U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended June 30, 1997
Commission File Number 0-18275
ENVIRONMENTAL REMEDIATION HOLDING CORP.
(Name of issuer in its charter)
COLORADO 88-0218499
(State of Incorporation) (IRS Employer ID Number)
420 Jericho Turnpike, Suite 321
Jericho, New York 11753
(Address of principal executive office)
Registrant's telephone number, including area code: (516) 433-4730
Indicate by check mark whether the registrant (1) has filed reports required to
be filed by Section 13 of 15 (d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of August 8, 1997 was 17,849,430
Documents Incorporated by Reference:
Form 8-K filed on July 7, 1997
Form 8-K filed on July 7, 1997
Form 8-K filed on July 23, 1997
Form 8-K filed on July 25, 1997
Form S-8 filed on July 25, 1997
PART I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets ...............................................F-2
Consolidated Statements of Operations ......................................F-3
Consolidated Statements of Stockholders' Equity ............................F-4
Consolidated Statements of Cash Flows .....................................F-5
Notes to Consolidated Financial Statements .................................F-6
F-1
Environmental Remediation Holding Corp.
Consolidated Balance Sheets
September 30, 1996 and June 30, 1997
ASSETS 1996 1997
-------------------- ----------------
CURRENT ASSETS (Unaudited)
Cash $ 0 15,937
Crude oil reserves, net (notes 1f, 1g) 0 12,500,000
Prepaid expenses and other current assets 0 0
-------------------- -----------------
Total Current Assets 0 12,515,937
-------------------- -----------------
PROPERTY AND EQUIPMENT
Furniture and equipment, net (note 1b) 3,348,000 5,319,000
-------------------- -----------------
Total Property and Equipment 3,348,000 5,319,000
-------------------- -----------------
OTHER ASSETS
Deposits on fixed assets 5,000 131,000
Chevron P&A master service agreement 0 3,000,000
Deferred compensation expense, net (note 1d) 427,500 281,250
-------------------- -----------------
Total Other Assets 432,500 3,412,250
-------------------- -----------------
Total Assets $ 3,780,500 21,247,187
==================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and other current payables $ 0 0
Stockholder loans (note 1c) 6,730 377,561
Accrued interest 0 17,726
Short-term bank loan (note 1c) 0 175,000
-------------------- -----------------
Total Current Liabilities 6,730 570,287
-------------------- -----------------
LONG-TERM LIABILITIES
Long-term debt 0 0
-------------------- -----------------
Total Long-Term Liabilities 0 0
-------------------- -----------------
Total Liabilities 6,730 570,287
-------------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value; Authorized 950,000,000 shares; issued and
outstanding 3,239,374 at September 30, 1996 and
14,221,355 at June 30, 1997 (note 3) 324 1,402
Additional paid in capital in excess of par (note 3) 4,629,598 25,254,876
Retained earnings (deficit) (856,152) (4,579,378)
-------------------- -----------------
Total Stockholders' Equity 3,773,770 20,676,900
-------------------- -----------------
Total Liabilities and Stockholders' Equity $ 3,780,500 21,247,187
==================== =================
The accompanying notes are an integral part of the financial statements.
F-2
Environmental Remediation Holding Corp.
Consolidated Statements of Operations
(Unaudited)
3 months ended June 30, 9 months ended June 30,
1996 1997 1996 1997
------------------ ------------------ ------------------ --------------
Revenue
Sales - environ remediation services $ 0 84,000 0 120,944
Sales - crude oil 0 0 0 0
------------------ ------------------ ------------------ --------------
Total sales 0 84,000 0 120,944
Cost of sales - environ remed services 0 26,948 0 50,188
Cost of sales - crude oil 0 0 0 0
------------------ ------------------ ------------------ --------------
Total cost of sales 0 26,948 0 50,188
------------------ ------------------ ------------------ --------------
Gross profit(loss) 0 57,052 0 70,756
Operating Expenses
Automotive expenses 0 14,850 0 48,463
Bank charges 0 0 0 96
Compensation - officers (note 1d) 31,250 31,250 93,750 93,750
Compensation - directors 0 1,352,981 0 1,352,981
Consultant fees 0 (201,625) 210,000 1,454,625
Depletion 0 0 0 0
Depreciation 93,000 93,000 279,000 279,000
Dues, fees, licenses and taxes 0 8,227 0 8,227
Insurance 0 43,130 0 146,674
Office expenses 0 36,350 0 56,292
Professional fees 0 22,455 0 163,472
Research and development 0 9,000 0 17,000
Rent 0 4,050 0 11,400
Travel 0 52,506 0 148,366
Miscellaneous 0 2,639 0 2,639
------------------ ----------------- ------------------ --------------
Total operating expenses 124,250 1,468,813 582,750 3,782,985
------------------ ----------------- ------------------ --------------
Income(loss) from operations (124,250) (1,411,761) (582,750) (3,712,229)
Interest expense 0 10,491 0 17,727
------------------ ----------------- ------------------ --------------
Income(loss) before tax & extraord item (124,250) (1,422,252) (582,750) (3,729,956)
Extraordinary item - forgiveness of debt 0 0 0 6,730
------------------ ----------------- ------------------- --------------
Income(loss) before taxes (124,250) (1,422,252) (582,750) (3,723,226)
Income tax expense/(benefit) (note 2) 0 0 0 0
------------------ ----------------- ------------------ --------------
Net income(loss) $ (124,250) (1,422,252) (582,750) (3,723,226)
================== ================= ================== ==============
Net income(loss) per share $ - (0.10) - (0.58)
================== ================= ================== ==============
Wtd avg number of shares outstanding - 13,573,653 - 6,382,302
================== ================= ================== ==============
The accompanying notes are an integral part of the financial statements.
F-3
ENVIRONMENTAL REMEDIATION HOLDING CORP.
Consolidated Statements of Stockholder's Equity
Additional Total
Common Paid in Accumulated Stockholders'
Stock Capital Deficit Equity
BALANCE, September30, 1996 *A $ 324 4,629,598 (856,152) 3,773,770
Capital transactions:
*B 160 1,099,840 0 1,100,000
*C 30 4,999,970 0 5,000,000
*D 50 624,950 0 625,000
*E 20 7,499,980 0 7,500,000
*F 300 2,999,700 0 3,000,000
*G 135 1,352,846 0 1,352,981
*H (10) 10 0 0
*I 400 2,249,600 0 2,250,000
*J 13 48,362 0 48,375
*K (20) (249,980) 0 (250,000)
Net loss 0 0 (3,723,226) (3,723,226)
------------- -------------- ------------------ -----------------
BALANCE, June 30, 1997(Unaudited) $ 1,402 25,254,876 (4,579,378) 20,676,900
============= ============== ================== =================
*A - Beginning balance - 3,239,374 shares of common stock outstanding.
*B - February 1997 - 1,600,000 shares of common stock issued via S-8
registration in exchange for consulting and professional services valued at
$1,100,000 - 4,839,374 shares of common stock outstanding.
*C - February 1997 - 300,000 shares of common stock issued in exchange for 100
Texas oil wells with proven reserves of 1,000,000 barrels of crude oil valued
at $5,000,000 - 5,139,374 shares of common stock outstanding.
*D - March 1997 - 500,000 shares of common stock issued via S-8 registration in
exchange for consulting services valued at $625,000 - 5,639,374 shares of common
stock outstanding.
*E- March 1997 - 200,000 shares of common stock issued in exchange for 100 Texas
oil wells with proven reserves of 1,500,000 barrels of crude oil valued at
$7,500,000 - 5,839,374 shares of common stock outstanding.
*F - April 1997 - 3,000,000 shares of common stock issued in exchange for
assignment of Chevron master service agreement - 8,839,374 shares of common
stock outstanding.
*G - April 1997 - 1,352,981 shares of common stock issued for services provided
by directors of the Company - 10,192,355 shares of common stock outstanding.
*H - April 1997 - 100,000 shares of common stock contributed back to the Company
by a director - 10,092,355 shares of common stock outstanding.
*I - April 1997 - 4,000,000 shares of common stock issued in exchange for 100%
of the issued and outstanding common stock of Bass American Petroleum Co.
(BAPCo) - 14,092,355 shares of common stock outstanding.
*J - May 1997 - 129,000 shares of common stock issued via S-8 registration in
exchange for consulting services valued at $48,375 - 14,221,355 shares of common
stock outstanding.
*K - June 1997 - 200,000 shares of common stock corrected, not yet earned or
issued under S-8 registration in item *D above - 14,021,355 shares of common
stock outstanding.
The accompanying notes are an integral part of the financial statements.
F-4
Environmental Remediation Holding Corp.
Consolidated Statements of Cash Flows
9 months ended June 30,
(Unaudited)
1996 1997
------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ (582,750) (3,723,226)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization of deferred compensation 93,750 146,250
Non-cash gain on forgiveness of debt 0 (6,730)
Stock issued in exchange for services 210,000 2,876,356
Depreciation 279,000 279,000
Changes in operating assets and liabilities:
Increase (decrease) in accrued interest expense 0 17,726
Increase (decrease) in accrued expenses 0 0
------------------ -----------------
Net cash (used) provided by operating activities 0 (410,624)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit on fixed assets 0 (126,000)
------------------ -----------------
Net cash (used) provided by investing activities 0 (126,000)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on stockholder advances 0 (22,968)
Funds advanced on third-party debt 0 175,000
Funds advanced by stockholders 0 400,529
------------------ -----------------
Net cash provided (used) by financing activities 0 552,561
------------------ -----------------
Net increase (decrease) in cash 0 15,937
------------------ -----------------
CASH, beginning of period 0 0
------------------ -----------------
CASH, end of period $ 0 15,937
================== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash financing activities:
Stock issued to acquire crude oil reserves and wells $ 0 12,500,000
================== =================
Stock issued to acquire Chevron master P&A service agreement $ 0 3,000,000
================== =================
Stock issued to acquire BAPCo $ 0 2,250,000
================== =================
The accompanying notes are an integral part of the financial statements.
F-5
ENVIRONMENTAL REMEDIATION HOLDING CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies
The Company Environmental Remediation Holding Corp is a Colorado chartered
corporation which conducts business from its headquarters in Jericho,
New York and was incorporated on May 12, 1986.
The 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
nine months ended June 30, 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 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 Regional Air Group.
b) Equipment Equipment was received by ERFC in exchange for common stock
of ERFC. The fair market value of the equipment was determined through
the use of an independent third party equipment appraiser. The then
determined fair market value was lower than the previous owners cost
basis, and the fair market value of the ERFC stock exchanged was
undeterminable, therefore the Company chose to value the equipment
received using the appraiser's valuation. The Company has chosen to
depreciate the equipment using the straight line method over its
estimated remaining useful life of ten years. Expenditures for
maintenance and repairs are charged to operations as incurred.
Depreciation expense for the nine months ended June 30, 1996 and 1997
was $279,000 and $279,000.
In the BAPCo acquisition the Company acquired ownership of all rights
to BAPCo's proprietary oil well reworking tool, "the BAPCo Tool". 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 expects to depreciate this tool and technology over five
years.
c) Notes payable The Company issued two notes payable to stockholders in
exchange for cash. These notes carry no stated maturity date and an
8.5% rate of interest. The Company expects to repay these notes within
twelve months. Accrued interest on these notes is $0 and $7,831 for the
nine months ended June 30, 1996 and 1997. In January 1997, the Company
issued a note payable to a bank in exchange for cash. This note carried
a maturity date of March 15, 1997 and a 9.6875%rate of interest. The
Company is in default on this note. The default rate of interest 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 is
currently in negotiations with the bank regarding repayment terms.
Accrued interest on this note is $9,895 at June 30, 1997.
d) Deferred compensation ERFC issued 755,043 shares of its common stock
into escrow in exchange for services to be rendered by its Chairman
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. These ERFC shares were
exchanged for shares of the Company on August 19, 1996. On August 30,
1996, the Company issued 10,000 shares of its common stock, valued at
F-6
ENVIRONMENTAL REMEDIATION HOLDING CORP.
Notes to Consolidated Financial Statements
d) Deferred compensation, continued $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. On October 6, 1995, and modified on January 2, 1996, the
Company entered into an agreement with a financial advisor to issue
30,000 shares of its common stock, valued at $210,000, in exchange for
services rendered by the advisor to assist in effecting the merger
which occurred on August 19, 1996. On July 15, 1996, the Company
entered into an agreement with a general business advisor to issue
15,000 shares of its common stock, valued at $105,000, in exchange for
services rendered by the advisor.
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 In February 1997, the Company acquired a 100 oil
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 one
million barrels of proven oil reserves. In March 1997, the Company
acquired a 100 oil well lease located in the Woodbine Sand Lease Block
in Henderson, Texas, in exchange for 200,000 shares of the Company's
common stock. The Company received an independent evaluation of this
field which reflected one and one-half million barrels of proven oil
reserves. Both acquisitions also included all existing equipment on
site. The Company currently has not recorded the fair market value of
the equipment in place, if any, as it has not yet received the
independent appraisal of this equipment. The Company expects to receive
this appraisal by fiscal year end, and may or may not record such
determined fair market value at such time. 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.
h) Chevron master P&A service agreement In September 1996 Bass
Environmental Worldwide, Inc., (BEW), 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, BEW 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
Company's bid price on the date the agreement was signed, or $1 per
share. The Company expects to amortize this contract value on a per
well basis, once it is determined exactly how many wells the contract
contemplates.
(2) Income taxes The Company has a consolidated net operating loss
carry-forward amounting to $4,579,378, expiring as follows: $3,404 in
2010, $852,748 in 2011 and $3,723,226 in 2012. The Company has a
$1,831,751 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. On September 30, 1995, the Company had
746,483,333 shares issued and outstanding. On August 14, 1996, the
Company completed a 1 for 2,095 reverse split of its shares, leaving
356,317 shares issued and outstanding. On August 19,1996, the Company
issued 2,433,950 shares of common stock to acquire 100% of the issued
and outstanding common stock of ERFC. On August 19, 1996, the Company
also issued 73,277 shares of common stock to a consultant in exchange
for services
F-7
ENVIRONMENTAL REMEDIATION HOLDING CORP.
Notes to Consolidated Financial Statements
(3) Stockholders' equity, continued valued at $1.00 per share related to
the merger. In September 1996, the Company issued 320,830 shares of its
common stock in exchange for $31,995 in cash. In September 1996, the
Company issued 55,000 shares of its common stock under three consulting
contracts previously negotiated.
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 February 1997, the Company acquired a
100 oil well lease with one million barrels of proven oil reserves
valued at $5,000,000 in exchange for 300,000 shares of the Company's
common stock.
In March 1997, the Company issued 500,000 shares of common stock via an
S-8 registration in exchange for consulting and professional services
valued at $625,000. In March 1997, the Company acquired a 100 oil well
lease with one and one-half million barrels of proven oil reserves
valued at $7,500,000 in exchange for 200,000 shares of the Company's
common stock.
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, (see note 1h). In April 1997, the Company issued 1,352,981
shares of common stock to three directors in lieu of cash compensation
for services rendered to the Company. In April 1997, a director
contributed 100,000 shares of common stock back to the Company. 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 Co. (BAPCo).
In May 1997, the Company issued 129,000 shares of common stock via an
S-8 in exchange for consulting and professional services valued at
$48,375.
In June 1997, the Company corrected its records to reflect that 200,000
shares of common stock previously reported as issued and outstanding
had not as yet been earned nor issued and outstanding. These shares
relate to an S-8 registration completed in March 1997, and valued at
$1.25 per share.
The Company is contingently liable to issue up to three million shares
of restricted stock each to three officers and directors of the Company
for their efforts in closing the Sao Tome & Principe contract. These
shares will be issued upon certain oil production levels being
attained. The Company is contingently liable to issue up to two million
shares of restricted stock each to two officers and directors of the
Company for their efforts in closing the M III contract in Utah. These
shares will be issued upon certain oil production levels being
attained.
F-8
Item 2. Management's Discussion of Financial Condition and Results of Operation
During the third quarter of fiscal 1997, (and during July of 1997) the
Company consummated a number of Agreements that focused on establishing its
three primary corporate goals.
In February 1997, ERHC entered into a contract with FISCA oil to
purchase seven gas station in Texas for 1.3 million dollars. This contract was
subject to due dilligence and financing. Upon completion of review and due
diligence in June of 1997, the Board determined that the stations were not a
good investment for ERHC.
In February of 1997, ERHC borrowed $175,000.00 from Connecticut Bank of
Commerce. The proceeds have been utilized to secure the P&A Barge, compete
design work, maintain insurance coverage and begin the well workover on the
Gunsite Fields located in Wichita Falls, Texas.
On February 19, 1997, the Company acquired 100 leases located in
Wichita Falls, Texas in exchange for 300,000 shares of common stock. ERHC
purchased the fields based on the independent evaluation reflecting one million
barrels of proven reserves behind pipe. The geology reports also indicate a
possibility of a second reserve above sand that the management of ERHC the oil
can be accessed utilizing the BAPCO Tool. ERHC's Management understood that
using normal API methods of reworking the field could return the field to
valuable production with the use of the BAPCO Tool estimating an increase to 800
barrels per day. ERHC is developing a plan for the use of the BAPCO Tool in this
field within the next ninety (90) days. ERHC is in the process of moving one of
the BAPCO Tools onto the Wichita Falls field and anticipates utilizing the tool
within the next thirty (30) days.
On March 14, 1997, the Company purchased 100 wells and equipment
located on 1200 acres locared in Henderson, Texas in exchange for 200,000 shares
of ERHC Rule 144 common stock. ERHC purchased the field based on the independent
evaluation reflecting one and a half million barrels of proven reserves behind
pipe that can be economically removed using standard A.P.I methods of reworking
. In additon to the proven reserves, the geology in this area suggest a second
reserve that could exceed the proven reserves. ERHC believes that using the
BAPCO Tool the Company may be able to access this second reserve at very little
cost. ERHC plans to begin reworking the Henderson Field in the next 45 to 60
days.
In March of 1997 ERHC signed a joint venture with Centrum Marine, Inc.
and is ready to lauch a refuel operation in Cristobal, Panama. The joint venture
has a signed ten (10) year Consession to supply fuel and services to ships and
tankers moving through the canal. ERHC and Centrum are in the final stages of
negotiation on three (3) fuel barges and two (2) tug boats which will be capable
of pumping in excess of a million barrels of fuel a day and will provide gross
revenue of $.04 to $.10 cents a gallon. Revenue forecasted from the sale of fuel
will be a minium of forty (40) thousand to fifty (50) thousand dollars per day.
The revenue forecast does not include the sale of other supplies that will
generate additional income. ERHC expects to complete financing of the barges and
tugs within 90 days.
In April of 1997, Environmental Remediation Holding Corporation
("ERHC") issued three million shares of stock in exchange for the assignment of
a Master Service Agreement with Chevron Oil Company which calls for the
remediation, including plug and abandonment ("P&A") work, of approximately 400
oil and gas wells located in Southern Louisiana in the coastal waters of the
Gulf of Mexico.
Environmental Remediation Holding Corporation, is in the process of
developing a Plug and Abandonment Division under the guidance of Sam L. Bass
Jr., CEO of ERHC, who will utilize the Company's extended family of technical
experts and the combined experience of ERHC's management and staff. There is
great confidence by ERHC of its ability to service the needs of its clients,
using cutting edge technology and knowledge of all environmental remediation
disciplines. ERHC's P&A Division will utilize the Company's technical experts,
including the resources of Source, Inc., an acquisition in negotiations,
advanced technology and the Company's expertise in apply environmental
remediation disciplines to this Agreement.
The plug and abandonment of oil and gas wells is a detailed process of
shutting down and discontinuing the use of an older, unsafe or marginally
producing oil or gas wells. There are many ecological ramifications if oil and
gas wells are abandoned without following EPA and DEQ mandated guidelines. These
ramifications are caused due to aging equipment and pipe casings which can lead
to "blow outs" oil and gas seepage into the water, or ground and ground water
contamination. These problems can lead to major environmental problems and
expensive pollution cleanup.
ERHC has also agreed to acquire a 140 foot P&A flat deck barge and is
implementing design work to permit operation in shallow coastal waters. The
Chevron Agreement contemplates a three-year work schedule which in the opinion
of management, could generate revenues of $70,000,000.00. Management also
anticipates, but can not assure, that Chevron may expand the P&A work called for
in the Agreement.
ERHC in April of 1997 completed the acquisition of 100% of the
outstanding shares of Bass American Petroleum Company (BAPCO), in exchange for 4
million shares of ERHC common stock. BAPCO is now a wholly owned subsidiary of
the Company. BAPCO's main focus is to obtain marginally producing wells and
increase production of those wells eight to ten time via a lateral drilling
process using what is called the " BAPCO Tool". This process is minimal when
compared to actually drilling a new well and gambling on an oil find. The BAPCO
Tool process is a simple, but effective way to build an oil company without the
high risk and drilling costs. It has been proven that there is an eighty percent
positive ratio of success. ERHC can buy old producing wells and increase
production ten to fifteen times versus the cost of drilling a new well. The
BAPCO Tool is prioritary in nature and is very important to the overall focus of
ERHC. Through experience the tool has demonstrated an 80% success ratio.
In May of 1997, ERHC entered in to a joint enture with the Democratic
Government of Sao Tome and Principe ("DRSTP") located in the Gulf of Guinea off
the western shore of Africa, and with Procura Financial Consultants of South
Africa (PFC) which contemplates the development of oil and gas industry on and
offshore of the islands. ERHC has agreed to a 25 year management contract to
manage and operate the oil and gas company, once production is established. ERHC
will also have the right to negotiate on behalf of the Government of Sao Tome
and Principe per the joint venture agreement with major oil companies. ERHC's
management believes the Gulf of Guinea is considered one of the richest oil
finds in the world today.
The DRSTP is located approximatey twenty miles west of Gabon, and
southwest of Equatorial Guinea and Cameroon on the mainland of Africa. It is
ERHC's management's opinion that each of the respective countries claim a 200
mile economic zone which result in undefined borders or common areas which
production would be proportionaley shared. Agencies of the United Nations and a
multi-country commission are understood to be studing the resoving of the border
lines and common area rights. The joint venture presently estimtes that it will
require additional financing of approximately $20 million dollars to begin
drilling and exploration activites. There can be no asurance that negotiations
for this financing can be successfully concluded. The DRSTP island are located
along a well formed geological feature know as the Cameroon Tectonic Trends and
onshore and offshore potential has been studied by various oil companies for
over 20 years. The joint venture has access to the studies which are currently
being evaluated by a top team of experts.
On June 28 1997 ERHC/BAPCo signed an Agreement with M III Corporation,
a Native American Corporation, for the purpose of recovery, workover and
operation of all available oil and gas leases located within the boundaries of
the Uintah & Ouray Reservation. The Agreements calls for a mininium of 3,900
barrels of production of oil per day and 361 leases. These wells belong to the
Allotted members of the Ute Tribe or all members of the Ute Tribe. ERHC has a
27.762% working interest in the wells plus a $2.50 per barrel operator contract.
ERHC in consideration paid cash plus 250,000 shares of the Company's restricted
common stock to M III Corporation. ERHC willl be required to raise up to 8.5
million dollars in financing for the project, but will be authorized to pledge
as collateral all of the equipment and reserves in Utah. ERHC is in the process
of reaching a final agreement to sell all of the oil and gas production. This
contract for the sale of all production should be completed within 30 days. If
the production estimates of a mininium of 3,900 barrels per day holds true, ERHC
revenue will be a mininium of ten million dollars. The only available reserve
reports were completed in 1993 by Richard Schuster Denver, Colorado on only 133
wells and show proven and producing reserves in excess of 5.5 million barrells
of oil and 23,407 million cubic feet of natural gas.
ERHC in August 1997 signed an Agreement for a 37.5% interest in a
49,000 acre gas project located in McMullen and La Salle Counties, Texas for
$200,000 and 50,000 shares of the Company's restricted common stock. The Olmos
Sands section occuring in depth interval at 11,000 to 12,000 feet is the
objective horizon in this prospect. The olmos Sands are productive theough the
entire South Texas area. Access to a gas market is not expected to be a problem.
A 20 inch diameter transcontinental Gas Pipeline is located 3.1 miles due west
of the Sandifer and Phillips wells. An independent evaluation by David K. Davis
Resivour Engineering of Huston, Texas gives this 307 secton of Olmos Sand 101
BCF to 110 BCF of gas in place per 640 acre section. Based on this evaluation,
50 to 55 BCF natural gas in place per 320 acre unit. ERHC will require
approximately $600,000 for each of the existing wells. Based on anology with AWP
Field, an Olmos Sand field exhibing similar Olmos Sand charactisct, minium
production rates of 5,000 MCF per day, plus 50 to 100 bbls per day of condensate
can be expected. Current gas and oil prices are $1.90 per MCF and $19 to $20 per
barrel, respectively. Therefore, monthly net operating revenues will be in the
range of $176,000 per well.
EHC's growth concentration will be on the acquisition of complementary,
small to medium environmental remediation companies, primarily energy related.
Also the company will seek transportation opportunities associated with the
environmental remediation of energy industries.
Financial data
The Company's assets and stockholders' equity increased by
approximately $17 million in the nine months ended June 30, 1997. This increase
is solely attributable to the Company's acquisition of the 200 oil wells in
Texas with independently verifiable reserves of 2.5 million barrels of oil, the
Chevron P&A master service agreement and BAPCo.
The Company generated its first revenues in the nine months ended June
30, 1997. These revenues were generated by the environmental remediation
division of the Company. The Company's gross margin on these revenues was 58.5%.
There is no guarantee that the Company will continue to generate such
significant gross margins in the future.
As the nine months ended June 30, 1997, were the first period in which
the Company began active operations, a comparision between periods presented
would be misleading due to the heavy initial expenses incurred in starting
operations. The foregoing notwithstanding there was one significant expense
which the Company believes should be discussed. The Company issued a total of
2.029 million shares of its common stock via three S-8 registrations during the
quarter. These issuances were valued at $1.523 million based on the then current
trading price of the stock. The Company immediately expensed this total amount
during the quarter. These shares were issued to various consultants as payment
for services rendered to the Company in lieu of cash. The Company also issued
1.353 million shares of restricted common stock to three directors as
compensation in lieu of cash compensation. These shares were valued at $1.353
million.
Liquidity
The Company's liquidity position is still as precarious as it has been
during the development stage preparing for the start of operations. The Company
increased its debt by approxamately $546,000 during the nine months. It expects
to continue to increase debt until such time as cash flow from operations is
able to carry the Company's expansion as well as its then existing operations.
The Company believes that it will begin receiving reasonably significant revenue
and cash flow from its Texas wells and the Utah joint venture in the fourth
quarter, however there is no guarantee that such revenue and cash flow will be
sufficient to sustain the Company and allow it to continue its expansion plans
in the near future.
PART II - Other Information
Item 1. Legal Proceedings.
The Company is not a party to any pending legal proceedings.
Item 2. Changes in Securities
The Company hereby incorporates by reference its S-8's filed with the Commission
on February 10, 1997, March 13, 1997 and May 14, 1997.
Item 3. Defaults Upon Senior Securities
None to report.
Item 4. Submission of Matters to a Vote of Security Holders.
None to report.
Item 5. Other Information
None to report.
Item 6. Exhibits and Reports on Form 8-K and 8-K/A.
The Company hereby incorporates its four Forms 8-K filed with the Commission on
July 7, 1997, July 7, 1997, July 23, 1997 and July 25, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: August 13, 1997
ENVIRONMENTAL REMEDIATION HOLDING CORP.
a Colorado Corporation
By: /s/ Sam L. Bass, Jr.
Sam L. Bass, Jr.
CEO and Chairman of the Board
By: /s/ Noreen Wilson
Noreen Wilson
Vice President