UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ________________
Commission File Number 0-17325
ENVIRONMENTAL REMEDIATION HOLDING COPORATION
(Name of small business issuer in its charter)
Colorado 88-0218499
(State of Incorporation) (I.R.S. Employer Identification No.)
5444 Westheimer Road
Suite 1570
Houston, Texas 77056 (Address of
executive offices, including zip code.)
(713) 626-4700
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
The number of common shares outstanding as of August 6, 2004 was 600,808,389.
The Registrant hereby amends the following items, financial statements,
exhibits, or other portions of this Quarterly Report on Form 10-Q/A for the
three and nine months ended June 30, 2004 as set forth in the attached pages
and described in more detail in Note 1 to the financial statements.
TABLE OF CONTENTS
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements PAGE
----
Balance Sheets as of June 30, 2004 (Restated)
and September 30, 2003 2
Statements of Operations for the Three and Nine Months Ended
June 30, 2004 (Restated) and 2003 3
Statements of Cash Flows for the Nine Months Ended
June 30, 2004 (Restated) and 2003 4
Notes to the Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Plan of Operations 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
Item 4. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
(a) Exhibits
(b) Reports on Form 8-K
Signatures 24
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
BALANCE SHEETS
- --------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30,
2004 2003
------------ ------------
(UNAUDITED)
(RESTATED)
ASSETS
CURRENT ASSETS
Cash $ 342,492 $ 23,336
Restricted cash 18,343 18,343
Prepaid expenses and other current assets 33,779 15,065
------------ ------------
Total current assets 394,614 56,744
------------ ------------
DRSTP concession fee 5,679,000 5,679,000
------------ ------------
Total assets $ 6,073,614 $ 5,735,744
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,281,565 $ 1,367,712
Accrued officers salaries 723,035 723,035
Accrued interest 41,442 133,470
Accrued interest, shareholder 2,019,282 1,827,279
Current portion of nonconvertible debt, shareholder 403,644 403,644
Current portion of convertible debt, shareholder, net of discount 8,819,082 8,646,134
Current portion of convertible debt 1,626,033 3,182,232
------------ ------------
Total current liabilities 14,914,083 16,283,506
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.0001 par value; authorized 10,000,000
shares; none issued and outstanding -- --
Common stock, $0.0001 par value; authorized 950,000,000 shares;
issued and outstanding 599,269,225 and 582,829,594 at
June 30, 2004 and September 30, 2003, respectively 59,927 58,283
Additional paid-in capital 58,225,388 53,937,800
Accumulated deficit (67,125,784) (64,543,845)
------------ ------------
Total shareholders' deficit (8,840,469) (10,547,762)
------------ ------------
Total liabilities and shareholders' deficit $ 6,073,614 $ 5,735,744
------------ ------------
See accompanying notes to financial statements.
2
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(RESTATED) (RESTATED)
COSTS AND EXPENSES
General and administrative expenses $ 656,399 $ 569,309 $ 1,582,788 $ 1,391,447
Interest expense 386,774 306,140 1,162,947 931,777
------------- ------------- ------------- -------------
Total costs and expenses 1,043,173 875,449 2,745,735 2,323,224
------------- ------------- ------------- -------------
Other income 163,796 -- 163,796 --
------------- ------------- ------------- -------------
Net loss $ (879,377) $ (875,449) $ (2,581,939) $ (2,323,224)
------------- ------------- ------------- -------------
Net loss per share - basic and diluted $ -- $ -- $ -- $ --
------------- ------------- ------------- -------------
Weighted average number of
common shares outstanding 598,621,411 569,497,214 592,328,685 561,915,485
------------- ------------- ------------- -------------
See accompanying notes to financial statements.
3
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
JUNE 30,
----------------------------
2004 2003
----------- -----------
(UNAUDITED) (UNAUDITED)
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,581,939) $(2,323,224)
Adjustments to reconcile net loss to net cash used by operating activities
Amortization of beneficial conversion feature associated with
convertible debt 382,162 --
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (18,714) (4,813)
Accounts payable and accrued liabilities 205,554 103,224
Accrued interest 780,786 931,777
----------- -----------
Net cash used by operating activities (1,232,151) (1,293,036)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debt, shareholder 576,307 699,160
Proceeds from common stock, net of expenses 975,000 828,750
----------- -----------
Net cash provided by financing activities 1,551,307 1,527,910
----------- -----------
Net increase in cash 319,156 234,874
Cash, beginning of period 23,336 2,240
----------- -----------
Cash, end of period $ 342,492 $ 237,114
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash operating and financing activities:
Stock issued in exchange for:
Accounts payable and accrued liabilities $ 291,701 $ 100,758
Accrued interest $ 591,945 $ 610,033
Convertible debt and accrued interest $ 1,645,065 $ 1,980,272
Beneficial conversion feature associated with convertible debt $ 785,521 $ --
See accompanying notes to financial statements.
4
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS ORGANIZATION
The financial statements included herein, which have not been audited pursuant
to the rules and regulations of the Securities and Exchange Commission, reflect
all adjustments which, in the opinion of management, are necessary to present a
fair statement of the results for the interim periods on a basis consistent with
the annual audited financial statements. All such adjustments are of a normal
recurring nature. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for an entire year. Certain
information, accounting policies and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the Company's audited financial
statements included in the Company's Annual Report on Form 10-K for the year
ended September 30, 2003.
GENERAL BUSINESS, NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Environmental Remediation Holding Corporation ("ERHC" or the "Company") is an
independent oil and gas company. The Company was formed in 1986, as a Colorado
corporation, and was engaged in a variety of businesses until 1996, at which
time it began its current operations as an independent oil and gas company. The
Company's goal is to maximize its value through profitable growth in oil and gas
reserves and production in the Gulf of Guinea off the coast of central West
Africa and to acquire interests in non-producing oil and gas properties,
particularly high potential international prospects in known oil and natural gas
producing areas. The Company's current focus is to exploit its only assets,
which are agreements with the government of the Democratic Republic of Sao Tome
and Principe ("DRSTP") concerning oil and gas and natural gas exploration in the
exclusive territorial waters of Sao Tome, an island nation located in the Gulf
of Guinea off the coast of central West Africa, (the "Exclusive Economic Zone"
or "EEZ") and with the Nigeria-Sao Tome and Principe Joint Development Authority
(the "JDA") and DRSTP in a Joint Development Zone ("JDZ") between Sao Tome and
the Federal Republic of Nigeria ("FRN") ("JDZ/EEZ Concession"). The Company
intends to explore forming relationships with other oil and gas companies having
greater technical and financial resources to assist the Company in leveraging
its interests in the EEZ and the JDZ. The Company currently has no other
operations.
In May 1997, the Company entered into an exclusive joint venture with the DRSTP
("the 1997 Agreement"). The 1997 Agreement required the Company to pay a
$5,000,000 concession fee to the Sao Tome government. On May 21, 2001, the
Company and the DRSTP reached a Memorandum of Agreement ("2001 Agreement"),
witnessed by the FRN which replaced the 1997 Agreement and suspended the
arbitration process. In July 2002, the 2001 Agreement was embodied in a Consent
Award issued by the arbitrator as a result of the satisfaction of several
conditions, including the ratification of a treaty between the FRN and the DRSTP
relative to the JDZ between the countries, and will remain in effect through
September 30, 2024.
The 2001 Agreement gives the Company rights to participate in exploration and
production activities in both the EEZ and the JDZ.
In April 2003, the Company and DRSTP entered into an Option Agreement ("the 2003
Option Agreement") in which the Company relinquished certain financial interests
in the JDZ in exchange for additional exploration rights in the JDZ. In April
2003, the Company entered into an Administration Agreement with the JDA. The
Administration Agreement is the formal agreement by the JDA that it will fully
implement the ERHC preferential rights to acreage interests in the JDZ as set
5
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
forth in the 2003 Option Agreement and describes certain procedures regarding
the exercising of these rights. The Company retains exploration rights in the
EEZ via the 2001 Agreement and has acquired additional exploration rights in the
JDZ via the 2003 Option Agreement. The Company currently has no other
operations.
CHANGES IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to filing the Form 10-Q for the quarterly period ended June 30, 2004,
management of the Company determined that the beneficial conversion feature of
the Company's convertible debt, shareholder had not been appropriately valued
and accounted for. The following describes the appropriate accounting and the
changes made to the Company's financial statements as of and for the three and
nine months ended June 30, 2004.
In February 2001, the Company entered into a $5 million convertible line of
credit facility (the "Credit Facility"). The outstanding principal balance and
accrued interest balance of the Credit Facility is convertible into common stock
at the option of the holder. The intrinsic value of the conversion feature of
the Credit Facility normally is characterized as a beneficial conversion
feature. The Company determined the intrinsic value of the beneficial conversion
feature associated with current period borrowings under the Credit Facility for
the nine months ended June 30, 2004 to be $785,521 which was recorded as an
adjustment to additional paid in capital and as debt discount. The beneficial
conversion feature is amortized using the effective interest method until the
maturity date of the Credit Facility. For the three and nine months ended June
30, 2004, the amortization of the debt discount was $130,072 and $382,162,
respectively.
Accordingly, the accompanying statements of operations for the three and nine
months ended June 30, 2004, the statement of cash flows for the nine months
ended June 30, 2004, and the balance sheet as of June 30, 2004 has been restated
from amounts previously reported to correct the accounting for these
transactions. The Company has recorded a beneficial conversion feature (debt
discount) associated with its Credit Facility. Amortization of the debt discount
is being accounted for using the effective interest method and is being charged
to interest expense.
The impact of the restatement is summarized as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------ ------------------------------
2004 2004 2004 2004
------------- ------------- ------------- -------------
(as reported) (restated) (as reported) (restated)
Statement of Operations
Interest expense $ 256,702 $ 386,774 $ 780,785 $ 1,162,947
Net loss (749,305) (879,377) (2,199,777) (2,581,939)
Net loss per common
Share - basic and diluted $ -- $ -- $ -- $ --
Basic and diluted weighted
average number of common
shares outstanding 598,621,411 598,621,411 592,328,685 592,328,685
6
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30,
----------------------------
2004 2004
----------- ------------
(as reported) (restated)
Balance Sheet
Current portion of convertible debt
shareholder, net of discount $ 9,222,441 $ 8,819,082
Total current liabilities $ 15,317,442 $ 14,914,083
Additional paid in capital $ 57,439,867 $ 58,225,388
Accumulated deficit $(66,743,622) $(67,125,784)
Total shareholders' deficit $ (9,243,828) $ (8,840,469)
Total liabilities and shareholders'
deficit $ 6,073,614 $ 6,073,614
Concentration of Risk
The Company's only assets are agreements with DRSTP and the JDA which provide
ERHC with rights to participate in exploration and production activities in the
Gulf of Guinea off the coast of central West Africa. This geographic area of
interest is controlled by foreign governments that have historically experienced
volatility, which is out of management's control. The Company's ability to
exploit its interests in the agreements in this area may be impacted by this
circumstance.
Impairment of Long Lived Assets
On a quarterly basis, the Company assesses impairment in value of long-lived
assets and certain identifiable intangibles to be held and used. The Company
evaluates the possibility of impairment by comparing anticipated undiscounted
cash flows to the carrying amount of the related long-lived assets. If such cash
flows are less than carrying value, the Company then reduces the asset to its
fair value using an estimate of recoverability on a discounted cash flow basis.
Various factors such as anticipated cash flows and proceeds from a sale or
proceeds expected to be realized from third party participation in development
opportunities are part of this analysis. Since the Company's only asset is its
JDZ/EEZ Concession any change in the terms of these agreements may also impact
the future recoverability of this asset. Future results could differ from the
Company's projections with a resulting impairment adjustment recorded to expense
in such period. As of June 30, 2004, there have been no events or circumstances
that would require an impairment of the Company's JDZ/EEZ Concession.
SAO TOME CONCESSION
Concession Fee Payment
The 1997 Agreement required the Company to pay a $5,000,000 concession fee to
the DRSTP.
In October 1999, the DRSTP claimed that the Company had breached certain terms
of the 1997 Agreement and announced a termination of the Agreement. The Company
immediately exercised its rights to have the matter settled via international
arbitration in accordance with the terms of the 1997 Agreement.
7
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
Concession Fee Agreement
After the acquisition by Chrome in February 2001, the Company initiated
negotiations with the DRSTP concurrent with the arbitration process. On May 21,
2001, the Company and the DRSTP reached the 2001 Agreement, witnessed by the FRN
which replaced the 1997 Agreement and suspended the arbitration process. In July
2002, the 2001 Agreement was embodied in a Consent Award issued by the
arbitrator as a result of the satisfaction of several conditions, including the
ratification of a treaty between the FRN and the DRSTP relative to the JDZ
between the countries, and will remain in effect through September 30, 2024.
The 2001 Agreement gives ERHC rights to participate in exploration and
production activities in both the EEZ of the DRSTP and an area between DRSTP and
the FRN that the two nations have designated as a JDZ. Since the 2001 Agreement
replaces the 1997 Agreement, it requires the Company to relinquish its rights
arising under the 1997 Agreement including any interest it had in STPetro, S.A.
the national petroleum company of the DRSTP in which the Company previously
owned a 49% equity interest ("STPetro").
The 2003 Option Agreement gives ERHC rights to participate in exploration and
production activities in the JDZ in exchange for relinquishing its rights to
participate in exploration and production activities in the JDZ granted under
the 2001 Agreement. ERHC received the following rights under the 2003 Option
Agreement:
ERHC may exercise options to acquire fractional working interests in
six (6) of the nine (9) blocks that have been announced by the JDA will
be available for bidding in the JDZ. A block is an area designated as
an individual unit for exploration or production of crude oil and
natural gas. These options must be exercised in sequence and are
subject to certain restrictions of choice. Additionally, the amount of
signature bonus that is payable by ERHC to acquire these working
interests is zero in four (4) blocks. ERHC must pay its proportionate
share of any signature bonuses in two (2) blocks. Specifically, the
percentages and signature bonuses payable in each option pick are as
follows:
Working Interest
Option Pick Percentage Signature Bonus Payable
----------- ------------------- -----------------------
ERHC Choice 1 15% $0
ERHC Choice 2 15% 100% of 15% of the total Signature Bonus
ERHC Choice 3 20% $0
ERHC Choice 4 30% $0
ERHC Choice 5 25% $0
ERHC Choice 6 20% 100% of 20% of the total Signature Bonus
On March 29, 2004, the Company received a Notification On Exercise of
Preferential Rights in the JDZ from the JDA inviting the Company to exercise its
preferential rights in the JDZ.
On April 20, 2004 the Company exercised its preferential rights in the JDZ under
the April 7, 2003 Administration Agreement with the JDA. The following
represents the choices made by the Company and the status of any Signature Bonus
payable by the Company for each relevant block:
8
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
Choice 1 15% Signature Bonus Bonus Free Block 6
Choice 2 15% Signature Bonus Bonus Payable Block 5
Choice 3 20% Signature Bonus Bonus Free Block 3
Choice 4 30% Signature Bonus Bonus Free Block 2
Choice 5 25% Signature Bonus Bonus Free Block 4
Choice 6 15% Signature Bonus Bonus Payable Block 9
This exercise of the Company's rights was subject to the following condition: if
no license is awarded or a license is awarded and subsequently withdrawn by the
JDA prior to the commencement of operations, for any reason (for example, a
failure by the licensee(s) to meet the signature bonus conditions), the Company
will be entitled to receive its nominated percentage working interest in that
block in any future licensing of that block.
At meetings on April 23 and 24, 2004, the Joint Ministerial Council ("JMC") of
the JDA acknowledged the Company's option selections for award of interests
pursuant to the exercise of rights under the April 7, 2003 Administration
Agreement. They subsequently issued a Press Statement.
The full text of the Press Statement released by the JMC at the close of its
meeting is as follows:
PRESS STATEMENT
The Joint Ministerial Council (JMC) of the Nigeria-Sao Tome and
Principe Joint Development Authority (JDA) met in Abuja on the 23rd and
24th of April 2004.
2. During the Meeting, the JMC deliberated amongst other things
on the results of the 2003 JDZ Licensing Round.
3. The JMC noted the exercise of options by ExxonMobil and ERHC
based on their respective Settlement Agreement with the
Democratic Republic of Sao Tome and Principe (DRSTP).
4. Subsequent to its deliberation, the JMC has approved the
results of the 2003 JDZ Licensing Round for Block 1 as
follows:
Chevron Texaco; 51%
ExxonMobil; 40%
EER; 9%
The JMC also approved Chevron as operator for the block.
5. The JMC will deliberate further on the results for the other
blocks and decisions will be communicated in due course.
6. The JMC also approved the 2004 Budget for the JDA.
7. The next meeting of the JMC will hold in Sao Tome in 3 weeks'
time.
Abuja, 24 April 2004"
9
On June 24, 2004 the Company entered into a Memorandum of Understanding with
Pioneer Natural Resources USA, Inc., the wholly-owned subsidiary of Pioneer
Natural Resources Company ("Pioneer") for Block 2 of the JDZ in the Gulf of
Guinea offshore West Africa. The Memorandum of Understanding ("MOU") provides a
period of exclusivity whereby the companies will jointly evaluate and negotiate
participation in Block 2 of the JDZ. The MOU also sets forth the terms and
conditions under which the companies will enter into a Participation Agreement
relating to Block 2 of the JDZ. Pioneer is a large independent oil and natural
gas exploration and production company with operations in the United States,
Canada, Argentina, South Africa, Gabon and Tunisia. See Note 7.
Pursuant to the 2003 Option Agreement, ERHC agreed to relinquish the following
rights previously granted under the 2001 Agreement:
o 10% of the DRSTP share of all Profit Oil received from
operations conducted in the JDZ.
o 5% of the DRSTP share of all Signature Bonuses paid by
contractors operating within the JDZ.
o A 1.5% overriding royalty interest in all the production of
crude oil and natural gas in the JDZ.
o The option to acquire up to a 15% working interest in up to
two blocks of the Company's choice in the JDZ.
However, ERHC retained under the 2001 Agreement the following rights to
participate in exploration and production activities in the EEZ subject to
certain restrictions: (a) right to receive up to two blocks of ERHC's choice,
and (b) the option to acquire up to a 15% paid working interest in up to two
blocks of ERHC's choice in the EEZ. The Company would be required to pay its
proportionate share of the signature bonus and all other costs related to the
exploration and exploitation of the blocks in the EEZ. The above is only a brief
summary of the terms of the 2001 Agreement and the 2003 Option Agreement and
such summaries do not purport to be complete and are qualified in their entirety
by reference to the text of the 2001 Agreement and 2003 Option Agreement,
respectively (any and all related documents). The 2001 Agreement and 2003 Option
Agreement have been filed with the SEC and are available on the U.S. Securities
and Exchange Commission's ("SEC") web site at www.sec.gov.
NOTE 2 - GOING CONCERN
The Company's auditor issued a going concern opinion in connection with the
audit of the Company's financial statements as of September 30, 2003. The
Company's current liabilities exceed its current assets by $14,519,469 at June
30, 2004. For the nine months ended June 30, 2004, the Company's net loss was
$2,581,939. The Company has incurred net losses of $3,153,882 and $4,084,210 in
the fiscal years 2003 and 2002, respectively. These conditions raise substantial
doubt as to the ability of the Company to continue as a going concern. The
Company is in ongoing negotiations to raise general operating funds and funds
for specific projects. Management will be required to, and expects to, raise
additional capital through the issuance of debt securities and offerings of
equity securities to fund the Company's operations, and will attempt to continue
raising capital resources until such time as the Company generates revenues
sufficient to maintain itself as a viable entity. However, there is no assurance
that such financing will be obtained.
10
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
The Company's current focus is to exploit its only assets, which are agreements
with the DRSTP concerning oil and gas exploration in Sao Tome, an island nation
located in the Gulf of Guinea off the coast of central West Africa, and in a JDZ
between Sao Tome and the FRN. The Company intends to explore forming
relationships with other oil and gas companies having technical and financial
capabilities to assist the Company in leveraging its interests in Sao Tome and
the JDZ. Should circumstances impede the Company from perfecting its interests
in the 2001 Agreement or the 2003 Option Agreement with DRSTP, the Company would
have only nominal assets. Even if the Company perfects its interests in the 2001
Agreement and the 2003 Option Agreement, there is no certainty that a joint
venture partner will be identified to develop the Company's interests. The
Company currently has no other operations.
The Company has a total of $6.8 million available under debt agreements of
$1,800,000 and $5,000,000, respectively, entered into by and between the Company
and Chrome (its majority shareholder). The Company has drawn the full amount of
the $1,800,000, and has drawn $3,786,462 of the $5,000,000, working capital line
of credit, for a total outstanding of $5,586,462 as of June 30, 2004. The
Company anticipates the unused balance under these debt agreements will provide
sufficient working capital through fiscal 2004. It is expected that the Company
will continue to borrow funds from Chrome in the future but there is no
assurance that funds will be made available or under similar terms. In prior
years, the Company was able to raise funds in a timely manner, but there is no
assurance that it will continue to do so in the future. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. If the Company is unable to continue as a going concern, the
values realized from the Company's assets may be less than the carrying amounts
reported in its financial statements. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
NOTE 3 - DEBT
During the nine months ended June 30, 2004, the Company received notice of
conversion of $1,556,198 of convertible debt and accrued interest of $88,867,
which were converted into 8,225,330 shares of common stock.
On January 26, 2004, the Company solicited the consent of non-affiliated
convertible noteholders to pay interest due on January 31, 2004 with common
stock of the Company having a value equal to $0.20 per share and to extend the
maturity of the principal due January 31, 2004 for one year to mature on January
31, 2005. During the quarter ended March 31, 2004, the Company received approval
from convertible noteholders to extend the maturity of the principal due January
31, 2004 for one year to mature on January 31, 2005.
During the quarter ended March 31, 2004, the Company issued 506,870 shares of
common stock to these non-affiliated convertible noteholders and 852,853 shares
of common stock to Chrome for payment of accrued interest in the aggregate
amounts of $101,374 and $170,571, respectively. Also, during the quarter ended
March 31, 2004, the Company issued 1,600,000 shares of common stock to Chrome
for payment of accrued interest in the aggregate amount of $320,000 on other
convertible notes.
In February 2004, the Company extended the maturity on the $5.0 million senior
convertible promissory note with Chrome to February 15, 2005 under similar
terms. All principal and interest is due at maturity.
The Company's line of credit can be converted into the Company's common stock at
a conversion price of $0.20 per share. From time to time during the three and
11
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
nine months ended June 30, 2004, the market price of the Company's common stock
exceeded the conversion price, and as such there exists a beneficial conversion
to the holder of the line of credit when the credit facility is drawn upon.
Accordingly, as of June 30, 2004, a beneficial conversion feature amount
totaling $785,521 has been recorded as an adjustment to additional
paid-in-capital and a corresponding amount recorded as debt discount that is
being amortized to interest expense over the life of the notes using the
effective interest method. During the three and nine months ended June 30, 2004,
amortization of the debt discount was $130,072 and $382,162, respectively, which
is recorded as interest expense.
NOTE 4 - EQUITY
During November 2003, the Company issued 1,000,000 shares of common stock for
which the Company had previously received proceeds of $250,000 in September of
2003.
During October and December 2003, the Company issued 5,334,171 shares of common
stock to three creditors for the conversion of debt and payment of accrued
interest in the aggregate amount of $1,066,834 (see Note 3).
During October 2003, the Company issued 187,500 shares of common stock to one
creditor for an accounts payable balance in the aggregate amount of $60,991.
During October 2003, the Company received proceeds of $250,000 from stock
subscription agreements for 1,000,000 shares of common stock at $0.25 per share
including 1,000,000 warrants with an exercise price of $0.50 per share expiring
in October 2007. The shares were issued in January 2004.
During January 2004, the Company received proceeds of $250,000 from stock
subscription agreements for 1,100,000 shares of common stock at $0.23 per share
including 1,100,000 warrants with an exercise price of $0.50 per share expiring
in January 2008. The shares were issued in March 2004.
During January 2004, the Company issued 2,742,259 shares of common stock to one
creditor for the conversion of debt and payment of accrued interest in the
aggregate amount of $548,451 (see Note 3).
During February 2004, the Company issued 2,959,723 shares of common stock to
nine creditors for payment of accrued interest in the aggregate amount of
$591,945 (see Note 3).
During March 2004, the Company issued 835,139 shares of common stock to two
creditors for accounts payable balances in the aggregate amount of $230,710.
During April 2004, the Company received proceeds of $500,000 from stock
subscription agreements for 1,131,940 shares of common stock including 1,131,940
warrants with an exercise price of $0.55 per share expiring in April, 2008.
During April 2004, the Company issued 148,900 shares of common stock to one
creditor for the conversion of debt and payment of accrued interest in the
aggregate amount of $29,780 (see Note 3).
NOTE 5 - OTHER INCOME
During April 2004, the Company received net proceeds of $163,796 from an
insurance claim in connection with the 2001 Derivative Settlement.
12
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - PENDING LITIGATION AND OTHER CONTINGENCIES
During February 2001, the Company underwent a change of control. Following the
change of control of the Company, new management and the new board of directors
have been required to expend significant Company resources to settle claims and
expenses arising out of the conduct of prior management. In addition, the
Company faces additional unresolved claims and disputes, including suits seeking
recoveries in excess of $1.0 million brought by former employees and former
officers for back salary and other amounts. The Company is defending its
position vigorously, but there is no certainty that the Company will prevail.
The Company is proceeding in the hope that a settlement can be reached. As of
June 30, 2004, officers' salaries of $723,035 have been accrued and management
believes this amount will be sufficient to settle any amounts that may be due.
Additionally, from time to time, certain potential obligations are presented to
the Company that may have originated during periods not under current
management's control. These alleged obligations are generally for goods and
services that were provided during periods prior to February 15, 2001 (the
effective date of the Purchase Agreement and resulting change in control of the
Company) for which the Company has no record. The Company actively investigates
these claims as they arise. All known material obligations of the Company have
been recorded and reflected in the financial statements, but there is no
certainty that all material claims have been presented to the Company nor have
the benefits of available statutes of limitations been considered, should they
apply.
Commitments
The Company entered into a management services agreement with Chrome Oil
Services, Ltd ("COS") in February 2001. Pursuant to that agreement, COS provides
the Company with management and business development services in addition to
providing specialized services in the areas of refinery maintenance, engineering
design, and upstream oil industry services. COS provides these services to the
Company for a management fee of $68,000 per month. Messrs. Mba, Echesi, Okpala
and Ntephe are employees of COS and provide services to the Company. They
receive salaries and overhead expense reimbursement from COS, not from the
Company. Expenses not covered by the management services agreement are paid by
the Company, which include primarily general office supplies. This agreement has
no expiration date but does expire 30 days following the delivery of a written
notice of termination by either party.
During each of the three and nine month periods ended June 30, 2004 and 2003,
total expense incurred under this management services agreement was $204,000 and
$612,000, respectively. The Company's executive officers incurred direct travel
and related expenses of approximately $120,000 and $319,000 during the three and
nine months ended June 30, 2004, respectively, which were reimbursed to COS or
directly to the officers. The comparable amounts for the three and nine month
periods ended June 30, 2003 were approximately $150,000 and $303,000,
respectively. At June 30, 2004 and September 30, 2003, accounts payable and
other accrued liabilities included approximately $1,000 and $9,000,
respectively, owed to one officer for direct travel and related expenses.
The Company's Houston, Texas office is leased by COS, and is provided to the
Company pursuant to the management services agreement. This lease, for
approximately 1,900 sq. ft. of office space, expires in February 2006.
The Company has not entered into any employment agreements with its officers and
directors. To date, members of the board of directors have not received any
13
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
compensation, but have been reimbursed for expenses incurred in the performance
of their duties. In the future, the Company may decide to pay its directors.
COS currently has three officers and support staff that provide services to the
Company pursuant to the management services agreement with COS.
In May 2002, the Company entered into an agreement with a consulting group to
advise the Company in securing financing of up to $1,500,000 and in structuring
a joint venture arrangement with a partner. The Company was required to pay an
initial fee of 1,000,000 shares of common stock as well as to reimburse the
consultant for out of pocket expenses. In addition, the Company is obligated to
pay a fee equal to 2.5% of the amount of capital raised and an additional fee of
2,000,000 shares of common stock contingent upon the successful first closing of
a joint venture transaction. During the nine months ended June 30, 2004, the
consulting group assisted the Company in selling 3,231,940 shares of common
stock at an average price of $0.30 per share resulting in net proceeds of
$975,000. During the year ended September 30, 2003, this consulting group
assisted the Company in selling 7,840,000 shares of common stock at prices
ranging from $0.10 to $0.30 per share resulting in net proceeds of $1,072,500.
During the three and nine month periods ended June 30, 2004, total expenses
incurred under this consulting agreement were $27,462, of which $25,000 was
charged against additional paid-in capital. During the three and nine month
periods ended June 30, 2003, total expenses incurred under this consulting
agreement were $6,250 and $21,250, respectively, all of which was charged
against additional paid-in capital. The agreement has an indefinite term
extending through the successful first closing of a joint venture transaction
but expiring upon seven-day written notice of termination by either party,
without penalty to either party.
In June 2002, the Company entered into an agreement with a consultant to assist
the Company in securing an agreement with a strategic oil and gas industry
partner to prepare the Company for participation in the award of licenses in Sao
Tome. The Company was required to pay an initial fee of 1,000,000 shares of
common stock as well as to reimburse the consultant for out of pocket expenses.
In addition, the Company is obligated to pay fees equal to: (a) 2% of the cash
proceeds received by the Company from a partner, (b) 1% of future carried costs
paid by the partner and (c) 3,000,000 shares of common stock contingent upon the
successful first closing of a transaction. During the three and nine month
periods ended June 30, 2004, no expenses were incurred under this consulting
agreement. During the three and nine month periods ended June 30, 2003,
approximately $2,600 in expenses were incurred under this consulting agreement.
The agreement was terminated in June 2004 except for certain future transactions
which may require payment of the contingency.
During May 2003, the Company entered into an agreement with a consultant to
provide general consulting services to the Company including transaction
support, evaluation of geological and seismic data, preparation of valuations
and participation in meetings with potential partners or purchasers of the
Company in connection with its oil and gas interests in the JDZ and the EEZ. The
terms of the original agreement provided for monthly payments of $10,000 for
twelve months beginning September 2003. In addition, the agreement provided for
a success fee of $50,000 should the Company close a transaction for the sale of
its interest in the JDZ or the EEZ. During July 2004, the Company revised the
agreement to a month-to-month arrangement effective June 1, 2004. In addition,
the revised agreement provides for an additional success fee of 500,000 shares
of common stock. During the three and nine month periods ended June 30, 2004,
total expenses incurred under this consulting agreement were $47,472 and
$115,501, respectively. During the three and nine month periods ended June 30,
2003, no expenses were incurred under this consulting agreement.
14
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - SUBSEQUENT EVENTS
During July 2004, the Company issued 50,000 shares of common stock to one
creditor for an accounts payable balance in the aggregate amount of $24,500.
During July 2004, the Company issued 247,882 shares for the cashless exercise of
a warrant for 375,000 shares exercisable at $0.20 per share.
During July 2004, the Company agreed to issue 250,000 shares to a consultant for
an accounts payable balance in the aggregate amount of $148,750.
During July 2004, the Company agreed to issue 250,000 shares of common stock and
pay $40,000 to the wife of a former officer of the company to settle a
previously filed lawsuit. The settlement amount is covered by accrued officers
salaries at June 30, 2004.
During July 2004, the Company agreed to issue 135,875 shares of common stock to
seven plaintiffs to settle a previously filed lawsuit in the aggregate amount of
$27,175.
During July 2004, Chude Mba resigned as Chief Executive Officer of the Company.
Effective August 1, 2004 the Company appointed Ali Memon as President and Chief
Executive Officer. The Company entered into an employment agreement with Mr.
Memon which provides for an annual base salary of $150,000 and the issuance of
stock options for 3,000,000 shares of common stock at $0.30 per share, of which
1,000,000 shall vest September 1, 2004 and 1,000,000 shall vest on August 1,
2005 and 2006. Since the exercise price of the options was less than the fair
market value on the date of grant, the intrinsic value of the options is
$765,000, which will be amortized to compensation expense over the vesting
period.
On August 11, 2004 the Company entered into a Participation Agreement with
Pioneer which sets forth the terms and conditions whereby the companies will
jointly evaluate and negotiate participation in Block 2 of the JDZ.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
You must read the following discussion of the plan of the operations and
financial condition of the Company in conjunction with its financial statements,
including the notes included in this Form 10-Q/A filing. The Company's
historical results are not necessarily an indication of trends in operating
results for any future period.
OVERVIEW
ERHC is an independent oil and gas company and since 1996 has engaged in the
exploration, development, production and sale of crude oil and natural gas
properties. The Company's goal is to maximize its value through profitable
growth in oil and gas reserves and production in the Gulf of Guinea off the
coast of central West Africa and to acquire interests in non-producing oil and
gas properties, particularly high potential international prospects in known oil
and natural gas producing areas. The Company's current focus is to exploit its
only assets, which are agreements with the Democratic Republic of Sao Tome and
Principe ("DRSTP") concerning oil and gas exploration in Sao Tome, an island
nation located in the Gulf of Guinea off the coast of central West Africa, and
in a Joint Development Zone ("JDZ") between Sao Tome and the Federal Republic of
Nigeria ("FRN"). The Company currently has no other operations.
RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2004 COMPARED TO JUNE 30, 2003
During the three and nine month periods ended June 30, 2004, the Company
incurred a net loss of $879,377 and $2,581,939, respectively, compared to a net
loss of $875,449 and $2,323,224, respectively, for the same periods a year ago.
During February 2001, the Company negotiated a management services agreement
with Chrome Oil Services Ltd. ("COS") whereby the Company would pay a monthly
management fee of $68,000 for various services to be provided by COS inclusive
of all general office expenses incurred. Total expense incurred under this
management services agreement was $204,000 and $612,000, respectively, for each
of the three and nine month periods ended June 30, 2004 and 2003. In addition,
the Company's executive officers incurred direct travel and related expenses of
approximately $120,000 and $319,000 during the three and nine months ended June
30, 2004, respectively. The comparable amounts for the three and nine month
periods ended June 30, 2003 were approximately $150,000 and $303,000,
respectively. During the three month period ended June 30, 2004, management of
COS continued negotiations with officials of the FRN and DRSTP and made trips to
the United States while managing the ongoing affairs of the Company. The Company
anticipates travel related expenses to continue to be significant as the Company
further develops its business interests.
During the three and nine month periods ended June 30, 2004 general and
administrative expense increased by approximately $149,000 and $184,000,
respectively, over the comparable amounts in 2003 because of higher JDA bid fees
and expenses.
During the three and nine month periods ended June 30, 2004, interest expense
increased by approximately $81,000 and $231,000, respectively, compared to the
comparable periods in 2003. This increase was primarily due to $130,072 and
$382,162, respectively, of amortization of the debt discount associated with the
beneficial conversion on convertible debt, shareholder for the three and nine
months ended June 30, 2004. The overall increase was also attributable to an
increase of approximately $20,000 and $60,000, respectively, on shareholder debt
because of increased borrowings under the $5,000,000 line of credit. This
increase was offset by a decrease in interest expense on the convertible debt of
approximately $69,000 and $220,000, respectively, during the three and nine
month periods ended June 30, 2004 compared to the comparable periods in 2003
because of substantially lower average debt levels.
16
During the three and nine month periods ended June 30, 2004 other income
increased by $163,796 as a result of receipt of net proceeds from an insurance
claim in connection with the 2001 Derivative Settlement. There was no comparable
amount in 2003.
During the three and nine month periods ended June 30, 2004 and 2003,
respectively, the Company had no revenues from which cash flows could be
generated to support operations and thus relied entirely on borrowings funded
from its working capital lines of credit provided by Chrome Energy, LLC, the
Company's majority shareholder ("Chrome").
GOING CONCERN
The Company's auditor issued a going concern opinion in connection with the
audit of the Company's financial statements as of September 30, 2003. The
Company's current liabilities exceed its current assets by $14,519,469 at June
30, 2004. For the nine months ended June 30, 2004, the Company's net loss was
$2,581,939. The Company has incurred net losses of $3,153,882 and $4,084,210 in
the fiscal years 2003 and 2002, respectively. These conditions raise substantial
doubt as to the ability of the Company to continue as a going concern. The
Company is in ongoing negotiations to raise general operating funds and funds
for specific projects. Management will be required to, and expects to, raise
additional capital through the issuance of debt securities and offerings of
equity securities to fund the Company's operations, and will attempt to continue
raising capital resources until such time as the Company generates revenues
sufficient to maintain itself as a viable entity. However, there is no assurance
that such financing will be obtained.
The Company's current focus is to exploit its only assets, which are agreements
with the DRSTP concerning oil and gas exploration in Sao Tome and in the JDZ.
The Company intends to explore forming relationships with other oil and gas
companies having greater technical and financial resources to assist the Company
in leveraging its interests in Sao Tome and the JDZ. Should circumstances impede
the Company from perfecting its interests in the 2001 Agreement or the 2003
Option Agreement with DRSTP, the Company would have only nominal assets. Even if
the Company perfects its interests in the 2001 Agreement and the 2003 Option
Agreement, there is no certainty that a joint venture partner will be identified
to develop the Company's interests. The Company currently has no other
operations.
The Company has a total of $6.8 million available under debt agreements of
$1,800,000 and $5,000,000, respectively, entered into by and between the Company
and Chrome. The Company has drawn the full amount of the $1,800,000, and has
drawn $3,786,462 of the $5,000,000, working capital line of credit, for a total
outstanding of $5,586,462 as of June 30, 2004. The Company anticipates the
unused balance under this line of credit will provide sufficient working capital
through fiscal 2004. It is expected that the Company will continue to borrow
funds from Chrome in the future but there is no assurance that funds will be
made available or under similar terms. In prior years, the Company was able to
raise funds in a timely manner, but there is no assurance that it will continue
to do so in the future. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. If the Company is
unable to continue as a going concern, the values realized from the Company's
assets may be less than the carrying amounts reported in its financial
statements. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
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 exchange for
goods and services) and bank and other debt. The Company had expected to finance
its operations and further development plans during fiscal 2004 and 2003 in part
through additional debt or equity capital and in part through cash flow from
operations. There have been no cash flows generated from operations in the past
two years and the Company has been able to raise additional equity capital of
17
$975,000 during the nine months ended June 30, 2004 and $1,072,500 in fiscal
2003 from the sales of its common stock under private placements, net of
expenses.
Therefore, during the nine months ended June 30, 2004 and fiscal year 2003 the
Company has relied entirely on 1) borrowings provided under various debt
agreements entered into by and between the Company and its majority shareholder
Chrome, 2) conversions of interest and principal due on its convertible notes by
the issuance of common stock and 3) proceeds generated from the sale of its
common stock under private placements.
The Company presently intends to utilize any available sources of cash funds to
provide for general corporate overhead and to continue to pursue its interests
under the 2001 Agreement and the 2003 Option Agreement.
The Company is in ongoing negotiations to raise general operating cash funds and
funds for specific projects. Management will be required to, and expects to,
raise additional capital through the issuance of debt securities and offerings
of equity securities to fund the Company's operations, and will attempt to
continue raising capital resources until such time as the Company generates
revenues sufficient to maintain itself as a viable entity. However, there is no
assurance that such financing will be obtained.
In May 2002, the Company entered into an agreement with a consulting group to
advise the Company in securing financing of up to $1,500,000 and in structuring
a joint venture arrangement with a partner. During the nine months ended June
30, 2004, the consulting group assisted the Company in selling 3,231,940 shares
of common stock at an average price of $0.30 per share resulting in net proceeds
of $975,000. During the year ended September 30, 2003, the consulting group
assisted the Company in selling 7,840,000 shares of common stock at prices
ranging from $0.10 to $0.30 per share, of which 1,000,000 shares were not issued
until November 2003, resulting in net proceeds of $1,072,500.
As of August 6, 2004, the Company had borrowed approximately $3,799,000 against
its $5.0 million working capital line of credit from Chrome. It is expected that
the Company will continue to borrow funds under this working capital line of
credit in the future but there is no assurance that funds will be made available
or under similar terms. Chrome is not obligated to provide future borrowings in
excess of its existing committed lending obligations. In prior years, the
Company was able to raise funds in a timely manner, but there is no assurance
that it will continue to do so in the future.
WORKING CAPITAL
As of June 30, 2004, the Company had negative working capital of $14,519,469 of
which $2,060,724 relates to accrued interest and $723,035 relates to accrued
officers salaries, both of which will most likely be settled by the issuance of
shares of common stock of the Company. As of June 30, 2004, the Company had
drawn the full amount available of $1,800,000 under one working capital line of
credit and $3,231,940 had been advanced to the Company under another $5,000,000
working capital line credit with Chrome. As of August 6, 2004, the Company had
borrowed approximately $3,799,000 under this working capital line of credit.
This working capital line of credit is convertible into shares of Common Stock
at a rate of $0.20 per share.
The Company intends to utilize any available sources of cash funds to provide
for general corporate overhead and to pursue its interests under the 2001
Agreement and the 2003 Option Agreement.
18
SIGNIFICANT ACCOUNTING POLICIES
Impairment of Long Lived Assets
On a quarterly basis, the Company assesses impairment in value of long-lived
assets and certain identifiable intangibles to be held and used. The Company
evaluates the possibility of impairment by comparing anticipated undiscounted
cash flows to the carrying amount of the related long-lived assets. If such cash
flows are less than carrying value, the Company then reduces the asset to its
fair value using an estimate of recoverability on a discounted cash flow basis.
Various factors such as anticipated cash flows and proceeds from a sale or
proceeds expected to be realized from third party participation in development
opportunities are part of this analysis. Since the Company's only asset is its
JDZ/EEZ Concession any change in the terms of these agreements may also impact
the future recoverability of this asset. Future results could differ from the
Company's projections with a resulting adjustment to income in such period. As
of June 30, 2004 there have been no events or circumstances that would require
an impairment of the Company's JDZ/EEZ Concession.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's current operations focus on exploiting its rights to participate
in exploration and production activities in the territorial waters of Sao Tome
(the "EEZ") and in the JDZ. The Company intends to explore forming relationships
with other oil and gas companies with greater technical and financial resources
to assist the Company in leveraging its interests. Should circumstances impede
the Company from perfecting its interests in the 2001 Agreement or the 2003
Option Agreement, the Company would have only nominal assets. Even if the
Company perfects its interests in the 2001 Agreement and the 2003 Option
Agreement, there is no certainty that a joint venture partner will be identified
to develop the Company's interests. The Company currently has no other
operations. Currently we transact business almost exclusively in the United
States. As a result, our financial statement results are unlikely to be affected
significantly by factors such as changes in foreign currency exchange rates or
weak economic conditions in foreign markets.
The Company's only assets are agreements with DRSTP and the JDA which provide
ERHC with rights to participate in exploration and production activities in the
Gulf of Guinea off the coast of central West Africa. This geographic area of
interest is controlled by foreign governments that have historically experienced
volatility, which is out of management's control. The Company's ability to
exploit its interests in the concession may be impacted by this circumstance.
Our interest expense is generally not sensitive to changes in the general level
of interest rates in the United States because all of our indebtedness is at
fixed rates.
We do not hold derivative financial or commodity instruments, nor do we engage
in any foreign currency denominated transactions.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and the participation of the
Company's management including the Chairman, Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"), of the effectiveness of the design and
operation of the Company's disclosure controls and procedures within 90 days of
the filing date of this Quarterly Report on Form 10-Q/A. Based on that
evaluation, the Company's management, including the Chairman, CEO and CFO
concluded that the Company's disclosure controls and procedures were effective.
During the fourth quarter of 2004 the Company identified that it had not
correctly considered the beneficial conversion feature imbedded within its
convertible debt instruments and a material adjustment was required that
affected its quarterly results of operations. Management has put in place
appropriate controls to mitigate this event from occurring in future periods.
19
FORWARD LOOKING STATEMENTS
Except for historical information contained herein, certain other matters
discussed herein are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, that address future
activities, events or developments, including such things as future revenues,
product development, market acceptance, responses from competitors, capital
expenditures (including the amount and nature thereof), business strategy and
measures to implement strategy, competitive strengths, goals, expansion and
growth of the Company's business and operations, plans, references to future
success and other such matters, are forward-looking statements.
The words "anticipates," "believes," "estimates," "expects," "plans," "intends,"
"should," "seek," "will," and similar expressions are intended to identify these
forward-looking statements, but are not the exclusive means of identifying them.
These statements are based on certain historical trends, current conditions and
expected future developments as well as other factors we believe are appropriate
in the circumstances. However, whether actual results will conform to our
expectations and predictions is subject to a number of risks and uncertainties
that may cause actual results to differ materially, our success or failure to
implement our business strategy, our ability to successfully market our on-line
location, tracking and logistics management concept, changes in consumer demand,
changes in general economic conditions, the opportunities (or lack thereof) that
may be presented to and pursued by us, changes in laws or regulations, changes
in technology, the rate of acceptance of the Internet as a commercial vehicle,
competition in the online logistics management business and other factors, many
of which are beyond our control. Consequently, all of the forward-looking
statements made in this Report are qualified by these cautionary statements and
there can be no assurance that the actual results we anticipate will be realized
or, even if substantially realized, that they will have the expected
consequences to or effects on us or our business or operations. We assume no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
20
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as described below, the Company is not aware of any other material legal
proceedings pending to which it is a party or its property is subject. From time
to time, the Company may be subject to proceedings, lawsuits and other claims in
the ordinary course of business, the resolution of which, in the opinion of
management should not have a materially adverse effect on the Company's
financial position. The Company is opposing vigorously each of the claims
discussed below and intends to continue to do so unless an agreeable resolution
may otherwise be secured with regard to each such claim.
Sam L. Bass, Jr. v. ERHC . U.S. District Court, Western District of Louisiana,
No. 6:99CV1668. This case was commenced in 1999 by a former officer and director
of the Company, asserting claims for past due salaries, penalty wages and
attorney's fees. The plaintiff is seeking damages of approximately $1.2 million.
The named plaintiff in the case has died and his widow and executrix, Sheila
Bass, has substituted herself as plaintiff. A tentative settlement of the case
has been reached, and that settlement is pending the receipt of certain
information from plaintiff. The trial, previously set for April 2004, has been
continued pending confirmation of the settlement. During July 2004 the Company
agreed to issue 250,000 shares of common stock and pay $40,000 to settle the
case.
Charles Briley v. ERHC . Fifteenth Judicial District Court, Lafayette Parish,
Louisiana, No. 2002-2016 (filed April 18, 2002). Charles Briley has filed this
breach of contract action alleging that he is a former consultant to the
Company, and that he is due unpaid consulting fees. He seeks recovery of
approximately $30,000, plus 125,000 shares of restricted common stock. The case
is in the discovery phase, and trial is set to take place in November 2004.
George LeBlanc v. ERHC . Fifteenth Judicial District Court, Lafayette Parish,
Louisiana, No. 2002-2017 (filed April 18, 2002). George LeBlanc, a former ERHC
consultant, has filed this breach of contract action alleging that he is due
unpaid consulting fees totaling $15,500, along with 125,000 shares of restricted
common stock. The case is in the discovery phase, and trial is set to take place
later in 2004.
Robert McKnight v. ERHC . Fifteenth Judicial District Court, Lafayette Parish,
Louisiana, No. 2002-2018 (filed April 18, 2002). Robert McKnight, a former ERHC
consultant, has filed this breach of contract action alleging that he is due
unpaid consulting fees totaling $83,000, along with $8,619 in unpaid medical
bills. The case is in the discovery phase, and trial is set to take place in
January 2005.
Jerome Rappaport, et al v. ERHC, et al. Supreme Court of the State of New York,
County of Suffolk, New York, No. 03-15879 (filed July 17, 2003), removed by ERHC
to United States District Court, Eastern District of New York, N0. 03-4193
(TCP). Seven New York residents filed suit against ERHC for breach of contract
and breach of fiduciary duty alleging that they subscribed to purchase shares of
ERHC common stock in 1999 pursuant to stock subscription agreements and that
ERHC has not issued such shares of common stock. The plaintiffs are seeking an
aggregate of 543,500 shares of common stock they allege were purchased, or
alternatively, cash in an unspecified amount not to exceed $500,000 per
plaintiff. During July 2004 the Company agreed to issue 135,875 shares of common
stock to settle the case. A settlement agreement requiring dismissal of the case
was executed in early August 2004.
First Atlantic Bank, PLC v. Emeka Offer, ERHC d/b/a Chrome Energy Corporation,
Chrome Oil Services, LTD., Chrome Energy LLC, Chrome Consortium, African Express
Bank, PLC and Nimek Investments Limited . Eightieth Judicial District Court,
Harris County, Texas, No. 2004-3202 (filed June 28, 2004). First Atlantic Bank
has filed this action alleging with respect to ERHC that ERHC has violated
certain federal securities rules. First Atlantic Bank is seeking from all
defendants approximately $57.5 million in damages. The Company believes that the
purpose of the lawsuit is to recover those damages from the defendants other
than ERHC, believes that the claims against ERHC to be wholly without merit and
intends to vigorously defend this lawsuit. In August 2004 the Company filed an
answer denying all allegations of plaintiff's original petition and seeking
dismissal of such original petition.
21
ITEM 2. CHANGES IN SECURITIES
During April 2004, the Company received proceeds of $500,000 from third parties
pursuant to Regulation S of the Securities Act of 1933, as amended ("Securities
Act"), in stock subscription agreements for 1,131,940 shares of common stock at
$0.44 per share including 1,131,940 warrants with an exercise price of $0.55 per
share expiring in April 2008.
During April 2004, the Company issued 148,900 shares of common stock to one
creditor for the conversion of debt and payment of accrued interest in the
aggregate amount of $29,780.
Except as noted, the Company believes the above transactions were exempt from
registration pursuant to Section 4(2) of the Securities Act as the recipients
were all accredited investors, and since the transactions were non-recurring and
privately negotiated. There were no underwritten offerings employed and no sales
commissions were paid in connection with the sales and issuances of the
unregistered securities in any of the transactions set forth above.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
Exhibit 10.1 Purchase Agreement dated as of December 31, 2000,
among Talisman Capital Opportunity Fund, Ltd., TC
Hydro Carbon, Inc. and Chrome Energy, LLC.
(Incorporated by reference to Exhibit 1 of Form 8-K
filed March 2, 2001).
Exhibit 10.2 First Amendment Agreement between Kevin Bartley et
al., and Chrome Energy, LLC dated February 9, 2001.
(Incorporated by reference to Exhibit 2 of Form 8-K
filed March 2, 2001).
Exhibit 10.3 Memorandum of Agreement dated as of May 21, 2001,
among The Government of the Democratic Republic of
Sao Tome and Principe and the Company. (Incorporated
by reference to Exhibit 1 of Form 8-K filed June 5,
2001).
Exhibit 10.4 Management and Administrative Services Agreement by
and between Chrome Oil Services, Ltd. and the
Company. (Incorporated by reference to Exhibit 10.4
of Form 10-KSB filed September 24, 2001).
Exhibit 10.5 $5,000,000 Term Loan Agreement by and between Chrome
Energy, LLC and the Company dated February 15, 2001.
(Incorporated by reference to Exhibit 10.5 of Form
10-KSB filed September 24, 2001).
Exhibit 11.1 Computation of Earnings Per Share
Exhibit 31.1 Certification required under Sarbanes-Oxley Act of
2002 (filed herewith)
Exhibit 31.2 Certification required under Sarbanes-Oxley Act of
2002 (filed herewith)
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Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
(b) REPORTS ON FORM 8-K
Form 8-K Resignation dated May 27, 2004 from Mr. Eze R.
Eschesi as Chief Financial Officer of the Company
effective June 2, 2004 and replacement by Mr.
Ikechukwu C. Okpala filed with Securities and
Exchange Commission on June 4, 2004.
Form 8-K Resignation dated July 12, 2004 from Mr. Chude Mba as
President, Chief Executive Officer and Director of
the Company effective July 31, 2004 and replacement
by Mr. Ali Memon filed with Securities and Exchange
Commission on July 12, 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons, in the capacities and on the dates indicated below, have
signed this report.
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Name Title Date
- ---- ----- ----
/s/ Sir Emeka Offor Chairman of Board December 28, 2004
- ------------------------------
Sir Emeka Offor
/s/ Ali Memon Chief Executive Officer December 28, 2004
- ------------------------------ President and Director
Ali Memon
/s/ Cosmas (Ike) Okpala Chief Financial Officer December 28, 2004
- ------------------------------
Cosmas (Ike) Okpala
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