company
has the right to receive up to $10,000,000 in equity financing from the sale of
its Common Stock in tranches to Kingsbridge. Through the Company's exercise of
put options, Kingsbridge is required to purchase, and the Company is required to
sell, subject to certain closing conditions and limitations on the timing of
purchases and amount of Common Stock to be sold with respect to exercises of
individual put options, at least $3,000,000 in shares of Common Stock at a
purchase price equal to 79% of the average of the lowest prices of the Common
Stock on the trading day on which notice of exercise of the put option is given
and on the one trading day prior, and the two trading days following, such put
option exercise notice. The minimum market price for sales of shares is $1.00
per share. At a market price of $1.00, the maximum number of shares of Common
Stock which may be issued by the Company upon the exercise of the put options is
12,658,228 shares. Notwithstanding the foregoing, the maximum number of shares
issuable to Kingsbridge shall not exceed 19.9% of the outstanding shares of
Common Stock at the time of such exercise(s). In connection with entering into
the Investment Agreement, the Company issued to Kingsbridge a three-year warrant
to purchase 100,000 shares of Common Stock at an exercise price of $1.20 per
share (94% of the market price calculated as of March 23, 1998), exercisable
beginning on September 21, 1998 (the "Kingsbridge Warrant"). As a condition
precedent to the purchase and sale of shares pursuant to the Investment
Agreement, among others, the Company is required to register with the Commission
all of the shares of Common Stock subject to the put option, as well as those
into which the Kingsbridge Warrant is exercisable, for resale by Kingsbridge.
13
<PAGE>
USE OF PROCEEDS
The 3,723,800 Shares covered by this Prospectus relating to the 1997
Private Placement are issuable upon the conversion of the Notes and the exercise
of the Warrants. If all such Warrants covered by this Prospectus are exercised
in full at their stated exercise prices, the Company will receive gross proceeds
of approximately $803,154.
The 100,000 Shares covered by this Prospectus which are issuable to
Kingsbridge upon the exercise of the Kingsbridge Warrant have an exercise price
of $1.20 per share, or an aggregate of $120,000.
Expenses expected to be incurred by the Company in connection with
this registration are estimated at approximately $100,000. The Selling
Shareholders will pay all of their underwriting commissions and discounts and
counsel fees and expenses in connection with the sale of the Shares. See "Plan
of Distribution." Proceeds to the Company from the exercise of the warrants
issued to the Investors and to Kingsbridge will be available for working capital
and general corporate purposes. No assurance can be given, however, as to when,
if ever, any or all of such Warrants will be exercised.
The Company will not receive any proceeds from the sale of the Shares
by the Selling Shareholders.
DILUTION
The net tangible book value of the Company's Common Stock as of March
31, 1998 was $0.55 per share. Since the shares are being offered by the Selling
Shareholders, there is no increase in net tangible book value per share to
existing shareholders by virtue of the sale alone. Without taking into account
any changes in net tangible book value after March 31, 1998, other than to give
effect to the conversion of the Notes and the exercise of the Warrants to
purchase up to all 3,823,800 shares of Common Stock which are being offered
hereby, the Company will have an aggregate of up to 28,682,089 shares of Common
Stock outstanding with a net tangible book value of approximately $0.64 per
share. Assuming a sale at the anticipated offering price set forth below, this
will represent an immediate dilution of $0.67 per share to new shareholders. The
following table illustrates this dilution per share:
<TABLE>
<CAPTION>
<S> <C> <C>
Anticipated offering price per share................................. $1.31
Net tangible book value per share
before Offering (1)......................................... $0.55
Increase attributable to the conversion of Notes
and exercise of Warrants.................................... 0.09
Net tangible book value per share after Offering
and conversion of Notes and exercise of Warrants..................... $0.64
Dilution per share to new shareholders(2)............................ $0.67
</TABLE>
- -------------
(1) Net tangible book value per share is determined by dividing the number of
shares of Common Stock outstanding into the sum of total tangible assets of
the Company less total liabilities.
(2) Dilution is determined by subtracting net tangible book value per share
after the offering from the amount paid by a new shareholder for a share of
Common Stock.
14
<PAGE>
PRICE RANGE FOR COMMON STOCK
Shares of the Company's Common Stock have been traded on the OTC
Bulletin Board under the symbol "ERHC" since August 23, 1996. The following
table sets forth the high and low sales prices of the Common Stock as quoted on
the OTC Bulletin Board for the periods indicated. The high and low sales prices
for the Common Stock below reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year 1996
4th Quarter (August 23 - September 30, 1996) ........................... $5-3/4 $5-1/4
Fiscal Year 1997
1st Quarter (October 1 - December 31, 1996)............................. 5-1/2 1/4
2nd Quarter (January 1 - March 31, 1997)................................ 2-1/2 5/16
3rd Quarter (April 1 - June 30, 1997)................................... 5/8 7/32
4th Quarter (July 1 - September 30, 1997)............................... 5-3/8 5/16
Fiscal Year 1998
1st Quarter (October 1 - December 31, 1997)............................. 3-3/8 1-3/8
2nd Quarter (January 1 - March 31, 1998) ............................... 2-3/16 7/8
</TABLE>
See the cover page of this Prospectus for a recent sale price of the
Common Stock as quoted by the OTC Bulletin Board.
As of December 31, 1997, there were approximately 1,967 shareholders of
record of the Common Stock.
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to such dividends as
may be declared by the Board of Directors and paid out of funds legally
available therefor. The Company has never paid any dividends on the Common
Stock. The Company intends to retain earnings, if any, to finance the
development and expansion of its business and does not anticipate paying cash
dividends in the foreseeable future. Future determinations regarding the payment
of dividends is subject to the discretion of the Board of Directors and will
depend upon a number of factors, including future earnings, capital
requirements, financial condition and the existence or absence of any
contractual limitations on the payment of dividends.
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data of the Company presented below as of
September 30, 1995, 1996 and 1997, have been derived from the Consolidated
Financial Statements of the Company, which Consolidated Financial Statements
have been audited by Durland & Company, CPAs, P.A., independent public
accountants, and are included elsewhere in this Registration Statement. The data
set forth below should be read in conjunction with the Company's Consolidated
Financial Statements, related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. <TABLE> <CAPTION>
Fiscal Years ended Three Months ended
September 30, December 31,
------------------------------------------------------- ----------------------------
Statement of Operations Data: 1995(1) 1996(2) 1997(3) 1996 1997
---------------- -------------- ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Environmental remediation $0 $0 $108,944 $0 $146,083
services
Crude oil sales 0 0 0 0 96,914
Cost of sales and expenses:
Environmental remediation 0 0 53,991 0 8,511
Crude oil 0 0 0 0 35,851
Operating expenses 3,404 714,938 16,860,262 127,178 1,910,860
Other income and expenses 0 60,477 (33,456) 0 0
Income before income taxes and
extraordinary item (3,404) (654,461) (16,838,765) (127,178) (1,767,712)
Provision (benefit) for
income taxes 0 0 0 0 0
Net income (loss) (4) (3,404) (654,461) (16,838,765) (127,178) (1,767,712)
Net income (loss) per share (0.01) (0.27) (1.60) (0.04) (0.07)
Weighted average Common Shares outstanding 398,643 2,469,511 10,500,293 3,239,374 24,017,700
Balance Sheet Data (at end of period):
Property and equipment 0 $2,431,987 $2,733,274 $4,597,072
Total assets 0 2,436,987 17,749,231 23,193,689
Total liabilities 3,316 6,730 1,748,376 6,199,552
Stockholders' equity (3,316) 2,430,257 14,000,855 15,494,137
</TABLE>
- --------------------
(1) Reflects the operations of Environmental Remediation Funding Corporation
("ERFC"), the Company's predecessor, from the date 19,920,828 of its
incorporation on September 5, 1995. See "The Company."
(2) The Company acquired 100% of the issued and outstanding common stock of
ERFC, effective August 19, 1996, in a reverse triangular merger, which has
been accounted for as a reorganization of ERFC. See Note 1 to Notes to
Consolidated Financial Statement.
(3) On April 9, 1997, the Company acquired 100% of the issued and outstanding
common stock of Bass American Petroleum Company, which was accounted for as
a purchase. See "The Company."
(4) The net cash operating loss of the Company was $1,283,900 and $83,700 for
the fiscal years ended September 30, 1997 and 1996, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations includes forward-looking statements with
respect to the Company's future financial performance. These forward-looking
statements are subject to various risks and uncertainties, including the factors
described under "Risk Factors" and other sections of this Prospectus, that could
cause actual results to differ materially from historical results or those
currently anticipated.
Overview
The Company is an independent oil and gas company engaged in the
exploration, development, production and sale of crude oil and natural gas
properties with current operations focused in Texas, Utah and Sao Tome in West
Africa. The Company's goal is to maximize its value through profitable growth in
its oil and gas reserves and production. The Company has taken steps to achieve
this goal through its growth strategy of (i) acquiring marginally-producing oil
and gas properties, at favorable prices, with still significant resource
recovery potential through workovers utilizing the Company's proprietary
drilling technology, (ii) managing the exploration, exploitation and development
of non-producing properties in known oil-producing areas, such as the Gulf of
Guinea in West Africa, with industry or government partners, and (iii)
continuing to pursue environmental remediation service contracts for oil and gas
well rework and "plug and abandonment" services in the United States and
internationally.
The Company has acquired all of its oil and gas properties within the
past year. The Company's current development plans require substantial capital
expenditures in connection with the exploration, development and exploitation of
oil and natural gas properties. The Company has historically funded capital
expenditures through a combination of equity contributions and short-term
financing arrangements.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
Results of Operations
Fiscal Quarter Ended December 31, 1997 Compared to Fiscal
Quarter Ended December 31, 1996
During the first quarter of fiscal 1998 the Company incurred a
net loss of $1,767,712, compared to a net loss of $127,178 in the first quarter
of fiscal 1997, reflecting the Company's increased level of business operations.
In the first quarter of fiscal 1998 a total of $960,000 was accrued, but not
paid in cash, as compensation to three officers of the Company. Depreciation and
amortization equaled $104,221 in the first quarter of fiscal 1998 compared to
$43,428 in the first quarter of fiscal 1997. Depletion expense was $17,217 in
the first quarter of fiscal 1998 compared to none in the prior year. The net
cash operating loss of the Company for the first quarter of fiscal 1998 was
$1,069,110 compared to $0 for the first quarter of fiscal 1997.
Officers' compensation, professional fees, travel, consultant fees and
miscellaneous expenses for the three months ended December 31, 1997 compared to
the three months ended December 31, 1996 increased significantly due to the
Company commencing more material business operations in 1997. In 1996,
the Company was still organizing its business plan and had not yet received
funding from the 1997 Private Placement. Professional fees in the three months
ended December 31, 1997 included legal, audit, petroleum engineering and other
engineering costs.
17
<PAGE>
The Company had revenues of $243,000 in the first quarter of
fiscal 1998 compared to none in the first quarter of fiscal 1997. Cost of sales
were $44,362 in the first quarter of fiscal 1998 compared to none in the first
quarter of fiscal 1997. Included in the first quarter of fiscal 1998 were
preparatory expenses of approximately $200,000 related to the cost of bringing a
delegation of government officials, including the Prime Minister of Sao Tome, to
the United States for meetings with various committees of the United Nations and
the United States government, determining the boundaries of the concession and
facilitating the passage of a law in Sao Tome regarding the boundaries of the
country.
Fiscal Year Ended September 30, 1997 Compared to Fiscal Year
Ended September 30, 1996
During the fiscal year ended September 30, 1997, the Company incurred a
net loss of $16,838,765, compared to a net loss of $654,461 in the fiscal year
ended September 30, 1996. In fiscal 1997, common stock was issued in lieu of
cash compensation to directors and outside consultants valued at $12,303,512. In
fiscal 1997, common stock was issued to acquire geologic data concerning Sao
Tome valued at $2,000,000, which was immediately charged to expense. In fiscal
1997, a total of $960,000 was accrued, but not paid in cash, as compensation to
three executive officers of the Company. Depreciation and amortization amounted
to $198,713. The Company's net cash operating loss for fiscal 1997 was
$1,283,900, compared to $83,700 for fiscal 1996.
The Company had revenues of $108,944 in fiscal 1997, compared to none
in fiscal 1996. Cost of sales were $53,991 in fiscal 1997 and none in fiscal
1996. All of such revenues and cost of sales were attributed to providing
environmental remediation services to oil and gas operators. Such services
included environmental engineering, hazardous waste disposal, oil spill and
non-hazardous waste cleanup.
The Company had no oil and gas production during fiscal 1997.
18
<PAGE>
Liquidity and Capital Resources
Historically, the Company has financed its operations from the sale of
its debt and equity securities (including the issuance of its securities in
consideration for services and/or products) and bank and other debt. The Company
expects to finance its operations and further development plans during fiscal
1998 primarily through cash flow from operations.
The Company presently intends to utilize any cash flow from operations
as follows: (i) recompletion of wells in the Uinta Basin; (ii) gas drilling at
the Nueces River Project; (iii) seismic studies and fees for the Sao Tome joint
venture; (iv) purchase of refueling barge/tug for Panama Canal; (v) working of
oil fields in Texas; (vi) completion of Chevron "plug and abandonment" barge;
(vii) construction of additional BAPCO Tools; and (viii) working capital and
general corporate purposes.
Capital Expenditures and Business Plan
In May 1997, the Company entered into an exclusive joint venture with
the Democratic Republic of Sao Tome & Principe ("Sao Tome") to manage the
exploration, exploitation and development of the potential oil and gas reserves
onshore and offshore Sao Tome, either through the venture or in collaboration
with major international oil exploration companies. At that time, the Company
was required to pay a $5,000,000 concession fee to the Sao Tome government. In
September 1997, the Company received a Memorandum of Understanding from the Sao
Tome government which allows the Company to pay this concession fee within five
days after Sao Tome files the relevant official maritime claims maps with the
United Nations and the Gulf of Guinea Commission. In December 1997, the Company
paid $2,000,000 of this concession fee to Sao Tome from the proceeds of the 1997
Private Placement.
The Company is currently in the initial phase of project development
and is conducting seismic surveys, processing existing seismic data and
reviewing environmental and engineering feasibility studies. During fiscal 1997,
the Company issued 1,000,000 shares of its common stock to acquire geologic data
concerning Sao Tome. The Company anticipates spending approximately $1,000,000
over the next 12 months for additional studies necessary to determine the
location and depth of the targeted oil deposits. The Company has spent to date
$250,000 in preparatory expenses including determining the boundaries of the
concession and facilitating the passage of a law in Sao Tome regarding the
boundaries of the country. The costs of further development of this project
cannot be determined until a more definite development plan is established. The
costs depend on the Company's determination to either independently develop the
concession, take on operational partners or lease a portion of the concession
for third-party development. In April 1998, the Government of Sao Tome granted
approval to the joint venture to proceed with the preparation and sale of leases
of its oil concession rights, which sales are expected to occur in late 1998.
19
<PAGE>
Revenues from the Company's operations in Sao Tome and substantially
all raw material purchases for use in Sao Tome will be U.S. dollar-denominated
and managed through the Company's Louisiana operational facility. The Company
believes that it will not be significantly affected by exchange rate
fluctuations in local African currencies relative to the U.S. dollar. The
Company believes that the effects of such fluctuations will be limited to wages
for local laborers and operating supplies, neither of which is expected to be
material to the Company's results of operations when the joint venture begins
more substantial operations in Sao Tome.
In August 1997, the Company acquired a 37.5% interest in a 49,000 acre
natural gas lease, known as the "Nueces River Prospect," in the Nueces River
area of south Texas. The Company paid $200,000 and issued 50,000 shares of its
common stock to acquire the lease. The Company has spent more than $200,000
reworking the first of two existing shut-in wells on the property. In 1998, the
Company plans on spending $650,000 to $1,200,000 to make the wells operational,
utilizing funds to be acquired under the Investment Agreement with Kingsbridge.
The Company is currently considering whether to conduct geophysics surveys to
aid in the selection of future drilling locations. The Company believes that,
assuming the entire lease is productive, there are about 75 locations to be
drilled. In 1998, depending on the availability of funding, the Company expects
to drill 15 to 20 new wells at this site, at a cost of approximately $650,000 to
$1,200,000 per well. The Company is responsible for only half of the drilling
cost of each well, as it shares this cost with its operational co-venturer,
Autry Stephens & Co. The operational dates, as well as the daily production
rates, of the wells cannot be determined until the completion and evaluation of
the well testing program that is currently underway and should be completed in
spring 1998.
The Company acquired in February and March 1997 two leases in oil
fields, which together comprise approximately 1,200 acres and 200 wells, located
in Rusk County and Wichita County, Texas. The Company issued 200,000 shares of
its common stock to acquire the leases. Through December 1997, the Company had
recompleted 18 wells, all of which are operational as of March 20, 1998. The
Company has located its BAPCO Tool on site and expects to use such tool
beginning in April 1998. The Company anticipates spending $1,200,000 in order to
bring production on the fields up to a commercial level.
In July 1997, the Company entered into a joint venture with MIII
Corporation, a Native American oil and gas company, to workover, recomplete and
operate 335 existing oil and gas wells on the Uintah and Ouray Reservation in
northeastern Utah. None of the wells are operational at this time. The Company
has designed a development program, under which it plans to recomplete and
restimulate 36 wells and to drill five to seven development and extension wells
at this site. This plan will require spending a minimum of $1,000,000 to
$1,500,000 in order to make the project operational. Subject to the availability
of such funds, the Company anticipates that the first wells will be on line by
fall 1998.
In October 1997, the Company acquired net revenue interests ranging
from 80% to 84% (and 100% working interest) in oil and gas properties totaling
13,680 acres, located near the MIII fields in the Uinta Basin with 24 oil and
natural gas wells. These wells are currently producing approximately 200 barrels
of oil per day from four producing wells which began realizing revenues for the
Company in November 1997. The Company plans on spending approximately $1,000,000
on additional equipment and up to $80,000 per well on well stimulation in order
to bring 18 more wells on line in 1998. The Company plans on funding this plan
through the use of funds acquired under the Investment Agreement with
Kingsbridge. Provided additional financing of $5,000,000 to $10,000,000 is
secured, the Company is scheduled to implement a recompilation and drilling
program on this project in 1998.
In April 1997, the Company entered into a master service agreement with
Chevron Oil Company ("Chevron") to rework, in order to draw additional
production from, approximately 400 depleting oil and gas wells and to remediate
and "plug and abandon" these and other wells when depleted, in Chevron's oil
fields in southern Louisiana along the Gulf of Mexico. The Chevron agreement
provides for a three-year work schedule, commencing upon the completion of the
Company's 140 foot "plug and abandonment" barge. This barge will be used to
remediate offshore oil rigs and be capable of working in coastal waters as
shallow as 19 inches. A deposit of approximately $131,000 has been made by the
Company to secure the barge and additional funding is being sought to purchase
and equip the barge. It is estimated that the Company's barge would be ready to
20
<PAGE>
operate 60 days following funding. To date, the Company has not yet determined
the extent of financing that will be necessary for this project. The Chevron
agreement was originally entered into by BAPCO and Bass Environmental Services
Worldwide, Inc. ("BEW") in September 1996, prior to the acquisition of BAPCO by
the Company in April 1997, and was assigned to the Company with Chevron's
consent at the time of the acquisition. The Company issued 3,000,000 shares of
Common Stock to BEW in connection with the assignment of this agreement.
During fiscal 1997, the Company issued 4,000,000 shares of its common
stock to acquire BAPCO, a non-operating oil production company with significant
well rework equipment assets.
The Company's current development plans require substantial capital
expenditures in connection with the exploration, development and exploitation of
its oil and natural gas properties. Historically, the Company has funded capital
expenditures through a combination of equity contributions and short-term
financing arrangements. The Company believes that it will require a combination
of additional financing and cash flow from operations to implement future
development plans. Although Company management is exploring the private and/or
public equity markets as potential capital sources in connection with its
development plans, the Company currently does not have any binding arrangements
with respect to, or sources of, additional financing, and there can be no
assurance that any additional financing will be available to it on reasonable
terms or at all. Future cash flows and the availability of financing will be
subject to a number of variables, such as the level of production from existing
wells, prices of oil and natural gas and success in locating and producing new
reserves. To the extent that future financing requirements are satisfied through
the issuance of equity securities, shareholders of the Company may experience
dilution that could be substantial. The incurrence of debt financing could
result in a substantial portion of operating cash flow being dedicated to the
payment of principal and interest on such indebtedness, could render the Company
more vulnerable to competitive pressures and economic downturns and could impose
restrictions on operations. If revenue were to decrease as a result of lower oil
and natural gas prices, decreased production or otherwise, and the Company had
no availability under a bank arrangement or other credit facility, the Company
could have a reduced ability to execute current development plans, replace
reserves or to maintain production levels, any of which could result in
decreased production and revenue over time.
Reserves and Pricing
Oil and natural gas prices fluctuate throughout the year. Generally,
higher natural gas prices prevail during the winter months of September through
February. A significant decline in prices would have a material effect on the
measure of future net cash flows which, in turn, could impact the value of the
Company's oil and gas properties.
The Company's drilling and acquisition activities have increased its
reserve base and its productive capacity, and therefore, its potential cash
flow. Lower gas prices may adversely affect cash flow. The Company intends to
continue to acquire and develop oil and natural gas properties in its areas of
activity as dictated by market conditions and financial ability. The Company
retains flexibility to participate in oil and gas activities at a level that is
supported by its cash flow and financial ability. The Company intends to
continue to use financial leverage to fund its operations as investment
opportunities become available on terms that management believes warrant
investment of the Company's capital resources.
The Company expects to utilize the "successful efforts" method of
accounting for its oil and gas producing activities once it has reached the
producing stage. The Company expects to regularly assess proved oil and gas
reserves for possible impairment on an aggregate basis in accordance with SFAS
No. 121.
21
<PAGE>
Net Operating Losses
The Company has net operating loss carryforwards of $19,264,342 which
expire in the years 2010 through 2012. The Company has a $7,705,700 deferred tax
asset resulting from the loss carryforwards, for which it has established a 100%
valuation allowance. Until the Company's current operations begin to produce
earnings, it is unclear as to the ability of the Company to utilize such
carryforwards.
Year 2000 Compliance
The Company is currently in the process of evaluating its information
technology for Year 2000 compliance. The Company does not expect that the cost
to modify its information technology infrastructure to be Year 2000 compliant
will be material to its financial condition or results of operations. The
Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance.
22
<PAGE>
BUSINESS
Overview
The Company is an independent oil and gas company formed in 1995 to
focus on acquiring and servicing marginally-producing oil and natural gas
properties which contain the potential for increased value through workovers and
secondary recovery operations utilizing the Company's proprietary horizontal
drilling tool. The Company is also focused on providing a full range of
environmental remediation and "plug and abandonment" services to the oil and gas
industry. More recently, the Company has additionally begun to acquire interests
in non-producing oil and gas properties, particularly high potential
international prospects in known oil-producing areas, which could benefit from
the Company's experienced executive team in managing the development and
exploitation of possible reserves. In June 1997, the Company entered into an
exclusive joint venture with the Democratic Republic of Sao Tome & Principe
("Sao Tome"), a set of islands located in the Gulf of Guinea off the coast of
central West Africa, to manage the exploration, exploitation and development of
the potential oil and gas reserves onshore and offshore Sao Tome, either through
the venture or in collaboration with major international oil exploration
companies. The Company is currently in the initial phase of project development
and is conducting geophysical, seismic, environmental and engineering
feasibility studies. In April 1998, the Government of Sao Tome granted approval
to the joint venture to proceed with the preparation and sale of leases of its
oil concession rights, which sales are expected to occur in late 1998. The
Company believes that this venture provides it with a significant foothold in
the oil-rich Gulf of Guinea, in which the venture is the largest single
concession holder in the entire Gulf.
The Company has entered into a number of recent transactions in
connection with its workover and recovery operations. In August 1997, the
Company acquired a 37.5% interest in a 49,000 acre natural gas lease, known as
the "Nueces River Project", in the Nueces River area of south Texas, one of the
largest producing natural gas areas in the United States. According to
independent reserve reports prepared by David K. Davies and Associates, Inc. and
Sandwood Consultants, it is estimated that this area contains 100 BCF of natural
gas per 640 acre section. In December 1997, the Company re-entered the first of
two existing shut-in wells on the property, and expects to ultimately recover up
to 5 BCF per well using 5% of the estimated inplace reserves. The daily
production rates from these wells cannot be determined until the completion and
evaluation of the current well testing program in spring 1998. In addition, the
Company acquired in February and March 1997 two leases in oil fields located in
Rusk County and Wichita County, Texas. These oil fields, which together comprise
approximately 1,200 acres and 200 wells, have proven reserves totaling 2.5
million barrels of oil as verified by Joseph Shoaf, P.E., an independent
reservoir engineer. The Company estimates that, after reworking the wells using
various techniques including its proprietary drilling tool, these wells could
produce from 500 to 800 barrels of oil per day. Through December 1997, the
Company had recompleted 18 oil wells and is currently producing and selling
"test" oil from the Wichita County field.
The Company also holds interests in oil and natural gas leases in Utah.
In July 1997, the Company entered into a joint venture with MIII Corporation, a
Native American oil and gas company, to workover, recomplete and operate 335
existing oil and gas wells on the Uintah and Ouray Reservation in northeastern
Utah. It is estimated that the first approximately 36 wells will be scheduled
for recompletion and stimulation in fall 1998 and, the Company estimates that
after initial workover operations are completed, these wells could produce in
excess of 3,900 barrels of oil per day. A 1993 independent reserve report
prepared by Richard Stephen Shuster, P.E. indicates, based on a study of 133 of
such wells, estimated reserves of approximately 5.77 million barrels of oil and
23.4 BCF of natural gas on these sites. These estimates are subject to internal
verification by the Company. In September 1997, the Company acquired net revenue
interests ranging from 80% to 84% in oil and gas properties totaling 13,680
acres, located near the MIII fields, currently producing approximately 200
barrels of oil per day from eight producing wells. As of December 31, 1997,
these were the Company's only commercially producing properties, which began
realizing revenues for the Company in November 1997. A 1996 independent reserve
report prepared by Ralph L. Nelms indicates that the gross recoverable reserves
of these properties total approximately 2.624 million barrels of oil and 3.302
BCF of natural gas.
Another significant aspect of the Company's current business is
providing environmental remediation services to oil and gas operators. All of
the Company's revenues during the fiscal year ended September 30, 1997 were
23
<PAGE>
attributable to providing these services, which include environmental
engineering, hazardous waste (including naturally occurring radioactive
material) remediation and disposal, oil spill, soil decontamination and
non-hazardous oilfield waste cleanup, as well as "plug and abandonment" of oil
and gas wells, all in accordance with strict federal, state and local
environmental regulations. In April 1997, the Company entered into a master
service agreement with Chevron Oil Company ("Chevron") to rework, in order to
draw additional production from, approximately 400 depleting oil and gas wells
and to remediate and "plug and abandon" these and other wells when depleted, in
Chevron's oil fields in southern Louisiana along the Gulf of Mexico. The Chevron
agreement provides for a three-year work schedule, commencing upon the
completion of the Company's 140 foot "plug and abandonment" barge. The Company
has designed this specialized "plug and abandonment" barge to remediate off
shore well locations and is capable of working in coastal waters as shallow as
19 inches. In addition, through management's extensive relationships in the oil
and gas industry, the Company has obtained a ten-year concession with the Panama
Canal Commission, through a joint venture with Centram Marine Services, S.A., to
supply fuel to tankers and other commercial vessels traversing the Panama Canal.
These operations are expected to commence in mid-1998, provided adequate
financing is secured.
The Company believes that, at its current stage of development, it is
more economical and less speculative to rework and recomplete existing wells
than to drill exploratory wells in search of new oil and gas deposits. Using the
Company's proprietary horizontal drilling tool, known as the BAPCO Tool, the
Company has had, according to internal data, an 80% success ratio in increasing
the level of production from oil and natural gas wells that are suitable for
enhancement of primary recovery by use of the BAPCO Tool or candidates for
secondary recovery. The Company believes that the BAPCO Tool serves as a
competitive advantage for securing new workover projects from other oil and gas
operators, for attracting joint venture partners in larger workover contracts in
the United States and internationally and for use on its own oil and gas
properties in Texas and Utah.
Beginning in the early 1990's, both secondary recovery of oil reserves
and environmental remediation of abandoned oil wells have become major items of
interest in the oil and gas industry. According to current industry statistics,
it is estimated that only 7.5% to 15% of total oil reserves are recovered in
primary drilling operations due to the significant incremental costs involved in
exploiting far-reaching reservoirs of an oil formation. Following primary
drilling operations, large independent oil companies have typically outsourced
some or all of the required "plug and abandonment" work to environmental
remediation firms, such as the Company. By conducting enhanced primary or
secondary recovery operations utilizing the BAPCO Tool on the otherwise
abandoned wells, the Company believes that it is able to effectively extend the
economic life of an oil field and increase existing oil recovery by up to 30%,
prior to formal abandonment. The Company, which provides primary and secondary
recovery, "plug and abandonment" operations and environmental remediation
services, believes that, in the United States alone, there are hundreds of oil
and natural gas fields which could benefit from these services.
Growth Strategy
The Company's goal is to maximize its value through profitable growth
in its oil and gas reserves and production. The Company has taken steps to
achieve this goal through its growth strategy of (i) acquiring
marginally-producing oil and gas properties, at favorable prices, with still
significant resource recovery potential through workovers utilizing the
Company's proprietary drilling technology, (ii) managing the exploration,
exploitation and development of non-producing properties in known oil-producing
areas, such as the Gulf of Guinea in West Africa, with industry or government
partners, and (iii) continuing to pursue environmental remediation service
contracts for oil and gas well rework and "plug and abandonment" services in the
United States and internationally.
24
<PAGE>
Key elements of the Company's growth strategy include:
o Acquire and Exploit Attractive Oil and Gas Properties. The Company
has an experienced management and engineering team that focuses on
acquisitions of marginally-producing properties which meet its
selection criteria including (a) significant reserves with the
potential for increasing production through low-risk workovers,
recompletions, secondary recovery operations and other production
optimization techniques using its BAPCO Tool, (b) attractive
purchase price and (c) opportunities for improved operating
efficiencies in labor and other field level costs. This growth
strategy has allowed the Company to rapidly grow its reserves, and
its workover and recovery activities have resulted in an 80% success
ratio for improved production from wells that are suitable for
enhanced primary and secondary recovery projects.
o Manage High Potential International Prospects. The Company seeks to
manage the overall exploration activities for high potential
international prospects in known oil-producing areas. By managing
these projects, the Company seeks to share the risks inherent in
exploratory drilling with industry and government partners. The
Company's international exploration activities target significant
long-term reserve growth and value creation, such as the Company's
joint venture with Sao Tome. The Company also plans to pursue
offshore transportation and logistic support services in connection
with its international prospects.
o Pursue Additional Environmental Remediation Contracts. The Company
aggressively pursues new environmental remediation contracts in the
United States and abroad, directly and through joint ventures. The
Company believes it possesses competitive advantages including the
availability and condition of equipment to meet both special and
general customer needs, the availability of trained and licensed
personnel with the required specialized skills, the overall quality
of its service and safety record and the ability to offer ancillary
services, such as "plug and abandonment" services. The Company has
specifically targeted major oil companies with properties located in
the Gulf Coast areas of Louisiana and Texas, which require "plug and
abandonment" services for old and depleted fields.
25
<PAGE>
Summary of Properties
A summary of the Company's oil and gas properties is as follows:
<TABLE>
<CAPTION>
Anticipated
Investment Anticipated
Nature of Date to Make Operational
Property Interest Acquired Cost Operational Date
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sao Tome Joint Venture to May 1997 $5,000,000 $1,500,000 (1) Undetermined as of
drill and develop concession fee, this time.
fields $2,000,000 of which Recently granted right
has been paid to proceed with sales of
leases expected to occur
in late 1998.
- ---------------------------------------------------------------------------------------------------------------------------------
Nueces River Natural 37.5% interest in a October 1997 $200,000 and 50,000 (2) To be determined upon
Gas Prospect, Texas 49,000 acre natural shares of Common completion and
gas lease Stock evaluation of the
current well testing
program.
- ---------------------------------------------------------------------------------------------------------------------------------
Rusk and Wichita Two leases in oil February and 500,000 shares of Currently 18 wells currently
County Oil Fields, fields March 1997 Common Stock operational(3) operational
Texas
- ---------------------------------------------------------------------------------------------------------------------------------
Uintah and Ouray Joint Venture with July 1997 $55,000 and Minimum of $1,000,000 Fall 1998
Reservation (MIII MIII Corporation to contemplated to $1,500,000
Project), Utah develop and operate issuance of 250,000
335 wells shares of Common
Stock to MIII
- ---------------------------------------------------------------------------------------------------------------------------------
Uinta Project, Utah Net revenue October 1997 $250,000 and Currently operational 4 wells currently
interests ranging 1,000,000 shares of (4) operational
from 80% to 84% Common Stock
(and 100% working
interest) in oil
and gas properties
of approximately
13,680 acres, with 24
wells (22 oil, gas
and mineral leases)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has spent (i)$2,500,000 for data that had been purchased through
cash and stock as of March 1998, and (ii) $250,000 in expenses preparatory to
drilling. The Company anticipates spending $1,000,000 over the next 12 months
for additional studies needed to determine the location and depth of the
targeted oil deposits. The costs of further development of this project cannot
be determined until a more definite development plan is established. The costs
depend on the Company's determination to either independently develop the
concession, take on operational partners or lease a portion of the concession
for third-party development. See "-Sao Tome."
(2) The Company has already spent $200,000 reworking the first of two existing
shut-in wells on the property. In 1998, the Company plans on spending
approximately $650,000 to $1,250,000 to bring both wells on line. Provided
financing is secured, the Company would also like to drill 15 to 20 new wells at
this site in 1998. The Company is responsible for only half of the drilling cost
of each well, as it shares this cost with its operational co-venturer, Autry
Stephens & Co. See "-Workover and Recovery Activities."
(3) The Company expects to spend $1,200,000 to bring production up to a
commercial level. See "-Workover and Recovery Activities."
(4) The Company plans on spending approximately $1,000,000 on additional
equipment and up to $80,000 per well on well stimulation in order to bring 18
more wells on line in 1998, utilizing funds acquired through the Investment
Agreement with Kingsbridge. Provided financing of $5,000,000 to $10,000,000 is
secured, the Company is scheduled to implement a recompilation and drilling
program. See "-Workover and Recovery Activities."
Managing Exploratory Activities
The Company is currently managing or in the process of negotiating
several international exploratory projects which, if successful, have the
potential to increase the growth of the Company. The Company believes that its
existing project in Sao Tome has the potential to significantly increase
reserves.
26
<PAGE>
Sao Tome
In May 1997, the Company entered into an exclusive joint venture with
Sao Tome, a member of the United Nations, to manage the exploration,
exploitation and development of the country's potential oil and gas reserves in
the Gulf of Guinea. Sao Tome is comprised of two principal islands which
straddle the equator in the prolific petroleum-producing region of the Gulf of
Guinea. The Sao Tome islands are located approximately 200 miles west of
mainland Gabon, and southwest of Equatorial Guinea and Cameroon, and are located
directly on a well-known geologic feature known as the "Cameroon Volcanic Line."
The exclusive 25-year joint venture agreement provides for the
establishment of a national oil and gas company owned jointly by Sao Tome, the
Company and, as a junior partner, Procura Financial Consultants, c.c., a South
African corporation ("Procura"). Under the agreement, the venture has the first
right to select the oil and gas concessions it desires to explore and develop in
an area approximately 64,550 square miles in the Gulf of Guinea. On behalf of
Sao Tome, the Company has agreed to negotiate with major international oil and
gas companies to grant leases to oil and gas concessions not selected by the
joint venture. The Company is entitled to receive an overriding royalty on the
27
<PAGE>
production from those concessions. Pursuant to the terms of the agreement, Sao
Tome has the right to terminate the agreement in the event the Company fails to
make the remaining concession fee payment of $3,000,000 at the time Sao Tome
determines, and the United Nations accepts, the 200 mile exclusive economic zone
boundaries (expected to be by mid 1998) or fails to timely commence the orderly
development of the national oil and gas joint venture company. The Company is
currently exploring funding sources for this payment. In November 1997, the
Company made an initial $2,000,000 payment in respect of the initial concession
fee from the net proceeds of its 1997 private placement. See "The Company - The
Private Placement."
The Company is currently in the initial phase of project development
and is conducting seismic surveys, processing existing seismic data and
reviewing environmental and engineering feasibility studies. The Company has
already provided to Sao Tome initial feasibility studies including seismic
interaction, sedimentology biostatgraph, geochemistry and petrographics and
diagnostics. The Company expects to expend at least $2,300,000 in the initial
phase of this project. Following further studies, the Company anticipates
coordinating the drilling of a "test" well in late 1998. The costs associated
with drilling and testing such a well cannot be determined until the seismic
data have been processed and evaluated in mid to late 1998. In April 1998, the
Government of Sao Tome granted approval to the joint venture to proceed with the
preparation and sale of leases of its oil concession rights, which sales are
expected to occur in late 1998.
In September 1997, the Company expanded its joint venture agreement
with Sao Tome. Under the modified agreement, the venture was granted development
rights for an offshore logistics center. The projects contemplated by the
venture include a helicopter refueling station, seaport with dry dock facilities
and temporary accommodation facilities for employees and their families. The
Company believes that an offshore logistics base is essential to the development
of West Africa's oil and gas industry. The Company has not determined the
funding levels required for these projects at this time.
The Company believes that this venture provides it with a significant
foothold in the oil-rich Gulf of Guinea, in which the venture is the largest
single concession holder in the entire Gulf. The offshore oil potential of Sao
Tome has been studied by numerous oil companies, including Mobil Corp. and Elf
Aquitaine, since at least the late 1970s. Over the next 20 years, industry
experts say, Western oil companies will invest between $40 billion and $60
billion in the Gulf of Guinea alone.
Workover and Recovery Activities
The Company concentrates its acquisition efforts on
marginally-producing properties which demonstrate a potential for significant
additional development through workovers, behind-pipe recompletions, secondary
recovery operations utilizing the Company's BAPCO Tool and other exploitation
techniques. The Company has pursued a workover and recompletion program on the
properties it has acquired and intends to commence an extensive workover and
recompletion program in the future.
"Workovers" refer to the major repairs and modifications occasionally
required by producing oil and natural gas wells. Workovers may be done, for
example, to remedy equipment failures, deepen a well in order to complete a new
producing reservoir, plug back the bottom of a well to reduce the amount of
water being produced with the oil and natural gas, clean out and recomplete a
well if production has declined, repair leaks, or convert a producing well to an
injection well for secondary or enhanced recovery projects. These extensive
workover operations are normally carried out with a well-servicing type rig that
includes additional specialized accessory equipment, which may include rotary
drilling equipment, mud pumps, mud tanks and blowout preventers, depending upon
the particular type of workover operation. The Company's two workover rigs are
designed and equipped to handle the more complex workover operations. A workover
may last anywhere from a few days to several weeks.
The kinds of activities necessary to carry out a workover operation are
essentially the same as those that are required to "complete" a well when it is
first drilled. The "recompletion" process may involve selectively perforating
the well casing at the depth of discrete producing zones, stimulating and
28
<PAGE>
testing these zones and installing down-hole equipment. Independent oil and gas
production companies often find it more efficient to move a larger and more
expensive drilling rig off location after an oil or natural gas well has been
drilled and to move in a specialized well-servicing rig to perform completion
operations. The Company plans to acquire a well-servicing rig for this purpose.
The completion process may require from a few days to several weeks.
The Company's staff focuses on maximizing the value of the properties
within its reserve base. The results of their efforts are reflected in increased
production and additions to reserves.
For the fiscal year ended September 30, 1997, the Company spent
approximately $53,000 on workover and recompletion operations, involving nine
wells in Texas. The Company anticipates spending in excess of $1.825 million on
workover and recompletion operations during fiscal 1998, although there can be
no assurance it will have the funding to do so.
In connection with this focus, the Company actively pursues operating
cost reductions on the properties it acquires. The Company believes that its
cost structure and operating practices generally result in improved operating
economies.
The following is a brief discussion of significant developments in the
Company's recent workover and recompletion activities:
Nueces River Natural Gas Prospect
The Company has a 37.5% working interest in a 49,000 acre natural gas
lease, known as the "Nueces River Prospect," in the Nueces River area of
McMullen and LaSalle counties in south Texas, one of the largest producing
natural gas areas in the United States. According to independent reserve reports
separately prepared by David K. Davies and Associates, Inc. and Sandwood
Consultants of Nacogdoches, Texas it is estimated that the field contains 100
BCF of natural gas per 640 acre section. In December 1997, the Company
re-entered the first of two existing shut-in wells on the property, and expects
to ultimately recover up to 5 BCF per well using 5% of the estimated inplace
reserves. The daily production rates, as well as the anticipated operational
dates, from these wells cannot be determined until the completion and evaluation
of the current well testing program, which should be completed in spring 1998.
Following revitalization, the Company estimates that such wells have the
possibility of producing in excess of 500 MCF (million cubic feet) of natural
gas per day. A 20-inch diameter Transcontinental Gas Pipeline is located
approximately three miles from the wells to provide access to a gas market. The
Company jointly operates the field with Autry Stephens & Co., a large
independent operator in west and south Texas. The Company acquired its interest
in the Nueces River Project in October 1997 in consideration for $200,000 and
the issuance of 50,000 shares of Common Stock.
In 1998, the Company plans on spending approximately $650,000 to
$1,200,000 to bring both wells on line. Provided financing is secured, the
Company also expects to drill 15 to 20 new wells at this site, at a cost of
approximately $650,000 to $1,200,000 per well. The Company is responsible for
half of the drilling cost of each well, as it shares this cost with its
operational co-venturer, Autry Stephens & Co. The anticipated operational dates
of these wells depend on the amount of funds raised by the Company in 1998.
Rusk and Wichita County Oil Fields
The Company holds directly two leases on producing oil fields in Texas,
known as the Gunsite Formation in Wichita County, north Texas, and the Woodbine
Formation in Rusk County, east Texas. These oil fields together comprise
approximately 1,200 acres and 200 wells. A 1997 independent reserve report
prepared by Joseph Shoaf, P.E. estimated that proven reserves ("behind pipe")
total 2.5 million barrels of oil. Through December 1997, the Company had
recompleted 18 wells, all of which were operational as of March 20, 1998. The
Company has located its BAPCO Tool on site and expects to use such tool
beginning in mid 1998. The Company anticipates spending $1,200,000 in order to
bring production on the fields up to a commercial level. After reworking the
fields using the BAPCO Tool and other techniques, the Company believes that
these wells could produce from 500 to 800 barrels of oil per day.
29
<PAGE>
The Company acquired the Rusk and Wichita County oil fields in February
and March 1997, respectively, in consideration for a total of 500,000 shares of
Common Stock, valued at a total of $14,335,646.
MIII Project in Utah
In July 1997, the Company entered into a joint venture with MIII
Corporation ("MIII"), a Native American oil and gas company based in Fort
Duchesne, Utah. Under the agreement, the Company has agreed to workover,
recomplete and operate 335 oil and gas wells located on the 4,000,000 acre
Uintah and Ouray Reservation in northeastern Utah. It is estimated that the
first approximately 36 wells will be scheduled for recompletion and
restimulation by fall 1998, provided that the Company raises the required
funding. After initial workover operations are completed, the Company estimates
that these wells could produce in excess of 3,900 barrels of oil per day. A 1993
independent reserve report prepared by Richard Stephen Shuster, P.E. indicates,
based on a study of 133 of such wells, estimated reserves of approximately 5.77
million barrels of oil and 23.4 BCF of natural gas at this site. These estimates
are subject to internal verification by the Company. The Company's production
estimates at this site are based predominately on the multiple sandstone
reservoirs of the Wasatch, transition zone and Green River Formations that can
occur at depths of 5,000 to 16,000 feet.
Under the terms of the joint venture agreement, once the production of
natural gas reaches 5,000 MCF, MIII has agreed to construct a gas gathering
plant on such site, with the Company retaining a 25% interest in the plant. As
of this date, there can be no assurance as to when, if ever, such plant will be
constructed.
The Company has a 37.762% working interest in the wells located on the
MIII property, and is entitled to receive a $2.50 per barrel operator fee on
production in the fields. The Company also has the right to receive an
additional 5% working interest in the wells after start-up costs of
approximately $1.5 million are repaid to certain original MIII investors from
overall production. The remaining working interests in the MIII property are
held by MIII, the Ute Tribe and the allotted members of the Ute Tribe. The
Company paid $55,000 and contemplates issuing 250,000 shares of Common Stock to
MIII in connection with entering into this venture. In 1998, the Company plans
to recomplete and restimulate 36 wells and to drill five to seven development
and extension wells at this site, provided adequate financing is secured.
Uinta Project
In October 1997, the Company acquired net revenue interests
ranging from 80% to 84% (and 100% working interest) in oil and gas properties
totaling 13,680 acres, located near the MIII fields in the Uinta Basin with 24
oil and natural gas wells, currently producing approximately 200 barrels of oil
per day from four producing wells. As of December 31, 1997, these were the
Company's only commercially producing properties, which began realizing revenue
for the Company in November 1997. A 1996 independent reserve report prepared by
Ralph L. Nelms indicates that the gross recoverable reserves of these properties
total approximately 2.624 million barrels of oil and 3.302 BCF of natural gas.
Wells in this field produce primarily from multiple sandstone reservoirs of the
Wasatch transition zone and lower Green River Formations at depths ranging from
5,500 to 16,000 feet. The remaining net revenue interests in these properties
are held by the Ute Tribe.
The Company plans on spending approximately $1,000,000 on additional
equipment and up to $80,000 per well on well stimulation in order to bring 18
more wells on line in 1998, utilizing funds acquired under the Investment
Agreement with Kingsbridge. Provided additional financing of about $5,000,000 to
$10,000,000 is secured, the Company plans extensive work in this field during
1998, including a 20 well program to develop infill and field extension
locations, a 40-acre pilot waterflood project and the workover and recompletion
of the 22 existing wells to test the viability of more shallow formations for
potential future development.
30
<PAGE>
Reserves
The following table sets forth estimates of the proven oil and gas
reserves (gross) of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
Oil Equivalent
Oil Gas --------------
-------------------------------- ------------------------------- (millions of
(millions of barrels) (billion cubic feet) barrels)
Field Developed Undeveloped Total Developed Undeveloped Total Total
----- --------- ----------- ----- --------- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Nueces River Prospect, Texas. - - - - - - -
Rusk County Field, Texas..... 1.5 - 1.5 - - - 1.5
Wichita County Field, Texas.. 1.0 - 1.0 - - - 1.0
Uintah & Ouray Reservation,
Utah(1).................. 0 0 0 0 0 0 0
Uinta Project, Utah.......... .141 1.782 1.923 .119 1.956 2.075 2.269
---- ----- ----- ---- ----- ------ -----
Total............. 2.641 1.782 4.423 .119 1.956 2.075 4.769
====== ====== ====== ===== ===== ====== ======
</TABLE>
- ----------
(1) The Company is currently in the process of evaluating reserve reports on
these properties, and therefore, internally verified estimates for the
developed and undeveloped proven oil and gas reserves are not available at
this time.
Estimates of the Company's proved reserves set forth above have not
been filed with, or included in reports to, any Federal authority or agency,
other than the Securities and Exchange Commission.
The Company's non-producing proved reserves are largely "behind-pipe"
in fields which it operates. Undeveloped proved reserves are predominantly
infill drilling locations and secondary recovery projects.
The reserve data set forth in this Prospectus represent only estimates.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an exact manner.
The accuracy of any reserve estimate is a function of the quality of available
data and of engineering and geological interpretation and judgment. As a result,
estimates of different engineers often vary. In addition, results of drilling,
testing and production subsequent to the date of an estimate may justify
revision of such estimate. Accordingly, reserve estimates often differ from the
quantities of oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based.
For further information on the Company's oil and gas reserves and
pricing, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
BAPCO Tool
The Company's BAPCO Tool, which is used in most of its workover
operations, has two main functions: to provide a means of mechanically cutting a
hole through the casing and extending a flexible tubular pipe outward at least
50 feet from the bore hole. The system is made up of a skid mounted surface unit
with a command module, filter system and pumping package, and a down hole
assembly. The command module, which is approximately 10 feet long, 6 feet wide
and 8 feet high, is air conditioned, contains all the necessary controls and
data recording equipment and has a special tool storage area. The down hole tool
assembly is composed of a filter and filter body that removes the unwanted
material and prevents the material from entering the control section of the
tool. There are no limitations regarding casing thickness and cement sheath when
utilizing the BAPCO Tool.
According to internal data, the Company has had an 80% success ratio in
increasing the level of production from oil and natural gas wells that are
suitable for secondary recovery. The Company believes that the BAPCO Tool serves
31
<PAGE>
as a competitive advantage for securing new workover projects from other oil and
gas operators, for attracting joint venture partners in large workover contracts
in the United States and internationally and for use on its own oil and gas
properties in Texas and Utah.
The BAPCO Tool was acquired by the Company in connection with the stock
acquisition of BAPCO in April 1997. The Company has constructed two BAPCO Tools
to date and is currently in the process of constructing a third tool. The
Company plans to construct three additional tools in 1998, provided it receives
adequate financing in the future. The BAPCO Tool has been tested on multiple
wells in a variety of formations during the past 18 months. The BAPCO Tool has
been continuously updated and modified since the tool was first designed and
developed in the early 1990s by Sam L. Bass, Jr., the Company's Chairman,
President and Chief Executive Officer.
Environmental Remediation Services
The Company provides environmental remediation services to oil and gas
operators. These services, which the Company is licensed to provide, include
environmental engineering, hazardous material (including naturally occurring
radioactive material) remediation and disposal, and oil spill, soil
decontamination and non-hazardous oilfield waste cleanup related to the
production of oil and natural gas, all in accordance with strict federal, state
and local environmental regulations. The Company also provides "plug and
abandonment" services for wells from which the oil and natural gas have been
depleted and further production has become uneconomical.
The Company's soil decontamination systems are capable of handling a
variety of different contamination problems. The Company standard Class 1-4
decontamination machines. The Class I machine is used to process soils
contaminated with gasoline and diesel and which require little or no soil
conditioning. The Class II machine offers increased temperatures to treat soil
with contaminants up to No. 6 fuel oil, lubricating oils, heavy oil residuals
and crude oils. The Class III machines are an upgrade to the Class II machines
and accommodate slightly higher temperatures and add acid gas neutralization for
handling chlorinated compounds. The Class IV machines are hazardous waste
incinerators.
The Company's staff is certified in the use of many types of products
used in tank and pit cleaning services and emergency response spill and
clean-up. The Company uses a "sludge-buster" robotic water cannon to expedite
the cleaning of tanks. The Company's staff is also experienced in the use of a
closed loop system for pit cleaning. The closed loop system separates solids
from liquids, chemically treats the liquids and solids in accordance with local
environmental standards. The Company can deliver emergency crews trained in
chemical and oil spill containment and clean-up throughout many parts of the
world.
In April 1997, the Company entered into a master service agreement with
Chevron Oil Company ("Chevron") to rework, in order to draw additional
production from, approximately 400 depleting oil and gas wells and to remediate
and "plug and abandon" these and other wells when depleted, in Chevron's oil
fields in southern Louisiana along the Gulf of Mexico. The Chevron agreement
provides for a three-year work schedule, commencing upon the completion of the
Company's 140 foot "plug and abandonment" barge. This barge will be used to
remediate offshore oil rigs and be capable of working in coastal waters as
shallow as 19 inches. A deposit of approximately $131,000 has been made by the
Company to secure the barge and additional funding is being sought to purchase
and equip the barge. It is estimated that the Company's barge would be ready to
operate 60 days following funding. To date, the Company has not determined the
extent of financing that will be necessary for this project. The Chevron
agreement was originally entered into by BAPCO and Bass Environmental Services
Worldwide, Inc. ("BEW") in September 1996, prior to the acquisition of BAPCO by
the Company in April 1997, and was assigned to the Company with Chevron's
consent at the time of the acquisition. The Company issued 3,000,000 shares of
Common Stock to BEW in connection with the assignment of this agreement.
The Company's "plug and abandonment" services involve shutting down and
discontinuing the use of old, unsafe or marginally-producing oil or natural gas
wells, and restoring a site to its pre-drilling condition. There are many
32
<PAGE>
ecological ramifications if oil and gas wells are abandoned without following
federal Environmental Protection Agency and state Department of Environmental
Quality mandated guidelines. These ramifications are caused due to aging
equipment and pipe ceilings which can lead to "blow outs," oil and gas seepage
into the water and ground water contamination. If not "plugged," these problems
can lead to major environmental problems and expensive pollution cleanup for the
well owners or operators. "Plug and abandonment" also involves delivery of test
results indicating that well closure has been completed in compliance with
applicable regulations. This information is important to the customer because
the operation is subject to future regulatory review and audits. In addition,
the information may be required on a current basis if the operator is subject to
a pending regulatory compliance order.
The Company's environmental remediation customers are major and
medium-sized independent oil and gas exploration and production companies
operating in the Gulf Coast areas of Louisiana and Texas. During the fiscal year
ended September 30, 1997, approximately 60% of the Company's revenues were
derived from three major oil companies, including Chevron. Given current market
conditions and the nature of the services involved, management does not believe
that the loss of any single customer would have a material adverse effect on the
Company. Environmental remediation services are typically performed under
short-term time and materials contracts, which are obtained by direct
negotiation or bid. As most of the company's contracts with its customers are
cancelable upon limited notice, the Company's backlog is not significant at this
time.
To further penetrate the environmental remediation services market in
Louisiana, in February 1998, the Company acquired a 70% equity interest in Ven
Virotek, Inc., a Louisiana corporation ("Virotek"), from its only other
shareholder, Recycling Remedis, Inc. Virotek owns and operates a NORM solid
waste disposal site in Houma, Louisiana and holds permits from Louisiana
environmental authorities to dispose of salt water brine and naturally occurring
waste products. For the year ended December 31, 1997, Virotek had revenues, net
income and total assets of approximately $658,000, $332,000, and $1,035,000,
respectively. The Company acquired its interest in Virotek in consideration for
$15,000 in cash and the assumption of a $300,000 bank note.
In March 1998, Virotek obtained two contracts from the U.S. Department
of Energy to dispose of salt water brine from the strategic petroleum reserve
located in Houma, Louisiana. Under the contracts, it is contemplated initially
that a total of 475,000 barrels of brine will be shipped to Virotek for
disposal, and Virotek will receive $1.00 per barrel for its services.
33
<PAGE>
Offshore Logistics Services
Panama Refueling Concession
In December 1996, the Company entered into a joint venture agreement
with Centram Marine Services,S.A., which was amended in March 1997, pursuant to
which the venture obtained a ten-year concession agreement with the Panama Canal
Commission. The concession grants the joint venture the right to supply fuel and
other petroleum supplies to tankers and other commercial vessels traversing the
Panama Canal. Historically, approximately 45 such vessels traverse the Panama
Canal daily. Pursuant to the terms of the joint venture agreement, the Company
is entitled to receive 66-2/3% of all net profits of the venture, in exchange
for the provision of a tug boat and a 30,000 barrel fuel barge. The joint
venture is currently in negotiations to purchase a 1.5 million gallon fuel barge
and an 85 foot flat deck tugboat. These operations are expected to commence by
mid-1998, provided adequate financing is secured.
In connection with entering into such agreement with the Panama Canal
Commission, the venture received a commitment from Texaco Inc. to provide the
venture with the necessary fuel to comply with the requirements of the
concession. The Company anticipates that the venture would be able to provide a
minimum of 500,000 gallons of fuel a day at the start of the program and
increasing to one million gallons by the end of the first year of operation.
Based on a markup of $0.04 per gallon, the Company anticipates gross sales on
500,000 gallons to be in the range of $250,000 per day resulting in a gross
profit of $20,000 per day. There is no assurance that these anticipated profits
will be attained.
Marketing
During the fiscal year ended September 30, 1997, the Company did not
have any sales of oil or gas. Commencing in October 1997, the Company recorded
sales of crude oil from the Uinta properties and, in November 1997, recorded
sales of "test" oil from the Wichita Falls field in north Texas. All such sales
were made on the spot market. In the future, the Company intends to sell its
crude oil and natural gas, and associated oil and gas products, on both the spot
market and under market-sensitive agreements with a variety of prospective
purchasers.
Raw Materials
The Company believes that its source of supply for any materials or
equipment used in its business are adequate for its needs and that it is not
dependent upon any one supplier. No serious shortages or delays have been
encountered in obtaining any raw materials.
34
<PAGE>
Governmental Regulation
Oil and natural gas operations are subject to extensive federal, state
and local laws and regulations relating to the exploration for, and the
development, production and transportation of, oil and natural gas, as well as
safety matters, which may be changed from time to time in response to economic
or political conditions. Matters subject to regulation by federal, state and
local authorities include permits for drilling operations, road and pipeline
construction, reports concerning operations, the space of wells, unitization and
pooling of properties, taxation and alterations to the Company's development
plans could have a material adverse effect on operations. From time to time,
regulatory agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and natural gas wells below actual
production capacity in order to conserve supplies of oil and natural gas.
Although the Company believes that it is in substantial compliance with all
applicable laws and regulations, the requirements imposed by such laws and
regulations are frequently changed and subject to interpretation, and the
Company cannot predict the ultimate cost of compliance with these requirements
or their effect on operations. Significant expenditures may be required to
comply with governmental laws and regulations.
Environmental Regulation and Claims
The Company's workover and environmental remediation services routinely
involve the handling of significant amounts of waste materials, some of which
are classified as hazardous substances. The Company's operations and facilities
are subject to numerous state and federal environmental laws, rules and
regulations, including, without limitation, laws concerning the containment and
disposal of hazardous materials, oilfield waste and other waste materials, the
use of underground storage tanks and the use of underground injection wells. The
Company employs personnel responsible for monitoring environmental compliance
and arranging for remedial actions that may be required from time to time and
also uses outside experts to advise on and assist with the Company's
environmental compliance efforts. Costs incurred by the Company to investigate
and remediate contaminated sites are expensed unless the remediation extends the
useful lives of the assets employed at the site. Remediation costs that extend
the useful lives of the assets are capitalized and amortized over the remaining
useful lives of such assets. Liabilities are recorded when the need for
environmental assessments and/or remedial efforts becomes known or probable and
the cost can be reasonably estimated.
Laws protecting the environment have generally become more stringent
that in the past and are expected to continue to do so. Environmental laws and
regulations typically impose "strict liability" which means that in some
situations the Company could be exposed to liability for cleanup costs and other
damages as a result of conduct of the Company that was lawful at the time it
occurred or conduct of, or conditions caused by, others. Cleanup costs and other
damages arising as a result of environmental laws, and costs associated with
changes in environmental laws and regulations could be substantial.
Under the Comprehensive Environmental Response, Compensation and
Liability Act, also known as "Superfund," and related state laws and
regulations, liability can be imposed without regard to fault or the legality of
the original conduct on certain classes of persons that contributed to the
release of a "hazardous substance" into the environment. Changes to federal and
state environmental regulations may also negatively impact oil and natural gas
exploration and production companies, which in turn could have a material
adverse effect on the Company. For example, legislation has been proposed from
time to time in Congress which would reclassify oil and natural gas production
wastes as "hazardous wastes." If enacted, such legislation could dramatically
increase operating costs for domestic oil and natural gas companies and this
could reduce the market for the Company's services by making may wells and/or
oilfield uneconomical to operate. To date, such legislation has not made
significant progress toward enactment.
Patents and Trademarks
The Company owns or has exclusive rights to use several U.S. patents on
designs for various types of oilfield equipment and on methods for conducting
certain oilfield activities, including discrete parts of the BAPCO Tool. The
Company uses some of these designs and methods to conduct its business. The
patents expire at various times over the next five to 15 years. The Company also
35
<PAGE>
has several trademarks and service marks that it uses in various aspects of its
business. While management believes the Company's patent and trademark rights
are valuable, the expiration or loss thereof, other than parts of the BAPCO
Tool, would not have a material adverse effect on the Company's financial
condition or results of operations.
Competitive Conditions
Although the number of available rigs has materially decreased over the
past ten years, the workover and drilling industry remains very competitive. The
number of rigs continues to exceed demand, resulting in severe price
competition. Many of the total available contracts are currently awarded on a
bid basis, which further increases competition based on price. In all of the
Company's market areas, competitive factors also include the availability and
condition of equipment to meet both special and general customer needs, the
availability of trained personnel possessing the required specialized skills,
the overall quality of service and safety record, and domestically, the ability
to offer ancillary services such as "plug and abandonment" services. As an
enhancement to its competitive position, the Company has been able to establish
joint ventures in domestic and international markets.
The environmental remediation market is extremely fragmented and
composed of hundreds of small firms with one or only few regional offices.
Currently, there are a great number of new and successful secondary
recovery programs. Many of these methods are allowing for a much higher rate of
recovery than shown by the Company. The technique that the Company has chosen to
utilize, after consideration of other methods, by means of the BAPCO tool, is
that of the lateral drilling system. This technique, which calls for drilling a
50' long, 2 inch diameter horizontal drain hole into the formation is ideally
suited for both the Gunsite and Rusk County formations, as they are a
"fractured" type horizon, and the oil is being drained from existing fractures
in the formation. The drilling of horizontal drain holes is expected to
encounter many new fracture systems within the formation, resulting in
significant oil production increases from each well. Based on data supplied by
the Schellstede Company, production increases from 8 to 10 barrels per day are
common in similar types of shallow wells laterally drilled using the lateral
drilling system.
Properties
The Company's principal executive offices are located in Oyster Bay,
New York in approximately 1,100 square feet of leased office space. The Company
currently pays $850 per month in rent under its lease, which extends through
March 2000. The Company also leases approximately 7,000 square feet of its main
operational facility in Lafayette, Louisiana and pays $4,000 per month under a
lease extending through October 2002. The Company believes that additional
office and operational space will be required to accommodate planned expansion.
Employees
As of December 31, 1997, the Company had 25 full-time employees,
including three petroleum engineers and two geologists. None of its employees is
represented by a collective bargaining unit. Management believes that the
Company's relationship with its employees is excellent.
Legal Proceedings
Piedra Drilling Company, Inc. ("PDC") commenced an action against the
Company in Denver, Colorado in July 1997. PDC brought this action to enforce a
contract for the issuance of 450,000 shares of the Company's common stock in
consideration for the sale by PDC to the Company of certain drilling equipment
and designs. The Company did not issue the shares to PDC because the necessary
equipment and designs were not delivered and/or validly assigned to the Company.
PDC obtained a default judgment in the amount of approximately $1.2 million,
which was vacated in November 1997. Colorado counsel for the Company filed an
answer, counterclaims and discovery demands in November 1997. The Company
believes it has a number of meritorious defenses and potential counterclaims and
intends to vigorously defend this action.
Other than the above legal proceeding, the Company is not a party to
any other material pending or threatened legal proceeding.
36
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names and age of the directors and executive officers of the
Company, and their positions with the Company, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Sam L. Bass, Jr............................ 63 Chairman of the Board, President and Chief
Executive Officer
James R. Callender, Sr..................... 57 Chief Operating Officer, Vice President and
Director
Noreen G. Wilson........................... 45 Chief Financial Officer, Vice President and
Director
James A. Griffin........................... 43 Secretary, Treasurer and Director
Robert McKnight............................ 62 President of BAPCO
William Beaton............................. 75 Director
</TABLE>
The principal occupations for the past five years (and, in some
instances, for prior years) of each of the directors and executive officers of
the Company are as follows:
Sam L. Bass, Jr. has been the Chairman of the Board, President and
Chief Executive Officer of the Company since September 1996. Mr. Bass also
serves as the Chief Executive Officer of Bass Environmental Waste, Inc., which
he founded in 1987, U.S. Energy, Inc., which he founded in 1984, and Bass
Stabilizers, Ltd., which he co-founded in 1978, each of which is a
privately-held company to which he devotes minimal time. From December 1993 to
September 1995, he served as President and Chief Executive Officer of Bass
Environmental World Wide Services, Inc. From January 1992 to September 1995, he
served as President and Chief Executive Officer of Bass Environmental Inc. Mr.
Bass is a pioneer in the field of downhole drilling and stabilization, and is
the inventor of seven drilling aids, many of which are being used around the
world. Mr. Bass founded a fire-fighting organization called Al-Wadhi, through
which he joined others in efforts to put out oil well fires in Kuwait,
immediately after the Gulf War, for a period of approximately 18 months in 1991
and 1992. Mr. Bass received a B.A. degree from McNeese State University in 1949
and an M.A. degree in Mechanical Engineering from Georgia Tech in 1952.
James R. Callender, Sr. has served as Chief Operating Officer and Vice
President of the Company since August 1997 and a Director since September 1996.
He has also been the President and owner of Cal-Sons Co. Inc., an ostrich farm
and cattle ranch located in Louisiana, since November 1990. From July 1997 to
August 1997, Mr. Callender served as a Consultant to the Company. From March
1997 to April 1997, he served as a Consultant to Forcenergy Inc., an independent
oil and gas company. From September 1996 to March 1997, Mr. Callender served as
a Management Consultant to Arctic Recoil, Inc., a maker of high pressure well
control units. He acted as an Investment Consultant to Coburn Inc., an oil field
construction and heavy equipment operator, from February 1996 to September 1996.
From January 1993 to December 1995, Mr. Callender served as Chief Engineer to
the Chief Executive Officer and Senior Consultant at Unocal Corp., a fully
integrated energy resources company whose worldwide operations comprise many
aspects of energy production. Until December 1992, he served as Drilling Manager
of Worldwide Operations at Unocal Corp. Mr. Callender received a B.S. degree in
Geology and Engineering from Louisiana State University in 1964.
37
<PAGE>
Noreen G. Wilson has served as Chief Financial Officer of the Company
since June 1997. She has been a Director of the Company since December 1996.
From January 1995 to the present time, Mrs. Wilson has served as President of
Supertrail Manufacturing Company, Inc., a real estate development firm located
in Aberdeen, Mississippi. Supertrail Manufacturing Company, Inc. filed for
Chapter 11 reorganization under the U.S. Bankruptcy Code in January 1995. At
that point in time, Mrs. Wilson became President, in order to guide and manage
the company through its reorganization, and she devotes minimal time in this
position. From February 1993 to December 1996, Mrs. Wilson served as an
International Consultant for Imperial International Design, a consulting
company. She provided consulting services for the financing of American builders
and contractors overseas, primarily working through OPIC, the Export/Import Bank
and the World Bank. During the same time period, Mrs. Wilson served as Vice
President of Traditional Enterprises, a financial consulting firm located in
Roswell, Georgia. Ms. Wilson is the first cousin of James A. Griffin.
James A. Griffin has been the Secretary, Treasurer and a Director of
the Company since September 1996. From April 1992 to April 1996, Mr. Griffin was
a founding and managing partner in the law firm of Griffin & Pellicane, Esq.
located in Westbury, New York. In April 1996, he formed the law firm of James A.
Griffin, Esq., but he is currently minimally involved in the practice of law. He
received his J.D. from Touro College, Jacob D. Fuchsberg Law Center, in 1987. He
received his B.A. degree from Dowling College in 1976 and his B.S. degree at the
State University of New York at Stony Brook, School of Allied Health Sciences,
in 1979. He is admitted to practice law in the State of New York and is a member
of the American Bar Association, the New York State Bar Association and the
Nassau County Bar Association. Mr. Griffin is the first cousin of Noreen G.
Wilson.
Robert McKnight has been the President of BAPCO since August 1997.
Previously, Mr. McKnight acted as a Consultant to the Company from November 1996
until August 1997. From August 1991 until July 1996, Mr. McKnight acted as a
Consulting Engineer to Patriot Resources, an oil and gas company located in
Dallas, Texas. Mr. McKnight has 35 years of experience in supervising and
managing drilling and production operations, including reservoir and field
evaluations, reserve and cash flow determinations for property acquisitions, and
equity determinations. Mr. McKnight received his B.S. in Petroleum Engineering
from Texas A&M University in 1957.
William Beaton has been a Director of the Company since September 1996.
He currently serves as the Chairman of The Institute of Petroleum (West of
Scotland Branch) and has been in that position for more than the past five
years. He was the General Manager of Clydesdale Bank of Glasgow, Scotland until
his retirement in 1982. Since his retirement from the Bank, he has worked as a
self-employed consultant to public and smaller independent companies. He has
been involved in the international oil and gas industry for almost 30 years,
with more than 50 years of experience in management and finance.
All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified, unless their office
is vacated in accordance with the Certificate of Incorporation of the Company.
Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed. Except for the relationship
between Noreen G. Wilson and James A. Griffin, who are cousins, there are no
family relationships among the directors and officers of the Company.
Advisory Board
The Company has established an Advisory Board comprised of three
members with experience in the areas of oil and gas production. The Advisory
Board meets periodically with the Company's Board of Directors and management to
discuss matters relating to the Company's business activities including
establishing commercial business alliances and working projects with
corporations and government agencies on an international basis. Members of the
Advisory Board are reimbursed by the Company for out-of-pocket expenses incurred
in serving on the Advisory Board.
38
<PAGE>
Some of the members of the Advisory Board may serve as consultants to
the Company under consulting agreements for which they will receive
compensation. To the Company's knowledge, none of its Advisory Board members or
other consultants has any conflict of interest between their obligations to the
Company and their obligations to others.
The members of the Company's Advisory Board and their primary
professional or academic affiliations are listed below:
Senator Vance Hartke has been a member of the Company's Advisory Board
since September 1996. Mr. Hartke was the United States Senator for Indiana from
1959 to 1977. While a Senator, he served on both the Finance Committee and the
Commerce Committee, two of the most powerful and prestigious committees of the
U.S. Senate. Prior to his senatorial term, he served as Mayor of the City of
Evansville, Indiana from 1956 to 1958, when he resigned to take his seat in the
U.S. Senate. Mr. Hartke's political career also includes service as a Deputy
Prosecuting Attorney, seven times as a delegate to the Democratic National
Convention, as Democratic County Chairman in Vanderburgh County, Indiana, and a
Chairman of the U.S. Senatorial Campaign Committee. He continues to practice law
at the law firm of Hartke & Hartke in Falls Church, Virginia. He currently sits
on the Board of Directors of McCrane & Co. He received his A.B. from the
University of Evansville in 1941 and his J.D. from Indiana University School of
Law in 1948, where he was Editor-in-Chief of the Indiana Law Journal.
Marvin Gibbons has been a member of the Company's Advisory Board since
September 1996. In 1990, Mr. Gibbons founded a private company seeking
investment capital for various development projects, including several Native
American India Developments. He opened a private domestic and international
import/export company, as well. During the past seven years, Mr. Gibbons became
a partner and Acting Secretary of CAL-NOR, Cal-Marine Industries, ESOP, and
Zenith Insurance Limited. He is currently involved in a number of Development
Projects both in the United States and internationally.
Ken Water has been a member of the Company's Advisory Board since
September 1996.
Committees of the Board of Directors
The Company expects to establish an Audit Committee and Compensation
Committee in early 1998, each of which will be comprised of at least two
independent directors. The Audit Committee will, among other things, make
recommendations to the Board of Directors regarding the independent auditors to
be nominated for ratification by the stockholders, review the independence of
those auditors and review audit results. The Compensation Committee will
recommend to the Board compensation plans and arrangements with respect to the
Company's executive officers and key personnel. It is contemplated that the
Audit and Compensation Committees will initially include William Beaton and
another independent director who the Company is currently in the process of
identifying. The Board of Directors does not currently have and does not intend
to establish a Nominating Committee as such functions are to be performed by the
entire Board of Directors.
Compensation of Directors
Non-employee directors of the Company currently receive no cash
compensation for serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings. The Company does not intend
to separately compensate employees for serving as directors.
39
<PAGE>
In September 1996, the Company issued to each of James R. Callender,
Noreen G. Wilson, James A. Griffin and William Beaton, directors of the Company,
500,000 shares of Common Stock in connection with their serving on the Company's
Board of Directors.
Compensation of Executive Officers
The following table sets forth, in summary form, the cash compensation
earned during the period from October 1, 1996 to September 30, 1997 by its Chief
Executive Officer and the two other most highly compensated executive officers
whose compensation exceeded $100,000 during such period.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation (c, d, e) Long Term Compensation (f)
- ----------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
NAME AND FISCAL SALARY (2) BONUS OTHER ANNUAL RESTRICTED
PRINCIPAL YEAR (1) ($) COMPENSATION STOCK AWARDS
POSITION (4)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sam L. Bass, Jr. 1997 $480,000 0 $125,000 500,000 shares
President and Chief (3)
Executive Officer
- ----------------------------------------------------------------------------------------------------
James A. Griffin, 1997 $120,000 0 0 500,000 shares
Secretary, Treasurer (5)
- ----------------------------------------------------------------------------------------------------
Noreen G. Wilson, 1997 $360,000 0 0 500,000
Executive Vice President (5) shares
and Chief Financial
Officer
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Noreen G. Wilson joined the Company as Executive Vice President and Chief
Financial Officer in January 1997.
(2) Salaries for Sam L. Bass, Jr., James A. Griffin, and Noreen G. Wilson were
accrued and not paid in cash. Each individual has an option to convert all
or part of any accrued salary to Common Stock of the Company at a price
reasonably established by the Board of Directors at the time of exercise.
(3) Represents amortization of Common Stock of Environmental Remediation
Funding Corporation distributed in 1995 to Sam L. Bass, Jr.
(4) Restricted stock awards to Mr. Griffin, Ms. Wilson and Mr. Bass were
awarded in fiscal year 1997 and were vested as of the date of grant.
(5) The aggregate value of benefits to be reported under the "Other Annual
Compensation" column did not exceed the lesser of $50,000 or 10% of the
total of annual salary and bonus reported for the named executive officer.
40
<PAGE>
Proposed Employment Agreements
The Company contemplates entering into three-year employment agreements
with each of Sam L. Bass, Jr., James A. Callender, Sr., Noreen G. Wilson and
James A. Griffin to serve in their respective positions. The Company is still in
the process of determining the terms and conditions of each employment
agreement.
Proposed Stock Option Plan
The Company does not currently have a stock option plan or other
similar employee benefit plan for executives and/or other employees of the
Company, and no options have been granted or are currently outstanding.
The Board of Directors of the Company plans to approve and adopt a
proposed 1998 Stock Option Plan (the "Plan"), pursuant to which officers,
directors, key employees, and consultants of the Company will be eligible to
receive incentive stock options and non-qualified stock options to purchase
shares of Common Stock. The Plan would also provide for the grant of stock
appreciation rights, restricted stock, performance shares and performance units
at the discretion of Company's Board of Directors.
With respect to incentive stock options, the Plan would provide that
the exercise price of each such option be at least equal to 100% of the fair
market value of the Common Shares on the date that such option is granted (and
110% of fair market value in the case of shareholders who, at the time the
option is granted, own more than 10% of the total outstanding Common Shares),
and would require that all such options have an expiration date not later than
the date which is one day before the tenth anniversary of the date of the grant
of such option (or the fifth anniversary of the date of grant in the case of 10%
41
<PAGE>
or greater shareholders. However, with certain limited exceptions, in the event
that the option holder would cease to be associated with the Company, or would
engage in or be involved with any business similar to that of the Company, such
option holder's incentive options would immediately terminate. Pursuant to the
Plan, the aggregate fair market value, determined as of the date(s) of grant,
for which incentive stock options are first exercisable by an option holder
during any one calendar year will not exceed $ 100,000.
42
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of December 31,
1997, with respect to the beneficial ownership of the Company's Common Shares by
each shareholder known by the Company to be the beneficial owner of more than 5%
of its outstanding shares, by each director of the Company, by the executive
officers named in the table below and by the directors and executive officers of
the Company as a group. Except as otherwise noted, the persons named in this
table, based upon information provided by such persons, have sole voting and
investment power with respect to all Common Shares beneficially owned by them.
None of the current directors and officers of the Company are participating in
this offering.
Common Shares Beneficially Owned
------------------------------------------
Name and Address (1) Number(2) Percentage
-------------------- --------- ----------
Sam L. Bass, Jr....................... 8,704,568(3) 35.0%
James R. Callender, Sr................ 500,000 2.0
Noreen G. Wilson...................... 500,000 2.0
James A. Griffin...................... 500,000 2.0
Robert McKnight....................... 75,000 *
William Beaton........................ 500,000 2.0
All officers and directors as a group
(six persons)...................... 10,754,568 43.4%
- ------------
* Represents less than 1% of outstanding Common Shares or voting power.
(1) The address of each beneficial owner is c/o Environmental Remediation
Holding Corporation, 3-5 Audrey Avenue, Oyster Bay, New York 11771.
(2) Shares beneficially owned and percentage of ownership are based on
24,858,289 Common Shares outstanding as of March 31, 1998. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or dispositive power with
respect to such shares.
(3) Includes shares of Common Stock beneficially owned by Mr. Bass individually
and through entities under his control.
43
<PAGE>
SELLING SHAREHOLDERS
The 1997 Investor Private Placement
From October to December 1997, the Company raised gross proceeds of
$4,300,000 in a private placement of the Company's 5.5% convertible senior
subordinated secured notes due 2002 (the "Notes") and warrants to purchase
Common Stock (the "Warrants") to a limited number of "accredited" institutional
investors. The maximum number of shares of Common Stock which may be issued by
the Company upon the conversion of the Notes (at a base conversion rate of $1.25
per share, subject to certain limited conditions) and the exercise of the
Warrants (at an exercise price of $2.83 per share) is up to 3,440,000 shares and
283,800 shares, respectively. This Prospectus covers the maximum of up to
3,723,800 total shares of Common Stock issuable upon the conversion of the Notes
and the exercise of the Warrants. The Investors intend to sell the Common Stock
acquired thereby from time to time in the future upon conversion of the Notes
and the exercise of the Warrants. Based on the number of outstanding shares of
Common Stock of the Company as of December 31, 1997, the Shares represent
approximately 15.8% of the outstanding Common Stock of the Company. As of
December 31, 1997, none of the Notes had been converted and none of the Warrants
had been exercised.
All of the Shares held or to be held by the Investors may be offered hereunder
except that, under the terms of the Notes, the holders thereof may convert the
original principal amount of the Notes only to the extent of one-third of such
amount on and after each of December 30, 1997, January 29, 1998 and February 28,
1998. The conversion rate of the Notes is equal to the lowest of (i) $2.83,
representing 100% of the average closing bid price per share of the Common Stock
as quoted on the primary market or exchange on which it trades (the "Average
Share Price") for the five consecutive trading days immediately preceding
October 15, 1997, the date of the initial issuance of the Notes (the "Issuance
Date"), (ii) 100% of the Average Share Price for the five consecutive trading
days immediately preceding October 22, 1998 or the first anniversary of the
Issuance Date, or (iii) 80% of the Average Share Price for the five consecutive
trading days preceding the applicable conversion date on which all or part of
the Notes are converted. However, the conversion price may not be less than
$1.25 per share (the "Base Price"), unless 80% of the Average Share Price is
less than the Base Price for a period of 90 consecutive calendar days, in which
case the Base Price will no longer be applicable. For purposes of registering
the maximum number of shares of Common Stock under this Prospectus, the
conversion rate is assumed to be the Base Price. Because the conversion rate of
the Notes is based in part on future average trading prices of the Common Stock,
the number of shares which may actually be sold pursuant to this Prospectus
could differ significantly. For example, in the event a notice of election to
convert all the Notes were to have been received on April 8, 1998, the lowest
applicable conversion rate would have been $.96 per share (80% of the Average
Share Price for the five consecutive trading days preceding such date),
resulting in a total of 3,723,800 shares of Common Stock issuable upon
conversion (including 283,800 shares into which the Warrants are exercisable),
subject to the elimination of the 90-day Base Price provision described above.
The Notes mature, unless prepaid at any time after October 15, 1998, on October
15, 2002 and are secured by the Company's proven crude oil reserves on its
properties in Utah. The Notes do not contain any covenants that would prohibit,
limit or restrict, among other matters, the Company's ongoing business
operations, acquisitions of oil and gas properties, payment of dividends or
incurrence of additional indebtedness. The Warrant may be exercised at any time
through October 15, 2002.
In connection with the sale of the Notes and the Warrants, the
Company entered into a Registration Rights Agreement with the Selling
Shareholders, pursuant to which the Company agreed to register the Shares under
the Securities Act for resale by, and for the benefit of, such shareholders.
The public offering of the Shares by the Selling Shareholders will
terminate on the earlier of October 15, 2000 or the date on which all Shares
offered hereby have been sold by the Selling Shareholders.
44
<PAGE>
The Kingsbridge Line of Credit Agreement*
In March 1998, the Company entered into a Private Equity Line of Credit
Agreement with Kingsbridge, pursuant to which the Company has the right to
receive up to $10,000,000 in equity financing from the sale of its Common Stock
in tranches to Kingsbridge. Through the Company's exercise of put options,
Kingsbridge is required to purchase, and the Company is required to sell,
subject to certain closing conditions and limitations on the timing of purchases
and amount of Common Stock to be sold with respect to exercises of individual
put options, at least $3,000,000 in shares of Common Stock at a purchase price
equal to 79% of the average of the lowest prices of the Common Stock on the
trading day on which notice of exercise of the put option is given and on the
one trading day prior, and the two trading days following, such put option
exercise notice. The minimum market price for sales of shares is $1.00 per
share. For purposes of registering the maximum number of shares of Common Stock
under this Prospectus, the market price is assumed to be $1.00. At a market
price of $1.00, the maximum number of shares of Common Stock which may be issued
by the Company upon the exercise of the put options is 12,658,228 shares.
Because the purchase price of the Common Stock is based in part on future
average trading prices of the Common Stock, the number of shares which may
actually be sold pursuant to this Prospectus could differ significantly. For
example, in the event a notice of election to exercise individual put options
were to have been received on March 26, 1998, the lowest applicable purchase
price would have been $0.98 per share, resulting in a total of 10,204,082 shares
of Common Stock offered hereby. Notwithstanding the foregoing, the maximum
number of shares issuable to Kingsbridge shall not exceed 19.9% of the
outstanding shares of Common Stock at the time of such exercise(s). In
connection with entering into the Investment Agreement, the Company issued to
Kingsbridge a three-year warrant to purchase 100,000 shares of Common Stock at
an exercise price of $1.20 per share (94% of the market price calculated as of
March 23, 1998), exercisable beginning on September 24, 1998. As a condition
precedent to the purchase and sale of shares pursuant to the Investment
Agreement, among others, the Company is required to register with the Commission
under the terms of a Registration Rights Agreement all of the shares of Common
Stock subject to the put option, as well as those into which the Kingsbridge
Warrant is exercisable, for resale by Kingsbridge. The Investment Agreement has
a term of two years, but may be terminated by Kingsbridge earlier in the event
the Common Stock subject to the put options is not, or fails to be, registered
for resale after specified time periods lapse.
- ---------------
* This page will be modified to reflect the number of shares of Common Stock
acquired by Kingsbridge from time to time as set forth in a Prospectus
Supplement.
Stock Ownership
The following table sets forth the names of and the number of Shares
beneficially owned by each Selling Shareholder as of December 31, 1997. Since
the Selling Shareholders may sell all, some or none of their Shares, no estimate
can be made of the aggregate number of Shares that are to be offered hereby or
the number or percentage of Shares that each Selling Shareholder will own upon
completion of the offering to which this Prospectus relates.
45
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Before Shares and
the Offering (1) Percentage
-------------------------------------------- Shares to be Owned
Name of Underlying Underlying Total Sold in After the
Selling Shareholder Notes Warrants Shares the Offering Offering
- ------------------- ----- -------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Banque Edouard Constant SA 320,000 24,000 344,000 344,000 --
11, Cours de Rive
Case Postale 3754
1211 - Geneva
Switzerland
Elara Ltd. 600,000 45,000 645,000 645,000 --
P.O. Box 438
Tropic Isle Building
Wickhams Cay
Road Town, Tortola
British Virgin Islands
c/o Talisman Capital
1601 LaGrande Drive, Suite 100
Little Rock, AR 72211
Keyway Investments Ltd. 720,000 54,000 774,000 774,000 --
19 Mount Havelock
Douglas, Isle of Man
1M1 2QG
British Islands
c/o Midland Walwyn Capital, Inc.
BCE Place
181 Bay Street, Suite 500
Toronto, Ontario M5J 2V8
Canada
JMG Capital Partners L.P. 320,000 24,000 344,000 344,000 --
c/o JMG Capital Management Inc.
1999 Avenue of the Stars
Suite 1950
Los Angeles, CA 90067
Triton Capital Investments, Ltd. 320,000 24,000 344,000 344,000 --
c/o JMG Capital Management Inc.
1999 Avenue of the Stars
Suite 1950
Los Angeles, CA 90067
Porter Partners L.P. 320,000 24,000 344,000 344,000 --
c/o Porter Capital Management Co.
100 Shoreline Highway, Suite 211B
Mill Valley, CA 94941
EDJ Limited 80,000 6,000 86,000 86,000 --
c/o Porter Capital Management Co.
100 Shoreline Highway, Suite 211B
Mill Valley, CA 94941
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Before Shares and
the Offering (1) Percentage
-------------------------------------------- Shares to be Owned
Name of Underlying Underlying Total Sold in After the
Selling Shareholder Notes Warrants Shares the Offering Offering
- ------------------- ----- -------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Cranshire Capital, L.P. 240,000 18,000 258,000 258,000 --
3000 Dundee Road
Suite 105
Northbrook, IL 60062
Legion Fund, Ltd. 120,000 9,000 129,000 129,000 --
c/o Porter Capital Management Co.
100 Shoreline Highway, Suite 211B
Mill Valley, CA 94941
Banque Franck, S.A. 400,000 30,000 430,000 430,000 --
1, Rue Toepffer
1206 - Geneva
Switzerland
Avalon Research Group, Inc. -- 25,800 25,800 25,800 --
1900 Glades Road, Suite 201
Boca Raton, FL 33431
Kingsbridge Capital Limited(2) -- -- 100,000 100,000 --
Main Street
Kilcullen, County Kildare
Republic of Ireland
Total 3,440,000 283,800 3,823,800 3,823,800 --
</TABLE>
- -------------
(1) All Shares are beneficially owned and the sole voting and investment power
is held by the persons named.
(2) The number of shares beneficially owned by Kingsbridge will be modified to
reflect the number of such shares acquired by Kingsbridge from time to time
as set forth in a Prospectus Supplement.
The Company has agreed to indemnify the Selling Shareholders and the
Selling Shareholders have agreed to indemnify the Company against certain civil
liabilities, including liabilities under the Securities Act.
None of the Selling Shareholders has had any position, office or other
material relationship with the Company or any of its affiliates within the past
three years.
47
<PAGE>
CERTAIN TRANSACTIONS
The Company's predecessor, Environmental Remediation Funding
Corporation ("ERFC"), was incorporated under the laws of the State of Delaware
in September 1995. In August 1996, the stockholders of ERFC exchanged all of
their shares of ERFC for 2,433,950 authorized and unissued shares of common
stock, representing 87.2% of such then outstanding shares, of Regional Air Group
Corporation ("RAIR"), a Colorado corporation. RAIR was a publicly-owned
corporation which had ceased operations and as a result had only nominal assets
and liabilities. ERFC was then merged into RAIR. Following the acquisition of
control, the stockholders of RAIR approved the change in the Company's name to
Environmental Remediation Holding Corporation.
In April 1997, the Company acquired all of the outstanding capital
stock of BAPCO, a privately-held company controlled by Sam L. Bass, Jr., who was
then the Company's Chairman of the Board, President and Chief Executive Officer.
Through this acquisition, the Company acquired, among other assets, ownership of
all rights to the BAPCO Tool and assignment of the Chevron master service
agreement. The Company issued 4,000,000 shares of Common Stock to Mr. Bass in
exchange for the outstanding capital stock of BAPCO. In addition, the Company
issued 3,000,000 shares of Common Stock to BEW, a company controlled by Mr.
Bass, in connection with the assignment of the Chevron master service agreement.
See "Business - Environmental Remediation Services."
From time to time, Noreen G. Wilson and James A. Griffin, both
executive officers and directors of the Company, have advanced funds to the
Company in the total amount of $978,250 through December 1997, pursuant to 8.5%
demand promissory notes, of which $503,148 was repaid through December 31, 1997,
and $475,000 remains outstanding at December 31, 1997. Such notes are
convertible into Common Stock at a conversion rate per share equal to the fair
market value of a share of Common Stock at the time of the advance.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of the Company consists of 950,000,000
shares of Common Stock, par value $.0001 per share ("Common Shares"), of which
23,965,625 shares were outstanding on December 31, 1997, and 10,000,000 shares
of Preferred Stock, par value $.001 per share ("Preferred Shares"), issuable in
series, none of which are outstanding.
Common Shares
Holders of the Common Shares are entitled to one vote for each share
held of record by them. The Common Shares have no redemption, preemptive or
sinking fund rights. Holders of the Common Shares are entitled to dividends as
and when declared by the Board of Directors from funds legally available
therefor and, upon liquidation, dissolution or winding-up of the Company, to
participate ratably in all assets remaining after payment of all liabilities.
The Common Shares are not redeemable and do not have any conversion rights or
preemptive rights. All Common Shares issued and outstanding are, and those
offered hereby when issued will be fully paid and non-assessable. See "Dividend
Policy."
Preferred Shares
The Company's Certificate of Incorporation provides that the Board of
Directors of the Company has the authority, without further action by the
holders of the outstanding Common Shares, to issue up to 10,000,000 Preferred
Shares from time to time in one or more classes or series, to fix the number of
shares constituting any class or series and the stated value thereof, if
different from the par value, and to fix the terms of any such series or class,
including dividend rights, dividend rates, conversion or exchange rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price and the liquidation preference of such class or series. The
Company does not have any Preferred Shares outstanding and has no present
intention to issue any Preferred Shares.
Reports
The Company intends to furnish to its shareholders annual reports
containing audited financial statements and make available quarterly reports for
the first three quarters of each fiscal year containing unaudited interim
financial information. In addition, the Company is required to file periodic
reports on Forms 8-K, 10-Q and 10-K with the U.S. Securities and Exchange
Commission and make such reports available to its shareholders.
Limitation of Directors' Liability; Indemnification
The Company's Certificate of Incorporation limits the liability to the
Company of individual directors for certain breaches of their fiduciary duty to
the Company. The effect of this provision is to eliminate the liability of
directors for monetary damages arising out of their failure, through negligent
or grossly negligent conduct, to satisfy their duty of care, which requires them
to exercise informed business judgment. The liability of directors under the
federal securities laws is not affected. A director may be liable for monetary
damages only if a claimant can show a breach of an individual director's duty of
loyalty to the Company, a failure to act in good faith, intentional misconduct,
a knowing violation of the law, an improper personal benefit or an illegal
dividend or stock purchase.
The Company's Certificate of Incorporation also provides that each
director or officer of the Company serving as director or officer shall be
indemnified and held harmless by the Company to the fullest extent authorized by
law, against all expense, liability and loss (including attorneys fees,
judgments, fines, Employee Retirement Income Security Act, excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith.
Listing on OTC Bulletin Board
The Common Shares are listed on the OTC Bulletin Board under the symbol
"ERHC."
Transfer Agent
The transfer agent for the Common Shares is Corporate Stock Transfer,
Inc. of Denver, Colorado.
49
<PAGE>
PLAN OF DISTRIBUTION
The sale or distribution of the Shares may be effected directly to
purchasers by the Selling Shareholders as principals or through one or more
underwriters, brokers, dealers or agents from time to time in one or more
transactions (which may involve crosses or block transactions) (i) in the
over-the-counter market, (ii) in transactions otherwise than in the
over-the-counter market or (iii) through the writing of options (whether such
options are listed on an options exchange or otherwise) on, or settlement of
short sales of, the Shares. Any of such transactions may be effected at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at varying prices determined at the time of sale or at negotiated
or fixed prices, in each case as determined by the Selling Shareholders or by
agreement between one or more Selling Shareholders and underwriters, brokers,
dealers or agents, or purchasers. If the Selling Shareholders effect such
transactions by selling Shares to or through underwriters, brokers, dealers or
agents, such underwriters, brokers, dealers or agents may receive compensation
in the form of discounts, concessions or commissions from the Selling
Shareholders or commissions from purchasers of Shares for whom they may act as
agent (which discounts, concessions or commissions as to particular
underwriters, brokers, dealers or agents may be in excess of those customary in
the types of transactions involved). The Selling Shareholders and any brokers,
dealers or agents that participate in the distribution of the Shares may be
deemed to be underwriters, and any profit on the sale of Shares by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
To the extent required under the Securities Act, a supplemental
prospectus will be filed, disclosing (a) the name of any such broker-dealers;
(b) the number of Shares involved; (c) the price at which such Shares are to be
sold; (d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable; (e) that such broker-dealers did not conduct
any investigation to verify the information set out or incorporated by reference
in this Prospectus, as supplemented; and (f) other facts material to the
transaction.
Under the securities laws of certain states, the Shares may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in certain states the Shares may not be sold unless the Shares have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
The Company will pay all of the expenses, estimated to be approximately
$100,000, incident to the registration, offering and sale of the Shares to the
public hereunder other than commissions, fees and discounts of underwriters,
brokers, dealers and agents. The Company has agreed to indemnify the Selling
Shareholders and any underwriters against certain liabilities, including
liabilities under the Securities Act. The Company will not receive any of the
proceeds from the sale of any of the Shares by the Selling Shareholders.
Each Selling Shareholder will, if applicable, comply with Regulation M
promulgated under the Securities Exchange Act of 1934, as amended, in connection
with any distribution by such Selling Shareholder of the Shares offered hereby.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, New York, New
York.
EXPERTS
The consolidated balance sheets as of September 30, 1995, 1996 and
1997, and the consolidated statements of income, retained earnings, and cash
flows for each of the three years in the period ended September 30, 1995, 1996
and 1997, have been included herein in reliance on the report of Durland &
Company, CPA's, P.A. independent public accountants, given on the authority of
that firm as experts in auditing and accounting.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith, files
reports and other information with the Securities and Exchange Commission (the
"SEC"). Such reports and other information can be inspected and copied at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. and at the following regional offices of the SEC:
New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048; and Chicago Regional Office, 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained from
the public reference section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The SEC maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC,
including the Company.
This Prospectus does not contain all of the information set forth in
the Registration Statement on Form S-1, of which this Prospectus forms a part,
and the exhibits thereto which the Company has filed with the SEC under the
Securities Act, to which reference is hereby made for further information
concerning the Company and the shares of Common Stock.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Audited financial statements as of September 30, 1995, 1996 and 1997
<S> <C>
Independent Auditors' Report .................................................................................F-2
Balance Sheets ...............................................................................................F-3
Statements of Operations ......................................................................................F-4
Statements of Stockholders' Equity ............................................................................F-5
Statements of Cash Flows .....................................................................................F-6
Notes to Financial Statements .................................................................................F-7
Supplementary Information ....................................................................................F-12
Unaudited financial statements as of December 31, 1996 and 1997
Balance Sheets ..............................................................................................F-20
Statements of Operations .....................................................................................F-21
Statements of Stockholders' Equity ...........................................................................F-22
Statements of Cash Flows ....................................................................................F-23
Notes to Financial Statements ................................................................................F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO: The Board of Directors and Stockholders
Environmental Remediation Holding Corporation
Jericho, New York
We have audited the accompanying balance sheets of Environmental Remediation
Holding Corporation, (the "Company") as of September 30, 1995, 1996 and 1997 and
the related statements of operations, stockholders' equity and cash flows for
the period since inception and the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
Except as discussed in the following paragraph, 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 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.
As more fully described in notes 1f and 3, the Company acquired two East Texas
oil leases in February 1997. The Company recorded these transactions based on
the reserve report provided them at the time and updated more recently. We have
engaged another independent petroleum engineer to evaluate the data and produce
another reserve report. The Company expects to adjust the recorded valuation to
this new report basis if any material differences exist.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
1995, 1996 and 1997 and the results of its operations and its cash flows for the
the period since inception and two years then ended in conformity with generally
accepted accounting principles.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
December 12, 1997
F-2
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Balance Sheets
September 30,
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 0 0 327,743
Prepaid expenses and other current assets 0 0 215,708
----------- ----------- -----------
Total Current Assets 0 0 543,451
----------- ----------- -----------
PROPERTY AND EQUIPMENT
Equipment (note 1b) 0 2,431,987 2,733,274
----------- ----------- -----------
Total Property and Equipment 0 2,431,987 2,733,274
----------- ----------- -----------
OTHER ASSETS
Deposits on fixed assets 0 5,000 136,560
Crude oil reserves, net (note 1f) 0 0 14,335,646
Chevron P&A master service agreement (note 1h) 0 0 300
----------- ----------- -----------
Total Other Assets 0 5,000 14,472,506
----------- ----------- -----------
Total Assets $ 0 2,436,987 17,749,231
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and other current payable $ 3,316 0 111,054
Stockholder loans (note 1c) 0 6,730 465,094
Accrued interest (note 1c) 0 0 37,228
Accrued salaries (note 4) 0 0 960,000
Short term bank loan (note 1c) 0 0 175,000
----------- ----------- -----------
Total Current Liabilities 3,316 6,730 1,748,376
----------- ----------- -----------
LONG-TERM LIABILITIES
Long-term debt 0 0 0
----------- ----------- -----------
Total Long-Term Liabilities 0 0 0
----------- ----------- -----------
Total Liabilities 3,316 6,730 1,748,376
----------- ----------- -----------
Common stock issued under a repurchase agreement;
1,000,000 shares (note 1i ) 0 0 2,000,000
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value; Authorized
950,000,000 shares: issued and outstanding 1,639,450
at September 30, 1995; 3,239,374 at September 30,
1996 and 21,989,526 at September 30, 1997 (note 3) 164 324 2,199
Preferred stock, $0.0001 par value, authorized
10,000,000 shares; issued and outstanding 0 at
September 30, 1995, 1996 and 1997 0 0 0
Additional paid in capital in excess of par 499,924 3,515,298 32,658,586
Stock subscriptions receivable 0 0 (913,300)
Deferred compensation, net (note 1d) (500,000) (427,500) (250,000)
Retained earnings (deficit) (3,404) (657,865) (17,496,630)
----------- ----------- -----------
Total Stockholders' Equity (3,316) 2,430,257 14,000,855
----------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 0 2,436,987 17,749,231
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Operations
For the period since inception ended September 30, 1995, and
the years ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE
Sales - environmental remediation services $ 0 0 108,944
Sales - crude oil 0 0 0
----------- ----------- -----------
Total sales 0 0 108,944
----------- ----------- -----------
COST OF SALES
Cost of sales - environmental remediation services 0 0 53,991
Cost of sales - crude oil 0 0 0
----------- ----------- -----------
Total cost of sales 0 0 53,991
----------- ----------- -----------
Gross profit/(loss) 0 0 54,953
OPERATING EXPENSES
Automotive expenses 0 7,257 55,864
Bank charges 0 184 421
Compensation - officers 0 147,326 1,185,000
Compensation - directors 0 0 3,492,981
Consultant fees 0 337,956 8,883,356
Depletion 0 0 0
Depreciation 0 173,713 198,713
Donations 0 0 10,500
Dues, fees, licenses and taxes 0 0 9,552
Insurance 0 0 204,099
Geological data and reports (note 1i) 0 0 2,008,848
Oil lease transfer fees 0 0 55,000
Office expenses 0 1,072 97,226
Oil well rework expenses 0 0 53,355
Professional fees 3,404 19,500 244,230
Research and development 0 0 17,000
Rent 0 8,550 45,950
Telephone 0 0 48,528
Travel and entertainment 0 19,380 235,856
Miscellaneous 0 0 13,783
----------- ----------- -----------
Total operating expenses 3,404 714,938 16,860,262
----------- ----------- -----------
Income(loss) from operations (3,404) (714,938) (16,805,309)
Interest expense 0 0 (40,787)
Interest income 0 0 601
----------- ----------- -----------
Income(loss) before tax & extraordinary item (3,404) (714,938) (16,845,495)
Extraordinary item - forgiveness of debt 0 60,477 6,730
----------- ----------- -----------
Income(loss) before taxes (3,404) (654,461) (16,838,765)
Income tax expense/(benefit) 0 0 0
----------- ----------- -----------
Net income(loss) $ (3,404) (654,461) (16,838,765)
=========== =========== ===========
Weighted average number of shares outstanding 398,643 2,469,511 10,500,293
=========== =========== ===========
Net loss per share $ (0.01) (0.27) (1.60)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Stockholders' Equity
September 30, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Number Common Pf'd APIC Stk Subs Defr'd Accumulated TTL S/H
of Shares Stock Stock Receivable Comp Deficit Equity
----------- ------------ -------- ----------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGIN BALANCE,
September 5, 1995 0 $ 0 0 0 0 0 0 0
9/23 - cash 884,407 88 0 0 0 0 0 88
9/25 - services 755,043 76 0 499,924 0 (500,000) 0 0
Net loss -- 0 0 0 0 0 (3,404) (3,404)
----------- -------- ------ ----------- --------- ----------- ----------- -----------
BALANCE,
September 30, 1995 1,639,450 164 0 499,924 0 (500,000) (3,404) (3,316)
10/1 - equipment 744,000 74 0 2,605,626 0 0 0 2,605,700
10/10 - cash 20,000 2 0 49,998 0 0 0 50,000
8/9 - cash 20,500 2 0 42,890 0 0 0 42,892
8/19 - reverse merger 356,317 36 0 (243,366) 0 0 0 (243,330)
8/19 - S-8 services 73,277 7 0 73,270 0 0 0 73,277
8/30 - services 10,000 1 0 69,999 0 0 0 70,000
9/15 - services 55,000 6 0 384,994 0 0 0 385,000
9/15 - cash 320,830 32 0 31,963 0 0 0 31,995
9/30 - deferred comp amort -- 0 0 0 0 72,500 0 72,500
Net loss -- 0 0 0 0 0 (654,461) (654,461)
----------- -------- ------ ----------- --------- ----------- ----------- -----------
BALANCE,
September 30, 1996 3,239,374 324 0 3,515,298 0 (427,500) (657,865) 2,430,257
2/10 - S-8 services 1,600,000 160 0 1,099,840 0 0 0 1,100,000
3/4 - oil wells/leases 300,000 30 0 4,831,293 0 0 0 4,831,323
3/5 - oil wells/leases 200,000 20 0 9,504,303 0 0 0 9,504,323
3/13 - S-8 services 300,000 30 0 374,970 0 0 0 375,000
4/5 - Chevron contract 3,000,000 300 0 0 0 0 0 300
4/5 - services 1,342,981 134 0 1,342,847 0 0 0 1,342,981
4/5 - contributed to corp (100,000) (10) 0 (99,990) 0 0 0 (100,000)
4/9 - BAPCO acquisition 4,000,000 400 0 499,600 0 0 0 500,000
5/14 - S-8 services 1,500,000 150 0 562,350 0 0 0 562,500
6/19 - services 150,000 15 0 28,110 0 0 0 28,125
7/8 - cash 800,000 80 0 399,920 0 0 0 400,000
7/25 - S-8 services 2,335,000 233 0 6,464,798 0 0 0 6,465,031
7/30 - services 1,500,000 150 0 2,249,850 0 0 0 2,250,000
7/30 - cash 147,000 15 0 146,985 0 0 0 147,000
8/8 - cash 74,000 8 0 147,992 0 0 0 148,000
9/4 - services 400,000 40 0 307,960 0 0 0 308,000
9/10 - cash stk subs recv 727,273 73 0 799,927 (800,000) 0 0 0
9/15 - cash & stk subs recv 473,898 47 0 482,533 (113,300) 0 0 369,280
9/30 - deferred comp amort -- 0 0 0 0 177,500 0 177,500
Net loss -- 0 0 0 0 0 (16,838,765) (16,838,765)
----------- -------- ------ ----------- ------- ----------- ----------- -----------
BALANCE,
September 30, 1997 21,989,526 $ 2,199 0 32,658,586 (913,300) (250,000) (17,496,630) 14,000,855
=========== ======== ====== =========== ========= =========== =========== ===========
Common Stock issued under
a repurchase agreement
7/97 - DRSTP information 1,000,000 100 0 1,999,900 0 0 0 2,000,000
=========== ======== ====== =========== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Cash Flows
For the period since inception ended September 30, 1995, and
the years ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ (3,404) (654,461) (16,838,765)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization of deferred compensation 0 72,500 177,500
Non-cash gain on forgiveness of debt 0 (60,477) (6,730)
Stock issued for services rendered 0 385,000 12,292,829
Stock issued for DRSTP geological data 0 0 2,000,000
Depreciation 0 173,713 198,713
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses 0 0 (215,708)
Increase (decrease) in accrued interest expense 0 0 37,228
Increase (decrease) in accrued expenses 3,316 0 111,054
Increase (decrease) in accrued salaries 0 0 960,000
----------- ----------- -----------
Net cash (used) provided by operating activities (88) (83,725) (1,283,879)
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits 0 (5,000) (131,560)
----------- ----------- -----------
Net cash (used) provided by investing activities 0 (5,000) (131,560)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock sold for cash 88 81,995 1,102,988
Payments on stockholder advances 0 (16,000) (295,287)
Funds advanced by third-parties 0 0 175,000
Funds advanced by stockholders 0 22,730 760,481
----------- ----------- -----------
Net cash (used) provided by financing activities 88 88,725 1,743,182
Net increase (decrease) in cash 0 0 327,743
CASH, beginning of period 0 0 0
----------- ----------- -----------
CASH, end of period $ 0 0 327,743
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid in cash $ 0 0 3,559
=========== =========== ===========
Non cash financing activities:
Stock issued to acquire environmental remediation equipment $ 0 2,605,698 0
=========== =========== ===========
Stock issued to acquire crude oil reserves and wells $ 0 0 14,335,646
=========== =========== ===========
Stock issued to acquire Chevron master P&A service agmt $ 0 0 300
=========== =========== ===========
Stock issued to acquire BAPCO $ 0 0 500,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
September 30, 1995, 1996 and 1997
(1) Summary of Significant Accounting Policies
The Company. Environmental Remediation Holding Corporation, (ERHC), was
incorporated on May 12, 1986 in Colorado as Valley View Ventures, Inc.,
(VVV). Its name was changed to Regional Air Group Corporation, (RAGC),
on September 20, 1988, and then to Environmental Remediation Holding
Corporation on August 29, 1996. VVV was created in 1986 as a blind pool
to seek a merger opportunity with a viable operating company. In 1988
the company acquired, via a reverse merger, Mid-Continent Airlines
which was a regional "feeder" airline operating as Braniff Express. On
September 28, 1989, Braniff Airlines filed Chapter 11 Bankruptcy. This
event proved to be catastrophic to the then operating business of the
Company. RAGC liquidated its assets and liabilities shortly thereafter
and remained dormant until its reverse merger with Environmental
Remediation Funding Corporation on August 19, 1996. ERHC operates in
the environmental remediation industry and the oil and natural gas
production industry from its corporate headquarters in Jericho, New
York, its operating offices in Lafayette, Louisiana.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the dates of the statements of financial condition and revenues
and expenses for the years then ended. Actual results could differ
significantly from those estimates. The following summarize the more
significant accounting and reporting policies and practices of the
Company:
a) Basis of presentation. The Company acquired 100% of the issued and
outstanding common stock of Environmental Remediation Funding Corp.,
(ERFC), a Delaware corporation, effective on August 19, 1996, in a
reverse triangular merger, which has been accounted for as a
reorganization of ERFC. At the same time the Company changed its name
from RAGC. Prior to the merger ERFC had acquired certain environmental
remediation equipment in exchange for common stock. ERFC then employed
the seller of this equipment as an outside consultant in exchange for
common stock. Subsequently, ERFC was unable to enter into the
environmental remediation contracts it had hoped to and asked the
consultant to become the Chairman, President and CEO of ERFC.
At the time of the acquisition of ERFC by RAGC, ERFC owned 100% of Site
Services, Inc., (SSI). ERFC had acquired SSI from Bass Environmental
Services Worldwide, Inc., (BESW), a company controlled by the Chairman,
President and CEO of ERFC. SSI had always been an inactive company, but
for certain enviornmental remediation licences which it continues to
hold.
On April 9, 1997, the Company acquired 100% of the issued and
outstanding common stock of Bass American Petroleum Company, (BAPCO),
which was accounted for as a purchase. BAPCO had been an inactive
company for several years previously, however BAPCO owned a variety of
oil well production enhancing equipment, which is proprietary to, but
not patented by BAPCO. The transaction was in essence an asset
acquisition. At the time of the acquisition BAPCO was 100% owned by the
Chairman, President and CEO of ERHC. The Company has begun using BAPCO
as the operator of the various oil and natural gas leases it has
acquired.
The consolidated financial statements include the accounts of SSI and
BAPCO, its wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation.
b) Equipment. Environmental remediation equipment was purchased by ERFC in
exchange for common stock. The fair market value of the ERFC stock
exchanged was undeterminable, therefore the Company chose to value the
equipment received using an estimate of historical cost, based on an
independent evaluation of replacement cost at acquisition date, the
Consumer Price Index to original acquisition date, less accumulated
depreciation to the date ERFC acquired the equipment. This was
calculated because the historical cost records had been inadvertently
destroyed. This adjusted calculated historical cost was $2,605,700. The
Company has chosen to depreciate the equipment using the straight line
method over its estimated remaining useful life of fifteen years.
Expenditures for maintenance and repairs are charged to operations as
incurred. Depreciation expense for the period since inception ended
September 30, 1995 was $0 and for the years ended September 30, 1996
and 1997 was $173,713 and $173,713.
<PAGE>
In the BAPCO acquisition the Company acquired ownership of all rights
to BAPCO's proprietary oil well reworking tool, "the BAPCO Tool" as
well as other oil and natural gas well reworking equipment. The control
of this proprietary tool has enhanced the Company's position to the
extent that it would not have been able to enter into the contract to
control the Utah oil fields and the reworking of the Indonesian oil
fields. The control of this tool also enabled the acquisition of the
200 Texas oil wells to be economically feasible to a greater extent.
The Company value the equipment received at historical cost amounting
to $500,000. The Company is depreciating these tool and technology over
ten years. Depreciation expense for the period since inception ended
September 30, 1995 was $0 and for the years ended September 30, 1996
and 1997 was $0 and $25,000.
F-7
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
c) Notes payable. The Company issued two notes payable to stockholders who
are also officers and directors in exchange for cash amounting to
$233,398 and $526,883. These notes carry no stated maturity date and an
8.5% rate of interest. The Company has repaid $236,787 and $58,500 on
these notes, including interest on one. The remaining note is
convertible into restricted stock at 50% of the average bid price for
the month in which the loan was made. The conversion is at the option
of the noteholder. Accrued interest on these notes is $0, $0 and
$21,273 for the period since inception ended September 30, 1995 and for
the years ended September 30, 1996 and 1997.
In January 1997, the Company issued a note payable to a bank in
exchange for $175,000 cash. This note carried a maturity date of March
15, 1997 and a 9.6875% interest rate. The Company is in default on this
note. The default interest rate is 13.6875%. The Company and the bank
had originally expected to roll this note over into a long-term credit
facility. The Company chose not to accept the long-term facility due to
the terms offered. The Company has reached an agreement with the bank
regarding repayment terms amounting to $175,000 plus accrued interest.
Accrued interest on this note is $0, $0 and $15,955 for the period
since inception ended September 30, 1995 and for the years ended
September 30, 1996 and 1997.
d) Deferred compensation. ERFC issued 755,043 shares of its common stock
into escrow in exchange for services to be rendered by a consultant
under a four year contract. These services were valued at $125,000 per
year, therefore the Company is amortizing this deferred compensation
expense at a rate of $31,250 per quarter. This consultant later became
ERFC's Chairman, President and CEO.
On August 30, 1996, the Company issued 10,000 shares of its common
stock, valued at $70,000, to an attorney for services to be rendered at
below market rates for a period of 4 months. Accordingly, the Company
amortized this expense over the term of the agreement.
e) Net loss per share. Net loss per share is computed by dividing the net
loss by the number of shares outstanding during the period.
f) Crude oil reserves. At September 30, 1996, the Company had no oil and
gas reserves. In March 1997, the Company acquired an undivided 7/8
interest in a 100 well lease located in the Gunsite Sand Lease in
Ector, Texas, in exchange for 300,000 shares of the Company's common
stock. The Company received an independent evaluation of this field
which reflected 1,000,000 barrels of proven oil reserves. In March
1997, the Company acquired an undivided 7/8 interest in a 100 well
lease located in the Woodbine Sand Lease Block in Henderson County,
Texas, in exchange for 200,000 shares of the Company's common stock.
The Company received an independent evaluation of this field which
reflected 1,500,000 barrels of proven oil reserves. These reserve
reports, as amended in March 1998, reflect values of $4,831,323 for
Gunsite and $9,504,323 for Woodbine. A separate reserve report is in
process of being prepared, which the Company will use to adjust the
valuation if the subsequent report is materially different. The Company
chose to value these acquisitions on the basis of the asset value
received rather than the value of the common stock given up as at the
time of the acquisition the stock price was highly volatile and thinly
traded.
Both acquisitions also included all existing equipment on site. The
Company has not recorded the fair market value of the equipment in
place, as all of such equipment has minimal scrap value, which is the
only valuation method available due to the non-operational status of
the wells at acquisition and for several years prior to acquisition.
The Company spent $53,000 for the year ended September 30, 1997 on well
equipment repairs and well rework, all on the Gunsite lease. The
Company expects to capitalize and depreciate repairs which are believed
to extend the useful life of such existing equipment beyond one year,
as well as the cost of replacement equipment.
The Company expects to utilize the sucessful efforts method of
accounting for its oil and gas producing activities once it has reached
the producing stage. The Company expects to regularly assess proved oil
and gas reserves for possible impairment on an aggregate basis in
accordance with SFAS 121.
g) Depletion. Depletion (including provisions for future abandonment and
restoration costs) of all capitalized costs of proved oil and gas
producing properties are expected to be expensed using the
unit-of-production method by individual fields as the proven developed
reserves are produced.
<PAGE>
h) Chevron master P&A service agreement. In September 1996 Bass
Environmental Services Worldwide, Inc., (BESW), entered into a Master
Service Agreement with Chevron to plug and abandon oil wells located in
the Gulf of Mexico off the coast of Louisiana. In April 1997, BESW
assigned this contract to the Company in exchange for 3,000,000 shares
of the Company's common stock. Chevron has reissued the contract in the
Company's name. The Company valued this acquisition on the basis of the
par value of the Company's common stock given up. The Company expects
to begin commercializing the agreement in fiscal 1998.
i) DRSTP geological data. In July 1997, the Company acquired substantial
geologic data and other information from an independent source in
exchange for one million shares of the Company's common stock. This
data was valued at $2,000,000 based the agreement with the seller that
Company would repurchase these shares for $2,000,000 at a rate of 25%
per quarter should the seller so choose. The Company expensed this
acquisition cost immediately.
F-8
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(2) Income taxes. The Company has a consolidated net operating loss
carry-forward amounting to $17,496,630, expiring as follows: $3,404 in
2010, $654,461 in 2011 and $16,838,765 in 2012. The Company has a
$6,998,652 deferred tax asset resulting from the loss carry-forward,
for which it has established a 100% valuation allowance. Until the
Company's current plans begin to produce earnings it is unclear as to
the ability of the Company to utilize these carry-forwards.
(3) Stockholders' equity. The Company has authorized 950,000,000 shares of
$0.0001 par value common stock and 10,000,000 shares of $0.0001 par
value preferred stock. On September 30, 1995, the predecessor entity,
ERFC, had 1,639,450 shares issued and outstanding, which had been
issued during the month since inception as 884,407 shares for $88 in
cash and 755,043 shares for a four year consulting agreement valued at
$500,000 with a then independent consultant who subsequently became the
Company's Chairman, President and CEO.
In October 1995, ERFC issued 744,000 shares in exchange for
environmental remediation equipment valued as discussed in note 1b at
$2,605,700. This equipment was acquired from the consultant who had
received the 755,043 shares and subsequently became the Company's
Chairman, President and CEO. In October 1995, ERFC issued 20,000 shares
for $50,000 in cash.
In August 1996, ERFC issued 20,500 shares in exchange for $42,892 in
cash. On August 19,1996, the sucessor Company issued 2,433,950 shares
of common stock to acquire 100% of the issued and outstanding common
stock of ERFC. At the time of the acquisition ERHC, then known as RAGC,
had 356,317 shares issued and outstanding as a result of a 1 for 2,095
share reverse stock split. On August 19, 1996, the Company issued
73,277 shares of common stock to a consultant in exchange for services
valued at $1.00 per share related to the merger. In August 1996, the
Company issued 10,000 shares of its common stock, valued at $70,000, to
an attorney for services to be rendered at below market rates for a
period of 4 months. In September 1996, the Company issued 55,000 shares
of its common stock under three consulting contracts previously
negotiated, valued at $385,000. In September 1996, the Company issued
320,830 shares of its common stock in exchange for $31,995 in cash.
In February 1997, the Company issued 1,600,000 shares of common stock
via an S-8 registration in exchange for consulting and professional
services valued at $1,100,000. In March 1997, the Company acquired a
100 oil well lease with one million barrels of proven oil reserves
valued at $4,831,323 in exchange for 300,000 shares of the Company's
common stock. In March 1997, the Company acquired a 100 oil well lease
with one and one-half million barrels of proven oil reserves valued at
$9,504,323 in exchange for 200,000 shares of the Company's common
stock. In March 1997, the Company issued 300,000 shares of common stock
via an S-8 registration valued at $375,000 in exchange for public
relations services, of which approximately 150,000 had been earned at
fiscal year end. The balance will either be earned or returned to ERHC.
<PAGE>
In April 1997, the Company issued 3,000,000 shares of common stock in
exchange for the assignment of the Chevron P&A master service
agreement, valued at $300. In April 1997, the Company issued 1,342,981
shares of common stock to three directors in lieu of cash compensation
for services rendered to the Company valued at $1,342,981. In April
1997, a director contributed 100,000 shares of common stock back to the
Company with a value of $100,000. In April 1997, the Company issued
4,000,000 shares of common stock in exchange for 100% of the issued and
outstanding common stock of Bass American Petroleum Company, (BAPCO),
valued at historical cost of $500,000. In May 1997, the Company issued
1,500,000 shares of common stock via an S-8 in exchange for consulting
and professional services valued at $562,500. In June 1997, the Company
issued 150,000 shares of common stock to two independent consultants
for services valued at $28,125. One of these consultants became an
employee of the Company in September 1997.
In July 1997, the Company issued 800,000 shares under a Section 4(2)
exemption from registration to a previously unrelated party in exchange
for $400,000 in cash. In July 1997, the Company acquired substantial
geologic data and other information from an independent source in
exchange for 1,000,000 shares of the Company's common stock. This data
was valued at $2,000,000 based the agreement with the seller that
Company would repurchase these shares for $2,000,000 at a rate of 25%
per quarter should the seller so choose. In July 1997, the Company
issued 2,335,000 shares of common stock to three independent
consultants for services valued at $6,465,031, principally relating to
the Company's acquisition of the MIII agreement. In July 1997, the
Company issued 1,500,000 shares of common stock to three directors in
lieu of cash compensation for services rendered to the Company valued
at $2,250,000. In July 1997, the Company issued 147,000 shares of
common stock under a Regulation D Rule 506 private placement in
exchange for $147,000 in cash. In August 1997, the Company issued
74,000 shares of common stock under a Regulation D Rule 506 private
placement in exchange for $148,000 in cash. In September 1997, the
Company issued 400,000 shares of common stock to an independent
consultant for services valued at $308,000. In September 1997, the
Company issued 370,898 shares of common stock under a Regulation D Rule
506 private placement in exchange for $407,988 in cash. In September
1997, the Company received stock subscription agreements for $913,300
in cash under a Regulation D Rule 506 private placement representing
830,273 shares of common stock The Company is contingently liable to
issue up to three million shares of restricted stock in total to three
officers and directors of the Company for their efforts in closing the
Sao Tome & Principe contract. These shares will be issued upon the
joint venture oil production level of 20,000 barrels a day being
attained.
F-9
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(3) Stockholders' equity, continued. The Company is contingently liable to
issue up to two million shares of restricted stock to two officers and
directors of the Company for their efforts in closing the M III
contract in Utah upon the joint venture oil production level of 4,000
barrels a day being attained. This two million shares includes the
500,000 shares the Company is to issue to MIII. The Company is also
contingently liable to issue an additional two million shares upon the
joint venture attaining production of a total of 6,000 barrels a day.
(4) Accrued salaries. At September 30, 1995, 1996 and 1997 the Company has
accrued salaries of $0, $0 and $960,000, respectively, for three
officers. These officers can, at their option, convert these salaries
into common stock of the Company at the rate of one-half of the average
bid price of the Company's common stock for the months in which the
salary was earned.
(5) Commitments and contingencies. The Company is committed to lease
payments for 9 vehicles under operating leases totaling $52,292 and
$20,043 for the years ended September 30, 1998 and 1999, respectively.
The Company paid $0, $0 and $52,500 in vehicle lease expense for the
period since inception ended September 30, 1995 and for the years ended
September 30, 1996 and 1997, respectively. The Company currently leases
its office space and operating facilities on a month to month basis.
The Company paid $0, $8,550 and $45,950 in facility rent for the period
since inception ended September 30, 1995 and for the years ended
September 30, 1996 and 1997.
(6) Segment information. The Company has three distinct lines of business
through its two wholly owned subsidiaries, Site Services, Inc., (SSI),
and Bass American Petroleum Company, (BAPCO), and a joint venture
agreement. SSI operates in the environmental remediation industry and
BAPCO will operate in the oil and gas production industry. SSI's
principal identifiable assets consist of $2,258,274, (net), of
environmental equipment, a barge deposit of $131,000 and the Chevron
P&A master service agreement valued at $300. All of the Company's 1997
revenues of $109,000 and cost of sales of $54,000 relate to SSI.
BAPCO's principal identifiable assets consist of crude oil reserves
valued at $14,335,646 and equipment valued at $475,000 (net). The
Company also expects to operate in the supply industry through a joint
venture agreement to supply fuel and other goods to ships transiting
the Panama Canal. No pricipal identifiable assets yet exist for this
line of business.
(7) Subsequent events
a) Stockholder's equity. The 830,273 shares of common stock were issued by
the Company upon receiving the $913,300 in cash in October 1997 which
had been subscribed for at September 30, 1997. In October and November
1997, the Company issued 175,599 additional shares of common stock in
exchange for $183,359 in cash under the same private placement
memorandum offering in August and September 1997.
b) Convertible notes. In November and December 1997, the Company issued
5.5% convertible senior subordinated secured notes due 2002 in exchange
for approximately $4,300,000 in cash. These notes are convertible into
shares of the Company's common stock at a conversion price to be
determined by so stated formula, but at a price no less than $1.25 per
share. If all of the notes are converted at the lowest possible price,
the Company would be required to issue 3,440,000 shares of common
stock. These notes also carried warrants for an additional 258,000
shares of common stock with an exercise price of $3.17 per warrant, or
total proceeds to the Company of $817,860 in the event all of the
warrants are exercised. The notes are secured by the Company's non-MIII
oil reserves in Utah.
c) Sao Tome concession payment. When the Company entered into the joint
venture agreement in May 1997 with the Democratic Republic of Sao Tome
and Principe, (DRSTP), the Company was required to pay a $5,000,000
concession fee to the DRSTP goverment. In September 1997, the Company
received a Memorandum of Understanding from the DRSTP government which
allows the Company to pay this concession fee within five days after
the DRSTP files the relevant official maritime claims maps with the
United Nations and the Gulf of Guinea Commission. In December 1997, the
Company paid $2,000,000 of this concession fee to the DRSTP form the
proceeds of the convertible note offering.
<PAGE>
d) Utah oil wells and reserves. On September 29, 1997, the Company entered
into an agreement to acquire 22 oil, gas and mineral leases located in
Uintah and Duchesne Counties, Utah from three joint owners. The
purchase agreement was closed on October 8, 1997, at which time the the
Company received the lease assignment. The terms of the acquisition are
for the Company pay $250,000 in cash, issue 250,000 shares of the
Company's common stock at each of the following four dates: closing;
December 30, 1997; March 30, 1998 and June 30, 1998. The Company also
was required to guarantee that the bid price on the date the Rule 144
restrictions lapse will be no less than $2.00 per share or the Company
is required to either issue additional shares or to pay the difference
in cash, at the Company's option. The Company also granted the sellers
a 4% gross production receipts royalty to a maximum of $677,000. The
Company is currently evaluating the existing reserve reports and
underlying data on these leases as well as has contracted another
independent appraiser to complete new reserve reports for its use. The
total valuation of this transaction is $2,250,000 and is applied as
$375,800 of oil and gas reserves and $1,874,200 of equipment.
F-10
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(7) Subsequent events, continued
e) Olmos Nueces River Prospect oil and natural gas lease. In October 1997,
the Company entered into an agreement to acquire a 3/8 undivided
interest in a natural gas well that had been plugged and abandoned
approximately 10 years ago. This agreement requires the Company to pay
the seller $150,000 and 50,000 shares of the Company's common stock, as
well as to pay the Company's proportinate share of the costs to reenter
this well. The Company is also required to carry the seller's 1/8
proportionate share of the reentry costs until the well is producing.
The seller also owns an undivided 50% interest in the oil and gas lease
on the 49,019 acres of land contiguous to the initial well. The
agreement allows the Company to acquire a 3/8 undivided interest in
this lease by paying to the seller approximately $343,000 each April
for four years. The Company received the initial lease assignment on
December 1, 1997. The Company is currently evaluating the existing
reserve reports and underlying data on these leases as well as has
contracted another independent appraiser to complete new reserve
reports for its use.
f) Firm commitment letter of intent. In December 1997, the Company
received a firm commitment letter of intent from a registered brokerage
house which contemplates a public offering of approximately $50,000,000
of the Company's debt securities. This offering, if it proceeds, is
contemplated for early 1998.
g) Test oil production. In late November 1997, test oil production
amounting to approximately 444 barrels was picked up from the tanks at
the Gunsite Sand lease. At that time the Company had approximately 9
wells back on line and pumping. In late November and early December
1997, test oil production amounting to approximately 1,292 barrels was
picked up from the tanks at the 22 leases in Uintah and Duchesne
Counties, Utah.
h) Stock repurchase. In December 1997, the Company repurchased 250,000
shares of its common stock for $500,000 in cash. This was the first 25%
quarterly repurchase agreed to by the Company relating to the 1,000,000
shares issued to acauire the DRSTP geological data.
F-11
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
SUPPLEMENTARY INFORMATION
----
(UNAUDITED)
F-12
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
September 30, 1995, 1996 and 1997
-----
(Unaudited)
<TABLE>
<CAPTION>
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Developed oil and gas properties $ 0 0 14,335,646
Undeveloped oil and gas properties-- 0 0 0
--------- ---------- ----------
0 0 14,335,646
Accumulated depreciation, depletion and valuation
allowance 0 0 0
--------- ---------- ----------
Net capitalized cost $ 0 0 14,335,646
</TABLE>
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
Period since inception ended September 30, 1995 and years
ended September 30, 1996 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Acquisition of properties:
Developed $ 0 0 14,335,646
Undeveloped 0 0 0
Exploration costs, excluding valuation allowance 0 0 0
Development costs $ 0 0 0
</TABLE>
See accompanying notes to supplementary information.
F-13
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOW RELATING TO PROVED OIL AND GAS RESERVES
Period since inception ended September 30, 1995 and years
ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Future cash inflows $ 0 0 54,799,039
Future production and development costs 0 0 (24,574,717)
Future income tax expenses 0 0 0
----------- ----------- -----------
Future net cash inflows 0 0 30,224,322
10% annual discount for estimated timing of cash flow 0 0 (15,888,676)
Standardized measure of discounted future net cash flow $ 0 0 14,335,646
</TABLE>
See accompanying notes to supplementary information.
F-14
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOW AND CHANGES THEREIN RELATING
TO PROVED OIL AND GAS RESERVES
Period since inception ended September 30, 1995 and years
ended September 30, 1996 and 1997
----
(Unaudited)
The following are the principal sources of change in the standardized measure of
discounted future net cash flows during 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Sales of oil and gas produced, net of production costs $ 0 0 0
Net changes in prices and production costs 0 0 0
Extensions, discoveries and improved recovery, 0
Less recovery costs 0 0
Revisions of previous quantity estimates 0 0 0
Reserves purchases, net of development costs 0 0 14,335,646
Reserves sold 0 0 0
Accretion of discount 0 0 0
Net change in income taxes 0 0 0
Other 0 0 0
---------- ---------- ----------
Net change 0 0 14,335,646
Standardized measure of discounted future net cash flow:
Beginning of year 0 0 0
---------- ---------- ----------
End of year $ 0 0 14,335,646
========== ========== ==========
</TABLE>
See accompanying notes to supplementary information.
F-15
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
RESERVE QUANTITY INFORMATION
Period since inception ended September 30, 1995 and years
ended September 30, 1996 and 1997
----
(Unaudited)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
Gas Oil Gas Oil Gas Oil
(MCF) (bbls.) (MCF) (bbls.) (MCF) (bbls.)
<S> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped reserves:
Beginning of year 0 0 0 0 0 0
Extensions, discoveries and 0 0 0 0 0 0
improved recovery
Revisions of previous 0 0 0 0 0 0
estimates (1)
Sales 0 0 0 0 0 0
Purchases 0 0 0 0 0 2,500,000
Production 0 0 0 0 0 0
End of year 0 0 0 0 0 2,500,000
Proved developed reserves 0 0 0 0 0 2,500,000
</TABLE>
See accompanying notes to supplementary information.
F-16
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
Period since inception ended September 30, 1995 and years
ended September 30, 1996 and 1997
----
(Unaudited)
<TABLE>
<CAPTION>
1995 1996 1997
------------------- ---------------- -----------------
Revenue:
<S> <C> <C> <C>
Oil and gas sales $ 0 0 0
Costs and expenses: 0 0 0
Lease operating expenses 0 0 0
Exploration costs 0 0 0
Depreciation and depletion 0 0 0
Income tax (benefit) expense 0 0 0
------------------- ---------------- -----------------
Results of operation from producing activities
(excluding corporate overhead and interest costs) $ 0 0 0
</TABLE>
See accompanying notes to supplementary information.
F-17
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO SUPPLEMENTARY INFORMATION
----
(Unaudited)
1. PRESENTATION OF RESERVE DISCLOSURE INFORMATION
Reserve disclosure information is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 69 ("SFAS
69"), Disclosures About Oil and Gas Producing Activities
2. DETERMINATION OF PROVED RESERVES
The estimates of the Company's proved reserves were determined by an
independent petroleum engineer in accordance with the provisions of
SFAS 69. The estimates of proved reserves are inherently imprecise and
are continually subject to revision based on production history,
results of additional exploration and development and other factors.
Estimated future net revenues were computed by applying current prices
of oil and gas received by the Company to estimated future production
of reserves, less estimated future development and production costs,
based on current costs.
3. RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
The results of operations from oil and gas producing activities were
prepared in accordance with the provisions of SFAS 69. General and
administrative expenses, interest costs and other unrelated costs are
not deducted in computing results of operations from oil and gas
activities.
4. STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES
THEREIN RELATING TO PROVED OIL AND GAS RESERVES
The standardized measure of discounted future net cash flows relating
to proved oil and gas reserves and the changes of the standardized
measure of discounted future net cash flows relating to proved oil and
gas reserves were prepared in accordance with the provisions of SFAS
69.
Future production and development costs are computed estimating the
expenditures to be incurred in developing and producing the oil and gas
reserves at year-end, based on year-end costs and assuming continuation
of existing economic conditions.
Future income tax expenses are calculated by applying the year-end U.S.
tax rate to future pre-tax cash inflows relating to proved oil and gas
reserves, less the tax basis of properties involved. Future income tax
expenses give effect to permanent differences and tax credits and
allowances relating to the proved oil and gas reserves.
Future net cash flows are discounted at a rate of 10% annually
(pursuant to SFAS 69) to derive the standardized measure of discounted
future net cash flows. This calculation does not necessarily represent
an estimate of fair market value or present value of such cash flows
since future prices and costs can vary substantially from year-end and
the use of a 10% discount figure is arbitrary.
F-18
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS Sep 30, 1997 Dec 31, 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash $ 327,743 797,102
Accounts receivable and other current assets 215,708 447,231
------------ ------------
Total Current Assets 543,451 1,244,333
------------ ------------
PROPERTY AND EQUIPMENT
Equipment (note 1b) 2,733,274 4,597,072
------------ ------------
Total Property and Equipment 2,733,274 4,597,072
------------ ------------
OTHER ASSETS
Deposits on fixed assets 136,560 300,705
Crude oil and natural gas reserves, net (note 1f) 14,335,646 15,042,979
Chevron P&A master service agreement (note 1h) 300 300
DRSTP Concession fee 0 2,008,300
------------ ------------
Total Other Assets 14,472,506 17,352,284
------------ ------------
Total Assets $ 17,749,231 23,193,689
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and other current payable $ 111,054 569,220
Stockholder loans (note 1c) 465,094 475,008
Accrued interest 37,228 86,499
Accrued salaries (note 4) 960,000 1,230,000
Short term bank loan (note 1c) 175,000 0
------------ ------------
Total Current Liabilities 1,748,376 2,360,727
------------ ------------
LONG-TERM LIABILITIES
Convertible debt, net, (note 1c) 0 3,838,825
------------ ------------
Total Long-Term Liabilities 0 3,838,825
------------ ------------
Total Liabilities 1,748,376 6,199,552
------------ ------------
Common stock issued under repurchase agreement; (1,000,000
shares at 9/30/97 and 750,000 at 12/31/97) (note 7) 2,000,000 1,500,000
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value; Authorized 950,000,000 shares: issued and
outstanding 22,989,526 at September 30, 1997 and 23,215,625 issued and
22,965,625 outstanding at December 31,
1997 (note 3) 2,199 2,322
Preferred stock, $0.0001 par value; Authorized 10,000,000 shares;
issued and outstanding 0 at September 30 and December 31 0 0
Additional paid in capital in excess of par 32,658,586 34,974,907
Stock subscriptions receivable (913,300) 0
Deferred compensation, net (note 1d) (250,000) (218,750)
Retained earnings (deficit) (17,496,630) (19,264,342)
------------ ------------
Total Stockholders' Equity 14,000,855 15,494,137
------------ ------------
Total Liabilities and Stockholders' Equity $ 17,749,231 23,193,689
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-20
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Operations
3 Months ended December 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1997
----------- -----------
REVENUE
<S> <C> <C>
Sales - environmental remediation services $ 0 146,083
Sales - crude oil 0 96,914
----------- -----------
Total sales 0 242,997
----------- -----------
COST OF SALES
Cost of sales - environmental remediation services 0 8,511
Cost of sales - crude oil 0 35,851
----------- -----------
Total cost of sales 0 44,362
----------- -----------
Gross profit/(loss) 0 198,635
OPERATING EXPENSES
Advertising 0 11,855
Automotive expenses 0 33,537
Bank charges 0 398
Compensation - officers 31,250 301,250
Compensation - directors 0 0
Consultant fees 0 251,171
Depreciation 43,428 104,221
Donations 0 6,175
Dues, fees, licenses and taxes 0 4,703
Insurance 0 16,268
Geological data and reports 0 0
Oil lease transfer fees 0 0
Office expenses 0 25,862
Oil well rework expenses 0 23,898
Professional fees 52,500 512,615
Research and development 0 0
Rent 0 39,184
Salaries 0 73,560
Telephone 0 24,380
Travel and entertainment 0 258,744
Utilities 0 6,626
Miscellaneous 0 216,413
----------- -----------
Total operating expenses 127,178 1,910,860
----------- -----------
Income(loss) from operations (127,178) (1,712,225)
Interest expense 0 (61,096)
Interest income 0 5,609
----------- -----------
Income(loss) before tax & extraordinary item (127,178) (1,767,712)
Extraordinary item - forgiveness of debt 0 0
----------- -----------
Income(loss) before taxes (127,178) (1,767,712)
Income tax expense/(benefit) 0 0
----------- -----------
Net income(loss) $ (127,178) (1,767,712)
=========== ===========
Weighted average number of shares outstanding 3,239,374 24,017,700
=========== ===========
Net loss per share $ (0.04) (0.07)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Number Comm Pf'd APIC Stk Subs Def Accumulated TTL S/H
of Shares Stk Stk Receiv Comp Deficit Equity
--------------- ---------- -------- ------------ ------------ ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGIN BALANCE,
September 30, 1996 3,239,374 $ 324 0 3,515,298 0 (427,500) (657,865) 2,430,257
2/10 - S-8 services 1,600,000 160 0 1,099,840 0 0 0 1,100,000
3/4 - oil wells/leases 300,000 30 0 4,831,293 0 0 0 4,831,323
3/5 - oil wells/leases 200,000 20 0 9,504,303 0 0 0 9,504,323
3/13 - S-8 services 300,000 30 0 374,970 0 0 0 375,000
4/5 - Chevron contract 3,000,000 300 0 0 0 0 0 300
4/5 - services 1,342,981 134 0 1,342,847 0 0 0 1,342,981
4/5 - contributed to corp (100,000) (10) 0 (99,990) 0 0 0 (100,000)
4/9 - BAPCO acquisition 4,000,000 400 0 499,600 0 0 0 500,000
5/14 - S-8 services 1,500,000 150 0 562,350 0 0 0 562,500
6/19 - services 150,000 15 0 28,110 0 0 0 28,125
7/8 - cash 800,000 80 0 399,920 0 0 0 400,000
7/25 - S-8 services 2,335,000 233 0 6,464,798 0 0 0 6,465,031
7/30 - services 1,500,000 150 0 2,249,850 0 0 0 2,250,000
7/30 - cash 147,000 15 0 146,985 0 0 0 147,000
8/8 - cash 74,000 8 0 147,992 0 0 0 148,000
9/4 - services 400,000 40 0 307,960 0 0 0 308,000
9/10 - cash stk subs recv 727,273 73 0 799,927 (800,000) 0 0 0
9/15 - cash & stk subs recv 473,898 47 0 482,533 (113,300) 0 0 369,280
Deferred comp amort -- 0 0 0 0 177,500 0 177,500
Net loss -- 0 0 0 0 0 (16,838,765) (16,838,765)
---------- ------- - ----------- -------- -------- ----------- -----------
BALANCE,
September 30, 1997 21,989,526 2,199 0 32,658,586 (913,300) (250,000) (17,496,630) 14,000,855
10/97 - Stock Subs Rec'd -- 0 0 0 913,300 0 0 913,300
10/8 - Uinta Acquisition 1,000,000 100 0 1,999,900 0 0 0 2,000,000
10/97-Neuces Acquisition 50,000 5 0 148,745 0 0 0 148,750
11/97 - cash ,net 176,099 18 0 167,676 0 0 0 167,694
Deferred comp amort -- 0 0 0 0 31,250 0 31,250
Net loss -- 0 0 0 0 0 (1,767,712) (1,767,712)
---------- ------- - ----------- -------- -------- ----------- -----------
BALANCE, December
31, 1997 (Unaudited) 23,215,625 $ 2,322 0 34,974,907 0 (218,750) (19,264,342) 15,494,137
========== ======= = =========== ======== ======== =========== ===========
Common Stock issued under
a repurchase agreement
7/15 - DRSTP 750,000 $ 100 0 1,499,900 0 0 0 1,500,000
information
=========== ======= = =========== ======== ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ (176,750) (1,767,712)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization of deferred compensation 83,750 31,250
Crude oil depletion 0 17,217
Depreciation 93,000 104,221
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable and other assets 0 (231,523)
Increase (decrease) in accrued interest expense 0 49,271
Increase (decrease) in accrued expenses 0 458,166
Increase (decrease) in accrued salaries 0 270,000
---------- ----------
Net cash (used) provided by operating activities 0 (1,069,110)
CASH FLOWS FROM INVESTING ACTIVITIES:
DRSTP Concession fee payment 0 (2,008,300)
Acquisition of fixed assets 0 (58,694)
Increase in deposits on fixed assets 0 (164,145)
---------- ----------
Net cash (used) provided by investing activities 0 (2,231,139)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock sold for cash 0 167,694
Convertible debt sold for cash 0 3,767,000
Payments on stockholder advances 0 (207,861)
Payments on funds advanced by third-parties 0 (175,000)
Funds advanced by stockholders 0 217,775
---------- ----------
Net cash (used) provided by financing activities 0 3,769,608
Net increase (decrease) in cash 0 469,359
CASH, beginning of period 0 327,743
---------- ----------
CASH, end of period $ 0 797,102
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid in cash $ 0 11,825
========== ==========
Non cash financing activities:
Stock issued to acquire natural gas well $ 0 148,750
========== ==========
Stock issued to acquire crude oil reserves and equipment $ 0 2,000,000
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1997
(Unaudited)
(1) Summary of Significant Accounting Policies
The Company. Environmental Remediation Holding Corporation, (ERHC), is
a Colorado chartered corporation which operates in the environmental
remediation industry and the oil and natural gas production industry
from its corporate headquarters in Jericho, New York, its operating
offices in Lafayette, Louisiana.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the dates of the statements of financial condition and revenues
and expenses for the years then ended. Actual results could differ
significantly from those estimates. The financial statements for the
three months ended December 31, 1996 and 1997 include all adjustments
which in the opinion of management are necessary for fair presentation.
The following summarize the more significant accounting and reporting
policies and practices of the Company:
a) Basis of presentation. The consolidated financial statements include
the accounts of Site Services, Inc. and Bass American Petroleum
Company, its wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation.
b) Equipment. The Company has chosen to depreciate the equipment using the
straight line method over its estimated remaining useful life of ten
years and its furniture and fixtures and vehicle over its estimated
useful life of five years. Expenditures for maintenance and repairs are
charged to operations as incurred. Depreciation expense for thethree
months ended December 31, 1996 and 1997 was $43,428 and $104,221.
c) Notes payable. The Company issued two notes payable to stockholders who
are also officers and directors in exchange for cash amounting to
$978,157. These notes carry no stated maturity date and an 8.5% rate of
interest. The Company has repaid $503,148 on these notes, including
interest on one. The remaining note is convertible into restricted
stock at 50% of the average bid price for the month in which the loan
was made. The conversion is at the option of the noteholder.
In January 1997, the Company issued a note payable to a bank in
exchange for $175,000 in cash. This note carried a maturity date of
March 15, 1997 and a 9.6875% interest rate. The Company is in default
on this note. The default interest rate is 13.6875%. The Company and
the bank had originally expected to roll this note over into a
long-term credit facility. The Company chose not to accept the
long-term facility due to the terms offered. The Company has reached an
agreement with the bank regarding repayment terms amounting to $175,000
plus accrued interest. This note was paid in full in December 1997.
In November and December 1997, the Company issued 5.5% convertible
senior subordinated secured notes due 2002 in exchange for
approximately $4,300,000 in cash. These notes are convertible into
shares of the Company's common stock at a conversion price to be
determined by so stated formula, but at a price no less than $1.25 per
share. If all of the notes are converted at the lowest possible price,
the Company would be required to issue 3,440,000 shares of common
stock. These notes also carried warrants for an additional 258,000
shares of common stock with an exercise price of $3.17 per warrant, or
total proceeds to the Company of $817,860 in the event all of the
warrants are exercised. The notes are secured by the Company's non-MIII
oil reserves in Utah.
d) Deferred compensation. ERFC issued 755,043 shares of its common stock
into escrow in exchange for services to be rendered by a consultant
under a four year contract. These services were valued at $125,000 per
year, therefore the Company is amortizing this deferred compensation
expense at a rate of $31,250 per quarter. This consultant later became
ERFC's Chairman, President and CEO. Amortization of this deferred
compensation in the three months ended December 31, 1996 and 1997 was
$31,250 and $31,250.
e) Net loss per share. Net loss per share is computed by dividing the net
loss by the number of shares outstanding during the period.
<PAGE>
f) Crude oil and natural gas reserves In March 1997, the Company acquired
an undivided 7/8 interest in a 100 well lease located in the Gunsite
Sand Lease in Ector, Texas, in exchange for 300,000 shares of the
Company's common stock. The Company received an independent evaluation
of this field which reflected 1,000,000 barrels of proven oil reserves.
In March 1997, the Company acquired an undivided 7/8 interest in a 100
well lease located in the Woodbine Sand Lease Block in Henderson
County, Texas, in exchange for 200,000 shares of the Company's common
stock. The Company received an independent evaluation of this field
which reflected 1,500,000 barrels of proven oil reserves. These reserve
reports, as amended in March 1998, reflect values of $4,831,323 for
Gunsite and $9,504,323 for Woodbine. A separate reserve report is in
process of being prepared, which the Company will use to adjust the
valuation if the subsequent report is materially different. The Company
chose to value these acquisitions on the basis of the asset value
received rather than the value of the common stock given up as at the
time of the
F-24
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
f) Crude oil and natural gas reserves, continued
acquisition the stock price was highly volatile and thinly traded.
Both acquisitions also included all existing equipment on site. The
Company has not recorded the fair market value of the equipment in
place, as all of such equipment has minimal scrap value, which is the
only valuation method available due to the non-operational status of
the wells at acquisition and for several years prior to acquisition.
The Company spent $53,000 for the year ended September 30, 1997 on well
equipment repairs and well rework, all on the Gunsite lease. The
Company expects to capitalize and depreciate repairs which are believed
to extend the useful life of such existing equipment beyond one year,
as well as the cost of replacement equipment.
On September 29, 1997, the Company entered into an agreement to acquire
22 oil, gas and mineral leases located in Uintah and Duchesne Counties,
Utah from three joint owners. The purchase agreement was closed on
October 8, 1997, at which time the the Company received the lease
assignment. The terms of the acquisition are for the Company pay
$250,000 in cash, issue 250,000 shares of the Company's common stock at
each of the following four dates: closing; December 30, 1997; March 30,
1998 and June 30, 1998. The Company also was required to guarantee that
the bid price on the date the Rule 144 restrictions lapse will be no
less than $2.00 per share or the Company is required to either issue
additional shares or to pay the difference in cash, at the Company's
option. The Company also granted the sellers a 4% gross production
receipts royalty to a maximum of $677,000. The Company is currently
evaluating the existing reserve reports and underlying data on these
leases as well as has contracted another independent appraiser to
complete new reserve reports for its use.
In October 1997, the Company entered into an agreement to acquire a 3/8
undivided interest in a natural gas well that had been plugged and
abandoned approximately 10 years ago. This agreement requires the
Company to pay the seller $150,000 and 50,000 shares of the Company's
common stock, as well as to pay the Company's proportinate share of the
costs to reenter this well. The Company is also required to carry the
seller's 1/8 proportionate share of the reentry costs until the well is
producing. The seller also owns an undivided 50% interest in the oil
and gas lease on the 49,019 acres of land contiguous to the initial
well. The agreement allows the Company to acquire a 3/8 undivided
interest in this lease by paying to the seller approximately $343,000
each April for four years. The Company received the initial lease
assignment on December 1, 1997. The Company is currently evaluating the
existing reserve reports and underlying data on these leases as well as
has contracted another independent appraiser to complete new reserve
reports for its use. The total valuation of this transaction is
$2,250,000 and is applied as $375,800 of oil and gas reserves and
$1,874,200 of equipment.
The Company expects to utilize the sucessful efforts method of
accounting for its oil and gas producing activities once it has reached
the producing stage. The Company expects to regularly assess proved oil
and gas reserves for possible impairment on an aggregate basis in
accordance with SFAS 121.
g) Depletion. Depletion (including provisions for future abandonment and
restoration costs) of all capitalized costs of proved oil and gas
producing properties are expensed using the unit-of-production method
by individual fields as the proven developed reserves are produced.
Depletion expense amount to $17,217 for the three months ended December
31, 1997.
h) Chevron master P&A service agreement. In September 1996 Bass
Environmental Services Worldwide, Inc., (BESW), entered into a Master
Service Agreement with Chevron to plug and abandon oil wells located in
the Gulf of Mexico off the coast of Louisiana. In April 1997, BESW
assigned this contract to the Company in exchange for 3,000,000 shares
of the Company's common stock. Chevron has reissued the contract in the
Company's name. The Company valued this acquisition on the basis of the
par value of the stock issued. The Company expects to begin
commercializing the agreement in fiscal 1998, and has begun amortizing
this contract value over a five year period beginning in fiscal 1998.
i) Sao Tome concession payment. When the Company entered into the joint
venture agreement in May 1997 with the Democratic Republic of Sao Tome
and Principe, (DRSTP), the Company was required to pay a $5,000,000
concession fee to the DRSTP goverment. In September 1997, the Company
received a Memorandum of Understanding from the DRSTP government which
allows the Company to pay this concession fee within five days after
the DRSTP files the relevant official maritime claims maps with the
United Nations and the Gulf of Guinea Commission. In December 1997, the
Company paid $2,000,000 of this concession fee to the DRSTP form the
proceeds of the convertible note offering.
<PAGE>
(2) Income taxes. The Company has a consolidated net operating loss
carry-forward amounting to $19,264,342, expiring as follows: $3,404 in
2010, $654,461 in 2011; $16,838,765 in 2012 and $1,767,712 in 2013. The
Company has a $7,705,700 deferred tax asset resulting from the loss
carry-forward, for which it has established a 100% valuation allowance.
Until the Company's current plans begin to produce earnings it is
unclear as to the ability of the Company to utilize these
carry-forwards.
F-25
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(3) Stockholders' equity. The Company has authorized 950,000,000 shares of
$0.0001 par value common stock and 10,000,000 shares of $0.0001 par
value preferred stock. In November 1997, the Company issued 176,099
shares of common stock under a Regulation D Rule 506 private placement
in exchange for $167,694, net, in cash.
On September 29, 1997, the Company entered into an agreement to acquire
22 oil, gas and mineral leases located in Uintah and Duchesne Counties,
Utah from three joint owners. The purchase agreement was closed on
October 8, 1997, at which time the the Company received the lease
assignment. The terms of the acquisition are for the Company pay
$250,000 in cash, issue 250,000 shares of the Company's common stock at
each of the following four dates: closing; December 30, 1997; March 30,
1998 and June 30, 1998. The Company also was required to guarantee that
the bid price on the date the Rule 144 restrictions lapse will be no
less than $2.00 per share or the Company is required to either issue
additional shares or to pay the difference in cash, atCompany's option.
In October 1997, the Company entered into an agreement to acquire a 3/8
undivided interest in a natural gas well that had been plugged and
abandoned approximately 10 years ago. This agreement requires the
Company to pay the seller $150,000 and 50,000 shares of the Company's
common stock, as well as to pay the Company's proportinate share of the
costs to reenter this well.
The Company is contingently liable to issue up to three million shares
of restricted stock in total to three officers and directors of the
Company for their efforts in closing the Sao Tome & Principe contract.
These shares will be issued upon the joint venture oil production level
of 20,000 barrels a day being attained. The Company is contingently
liable to issue up to two million shares of restricted stock to two
officers and directors of the Company for their efforts in closing the
M III contract in Utah upon the joint venture oil production level of
4,000 barrels a day being attained. This two million shares includes
the 500,000 shares the Company is to issue to MIII. The Company is also
contingently liable to issue an additional two million shares upon the
joint venture attaining production of a total of 6,000 barrels a day.
(4) Accrued salaries. At December 31, 1996 and 1997 the Company has accrued
salaries of $0 and $1,230,000, respectively, for three officers. These
officers can, at their option, convert these salaries into common stock
of the Company at the rate of one-half of the average bid price of the
Company's common stock for the months in which the salary was earned.
(5) Commitments and contingencies. The Company is committed to lease
payments for 9 vehicles under operating leases totalling $52,292 and
$20,043 for the years ended September 30, 1998 and 1999, respectively.
The Company currently leases its office space and operating facilities
on a month to month basis.
(6) Segment information. The Company has three distinct lines of business
through its two wholly owned subsidiaries, Site Services, Inc., (SSI),
and Bass American Petroleum Company, (BAPCO), and a joint venture
agreement. SSI operates in the environmental remediation industry and
BAPCO operates in the oil and gas production industry. SSI's principal
identifiable assets consist of $2,214,772, (net), of environmental
equipment, a barge deposit of $131,000 and the Chevron P&A master
service agreement valued at $300, (net). Revenues of $146,083 and cost
of sales of $8,511 relate to SSI. BAPCO's principal identifiable assets
consist of crude oil and natural gas reserves valued at $15,024,345,
net, and equipment valued at $2,289,845 (net). Revenues of $96,914 and
cost of sales of $35,851 relate to BAPCO. The Company also expects to
operate in the supply industry through a joint venture agreement to
supply fuel and other goods to ships transiting the Panama Canal. No
principal identifiable assets yet exist for this line of business.
(7) Common stock repurchase. In December 1997, the Company repurchased
250,000 shares of its common stock for $500,000 in cash. This was the
first 25% quarterly repurchase agreed to by the Company relating to the
1,000,000 shares issued to acquire the DRSTP geologic data.
F-26
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any date subsequent to the date hereof. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
------------------
TABLE OF CONTENTS
Page
Prospectus Summary ..................................................... 2
Risk Factors............................................................ 6
The Company............................................................. 13
Use of Proceeds......................................................... 14
Dilution................................................................ 14
Price Range for Common Stock............................................ 15
Dividend Policy......................................................... 15
Selected Financial Data................................................. 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 17
Business................................................................ 23
Management.............................................................. 37
Principal Shareholders ................................................. 43
Selling Shareholders.................................................... 44
Certain Transactions.................................................... 48
Description of Capital Stock............................................ 49
Plan of Distribution.................................................... 50
Legal Matters........................................................... 50
Experts................................................................. 50
Available Information................................................... 50
Index to Consolidated Financial Statements.............................. F-1
------------------
<PAGE>
================================================================================
Environmental
Remediation Holding
Corporation
------------------
Prospectus
------------------
April____, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all costs and expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions. All amounts shown
are estimates except the Securities and Exchange Commission registration fee and
the NASD filing fee.
Securities and Exchange Commission registration fee............. $ 6,852.01
Accounting fees and expenses.................................... 40,000.00
Legal fees and expenses......................................... 50,000.00
Miscellaneous expenses.......................................... 3,147.99
-----------
Total $100,000.00
===========
- --------------------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
Sections 7-109-103 and 7-109-109 of the Colorado Business Corporation
Act (the "CBCA") provides generally and in pertinent part that a Colorado
corporation may indemnify its directors and officers against expenses,
judgments, fines and settlements actually and reasonably incurred by them in
connection with any civil suit or action by or in the right of the corporation,
or any administrative or investigative proceeding if, in connection with the
matters in issue, they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
in connection with any criminal suit or proceeding, if in connection with the
matters in issue, they had no reasonably cause to believe their conduct was
unlawful. Sections 7-109-103 and 7-109-107 further provide that in connection
with the defense or settlement of any action by or in the right of the
corporation, a Colorado corporation may indemnify its directors and officers
against expenses actually and reasonably believed to be in, or not opposed to,
the best interests of the corporation. Sections 7-109-103 and 7-109-107 permit a
Colorado corporation to grant its directors and officers additional rights of
indemnification through by-law provisions and otherwise to the extent such
provisions do not conflict with the CBCA and to purchase indemnity insurance on
behalf of its directors and officers.
Item 15. Recent Sales of Unregistered Securities.
(a) The Company made the following unregistered sales of its securities from
September 30, 1994 through December 31, 1997:
<TABLE>
<CAPTION>
DATE
OF TITLE OF
SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ---- ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
8/96 Common Stock 2,433,950 Acquisition of 100% of Environmental Remediation
issued and outstanding Funding Corp.
shares of ERFC
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
DATE
OF TITLE OF
SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ---- ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
8/96 Common Stock 10,000 Legal services for a Ken Krauseman
period of four months
9/96 Common Stock 320,830 $31,995 Purchaser
3/97 Common Stock 300,000 100 oil well lease in Mytec & Associates
Texas - valued at
$4,831,323
3/97 Common Stock 200,000 100 oil well lease in Mytec & Associates
Texas - valued at
$9,504,323
4/97 Common Stock 3,000,000 Assignment of Chevron Bass Environmental
Master Service Agreement Services Worldwide, Inc.
- valued at $300
4/97 Common Stock 1,342,981 In consideration for 1. Senator James
service on the Company's Day's Trust - 500,000
Board of Directors 2. James A. Griffin - 500,000
3. Marvin Gibbons - 342,981
4/97 Common Stock 4,000,000 In exchange for 100% of Sam L. Bass, Jr. as Sole
issued and outstanding Shareholder of Bass
shares of Bass American American Petroleum Co.
Petroleum Co. (BAPCO) - (BAPCO)
valued at $500,000
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
DATE
OF TITLE OF
SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ---- ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
6/97 Common Stock 150,000 Consulting Services - 1. Robert McKnight - 75,000
valued at $28,125 2. Herman Shellstead - 75,000
7/97 Common Stock 800,000 $400,000 Central Florida
Investments
7/97 Common Stock 1,000,000 Geologic data and other Christian Hellinger
information - valued at
$2,000,000
7/97 Common Stock 1,500,000 In consideration for 1. James R. Callender, Sr.
service on the Company's 2. Noreen G. Wilson
Board of Directors 3. William Beaton
(500,000 each)
7/97 Common Stock 147,000 $147,000 Purchasers in Rule 506
private placement (17
purchasers)
8/97 Common Stock 74,000 $148,000 Purchasers in Rule 506
private placement (15
purchasers )
9/97 Common Stock 400,000 Consulting Services - Senator Vance Hartke
valued at $308,000
9/97 Common Stock 370,898 $407,988 Purchasers in Rule 506
private placement (23
purchasers)
10/97 Common Stock 803,273 $913,000 Purchasers in Rule 506
private placement (14 purchasers)
10/97 Common Stock 500,000 Oil reserves 1. Uinta Oil & Gas, Inc.
and ops - valued at 2. Pine Valley Exploration, Inc.
$1,000,000 3. Coconino, S.M.A., Inc.
4. Joseph H. Lorenzo
10/97 Common Stock 105,099 $115,609.15 Purchasers in Rule 506
private placement (6 purchasers)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
DATE
OF TITLE OF
SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ---- ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
10/97 5.5% Convertible $4,300,000 $4,300,000 Accredited institutional
Senior principal investors (10 institutions)
Subordinated amount;
Notes convertible into
up to 3,440,000
shares of Common
Stock
10/97 Warrants to Exercisable into No additional Accredited institutional
Purchase Common 283,800 shares consideration investors (11 institutions)
Stock of Common Stock
11/97 Common Shares 63,500 $67,750 Purchasers in Rule 506
private placement (8 purchasers)
12/97 Common Shares 50,000 Gas reserves and Hinge Line, Inc.
one natural gas well -
value undetermined
3/98 Warrant to Exercisable In connection with Kingsbridge Capital
Purchase into 100,000 entering into Limited
Common Stock shares of Investors Agreement
Common Stock
</TABLE>
(b),(c) The above transactions were private transactions not involving
a public offering and were exempt from the registration provisions of the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The sale
of securities was without the use of an underwriter, and the certificates
evidencing the shares bear the restrictive legend permitting the transfer
thereof only upon registration of the shares or an exemption under the
Securities Act of 1933, as amended.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Company, as amended.
3.2 By-Laws of the Company, as amended.
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel.
10.1 Master Service Order and Agreement, dated October 1, 1996,
between the Company and Chevron U.S.A. Inc.(1)
10.2 Joint Venture Agreement, dated December 12, 1996, between the
Company and Centram Marine Services, S.A. (1)
10.3 Joint Venture Agreement, dated July 28, 1997, between the
Company and MIII Corporation. (1)
10.4 Memorandum of Agreement, dated September 30, 1997, between the
Company, the Government of the Democratic Republic of Sao Tome
& Principe, and Procura Financial Consultants, c.c. (1)
II-4
<PAGE>
10.5 Form of Securities Purchase Agreement, dated as of October 15,
1997, between the Company and each of the Purchasers listed
therein, together with forms of the 5.5% Convertible Senior
Subordinated Secured Note and Warrant to Purchase Common
Stock.
10.6 Form of Registration Rights Agreement, dated as of October 15,
1997, between the Company and each of the Purchasers listed
therein.
21.1 Subsidiaries of the Company.
*23.1 Consent of Durland & Company, independent public accountants.
23.2 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel
(included in the opinion filed as Exhibit 5.1).
*23.3 Consent of Dr. Joseph Shoaf, P.E.
*23.4 Consent of Gerry A. Graham for Sandwood Consultants.
24.1 Power of Attorney (set forth on signature page of the
Registration Statement).
27.1 Financial Data Schedule.
- ------------------------------------
Unless otherwise indicated, all exhibits have been filed.
* Filed herewith
(1) Incorporated herein by reference from the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1997, filed on December 29,
1997.
(b) Financial Statement Schedules.
None.
Item 17. Undertakings.
1. The undersigned Registrant hereby undertakes:
(a) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(i) and (a)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement;
(b) that, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
II-5
<PAGE>
(c) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act of 1933 and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lafayette, State of Louisiana, on the 12th day of April 1998.
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
By: /s/ Sam L. Bass, Jr.
------------------------------------------
Sam L. Bass, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the registration statement has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Sam L. Bass, Jr. Chairman of the Board, April 12, 1998
- --------------------------- President and Chief Executive
Sam L. Bass, Jr. Officer (principal executive
officer)
/s/ Noreen G. Wilson Chief Financial Officer, April 12, 1998
- --------------------------- Vice President and
Noreen G. Wilson Director (principal financial
or accounting officer)
*
- --------------------------- Secretary, Treasurer and April 12, 1998
James A. Griffin Director
* Chief Operating Officer,
- --------------------------- Vice President and Director April 12, 1998
James R. Callender, Sr.
* Director April 12, 1998
- ---------------------------
William Beaton
* By: /s/Noreen G. Wilson
----------------------
Noreen G. Wilson
Attorney-in-Fact
II-7
<PAGE>
Environmental Remediation Holding Corporation
3-5 Audrey Avenue
Oyster Bay, New York 11771
INDEPENDENT AUDITOR'S CONSENT
Ladies and Gentlemen:
We hereby consent to the use in this Registration Statement of Environmental
Remediation Holding Corporation on Amendment No. 1 to Form S-1 of our report
dated December 12, 1997 on the consolidated financial statements of the company,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to our firm under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
/s/ Durland & Company, CPAs, P.A.
Palm Beach, Florida
April 14, 1998
<PAGE>
CONSENT
-------
The undersigned hereby (i) acknowledges that it has reviewed the
portions of the Registration Statement on Form S-1 (No. 333-43919) of
Environmental Remediation Holding Corporation, in which the undersigned is
referred to, (ii) consents to the use and context of its name, and (iii)
confirms that the statements referring to it in the Registration Statement are a
materially accurate summary of the reserve reports for which the undersigned is
responsible.
Dated: March 12, 1998
Very truly yours,
/s/ Joseph Shoaf
-----------------------------------
Joseph Shoaf, P.E.
Registered Engineer #1428, Colorado
<PAGE>
CONSENT
The undersigned hereby (I) acknowledges that it has reviewed the portion of the
Registration Statement on Form S-1 (No. 333-4319) of Environmental Remediation
Holding Corporation, Inc. in which the undersigned is referred to (ii) consents
to the use and context of its name, and (iii) confirms that the statements
referring to it in the Registration Statement are a materially accurate summary
of the reserve reports for which the undersigned is responsible.
Dated March 27, 1998
Very truly yours,
/s/ Gerry A. Graham
-----------------------
Gerry A. Graham
Sandwood Consultants
Registered Professional
Petroleum Engineer
