U.S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                    Form 10-K

ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 1998

                           Commission file No. 0-18275


                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                  --------------------------------------------
                 (Name of small business issuer in its charter)

COLORADO                                                       88-0218499
-------------------------------                                ---------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

        3-5 Audrey Avenue
    Oyster Bay, New York                                        11771
---------------------------------------                       ----------
(Address of principal executive offices)                       (Zip Code)

Issuer's telephone number (516) 922-4170

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.0001 par value
                       -----------------------------------
                                (Title of class)

     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
                                                                     ----- -----

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

Issuer's revenues for its most recent Fiscal year. $247,000.

     The aggregate market value of the 15,840,832 shares of voting stock held by
non-affiliates  of the  Registrant  as of  September  30,  1998  was  $2,011,043
(assuming  solely  for the  purpose  of this  calculation  that  all  directors,
officers and greater than 5% stockholders of the Registrant are "affiliated").

     The number of shares  outstanding  of the  Registrant's  Common Stock,  par
value $.0001 per share, as of September 30, 1998 was 25,999,900.

                       Documents Incorporated by Reference

                                See Exhibit List
<PAGE>
                                     PART I

ITEM 1.           DESCRIPTION OF THE BUSINESS

     Environmental   Remediation  Holding  Corporation  (the  "Company")  is  an
independent  oil and gas company whose  predecessor was formed in 1995. In 1997,
the Company  focused on acquiring  and  servicing  marginally-producing  oil and
natural gas properties which contained the potential for increased value through
workovers and secondary recovery operations utilizing the Company's  proprietary
horizontal  drilling tool.  Lower oil prices and increasing  equipment  costs in
1998 have reduced the economic feasibility of these activities at this time. The
Company also focused on providing a full range of environmental  remediation and
"plug and abandonment" services to the oil and gas industry.  More recently, the
Company has  refocused  its  activities  and has begun to acquire  interests  in
non-producing oil and gas properties,  particularly high potential international
prospects in known  oil-producing  areas, which could benefit from the Company's
experienced executive team in managing the exploration of possible reserves.

     In May 1997, the Company  entered into an exclusive  joint venture with the
Sao Tome, an  archipelago  island  nation  located in the Gulf of Guinea off the
coast of central  West  Africa,  to manage  the  exploration,  exploitation  and
development of the potential oil and gas reserves onshore and offshore Sao Tome,
either  through the venture or in  collaboration  with major  international  oil
exploration  companies.  The  Company  is  currently  in the  initial  phase  of
exploration  and  is  conducting   geophysical,   seismic,   environmental   and
engineering  feasibility  studies.  In April 1998,  the  Government  of Sao Tome
granted  approval to the joint venture to proceed with the  preparation and sale
of leases of its oil  concession  rights,  which sales were expected to occur in
early  1999.  In July 1998,  The  Company  closed  and formed the joint  venture
national oil company  with the  Government  of Sao Tome.  This company is called
STPETRO.  The Company  owns 49% of STPETRO.  In July,  1998,  the  formation  of
STPETRO was promulgated  into law. In September 1998, the Government of Sao Tome
and STPETRO entered into a TAA Agreement with Mobil.  The Company  believes that
this venture  provides it with a  significant  foothold in the oil-rich  Gulf of
Guinea,  in which the venture is the  largest  single  concession  holder in the
entire Gulf.

     The Company has entered into a number of recent  transactions in connection
with its workover and recovery operations. In October 1997, the Company acquired
a 37.5% interest in a 49,000 acre natural gas lease,  known as the "Nueces River
Project",  in the Nueces River area of south Texas, one of the largest producing
natural gas areas in the United States. In December 1997, the Company re-entered
the  first of two  existing  shut-in  wells on the  property,  and  expected  to
ultimately  recover up to 5 BCF per well using 5% of the estimated  possible gas
in place. Due to mechanical failure downhole,  this well has been shut-in again.
The daily  production  rates from the second well cannot be determined until the
completion of the reentry.  The Company is currently  meeting with two potential
farm-out  partners  to work  the  project  and  believes  it has  negotiated  an
arrangement to drill additional  wells on the northern and southern  portions of
the leasehold.

     In addition,  the Company acquired in February and March 1997 leases in oil
fields located in Rusk County and Wichita County, Texas. These oil fields, which
together  comprise  approximately  1,200  acres  and 200  wells,  have  reserves
verified by Dr.  Joseph Shoaf,  P.E., an  independent  reservoir  engineer.  The
Company  estimates  that,  after  reworking the wells using  various  techniques
including its proprietary  drilling tool,  these wells could produce from 500 to
800 barrels of oil per day.  Through  December 1997, the Company had recompleted
18 oil wells and is currently  producing and selling "test" oil from the Wichita
County  field.  Of these  wells,  13 had  mechanical  failures.  The  Company is
evaluating  feasible  economic options  including the potential sale of the Rusk
County and Wichita County properties.
<PAGE>
     In  July  1997,  the  Company  entered  into  a  joint  venture  with  MIII
Corporation, a Native American oil and gas company, to workover,  recomplete and
operate 335  existing oil and gas wells on the Uintah and Ouray  Reservation  in
northeastern Utah. It was estimated that the first  approximately 36 wells would
be  scheduled  for  recompletion  and  stimulation  in the fall of 1998 and, the
Company estimated that, after initial workover operations were completed,  these
wells could produce in excess of 3,900 barrels of oil per day.  These  estimates
were subject to internal  verification  by the Company.  An independent  reserve
report prepared by Richard Stephen Shuster, P.E. indicates , based on a study of
133 of such  wells,  which may or may not include any of the wells which are the
subject  of  the  MIII  joint   venture,   proven  and  producing   reserves  of
approximately  5.77 million  barrels of oil and 23.4 BCF of natural gas on these
sites. The leases on the MIII project were never  transferred to the Company and
it is currently evaluating its options with regard to this project.

     In September 1997, the Company acquired net revenue  interests ranging from
76% to 84% in oil and gas  properties  totaling  13,680 acres,  located near the
MIII fields,  currently  producing  approximately 70 barrels of oil per day from
six producing  wells.  As of December 31, 1997,  these were the  Company's  only
commercially  producing  properties,  which  began  realizing  revenues  for the
Company in November 1997. A 1997 independent reserve report prepared by Ralph L.
Nelms and Gerry Graham of the gross recoverable reserves of these properties are
approximately  2.624  million  barrels of oil and 3.302 BCF of natural  gas. The
Company is currently evaluating the existing reserve reports, underlying data on
these leases and the economic  feasibility of increasing  production in light of
current oil prices or of the sale or other disposition of these properties.  The
Company is engaged in  arbitration  regarding  this project and believes  that a
settlement on all issues will be completed in January 1999.

     The  Company  provides  environmental  remediation  services to oil and gas
operators.  All of the Company's revenues during the fiscal year ended September
30,  1997  were   attributable  to  providing  these  services,   which  include
environmental  engineering,   hazardous  waste  (including  naturally  occurring
radioactive material) remediation and disposal,  oil spill, soil decontamination
and non-hazardous  oilfield waste cleanup,  as well as "plug and abandonment" of
oil and gas  wells,  all in  accordance  with  strict  federal,  state and local
environmental  regulations.  In April 1997,  the Company  entered  into a master
service agreement with Chevron to rework, in order to draw additional production
from,  approximately  400 depleting oil and gas wells and to remediate and "plug
and abandon"  these and other wells when  depleted,  in Chevron's  oil fields in
southern  Louisiana along the Gulf of Mexico. The Chevron agreement provides for
a three-year work schedule,  commencing upon the completion of the Company's 140
foot "plug and  abandonment"  barge.  The Company has designed this  specialized
"plug and  abandonment"  barge to  remediate  off shore  well  locations  and is
capable of working in coastal  waters as shallow as 19 inches.  Due to the price
structure of the oil and gas business at this time, the Company does not believe
it is in its best  interest to  construct  this barge.  However,  a  substantial
increase  in oil prices  would  cause the  Company to  reevaluate  its  decision
regarding such construction.

     In addition,  the Company has obtained  rights to participate in a ten-year
concession  with the  Panama  Canal  Commission,  through a joint  venture  with
Centram Marine  Services,  S.A., to supply fuel to tankers and other  commercial
vessels  traversing the Panama Canal.  These operations are expected to commence
at such  time as  adequate  financing  is  secured,  of  which  there  can be no
assurance.

     To further  penetrate  the  environmental  remediation  services  market in
Louisiana. In February 1998, the Company sought to acquire a 70% equity interest
in Ven  Virotek,  Inc.,  a  Louisiana  corporation  ("Virotek"),  from  its sole
shareholder,  Recycling  Remedies,  Inc.  Virotek owns and operates a NORM solid
waste  disposal  site in  Houma,  Lousiana  and  holds  permits  from  Louisiana
environmental authorities to dispose of salt water, brine and naturally occuring
waste  products.  In March 1998,  Virotek  obtained two contracts  from the U.S.
Department of Energy to dispose of salt water brine from the strategic petroleum
reserves located in Houma,  Louisiana.  Under the contracts,  it is contemplated
initially  that a total of  475,000  barrels of brine will be shipped to Virotek
for disposal,  and Virotek will receive  $1.00 per barrel for its  services.  In
August,  1998,  this  acquisiton was cancelled  because during the due diligence
process the Company discovered (1) serious unresolved  environmental issues, (2)
greater  refurbishment   expenses  than  originally  estimated  and  (3)  larger
liabilities than originally represented.

     The  Company  commenced  negotiations  for  remediation  work in  Mexico in
September 1998 and for remediation  work in Venezuela in December 1998.  Neither
negotiation has been reduced to contract at this time.
<PAGE>
     In  1997,  the  Company  believed  that it was  more  economical  and  less
speculative  to rework and recomplete  existing wells than to drill  exploratory
wells in search of new oil and gas  deposits.  Using the  Company's  proprietary
horizontal  drilling  system,  known as the BAPCO  Tool,  the  Company  has had,
according to internal  data,  an 80% success  ratio in  increasing  the level of
production  from oil and natural gas wells that are suitable for  enhancement of
primary recovery by use of the BAPCO Tool or candidates for secondary  recovery.
Given adequate oil prices,  the Company believes that the BAPCO Tool serves as a
competitive  advantage for securing new workover projects from other oil and gas
operators, for attracting joint venture partners in larger workover contracts in
the  United  States  and  internationally  and  for  use on its  own oil and gas
properties  in Texas and Utah.  In the long run, the Company  believes  that the
BAPCO Tool will have greater applicability in the international market.

     Beginning in the early 1990's, the combination of secondary recovery of oil
reserves in conjunction  with  environmental  remediation of abandoned oil wells
have became  major items of interest in the oil and  gasindustry.  According  to
current industry statistics,  it is estimated that only 7.5% to 15% of total oil
reserves are recovered in primary  drilling  operations  due to the  significant
incremental  costs  involved in  exploiting  far-reaching  reservoirs  of an oil
formation.  Following primary  production,  large independent oil companies have
typically  outsourced some or all of the required "plug and abandonment" work to
third party  contractors.  By conducting  enhanced primary or secondary recovery
operations  utilizing  the BAPCO  Tool on the  otherwise  abandoned  wells,  the
Company  believes that it is able to effectively  extend the economic life of an
oil field and  increase  existing  oil  recovery  by up to 30%,  prior to formal
abandonment.  The Company, which provides primary and secondary recovery,  "plug
and abandonment"  operations and environmental  remediation  services,  believes
that,  in the United  States  alone,  there are  hundreds of oil and natural gas
fields which could benefit from these services. The Company continues to believe
that at such  time  as oil  prices  rise to  suitable  levels,  such  activities
represent a potentially stable revenue source for them.

Growth Strategy

     The Company's  goal is to maximize its value through  profitable  growth in
its oil and gas reserves and production.  The Company has taken steps to achieve
this  goal  through  its  growth  strategy  of  (i)  managing  the  exploration,
exploitation and development of non-producing  properties in known oil-producing
areas,  such as the Gulf of Guinea in West Africa,  with  industry or government
partners,  (ii) at such time as oil prices  are more  favorable,  continuing  to
pursue  environmental  remediation service contracts for oil and gas well rework
and "plug and  abandonment"  services in the United States and  internationally,
and (iii) exploiting the BAPCO Tool.

         Key elements of the Company's growth strategy include:

     1. Manage High  Potential  International  Prospects.  The Company  seeks to
manage the  overall  exploration  activities  for high  potential  international
prospects in known oil-producing areas. By managing these projects,  the Company
seeks to share the risks  inherent in  exploratory  drilling  with  industry and
government partners. The Company's  international  exploration activities target
significant  long-term reserve growth and value creation,  such as the Company's
joint  venture  with  Sao  Tome.  The  Company  also  plans to  pursue  offshore
transportation   and  logistic   support   services  in   connection   with  its
international prospects.

     2.  Pursue  Additional  Environmental  Remediation  Contracts.  The Company
continues to pursue new environmental remediation contracts in the United States
and  abroad,  directly  and through  joint  ventures.  The  Company  believes it
possesses  competitive  advantages  including the  availability and condition of
equipment to meet both special and general  customer needs,  the availability of
trained and licensed personnel with the required specialized skills, the overall
quality of its  service  and safety  record and the  ability to offer  ancillary
services, such as "plug and abandonment" services.

     3. Exploit the BAPCO Tool.  The Company has an  experienced  management and
engineering  team that focuses on  acquisitions of projects where the BAPCO Tool
can be utilized to enhance primary and secondary recovery projects.  The Company
has had an 80% success  ratio for  improved  production  from wells on which the
tool has been used.

Summary of Properties
<PAGE>
     A summary of the Company's oil and gas properties is as follows:
<TABLE>
<S>            <C>                  <C>            <C>            <C>                       <C>
                                                                  Anticipated
                                                                  Investment                Anticipated
                   Nature of        Date                          to Make                   Operational
  Property         Interest         Acquired       Cost           Operational                  Date
---------------------------------------------------------------------------------------------------------------------
Sao Tome        Joint Venture to    May 1997       $5,000,000     $2,200,000 (1)            Undetermined as of this
               drill and develop                                  concession fee,           time.   STPETRO
                        fields                                    $4,000,000 of which       formed and Technical
                                                                  has been paid (2)         Assistance Agreement
                                                                                            signed with Mobil.
                                                                                            Schlumberger seismic
                                                                                            work to commence
                                                                                            January 1999

------------------------------------------------------------------------------------------------------------------------
Nueces River   37.5% interest in a   Oct 1997      $200,000 and      $650,000(3)            To be determined upon
Natural Gas    49,000 acre natural                 50,000 shares of                         completion of
 Prospect,        Texas gas lease                  Common Stock                             negotiations with
                                                                                            two potential farm-out
                                                                                            partners

---------------------------------------------------------------------------------------------------------------------
Rusk and Wichita    Leases in oil    February and  500,000 shares     Currently            5 wells currently
County Oil Fields,      fields       March 1997    Common Stock      operational           Operational
Texas                                                                                      (4)

----------------------------------------------------------------------------------------------------------------------
Uintah and Ouray   Joint Venture with  July 1997   $55,000 and           Minimum                (5)
Reservation (MIII  MIII Corporation to             contemplated          $1,000,000
Project), Utah     develop and operate             issuance of 250,000    to
                        335 wells                  shares of Common      $1,500,000
                                                   Stock to MIII

----------------------------------------------------------------------------------------------------------------------
Uinta Project,   Net revenue          September     $250,000 and         Currently          6 wells currently
Utah             interests ranging       1997       1,000,000 shares     Operational        operational
                 from 76%  to 84%                    Common Stock          (6)
                 (and 100% working                         (7)
                 interest on all but 2
                 wells) in oil
                 and gas properties
                 of approximately
                 13,680 acres, with 22
                  wells

-------------------------------------------------------------------------------------------------------------------
</TABLE>
     (1) The Company has spent  (i)$2,500,000  for data that had been  purchased
through  cash  and  stock as of  March  1998,  and  (ii)  $250,000  in  expenses
preparatory to drilling.  The Company  anticipates  spending $1,500,000 over the
next 12 months for additional  seismic  studies needed to determine the location
and  depth of the  targeted  oil  deposits  and  $700,000  for  operating  costs
associated  with STPETRO in Sao Tome including  salaries and  improvements.  The
costs of further  development of this project cannot be determined  until a more
definite  development  plan is  established.  The costs depend on the  Company's
determination  to  either   independently   develop  the  concession,   take  on
operational  partners  or lease a  portion  of the  concession  for  third-party
development.   By  Agreement  dated  August  18,  1998,   Procura  assigned  and
transferred all of its rights and obligations in the venture to the Company.  In
consideration  of such  assignment,  the Company issued  2,000,000 shares of its
restricted  stock to Procura.  As of December  31, 1998 said shares had not been
delivered to Procura because Procura has made certain claims to the Company that
it or its  principals  are  entitled  to  additional  shares.  The  Company  has
authorized further  negotiations to settle any disputes with Procura.  Under the
terms  of  the  approved  offer,  Procura  would  receive  4,000,000  shares  of
restricted Common Stock, $12,000 per month for 6 months and warrants to purchase
2,000,000  shares of Common  Stock on a graduated  basis  beginning at $1.00 and
increasing to $3.00  exercisable in increments of 250,000 based upon  production
levels.  Based upon prior meetings with the  principals of Procura,  the Company
believes such offer will be accepted.  See "--Managing  Exploratory Activities -
Sao Tome."
<PAGE>
     (2) As of  December  31,  1998,  the Company  had paid  $4,000,000  of this
concession  fee and an  additional  $750,000  for  certain  costs  and  expenses
associated with the project.  The Company believes that this additional $750,000
will be  credited  to the  balance  of the  concession  fee.  See  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Capital Expenditures and Business Plan

     (3) The Company has already  spent  approximately  $350,000  reworking  the
first of two existing shut-in wells on the property.  Due to mechanical  failure
downhold,  this well has been  shut in  again.  The  Company  plans on  spending
approximately  $650,000 to $1,250,000 to bring the second well on line. Provided
financing is secured, the Company would also like to drill 15 to 20 new wells at
this  site in 1999 and is  currently  negotiating  with two  potential  farm-out
partners for wells in the northern and southern  portions of the leasehold.  The
Company is  responsible  for only half of the drilling  cost of each well, as it
shares  this cost with its  operational  co-venturer,  Autry  Stephens & Co. See
"-Workover and Recovery Activities."

     (4) The Company expects to have to spend  $1,200,000 to bring production up
to a commercial  level.  The Company is  evaluating  feasible  economic  options
including the potential  sale of these  properties.  See "-Workover and Recovery
Activities."

     (5) The leases on the MIII  project were never  transferred  to the Company
and it is currently evaluating its options with regard to this project.

     (6) The Company  plans on spending  approximately  $1,000,000 on additional
equipment  and up to $80,000 per well on well  stimulation  in order to bring 12
additional  wells on line.  It plans to plug and  abandon 2 wells and do further
study on the remaining 2 wells. The Company anticipated utilizing funds acquired
through the Investment  Agreement with Kingsbridge.  Provided other financing of
$5,000,000  to  $10,000,000  is  secured,  the Company is  considering  the most
feasible options to implement a recompilation and drilling program.  The Company
has  entered  into a  settlement  agreement  with regard to  outstanding  issues
between  the  parties.  See  "-Workover  and  Recovery  Activities"  and  "Legal
Proceedings."

Managing Exploratory Activities

     The Company is currently managing or in the process of negotiating  several
international  exploratory projects which, if successful,  have the potential to
increase  the growth of the  Company.  The Company  believes  that its  existing
project in Sao Tome has the potential to significantly increase reserves.

         Sao Tome

     In May 1997, the Company  entered into an exclusive  joint venture with Sao
Tome, a member of the United Nations,  to manage the  exploration,  exploitation
and  development of the country's  potential oil and gas reserves in the Gulf of
Guinea.  Sao Tome is  comprised  of two  principal  islands  which  straddle the
equator in the prolific  petroleum-producing  region of the Gulf of Guinea.  The
Sao Tome islands are located approximately 200 miles west of mainland Gabon, and
southwest  of  Equatorial  Guinea and  Cameroon,  and are located  directly on a
well-known geologic feature known as the "Cameroon Volcanic Line."
<PAGE>
     The   exclusive   25-year  joint   venture   agreement   provides  for  the
establishment  of a national oil and gas company owned jointly by Sao Tome,  the
Company and, as a junior partner,  Procura Financial Consultants,  c.c., a South
African  corporation  ("Procura")  and the management of such oil company by the
Company during that period. Under the agreement, the venture has the first right
to select the oil and gas  concessions  it desires to explore  and develop in an
area  approximately  64,550 square miles in the Gulf of Guinea. On behalf of Sao
Tome,  the Company  agreed to  negotiate  with major  international  oil and gas
companies to grant leases to oil and gas  concessions  not selected by the joint
venture.  The  Company  is  entitled  to receive  an  overriding  royalty on the
production from those concessions.  Pursuant to the terms of the agreement,  Sao
Tome has the right to terminate the agreement in the event the Company failed to
make any remaining  concession fee payment at the time Sao Tome determines,  and
the United Nations  accepts,  the EEZ boundaries or fails to timely commence the
orderly  development  of the  national  oil and gas joint  venture  company.  By
Agreement  dated August 18, 1998,  Procura  assigned and  transferred all of its
rights and obligations in the venture to the Company.  In  consideration of such
assignment,  the Company  issued  2,000,000  shares of its  restricted  stock to
Procura.  As of December 31, 1998 said shares had not been  delivered to Procura
because Procura has made certain claims to the Company that it or its principals
are  entitled  to  additional   shares.   The  Company  has  authorized  further
negotiations  to  settle  any  disputes  with  Procura.  Under  the terms of the
approved  offer,  Procura would receive  4,000,000  shares of restricted  Common
Stock,  $12,000 per month for 6 months and warrants to purchase 2,000,000 shares
of Common Stock on a graduated  basis beginning at $1.00 and increasing to $3.00
exercisable in increments of 250,000 based upon  production  levels.  Based upon
prior meetings with the principals of Procura,  the Company  believes such offer
will be accepted.

     In November 1997, the Company made an initial $2,000,000 payment in respect
of the  initial  concession  fee  from  the net  proceeds  of its  1997  private
placement,  in June 1998,  paid  $1,000,000 of this  concession fee from the net
proceeds of the Third June 1998 Private Placement, in August, paid $1,000,000 of
this concession fee from the net proceeds of the July/August 1998 Financing.  In
addition,  the Company paid  $250,000  out of the net proceeds of the  September
1998  Financing  and  $500,000  out of the  net  proceeds  of the  October  1998
Financing,  each of which payment were for certain expenses  associated with Sao
Tome.  The  Company  believes  that these  additional  expense  payment  will be
credited to the concession fee. See "The Company - The Private Placement."

     The Company is currently in the initial phase of project development and is
conducting  seismic  surveys,  processing  existing  seismic data and  reviewing
environmental  and  engineering  feasibility  studies.  The  Company has already
provided to Sao Tome initial feasibility studies including seismic  interaction,
sedimentology,  geochemistry  and  petrographics  and  diagnostics.  The Company
expects to expend at least  $2,300,000  in the  initial  phase of this  project.
Following further studies, the Company anticipates  coordinating the drilling of
a "test" well in early 1999. The costs associated with drilling and testing such
a well cannot be  determined  until the  seismic  data have been  processed  and
evaluated.  In April 1998,  the  Government of Sao Tome granted  approval to the
joint  venture to  proceed  with the  preparation  and sale of leases of its oil
concession  rights,  which sales were  expected to occur in early 1999.  In June
1998,  the Company and Sao Tome signed a letter of intent to award a contract to
Schlumberger  to perform a marine seismic survey in  anticipation of the license
round to be held in Sao Tome and to act as technical  advisor and coordinator of
such  license  round.  In July  1998,  the  Company  closed and formed the joint
venture national oil company with the Government of Sao Tome. The oil company is
called the STPETRO.  STPETRO is owned 51% by the  Government of Sao Tome and 49%
by the  Company.  The  Company  previously  was  granted  a  25-year  management
arrangement  with  STPETRO  in the 1997  Letter of  Intent.  In July  1998,  the
Ministry of  Cabinets  and the Prime  Minister  executed  the STPETRO  formation
documents  and they were  promulgated  into law by the  President.  In September
1998, the  Government of Sao Tome and STPETRO  entered into a TAA Agreement with
Mobil.  Under such  agreement,  Mobil will  perform a technical  evaluation  and
feasibility study of oil and gas exploration in certain designated acreage.  The
agreement is for an initial term of 18 months and  superceded the need for lease
sales  in  early  1999.  Mobil  retains  a right of  first  refusal  to  acquire
development  rights to all or a portion of the acreage  which it is  evaluating.
Mobil then executed an agreement with Schlumberger to perform the marine seismic
survey as previously  agreed under the letter of intent with the Company  signed
in June 1998. Under the Mobil/Schlumberger agreement,  Schlumberger will perform
seismic work on the option blocks designated in the TAA Agreement.  Such work is
to commence in January 1999.
<PAGE>
     In September  1997, the Company  expanded its joint venture  agreement with
Sao Tome.  Under the  modified  agreement,  the venture was granted  development
rights for an  offshore  logistics  center.  The  projects  contemplated  by the
venture include a helicopter refueling station, seaport with dry dock facilities
and temporary  accommodation  facilities for employees and their  families.  The
Company believes that an offshore logistics base is essential to the development
of West  Africa's  oil and gas  industry.  The  Company has not  determined  the
funding levels required for these projects at this time.

     The Company  believes  that this  venture  provides  it with a  significant
foothold  in the  oil-rich  Gulf of Guinea,  in which the venture is the largest
single  concession  holder in the entire Gulf. The offshore oil potential of Sao
Tome has been  studied by numerous  oil  companies,  including  Mobil Corp.  and
Exxon,  since at least the late 1970s. Over the next 20 years,  industry experts
say,  Western oil companies  will invest  between $40 billion and $60 billion in
the Gulf of Guinea alone.

AMCO Montenegro

     In April 1998 the Company agreed to enter into a 50/50 joint venture with a
privately held Delaware corporation,  AMCO Montenegro,  Inc. and its related ABC
Group of companies  ("AMCO") to construct  and operate an  "Off-Shore  Logistics
Center" for the oil  industry in the Gulf of Guinea,  on the Island of Sao Tome.
AMCO  Montenegro is a construction  company based in Virginia.  Due to political
conflict,  the parties were uanble to finalizing the agreements.  In April 1998,
Jugobanks AD  Podgorica  of  Montenegro  agreed to finance  $50,000,000  for the
construction  of the "Off-Shore  Logistics  Center" in Sao Tome. When funds were
blocked  because of war in the region,  the  Company  terminated  its  tentative
agreement  with AMCO since AMCO could not  perform at the time  performance  was
required.  In April 1998, the Government of Sao Tome and the Company filed their
EEZ coordinates with the United Nations.  The Company  continues to maintain the
right to construct the Off-Shore  Logistics Center and is seeking an appropriate
joint  venture  partner  for the  project  There  can be no  assurance  that the
financing or an appropriate partner will be available for this project.
 .
Workover and Recovery Activities

     In  1997,   the   Company   concentrated   its   acquisition   efforts   on
marginally-producing  properties which  demonstrated a potential for significant
additional development through workovers,  behind-pipe recompletions,  secondary
recovery  operations  utilizing the Company's BAPCO Tool and other  exploitation
techniques.  The  Company  pursued a workover  and  recompletion  program on the
properties it intends to commence some workover and recompletion in the future.

     "Workovers"  refer to the  major  repairs  and  modifications  occasionally
required by  producing  oil and natural gas wells.  Workovers  may be done,  for
example, to remedy equipment failures,  deepen a well in order to complete a new
producing  reservoir,  plug back the  bottom of a well to reduce  the  amount of
water being  produced with the oil and natural gas,  clean out and  recomplete a
well if production has declined, repair leaks, or convert a producing well to an
injection  well for secondary or enhanced  recovery  projects.  These  extensive
workover operations are normally carried out with a well-servicing type rig that
includes additional  specialized  accessory equipment,  which may include rotary
drilling equipment, mud pumps, mud tanks and blowout preventers,  depending upon
the particular type of workover  operation.  A workover may last anywhere from a
few days to several weeks.

     The kinds of  activities  necessary to carry out a workover  operation  are
essentially  the same as those that are required to "complete" a well when it is
first drilled.  The "recompletion"  process may involve selectively  perforating
the well  casing at the  depth of  discrete  producing  zones,  stimulating  and
testing these zones and installing down-hole equipment.  Independent oil and gas
production  companies  often  find it more  efficient  to move a larger and more
expensive  drilling rig off  location  after an oil or natural gas well has been
drilled and to move in a specialized  well-servicing  rig to perform  completion
operations.  The Company leases well servicing rigs for its projects and intends
to  continue  to do so in the  future  when  such  services  are  required.  The
completion process may require from a few days to several weeks.

     The Company's  staff has focused on maximizing  the value of the properties
within its reserve  base.  The results of their efforts are reflected in limited
increased production and additions to reserves.

     For  the  fiscal  year  ended   September  30,  1997,   the  Company  spent
approximately  $53,000 on workover and recompletion  operations,  involving nine
wells in Texas. The Company anticipated  spending in excess of $1.825 million on
workover and recompletion  operations during fiscal 1998.  Through September 30,
1998, the Company has spent approximately $460,000 on these operations.
<PAGE>
     In connection with this focus, the Company actively pursues  operating cost
reductions  on the  properties it acquired.  The Company  believes that its cost
structure  and  operating  practices  generally  result  in  improved  operating
economies.  The following is a brief  discussion of significant  developments in
the Company's recent workover and recompletion activities:

         Nueces River Natural Gas Prospect

     The Company  has a 37.5%  working  interest  in a 49,000  acre  natural gas
lease,  known as the  "Nueces  River  Prospect,"  in the  Nueces  River  area of
McMullen  and LaSalle  counties  in south  Texas,  one of the largest  producing
natural gas areas in the United States. In December 1997, the Company re-entered
the  first of two  existing  shut-in  wells on the  property,  and  expected  to
ultimately  recover up to 5 BCF per well using 5% of the estimated  possible gas
in place. Due to mechanical failure, this well has been shut in again. The daily
production rates, as well as the anticipated  operational dates, from the second
well  cannot  be  determined  until the  completion  of the  reentry.  Following
revitalization,  the Company  estimates  that such well has the  possibility  of
producing  in excess of 500 MCF  (million  cubic feet) of natural gas per day. A
20-inch diameter  Transcontinental  Gas Pipeline is located  approximately three
miles from the wells to provide  access to a gas  market.  The  Company  jointly
operates the field with Autry  Stephens & Co., a large  independent  operator in
west and south  Texas.  The Company  acquired  its  interest in the Nueces River
Project in October 1997 in consideration for $200,000 and the issuance of 50,000
shares of Common Stock.  In November  1998, the Company issued 491,646 shares of
its  restricted  stock to Autrey  Stephens & Co. in lieu of payment of  $338,007
which represented the Company's share of the costs to reenter the first well. In
addition,  the Company issued  249,536  shares of its restricted  stock to Hinge
Line Inc.  in lieu of  payment of  $171,556  which  Hinge Line Inc.  had paid on
behalf of the Company as the  Company's  share of the yearly option fee which is
due each April for retention of the option on the remaining  49,000 acres.  This
option  fee is due each  April for a period of 4 years and is total  payment  of
$34,000.  The Company is currently meeting with two potential  farm-out partners
to work the  project and  believes it has  negotiated  an  arrangement  to drill
additional wells on the northern and southern portions of this leasehold.

     The Company plans on spending approximately $650,000 to $1,200,000 to bring
both wells on line.  Provided financing is secured,  the Company also expects to
drill 15 to 20 new wells at this site,  at a cost of  approximately  $650,000 to
$1,200,000 per well. The Company is responsible for half of the drilling cost of
each  well,  as it  shares  this cost with its  operational  co-venturer,  Autry
Stephens & Co. The  anticipated  operational  dates of these wells depend on the
amount of funds raised by the Company in 1999.

         Rusk and Wichita County Oil Fields

     The Company holds directly  leases on producing oil fields in Texas,  known
as the Gunsite  Formation  in Wichita  County,  north  Texas,  and the  Woodbine
Formation  in Rusk  County,  east  Texas.  These oil  fields  together  comprise
approximately  1,200  acres and 200 wells.  A 1997  independent  reserve  report
prepared by Joseph Shoaf, P.E. has reserves verified. Through December 1997, the
Company had recompleted 18 wells,  all of which were operational as of March 20,
1998. Of these wells,  13 had mechanical  failures.  The Company had located its
BAPCO  Tool on site but it has  since  been  removed.  The  Company  anticipated
spending  $1,200,000  in  order  to  bring  production  on  the  fields  up to a
commercial  level.  After  reworking  the fields  using the BAPCO Tool and other
techniques,  the Company believes that these wells could produce from 500 to 800
barrels of oil per day.  The Company is  evaluating  feasible  economic  options
including the potential sale of the Rusk County and Wichita County properties.

     The Company acquired the Rusk and Wichita County oil fields in February and
March 1997,  respectively,  in  consideration  for a total of 500,000  shares of
Common Stock, valued at a total of $515,625.
<PAGE>
         MIII Project in Utah

     In  July  1997,  the  Company  entered  into  a  joint  venture  with  MIII
Corporation  ("MIII"),  a  Native  American  oil and gas  company  based in Fort
Duchesne,  Utah.  Under the  agreement,  the  Company  had  agreed to  workover,
recomplete  and  operate  335 oil and gas wells  located on the  4,000,000  acre
Uintah and Ouray  Reservation  in  northeastern  Utah. It was estimated that the
first   approximately   36  wells  would  be  scheduled  for   recompletion  and
restimulation  by fall 1998,  provided  that the  Company  raised  the  required
funding. After initial workover operations were completed, the Company estimated
that these wells could produce in excess of 3,900 barrels of oil per day.  These
estimates were subject to internal  verification by the Company.  An independent
reserve report prepared by Richard Stephen Shuster,  P.E. indicates,  based on a
study of 133 such wells, which may or may not include any of the wells which are
the  subject  of the MIII  joint  venture,  proven  and  producing  reserves  of
approximately  5.77 million  barrels of oil and 23.4 BCF of natural gas on these
sites. The Company's  production  estimates at this site are based predominately
on the multiple sandstone  reservoirs of the Wasatch,  transition zone and Green
River Formations that can occur at depths of 5,000 to 16,000 feet.

     Under the terms of the joint  venture  agreement,  once the  production  of
natural  gas reached  5,000 MCF,  MIII had agreed to  construct a gas  gathering
plant on such site,  with the Company  retaining a 25% interest in the plant. As
of this date, it is highly unlikely that such plant will be constructed.

     The Company believed it had a 37.762% working interest in the wells located
on the MIII  property,  and would be  entitled  to  receive  a $2.50 per  barrel
operator fee on production  in the fields.  The Company also believed it had the
right to receive an additional 5% working  interest in the wells after  start-up
costs of  approximately  $1.5 million had been repaid to certain  original  MIII
investors from overall  production.  The remaining working interests in the MIII
property  are held by MIII,  the Ute Tribe and the  allotted  members of the Ute
Tribe.  The Company  paid $55,000 and  contemplated  issuing  250,000  shares of
Common Stock to MIII in connection with entering into this venture.  Such shares
were never issued. In 1998, the Company planned to recomplete and restimulate 36
wells and to drill five to seven  development  and extension wells at this site,
provided  adequate  financing  was secured.  The leases on the MIII project were
never transferred to the Company and it is currently evaluating its options with
regard to this project.

         Uintah Project

     In September 1997, the Company acquired net revenue  interests ranging from
76% to 84% (and 100% working interest) in oil and gas properties totaling 13,680
acres,  located  near the MIII fields in the Uinta Basin with 22 oil and natural
gas wells, currently producing  approximately 70 barrels of oil per day from six
producing  wells.  As of  December  31,  1997,  these  were the  Company's  only
commercially producing properties, which began realizing revenue for the Company
in November 1997. A 1997  independent  reserve report prepared by Ralph L. Nelms
and Gerry Graham of Sandwood Consultants indicated that the total ultimate gross
recoverable reserves of these properties are approximately 2.624 million barrels
of oil and 3.302 BCF of natural gas. Wells in this field produce  primarily from
multiple  sandstone  reservoirs of the Wasatch  transition  zone and lower Green
River  Formations at depths ranging from 5,500 to 16,000 feet. The remaining net
revenue interests in these properties are held by the Ute Tribe.

     At  such  time  as  oil  prices  rise,   the  Company   plans  on  spending
approximately  $1,000,000 on additional  equipment and up to $80,000 per well on
well  stimulation  in order to bring 12 more wells on line. It plans to plug and
abandon 2 wells and do  further  study on the  remaining  2 wells.  The  Company
anticipated  utilizing  funds  acquired  under  the  Investment  Agreement  with
Kingsbridge.   Provided  other  additional  financing  of  about  $5,000,000  to
$10,000,000  is  secured,  the  Company  plans  extensive  work in  this  field,
including a 20 well program to develop infill and field extension  locations,  a
40-acre  pilot  waterflood  project and the  workover  and  recompletion  of the
existing  wells to test the viability of more shallow  formations  for potential
future  development.  The Company is currently  evaluating the existing  reserve
reports,  underlying  data on  these  leases  and the  economic  feasibility  of
increasing  production  in  light of  current  oil  prices  or the sale or other
disposition of these properties. The Company is engaged in arbitration regarding
this project and believes  that a settlement  on all issues will be completed in
January 1999.
<PAGE>
     Lower oil prices and higher  equipment  costs  have  reduced  the  economic
feasibility of drilling, workover and recompletion activities such that they are
marginal at best.  Therefore,  the Company has directed its primary focus to its
high potential international prospects and to a lesser extent to its remediation
activities.
Reserves

     The following table sets forth estimates of the proven oil and gas reserves
(gross) of the Company as of December 31, 1998:
<TABLE>
<S>                                   <C>         <C>         <C>         <C>          <C>           <C>              <C>
                                                                                                                      Oil Equivalent
                                                      Oil                           Gas                               --------------
                                       --------------------------------   -------------------------------              (millions of
                                             (millions of barrels)              (billion cubic feet)                      barrels)
           Field (1)                  Developed   Undeveloped    Total     Developed   Undeveloped   Total                Total
           -----                      ---------   -----------    -----     ---------   -----------   -----                -----
Nueces River Prospect, Texas.              -           -           -            -            -         -                    -
Rusk County Field, Texas.....              -           -           -            -            -         -                    -
Wichita County Field, Texas..              -           -           -            -            -         -                    -
Uintah & Ouray Reservation,
   Utah.......................             -           -           -            -            -         -                    -
Uinta Project, Utah..........              -           -           -            -            -         -                    -
                                         ----        -----       -----        ----         -----     ------               -----
                     Total.............    -           -           -            -            -         -                    -
                                        ======      ======       ======       =====        =====     ======               ======
</TABLE>
- ----------
     (1) The Company is currently in the process of evaluating  reserve  reports
on these  properties,  and  therefore,  internally  verified  estimates  for the
developed and undeveloped  proven oil and gas reserves are not available at this
time.

     Estimates of the  Company's  proved  reserves  have not been filed with, or
included  in  reports  to,  any  Federal  authority  or  agency,  other than the
Securities and Exchange Commission.

     The Company's  non-producing  proved reserves are largely  "behind-pipe" in
fields which it operates.  Undeveloped proved reserves are predominantly  infill
drilling locations and secondary recovery projects.

     The  reserve  data set forth in this Form 10-K  represent  only  estimates.
Reserve   engineering  is  a  subjective   process  of  estimating   underground
accumulations of oil and natural gas that cannot be measured in an exact manner.
The  accuracy of any reserve  estimate is a function of the quality of available
data and of engineering and geological interpretation and judgment. As a result,
estimates of different  engineers often vary. In addition,  results of drilling,
testing  and  production  subsequent  to the  date of an  estimate  may  justify
revision of such estimate. Accordingly,  reserve estimates often differ from the
quantities  of  oil  and  natural  gas  that  are  ultimately   recovered.   The
meaningfulness  of such  estimates is highly  dependent upon the accuracy of the
assumptions upon which they were based.

     For further  information on the Company's oil and gas reserves and pricing,
see "Management's  Discussion and Analysis of Financial Condition and Results of
Operations."

BAPCO Tool

     The Company's BAPCO Tool, which is used in most of its workover operations,
has two main  functions:  to  provide  a means of  mechanically  cutting  a hole
through the casing and  extending a flexible  tubular  pipe  outward at least 50
feet from the bore hole.  The system is made up of a skid  mounted  surface unit
with a command  module,  filter  system  and  pumping  package,  and a down hole
assembly.  The command module,  which is approximately 10 feet long, 6 feet wide
and 8 feet high, is air  conditioned,  contains all the  necessary  controls and
data recording equipment and has a special tool storage area. The down hole tool
assembly  is composed  of a filter and filter  body that  removes  the  unwanted
material  and prevents the  material  from  entering the control  section of the
tool. There are no limitations regarding casing thickness and cement sheath when
utilizing the BAPCO Tool.
<PAGE>
     According  to internal  data,  the Company has had an 80% success  ratio in
increasing  the level of  production  from oil and  natural  gas wells  that are
suitable for secondary recovery. Given adequate oil prices, the Company believes
that the BAPCO Tool serves as a competitive  advantage for securing new workover
projects from other oil and gas operators, for attracting joint venture partners
in large workover contracts in the United States and internationally and for use
on its own oil and gas  properties  in Texas  and  Utah.  In the long  run,  the
Company  believes  the  BAPCO  Tool  will  have  greater  applicability  in  the
international market.

     The BAPCO Tool was  acquired  by the Company in  connection  with the stock
acquisition of BAPCO in April 1997. The Company has  constructed two BAPCO Tools
to date.  At such time as production  wells become  economically  feasible,  the
Company plans to construct  additional  tools. The BAPCO Tool has been tested on
multiple  wells in a variety of  formations  during the past 3 years.  The BAPCO
Tool has  been  continuously  updated  and  modified  since  the tool was  first
designed and developed by Sam L. Bass, Jr., the Company's  Chairman of the Board
and by Herman Schellstede, an engineering consultants..

Environmental Remediation Services

     The  Company  provides  environmental  remediation  services to oil and gas
operators. These services include environmental engineering,  hazardous material
(including naturally occurring  radioactive  material) remediation and disposal,
and oil spill, soil  decontamination  and  non-hazardous  oilfield waste cleanup
related to the production of oil and natural gas, all in accordance  with strict
federal,  state and local environmental  regulations.  The Company also provides
"plug and  abandonment"  services  for wells from which the oil and  natural gas
have been depleted and further production has become uneconomical.

     The  Company's  soil  decontamination  systems  are  capable of  handling a
variety  of  different  contamination  problems  utilizing  standard  Class  1-4
decontamination  machines.  The  Class  I  machine  is  used  to  process  soils
contaminated  with  gasoline  and  diesel  and which  require  little or no soil
conditioning.  The Class II machine offers increased  temperatures to treat soil
with  contaminants up to No. 6 fuel oil,  lubricating  oils, heavy oil residuals
and crude oils.  The Class III  machines are an upgrade to the Class II machines
and accommodate slightly higher temperatures and add acid gas neutralization for
handling chlorinated compounds.
The Class IV machines are hazardous waste incinerators.

     The Company anticipates that its staff will be certified in the use of many
types of products used in tank and pit cleaning services and emergency  response
spill and clean-up.  The Company uses a "sludge-buster"  robotic water cannon to
expedite  the  cleaning of tanks.  The Company will use a closed loop system for
pit cleaning.  The closed loop system separates solids from liquids,  chemically
treats the liquids and solids in accordance with local environmental  standards.
Provided  funds are available,  of which there can be no assurance,  the Company
expects to deliver emergency crews trained in chemical and oil spill containment
and clean-up  throughout  many parts of the world should such  contracts  become
available.

     In April 1997,  the Company  entered into a master  service  agreement with
Chevron to rework,  in order to draw additional  production from,  approximately
400 depleting  oil and gas wells and to remediate  and "plug and abandon"  these
and other wells when  depleted,  in Chevron's  oil fields in southern  Louisiana
along the Gulf of Mexico.  The Chevron agreement  provides for a three-year work
schedule,  commencing  upon the  completion  of the Company's 140 foot "plug and
abandonment"  barge. This barge will be used to remediate  offshore oil rigs and
be capable of working in coastal  waters as shallow as 19 inches.  A substantial
deposit was made by the Company to secure the barge.  The Company  believes  the
original  barge  supplier  will not be able to  deliver  since  the owner of the
company died. The Company is attempting to recover the deposit and is seeking an
alternate  supplier.  It is estimated that the Company's barge could be ready to
operate 180 days following funding.  To date, the Company has not determined the
exact level of financing  that will be necessary for this  project,  but expects
$1.5 million is necessary to get the barge  operational.  The Chevron  agreement
was  originally  entered into by BAPCO and BEW in September  1996,  prior to the
acquisition  of BAPCO by the  Company in April  1997,  and was  assigned  to the
Company  with  Chevron's  consent at the time of the  acquisition.  The  Company
issued 3,000,000 shares of Common Stock to BEW in connection with the assignment
of this  agreement.  Due to the price  structure  of the oil and gas business at
this time,  the  Companydoes  not  believe  that it is in its best  interest  to
construct this barge.  However, a substantial increase in oil prices would cause
the Company to reevaluate its decision regarding such construction.
<PAGE>
     The Company's "plug and  abandonment"  services  involve  shutting down and
discontinuing the use of old, unsafe or marginally-producing  oil or natural gas
wells,  and  restoring  a site to its  pre-drilling  condition.  There  are many
ecological  ramifications if oil and gas wells are abandoned  without  following
federal  Environmental  Protection  Agency and state Department of Environmental
Quality  mandated  guidelines.  These  ramifications  are  caused  due to  aging
equipment and pipe sealings which can lead to "blow outs,"  spilling oil and gas
into the  surrounding  waters and creating  ground water  contamination.  If not
"plugged," these problems can lead to major environmental problems and expensive
pollution cleanup for the well owners or operators.  "Plug and abandonment" also
involves  delivery  of test  results  indicating  that  well  closure  has  been
completed  in  compliance  with  applicable  regulations.  This  information  is
important to the customer because the operation is subject to future  regulatory
review and audits.  In addition,  the  information  may be required on a current
basis if the operator is subject to a pending regulatory compliance order.

     The   Company's   environmental   remediation   customers   are  major  and
medium-sized  independent  oil and gas  exploration  and  production  companies.
During the fiscal  year  ended  September  30,  1997,  approximately  60% of the
Company's  revenues  were  derived  from three  major oil  companies,  including
Chevron.  Given  current  market  conditions  and  the  nature  of the  services
involved, management does not believe that the loss of any single customer would
have a  material  adverse  effect  on  the  Company.  Environmental  remediation
services are typically performed under short-term time and materials  contracts,
which are obtained by direct negotiation or bid.

     To assist in the Company's  penetration  of the  environmental  remediation
services  market in  Louisiana,  in  February  1998,  the  Company  executed  an
agreement to acquire a 70% equity interest in Virotek, a Louisiana  corporation,
from its only other  shareholder,  Recycling  Remedies,  Inc.  Virotek  owns and
operates a NORM solid waste disposal site in Houma,  Louisiana and holds permits
from  Louisiana  environmental  authorities  to dispose of salt water  brine and
naturally occurring waste products. Under the Company's agreement to acquire its
interest in Virotek,  the Company paid an initial installment payment of $15,000
in cash and signed a promissory  note in the amount of $300,000.  The  Company's
payment of the promissory note is pending its receipt from the seller of audited
financial  statements  for  Virotek.  The  Company  came to  believe  that  such
financial  statements  would not be provided and that this  transaction  was not
likely to be completed.  In August 1998, this  acquisition was canceled  because
during the due diligence process the Company  discovered (1) serious  unresolved
environmental  issues,  (2)  greater  refurbishment   expenses  than  originally
estimated and (3) larger liabilities than originally represented.

     In late September 1998, the Company  commenced  negotiations for a contract
with  PEMEX in Mexico to  process  150,000  tons of oil  contaminated  drill bit
cuttings.  The  process  would  involve  moving a high  temperature  burner to a
central site in southern Mexico near the Yucatan  Peninsula and incinerating the
oil  contamination  within the cuttings.  The contract will require PEMEX to pay
the  Company  a  processing  fee of  between  $160-$170  per  ton.  The  cost to
incinerate  and process the cuttings is estimated to be  approximately  $103 per
ton including the cost to  incinerate  and transport the cuttings,  salaries and
operating  expenses and the 8% commission which the Company would be required to
pay to the Mexican  agent.  The Company  estimates  that it would  require  $1.8
million to complete this project, for which the Company would require additional
funding.

     In late November 1998, the Company  commenced  negotiations  for a contract
with a major  international  oil company in  Venezuela to  incinerate  oil based
drill cuttings from 6 wells to be drilled. This is in the preliminary stages and
economic feasibility has not been determined.

     The Company is evaluating the financial merit of each of these projects and
potential funding sources at this time.

Offshore Logistics Services
<PAGE>
         Panama Refueling Concession

     In December 1996, the Company  entered into a joint venture  agreement with
Centram  Marine  Services,  S.A.,  which was amended in March 1997,  pursuant to
which the  venture  obtained  rights to  participate  in a  ten-year  concession
agreement  with the Panama Canal  Commission.  The  concession  grants the joint
venture  the right to supply  fuel and other  petroleum  supplies to tankers and
other   commercial   vessels   traversing   the  Panama   Canal.   Historically,
approximately 45 such vessels  traverse the Panama Canal daily.  Pursuant to the
terms of the joint venture agreement, the Company is entitled to receive 66-2/3%
of all net profits of the venture,  in exchange for the  provision of a tug boat
and a 30,000 barrel fuel barge.  The joint venture is currently in  negotiations
to  purchase a 1.5 million  gallon fuel barge and an 85 foot flat deck  tugboat.
These operations are expected to commence as such time as adequate  financing is
secured, of which there can be no assurance.  However, the Company believes that
all initial  funds  available  to it will be focused  initially  on its Sao Tome
activities unless such funds are available solely for this project.

     In  connection  with  entering  into such  agreement  with the Panama Canal
Commission,  the venture  received a commitment  from Texaco Inc. to provide the
venture  with  the  necessary  fuel  to  comply  with  the  requirements  of the
concession.  The Company anticipates that the venture would be able to provide a
minimum  of  500,000  gallons  of fuel a day at the  start  of the  program  and
increasing  to one  million  gallons by the end of the first year of  operation.
Based on a markup of $0.04 per gallon,  the Company  anticipates  gross sales on
500,000  gallons to be in the range of  $250,000  per day  resulting  in a gross
profit of $20,000 per day. There is no assurance that these anticipated  profits
will be attained.

Marketing

     During the fiscal year ended  September 30, 1997,  the Company did not have
any sales of oil or gas.  Commencing in October 1997, the Company recorded sales
of crude oil from the Uinta properties and, in November 1997,  recorded sales of
"test" oil from the Wichita Falls field in north Texas. As of December 31, 1998,
the Company continues to sell oil from both of these properties.  All such sales
were made on the spot market. In the future,  the Company intends to continue to
sell its crude oil and natural gas, and associated oil and gas products,  on the
spot market.

Raw Materials

     The  Company  believes  that its  source of  supply  for any  materials  or
equipment  used in its  business  are  adequate for its needs and that it is not
dependent  upon any one  supplier.  No  serious  shortages  or delays  have been
encountered in obtaining any raw materials.

Governmental Regulation

     Oil and natural gas operations are subject to extensive federal,  state and
local laws and regulations relating to the exploration for, and the development,
production  and  transportation  of,  oil and  natural  gas,  as well as  safety
matters,  which may be changed  from time to time in  response  to  economic  or
political conditions.  Matters subject to regulation by federal, state and local
authorities  include  permits  for  drilling   operations,   road  and  pipeline
construction, reports concerning operations, the space of wells, unitization and
pooling of properties,  taxation and  alterations  to the Company's  development
plans could have a material  adverse  effect on  operations.  From time to time,
regulatory agencies have imposed price controls and limitations on production by
restricting  the  rate of  flow  of oil  and  natural  gas  wells  below  actual
production  capacity  in order to  conserve  supplies  of oil and  natural  gas.
Although the Company  believes  that it is in  substantial  compliance  with all
applicable  laws and  regulations,  the  requirements  imposed  by such laws and
regulations  are  frequently  changed  and  subject to  interpretation,  and the
Company cannot predict the ultimate cost of compliance  with these  requirements
or their  effect on  operations.  Significant  expenditures  may be  required to
comply with governmental laws and regulations.
<PAGE>
Environmental Regulation and Claims

     The Company's  workover and environmental  remediation  services  routinely
involve the handling of significant  amounts of waste  materials,  some of which
are classified as hazardous substances.  The Company's operations and facilities
are  subject  to  numerous  state  and  federal  environmental  laws,  rules and
regulations,  including, without limitation, laws concerning the containment and
disposal of hazardous materials,  oilfield waste and other waste materials,  the
use of underground storage tanks and the use of underground injection wells. The
Company contracts with third parties for monitoring environmental compliance and
arranging  for remedial  actions that may be required from time to time and also
uses outside  experts to advise on and assist with the  Company's  environmental
compliance  efforts.  Costs incurred by the Company to investigate and remediate
contaminated sites are expensed unless the remediation  extends the useful lives
of the assets  employed  at the site.  Remediation  costs that extend the useful
lives of the assets are  capitalized  and amortized  over the  remaining  useful
lives of such assets.  Liabilities are recorded when the need for  environmental
assessments  and/or remedial  efforts becomes known or probable and the cost can
be reasonably estimated.

     Laws protecting the environment  have generally  become more stringent that
in the  past and are  expected  to  continue  to do so.  Environmental  laws and
regulations  typically  impose  "strict  liability"  which  means  that  in some
situations the Company could be exposed to liability for cleanup costs and other
damages  as a result of conduct  of the  Company  that was lawful at the time it
occurred or conduct of, or conditions caused by, others. Cleanup costs and other
damages  arising as a result of  environmental  laws, and costs  associated with
changes in environmental laws and regulations could be substantial.

     Under the Comprehensive Environmental Response,  Compensation and Liability
Act,  also  known as  "Superfund,"  and  related  state  laws  and  regulations,
liability can be imposed without regard to fault or the legality of the original
conduct on  certain  classes of persons  that  contributed  to the  release of a
"hazardous  substance"  into the  environment.  Changes  to  federal  and  state
environmental  regulations  may  also  negatively  impact  oil and  natural  gas
exploration  and  production  companies,  which in turn  could  have a  material
adverse effect on the Company.  For example,  legislation has been proposed from
time to time in Congress  which would  reclassify oil and natural gas production
wastes as "hazardous  wastes." Revision were made in July 1998.  Suchlegislation
could  dramatically  increase  operating  costs for domestic oil and natural gas
companies and this could reduce the market for the Company's  services by making
many wells and/or oilfield  uneconomical  to operate.  The Company is evaluating
the impact, if any, of the revisions to its business activities.

Patents and Trademarks

     The Company owns or has  exclusive  rights to use several  U.S.  patents on
designs for various types of oilfield  equipment  and on methods for  conducting
certain  oilfield  activities,  including  discrete parts of the BAPCO Tool. The
Company  uses some of these  designs and methods to conduct  its  business.  The
patents  expire at various  times over the next 4 to 14 years.  The Company also
has several  trademarks and service marks that it uses in various aspects of its
business.  While  management  believes the Company's patent and trademark rights
are valuable,  the  expiration  or loss  thereof,  other than parts of the BAPCO
Tool,  would  not have a  material  adverse  effect on the  Company's  financial
condition or results of operations.

Competitive Conditions

     Although the number of available  rigs has  materially  decreased  over the
past ten years, the workover and drilling industry remains very competitive. The
number  of  rigs  continues  to  exceed   demand,   resulting  in  severe  price
competition.  Many of the total available  contracts are currently  awarded on a
bid basis,  which further  increases  competition  based on price. In all of the
Company's  market areas,  competitive  factors also include the availability and
condition  of equipment to meet both  special and general  customer  needs,  the
availability of trained personnel  possessing the required  specialized  skills,
the overall quality of service and safety record, and domestically,  the ability
to offer  ancillary  services  such as "plug and  abandonment"  services.  As an
enhancement to its competitive position,  the Company has been able to establish
joint ventures in domestic and international markets.

     The environmental  remediation market is extremely  fragmented and composed
of hundreds of small firms with one or only few regional offices.
<PAGE>
     Currently,  there  are a  great  number  of new  and  successful  secondary
recovery programs.  Many of these methods are allowing for a much higher rate of
recovery than shown by the Company. The technique that the Company has chosen to
utilize,  after  consideration of other methods,  by means of the BAPCO tool, is
that of the lateral drilling system. This technique,  which calls for drilling a
50' long, 2 inch  diameter  horizontal  drain hole into the formation is ideally
suited  for  both  the  Gunsite  and  Rusk  County  formations,  as  they  are a
"fractured" type horizon,  and the oil is being drained from existing  fractures
in the  formation.  The  drilling  of  horizontal  drain  holes is  expected  to
encounter  many  new  fracture  systems  within  the  formation,   resulting  in
significant  oil production  increases  from each well because it  interconnects
various fracture systems,  thus enhancing the recovery potential.  Based on data
supplied by the Schellstede  Company,  initial production increases from 8 to 10
barrels per day are common in similar types of shallow wells  laterally  drilled
using the lateral drilling system.
Employees

     As of September 30, 1998, the Company had 16 full-time employees, including
three  petroleum  engineers  and  one  geologist.   None  of  its  employees  is
represented  by a  collective  bargaining  unit.  Management  believes  that the
Company's relationship with its employees is excellent.

ITEM 2.           PROPERTIES

     The Company's  principal  executive  offices are located in Oyster Bay, New
York in  approximately  1,100 square feet of leased  office  space.  The Company
currently  pays $850 per month in rent under its lease,  which  extends  through
March 2000. The Company also leases  approximately 7,000 square feet of its main
operational  facility in Lafayette,  Louisiana and pays $4,000 per month under a
lease  extending  through  October 2002.  The Company  believes that  additional
office and operational space will be required to accommodate planned expansion.

ITEM 3.           LEGAL PROCEEDINGS

     Piedra  Drilling  Company,  Inc.  ("PDC")  commenced an action  against the
Company in Denver,  Colorado in July 1997.  PDC brought this action to enforce a
contract for the  issuance of 450,000  shares of the  Company's  common stock in
consideration  for the sale by PDC to the Company of certain drilling  equipment
and designs.  The Company did not issue the shares to PDC because the  necessary
equipment and designs were not delivered and/or validly assigned to the Company.
PDC obtained a default  judgment in the amount of  approximately  $1.2  million,
which was vacated in November  1997.  Colorado  counsel for the Company filed an
answer,  counterclaims  and  discovery  demands in  November  1997.  The Company
believed it has a number of meritorious defenses and potential counterclaims and
vigorously  defended  this  action.  This case  went to trial in August  1998 in
Denver and judgment was found in favor of the Company. The award is in excess of
$17,000,  however,  there local  counsel  believes that such judgment may not be
recoverable  since PDC has few  assets.  The time for  appeal has lapsed and the
Company is considering whether to seek recovery on the judgment.

     Uinta Oil & Gas, Inc., ("Uinta") one of the three "joint" sellers under the
agreement  to acquire the Uinta  leases and certain  other  assets took  certain
actions that were in  contravention  of the agreement  when certain  anticipated
funding to the  Company  did not occur.  The  Company  gave Uinta  notice of its
demand for arbitration under the agreement. Uinta commenced an action agains the
Company, BAPCO, Sam L. Bass, Jr., Noreen Wilson, Jim Griffin, Robert E. McKnight
and Robert  Ballou (the  Company's  geologist) in Uintah  County,  Utah in April
1998.  The  complaint  alleges  fraud  in  the  inducement,  rescission  of  the
agreement, breach of contract and securities fraud and requests punitive damages
and  appointment  of a  receiver.  The  Company  then filed a formal  demand for
arbitration.  Uinta filed a request for a receiver to be appointed.  This motion
was denied; however, the court held the issue of arbitration in abeyance pending
an evidentiary  hearing on the allegations of Uinta's allegations of fraud since
Utah  law  contains  an  exception  to  mandatory  arbitration  when  there  are
allegations  of  fraud.  Prior to the  hearing  on  receivership,  the other two
"joint" sellers, Coconino, S.M.A., Inc. and Pine Valley Exploration,  Inc. filed
their formal demand for  arbitration.  The Company believes that it has numerous
meritorious  defenses to this action.  In the  interim,  the Company has made an
offer to settle this  matter.  The Company  believes  that a  settlement  on all
issues  will be  completed  in  January  1999.  Under the terms of the  executed
settlement,  for the 500,000  shares of restricted  stock which were issued at a
guarantee  price of $2 per share,  additional  restricted  shares will be issued
which  reflect the  difference  between $2 and the price on October 16, 1998 and
December 30, 1998 and the 500,000  shares of  restricted  stock which were to be
issued in early  1998 will be issued  and  treated as if issued at the time such
deliverance  was  initially  required.  In  addition,  the parties  will receive
additional shares equal to the difference between the value on a date certain in
January  1999 and $2 (the "Strike  Price") for the second block of 500,000.  
<PAGE>
     The Company will reimburse certain filing fees, attorneys fees and will pay
for certain  office  equipment.  The Company will  receive a quitclaim  deed and
assignments to perfect the Company's  interest in the leases.  In addition,  (1)
Uinta will be issued  shares of the  Company's  Common Stock the amount of which
shall be  determined  by dividing  $250,000 by the Strike  Price,  half of which
shares  shall be  included  in this  registration  and  half of  which  shall be
restricted securities, (2) in exchange for assignment of a 4% overriding royalty
interest,  Uinta will  receive  restricted  shares the amount of which  shall be
determined  by dividing  $677,000 by the Strike  Price,  (3) a deficiency  value
equal to $41,200 for the Utah office  building will be liquidated by issuance of
shares  the  amount of which  shall be equal to  $41,200  divided  by the Strike
Price, which shares shall be included in this registration statement,  (4) Uinta
will  receive no more than $10,000 to cost its court costs and  attorneys  fees,
and (5) payment of  outstanding  production  service  invoices to third  parties
totally  $27,000  shall  be  paid  in  the  form  of  shares  included  in  this
registration  statement,  which shares shall be equal to $27,000  divided by the
Strike Price. See "Selling Shareholders".

     On August 11,  1998,  the Company and  Kingsbridge  agreed to enter into an
agreement to cancel the  Kingsbridge  Private  Equity Line of Credit dated March
23, 1998. Pursuant to the terms of the proposed  cancellation,  the Company will
pay a penalty in the amount of $100,000  and will issue  warrants to purchase up
to an additional  100,000 shares of the Company's Common Stock (the "Kingsbridge
Warrants").  The Company has decided to cancel the  Kingsbridge  Private  Equity
Line of Credit  because  terms of certain  of the third  quarter  1998  fundings
require the Company to cancel this agreement so as to limit the number of shares
of the  Company's  Common Stock  outstanding  upon  conversion  of the Company's
convertible notes in the future.  However,  as of December 31, 1998, the Company
had not  completed  the terms of the  anticipated  cancellation,  and  therefore
continues to be obligated to register the potential  Kingsbridge shares issuable
under the put option  exercise  notice and the  Kingsbridge  Warrant.  Under the
terms of the cancellation,  the Company will be responsible for the registration
of the additional warrants.  On December 10, 1998,  Kingsbridge made application
to the American  Arbitration  Association for arbitration of outstanding  issues
between the parties,  claiming  beaches of  contracts.  The Company has filed an
Answer in such  proceedings.  The Company  believes it has just and  meritorious
defenses to the claims and intends to vigorously defend these claims.

     Other than the above  legal  proceeding,  the Company is not a party to any
other material pending or threatened legal proceeding.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

                                     PART II

ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
                  HOLDERS.

         (A)      Market Information

     (1)  Shares of the  Company's  Common  Stock  have  been  traded on the OTC
Bulletin  Board under the symbol  "ERHC" since August 23,  1996.  The  following
table sets forth the high and low sales  prices of the Common Stock as quoted on
the OTC Bulletin Board for the periods indicated.  The high and low sales prices
for the Common Stock below reflect inter-dealer prices,  without retail mark-up,
mark-down, or commissions and may not necessarily represent actual transactions.

                                                         High              Low
                                                        ----             ----
Fiscal Year 1996
4th Quarter (August 23 - September 30, 1996) ............. $5-3/4     $5-1/4


Fiscal Year 1997
1st  Quarter (October 1 - December 31, 1996)............... 5-1/2           1/4
2nd Quarter (January 1 - March 31, 1997)................... 2-1/2          5/16
3rd  Quarter (April 1 - June 30, 1997).....................   5/8          7/32
4th  Quarter (July 1 - September 30, 1997)................. 5-3/8          5/16

Fiscal Year 1998
1st  Quarter (October 1 - December 31, 1997)..............  3-3/8         1-3/8
2nd Quarter (January 1 - March 31, 1998) .................  2-3/16          7/8
3rd Quarter (April 1 - June 30, 1998) ....................  1-3/4          41/64
4th  Quarter (July 1 - September 30, 1998)................  1-1/8          11/16

Fiscal Year 1999
1st Quarter (October 1, - December 31, 1998).............  53/64             1/4
<PAGE>
     (2) Holders.  The number of record holders of the Company's Common Stock as
of December 31, 1998 was 2075 based on the records of the transfer agent.

     (3) Dividends.  Holders of the Company's  Common Stock are entitled to such
dividends  as may be  declared by the Board of  Directors  and paid out of funds
legally  available  therefor.  The Company has never paid any  dividends  on the
Common Stock.  The Company  intends to retain  earnings,  if any, to finance the
development  and expansion of its business and does not  anticipate  paying cash
dividends in the foreseeable future. Future determinations regarding the payment
of dividends  is subject to the  discretion  of the Board of Directors  and will
depend  upon  a  number  of  factors,   including   future   earnings,   capital
requirements,   financial   condition  and  the  existence  or  absence  of  any
contractual limitations on the payment of dividends.


         (B)      Recent Sales of Unregistered Securities.

     (1) The Company made the  following  unregistered  sales of its  securities
from October 1, 1997 through December 31, 1998:
<TABLE>
<S>      <C>                 <C>             <C>                      <C>
DATE
OF         TITLE OF
SALE       SECURITIES         AMOUNT            CONSIDERATION              PURCHASER
-------  ------------------  --------------  ---------------------    --------------------------

10/97      Common Stock        830,273              $913,000          Purchasers in Rule 506
                                                      (1)             private placement (14
                                                                      purchasers)

10/97      Common Stock       1,000,000          Oil reserves         1. Uinta Oil & Gas, Inc.
                                 (2)             and equipment        2. Pine Valley Exploration,
                                              valued at $2,000,000                    Inc.
                                                                      3. Coconino, S.M.A., Inc.
                                                                      4. Joseph H. Lorenzo

10/97      Common Stock         112,099         $115,609.15           Purchasers in Rule 506
                                  (1)                                 private placement (6
                                                                        purchasers)

10/97      5.5% Convertible    $4,300,000       $4,300,000            Accredited institutional
           Senior               principal                             investors (10 institutions)
           Subordinated         amount;
           Notes              convertible into
                              up to 3,440,000
                              shares of Common
                                 Stock (1)

10/97    Warrants to         Exercisable into   No additional         Accredited institutional
         Purchase Common     283,800 shares     consideration         investors (11 institutions)
         Stock (1)            of Common Stock

10/97    Common Shares        100,000           Repayment of a        Kenneth M. Waters
                                                Loan to BAPCO
                                                In the amount of
                                                   $295,000

10/97    Common Shares         50,000           3/8 Undivided Interest  Hinge Line, Inc.
                                                Gas reserves and
                                                one natural gas well -
                                                Valued at $148,750

10/97    Common Shares         45,000           Consulting Services     Steve Boltax
                                                 Valued at $17,100

10/97    Common Shares         50,000           Consulting Services     MyTec & Associates
                                                rendered in connection
                                                with Wichita and Rusk
                                                Counties valued at
                                                     $148,500

10/97    Common Shares         50,000           Consulting Services      Sheila Williams Bass
                                                Valued at $144,000

10/97    Common Shares        100,000           Professional Services    Senator Vance Hartke
                                                Valued at $291,000

11/97    Common Shares        64,409              $67,750                Purchasers in Rule 506
                               (1)                                         private placement (8
                                                                              purchasers)
<PAGE>
12/97    Common Shares        10,000            Consulting Services      C.D. Johnston, Jr.
                                                Valued at $26,400

2/98     Common Shares        24,000            Part of acquisition of     Craig Phillips
                                                Utah office building       Robert Ballou
                                                Valued at $70,000

2/98     Common Shares        282,000                $180,250            Purchasers in Rule 506
                                (1)                                        Private placement
                                                                            (2  purchasers)

2/98     Common Shares        84,664            For services valued at   Purchasers in Rule 506
                                                     $2,199,920             Private Placement
                                                                           (5 purchasers)

2/98     Common Shares        23,200             Consulting Services       Jerome Rappaport
                                                   Valued at $28,496         Andrew Racz

 3/98     Warrant to          Exercisable        In connection with       Kingsbridge Capital
          Purchase            into 100,000          entering into              Limited
          Common Stock        shares of          Investors Agreement
                              Common Stock
                                  (1)

3/98     Common Stock          300,000                $236,250            Purchasers in Rule 506
                                (1)                                         Private Placement
                                                                            (1 Purchaser)

 4/98   12.0% Convertible      $300,000;              $300,000             Accredited
           Notes              convertible into                            investors (9 institutions)
                               up to 200,000
                                shares of
                               Common Stock
                                    (1)

 4/98     Warrants to         Exercisable into      No additional          Accredited
           purchase           210,000 shares        consideration          investors (9 institutions)
          Common Stock            (1)

 6/98     Warrants to         Exercisable into        $200,000             Accredited
           purchase           1,050,000 shares                             investors (3 institutions)
          Common Stock             (1)

 6/98    12.0% Subordinated   $425,000;               $425,000             Accredited
           Convertible        convertible into                             investors (5 institutions)
            Notes              up to 425,000
                                 shares of
                                Common Stock
                                     (1)

 6/98    Warrants to          Exercisable into       No additional         Accredited
          purchase             531,250 shares        consideration         investors (5 institutions)
         Common Stock              (1)

 6/98       5.5%              $1,293,750              $1,250,000           Accredited
         Convertible          convertible into                             investor (1 institution)
           Notes               up to 1,798,124
                                 shares of
                                Common Stock
                                    (1)

 6/98    Warrants to          Exercisable            No additional         Accredited
          purchase            into 230,000           consideration         investor (1 institution)
         Common Stock          shares (1)

6/98     Common Shares          234,200                $135,600            Purchasers in Rule 506
                                  (1)                                        Private placement
                                                                              (15 purchasers)

6/98     Common Shares          62,420               For services          Jerome Rappaport
                                                     Valued at $31,884     Ilona Minovskiy
                                                                           Yvonne Montiel
                                                                           Assonta LoGiudice
                                                                           Maria Cardenas
                                                                           HWK Consultants, Inc.
<PAGE>
7/98     8.0%                 $2,485,000                $2,485,000         Accredited
         Convertible          convertible into                             Investors (10 Institutions)
         Notes                up to 3,303,840
                                Shares of
                               Common Stock
                                   (1)(3)

7/98     Warrants             Exercisable               No additional      Accredited
         to purchase          into 223,650              consideration      Investors (10 Institutions)
         Common Stock          shares (1)

8/98     Common Stock           47,0000                    $23,500         Purchasers in Rule 506
                                  (1)                                       Private Placement
                                                                             (9 Purchasers)

8/98     Common Stock           50,000                  Consulting Services    Andrew Racz
                                                          Valued at $25,000

8/98     Common Stock            4,700                  Consulting Services    Jerome Rappaport
                                                          Valued at $2,350

8/98     Common Stock           50,000                  Penalty due on       Don Hillin
                                                        Payment made
                                                        By Hinge Line, Inc.
                                                        In April to continue
                                                         Option on 49,000
                                                         Acres, valued at
                                                          $47,656

8/98     Common Stock          525,000                  In connection with         1.   Robert McKnight -
                                                        Services on the Company's          425,000
                                                          Board of Directors       2.   Kenneth M. Waters-
                                                          Valued at $446,250               100,000
                                                                 (4)

9/98     Common Stock          249,536                  Payment on          Hinge Line Inc.
                                                        Nueces in lieu of
                                                        Balance due of
                                                           $171,556

9/98     Common Stock          491,646                  Payment on          Autry C. Stephens
                                                        Nueces in lieu of
                                                         Balance due of
                                                           $338,007

10/98    20.0%               $500,000                   $500,000           Accredited
         Convertible         convertible                                   Investor (1 Institution)
         Note                into up to 500,000
                             Shares of
                             Common Stock
                                 (1)

10/98    Warrants            Exercisable               No additional       Accredited
         to purchase         into 1,500,000            consideration       Investor (1 Institution)
         Common Stock         shares (1)

10/98    12.0%               $800,000                  $800,000            Accredited
         Convertible         convertible into                              Investors (4 Institutions)
         Notes               up to 640,000
                             Shares of
                             Common Stock
                                 (1)

10/98    Warrants            Exercisable               No additional       Accredited
         to purchase         into 2,400,000            consideration       Investors (4 Institutions)
         Common Stock         shares (1)

10/98    Common Stock          109,000                 Consulting Services   R&S Environmental Inc.
                                                        Valued at $45,984

10/98    Common Stock        8,000,000                 In consideration       1.  Sam Bass - 2,000,000
                                                       Of services to the     2.  Jim Callender - 2,000,000
                                                       Company relative       3.  Noreen Wilson -
                                                       To the finalization             2,000,000
                                                       Of contracts with      4.  Jim Griffin - 2,000,000
                                                       Sao Tome and Mobil
                                                        Not Valued (5)

11/98    Common Stock         100,000                  Consulting Services     Richard Magar
                                                         Valued at $71,000

11/98    Common Stock         2,000,000                Payment in Settlement   Procura
                                                        Of claims relative
                                                       To original Sao Tome
                                                        Agreement valued at
                                                          Not Valued (6)
</TABLE>
<PAGE>
     (1) The above transactions were private transactions not involving a public
offering and were exempt from the registration  provisions of the Securities Act
of 1933, as amended,  pursuant to Section 4(2)  thereof.  The sale of securities
was without  the use of an  underwriter,  and the  certificates  evidencing  the
shares bear the  restrictive  legend  permitting the transfer  thereof only upon
registration  of the shares or an exemption under the Securities Act of 1933, as
amended.

     (2) The Company was  obligated  to issue  1,000,000  of which  500,000 were
issued and the balance will be issued pursuant to the Uinta Settlement.

     (3) A total of $412,350 of such convertible notes were converted in October
1998 and 1,210,686 shares issued on such conversions.

     (4) Mr.  Waters has returned  his 100,000  shares to the Company due to tax
considerations, therefore no value has been attributed to such shares.

     (5) The Board of Directors  rescinded  the issuance of 8,000,000  shares on
December 18, 1998, therefore no value has been attributed to such shares.

     (6) The  parties  had  agreed to settle  matters  relative  to the Sao Tome
contract,  and Procura is now disputing the  settlement.  The Company is holding
the  shares  until  resolution  of this  matter,  therefore  no  value  has been
attributed  to such shares.  The Company has  authorized  an offer of a proposed
settlement,  which based upon  discussions  with the principals of Procura,  the
Company believes will be accepted.

ITEM 6.           SELECTED FINANCIAL DATA

     The selected  financial data of the Company presented below as of September
30, 1998, have been derived from the  Consolidated  Financial  Statements of the
Company,  which Consolidated Financial Statements have been audited by Durland &
Company, CPAs, P.A.,  independent public accountants, and are included elsewhere
in this Form 10-K. The data set forth below should be read in  conjunction  with
the  Company's  Consolidated  Financial  Statements,  related  notes thereto and
"Management's Discussion and Analysis of Plans of Operations."

                        Fiscal Years ended September 30,
Statement of
Operations Data        1996             1997           1998

Revenues:
Environmental
Remediation
services               $0               $108,944       $65,404

Crude Oil sales         0                0              147,782

Operating expenses      789,225          17,029,327     11,590,848

Income before
taxes and
extraordinary items     (728,748)       (16,913,052)   (11,343,788)

Provision (benefit)
for income taxes        0                 0              0

Net income(loss)        (728,748)        (16,913,052)   (11,343,788)

Net income (loss)
per share               (0.30)           (1.61)          (0.47)

Weighted average
common stock
outstanding             2,469,511        10,500,293     24,156,984

Balance Sheet Data (at end of period)

Property and
equipment               3,477,000        4,351,185      6,678,100

Total Assets            3,477,000        4,894,936      11,716,460

Total Liabilities       6,730            1,748,376      12,712,133

Stockholders equity     3,470,270        3,146,560      (995,673)
<PAGE>
ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS

     The following  Management's  Discussion and Analysis of Financial Condition
and Results of Operations  includes  forward-looking  statements with respect to
the Company's future financial performance. These forward-looking statements are
subject to various risks and  uncertainties  that could cause actual  results to
differ materially from historical results or those currently anticipated.

Overview

     The  Company  is  an  independent  oil  and  gas  company  engaged  in  the
exploration,  development,  production  and sale of crude  oil and  natural  gas
properties with current  operations  focused in Texas, Utah and Sao Tome in West
Africa. The Company's goal is to maximize its value through profitable growth in
its oil and gas reserves and production.  The Company has taken steps to achieve
this  goal  through  its  growth  strategy  of  (i)  managing  the  exploration,
exploitation and development of non-producing  properties in known oil-producing
areas,  such as the Gulf of Guinea in West Africa,  with  industry or government
partners,  (ii) at such times as pil prices are more  favorable,  continuing  to
pursue  environmental  remediation service contracts for oil and gas well rework
and "plug and abandonment" services in the United States and internationally and
(iii) exploiting the BAPCO Tool.

     The Company has acquired all of its oil and gas properties  since 1997. The
Company's current development plans require substantial capital  expenditures in
connection with the exploration, development and exploitation of oil and natural
gas properties. The Company has historically funded capital expenditures through
a combination of equity contributions and short-term financing arrangements.

     The  following   discussion   should  be  read  in  conjunction   with  the
Consolidated  Financial Statements and notes thereto appearing elsewhere in this
Form 10-K.

Results of Operations

     Fiscal  Year  Ended  September  30,  1998  compared  to Fiscal  year  Ended
September 30, 1997

     During fiscal 1998 the Company incurred a net loss of $11,343,788, compared
to a net loss of $16,913,052 in fiscal 1997,  reflecting the Company's increased
level of business  operations.  In fiscal 1998 a total of $935,916  was accrued,
but not  paid in  cash,  as  compensation  to  three  officers  of the  Company.
Depreciation and depletion  equaled $504,314 in fiscal 1998 compared to $273,000
in fiscal 1997.  Amortization of the beneficial  conversion  feature discount on
convertible debt was $1,364,063 for the period ended September 30, 1998 compared
to $0 for the period ended  September 30, 1997.  The net cash  operating loss of
the  Company  for  fiscal  1998 was $4,840,143 compared to $1,283,879 for fiscal
1997.

     Officers'  compensation,  professional  fees,  travel,  consultant fees and
miscellaneous  expenses for the period ended  September 30, 1998 compared to the
period ended  September 30, 1997  increased  significantly  due to the Company's
business  operations  continuing  to increase.  Professional  fees in the period
ended September 30, 1998 included legal, audit,  petroleum engineering and other
engineering costs.

     The Company had revenues of $247,060 in fiscal 1998 compared to $116,275 in
fiscal 1997. Included in fiscal 1998 were preparatory  expenses of approximately
$200,000  related to the cost of bringing a delegation of government  officials,
including the Prime Minister of Sao Tome, to the United States for meetings with
various  committees  of the United  Nations  and the United  States  government,
determining the boundaries of the concession and  facilitating  the passage of a
law in Sao Tome regarding the boundaries of the country.

Liquidity and Capital Resources

     Historically,  the Company has financed its operations from the sale of its
debt  and  equity  securities  (including  the  issuance  of its  securities  in
consideration for services and/or products) and bank and other debt. The Company
expects to finance its  operations and further  development  plans during fiscal
1999 in part through  additional debt or equity capital and in part through cash
flow from  operations.  A  description  of the Company's  most recent  financing
activities is included herein under the heading "The Company."

     The Company  presently  intends to utilize any cash flow from operations as
follows:  (i)  seismic  studies  and fees for the Sao Tome joint  venture;  (ii)
production of wells in the Uintah Basin,  (iii)  production in the oil fields in
Texas; and (vi) working capital and general corporate purposes.
<PAGE>
Capital Expenditures and Business Plan

     In May 1997, the Company  entered into an exclusive  joint venture with the
Democratic  Republic  of  Sao  Tome  &  Principe  ("Sao  Tome")  to  manage  the
exploration,  exploitation and development of the potential oil and gas reserves
onshore and offshore Sao Tome,  either  through the venture or in  collaboration
with major  international oil exploration  companies.  At that time, the Company
was required to pay a $5,000,000  concession fee to the Sao Tome government.  In
September 1997, the Company received a Memorandum of Understanding  from the Sao
Tome government  which allows the Company to pay this concession fee within five
days after Sao Tome files the relevant  official  maritime  claims maps with the
United Nations and the Gulf of Guinea Commission.  In December 1997, the Company
paid  $2,000,000 of this concession fee to Sao Tome from the net proceeds of the
1997 Private  Placement,  in June 1998,  paid  $1,000,000 of this concession fee
from the net proceeds of the Third June 1998 Private Placement,  in August, paid
$1,000,000 of this concession fee from the net proceeds of the July/August  1998
Financing.  Subsequent  to September  30,  1998,  $250,000 was paid from the net
proceeds of the  September  1998  Financing  and  $500,000 was paid from the net
proceeds of the October  1998  Financing to pay other  expenses and  obligations
relative  to Sao  Tome  which  the  Company  believes  will be  credited  to the
concession fee.

     The Company is currently in the initial phase of project development and is
conducting  seismic  surveys,  processing  existing  seismic data and  reviewing
environmental  and  engineering  feasibility  studies.  During fiscal 1997,  the
Company  issued  1,000,000  shares of its common stock to acquire  geologic data
concerning Sao Tome. The Company anticipates spending  approximately  $2,200,000
over the next 12 months  for  additional  studies  necessary  to  determine  the
location and depth of the targeted oil  deposits.  The Company has spent to date
$250,000 in preparatory  expenses  including  determining  the boundaries of the
concession  and  facilitating  the  passage of a law in Sao Tome  regarding  the
boundaries  of the  country.  The costs of further  development  of this project
cannot be determined until a more definite development plan is established.  The
costs depend on the Company's  determination to either independently develop the
concession,  take on  operational  partners or lease a portion of the concession
for third-party development.

     In April 1998,  the  Government  of Sao Tome granted  approval to the joint
venture to proceed with the preparation and sale of leases of its oil concession
rights,  which sales were  expected to occur in early  1999.  In June 1998,  the
Company  and Sao  Tome  signed  a  letter  of  intent  to  award a  contract  to
Schlumberger  to perform a marine seismic survey in  anticipation of the license
round  to be  held  in  Sao  Tome,  and to act  as  the  technical  advisor  and
coordinator  of such  license  round.  Schlumberger  is a seismic  data  service
company located in Great Britain.  The exact number and size of the lease blocks
to be  offered  have not yet been  determined.  The  Company  intends to run the
survey and acquire the  seismic  data in late 1998 in order to proceed  with the
licensing  round  commencing in early 1999. In July 1998, the Company closed and
formed the joint venture  national oil company with the  Government of Sao Tome.
The oil company is called the STPETRO. STPETRO is owned 51% by the Government of
Sao Tome and 49% by the Company. In addition,  the Company was granted under the
original agreement with the government,  a long term management arrangement with
STPETRO.  In July 1998, the Ministry of Cabinets and the Prime Minister executed
the  STPETRO  formation  documents  and they  were  promulgated  into law by the
President.  In September  1998, the  Government of Sao Tome and STPETRO  entered
into a Technical  Assistance  Agreement with Mobil. Under such agreement,  Mobil
will  perform  a  technical  evaluation  and  feasibility  study  of oil and gas
exploration in certain designated acreage.  The agreement is for an initial term
of 18 months  and  superceded  the need for  lease  sales in early  1999.  Mobil
retains  a right of first  refusal  to  acquire  development  rights to all or a
portion of the acreage which it is evaluating.  Mobil then executed an agreement
with  Schlumberger  to perform the marine  seismic  survey as previously  agreed
under the  letter of intent  with the  Company  signed in June  1998.  Under the
Mobil/Schlumberger  agreement,  Schlumberger  will  perform  seismic work on the
option  blocks  designated  in the TAA  Agreement.  Such work is to  commence in
January  1999.  The  Company  continues  to  maintain a right to  construct  the
Off-Shore  Logistics Center and is seeking an appropriate  joint venture partner
for the project.

     Revenues from the Company's  operations in Sao Tome and  substantially  all
raw material purchases for use in Sao Tome will be U.S.  dollar-denominated  and
managed  through  the  Company's  Louisiana  operational  facility.  The Company
believes  that  it  will  not  be   significantly   affected  by  exchange  rate
fluctuations  in local  African  currencies  relative  to the U.S.  dollar.  The
Company believes that the effects of such  fluctuations will be limited to wages
for local  laborers and operating  supplies,  neither of which is expected to be
material to the Company's  results of operations  when the joint venture  begins
more substantial operations in Sao Tome.
<PAGE>
     In October  1997,  the Company  acquired a 37.5%  interest in a 49,000 acre
natural gas lease,  known as the "Nueces  River  Prospect,"  in the Nueces River
area of south Texas.  The Company paid  $200,000 and issued 50,000 shares of its
common  stock to acquire the lease.  The  Company  has spent more than  $200,000
reworking  the  first of two  existing  shut-in  wells on the  property.  Due to
mechanical  failure  downhole,  this well has been shut in again.  In 1998,  the
Company   planned  on  spending   $650,000  to  $1,200,000  to  make  the  wells
operational,  utilizing funds to be acquired under the Investment Agreement with
Kingsbridge.  See  "The  Company  --  The  Kingsbridge  Equity  Line  of  Credit
Agreement." The Company is currently  considering  whether to conduct geophysics
surveys  to aid in the  selection  of future  drilling  locations.  The  Company
believes  that,  assuming  the entire  lease is  productive,  there are about 75
locations to be drilled. In 1998,  depending on the availability of funding, the
Company  expected  to  drill  15 to 20 new  wells  at  this  site,  at a cost of
approximately  $650,000 to $1,200,000 per well.  The Company is responsible  for
only half of the  drilling  cost of each well,  as it shares  this cost with its
operational co-venturer,  Autry Stephens & Co. The operational dates, as well as
the daily  production  rates, of the second well cannot be determined  until the
completion of the reentry.  The Company is currently  meeting with two potential
farm-out   partners  to  work  the  project  and  believes  it  will   negotiate
arrangements to drill additional wells on the northern and southern  portions of
the leasehold.

     In February  and March 1997,  the  Company  acquired  leases in oil fields,
which together comprise approximately 1,200 acres and 200 wells, located in Rusk
County and Wichita  County,  Texas.  The Company  issued  500,000  shares of its
common  stock to acquire  the leases.  Through  December  1997,  the Company had
recompleted  18 wells,  all of which were  operational  as of March 20, 1998. Of
these wells, 13 had mechanical failures.  The Company has located its BAPCO Tool
on  site.  The  Company  anticipates  spending  $1,200,000  in  order  to  bring
production  on the fields up to a commercial  level.  At the current  time,  the
Company is evaluating  feasible economic options including the potential sale of
the Rusk County and Wichita County properties.

     In  July  1997,  the  Company  entered  into  a  joint  venture  with  MIII
Corporation, a Native American oil and gas company, to workover,  recomplete and
operate 335  existing oil and gas wells on the Uintah and Ouray  Reservation  in
northeastern Utah. At this time, none of the wells are operational.  The Company
had designed a development  program,  under which it planned to  recomplete  and
restimulate 36 wells and to drill five to seven  development and extension wells
at this site.  This plan would  require  spending  a minimum  of  $1,000,000  to
$1,500,000 in order to make the project operational. Subject to the availability
of such funds, the Company  anticipated that the first wells would be on line by
fall 1998. The leases on the MIII project were never  transferred to the Company
and it is currently evaluating its options with regard to this project.

     In September 1997, the Company acquired net revenue  interests ranging from
76% to 84% (and 100% working  interest in all but 2 of the wells) in oil and gas
properties  totaling  13,680  acres,  located  near the MIII fields in the Uinta
Basin with 22 oil and natural gas wells.  These  wells are  currently  producing
approximately  70 barrels of oil per day from six  producing  wells  which began
realizing  revenues  for the Company in November  1997.  The Company  planned on
spending approximately  $1,000,000 on additional equipment and up to $80,000 per
well on well  stimulation  in order to bring 12 more wells on line in 1999.  The
Company  plans to plug and abandon 2 more wells and to perform  further study on
the other 2 wells.  The Company  planned on funding this plan through the use of
funds acquired under the Kingsbridge  Investment  Agreement.  See "The Company -
The  Kingsbridge  Equity  Line of Credit  Agreement."  To date,  the Company has
received no funds under the Kingsbridge Investment Agreement,  no longer intends
to take down any funds under this agreement, has negotiated terms to cancel this
agreement  and  Kingsbridge  is seeking  arbitration  of the  agreement  and its
cancellation.  Provided  additional  financing of $5,000,000 to  $10,000,000  is
secured  from  another  source,  the  Company  would  schedule  to  implement  a
recompilation  and drilling  program on this  project.  The Company is currently
evaluating the existing reserve reports, the underlying data on these leases and
the economic  feasibility  of increasing  production in light of the current oil
prices or of the sale or other disposition of these  properties.  The Company is
engaged in arbitration  regarding this project and believes that a settlement on
all issues will be completed in January 1999.
<PAGE>
     In April 1997,  the Company  entered into a master  service  agreement with
Chevron to rework,  in order to draw additional  production from,  approximately
400 depleting  oil and gas wells and to remediate  and "plug and abandon"  these
and other wells when  depleted,  in Chevron's  oil fields in southern  Louisiana
along the Gulf of Mexico.  The Chevron agreement  provides for a three-year work
schedule,  commencing  upon the  completion  of the Company's 140 foot "plug and
abandonment"  barge. This barge will be used to remediate  offshore oil rigs and
be capable of working in coastal  waters as shallow as 19 inches.  A substantial
deposit was made by the Company to secure the barge.  The Company  believes  the
original  barge  supplier  will not be able to  deliver  since  the owner of the
company died. The Company is attempting to recover the deposit and is seeking an
alternate supplier. Additional funding is being sought to purchase and equip the
barge.  It is estimated  that the Company's  barge could be ready to operate 180
days following  funding.  Due to the price structure of the oil and gas business
at this time,  the Company does not believe  that it is in its best  interest to
construct this barge.  However, a substantial increase in oil prices would cause
the Company to reevaluate its decision regarding such construction. To date, the
Company has not yet  determined  the extent of financing  that will be necessary
for this project. The Chevron agreement was originally entered into by BAPCO and
BEW in September 1996, prior to the acquisition of BAPCO by the Company in April
1997, and was assigned to the Company with Chevron's  consent at the time of the
acquisition.  The  Company  issued  3,000,000  shares of Common  Stock to BEW in
connection with the assignment of this agreement.

     During fiscal 1997, the Company issued 4,000,000 shares of its common stock
to acquire BAPCO, a non-operating  oil production  company with significant well
rework equipment assets.

     The  Company's  current   development  plans  require  substantial  capital
expenditures in connection with the exploration, development and exploitation of
its oil and natural gas properties. Historically, the Company has funded capital
expenditures  through a  combination  of  equity  contributions  and  short-term
financing arrangements.  The Company believes that it will require a combination
of  additional  financing  and cash flow from  operations  to  implement  future
development  plans.  Although Company management is exploring the private and/or
public  equity  markets as  potential  capital  sources in  connection  with its
development plans, the Company currently does not have any binding  arrangements
with  respect  to, or  sources  of,  additional  financing,  and there can be no
assurance  that any  additional  financing will be available to it on reasonable
terms or at all.  Future cash flows and the  availability  of financing  will be
subject to a number of variables,  such as the level of production from existing
wells,  prices of oil and natural gas and success in locating and  producing new
reserves. To the extent that future financing requirements are satisfied through
the issuance of equity  securities,  shareholders  of the Company may experience
dilution  that could be  substantial.  The  incurrence of debt  financing  could
result in a substantial  portion of operating  cash flow being  dedicated to the
payment of principal and interest on such indebtedness, could render the Company
more vulnerable to competitive pressures and economic downturns and could impose
restrictions on operations. If revenue were to decrease as a result of lower oil
and natural gas prices,  decreased production or otherwise,  and the Company had
no availability  under a bank arrangement or other credit facility,  the Company
could have a reduced  ability  to execute  current  development  plans,  replace
reserves  or to  maintain  production  levels,  any of  which  could  result  in
decreased production and revenue over time.

Reserves and Pricing

     Oil and natural gas prices fluctuate throughout the year. Generally, higher
natural  gas  prices  prevail  during  the winter  months of  September  through
February.  A significant  decline in prices would have a material  effect on the
measure of future net cash flows which,  in turn,  could impact the value of the
Company's oil and gas properties Such decline  occurred in fiscal 1998. This was
primarily due to excess oil supplies worldwide.

     The  Company's  drilling and  acquisition  activities  have  increased  its
reserve base and its  productive  capacity,  and  therefore,  its potential cash
flow.  Lower gas prices may adversely  affect cash flow. The Company  intends to
continue to acquire and develop oil and natural gas  properties  in its areas of
activity as dictated by market  conditions  and financial  ability.  The Company
retains  flexibility to participate in oil and gas activities at a level that is
supported  by its cash  flow and  financial  ability.  The  Company  intends  to
continue  to use  financial  leverage  to  fund  its  operations  as  investment
opportunities  become  available  on  terms  that  management  believes  warrant
investment of the Company's capital resources.

     The  Company  expects  to  utilize  the  "successful   efforts"  method  of
accounting  for its oil and gas  producing  activities  once it has  reached the
producing  stage.  The Company  expects to regularly  assess  proved oil and gas
reserves for possible  impairment on an aggregate  basis in accordance with SFAS
No. 121.
<PAGE>
Net Operating Losses

     The Company has net  operating  loss  carryforwards  of  $28,988,992  which
expire in the years 2010 through 2013.  The Company has a  $11,595,000  deferred
tax asset resulting from the loss carryforwards,  for which it has established a
100%  valuation  allowance.  Until the  Company's  current  operations  begin to
produce earnings, it is unclear as to the ability of the Company to utilize such
carryforwards.

Year 2000 Compliance

     The Company is  currently  in the  process of  evaluating  its  information
technology for Year 2000  compliance.  The Company does not expect that the cost
to modify its information  technology  infrastructure  to be Year 2000 compliant
will be  material  to its  financial  condition  or results of  operations.  The
Company does not  anticipate  any material  disruption  in its  operations  as a
result of any failure by the Company to be in compliance.

Forward-Looking Statements

     This Form 10-K includes "forward-looking statements" withing the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange  Act of  1934,  as  amended.  All  statements,  other  than
statements of historical  facts,  included or  incorporated by reference in this
Form 10-K which address  activities,  events or  developments  which the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof),  wells to
be  drilled  or  reworked,  oil and gas  prices  and  demand,  exploitation  and
exploration  prospects,  development and infill potential,  drilling  prospects,
expansion and other  development  trends of the oil and gas  industry,  business
strategy,  production  of oil and gas  reserves,  expansion  and  growth  of the
Company's  business and operations,  and other such matters are  forward-looking
statements.  These statements are based on certain assumptions and analyses made
by the  Company in light of its  experience  and its  perception  of  historical
trends,  current  conditions and expected  future  developments as well as other
factors it believes  are  appropriate  in the  circumstances.  However,  whether
actual results or developments will conform with the Company's  expectations and
predictions is subject to a number of risks and uncertainties,  general economic
market and business  conditions;  the business  opportunities  (or lack thereof)
that  may be  presented  to and  pursued  by the  Company;  changes  in  laws or
regulation;  and other  factors,  most of which are  beyond  the  control of the
Company.  Consequently,  all of the forward-looking statements made in this Form
10-K are qualified by these cautionary  statements and there can be no assurance
that the actual  results or  developments  anticipated  by the  Company  will be
realized or, even if  substantially  realized,  that they will have the expected
consequence  to or effects on the  Company or its  business or  operations.  The
Company assumes no obligations to update any such forward-looking statements.

ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         None
<PAGE>
ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          INDEX TO FINANCIAL STATEMENTS


                                                                            Page


Independent Auditors' Report   ..............................................F-2

Consolidated Balance Sheets   ...............................................F-3

Consolidated Statements of Operations  ......................................F-4

Consolidated Statements of Stockholders' Equity  ............................F-5

Consolidated Statements of Cash Flows   .....................................F-6

Notes to Consolidated Financial Statements  .................................F-7



































                                       F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS



TO:  The Board of Directors and Stockholders
         Environmental Remediation Holding Corporation
 


We have audited the  accompanying  consolidated  balance sheets of Environmental
Remediation Holding Corporation and subsidiary,  (the "Company") as of September
30,  1997  and 1998  and the  related  consolidated  statements  of  operations,
stockholders'  equity and cash  flows for each of the three  years in the period
ended September 30, 1998. These financial  statements are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Environmental Remediation Holding Corporation and subsidiary as of September 30,
1997 and 1998 and the  consolidated  results of their  operations and their cash
flows for each of the three  years in the period  ended  September  30,  1998 in
conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 3 to the
financial  statements,  the  Company  has  experienced  operating  losses  since
inception.   The  Company's  financial  position  and  operating  results  raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these  matters are also  described  in Note 3. The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.



                                                /s/Durland & Company, CPAs, P.A.
                                                   Durland & Company, CPAs, P.A.

Palm Beach, Florida
December 18, 1998





                                       F-2
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                           Consolidated Balance Sheets
<TABLE>
<S>                                                                         <C>                      <C>
                                                                                           September 30,
                                                                             ------------------------------------------
                                                                                   1997                     1998
                                                                             -----------------       ------------------
                                ASSETS                                                                
CURRENT ASSETS
  Cash                                                                      $          327,743       $           16,359
  Restricted cash                                                                            0                   18,826
  Accounts receivable                                                                        0                  193,736
  Prepaid expenses and other current assets                                            215,708                  247,863
                                                                             -----------------       ------------------
    Total current assets                                                               543,451                  476,784
                                                                             -----------------       ------------------
PROPERTY AND EQUIPMENT
   Oil and gas properties  (Successful efforts method)                                 515,625                1,240,175
   Equipment                                                                         4,220,000                6,463,239
   Deposit on purchase of equipment                                                    136,560                        0
                                                                             -----------------       ------------------
     Total property and equipment before depreciation                                4,872,185                7,703,414
   Less: accumulated depreciation and depletion                                      (521,000)              (1,025,314)
                                                                             -----------------       ------------------
      Net  property and equipment                                                    4,351,185                6,678,100
                                                                             -----------------       ------------------
OTHER ASSETS
   Master service agreement                                                                300                      300
   Investment in STPetro, S.A.                                                               0                   49,000
   Due from STPetro, S.A.                                                                    0                  482,276
   DRSTP concession fee                                                                      0                4,000,000
   Deferred offering cost                                                                    0                   30,000
                                                                             -----------------       ------------------
    Total other assets                                                                     300                4,561,576
                                                                             -----------------       ------------------
Total Assets                                                                $        4,894,936       $       11,716,460
                                                                             =================       ==================
            LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
   Stockholder loans payable                                                $          465,094       $          748,571
   Note payable - bank                                                                 175,000                        0
   Current portion of long-term debt                                                         0                  307,775
   Accounts payable and accrued liabilities :
       Accounts payable                                                                111,054                1,228,541
       Accrued officer salaries                                                        960,000                1,729,816
       Accrued interest                                                                 37,228                1,110,638
                                                                             -----------------       ------------------
    Total current liabilities                                                        1,748,376                5,125,341
                                                                             -----------------       ------------------
LONG TERM LIABILITIES
   Long term bank loans                                                                      0                   43,614
   Convertible debt, net                                                                     0                7,543,178
                                                                             -----------------       ------------------
    Total long term liabilities                                                              0                7,586,792
                                                                             -----------------       ------------------
Total Liabilities                                                                    1,748,376               12,712,133
                                                                             -----------------       ------------------
Common stock issued under a repurchase agreement; issued and
outstanding  1,000,000 and 750,000 shares                                            2,000,000                1,500,000
                                                                             -----------------       ------------------
STOCKHOLDERS' EQUITY (DEFICIT)
  Preferred stock, $0.0001  par value; authorized 10,000,000 shares ;
   none issued and outstanding                                                               0                        0
  Common stock, $0.0001 par value; authorized 950,000,000 shares ;
   issued and outstanding  21,989,526 and 25,999,900                                     2,199                    2,600
  Additional paid-in capital in excess of par                                       19,952,865               25,020,717
  Additional paid-in capital - warrants                                                      0                  207,502
  Deficit                                                                         (17,645,204)             (28,988,992)
  Stock subscriptions receivable                                                     (913,300)                        0
  Beneficial conversion feature                                                              0                1,387,500
  Deferred compensation, net                                                         (250,000)                (125,000)
                                                                             -----------------       ------------------
Total Stockholders' Equity (Deficit)                                                 1,146,560              (2,495,673)
                                                                             -----------------       ------------------
Total Liabilities and Stockholders' Equity (Deficit)                        $        4,894,936       $       11,716,460
                                                                             =================       ==================
</TABLE>
     The accompanying notes are an integral part of the financial statements
                                       F-3
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                      Consolidated Statements of Operations
<TABLE>
<S>                                                     <C>                     <C>                <C>
                                                                            Year ended September 30,
                                                           -----------------------------------------------------------
                                                                1996                 1997                  1998
                                                           ---------------       -------------       -----------------
REVENUE
Environmental remediation services                      $                0      $      108,944     $            65,404
Crude oil                                                                0                   0                 147,782
Other income                                                        60,477               7,331                  33,874
                                                           ---------------       -------------       -----------------
  Total revenue                                                     60,477             116,275                 247,060
                                                           ---------------       -------------       -----------------
COSTS AND EXPENSES
Compensation :
     Officers                                                      147,326           1,185,000               1,793,000
     Directors                                                           0           3,492,981                 446,250
Consulting fees                                                    337,956           8,883,356                 920,723
Geological data and reports                                              0           2,008,848                   8,000
General and administrative expense                                  55,943           1,145,355               5,443,928
Depreciation and depletion                                         248,000             273,000                 504,314
Interest expense                                                         0              40,787               2,474,633
                                                           ---------------       -------------       -----------------
  Total costs and expenses                                         789,225          17,029,327              11,590,848
                                                           ---------------       -------------       -----------------

Net loss                                                $        (728,748)      $ (16,913,052)     $      (11,343,788)
                                                           ===============       =============       =================

Weighted average number of shares outstanding                    2,469,511          10,500,293              24,156,984
                                                           ===============       =============       =================

Basic net loss per share, basic                         $          (0.30)       $       (1.61)     $            (0.47)
                                                           ===============       =============       =================
</TABLE>
 
























     The accompanying notes are an integral part of the financial statements
                                       F-4
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
       Consolidated Statement of Changes in Stockholders' Equity (Deficit)
                  Years ended September 30, 1996, 1997 and 1998
<TABLE>
<S>                          <C>          <C>     <C>          <C>        <C>         <C>         <C>      <C>          <C>
                                 Common Stock                             Beneficial
                                                                  APIC       Conv.     Stk Subs    Defr'd     Accum.     TTL S/H Eq.
                                                      APIC      Warrants    Feature   Receivable   Comp.     Deficit      (Deficit)
                            -------------------- ------------ ---------- ----------- ----------- -------- ------------ -------------
                            Number
                            of Shares    Amount
                            ------------ ------- ------------ ---------- ----------- ----------- -------- ------------ -------------
BALANCE, September 30, 1995    1,639,450 $   164      499,924          0           0           0 (500,000)     (3,404)       (3,316)

Common stock issued for :
10/01 - equipment                744,000      74    3,719,926          0           0           0        0            0     3,720,000
10/10 - cash                      20,000       2       49,998          0           0           0        0            0        50,000
08/09 - cash                      20,500       2       42,890          0           0           0        0            0        42,892
08/19 - reverse merger           356,317      36    (243,366)          0           0           0        0            0     (243,330)
08/19 - S-8 services              73,277       7       73,270          0           0           0        0            0        73,277
08/30 & 09/15 - cash and svcs    385,830      39      486,956          0           0           0        0            0       486,995
09/30 - deferred comp. amort.          -       0            0          0           0           0   72,500            0        72,500
  Net loss                             -       0            0          0           0           0        0    (728,748)     (728,748)
                            ------------ ------- ------------ ---------- ----------- ----------- -------- ------------ -------------
BALANCE, September 30, 1996    3,239,374     324    4,629,598          0           0           0 (427,500)   (732,152)     3,470,270

Common stock issued for :
02/10 - S-8 services           1,600,000     160    1,099,840          0           0           0        0            0     1,100,000
03/97 - oil wells/leases         500,000      50      515,575          0           0           0        0            0       515,625
03/13 - S-8 services             300,000      30      374,970          0           0           0        0            0       375,000
04/05 - Chevron contract       3,000,000     300            0          0           0           0        0            0           300
04/05 - services               1,342,981     134    1,342,847          0           0           0        0            0     1,342,981
04/05 - contributed to corp    (100,000)    (10)     (99,990)          0           0           0        0            0     (100,000)
04/09 - BAPCO acquisition      4,000,000     400      499,600          0           0           0        0            0       500,000
05/14 - S-8 services           1,500,000     150      562,350          0           0           0        0            0       562,500
06/19 - services                 150,000      15       28,110          0           0           0        0            0        28,125
07/08 - cash                     800,000      80      399,920          0           0           0        0            0       400,000
07/25 - S-8 services           2,335,000     233    6,464,798          0           0           0        0            0     6,465,031
07/30 - services               1,500,000     150    2,249,850          0           0           0        0            0     2,250,000
07/97 and 08/97 - cash           221,000      23      294,977          0           0           0        0            0       295,000
09/04 - services                 400,000      40      307,960          0           0           0        0            0       308,000
09/97 - cash stk subs rec'v    1,201,171     120    1,282,460          0           0   (913,300)        0            0       369,280
09/30 - deferred comp. amort.          -       0            0          0           0           0  177,500            0       177,500
  Net loss                             -       0            0          0           0           0        0 (16,913,052)  (16,913,052)
                            ------------ ------- ------------ ---------- ----------- ----------- -------- ------------ -------------
BALANCE, September 30, 1997   21,989,526   2,199   19,952,865          0           0   (913,300) (250,000)(17,645,204)     1,146,560

Common stock issued for :
10/97 - stock subs rec'd               -       0            0          0           0     913,300        0            0       913,300
10/97 - Uinta acquisition      1,000,000     100    1,999,900          0           0           0        0            0     2,000,000
10/97 - Nueces acquisition        50,000       5      148,745          0           0           0        0            0       148,750
1st quarter - services           355,000      36      921,964          0           0           0        0            0       922,000
1st quarter  - cash              177,008      18      167,676          0           0           0        0            0       167,694
11/97 - bene conv feat create          -       0            0          0   1,075,000           0        0            0     1,075,000
01/98 - building equity           24,000       2       69,998          0           0           0        0            0        70,000
2nd quarter - services            23,200       2       28,494          0           0           0        0            0        28,496
2nd quarter - cash               666,664      67      438,432          0           0           0        0            0       438,499
3rd quarter  - services          162,420      16      102,868          0           0           0        0            0       102,884
06/98 - bene conv feat create          -       0            0          0     312,500           0        0            0       312,500
3rd quarter - cash               234,200      23      135,577    200,000           0           0        0            0       135,600
4th quarter - services           479,700      48      473,552          0           0           0        0            0       473,600
4th quarter - cash                47,000       5       23,495      7,502           0           0        0            0        23,500
09/98 - Accounts payable         491,646      49      337,958          0           0           0        0            0       338,007
09/98 - option fee and penalty   299,536      30      219,193          0           0           0        0            0       219,223
09/30 - deferred comp. amort           -       0            0          0           0           0  125,000            0       125,000
    Net loss                           -       0            0          0           0           0        0 (11,343,788)  (11,343,788)
                            ------------ ------- ------------ ---------- ----------- ----------- -------- ------------ -------------
BALANCE September 30, 1998    25,999,900 $ 2,600   25,020,717    207,502   1,387,500           0 (125,000)(28,988,992)   (2,495,673)
                            ============ ======= ============ ========== =========== =========== ======== ============ =============

Common stock issued under a repurchase agreement:
BALANCE, September 30, 1996            0 $     0            0          0           0           0        0            0             0
7/97 - DRSTP info              1,000,000     100    1,999,900          0           0           0        0            0     2,000,000
                            ------------ ------- ------------ ---------- ----------- ----------- -------- ------------ -------------
BALANCE, September 30, 1997    1,000,000     100    1,999,900          0           0           0        0            0     2,000,000

12/97 - cash repurchase        (250,000)       0    (500,000)          0           0           0        0            0     (500,000)
                            ------------ ------- ------------ ---------- ----------- ----------- -------- ------------ -------------
BALANCE, September 30, 1998      750,000 $   100    1,499,900          0           0           0        0            0     1,500,000
                            ============ ======= ============ ========== =========== =========== ======== ============ =============
</TABLE>
     The accompanying notes are an integral part of the financial statements
                                       F-5
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                      Consolidated Statements of Cash Flows
<TABLE>
<S>                                                                        <C>                 <C>                 <C>
                                                                                            Years ended September 30,
                                                                             -------------------------------------------------------
                                                                                   1996               1997                1998
                                                                             ----------------   -----------------   ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                   $        (728,748)  $     (16,913,052)  $    (11,343,788)
Adjustments to reconcile net loss to net cash used for operating activities:

    Amortization of deferred compensation                                              72,500             177,500            125,000
    Amortization of beneficial conversion feature                                           0                   0          1,364,063
    Stock issued for services rendered                                                385,000          12,292,829          1,526,980
    Stock issued for DRSTP geological data                                                  0           2,000,000                  0
    Depreciation and depletion                                                        248,000             273,000            504,314
    Other                                                                            (60,477)             (6,730)           (22,987)
Changes in operating assets and liabilities:
   (Increase) decrease in accounts receivable                                               0                   0           (57,176)
   (Increase) decrease in prepaid expenses and other current assets                         0           (215,708)           (32,155)
   Increase (decrease) in accrued interest expense and penalties                            0              37,228          1,043,467
   Increase (decrease) in accounts payable                                                  0             111,054          1,116,223
   Increase (decrease) in accrued salaries                                                  0             960,000            935,916
                                                                             ----------------   -----------------   ----------------
Net cash provided by (used by) operating activities                                  (83,725)         (1,283,879)        (4,840,143)
                                                                             ----------------   -----------------   ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
DRSTP concession fee payment                                                                0                   0        (4,000,000)
Investment in STPetro, S.A.                                                                 0                   0           (49,000)
Acquisition of property and equipment                                                 (5,000)           (131,560)          (371,535)
                                                                             ----------------   -----------------   ----------------
Net cash provided by (used by) investing activities                                   (5,000)           (131,560)        (4,420,535)
                                                                             ----------------   -----------------   ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock sold for cash                                                             81,995           1,102,988            765,293
Proceeds of bank borrowing                                                                  0             175,000                  0
Net proceeds from sale of convertible debt                                                  0                   0          7,763,687
Proceeds from loans payable to  stockholders                                           22,730             760,481            868,230
Payments on stockholder loans payable                                                (16,000)           (295,287)          (429,090)
                                                                             ----------------   -----------------   ----------------
Net cash provided by (used by) financing activities                                    88,725           1,743,182          8,968,120
                                                                             ----------------   -----------------   ----------------

Net increase (decrease) in cash                                                             0             327,743          (292,558)

CASH, beginning of period                                                                   0                   0            327,743
                                                                             ----------------   -----------------   ----------------
CASH, end of period                                                        $                0  $          327,743  $          35,185
                                                                             ================   =================   ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest                                     $                0  $            3,559  $          37,160
                                                                             ================   =================   ================
Non cash financing and investing activities:
   Stock issued to acquire :
      Option fee and penalty settlement                                    $                0  $                0  $         219,223
                                                                             ================   =================   ================
      Accounts payable settlement                                          $                0  $                0  $         338,007
                                                                             ================   =================   ================
      Equity in building                                                   $                0  $                0  $          70,000
                                                                             ================   =================   ================
      Environmental remediation equipment                                  $        3,720,000  $                0  $               0
                                                                             ================   =================   ================
      BAPCO equipment                                                      $                0  $          500,000  $               0
                                                                             ================   =================   ================
      Oil and gas properties and equipment                                 $                0  $          515,625  $       2,148,750
                                                                             ================   =================   ================
      Master service agreement                                             $                0  $              300  $               0
                                                                             ================   =================   ================
  Convertible debt and warrants issued for services                        $                0  $                0  $          51,252
                                                                             ================   =================   ================
   Mortgage payable assumed                                                $                0  $                0  $          28,782
                                                                             ================   =================   ================
</TABLE>
     The accompanying notes are an integral part of the financial statements
                                       F-6
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                   Notes to Consolidated Financial Statements
                        September 30, 1995, 1996 and 1997

(1) Summary of Significant Accounting Policies
    The Company.
Environmental Remediation Holding  Corporation,  (ERHC), was incorporated on May
     12, 1986 in Colorado as Valley View  Ventures,  Inc.,  (VVV).  Its name was
     changed to Regional Air Group  Corporation,  (RAGC), on September 20, 1988,
     and then to  Environmental  Remediation  Holding  Corporation on August 29,
     1996. VVV was created in 1986 as a blind pool to seek a merger  opportunity
     with a viable  operating  company.  In 1988  the  company  acquired,  via a
     reverse  merger,  Mid-  Continent  Airlines  which was a regional "feeder"
     airline  operating  as Braniff  Express.  On September  28,  1989,  Braniff
     Airlines filed Chapter 11 Bankruptcy.  This event proved to be catastrophic
     to the then operating  business of the Company.  RAGC liquidated its assets
     and liabilities  shortly  thereafter and remained dormant until its reverse
     merger with  Environmental  Remediation  Funding  Corporation on August 19,
     1996.

   Nature of operations.
ERHC operates in the environmental  remediation industry and the oil and natural
     gas production industry from its corporate  headquarters in Oyster Bay, New
     York, and its operating offices in Lafayette, Louisiana.

   Use of estimates
The  consolidated  financial  statements  have been prepared in conformity  with
     generally  accepted  accounting  principles.  In  preparing  the  financial
     statements,  management is required to make estimates and assumptions  that
     affect the reported  amounts of assets and  liabilities  as of the dates of
     the  statements  of financial  condition  and revenues and expenses for the
     years then ended.  Actual  results  could differ  significantly  from those
     estimates.

   Principles of consolidation
The  consolidated  financial  statements  include the accounts of SSI and BAPCO,
     its wholly owned subsidiaries.  Intercompany accounts and transactions have
     been eliminated in consolidation.

    Net loss per share
Net  loss per common  share - basic is computed by dividing  the net loss by the
     number of shares of common stock  outstanding  during the period.  Net loss
     per share - diluted is not presented  because the inclusion of common share
     equivalents would be anti-dilutive.

     DRSTP geological data
In   July  1997,  the  Company  acquired  substantial  geologic  data and  other
     information  from an independent  source in exchange for one million shares
     of the Company's common stock. This data was valued at $2,000,000 based the
     agreement  with the seller that Company would  repurchase  these shares for
     $2,000,000  at a rate of 25% per quarter  should the seller so choose.  The
     Company expensed this acquisition cost immediately.

(2) Significant Acquisitions
The  Company  acquired  100% of the  issued  and  outstanding  common  stock  of
     Environmental  Remediation Funding Corp.,  (ERFC), a Delaware  corporation,
     effective on August 19, 1996,  in a reverse  triangular  merger,  which has
     been  accounted  for as a  reorganization  of ERFC.  At the  same  time the
     Company  changed its name from RAGC.  Prior to the merger ERFC had acquired
     certain  environmental  remediation equipment in exchange for common stock.
     ERFC then employed the seller of this equipment as an outside consultant in
     exchange for common stock. Subsequently,  ERFC was unable to enter into the
     environmental   remediation  contracts  it  had  hoped  to  and  asked  the
     consultant to become the Chairman, President and CEO of ERFC.

At   the  time of the  acquisition  of ERFC by  RAGC,  ERFC  owned  100% of Site
     Services,  Inc.,  (SSI).  ERFC had  acquired  SSI from  Bass  Environmental
     Services  Worldwide,  Inc.,  (BESW), a company  controlled by the Chairman,
     President and CEO of ERFC. SSI had always been an inactive company,  except
     for certain environmental remediation licences which it continues to hold.

On   April 9, 1997,  the  Company  acquired  100% of the issued and  outstanding
     common  stock  of Bass  American  Petroleum  Company,  (BAPCO),  which  was
     accounted for as a purchase. BAPCO had been an inactive company for several
     years  previously,  however  BAPCO  owned a variety of oil well  production
     enhancing equipment, which is proprietary to, but
                                       F-7
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                   Notes to Consolidated Financial Statements

(2)  Significant Acquisitions (Continued) not patented by BAPCO. The transaction
     was in essence an asset  acquisition.  At the time of the acquisition BAPCO
     was 100% owned by the Chairman,  President and CEO of ERHC. The Company has
     begun using BAPCO as the operator of the various oil and natural gas leases
     it has acquired.

(3) Basis of Presentation
The  Company's current liabilities exceed its current assets by $4,476,000.  The
     Company has incurred net losses of $11,300,000  and $16,900,000 in 1998 and
     1997.  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.  However,  there is no  assurance  that  such  financing  will be
     obtained.  The Company is in preliminary  discussions  with several parties
     regarding  the  potential  sale of some to all of its US  based  crude  oil
     production fields.

(4) Equipment
Environmental remediation equipment was purchased by ERFC in exchange for common
     stock.  The Company  recorded this equipment based on the fair value of the
     common  stock  given up. At the date of  acquisition,  ERFC was a privately
     held company,  therefore  there was no market for ERFC's stock. At the time
     of negotiations  for this  transaction,  it was an arms length  transaction
     between unrelated  parties.  The parties negotiated a value of $5 per share
     for a total of 744,000 shares valuing this  transaction at $3,720,000.  The
     Company has chosen to  depreciate  the  equipment  using the straight  line
     method  over  its  estimated   remaining  useful  life  of  fifteen  years.
     Expenditures  for  maintenance  and repairs are  charged to  operations  as
     incurred.

In   the BAPCO  acquisition  the  Company  acquired  ownership  of all rights to
     BAPCO's  proprietary oil well drilling system,  "the BAPCO Tool" as well as
     other oil and natural  gas well  reworking  equipment.  The control of this
     proprietary tool has enhanced the Company's  position to the extent that it
     would not have been able to enter into the contract to control the Utah oil
     fields and the reworking of the Indonesian oil fields.  The control of this
     tool  also  enabled  the  acquisition  of the 200  Texas  oil  wells  to be
     economically  feasible  to a  greater  extent.  The  Company  received  two
     completed  "BAPCO"  tools  which were ready to be placed in service in this
     transaction.  The Company valued the equipment  received at historical cost
     amounting to $250,000 each for the two tools, totalling $500,000. BAPCO was
     controlled  by the  CEO of  ERHC  at the  time  of the  BAPCO  acquisition,
     therefore the Company believes historical cost is the appropriate basis for
     valuing  the  transaction.  The  Company  is  depreciating  this  tool  and
     technology  over  ten  years.  Depreciation  expense  for the  years  ended
     September  30,  1996,  1997 and 1998 was  $248,000,  $273,000  and $499,960
     respectively.

(5) Crude oil reserves
At   September 30, 1996, the Company had no oil and gas reserves. In March 1997,
     the Company  acquired an  undivided  7/8 net  revenue  with a 100%  working
     interest in a 100 well lease  located in the  Gunsite  Sand Lease in Ector,
     Texas,  in exchange for 300,000 shares of the Company's  common stock.  The
     Company  valued this  transaction  at the closing  price of stock given up,
     $1.03125,  or a total of  $309,375.  The Company  received  an  independent
     evaluation  of this field which  reflected  reserves.  In March  1997,  the
     Company  acquired an undivided  7/8 interest in a 100 well lease located in
     the Woodbine Sand Lease Block in Henderson  County,  Texas, in exchange for
     200,000  shares of the  Company's  common  stock.  The Company  valued this
     transaction  at the  closing  price of the stock given up,  $1.03125,  or a
     total of $206,250.  The Company received an independent  evaluation of this
     field which reflected reserves.

Both acquisitions also included all existing  equipment on site. The Company has
     not  recorded the fair market  value of the  equipment in place,  as all of
     such equipment has minimal scrap value,  which is the only valuation method
     available due to the  non-operational  status of the wells at  acquisition.
     The Company spent  approximately  $460,000 for the year ended September 30,
     1998 on well equipment  repairs and well rework,  all on the Gunsite lease.
     The Company expects to capitalize and depreciate repairs which are believed
     to extend the useful life of such  existing  equipment  beyond one year, as
     well as the cost of replacement equipment.

On   September  29,  1997,  the Company  entered into an agreement to acquire 22
     wells on 7 oil,  gas and  mineral  leases  located in Uintah  and  Duchesne
     Counties,  Utah, from three joint owners. The purchase agreement was closed
     on  October  8,  1997,  at  which  time  the  Company  received  the  lease
     assignment.  The  terms  of the  acquisition  are  for the  Company  to pay
     $250,000 in cash,  issued 250,000  shares of the Company's  common stock at
     each of the following  four dates : closing,  December 30, 1997,  March 30,
     1998 and June 30, 1998. The Company also was required to guarantee that the
     bid price on the date the rule 144 restrictions  lapse will be no less than
     $2.00 per share or the  Company  is  required  to either  issue  additional
     shares or pay the difference in cash, at the Company's option.  The Company
     also  granted  the  sellers a 4% gross  production  receipts  royalty  to a
     maximum of  $677,000.  The Company is  currently  evaluating  the  existing
     reserve reports
                                       F-8
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                   Notes to Consolidated Financial Statements

(5)  Crude oil reserves  (continued)  for its use.  The total  valuation of this
     transaction  is  $2,250,000  and is  applied  as  $375,800  of oil  and gas
     reserves and $1,874,200 of equipment.

In   October  1997,  the  Company  entered  into an  agreement  to acquire a 3/8
     undivided  interest  in a  natural  gas  well  that had  been  plugged  and
     abandoned  approximately 10 years ago. This agreement  requires the Company
     to pay the seller $200,000 and 50,000 shares of the Company's common stock,
     as well as to pay the Company's proportionate share of the costs to reenter
     this  well.  The  Company  is also  required  to  carry  the  seller's  1/8
     proportionate  share of the reentry costs,  estimated  between $250,000 and
     $500,000,  until the well is  producing.  The seller also owns an undivided
     50%  interest  in the  oil  and  gas  lease  on the  49,019  acres  of land
     contiguous to the initial well. The agreement allows the Company to acquire
     a  3/8   undivided   interest  in  this  lease  by  paying  to  the  seller
     approximately  $343,000  each April for 4 years.  The Company  received the
     initial  lease  assignment  on December 1, 1997.  The Company is  currently
     evaluating the existing reserve reports and underlying data of these leases
     as well as has  contracted  another  independent  appraiser to complete new
     reserve reports for its use.

       Oil production
During the year ended September 30, 1998, the Company  completed repairs on well
     equipment on 20 wells on the Gunsite Sand Lease.  Two of these are employed
     as water injection  wells.  13 have had further  mechanical  failures.  The
     remaining 5 are producing  approximately 6 barrels of crude oil per day. At
     September 30, 1998, 3 of the 22 Utah wells are producing  approximately  20
     to 26 barrels per day. 5 more are  temporarily  off line for minor  repairs
     and produce  approximately 69 to 85 barrels per day when operating.  At the
     current  market price for crude oil at the wellhead,  (approximately  $8.00
     per barrel), the Company does not find it economically feasible to complete
     other  than  minor  repairs  in  order  to  reestablish   well  production.
     Furthermore,  the Company is actively  negotiating  with several  potential
     purchasers  for its  East  Texas  leases.  The  Company  is  utilizing  the
     successful  effort  method  of  accounting  for its  oil and gas  producing
     activities.  The  Company  regularly  assesses  oil  and gas  reserves  for
     possible impairment on an aggregate basis in accordance with SFAS 121.

        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. Depletion expense was
     $0, $0 and $4,354 for each of the three years ended September 30, 1998.

(6)  Master  service agreement
In   September 1996 Bass Environmental Services Worldwide, Inc., (BESW), entered
     into a master service  agreement with Chevron to plug and abandon oil wells
     located in the Gulf of Mexico off the coast of  Louisiana.  In April  1997,
     BESW assigned this contract to the Company in exchange for 3,000,000 shares
     of the  Company's  common  stock.  Chevron has reissued the contract in the
     Company's name. At the time of the acquisition,  BESW was controlled by the
     CEO of ERHC.  The Company  valued this  acquisition on the basis of the par
     value  of the  Company's  common  stock  given  up,  or  $300,  because  no
     historical cost basis could be individually determined and the contract has
     minimal  value until the Company has built or  purchased  the  equipment to
     commercialize the contract.  The Company hopes to begin commercializing the
     agreement in fiscal 1999.

(7) Notes payable
The  Company issued two notes payable to stockholders  who are also officers and
     directors in exchange for cash amounting to $233,398 and $1,236,161.  These
     notes  carry no  stated  maturity  date and an 8.5% rate of  interest.  The
     Company has repaid $236,787 and $487,590 on these notes, including interest
     on one. The remaining note is convertible  into restricted  stock at 50% of
     the  average  bid  price  for the  month in which  the loan was  made.  The
     conversion is at the option of the  noteholder.  Accrued  interest on these
     notes is $0,  $21,273  and  $29,943 for the period  since  inception  ended
     September  30, 1995 and for the years ended  September  30, 1996,  1997 and
     1997.

In   January 1997,  the Company  issued a note payable to a bank in exchange for
     $175,000  cash.  This note carried a maturity  date of March 15, 1997 and a
     9.6875%  interest rate. The Company is in default on this note. The default
     interest  rate was  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  repaid this loan in full plus  accrued  interest in
     December 1997.

In   November  1997,  the Company issued 5.5%  convertible  senior  subordinated
     secured notes due 2002 in exchange for $4,300,000 in cash.  These notes are
     convertible into shares of the Company's common stock at a conversion price
     no less
                                       F-9
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                   Notes to Consolidated Financial Statements

(7)  Notes  payable  (continued)  than $1.25 per share.  If all of the notes are
     converted at the lowest  possible  price,  the Company would be required to
     issue 3,440,000  shares of common stock.  These notes also carried warrants
     for an additional  258,000  shares of common stock a with an exercise price
     of $3.17 per  share,  or total  additional  proceeds  of to the  Company of
     $817,860 in cash in the event ll of the warrants are  exercised.  The notes
     are secured by the  Company's non - MIII oil reserves in Utah. As the notes
     are potentially convertible at a price below market, the Company recorded a
     beneficial  conversion  feature  discount of $1,075,000 in accordance  with
     FASB EITF Topic  D-60.  The  discount  is  amortized  over the period  from
     inception of the notes to the convertibility  dates, 60, 90 and 120 days in
     this case. The amount of amortization for the year ended September 30, 1998
     was $1,075,000.

In   April 1998, the Company issued 12% convertible subordinated unsecured notes
     due January 1999 in exchange for $300,000 cash. These notes are convertible
     into shares of the  Company's  common stock at a conversion  price of $1.50
     per  share.  If all of these  notes  are  converted,  the  Company  will be
     required to issue 200,000 shares of common stock.  These notes also carried
     warrants for an additional  210,000 shares of common stock with an exercise
     price of $1.25 per share,  or total  additional  proceeds to the Company of
     $262,500 in cash in the event all of the warrants are exercised.

In   June 1998, the Company issued 12% convertible  subordinated unsecured notes
     due  December  1999  in  exchange  for  $425,000  cash.   These  notes  are
     convertible into shares of the Company's common stock at a conversion price
     of $1.00 per share.  If all of these notes are converted,  the Company will
     be  required  to issue  425,000  shares of common  stock.  These notes also
     carried  warrants for an additional  531,250 shares of common stock with an
     exercise  price of $0.50 per share for the first two  years,  and $0.85 per
     share thereafter or total additional proceeds to the Company of $265,625 or
     $451,563 in cash in the event all of the warrants are exercised.

In   June 1998, the Company issued 5.5% convertible subordinated unsecured notes
     due June 2000 in exchange for  $1,250,000  cash and $43,750 of broker fees.
     These notes are convertible  into shares of the Company's common stock at a
     conversion  price to be  determined  by a stated  formula.  If all of these
     notes  are  converted  using  the  conversion  price of the  issuance  date
     ($0.69517),  the  Company  will be required  to issue  1,798,124  shares of
     common stock.  These notes also carried warrants for an additional  230,000
     shares of common  stock with an  exercise  price of $0.8634  per share,  or
     total  additional  proceeds to the Company of $198,582 in cash in the event
     all of the warrants are exercised. As the notes are potentially convertible
     at a price below  market,  the  Company  recorded a  beneficial  conversion
     feature  discount of $312,000 in accordance  with FASB EITF Topic D-60. The
     discount is  amortized  over the period from  inception of the notes to the
     convertibility  dates,  60,  90 and 120 days in this  case.  The  amount of
     amortization for the year ended September 30, 1998 was $289,062.50.
 
In   July 1998, the Company issued 8.0% convertible subordinated unsecured notes
     due July 2000 in exchange for $1,200,000  cash. These notes are convertible
     into  shares of the  Company's  common  stock at a  conversion  price to be
     determined by so stated formula.  If all of these notes are converted using
     the conversion price of the issuance date ($0.478723),  the Company will be
     required to issue 2,506,668 shares of common stock. In connection with this
     funding,  the Company  issued  warrants for 108,000  shares of common stock
     with an exercise  price of  $0.74375  per share,  or total  proceeds to the
     Company  of  $80,325  in cash if all of the  warrants  are  exercised.  The
     Company  recorded an expense  discount to the notes  amounting to $7,425 in
     connection  with this issuance as the warrant  exercise price was below the
     market price of the common stock at issuance.

In   July 1998, the Company issued 8.0% convertible subordinated unsecured notes
     due August 2000 in exchange for $275,000 cash.  These notes are convertible
     into  shares of the  Company's  common  stock at a  conversion  price to be
     determined by so stated formula.  If all of these notes are converted using
     the conversion price of the issuance date ($0.644878),  the Company will be
     required to issue  426,437shares  of common stock.  In connection with this
     funding, the Company issued warrants for 24,750 shares of common stock with
     an exercise  price of $0.73125 per share,  or total proceeds to the Company
     of  $18,098  in cash if all of the  warrants  are  exercised.  The  Company
     recorded an expense  discount to the notes  amounting to $77 in  connection
     with this issuance as the warrant exercise price was below the market price
     of the common stock at issuance.

In   August 1998, the Company  issued 8.0%  convertible  subordinated  unsecured
     notes due August  2000 in exchange  for  $1,010,000  cash.  These notes are
     convertible into shares of the Company's common stock at a conversion price
     to be determined by so stated formula.  If all of these notes are converted
     using the conversion  price of the issuance date  ($0.979813),  the Company
     will be required to issue 90,900 shares of common stock. In connection with
     this  funding,  the Company  issued  warrants for 108,000  shares of common
     stock with an exercise price of $0.9938 per share, or total proceeds to the
     Company  of  $90,336  in cash if all of the  warrants  are  exercised.  The
     Company did not record an expense discount to the notes amounting to $7,425
     in connection  with this issuance as the warrant  exercise  price was below
     the market price of the common stock was below the warrant  exercise  price
     at issuance
                                      F-10
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                   Notes to Consolidated Financial Statements

(8)  Accrued  salaries  At  September  30,  1996,  1997 and 1998 the Company has
     accrued  salaries of $0, $960,000 and $1,895,916,  respectively,  for three
     officers.  These officers can, at their option, convert these salaries into
     common  stock of the  Company at the rate of  one-half  of the  average bid
     price of the Company's  common stock for the months in which the salary was
     earned.  If the three officers chose to convert all of the accrued salaries
     to common stock, the Company would be required to issue 3,802,677 shares of
     common stock.

(9)  Income  taxes  The  Company  has  a   consolidated   net   operating   loss
     carry-forward  amounting  to  $28,988,992,  expiring as follows:  $3,404 in
     2010,  $728,748 in 2011,  $16,913,052 in 2012 and  $11,343,788 in 2013. The
     Company  has an  $11,595,000  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.  The Tax
     Reform Act of 1986  provided for a limitation  on the use of net  operating
     loss carryforwards  following certain ownership  changes.  Such a change in
     ownership  under the IRS  rules and  regulations  potentially  could  occur
     pursuant to the Company's S-1 amendment.

(10) Stockholders'  equity The  Company  has  authorized  950,000,000  shares of
     $0.0001 par value common stock and  10,000,000  shares of $0.0001 par value
     preferred stock. On September 30, 1995, the predecessor  entity,  ERFC, had
     1,639,450 shares issued and  outstanding,  which had been issued during the
     month since  inception as 884,407 shares for $88 in cash and 755,043 shares
     for a  four  year  consulting  agreement  valued  at  $500,000  with a then
     independent  consultant  who  subsequently  became the Company's  Chairman,
     President and CEO.

In   October  1995,  ERFC issued  744,000  shares in exchange for  environmental
     remediation  equipment  valued as discussed in note 1b at $3,720,000.  This
     equipment  was acquired  from the  consultant  who had received the 755,043
     shares and subsequently became the Company's  Chairman,  President and CEO.
     In October 1995, ERFC issued 20,000 shares for $50,000 in cash.

In   August 1996,  ERFC issued 20,500 shares in exchange for $42,892 in cash. On
     August  19,1996,  the sucessor  Company issued  2,433,950  shares of common
     stock to acquire 100% of the issued and  outstanding  common stock of ERFC.
     At the time of the acquisition ERHC, then known as RAGC, had 356,317 shares
     issued and  outstanding  as a result of a 1 for 2,095 share  reverse  stock
     split. On August 19, 1996, the Company issued 73,277 shares of common stock
     to a consultant in exchange for services  valued at $1.00 per share related
     to the merger.  In August 1996,  the Company  issued  10,000  shares of its
     common stock, valued at $70,000, to an attorney for services to be rendered
     at below market  rates for a period of 4 months.  In  September  1996,  the
     Company  issued  55,000  shares of its common stock under three  consulting
     contracts previously negotiated, valued at $385,000. In September 1996, the
     Company  issued  320,830 shares of its common stock in exchange for $31,995
     in cash In February  1997, the Company  issued  1,600,000  shares of common
     stock via an S-8  registration in exchange for consulting and  professional
     services  valued at $1,100,000.  In March 1997, the Company  acquired a 100
     oil well lease in exchange for 300,000 shares of the Company's common stock
     valued at  $309,365.  In March 1997,  the  Company  acquired a 100 oil well
     lease in exchange for 200,000  shares of the Company's  common stock valued
     at $206,250.  In March 1997,  the Company  issued  300,000 shares of common
     stock via an S-8  registration  valued at $375,000  in exchange  for public
     relations  services,  of which  approximately  150,000  had been  earned at
     fiscal year end. The balance will either be earned or returned to ERHC.  In
     April 1997, the Company issued 3,000,000 shares of common stock in exchange
     for the assignment of the Chevron P&A master service  agreement,  valued at
     $300. In April 1997, the Company issued 1,342,981 shares of common stock to
     three directors in lieu of cash  compensation for services  rendered to the
     Company valued at $1,342,981. In April 1997, a director contributed 100,000
     shares of common  stock back to the Company  with a value of  $100,000.  In
     April 1997, the Company issued 4,000,000 shares of common stock in exchange
     for 100% of the  issued  and  outstanding  common  stock  of Bass  American
     Petroleum Company,  (BAPCO), valued at historical costs at $500,000. In May
     1997,  the Company  issued  1,500,000  shares of common stock via an S-8 in
     exchange for consulting and  professional  services valued at $562,500.  In
     June  1997,  the  Company  issued  150,000  shares of  common  stock to two
     independent  consultants  for  services  valued  at  $28,125.  One of these
     consultants became an employee of the Company in September 1997.

In   July 1997, the Company issued 800,000 shares under a Section 4(2) exemption
     from registration to a previously  unrelated party in exchange for $400,000
     in cash. In July 1997, the Company acquired  substantial  geologic data and
     other  information  from an  independent  source in exchange for  1,000,000
     shares of the Company's  common  stock.  This data was valued at $2,000,000
     based the  agreement  with the seller that Company would  repurchase  these
     shares for  $2,000,000  at a rate of 25% per  quarter  should the seller so
     choose. In July 1997, the Company issued 2,335,000 shares of common stock
                                      F-11
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                   Notes to Consolidated Financial Statements
 
(10) Stockholders'  equity  (continued)  to three  independent  consultants  for
     services  valued  at  $6,465,031,  principally  relating  to the  Company's
     acquisition  of the  MIII  agreement.  In July  1997,  the  Company  issued
     1,500,000  shares  of  common  stock  to  three  directors  in lieu of cash
     compensation for services rendered to the Company valued at $2,250,000.  In
     July 1997,  the  Company  issued  147,000  shares of common  stock  under a
     Regulation  D Rule 506 private  placement in exchange for $147,000 in cash.
     In  August1997,  the Company  issued  74,000 shares of common stock under a
     Regulation  D Rule 506 private  placement in exchange for $148,000 in cash.
     In September  1997, the Company issued 400,000 shares of common stock to an
     independent  consultant for services valued at $308,000. In September 1997,
     the Company issued 370,898 shares of common stock under a Regulation D Rule
     506 private  placement in exchange for $407,988 in cash. In September 1997,
     the Company  received  stock  subscription  agreements for $913,300 in cash
     under a Regulation D Rule 506 private placement representing 830,273 shares
     of common stock.

On   September  29,  1997,  the Company  entered into an agreement to acquire 22
     wells on oil,  gas and  mineral  leases  located  in  Uintah  and  Duchesne
     Counties,  Utah, from three joint owners. The purchase agreement was closed
     on  October  8,  1997,  at  which  time  the  Company  received  the  lease
     assignment.  The  terms  of the  acquisition  are  for the  Company  to pay
     $250,000 in cash,  issued 250,000  shares of the Company's  common stock at
     each of the following  four dates : closing,  December 30, 1997,  March 30,
     1998 and June 30, 1998. The Company also was required to guarantee that the
     bid price on the date the rule 144 restrictions  lapse will be no less than
     $2.00 per share or the  Company  is  required  to either  issue  additional
     shares or pay the difference in cash, at the Company's option.  The Company
     also  granted  the  sellers a 4% gross  production  receipts  royalty  to a
     maximum of  $677,000.  The Company is  currently  evaluating  the  existing
     reserve  reports for its use. The total  valuation of this  transaction  is
     $2,250,000  and  is  applied  as  $375,800  of oil  and  gas  reserves  and
     $1,874,200 of equipment.

In   October  1997,  the  Company  entered  into an  agreement  to acquire a 3/8
     undivided  interest  in a  natural  gas  well  that had  been  plugged  and
     abandoned  approximately 10 years ago. This agreement  requires the Company
     to pay the seller $200,000 and 50,000 shares of the Company's common stock,
     as well as to pay the Company's proportionate share of the costs to reenter
     this  well.  The  Company  is also  required  to  carry  the  seller's  1/8
     proportionate  share of the reentry costs,  estimated  between $250,000 and
     $500,000,  until the well is  producing.  The seller also owns an undivided
     50%  interest  in the  oil  and  gas  lease  on the  49,019  acres  of land
     contiguous to the initial well. The agreement allows the Company to acquire
     a  3/8   undivided   interest  in  this  lease  by  paying  to  the  seller
     approximately  $343,000  each April for 4 years.  The Company  received the
     initial  lease  assignment  on December 1, 1997.  The Company is  currently
     evaluating the existing reserve reports and underlying data of these leases
     as well as has  contracted  another  independent  appraiser to complete new
     reserve reports for its use.

In   December 1997, the Company  repurchased  250,000 shares of its common stock
     for $500,000 in cash. This was the first 25% quarterly repurchase agreed by
     the Company  relating to the  1,000,000  shares issued to acquire the DRSTP
     geological  data. In January 1998,  the Company issued 24,000 shares valued
     at $70,000  and  assumed a  mortgage  payable of $28,782 to acquire a small
     office in Utah,  valued at  $98,782  , from  Unita Oil and Gas.  In the 1st
     quarter, the Company issued 177,008 shares in exchange for $167,694 in cash
     and 355,000 shares in exchange for services valued at $922,000.  In the 2nd
     quarter, the Company issued 666,664 shares in exchange for $438,499 in cash
     and 23,200  shares in exchange for services  valued at $28,496.  In the 3rd
     quarter, the Company issued 234,200 shares in exchange for $135,600 in cash
     and 162,420 shares for services valued at $102,884. In the 4th quarter, the
     Company  issued  47,000  shares in exchange for $23,500 in cash and 479,700
     shares in exchange for services valued at $473,600.  In September 1998, the
     Company issued 491,646 shares to its working interest partner on the Nueces
     project in exchange for its payable of $338,007.  In  September  1998,  the
     Company  issued 299,536 shares for its portion of the annual option payment
     on the Nueces project and a late payment penalty valued at $219,223.

   Contingent issuances
The  Company  is  contingently  liable  to issue up to three  million  shares of
     restricted  stock in total to three  officers and  directors of the Company
     for their efforts in closing the Sao Tome & Principe contract. These shares
     will be  issued  upon the  joint  venture  oil  production  level of 20,000
     barrels a day being attained.  The Company is contingently  liable to issue
     up to two million shares of restricted  stock to two officers and directors
     of the Company for their efforts in closing the M III contract in Utah upon
     the  joint  venture  oil  production  level of 4,000  barrels  a day  being
     attained.  This two million shares  includes the 500,000 shares the Company
     is to issue to MIII.  The Company is also  contingently  liable to issue an
     additional two million shares upon the joint venture  attaining  production
     of a total of 6,000  barrels a day. The Company is  contingently  liable to
     issue 3,802,677 shares for the officer accrued salaries as of September 30,
     1998.

    Warrants
In   March 1998, the Company issued a warrant for 100,000 shares of common stock
     with an exercise price of $1.20 per share, or total proceeds of $210,000 in
     cash for the Company if all of the warrants are exercised. This warrant was
     issued  in  conjunction  with  entering  into  the  Kingsbridge  Investment
     Agreement.
                                      F-12
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                   Notes to Consolidated Financial Statements

(10) Stockholders' equity (continued)
Warrants  (continued)  In June 1998,  the Company  received  $200,000 in cash in
     exchange for warrants for 1,050,000 shares of common stock with an exercise
     price of $0.75 per share,  or total  proceeds to the Company of $787,500 in
     cash if all of the warrants are exercised.

(11) Deferred  compensation  ERFC issued 755,043 shares of its common stock into
     escrow in exchange for services to be rendered by a consultant under a four
     year contract.  These services were valued at $125,000 per year,  therefore
     the Company is amortizing this deferred  compensation  expense at a rate of
     $31,250  per  quarter.   This  consultant  later  became  ERFC's  Chairman,
     President and CEO.

On   August 30, 1996,  the Company  issued  10,000  shares of its common  stock,
     valued at  $70,000,  to an  attorney  for  services to be rendered at below
     market rates for a period of 4 months.  Accordingly,  the Company amortized
     this expense over the term of the agreement.

(12) Commitments  and  contingencies  The Company is committed to lease payments
     for 10 vehicles under operating leases totalling $27,868, $7,826 and $3,913
     for the years ended September 30, 1999, 2000 and 2001. The Company paid $0,
     $52,500 and $58,161 in vehicle lease expense for the years ended  September
     30, 1996, 1997 and 1998,  respectively.  The Company  currently  leases its
     office space and  operating  facilities  on a two year lease and three year
     lease  respectively.  The Company is committed to lease payments on the two
     facilities totalling $67,108 and $60,808 for the years ending September 30,
     1999 and 2000.  The Company  paid  $8,550,  $45,950 and $68,908 in facility
     rent for the years ended September 30, 1996, 1997 and 1998 respectively.

(13) Segment  information  The  Company  has three  distinct  lines of  business
     through its two wholly owned subsidiaries,  Site Services, Inc., (SSI), and
     Bass American  Petroleum Company,  (BAPCO),  and a joint venture agreement.
     SSI  operates  in the  environmental  remediation  industry  and BAPCO will
     operate  in  the  oil  and  gas  production   industry.   SSI's   principal
     identifiable   assets  consist  of  $3,224,000,   (net),  of  environmental
     equipment,  and the Chevron P&A master  service  agreement  valued at $300,
     (net).  Revenues of $65,000 relate to SSI. BAPCO's  principal  identifiable
     assets  consist of crude oil reserves  valued at  $1,240,175  and equipment
     valued at  $2,570,000.  1998  revenues  of  $148,000  relate to BAPCO.  The
     Company  also  expects to operate  in the supply  industry  through a joint
     venture  agreement to supply fuel and other goods to ships  transiting  the
     Panama Canal. No principal  identifiable  assets yet exist for this line of
     business.

(14) Sao Tome concession payment When the Company entered into the joint venture
     agreement  in May  1997  with  the  Democratic  Republic  of Sao  Tome  and
     Principe,  (DRSTP), the Company was required to pay a $5,000,000 concession
     fee to the DRSTP  goverment.  In  September  1997,  the Company  received a
     Memorandum  of  Understanding  from the DRSTP  government  which allows the
     Company to pay this  concession  fee within five days after the DRSTP files
     the relevant  official maritime claims maps with the United Nations and the
     Gulf of Guinea Commission. In December 1997, the Company paid $2,000,000 of
     this concession fee to the DRSTP form the proceeds of the convertible  note
     offering. On July 2, 1998 the Company paid $1,000,000 of the Concession fee
     to the  government  of the  DRSTP.  On July 31,  1998 the  Company  paid an
     additional $1,000,000 of the concession fee to the government of the DRSTP.

(15) Subsequent events
     a) Stockholder's equity
In   October 1998, the Company  received  conversion  notices on $419,848 of the
     convertible  debt issued in July and August,  1998. This debt was converted
     into 800,172 shares of common stock.

     b) Convertible notes
In   October 1998, the Company issued 20%%  convertible  subordinated  unsecured
     notes due  October  2000 in exchange  for  $500,000  cash.  These notes are
     convertible into shares of the Company's common stock at a conversion price
     to be determined by so stated formula.  If all of these notes are converted
     using the conversion  price of the issuance date ($1.00),  the Company will
     be  required  to issue  500,000  shares of common  stock.  These notes also
     carried warrants for an additional 1,500,000 shares of common stock with an
     exercise  price of $0.40 per share,  or total  additional  proceeds  to the
     Company of $600,000 in cash in the event all of the warrants are exercised.

In   October 1998, the Company  issued 12%  convertible  subordinated  unsecured
     notes due December 31, 1999 in exchange for $800,000 cash.  These notes are
     convertible into shares of the Company's common stock at a conversion price
     to be
                                      F-12
<PAGE>
                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
                   Notes to Consolidated Financial Statements

(15) Subsequent events (continued)
         Convertible notes (continued)
determined by so stated  formula.  If all of these notes are converted using the
     conversion price of the issuance date ($1.25), the Company will be required
     to issue 640,000  shares of common stock.  These notes also carried "A" and
     "B" warrants for an additional  1,200,000  and  1,200,000  shares of common
     stock  with  exercise  prices  of  $0.50  and  $3.00  per  share,  or total
     additional  proceeds to the Company of  $4,200,000 in cash in the event all
     of the warrants are exercised.

 

 









































                                      F-14
<PAGE>
ITEM 9.          CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE
         None


                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Directors and Executive Officers

     The names and age of the directors  and executive  officers of the Company,
and their  positions with the Company as of the date of this  Amendment,  are as
follows:

Name                            Age   Position
- ----                                ----------

Sam L. Bass, Jr............      63    Chairman of the Board and Vice President
James R. Callender, Sr.....      57    President, Chief Executive Officer and
                                       Director
Noreen G. Wilson...........      45    Vice President, Chief Financial Officer 
                                       and Director (1)
James A. Griffin..........       43    Secretary, Treasurer and Director
Robert McKnight...........       62    President of BAPCO and Director (1)
William Beaton............       75    Director
Alfred L. Cotten..........       46    Director
Kenneth M. Waters.........       73    Director

-------------------
     (1) Noreen G. Wilson's  resignation as the Vice President,  Chief Financial
Officer and as a Director was accepted on November 23, 1998. Robert McKnight was
appointed as the Acting Chief Financial Officer effective the same date.

     The principal  occupations for the past five years (and, in some instances,
for prior years) of each of the directors and executive  officers of the Company
are as follows:

     Sam L. Bass, Jr. has been the Chairman of the Board since  September  1996,
Vice President since September, 1998 and served as President and Chief Executive
Officer of the Company from September 1996 until  September  1998. Mr. Bass also
serves as the Chief Executive Officer of Bass  Environmental  Waste, Inc., which
he founded  in 1987,  U.S.  Energy,  Inc.,  which he  founded in 1984,  and Bass
Stabilizers,   Ltd.,   which  he  co-founded  in  1978,   each  of  which  is  a
privately-held  company to which he devotes  minimal time. From December 1993 to
September  1995,  he served as  President  and Chief  Executive  Officer of Bass
Environmental World Wide Services,  Inc. From January 1992 to September 1995, he
served as President and Chief Executive Officer of Bass  Environmental  Inc. Mr.
Bass is a pioneer in the field of downhole  drilling and  stabilization,  and is
the  inventor of seven  drilling  aids,  many of which are being used around the
world. Mr. Bass founded a fire-fighting  organization  called Al-Wadhi,  through
which  he  joined  others  in  efforts  to put out oil  well  fires  in  Kuwait,
immediately  after the Gulf War, for a period of approximately 18 months in 1991
and 1992. Mr. Bass received a B.A. degree from McNeese State  University in 1949
and an M.A. degree in Mechanical Engineering from Georgia Tech in 1952. Mr. Bass
is the father of Alfred L. Cotten.

     James R.  Callender,  Sr. has served as the President  since September 1998
and has served as the Chief  Executive  Officer since August 1997 and a Director
since September 1996. He previously  served as the Vice President of the Company
from August 1997 until assuming the officer of the  President.  He has also been
the  President  and owner of Cal-Sons Co. Inc., an ostrich farm and cattle ranch
located in Louisiana,  since November  1990.  From July 1997 to August 1997, Mr.
Callender served as a Consultant to the Company.  From March 1997 to April 1997,
he served  as a  Consultant  to  Forcenergy  Inc.,  an  independent  oil and gas
company. From September 1996 to March 1997, Mr. Callender served as a Management
Consultant to Arctic Recoil,  Inc., a maker of high pressure well control units.
He acted as an Investment  Consultant to Coburn Inc., an oil field  construction
and heavy equipment operator, from February 1996 to September 1996. From January
1993 to  December  1995,  Mr.  Callender  served as Chief  Engineer to the Chief
Executive  Officer and Senior  Consultant  at Unocal Corp.,  a fully  integrated
energy  resources  company whose worldwide  operations  comprise many aspects of
energy  production.  Until  December  1992,  he served as  Drilling  Manager  of
Worldwide  Operations at Unocal Corp. Mr.  Callender  received a B.S.  degree in
Geology and Engineering from Louisiana State University in 1964.

     Noreen G. Wilson served as Chief Financial Officer of the Company from June
1997 until November 23, 1998.  Prior to her  resignation,  she was a Director of
the Company from  December  1996.  From January 1995 to the present  time,  Mrs.
Wilson has served as President of Supertrail Manufacturing Company, Inc., a real
estate   development   firm   located  in  Aberdeen,   Mississippi.   Supertrail
Manufacturing  Company,  Inc. filed for Chapter 11 reorganization under the U.S.
Bankruptcy  Code in January  1995.  At that point in time,  Mrs.  Wilson  became
President,  in order to guide and manage the company through its reorganization,
<PAGE>
and she devotes  minimal time in this  position.  From February 1993 to December
1996,   Mrs.  Wilson  served  as  an   International   Consultant  for  Imperial
International Design, a consulting company. She provided consulting services for
the financing of American builders and contractors  overseas,  primarily working
through OPIC, the  Export/Import  Bank and the World Bank.  During the same time
period,  Mrs.  Wilson served as Vice  President of  Traditional  Enterprises,  a
financial  consulting firm located in Roswell,  Georgia. Ms. Wilson is the first
cousin of James A. Griffin.

     James A. Griffin has been the  Secretary,  Treasurer  and a Director of the
Company since  September  1996. From April 1992 to April 1996, Mr. Griffin was a
founding  and  managing  partner  in the law firm of Griffin &  Pellicane,  Esq.
located in Westbury, New York. In April 1996, he formed the law firm of James A.
Griffin, Esq., but he is currently minimally involved in the practice of law. He
received his J.D. from Touro College, Jacob D. Fuchsberg Law Center, in 1987. He
received his B.A. degree from Dowling College in 1976 and his B.S. degree at the
State  University of New York at Stony Brook,  School of Allied Health Sciences,
in 1979. He is admitted to practice law in the State of New York and is a member
of the  American Bar  Association,  the New York State Bar  Association  and the
Nassau  County Bar  Association.  Mr.  Griffin is the first  cousin of Noreen G.
Wilson.

     Robert McKnight has been the Acting Chief Financial  Officer since November
23, 1998 and a Director  since July,  1998.  He has served as President of BAPCO
since August 1997. Previously, Mr. McKnight acted as a Consultant to the Company
from  November  1996 until  August 1997.  From August 1991 until July 1996,  Mr.
McKnight  acted as a Consulting  Engineer to Patriot  Resources,  an oil and gas
company  located in Dallas,  Texas.  Mr.  McKnight has 35 years of experience in
supervising and managing drilling and production operations, including reservoir
and  field  evaluations,  reserve  and cash  flow  determinations  for  property
acquisitions,  and equity  determinations.  Mr.  McKnight  received  his B.S. in
Petroleum Engineering from Texas

A&M University in 1957.

     William Beaton has been a Director of the Company since  September 1996. He
currently serves as the Chairman of The Institute of Petroleum (West of Scotland
Branch) and has been in that position for more than the past five years.  He was
the General Manager of Clydesdale Bank of Glasgow, Scotland until his retirement
in 1982.  Since his retirement  from the Bank, he has worked as a  self-employed
consultant to public and smaller independent companies.  He has been involved in
the  international  oil and gas industry for almost 30 years,  with more than 50
years of experience in management and finance.

     Alfred L. Cotten has been a Director of the Company  since  December  1998.
Mr. Cotten is currently  working for Noble  Drilling.  From 1993 until 1995, Mr.
Cotten was a Sub-Sea Engineer with Wilrig, U.S.A., Inc. in Lafayette, Louisiana.
From 1992 until 1993, Mr. Cotten worked for Bass  Environmental,  Inc. assisting
with the initial  funding for  operations  and  pulling  samples for  subsequent
remedial  clean-up  projects.  From 1990 until 1992,  Mr. Cotten was a sales and
service representative for P.S.D. Controls, in Lafayette.  From 1986 until 1990,
Mr.  Cotten  obtained an OIM License and  performed  barge  engineer  duties for
Penrod Drilling Corporation in Dallas,  Texas. From 1984 to 1986, Mr. Cotten was
a Sub-sea  engineer for Sonat  Offshore of Dallas,  Texas,  working in Malaysia.
From 1977 to 1984, Mr. Cotten was a Sub-sea  engineer for Penrod  Drilling.  Mr.
Cotten  pursued a Petroleum  Engineering  Degree from the University of Southern
Louisiana in 1977 and 1978, having previously attended Lousiana State University
in 1971 and 1972. Mr. Cotten is the son of Sam L. Bass.

     Kenneth M. Waters has been a Director of the Company  since July,  1998. He
previously   served  on  the  Advisory  Board  from  September  1996  until  his
appointment to the Board. From 1992 until the present,  Mr. Waters has served as
the Vice President of Bulk Tank Inc. From 1984 to 1992, Mr. Waters was a rancher
and independent geological  consultant.  From 1980 until 1984, Mr. Waters worked
for  Texoma  Production  Co.,  Houston,  Texas,  first as a Vice  President  for
Exploration  and Production and then in 1981 until 1984 as President.  From 1958
until 1980, Mr. Waters was a Vice President and Manager for Consolidated Natural
Gas Co., in New Orleans, Louisiana. From 1954 to 1958, Mr. Waters worked for the
California Co. which is now known as Chevron, in New Orleans, Louisiana, working
for the first 4 years in Geological and Geophysical Training, 2 years as an Area
Exploration Geologist and then 2 years as Assistant Chief Development Geologist.
After servicing in the U.S. Air Force in the Second World War, Mr. Waters earned
a MA degree from Indiana  University in 1950 with a major in geology and a minor
in physics.

     All directors hold office until the next annual meeting of shareholders and
until their  successors are duly elected and  qualified,  unless their office is
vacated in accordance  with the  Certificate  of  Incorporation  of the Company.
Officers  are  elected  to  serve,  subject  to the  discretion  of the Board of
Directors,  until their  successors are appointed.  Except for the  relationship
between Sam L. Bass and Al Cotton,  who are father and son, and Noreen G. Wilson
and James A. Griffin,  who are cousins,  there are no family relationships among
the directors and officers of the Company.

Advisory Board
<PAGE>
     The Company has  established an Advisory  Board  comprised of three members
with experience in the areas of oil and gas production. The Advisory Board meets
periodically  with the Company's  Board of Directors  and  management to discuss
matters relating to the Company's  business  activities  including  establishing
commercial  business  alliances  and  working  projects  with  corporations  and
government agencies on an international basis. Members of the Advisory Board are
reimbursed by the Company for out-of-pocket  expenses incurred in serving on the
Advisory Board.

     Some of the members of the Advisory  Board may serve as  consultants to the
Company under consulting agreements for which they will receive compensation. To
the Company's knowledge, none of its Advisory Board members or other consultants
has any conflict of interest between their  obligations to the Company and their
obligations  to others.  The members of the Company's  Advisory  Board and their
primary professional or academic affiliations are listed below:

     Senator  Vance  Hartke has been a member of the  Company's  Advisory  Board
since  September 1996. Mr. Hartke was the United States Senator for Indiana from
1959 to 1977. While a Senator,  he served on both the Finance  Committee and the
Commerce Committee,  two of the most powerful and prestigious  committees of the
U.S.  Senate.  Prior to his  senatorial  term, he served as Mayor of the City of
Evansville,  Indiana from 1956 to 1958, when he resigned to take his seat in the
U.S.  Senate.  Mr. Hartke's  political  career also includes service as a Deputy
Prosecuting  Attorney,  seven  times as a delegate  to the  Democratic  National
Convention,  as Democratic County Chairman in Vanderburgh County, Indiana, and a
Chairman of the U.S. Senatorial Campaign Committee. He continues to practice law
at the law firm of Hartke & Hartke in Falls Church,  Virginia. He currently sits
on the  Board of  Directors  of  McCrane  & Co. He  received  his A.B.  from the
University of Evansville in 1941 and his J.D. from Indiana  University School of
Law in 1948, where he was Editor-in-Chief of the Indiana Law Journal.

     Marvin  Gibbons  has been a member of the  Company's  Advisory  Board since
September  1996.  In  1990,  Mr.  Gibbons  founded  a  private  company  seeking
investment capital for various  development  projects,  including several Native
American  India  Developments.  He opened a private  domestic and  international
import/export  company, as well. During the past seven years, Mr. Gibbons became
a partner and Acting  Secretary of CAL-NOR,  Cal-Marine  Industries,  ESOP,  and
Zenith Insurance  Limited.  He is currently  involved in a number of Development
Projects both in the United States and internationally.

Committees of the Board of Directors

     The  Company  expects to  establish  an Audit  Committee  and  Compensation
Committee  in  early  1999,  each of which  will be  comprised  of at least  two
independent  directors.  The Audit  Committee  will,  among other  things,  make
recommendations to the Board of Directors regarding the independent  auditors to
be nominated for  ratification by the  stockholders,  review the independence of
those  auditors  and review  audit  results.  The  Compensation  Committee  will
recommend to the Board  compensation  plans and arrangements with respect to the
Company's  executive  officers and key personnel.  It is  contemplated  that the
Audit and  Compensation  Committees  will initially  include  William Beaton and
another  independent  director  who the Company is  currently  in the process of
identifying.  The Board of Directors does not currently have and does not intend
to establish a Nominating Committee as such functions are to be performed by the
entire Board of Directors.

Compensation of Directors

     Non-employee   directors   of  the  Company   currently   receive  no  cash
compensation  for serving on the Board of Directors other than  reimbursement of
reasonable expenses incurred in attending meetings.  The Company does not intend
to separately compensate employees for serving as directors.

     In June 1997, the Company  issued  150,000  shares of the Company's  Common
Stock to two  independent  consultants  (75,000  each)  for  services  valued at
$28,125.  One of the  consultants,  Robert  McKnight,  subsequently  joined  the
Company  as an  employee  of BAPCO in August  1997 and now  serves as the Acting
Chief Financial Officer of the Company.

     In July 1997, the Company issued to each of James R.  Callender,  Noreen G.
Wilson and William  Beaton,  directors of the Company,  500,000 shares of Common
Stock in connection with their serving on the Company's Board of Directors.

     In October  1997,  the Company  issued  100,000  shares of Common  Stock to
Kenneth M. Waters in repayment of loans made by him to BAPCO.  In November 1997,
the Company  issued  12,500  shares of Common Stock to Al Cotten for  consulting
services performed by him for the Company.
<PAGE>
     In  October  1998,  the  Company,  under  a  mistaken  interpretation  of a
contingent  obligation  of the Company to issue  shares in  connection  with the
efforts to close the Sao Tome contract,  issued  2,000,000 shares to each of Sam
L. Bass, Jr., James R. Callender,  Sr., Noreen Wilson and James A. Griffin. When
it was discovered that such shares were issued in error, by vote of the Board of
Directors,  on December 18, 1998,  such issuance was  rescinded.  Mr. Bass,  Mr.
Callender and Mr. Griffin have agreed to tender their shares  immediately to the
transfer agent for cancellation. The transfer agent has been notified to place a
stop upon the shares of Ms. Wilson in the event her shares are not tendered in a
timely  fashion.  On the same date,  the Company issued 425,000 shares to Robert
McKnight and 100,000 to Kenneth M. Waters in  connection  with their  serving on
the Board of  Directors.  Such  shares are not  subject to the  rescission.  Mr.
Waters has tendered his shares back to the Company for  cancellation  because of
tax considerations.

ITEM 11.          COMPENSATION OF EXECUTIVE OFFICERS

     The  following  table sets forth,  in summary form,  the cash  compensation
earned during the period from October 1, 1997 to September 30, 1998 by its Chief
Executive Officer and the three other most highly compensated executive officers
whose compensation exceeded $100,000 during such period.

                           Summary Compensation Table
<TABLE>
<S>                    <C>        <C>            <C>        <C>                    <C>
                                 Annual Compensation (c, d, e)                Long Term Compensation (f)
- --------------------------------------------------------------------------------------------------------------------
(a)                    (b)         (c)           (d)        (e)                   (f)
NAME AND               FISCAL     SALARY (2)     BONUS      OTHER ANNUAL          RESTRICTED
PRINCIPAL              YEAR (1)                   ($)       COMPENSATION          STOCK AWARDS
POSITION                                                       (3)
- --------------------------------------------------------------------------------------------------------------------
Sam L. Bass, Jr.       1998       $480,000       0          $125,000              0
     Vice President                                            (4)
- --------------------------------------------------------------------------------------------------------------------
James R. Callender     1998       $480,000       0          0                     0
President and Chief
Executive Officer
- --------------------------------------------------------------------------------------------------------------------
James A. Griffin,      1998       $120,000       0          0                     0
Secretary, Treasurer
---------------------------------------------------------------------------------------------------------------------
Noreen G. Wilson,      1998       $480,000       0          0                     0
Executive Vice President
and Chief Financial
Officer
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
     (1) Sam L. Bass served as President and Chief  Executive  Officer and James
R. Callender served as Vice President in 1997 until September 12, 1998.

     (2) Salaries for Sam L. Bass,  Jr., James A. Griffin,  and Noreen G. Wilson
were accrued and not paid in cash.  Each individual has an option to convert all
or  part of any  accrued  salary  to  Common  Stock  of the  Company  at a price
reasonably established by the Board of Directors at the time of exercise.

     (3) The aggregate  value of benefits to be reported under the "Other Annual
Compensation" column did not exceed the lesser of $50,000 or 10% of the total of
annual salary and bonus reported for the named executive officer.

     (4) Represents  amortization of Common Stock of  Environmental  Remediation
Funding Corporation distributed in 1995 to Sam L. Bass, Jr.

Proposed Employment Agreements

     The Company  contemplates  entering into three-year  employment  agreements
with each of Sam L. Bass, Jr., James A. Callender,  Sr., and James A. Griffin to
serve in their  respective  positions.  The  Company is still in the  process of
determining the terms and conditions of each employment agreement.

Proposed Stock Option Plan

     The Company does not  currently  have a stock option plan or other  similar
employee benefit plan for executives and/or other employees of the Company,  and
no options have been granted or are currently outstanding.  In October 1998, the
Company  adopted a Consultant  stock option plan under which 250,000 shares have
been issued and registered  with the Securities and Exchange  Commission on Form
S-8.
<PAGE>
     The Board of Directors of the Company plans to approve and adopt a proposed
1998 Stock Option Plan (the "Plan"),  pursuant to which officers,  directors and
key employees of the Company will be eligible to receive incentive stock options
and  non-qualified  stock options to purchase  shares of Common Stock.  The Plan
would also provide for the grant of stock appreciation rights, restricted stock,
performance shares and performance units at the discretion of Company's Board of
Directors.

     With respect to incentive  stock  options,  the Plan would provide that the
exercise  price of each such option be at least equal to 100% of the fair market
value of the Common  Shares on the date that such option is granted (and 110% of
fair  market  value in the case of  shareholders  who, at the time the option is
granted,  own more than 10% of the total outstanding  Common Shares),  and would
require that all such options  have an  expiration  date not later than the date
which is one day before the tenth  anniversary  of the date of the grant of such
option  (or the  fifth  anniversary  of the  date of grant in the case of 10% or
greater  shareholders.  However,  with certain limited exceptions,  in the event
that the option holder would cease to be associated  with the Company,  or would
engage in or be involved with any business similar to that of the Company,  such
option holder's incentive options would immediately  terminate.  Pursuant to the
Plan,  the aggregate  fair market value,  determined as of the date(s) of grant,
for which  incentive  stock  options are first  exercisable  by an option holder
during any one calendar year will not exceed $ 100,000.

Limitation of Directors' Liability; Indemnification

     The  Company's  Certificate  of  Incorporation  limits the liability to the
Company of individual  directors for certain breaches of their fiduciary duty to
the  Company.  The effect of this  provision is to  eliminate  the  liability of
directors for monetary damages arising out of their failure,  through  negligent
or grossly negligent conduct, to satisfy their duty of care, which requires them
to exercise  informed  business  judgment.  The liability of directors under the
federal  securities laws is not affected.  A director may be liable for monetary
damages only if a claimant can show a breach of an individual director's duty of
loyalty to the Company, a failure to act in good faith,  intentional misconduct,
a knowing  violation  of the law,  an  improper  personal  benefit or an illegal
dividend or stock purchase.

     The Company's Certificate of Incorporation also provides that each director
or officer of the Company  serving as director or officer  shall be  indemnified
and held  harmless  by the  Company to the  fullest  extent  authorized  by law,
against all expense,  liability and loss (including  attorneys fees,  judgments,
fines,  Employee  Retirement  Income Security Act, excise taxes or penalties and
amounts  paid or to be paid in  settlement)  reasonably  incurred or suffered by
such person in connection therewith.

     Insofar as indemnification for liabilities arising under the Securities Act
of  1933  (the  "Act")  may be  permitted  to  directors,  officers  or  persons
controlling the registrant pursuant to the foregoing provisions,  the registrant
has been informed that in the opinion of the Securities and Exchange  Commission
such  indemnification  is against  public  policy as expressed in the Act and is
therefore unenforceable.

     ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Beneficial Ownership by Shareholders

     The  following  table sets forth  certain  information  as of September 30,
1998, with respect to the beneficial ownership of the Company's Common Shares by
each shareholder known by the Company to be the beneficial owner of more than 5%
of its  outstanding  shares,  by each director of the Company,  by the executive
officers named in the table below and by the directors and executive officers of
the Company as a group.  Except as otherwise  noted,  the persons  named in this
table,  based upon  information  provided by such persons,  have sole voting and
investment power with respect to all Common Shares  beneficially  owned by them.
None of the current  directors and officers of the Company are  participating in
this offering.
<PAGE>
                   Common Shares Beneficially Owned
               ------------------------------------------
        Name (1)                        Number(2)     Percentage
       --------------------             ---------     ----------
Sam L. Bass, Jr...................    7,951,568 (3)    30.58%
James R. Callender, Sr............      500,000         1.92%
Noreen G. Wilson..................      500,000         1.92%
James A. Griffin..................      500,000         1.92%
Robert McKnight...................       75,000            *
William Beaton...................       500,000         1.92%
Alfred L. Cotten..................       12,500 (4)        *
Kenneth M. Waters ...............       100,000            *

All officers and directors as a group
   (Eight (8) persons)..........     10,159,068        38.26%

 * Represents less than 1% of outstanding Common Shares or voting power.

     (1) The address of each beneficial owner is c/o  Environmental  Remediation
Holding Corporation, 3-5 Audrey Avenue, Oyster Bay, New York 11771.

     (2) Shares  beneficially  owned and  percentage  of ownership  are based on
25,999,900  Common  Shares  outstanding  as of  September  30, 1998.  Beneficial
ownership is  determined  in  accordance  with the rules of the  Securities  and
Exchange  Commission and generally  includes  voting or  dispositive  power with
respect to such shares.

     (3)  Includes  shares  of  Common  Stock  beneficially  owned  by Mr.  Bass
individually  and through  entities under his control and 50,000 shares owned by
Sheila Williams Bass, his wife.

     (4) Alfred L. Cotten  received  his 12,500  shares from his father,  Sam L.
Bass, Jr.

Selling Shareholders Pursuant to Mandated Form S-1

     As of the date hereof,  the Company has  39,613,436  shares of Common Stock
outstanding of which  1,210,686  relate to its  registration  statement filed on
Form S-1, as amended (the "Form S-1").

The 1997 Investor Private Placement

     In November  and  December  1997,  the  Company  raised  gross  proceeds of
$4,300,000  in  two  closings  of a  private  placement  of the  Company's  5.5%
convertible  senior  subordinated  secured  notes due  October  2002 (the  "1997
Notes") and warrants to purchase Common Stock (the "1997 Warrants") to a limited
number of "accredited"  institutional investors. The maximum number of shares of
Common Stock which may be issued by the Company upon the  conversion of the 1997
Notes (at a base conversion rate of $1.25 per share,  subject to certain limited
conditions) and the exercise of the 1997 Warrants (at an exercise price of $3.17
per share) is up to 3,440,000 shares and 283,800 shares, respectively.  The Form
S-1 covers the maximum of up to 3,723,800  total shares of Common Stock issuable
upon the conversion of the 1997 Notes and the exercise of the 1997 Warrants. The
1997  Investors  intend to sell the Common Stock  acquired  thereby from time to
time in the future  upon  conversion  of the 1997 Notes and the  exercise of the
1997 Warrants.  Based on the number of outstanding shares of Common Stock of the
Company  as of the date  hereof,  the number of shares  issuable  under the 1997
Notes and the 1997 Warrants  represent  approximately  9.69% of the  outstanding
Common Stock of the Company.  As of the date hereof,  none of the 1997 Notes had
been converted and none of the 1997 Warrants had been exercised.

     All of the Shares held or to be held by the 1997 Investors could be offered
under the Form S-1 except that,  under the terms of the 1997 Notes,  the holders
thereof  could convert the original  principal  amount of the 1997 Notes only to
the extent of  one-third  of such amount on and after each of December 30, 1997,
January 29, 1998 and February 28, 1998. The conversion rate of the 1997 Notes is
equal to the lowest of (i) $2.83,  representing  100% of the average closing bid
price per share of the Common Stock as quoted on the primary  market or exchange
on which it trades (the "Average Share Price") for the five consecutive  trading
days  immediately  preceding  October 31, 1997 (the agreed upon date between the
parties) (ii) 100% of the Average Share Price for the five  consecutive  trading
days immediately  preceding the first  anniversary,  or (iii) 80% of the Average
Share Price for the five  consecutive  trading  days  preceding  the  applicable
conversion  date on which all or part of the 1997 Notes are converted.  However,
the  conversion  price may not be less than $1.25 per share (the "Base  Price"),
unless 80% of the  Average  Share Price is less than the Base Price for a period
of 90 consecutive  calendar days, in which case the Base Price will no longer be
applicable.  
<PAGE>
For purposes of registering  the maximum number of shares of Common
Stock under the Form S-1, the  conversion  rate is assumed to be the Base Price.
Because the conversion rate of the 1997 Notes is based in part on future average
trading  prices of the Common Stock,  the number of shares which may actually be
sold pursuant to the Form S- 1 could differ  significantly.  For example, in the
event a notice of  election  to  convert  all the 1997  Notes  were to have been
received on April 8, 1998, the lowest applicable conversion rate would have been
$.96 per share (80% of the Average Share Price for the five consecutive  trading
days  preceding such date),  resulting in a total of 3,723,800  shares of Common
Stock  issuable upon  conversion  (including  283,800 shares into which the 1997
Warrants are  exercisable),  subject to the elimination of the 90-day Base Price
provision  described  above.  The 1997 Notes mature,  unless prepaid at any time
after  October 15,  1998,  on October 15, 2002 and are secured by the  Company's
proven  crude oil  reserves  on its  properties  in Utah.  The 1997 Notes do not
contain  any  covenants  that would  prohibit,  limit or  restrict,  among other
matters, the Company's ongoing business operations,  acquisitions of oil and gas
properties,  payment of dividends or incurrence of additional indebtedness.  The
1997 Warrants may be exercised at any time through October 15, 2002.

     In connection  with the sale of the 1997 Notes and the 1997  Warrants,  the
Company  entered into a Registration  Rights  Agreement with the 1997 Investors,
pursuant to which the Company agreed to register the Shares under the Securities
Act for resale by, and for the benefit of,  such  shareholders.  The Company has
failed to register the shares into which the 1997 Notes are  convertible and the
1997 Warrants are exercisable during the 120-day period following the completion
of this  transaction.  As a result,  the  Company is  required  to make  certain
payments to the 1997 Investors.  The Company is currently in  negotiations  with
these Investors to determine the amounts to be paid.

     The public  offering of the Shares by the 1997  Investors will terminate on
the earlier of October 15, 2000 or the date on which all Shares  offered  hereby
have been sold by the 1997 Investors.

The Kingsbridge Line of Credit Agreement

     In  March  1998,  the  Company  entered  into  the  Kingsbridge  Investment
Agreement,  pursuant  to  which  the  Company  has the  right to  receive  up to
$10,000,000 in equity financing from the sale of its Common Stock in tranches to
Kingsbridge.  At the same  time,  the  Company  issued a  three-year  warrant to
purchase 100,000 shares of Common Stock (the "Kingsbridge Warrant"). Through the
Company's exercise of put options,  Kingsbridge is required to purchase, and the
Company  is  required  to  sell,  subject  to  certain  closing  conditions  and
limitations  on the timing of  purchases  and amount of Common  Stock to be sold
with respect to exercises of  individual  put options,  at least  $3,000,000  in
shares of Common  Stock at a purchase  price  equal to 79% of the average of the
lowest prices of the Common Stock on the trading day on which notice of exercise
of the put option is given and on the one trading day prior, and the two trading
days following,  such put option exercise  notice.  The minimum market price for
sales of shares is $1.00 per share.  For  purposes  of  registering  the maximum
number of shares of Common Stock under the Form S-1, the market price is assumed
to be $1.00. At a market price of $1.00,  the maximum number of shares of Common
Stock  which may be issued by the Company  upon the  exercise of the put options
and the number of shares which may be  purchased on exercise of the  Kingsbridge
Warrant are  12,658,228  shares and 100,000  shares  respectively.  The Form S-1
covers the maximum of up to 12, 758,228 total shares issued upon notice of a put
option  exercise and exercise of the Kingsbridge  Warrant.  Because the purchase
price of the Common Stock is based in part on future  average  trading prices of
the Common  Stock,  the number of shares which may actually be sold  pursuant to
the Form S- 1 could differ significantly.  For example, in the event a notice of
election to exercise  individual put options were to have been received on March
26, 1998, the lowest  applicable  purchase price would have been $0.98 per share
(79% of the lowest prices of the Common Stock for the applicable days before and
after the put option exercise notice), resulting in a total of 10,204,082 shares
of Common Stock offered under the Form S-1.  Notwithstanding the foregoing,  the
maximum number of shares  issuable to Kingsbridge  shall not exceed 19.9% of the
outstanding shares of Common Stock at the time of such exercise(s).
<PAGE>
     In connection with entering into the Kingsbridge Investment Agreement,  the
Company issued the Kingsbridge Warrant, a three-year warrant to purchase 100,000
shares  of Common  Stock at an  exercise  price of $1.20  per share  (94% of the
market  price  calculated  as of  March  23,  1998),  exercisable  beginning  on
September 24, 1998. As a condition  precedent to the purchase and sale of shares
pursuant to the Kingsbridge  Investment Agreement,  among others, the Company is
required  to  register  with the  Commission  under the terms of a  Registration
Rights Agreement all of the shares of Common Stock subject to the put option, as
well as those into which the Kingsbridge  Warrant is exercisable,  for resale by
Kingsbridge.  The Kingsbridge  Investment Agreement has a term of two years, but
may be terminated by  Kingsbridge  earlier in the event the Common Stock subject
to the put options is not, or fails to be, registered for resale after specified
time  periods  lapse.  Based on the number of  outstanding  shares of the Common
Stock of the  Company as of the date  hereof,  if all of the shares  were issued
pursuant to the put option  exercise notice and the  Kingsbridge  Warrant,  they
would  represent  approximately  33.22% of the  outstanding  Common Stock of the
Company. As of the date hereof, no put option exercise notices had been given to
Kingsbridge and none of the Kingsbridge Warrant had been exercised.

     In connection with the Kingsbridge arrangement,  the Company entered into a
Registration Rights Agreement,  pursuant to which the Company agreed to register
the Shares under the  Securities Act for resale by, and for the benefit of, such
shareholders.  The Company has failed to register  the shares into which the put
option  exercise  would be applied and the  Kingsbridge  Warrant is  exercisable
during the 90-day period  following the  completion  of this  transaction.  As a
result,  the  Company is  required  to make a lump sum  payment in the amount of
$10,000.  The Company is currently in negotiations  with  Kingsbridge  regarding
such payment.

     On August 11,  1998,  the Company and  Kingsbridge  agreed to enter into an
agreement to cancel the  Kingsbridge  Private  Equity Line of Credit dated March
23, 1998. Pursuant to the terms of the proposed  cancellation,  the Company will
pay a penalty in the amount of $100,000  and will issue  warrants to purchase up
to an additional  100,000 shares of the Company's Common Stock (the "Kingsbridge
Warrants").  The Company has decided to cancel the  Kingsbridge  Private  Equity
Line of Credit  because  terms of certain  of the third  quarter  1998  fundings
require the Company to cancel this agreement so as to limit the number of shares
of the  Company's  Common Stock  outstanding  upon  conversion  of the Company's
convertible notes in the future.  However,  as of December 31, 1998, the Company
had not  completed  the terms of the  anticipated  cancellation,  and  therefore
continues to be obligated to register the potential  Kingsbridge shares issuable
under the put option  exercise  notice and the  Kingsbridge  Warrant.  Under the
terms of the cancellation,  the Company will be responsible for the registration
of the additional warrants.  On December 10, 1998,  Kingsbridge made application
to the American  Arbitration  Association for arbitration of outstanding  issues
between the parties. 
The Company has filed an Answer in such proceedings.

The April 1998 Financing

     In April  1998,  the  Company  raised  gross  proceeds  of  $300,000 in two
closings of a private  placement of the Company's 12% convertible  notes,  which
are due on the earlier of January  1999 or at such time as the Company  receives
the first draw-down under the Kingsbridge  Investment Agreement (the "April 1998
Notes"),  and  warrants  to  purchase  shares of Common  Stock (the  "April 1998
Warrants")  to nine  "accredited"  investors.  The  maximum  number of shares of
Common Stock which may be issued by the Company upon the conversion of the April
1998 Notes (at a base price of $1.50 per share), subject to certain adjustments,
and the exercise of the April 1998  Warrants (at an exercise  price of $1.25 per
share) to 200,000 shares and 210,000 shares,  respectively.  The Firm S-1 covers
the 410,000  shares of Common Stock  issuable  upon the  conversion of the April
1998 Notes and the exercise of the April 1998  Warrants.  Based on the number of
outstanding  shares of Common  Stock of the Company as of the date  hereof,  the
shares  issuable  under the April 1998 Notes and April 1998  Warrants  represent
approximately  1.07% of the outstanding  Common Stock of the Company.  As of the
date hereof, none of the April Notes had been converted and none of the Warrants
had been exercised
<PAGE>
     All of the shares to be held upon  conversion  by the  holders of the April
1998 Notes may be offered in that, under the terms of the April 1998 Notes, such
holders may convert 100% of the principal  amount of the April 1998 Notes at any
time after the issuance  date.  The  conversion  rate of the April 1998 Notes is
equal to $1.50 per share and this price was used for purposes of registering the
maximum number of shares of Common Stock upon conversion of the April 1998 Notes
under the Form S-1.  The April 1998 Notes are  subordinated  to any senior  debt
incurred  by the  Company.  All of the  shares to be held upon  exercise  by the
holders of the April 1998  Warrants  may be offered in that,  under the terms of
the April 1998 Warrants,  the holders  thereof may exercise at any time up until
April 2001.  The exercise price of the April 1998 Warrants is equal to $1.25 per
share and this price was used for purposes of registering  the maximum number of
shares  of  Common  Stock  under the Form S-1 for  exercise  of the  April  1998
Warrants. In connection with the sale of the April 1998 Notes and the April 1998
Warrants,  the Company  committed  to register  the April 1998 shares  under the
Securities Act for resale by, and for the benefit of, such shareholders.

The First June 1998 Financing

     In June 1998,  the Company  raised gross  proceeds of $200,000 in a private
placement  of  warrants  to  purchase  shares of Common  Stock  (the  "June 1998
Warrants") to two "accredited" investors. The maximum number of shares of Common
Stock which may be issued upon the  exercise  of the June 1998  Warrants  (at an
exercise  price of $.75) is up to  1,050,000  shares.  The Form S-1  covers  the
1,050,000  shares of Common  Stock  issuable  upon the exercise of the June 1998
Warrants.  Based on the  number of  outstanding  shares  of Common  Stock of the
Company  as  of  the  date  hereof,   the  First  June  1998  shares   represent
approximately  2.73% of the outstanding  Common Stock of the Company.  As of the
date hereof, none of the June 1998 Warrants had been exercised.

     All of the shares to be held by the  Investors  upon  exercise of the First
June 1998 Warrants may be offered under the Form S-1 in that, under the terms of
the First June 1998  Warrants,  the holders  thereof may exercise at any time up
until 5 PM Eastern  Standard  Time on the first  business day after the fourteen
month period  following the date of the declaration of the  effectiveness of the
Company's  registration  statement  in which the First  June 1998  Warrants  are
registered.  The exercise price of the First June 1998 Warrants is equal to $.75
per share and this price was used for purposes of registering the maximum number
of shares of Common Stock under the Form S-1 for exercise of the First June 1998
Warrants.

     In the event that a holder of the First June 1998  Warrants  exercises  for
not less than 250,000  shares of the Company's  Common Stock (25,000 in the case
of the 50,000 warrant holder),  within 180 days of June 1, 1998 and exercise for
at least an  additional  50,000 shares of Common Stock (5,000 in the case of the
50,000 warrant holder), within 360 days of June 1, 1998, the Company shall issue
to such  holder of the First  June 1998  Warrants  additional  warrants  for the
purchase of a number of shares equal to the number of shares purchased under the
First June 1998 Warrants  within 180 and 360 days of June 1, 1998.  The exercise
price of these additional  warrants is equal to $2.00 per share. Such additional
warrants may be exercised at any time up until 5 PM Eastern Standard Time on the
first business day after the twenty-four (24) month period following the date of
the  effectiveness  of  the  Company's   registration  statement  in  which  the
additional warrants are registered.

     In connection  with the sale of the First June 1998  Warrants,  the Company
committed to register the First June 1998  Funding  shares under the  Securities
Act for resale by, and for the benefit of,  such  shareholders.  The Company has
committed  to  register  the  additional  warrants  within  ninety  (90) days of
issuance.

The Second June 1998 Financing

     In June 1998,  the Company raised gross proceeds of $425,000 in the private
placement of the Company's 12% subordinated  convertible notes, which are due on
the  earlier of  December  1999 or upon the  receipt  by the  Company of debt or
equity or revenue from the sale of leases or other  property of not less than $4
million  (the  "Second June 1998  Notes"),  and  warrants to purchase  shares of
Common  Stock  (the  "Second  June  1998  Warrants")  to  a  limited  number  of
"accredited"  investors.  The maximum number of shares of Common Stock which may
be issued by the Company upon the conversion of the Second June 1998 Notes (at a
base conversion price of $1.00 per share),  subject to certain adjustments,  and
the exercise of the Second June 1998 Warrants (at an exercise  price of $.50 per
share for the first two years and $.85 per share  thereafter)  is up to  425,000
shares and 531,250 shares, respectively.  
<PAGE>
The Form S-1 covers the 956,250  shares of Common Stock  issuable  upon the
conversion  of the Second  June 1998 Notes and the  exercise  of the Second June
1998 Warrants.  Based on the number of outstanding shares of Common Stock of the
Company  as  of  the  date  hereof,   the  Second  June  1998  shares  represent
approximately  2.49% of the outstanding  Common Stock of the Company.  As of the
date hereof, none of the Second June 1998 Notes or the Second June 1998 Warrants
had been exercised.

     All of the shares to be held upon  conversion  by the holders of the Second
June 1998 Notes may be offered in that,  under the terms of the Second June 1998
Notes,  such holders may convert 100% of the principal amount of the Second June
1998 Notes at any time  after the  issuance  date.  The  conversion  rate of the
Second  June 1998  Notes is equal to $1.00 per share and this price was used for
purposes  of  registering  the  maximum  number of shares of Common  Stock  upon
conversion  of the Second  June 1998 Notes  under the Form S-1.  The Second June
1998 Notes are  subordinated to any senior debt incurred by the Company.  All of
the shares to be held upon  exercise  by the  holders  of the  Second  June 1998
Warrants  may be  offered  in that,  under  the  terms of the  Second  June 1998
Warrants,  holders may exercise at any time until June 2002.  The exercise price
of the Second  June 1998  Warrants  is equal to $.50 per share for the first two
years and $.85 per share  thereafter  (subject to  adjustment)  and these prices
were used for  purposes of  registering  the maximum  number of shares of Common
Stock under the Form S-1 for exercise of the Second June 1998  Warrants.  In the
event the Company has not registered the Second June Warrants  within six months
of issuance,  the exercise price for the entire term through June 14, 2000 shall
remain at $.50 per  share.  The  Second  June  1998  Warrants  contain  cashless
exercise and  anti-dilution  provisions  which include,  but are not limited to,
anti-dilutive protection against stock or management option issuances below $.50
per share.  Additionally,  the exercise  price of the Second June 1998  Warrants
will be  adjusted  downward to 50% of fair  market  value when the  registration
statement  becomes  effective,  if after 90 days the share  price of the  Common
Stock falls below $.75 per share for more than five consecutive  trading days or
seven out of ten trading days.  In  connection  with the sale of the Second June
1998 Notes and the Second June 1998 Warrants,  the Company committed to register
the Second June 1998 shares under the  Securities Act for resale by, and for the
benefit of, such shareholders.

The Third June 1998 Financing

     In June 1998,  the Company raised gross proceeds of $1,250,000 in a private
placement of the Company's 5.5%  convertible  notes due in June 2000 (the "Third
June 1998  Notes") and  warrants to purchase  shares of Common Stock (the "Third
June 1998  Warrants") to one  "accredited"  investor.  The  conversion  price is
calculated  pursuant  to a formula as the lower of (i) the  average  closing bid
price for the five days prior to the closing ($.7195) or (ii) 80% of the average
closing  bide price for the five days prior to notice of intent to  convert.  In
the event that the lower price were the  average  closing bid price for the five
days prior to the  closing,  the maximum  number of shares of Common Stock which
may be issued by the Company upon  conversion of the Third June 1998 Notes would
be 1,798,124 shares. For purposes of registering the maximum number of shares of
Common Stock under the Form S-1, the  conversion  rate is assumed to be the base
price of $.7195.  Because  the  conversion  rate of the Third June 1998 Notes is
based in part on future average  trading prices of the Common Stock,  the number
of shares  which may  actually  be sold  pursuant  to the Form S-1 could  differ
significantly.  For example,  in the event the average closing bid price for the
five days prior to notice of intent to convert were  $.7195,  80% of such number
would equal a share price of $.5756, resulting in a total of 2,247,655 shares of
Common Stock issuable upon  conversion,  exclusive of the exercise of any of the
Third June 1998 Warrants. The maximum number of shares of Common Stock which may
be issued by the Company upon the  exercise of the Third June 1998  Warrants (at
an exercise price of 120% of the average closing bid price for the five (5) days
prior to the  closing  which is equal to  $.8634)  is  230,000  shares.  Certain
penalties  were to be paid to the Third June 1998 Note Investor in the event the
registration  statement  was not  effective  within sixty days.  In lieu of such
payments,  the Investor has elected to take  282,016  additional  shares in full
liquidation of all penalties due through  December 1998. The Form S-1 covers the
up to 2,310,140 total shares of Common Stock issuable, with certainty,  upon the
conversion  of the Third June 1998  Notes,  the  exercise of the Third June 1998
Warrants and payment of penalties  through December 1998. Based on the number of
outstanding  shares of Common  Stock of the Company as of the date  hereof,  the
Third June 1998 shares represent  approximately  6.02% of the outstanding Common
Stock of the Company.  As of the date hereof,  none of the Third June 1998 Notes
had been converted and none of the Third June 1998 Warrants had been exercised.
<PAGE>
     All of the shares to be held upon  conversion  by the  holders of the Third
June 1998 Notes may be offered,  except that,  under the terms of the Third June
1998 Notes,  such holders  could  convert the original  principal  amount of the
Third  June 1998 Notes only to the  extent of  one-third  of such  amount on and
after each of July 23,  1998,  August  23,  1998 and  September  23,  1998.  The
conversion  rate of the Third June 1998  Notes  equal to $.72 per share was used
for purposes of  registering  the maximum  number of shares of Common Stock upon
conversion  of the Third June 1998 Notes under the Form S-1. The Third June 1998
Notes are subordinates to any senior debt incurred by the Company.

     All of the shares to be held upon exercise by the Holders of the Third June
1998  Warrants  may be offered  in that,  under the terms of the Third June 1998
Warrants,  such  holders  may  exercise  at any time  until June 23,  2003.  The
exercise  price of the Third June 1998  Warrants  is equal to $.87 per share and
this price was used for purposes of registering  the maximum number of shares of
Common Stock under the Form S-1 for exercise of the Third June 1998 Warrants. In
connection  with the sale of the Third  June 1998  Notes and the Third 1998 June
Warrants,  the Company  entered into a  Registration  Rights  Agreement with the
Third June 1998 Investors,  pursuant to which the Company agreed to register the
Third  June 1998  shares  under the  Securities  Act for  resale by, and for the
benefit of, such shareholders.

     The Company used $1,000,000 of the net proceeds as an additional concession
fee payment in connection with its Sao Tome joint venture.  The balance was used
for working  capital.  The Company has failed to register  the shares into which
the Third June 1998 Notes are  convertible  and the Third June 1998 Warrants are
exercisable   during  the  60-day  period   following  the  completion  of  this
transaction.  As a result,  the Company is required to make certain  payments to
the Third June 1998  Investors.  The Company is currently in  negotiations  with
these Investors to determine the amounts to be paid.

     The firm of Joseph  Charles & Associates  which is located at Lenox Center,
3355 Lenox  Road,  #750,  Atlanta,  GA 30326  acted as the  underwriter  of this
placement.

The July/August 1998 Funding

     In July and August 1998,  the Company  raised gross proceeds of $1,200,000,
$275,000 and $1,010,000  respectively in a private placement of up to $3,000,000
in three(3)  tranches of the Company's  8.0%  convertible  notes due in July and
August 2000 (the "July Notes") to a limited  number of  "accredited"  investors.
The conversion  price of the July Notes is calculated by formula as the lower of
(i) 120% of the  average  closing  bid price per share of the  Company's  Common
Stock for the five (5) days preceding the closing of the transaction or (ii) 75%
of the average closing bid price per share of the Company's Common Stock for the
five (5) days preceding the date upon which notice of conversion is given by the
investor to the Company.  In the event that the lower price were the 120% of the
average  closing  bid price for the five (5) days prior to the closing bid price
for the five (5) days prior to the closing of each tranche,  the maximum  number
of shares of the Common Stock which may be issued by the Company upon conversion
of the July Notes (at a base price of $.8925,  $.8775 and $1.19 respectively) is
2,506,668. However if 75% of the average closing bid price for the five (5) days
prior to the notice of intent to convert were the lower  price,  there is no way
to ascertain the maximum number of shares of Common Stock which may be issued by
the  Company  upon  conversion  of the July  Notes  at this  time.  Because  the
conversion  rate of the July  Notes is based in part on future  average  trading
prices of the Common  Stock,  the number of shares  which may actually be issued
upon  conversion  could  differ  significantly.  For  example,  in the event the
average  closing  bid price for the five (5) days prior to the note of intent to
convert  were  $.74375,  75% of such number would equal a share price of $.55781
resulting  in a  total  of  4,454,922  shares  of  Common  Stock  issuable  upon
conversion  exclusive  of the  exercise of any of the  warrants.  Warrants  were
issued  to  the  placement  agent  at the  close  of  each  tranche  (the  "July
Warrants").  The maximum number of shares of Common Stock which may be issued by
the Company  upon the  exercise of the July  Warrants  (at an exercise  price of
$.74375,  $.73125  and $.99375  respectively)  is 223,650  shares.  Based on the
number of  outstanding  shares of the Common Stock of the Company as of the date
hereof,  the shares  issuable  under the July Notes and July Warrants  represent
approximately  9.19% of the outstanding  stock of the Company.  In October 1998,
July Notes  totally  $412,350 and accrued  interest  thereon  were  converted at
prices ranging from $.321 to $.399 per shares for a total issuance of 1,210,686.
As of the date hereof,  no other July notes had been  converted  and none of the
July  Warrants  had been  exercised.  The Form S-1 covers  the  maximum of up to
3,530,490  (2,506,668  total shares of Common Stock issuable upon  conversion of
the July Notes at the base  prices  plus  800,172  total  shares as an  adjusted
amount to reflect the October conversions and 223,650 total shares issuable upon
exercise of the July Warrants).
<PAGE>
     Under the terms of the July Notes,  the holders  thereof  could convert the
original  principal  amount of the notes only to the extent of one-third of such
amount on and after each thirty (3) day period  following the issuance date. The
July Notes are subordinate to any senior debt incurred by the Company.

     Under the terms of the July Warrants,  the holders  thereof may exercise at
any time up until 5 PM Eastern Standard Time on July 30, 2003 and August 5, 1998
respectively.  The  exercise  price of the July  Warrants  are equal to $.74375,
$.73125 and $.99375 respectively.

     In connection  with the sale of the July Notes and the July  Warrants,  the
Company  entered  into  a  Registration   Rights   Agreement  with  the  Selling
Shareholders,  pursuant  to which the Company  agreed to register  the July 1998
Funding  shares under the  Securities Act for resale by, and for the benefit of,
such shareholders.

     The Company used $1,000,000 of the net proceeds as an additional concession
fee payment in connection with its Sao Tome joint venture.  The balance was used
for working  capital.  The Company has failed to register  the shares into which
the July Notes are convertible and the July Warrants are exercisable  during the
60-day period  following the completion of this  transaction.  As a result,  the
Company is required to make certain payments to the July/August  Investors.  The
Company is  currently in  negotiations  with these  Investors  to determine  the
amounts to be paid.

     The firm of J.P.  Carey  Securities,  Inc.  which  is  located  at  Atlanta
Financial Center,  East Tower, 3343 Peachtree Road, Suite 500, Atlanta, GA 30326
acted as the underwriter of this funding.

The September 1998 Financing

     By documents  dated  September  1998,  the Company raised gross proceeds of
$500,000 in October 1998 in a private placement of the Company's 20% convertible
note due in October 2000 (the  "September  1998 Note") and a warrant to purchase
shares of Common  Stock  (the  "September  1998  Warrant")  to one  "accredited"
investor.  The conversion price is calculated pursuant to a formula as the lower
of (i)  90% of the  average  closing  bid  price  for the  five  days  prior  to
conversion  or (ii) $1.00.  In the event that the lower price were $1.00 maximum
number  of  shares of Common  Stock  which  may be  issued by the  Company  upon
conversion of the September 1998 Note would be 750,000 (assuming the lower price
is $1.00 and  pursuant  to the terms of the  September  1998 Note which  require
registration to initially cover 150% of the shares underlying the September 1998
Note).  For purposes of registering the maximum number of shares of Common Stock
under the Form S- 1, the  conversion  rate is assumed to be $1.00.  Because  the
conversion  rate of the September  1998 Note is based in part on future  average
trading  prices of the Common Stock,  the number of shares which may actually be
sold pursuant to the Form S-1 could differ  significantly.  For example,  in the
event the average  closing bid price for the five days prior to notice of intent
to convert  were $.50,  90% of such  number  would  equal a share price of $.45,
resulting  in a  total  of  1,111,111  shares  of  Common  Stock  issuable  upon
conversion,  exclusive of the exercise of any of the September  1998 Warrant and
the requirement of  registration of 150% would equal 1,666,666  shares of Common
Stock.  The maximum  number of shares of Common Stock which may be issued by the
Company upon the exercise of the September 1998 Warrant (at an exercise price of
$.40) is 1,500,000 shares.  The Form S-1 covers the up to 2,250,000 total shares
of Common Stock issuable,  with certainty,  upon the conversion of the September
1998 Note and the exercise of the September 1998 Warrant. Based on the number of
outstanding  shares of Common  Stock of the Company as of the date  hereof,  the
September 1998 shares represent  approximately  1.95% of the outstanding  Common
Stock of the Company. As of the date hereof, none of the September 1998 Note had
been converted and none of the September 1998 Warrant had been exercised.

     The September  1998 Note  precludes the holder from  converting  all or any
part of said note prior to the first  anniversary date of issuance  (October 26,
1999).  The conversion  rate of the September 1998 Note equal to $1.00 per share
was used for  purposes of  registering  the  maximum  number of shares of Common
Stock  upon  conversion  of the  September  1998 Note  under  the Form S-1.  The
September 1998 Note is  subordinates to any senior debt incurred by the Company.
Commencing on the first  anniversary of the issuance of said note, the remaining
principal  amount and all accrued and unpaid  interest and fees,  if any,  shall
automatically and without further action on the part of the holder be payable in
twelve monthly installments  commencing with a first payment on November 1, 1999
and a final payment on the maturity date. The Company has the option at any time
prior to the first  anniversary of said note to prepay all or any portion of the
remaining  principal  plus an amount  equal to twenty  percent on the portion so
paid.
<PAGE>
     Under the terms of the September  1998 Warrant , the holder may exercise at
any time from the issuance date until October 26, 2008, for up to 750,000 shares
of Common Stock and from October 26, 1999 until October 26, 2008, 750,000 shares
of Common Stock.  The exercise  price of the September  1998 Warrant is equal to
$.40 per share and this price was used for purposes of  registering  the maximum
number  of  shares  of  Common  Stock  under  the Form S-1 for  exercise  of the
September Warrant.

     In connection  with the sale of the  September  1998 Note and the September
1998 Warrant, the Company agreed (i) to use its best efforts to register 150% of
the September  1998 Note shares under the  Securities Act for resale by, and for
the benefit of, such  shareholders  within one year of issuance and to have such
registration  remain effective until the earlier of the date upon which the Note
is sold or the  term of said  note  and  further,  granted  the  holder  certain
piggy-back  registration  rights;  and (ii) to use its best  efforts to register
100% of the September  1998 Warrant under the  Securities Act for resale by, and
for the benefit of, such  shareholders  within two years of issuance and to have
such registration  remain effective until the earlier of the date upon which the
Warrant is sold or for the life of said  warrant and further  granted the holder
certain piggy-back registration rights.

     The Company  used  $250,000 of the net  proceeds to make  certain  payments
necessary  for Sao Tome other than the  concession  fee and the balance was used
for working capital.

The October 1998 Financing

     In October 1998,  the Company  commenced a the private  placement for up to
$1,500,000  under  which it has  raised  gross  proceeds  in three (3)  closings
totaling 800,000 of the Company's 12% subordinated  convertible notes, which are
due on December 31, 1999 (the "October 1998 Notes"), and "A" and "B" warrants to
purchase  shares of Common Stock (the "October 1998 "A" and "B"  Warrants") to a
limited number of "accredited" investors. The maximum number of shares of Common
Stock which may be issued by the Company upon the conversion of the October 1998
Notes  (at a base  conversion  price of $1.25 per  share),  subject  to  certain
adjustments, the exercise of the October 1998 "A" Warrants (at an exercise price
of $.50 per share) and the  exercise of the  October  1998 "B"  Warrants  (at an
exercise price of $3.00 per share) is up to 640,000 shares, 1,200,000 shares and
1,200,000  shares,  respectively.  The Form S-1 covers the  3,040,000  shares of
Common  Stock  issuable  upon the  conversion  of the October 1998 Notes and the
exercise  of the  October  1998 "A" and "B"  Warrants.  Based on the  number  of
outstanding  shares of Common  Stock of the Company as of the date  hereof,  the
October 1998 shares  represent  approximately  7.92% of the  outstanding  Common
Stock of the Company.  As of the date hereof,  none of the October 1998 Notes or
the October 1998 "A" or "B" Warrants had been exercised.

     All of the shares to be held upon  conversion by the holders of the October
1998 Notes may be offered in that,  under their terms,  such holders may convert
100% of the principal  amount of said notes at any time after the issuance date.
The  conversion  rate of the October  1998 Notes is equal to $1.25 per share and
this price was used for purposes of registering  the maximum number of shares of
Common Stock upon  conversion  of the October 1998 Notes under the Form S-1. The
October 1998 Notes are  subordinated to any senior debt incurred by the Company.
All of the shares to be held upon  exercise  by the  holders of the  October "A"
1998  Warrants  may be offered in that,  under the terms of the October 1998 "A"
Warrants, holders may exercise at any time until December 31, 2003. The exercise
price of the October  1998 "A"  Warrants is equal to $.50 per share  (subject to
adjustment)  and these prices were used for purposes of registering  the maximum
number of shares of Common  Stock under the Form S-1 for exercise of the October
1998 "A" Warrants.  All of the shares to be held upon exercise by the holders of
the October  "B" 1998  Warrants  may be offered in that,  under the terms of the
October 1998 "B" Warrants, holders may exercise at any time until the earlier of
(i) five years from the date of exercise of the October 1998 "A" Warrant or (ii)
December 31, 2008.  The exercise price of the October 1998 "B" Warrants is equal
to $3.00 per share  (subject  to  adjustment)  and  these  prices  were used for
purposes of  registering  the maximum number of shares of Common Stock under the
Form S-1 for exercise of the October 1998 "B"  Warrants.  The October 1998 Notes
and the October 1998 "A" and "B" Warrants have certain  piggy-back  registration
rights.  The October 1998 "A" and "B"  Warrants  contain  cashless  exercise and
anti-dilution  provisions which include,  but are not limited to,  anti-dilutive
protection  against stock or management  option  issuances below $.50 per share.
The Company has the right to call the October 1998 "A" Warrant at any time after
the underlying  shares are registered if the Common Stock of the Company exceeds
a price of $4.50 per share for an average of twenty  consecutive  trading  days.
<PAGE>
The  Company  has the right to call the  October  1998 "B"  Warrants at any time
after  eighteen  months  after the holder has  exercised  its  October  1998 "A"
Warrant and after the  underlying  shares are  registered if the Common Stock of
the  Company  exceeds  a price of $9.00  per  share  for an  average  of  twenty
consecutive  trading  days.  The  Company has agreed not to call the "A" and "B"
warrants  simultaneously.  In connection with the sale of the October 1998 Notes
and the October 1998 "A" and "B" Warrants, the Company committed to register the
October 1998 shares under the  Securities Act for resale by, and for the benefit
of, such shareholders.

     The Company used  $500,000 of the net  proceeds to fulfill its  obligations
under its  contract  with Sao Tome and the  balance  was used to fund  operating
costs relative to the Sao Tome operation and to provide working capital.

Uinta Settlement

     In January 1999, the Company agreed to a settlement with Uinta. Pursuant to
such  settlement,  the  maximum  number of shares of Common  Stock  which may be
issued by the Company on or about January 18, 1999 (assuming the strike price is
the  closing  price  on  January  7,  1999 of $ .30  (the  "Strike  Price"))  is
1,144,000.  Since the Strike  Price is based in part on future  average  trading
prices of the Common  Stock,  the number of shares  which may  actually  be sold
pursuant to the Form S-1 could differ  significantly.  For example, in the event
the  average  closing bid price for the five days prior to January 18, 1999 were
less than the assumed  Strike Price,  such number of shares offered hereby would
be higher.  The Form S-1 covers the up to 1,144,000 total shares of Common Stock
issuable, with certainty, upon the completion of the Uinta settlement.  Based on
the number of  outstanding  shares of Common Stock of the Company as of the date
hereof,  the  Uinta  settlement  shares  represent  approximately  2.98%  of the
outstanding Common Stock of the Company.

     Under the  terms of the  executed  settlement,  for the  500,000  shares of
restricted  stock  which  were  issued  at a  guarantee  price of $2 per  share,
additional restricted shares will be issued which reflect the difference between
$2 and the price on October  16, 1998 and  December  30, 1998 (under the formula
set forth in the  agreement,  861,111 and 1,312,500  shares of restricted  stock
respectively) and the 500,000 shares of restricted stock which were to be issued
in early  1998  will be  issued  and  treated  as if  issued  at the  time  such
deliverance was initially  required,  which shares bear registration  rights and
are offered  hereby . In addition,  the parties will receive  additional  shares
equal to the difference  between the value on a date certain in January 1999 and
$2 for the second block of 500,000 (assuming the Strike Price,  2,833,333 shares
of restricted stock). The Company will reimburse certain filing fees,  attorneys
fees and will pay for  certain  office  equipment.  The Company  will  receive a
quitclaim deed and assignments to perfect the Company's  interest in the leases.
In addition,  (1) Uinta will be issued shares of the Company's  Common Stock the
amount of which shall be  determined  by dividing  $250,000 by the Strike Price,
half of which  shares shall be included in this  registration  and half of which
shall be restricted  securities  (assuming the Strike Price,  416,667  shares of
restricted  stock and  416,667  shares  which bear  registration  rights and are
offered  hereby) , (2) in exchange for  assignment  of a 4%  overriding  royalty
interest,  Uinta will  receive  restricted  shares the amount of which  shall be
determined by dividing  $677,000 by the Strike Price (assuming the Strike Price,
2,256,667 shares of restricted  stock),  (3) a deficiency value equal to $41,200
for the Utah office building will be liquidated by issuance of shares the amount
of which shall be equal to $41,200  divided by the Strike  Price,  (assuming the
Strike Price,  137,333  shares of Common Stock,  which shares bear  registration
rights and are offered  hereby,  (4) Uinta will  receive no more than $10,000 to
cost its  court  costs  and  attorneys  fees,  and (5)  payment  of  outstanding
production  service  invoices to third parties  totally $27,000 shall be paid in
the form of shares included in this registration  statement,  which shares shall
be equal to $27,000  divided by the Strike  Price  (assuming  the Strike  Price,
90,000 shares which are offered hereby).

Stock Ownership

     The  following  table  sets  forth  the  names of and the  number of Shares
beneficially owned by each Selling Shareholder as of the date hereof.  Since the
Selling Shareholders may sell all, some or none of their Shares, no estimate can
be made of the aggregate  number of Shares that are to be offered  hereby or the
number or  percentage  of Shares  that each  Selling  Shareholder  will own upon
completion of the offering to which the Form S-1 relates.
<PAGE>

                                 Shares Owned Before the Offering (1)
                              --------------------------------------------
Name of                             Underlying    Underlying       Total
Selling Shareholder                  Notes        Warrants         Shares
- -------------------               -----          --------         ------
1997 Investor Private Placement
- -------------------------------

Banque Edouard Constant SA            320,000        24,000        344,000
11, Cours de Rive
Case Postale 3754
1211 - Geneva
Switzerland

Elara Ltd.                            600,000        45,000        645,000
P.O. Box 438
Tropic Isle Building
Wickhams Cay
Road Town, Tortola
British Virgin Islands
c/o Talisman Capital
1601 LaGrande Drive, Suite 100
Little Rock, AR  72211

Keyway Investments Ltd.               720,000        54,000         774,000
19 Mount Havelock
Douglas, Isle of Man
1M1 2QG

British Islands
c/o Midland Walwyn Capital, Inc.
BCE Place
181 Bay Street, Suite 500
Toronto, Ontario  M5J 2V8
Canada

JMG Capital Partners L.P.             320,000         24,000         344,000
c/o JMG Capital Management Inc.
1999 Avenue of the Stars
Suite 1950
Los Angeles, CA  90067

Triton Capital Investments, Ltd.      320,000         24,000         344,000
c/o JMG Capital Management Inc.
1999 Avenue of the Stars
Suite 1950
Los Angeles, CA  90067

Porter Partners L.P.                  320,000         24,000         344,000
c/o Porter Capital Management Co.
100 Shoreline Highway, Suite 211B
Mill Valley, CA  94941

EDJ Limited                            80,000          6,000          86,000
c/o Porter Capital Management Co.
100 Shoreline Highway, Suite 211B
Mill Valley, CA  94941

Cranshire Capital, L.P.               240,000          18,000         258,000
3000 Dundee Road
Suite 105
Northbrook, IL  60062

Legion Fund, Ltd.                     120,000           9,000         129,000
c/o Porter Capital Management Co.
100 Shoreline Highway, Suite 211B
Mill Valley, CA  94941

Banque Franck, S.A.                   400,000          30,000         430,000
1, Rue Toepffer
1206 - Geneva
Switzerland

Avalon Research Group, Inc.           --               25,800          25,800
1900 Glades Road, Suite 201
Boca Raton, FL  33431
<PAGE>
Kingsbridge Line of Credit
- --------------------------
Kingsbridge Capital Limited        12,658,228         100,000      12,758,228
Main Street                             (2)                              
Kilcullen, County Kildare
Republic of Ireland

April 1998 Financing
- --------------------
Robert and Jessica Baron               16,667          17,500          34,167
4664 Coco Plum Way
Delray Beach, FL 33445

Frank Ferrante                          8,333           8,750          17,083
4 Twilight Place
Fort Monmouth, NJ 07758

Rosemary Friedman Trust                50,000          52,500         102,500
4420 Bocaire Boulevard
Boca Raton, FL 33487

Diane Hom                              16,667          17,500          34,167
205 West End Avenue, #22J
New York, NY 10025

Stanley Katz                           16,667          17,500          34,167
10 Bonnie Drive
Northport, NY 11768

Howard Talks/Carol Hall, JTWROS        50,000          52,500         102,500
249 Tradewind Drive
Palm Beach, FL 33480

Kenneth Tice                            6,666           7,000          13,666
181 Drake Lane
Ledgewood, NJ 07852

Stephen Warner                         25,000          26,250          51,250
8 Shannon Circle
West Palm Beach, FL 33401

David Warren                           10,000          10,500          20,500
2004 Lake Osbourne Drive, #9
Lake Worth, FL 33461

First June 1998 Financing
- -------------------------
Corporate Builders                   -                 50,000          50,000
777 S. Flagler Drive
Suite 909
West Palm Beach, FL 33401

Legal Computer Technology, Inc.      -                500,000         500,000
277 Royal Poinciana Way
Suite 155
Palm Beach, FL 33480

Howard Talks                         -                500,000         500,000
249 Tradewind Drive
Palm Beach, FL 33480

Second June 1998 Financing
- --------------------------
Azriel and Sheila Nagar             25,000            31,250           56,250
342 Irving Avenue
South Orange, NJ 07079

Edward R. Rohquin                   30,000            37,500           67,500
9906 White Sands Place
Bonita Springs, FL 34135

Joseph and Valerie Spano           100,000           125,000          225,000
150 Tamiami Trail North
Naples, FL 34102

David B. Thornburgh                100,000           125,000          225,000
420 W. San Marino Drive
Miami Beach, FL 33139
<PAGE>
David B. Thornburgh Family Trust   170,000           212,500          382,500
420 W. San Marino Drive
Miami Beach, FL 33139

Third June 1998 Financing
- -------------------------
Intercontinental Holding Company    17,373             --              17,373
8351 Roswell Road, #239
Atlanta, GA 30350

Joseph Charles & Associates         43,433            75,000          118,433
Lenox Center
3355 Lenox Road, #750
Atlanta, GA 30326

ProFutures Special
 Equities Fund, L.P.             2,019,334           155,000        2,174,334
1310 Highway 620
Suite 200
Austin, TX 78734

July/August Funding
------------------------------------

Closing No. 1-

Atlantis Capital Fund Ltd.          907,371           -               907,371
c/o Thomas Kernaghan &                (3)
         Company Ltd.
365 Bay Street
10th Floor
Toronto, Ontario
Canada M5H 2V2

Atlas Capital Fund Ltd.             494,044           -               494,044
c/o Citco Fund Services               (3)
         (Cayman Island) Ltd.
Corporate Center
West Bay Road
P.O. Box 31106-SMB
Grand Cayman
Cayman Islands
British West Indies

Oscar Brito                         168,067           -               168,067
Calle Neveri
Qnta Shanti
Colinas de Tamaneco 1080
Caracas, Venezuela

Correllus International Ltd.        112,045           -               112,045
c/o Azucena 37
Torreblanca del Sol
296 40 Fuengirola
Malaga, Spain

Sandro Grimaldi                     168,067           -               168,067
Calle Neveri
Qnta Shanti
Colinas de Tamaneco 1080
Caracas, Venezuela

J.P. Carey                          -               108,000           108,000
Atlanta Financial Center
East Tower
3343 Peachtree Road
Suite 500
Atlanta, GA 30326

Closing No. 2 -

Holden Holding Ltd.                 255,497           -               255,497
c/o City Trust                        (3)
3rd Floor
Murdoch House
South Quay
Douglas
Isle of Mann 1M1 5AS
<PAGE>
PrimeCap Management Group           170,940           -               170,940
         Ltd.
c/o Midland Walwyn
#200
32555 Simon Avenue
Abbotsford
British Columbia
Canada V2T 4Ys

J.P. Carey                           -              24,750             24,750
Atlanta Financial Center
East Tower
3343 Peachtree Road
Suite 500
Atlanta, GA 30326

Closing No. 3 -

GPS America Fund Ltd.               434,170           -               434,170
c/o Citco Fund Services               (3)
         (Europe) B.V.
World Trade Center
         Amsterdam
Tower B, 17th Floor
Strawinskylaan 1725
P.O. Box 7241
1007 JE Amsterdam
the Netherlands

Mohammed Khalifa                   596,639           -                596,639
P.O. Box 3207
Dubai, U.A.E.

J.P. Carey                         -                 90,900            90,900
Atlanta Financial Center
East Tower
3343 Peachtree Road
Suite 500
Atlanta, GA 30326


September 1998 Funding
-------------------------------------

Talisman Capital Opportunity     750,000          1,500,000         2,250,000
    Fund Ltd.
16101 La Grande Drive
Suite 100
Little Rock, AR 72211

October 1998 Funding
-----------------------------------

David Abelove                     80,000             300,000          380,000
7529 Foote Road                                        (4)
Clinton, NY 13323

Prudential Securities Inc. C/F   240,000             900,000        1,140,000
David Thornburgh - IRA                                  (4)
         dated 3/10/98 A/C # AFG-813978 1 New York Plaza 11th Floor New York, NY
13323



Attn: Retirement Operations

1300 Windlass Corporation         80,000              300,000         380,000
Unit 1204                                               (4)
4401 Gulf Shore Boulevard
Naples, FL 34103

David B. Thornburgh Family       240,000              900,000       1,140,000
         Trust                                          (4)
420 W. San Marino Drive
Miami Beach, FL 33139

Uinta Settlement
----------------------------------
<PAGE>
Uinta Oil & Gas Inc.             478,517                -             478,517
3954 East 200
North East Highway 40
Ballard, UT 84066

Pine Valley Exploration, Inc.     185,650               -             185,650
19307 West Warren
Detroit, MI 48228

Coconino, S.M.A., Inc.            247,500               -             247,500
1567 W. Silver Springs Road
Park City, UT 84098

Joseph H. Lorenzo                   5,000               -               5,000


Craig Phillips                     82,400               -              82,400
Ballard, UT

Robert Ballou     (5)              54,933               -              54,933


Stripper Operators Inc             60,000               -              60,000

Production Service Company         30,000               -              30,000

               Total           24,644,208          6,528,700       31,172,908

     (1) All Shares are  beneficially  owned and the sole voting and  investment
power is held by the persons named.

     (2) The number of shares beneficially owned by Kingsbridge will be modified
to reflect the number of such shares acquired by Kingsbridge,  if any, from time
to time as set forth in a Prospectus  Supplement  to the Form S-1.  Although the
shares  associated  with the put option  exercise  will not be issued until such
time as a put  option  exercise  notice is given,  pursuant  to the terms of the
Registration  Rights  Agreement,  the Company is required to register all of the
shares of Common  Stock  subject to the put option,  as well as those into which
the Kingsbridge Warrant is exercisable.

     (3) The Investor made partial conversion of its July Note in October 1998

     (4) Half of which warrants are "A" and half of which warrants are "B".

     (5) Robert Ballou is now employed as a geologist with the Company,  but was
not affiliated at the time the original transaction was concluded.

     The  Company  has agreed to  indemnify  the  Selling  Shareholders  and the
Selling  Shareholders have agreed to indemnify the Company against certain civil
liabilities, including liabilities under the Securities Act.

     None of the  Selling  Shareholders  has had any  position,  office or other
material  relationship with the Company or any of its affiliates within the past
three years.

     See Part II, Item 5. "Market for the Registrant's  Common Stock and Related
Security Holder Matters - (b) Recent Sales of Unregistered Securities."

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company's  predecessor,  Environmental  Remediation Funding Corporation
("ERFC"),  was incorporated under the laws of the State of Delaware in September
1995. In August 1996, the  stockholders of ERFC exchanged all of their shares of
ERFC for 2,433,950 authorized and unissued shares of common stock,  representing
87.2% of such  then  outstanding  shares,  of  Regional  Air  Group  Corporation
("RAIR"), a Colorado  corporation.  RAIR was a publicly-owned  corporation which
had ceased  operations and as a result had only nominal assets and  liabilities.
ERFC was then merged  into RAIR.  Following  the  acquisition  of  control,  the
stockholders of RAIR approved the change in the Company's name to  Environmental
Remediation Holding Corporation.
<PAGE>
         In April 1997,  the Company  acquired  all of the  outstanding  capital
stock of BAPCO, a privately-held company controlled by Sam L. Bass, Jr., who was
then the Company's Chairman of the Board, President and Chief Executive Officer.
Through this acquisition, the Company acquired, among other assets, ownership of
all  rights to the BAPCO  Tool and  assignment  of the  Chevron  master  service
agreement.  The Company issued  4,000,000  shares of Common Stock to Mr. Bass in
exchange for the outstanding  capital stock of BAPCO.  In addition,  the Company
issued  3,000,000  shares of Common  Stock to BEW, a company  controlled  by Mr.
Bass, in connection with the assignment of the Chevron master service agreement.
See "Business - Environmental Remediation Services." Mr. Bass transferred 12,500
of his shares to his son, Alfred L. Cotten, currently a Director of the Company.

     In June 1997,  the Company issued 150,000 shares of its Common Stock to two
independent  consultants  (75,000  each) in  exchange  for  services  valued  at
$28,125. One of the consultants, Robert McKnight subsequently became employed by
BAPCO and now serves as the Acting Chief Financial Officer and a Director of the
Company.

     In July 1997,  the Company  issued  1,500,000  shares of its Common  Stock,
500,000 each, to James R. Callender, Sr., Noreen G. Wilson and William Beaton.

     In  October  1998,  the  Company,  under  a  mistaken  interpretation  of a
contingent  obligation  of the Company to issue  shares in  connection  with the
efforts to close the Sao Tome contract,  issued  2,000,000 shares to each of Sam
L. Bass, Jr., James R. Callender,  Sr., Noreen Wilson and James A. Griffin. When
it was discovered that such shares were issued in error, by vote of the Board of
Directors,  on December 18, 1998,  such issuance was  rescinded.  Mr. Bass,  Mr.
Callender and Mr. Griffin have agreed to tender their shares  immediately to the
transfer agent for cancellation. The transfer agent has been notified to place a
stop upon the shares of Ms. Wilson in the event her shares are not tendered in a
timely  fashion.  On the same date,  the Company issued 425,000 shares to Robert
McKnight and 100,000 to Kenneth M. Waters in  connection  with their  serving on
the Board of  Directors.  Such  shares are not  subject to the  rescission.  Mr.
Waters has tendered his shares back to the Company for  cancellation  because of
tax considerations.

     From time to time,  Noreen G. Wilson and James A. Griffin,  while executive
officers and directors of the Company, have advanced funds to the Company in the
total amount of $1,469,559  through September 30, 1998,  pursuant to 8.5% demand
promissory  notes, of which $724,377 was repaid through  September 30, 1998, and
$748,571  remains  outstanding at September 30, 1998. Such notes are convertible
into Common Stock at a conversion  rate per share equal to the fair market value
of a share of Common Stock at the time of the advance.

     ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.

         (1)      Index to Exhibit Pages

     10.1 Master Service Order and Agreement, dated October 1, 1996, between the
Company and Chevron  U.S.A.  Inc.  [incorporated  herein by  reference  from the
Company's  Annual  Report on Form10-K  for the fiscal year ended  September  30,
1997, filed on December 29, 1997, Commission File No. 0-17325]

     10.2 Joint Venture Agreement,  dated December 12, 1996, between the Company
and Centram Marine  Services,  S.A.  [incorporated  herein by reference from the
Company's  Annual  Report on Form10-K  for the fiscal year ended  September  30,
1997, filed on December 29, 1997, Commission File No. 0-17325]

     10.3  *  Letter  of  Intent  dated  May  18,  1997,  between  Environmental
Remediation  Holding  Corporation,   Procura  Financial  Consultants,   and  the
Democratic Republic of Sao Tome Principe.

     10.4 Joint Venture Agreement,  dated July 28, 1997, between the Company and
MIII  Corporation.  [incorporated  herein by reference from the Company's Annual
Report on  Form10-K  for the fiscal  year ended  September  30,  1997,  filed on
December 29, 1997, Commission File No. 0-17325]

     10.5  Memorandum  of  Agreement,  dated  September  30,  1997,  between the
Company,  the Government of the Democratic Republic of Sao Tome & Principe,  and
Procura Financial  Consultants,  c.c. [incorporated herein by reference from the
Company's  Annual  Report on Form10-K  for the fiscal year ended  September  30,
1997, filed on December 29, 1997, Commission File No. 0-17325]

     10.6 Form of Securities  Purchase  Agreement,  dated as of October 15,1997,
between the Company and each of the  Purchasers  listed  therein,  together with
forms of the 5.5% Convertible  Senior  Subordinated  Secured Note and Warrant to
Purchase Common Stock.
<PAGE>
     10.7 Form of Registration  Rights Agreement,  dated as of October 15, 1997,
between the Company and each of the Purchasers listed therein.

     10.8 Private Equity Line of Credit  Agreement,  dated as of March 23, 1998,
between the Company and Kingsbridge Capital Limited.

     10.9 Form of the  Company's  12.%  Convertible  Note  ("April  1998 Notes")
[incorporated  herein by reference,  previously filed as an exhibit to Form 10-Q
for the quarter ended March 31, 1998 , Commission File No. 0-18275]

     10.10 Form of the Company's Warrants ("April 1998 Warrants") [ incorporated
herein by  reference,  previously  filed as exhibit to Form 10-Q for the quarter
ended March 31, 1998, Commission File No. 0-18275]

     10.11 Form of the  Company's  Warrants  ("June 1998  Warrants)  [previously
filed as an exhibit to Form 10-Q for the quarter ended June 30, 1998, Commission
File No. 0-17325]

     10.12 Form of the Company's 12% Convertible Note ("Second June 1998 Notes")
[incorporated  herein by reference,  previously files as an exhibit to Form 10-Q
for the quarter ended June 30, 1998, Commission File No. 0-17325]

     10.13  Form  of  the  Company's   Warrant  ("Second  June  1998  Warrants")
[incorporated  herein by reference,  previously files as an exhibit to Form 10-Q
for the quarter ended June 30, 1998, Commission File No. 0-17325]

     10.14 Form of the Third June 1998 Financing  Securities  Purchase Agreement
[incorporated  herein by reference,  previously files as an exhibit to Form 10-Q
for the quarter ended June 30, 1998, Commission File No. 0-17325]

     10.15 Form of the Company's 5.5%  Convertible Note ("Third June 1998 Notes"
[incorporated  herein by reference,  previously files as an exhibit to Form 10-Q
for the quarter ended June 30, 1998, Commission File No. 0-17325]

     10.16  Form  of  the  Company's   Warrant   ("Third  June  1998  Warrants")
[incorporated  herein by reference,  previously files as an exhibit to Form 10-Q
for the quarter ended June 30, 1998, Commission File No. 0-17325]

     10.17 Form of the Third June 1998 Financing  Registration  Rights Agreement
[incorporated  herein by reference,  previously files as an exhibit to Form 10-Q
for the quarter ended June 30, 1998, Commission File No. 0-17325]

     10.18 Form of the July/August 1998 Financing  Securities Purchase Agreement
[incorporated  herein by reference,  previously files as an exhibit to Form 10-Q
for the quarter ended June 30, 1998, Commission File No. 0-17325]

     10.19  Form  of  the   Company's  8%   Convertible   Note  ("July   Notes")
[incorporated  herein by reference,  previously files as an exhibit to Form 10-Q
for the quarter ended June 30, 1998, Commission File No. 0-17325]

     10.20 Form of the Company's  Warrant and Warrant Agreement ("July Warrants)
[incorporated  herein by reference,  previously files as an exhibit to Form 10-Q
for the quarter ended June 30, 1998, Commission File No. 0-17325]

     10.21 Form of the July/August 1998 Financing  Registration Rights Agreement
[incorporated  herein by reference,  previously files as an exhibit to Form 10-Q
for the quarter ended June 30, 1998, Commission File No. 0-17325]

     10.22 Joint Venture Formation of the Sao Tome Principe  National  Petroleum
Company  executed July 9, 1998  (English  translation)  [incorporated  herein by
reference,  previously  files as an exhibit to Form 10-Q for the  quarter  ended
June 30, 1998, Commission File No. 0-17325]

     10.23 * Settlement  Agreement dated August 18, 1998 between the Company and
Procura Financial Corporation relative to participation in Sao Tome

     10.24 * Technical  Assistance Agreement by and among Democratic Republic of
Sao Tome Principe and Sao Tome and Principe National Petroleum Company, S.A. and
Mobil Exploration and Producing Services Inc. [Partially Redacted - Subject to a
Confidential Treatment Application filed with the SEC]

     10.25  *  Form  of  the  Securities  Purchase  Agreement  ("September  1998
Financing")

     10.26 * Form of the Company's 20% Convertible Note ("September 1998 Note")

     10.27 * Form of the Company's  Warrant  ("September  1998 Warrant") and the
Warrant Agreement 
<PAGE>
     10.28 * Form of the Company's 12% Convertible Note ("October 1998
Notes")

     10.29 * Form of the Company's Warrants ("October 1998 "A" and "B" Warrants)
and Warrant Agreement

     10.30  *  Memorandum  of  Compromise  and  Settlement   Agreement   between
Environmental Redmediation Holding Corporation,  Pine Valley Exploration,  Inc.,
Coconino,  S.M.A.,  Inc., Uinta Oil & Gas, Inc.,  Craig Phillips,  and Joseph H.
Lorenz dated January 4, 1999.

     21.1 Subsidiaries of the Company. [Attached hereto]

     27.1 Financial Data Schedule.
- ------------------------------------
     *  Incorporated  herein  by  reference  to  Amendment  3 to  the  Company's
Registration Statement on Form S- 1 expected to be filed on or about January 18,
1999.

     (B) List of  Exhibits  and  Reports  on Form 8-K and 8K/A  incorporated  by
reference in this report:

                  Form 8K filed February 2, 1998

                                   SIGNATURES

     Pursuant to the  requirements  of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its  behalf  by the  undersigned,  thereunto  duly  authorized,  in the  City of
Lafayette, State of Louisiana, on the 13th day of January 1999.

                                  ENVIRONMENTAL REMEDIATION HOLDING CORPORATION


                                      By: /s/ James R. Callender, Sr.
                                   ------------------------------------------
                                               James R. Callender, Sr.
                                President, Chief Executive Officer and Director


     Pursuant to the  requirements  of the  Securities and Exchange Act of 1934,
this report has been signed by the following  persons in the  capacities  and on
the dates indicated.

Signature                           Title                          Date
- ---------                         -----                          ----

/s/ Sam. L. Bass, Jr.            Chairman of the Board          January 13, 1999
- ---------------------------    and Vice President
    Sam L. Bass, Jr.



/s/ James R. Callender, Sr.      President and Chief Executiv   January 13, 1999
- ---------------------------    Officer and Director
  James R. Callender, Sr.


/s/ Robert McKnight              Acting Chief Financial Officer January 13, 1999
- ---------------------------    President of BAPCO and
    Robert McKnight              Director (principal financial
                                 or accounting officer)


   /s/ James A. Griffin          Secretary, Treasurer and       January 13, 1999
- ---------------------------    Director
     James A. Griffin



/s/ William Beaton               Director                       January 13, 1999
- ---------------------------
      William Beaton


/s/ Alfred L. Cotten             Director                       January 13, 1999
-----------------------------
     Alfred L. Cotten
<PAGE>

 /s/ Kenneth M. Waters           Director                       January 13, 1999
------------------------------
     Kenneth M. Waters