10-K 1 form10k.htm ERHC ENERGY, INC 10-K 9-30-2012 form10k.htm


U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-K

x
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended September 30, 2012

OR

o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period ended: __________________

Commission file number: 000-17325

Graphic
(Exact name of registrant as specified in its charter)

Colorado
 
88-0218499
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
     
5444 Westheimer Road, Suite 1440, Houston, Texas
 
77056
(Address of Principal Executive Office)
 
(Zip Code)

713-626-4700
(Registrant’s Telephone Number, Including Area Code)

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

Securities registered pursuant to Section 12(g) of the Exchange Act: common stock

Check if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes o No x
 
Check if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   Yes o No x
 
Check if the registrant:  (1) has 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 o
 
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K 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.  o
 
Check if the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.
Large Accelerated Filer o Accelerated Filer x Non-Accelerated Filer o

Check if the registrant is a shell company.  Yes o No x
 
The aggregate market value of the voting stock held by non-affiliates of the registrant on November 30, 2012 was $43,021,853

On November 30, 2012, the registrant had 739,458,854 shares of common stock issued and outstanding.



 
 

 
 
TABLE OF CONTENTS

 
PART I
PAGE
     
Item 1.
4
Item 1A.
17
Item 1B.
21
Item 2.
22
Item 3.
23
Item 4.
24
     
 
PART II
 
     
Item 5.
24
Item 6.
25
Item 7.
26
Item 7A.
31
Item 8.
32
Item 9.
58
Item 9A.
58
Item 9B.
58
     
 
PART III
 
     
Item 10.
59
Item 11.
64
Item 12.
71
Item 13.
72
Item 14.
72
     
 
PART IV
 
     
Item 15.
73
 
74

 
Forward-Looking Statements

ERHC Energy Inc. (the “Company”) or its representatives may, from time to time, make or incorporate by reference certain written or oral statements which include, but are not limited to, information concerning the Company’s possible or assumed future business activities and results of operations and statements about the following subjects:

 
business strategy;

 
growth opportunities;

 
future development of concessions, exploitation of assets and other business operations;

 
future market conditions and the effect of such conditions on the Company’s future activities or results of operations;

 
future uses of and requirements for financial resources;

 
interest rate and foreign exchange risk;

 
future contractual obligations;

 
outcomes of legal proceedings;

 
future operations outside the United States;

 
competitive position;

 
expected financial position;

 
future cash flows;

 
future liquidity and sufficiency of capital resources;

 
future dividends;

 
financing plans;

 
tax planning;

 
budgets for capital and other expenditures;

 
plans and objectives of management;

 
compliance with applicable laws; and

 
adequacy of insurance or indemnification.

These types of statements constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and inherently are subject to a variety of assumptions, risks and uncertainties that could cause actual results, levels of activity, performance or achievements to differ materially from those expected, projected or expressed in forward-looking statements.  These risks and uncertainties include, among others, the following:

 
general economic and business conditions;

 
worldwide demand for oil and natural gas;

 
changes in foreign and domestic oil and gas exploration, development and production activity;

 
 
oil and natural gas price fluctuations and related market expectations;

 
termination, renegotiation or modification of existing contracts;

 
the ability of the Organization of Petroleum Exporting Countries, commonly called OPEC, to set and maintain production levels and pricing, and the level of production in non-OPEC countries;

 
advances in exploration and development technology;

 
the political environment of oil-producing regions;

 
political instability in the Republic of Kenya, Republic of Chad, the Democratic Republic of Sao Tome and Principe and the Federal Republic of Nigeria;

 
casualty losses;

 
competition;

 
changes in foreign, political, social and economic conditions;

 
risks of international operations, compliance with foreign laws and taxation policies and expropriation or nationalization of equipment and assets;

 
risks of potential contractual liabilities;

 
foreign exchange and currency fluctuations and regulations, and the inability to repatriate income or capital;

 
risks of war, military operations, other armed hostilities, terrorist acts and embargoes;

 
regulatory initiatives and compliance with governmental regulations;

 
compliance with environmental laws and regulations;

 
compliance with tax laws and regulations;

 
customer preferences;

 
effects of litigation and governmental proceedings;

 
cost, availability and adequacy of insurance;

 
adequacy of the Company’s sources of liquidity;

 
labor conditions and the availability of qualified personnel; and

 
various other matters, many of which are beyond the Company’s control.

The risks and uncertainties included here are not exhaustive.  Other sections of this report and the Company’s other filings with the U.S. Securities and Exchange Commission (“SEC”) include additional factors that could adversely affect the Company’s business, results of operations and financial performance.  Given these risks and uncertainties, investors should not place undue reliance on our statements concerning future intent.  Company’s statements included in this report speak only as of the date of this report.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any of our statements to reflect any change in its expectations with regard to the statement or any change in events, conditions or circumstances on which any forward-looking statement is based.

 
PART I
Item 1 – Business

Overview

ERHC Energy Inc., a Colorado corporation, (“ERHC” or the “Company”) was incorporated in 1986. The Company is in the business of exploration for oil and gas resources in Africa. The Company’s business includes working interests in exploration acreage in the Republic of Kenya (“Kenya”), the Republic of Chad (“Chad”), the Joint Development Zone (“JDZ”) between the Democratic Republic of Săo Tomé and Príncipe (“STP”), the Federal Republic of Nigeria (“FRN” or “Nigeria”), and the exclusive economic zone of Săo Tomé and Príncipe (the “Exclusive Economic Zone” or “EEZ”).

ERHC’s strategy in Kenya and Chad is to perform exploration work and further develop assets acquired through Production Sharing Contracts (PSCs) with the governments of both countries.  ERHC plans to raise up to $48 million to cover the projected costs of exploration in the near future.

The Company’s strategy in the JDZ and EEZ is to farm out its working interests to well established oil and gas operators for valuable consideration including upfront cash payments and being carried for ERHC’s share of the exploration costs.  This has already been done successfully on Blocks 2, 3 and 4 of the JDZ where ERHC has benefited from partnerships with Addax Petroleum and Sinopec Corporation, which have operated some of the license areas on behalf of ERHC.

ERHC is now pursuing a similar approach for JDZ Blocks 5, 6 and 9 as well as for blocks in the EEZ.

Apart from its oil and gas exploration activities in Kenya, Chad, the JDZ and the EEZ, ERHC continues to pursue  other oil and gas opportunities on the African continent. These opportunities also include the possible acquisition of significant equity stakes in other oil and gas exploration and production companies and the resulting  indirect interest in the underlying exploration and production assets of such other companies.

 
CURRENT BUSINESS OPERATIONS

REPUBLIC OF KENYA

ERHC Kenya Acreage

In June 2012, after several months of negotiations between ERHC and the Government of Kenya, the Government awarded block 11A for oil and gas exploration and development in Kenya to the Company.  The block is ERHC’s first exploration acreage in East Africa and further diversifies the Company’s portfolio of oil and gas assets.

Graphic
 
The Company holds a 90% interest in Block 11A, which encompasses 11,950.06 square kilometers or 2.95 million square acres.  The Government of Kenya has a 10% carried participating interest up to the declaration of commerciality and may thereafter acquire an additional 10% interest in the PSC in which case the total Government participation would rise to 20%. Circle Limited (www.circleoilandgas.com) (“Circle”) acted as finder in ERHC’s acquisition of the Block by facilitating ERHC’s entry into Kenya, including the introduction of Dr. Peter Thuo, ERHC’s Kenya-based geoscientist and technical adviser who provided liaison services in the pursuit of ERHC’s application. Circle’s involvement provided significant efficiencies, including substantial cost savings, in ERHC’s application process.  By virtue of the terms of the business finder’s agreement reached between Circle and ERHC, Circle is entitled to receive a 5% payment on the value of the acquisition accruing resulting to ERHC from the application.  Circle has opted to receive this fee in the form of a carried 5% of ERHC’s total interest.

 
Kenya Oil Background and Overview

East Africa has emerged in recent years as arguably one of the most exciting, new oil provinces in the world with major discoveries of oil in Uganda’s Block 1 (EA1), and Kenya’s Ngamia-1,  and large gas discoveries, including the recent Zafarani find, offshore of Tanzania.

The regional geology and structural evolution of Block 11A in Kenya is dominated by the Cretaceous Central Africa Rift System (CARS) and the Tertiary East Africa Rift System (EARS) with the associated basin depositional trends.  The main surface feature of Block 11A is the Lotikipi plain. This broad depression measures approximately 110 km from east to west.

The proximity and in-trend relationship between the Lotikipi plain and the Abu Gabra Rift basins of southern Sudan suggest high oil and gas prospectivity.  The southern Sudan basins are established petroleum provinces. Surface exposures of the sedimentary units with potential source and reservoir value, represented by the Cretaceous/Paleogene Lapur Formation of the Turkana Grits, give an indication of the sediments that might be encountered beneath the Lotikipi plain.

Gravity data, acquired earlier in the area, enabled the delineation of a sedimentary basin within the Block 11A area below the Lotikipi plain. The basin-fill is believed to be in excess of 5,000 meters, well above the threshold for sufficiently buried and mature organic matter for oil generation.

Block 11A is in the vicinity of Blocks operated by one of the most prolific notable oil and gas explorers in Africa. Drilling activity in area has resulted in successful wells, including the Eliye Springs in the adjacent Block 10BA and the Loperot and Ngamia-1 in Block 10BB.

Oil and Gas occurrences in the region
 
Graphic
 
 
Production Sharing Contract (PSC) on ERHC’s Block in Kenya
On June 28, 2012, the Company announced that it had signed a Production Sharing Contract (PSC) on one oil block with the Government of Kenya.  A PSC is an agreement that governs the relationship between ERHC (and any future joint-venture partners) and the Government of Kenya in respect of exploration and production in the Block awarded to the Company.  The PSC details, among other things, the work commitments (including acquisition of data, drilling of wells, social projects, etc.), the time frame for completion of the work commitments, production sharing between the parties and the Government, and how the costs of exploration, development and production will be recovered.

Exploration Term and Key Provisions of the PSC

The initial exploration period is two years from the effective date of the PSC. The effective date falls ninety days after the execution of the PSC.  The Company is expected to begin exploration operations within three months of the effective date.  The initial exploration period is extendable for two additional two-year exploration periods contingent upon fulfillment of Company’s work and expenditure obligations under the PSC.

If not renewed, the PSC expires automatically at the end of the initial exploration period or at the end of any additional exploration period unless a commercial discovery is made before the exploration period expires.  In the case of a commercial discovery of crude oil in a relevant development area, the PSC will run for a development period term of 25 years.  In the case of a commercial discovery of natural gas in a relevant development area, the PSC will run for a development period term of 35 years.

The PSC provides for a mandatory surrender of 25% of the original contract area by the end of the initial exploration period and 25% of the remaining contract area by the end of the first additional exploration period. . In the case of a commercial discovery of crude oil in a relevant development area, such development area is excluded from the original contract area for the purpose of surrender calculation.  Furthermore, ERHC may surrender an additional part of the contract area and such voluntary surrender shall be credited against the next surrender obligation.  The PSC will terminate in case of a surrender of the entire contract area.

The PSC requires a signature bonus of $310,000 which the Company paid in full as of September 30, 2012.  The PSC also requires the Company, upon entry into each exploration period, to provide a bank guarantee of 50% and a parent company guarantee of 50% of its full minimum work and expenditure obligations under the work program for each exploration period.

Proposed Exploration Work Program

The PSC with the Government of Kenya obliges ERHC to carry out the following minimum work program:

 
(A)
During the Initial Exploration Period of Two  (2) Contract Years – Minimum Work and Expenditure Obligations:
 
·
Acquire and interpret 1,000 km2 of gravity and magnetic data (at a minimum cost of -  US $ 250,000) and
 
·
Acquire and interpret 1,000 Km/line of 2D seismic data (at a minimum cost of – US $ 10,000,000)

 
(B)
During the First Additional Exploration Period of Two (2) Contract Years: Minimum Work and Expenditure Obligations to:
 
·
Acquire 750 km2 high density of 3D seismic data (at a minimum cost of  US $ 30,000,000), or
OR
 
·
Drill one (1) well to a minimum depth of 3,000 m (at a minimum cost of US $30,000,000

 
(C)
During the Second Additional Exploration Period of Two (2) Contract Years: Minimum Work and Expenditure Obligation to:
 
·
Drill one (1) well to a minimum depth of 3,000m (at an approximate cost of US $ 30,000,000).
 
However, if the Company satisfactorily completes the minimum work obligations without having spent up to the minimum expenditure, the Company will be deemed to have satisfied its obligations under the PSC.

 
REPUBLIC OF CHAD

ERHC’s Chad Acreage

In June 2011, after several months of negotiations between ERHC and the Government of Chad, the Government awarded three blocks for oil and gas exploration and development in Chad to the Company.  The initial period of exploration of these blocks commenced on July 12, 2012 with the publication, in Chadian Government’s Gazette Principal, of the Exclusive Exploration Authorization, granted to ERHC by the Government of Chad.

Graphic
 
Graphic
The names of the blocks and the sizes of Company's respective interests are as follows:

Block
 
ERHC Interest
 
Net ERHC acreage
         
Manga
 
100%
 
6,477 square kilometers or 1,600,501 acres
   
 
   
BDS 2008
 
100%
 
16,360 square kilometers or 4,042,644 acres
   
 
   
Chari-OuestOust III
 
50%
 
4,500 square kilometers or 1,111,974 acres

 
Chad Oil Background and Overview

The country covers almost 1,284,000 km2 and is situated in what has become a golden triangle of African oil production.  Chad is bordered by Libya, Nigeria and Sudan which are among Africa’s largest producers of crude oil.  Cameroon which also borders Chad also exports crude oil.

Graphic
 
Chad is now amongst Sub-Saharan Africa’s most significant crude oil producers.  The country has proven oil reserves of 1.5 billion barrels with recent studies indicating that there is the potential for more discoveries.  Production came on stream in 2003 when a consortium of Chevron, Esso E&P (Exxon) and PETRONAS brought the Miandoum field into production.  Production followed from the Kome and Bolobo fields in 2004 while the Nya, Moundouli and Maikeri fields went into production between 2005 and 2007.  In 2007, the Chinese National Petroleum Company (“CNPC”) began producing from the Mimosa and Ronier fields in the Bongor basin in South Western Chad.

Chad began to export oil in 2004.  The export route is through the Chad-Cameroon pipeline completed in 2003 at a cost of over $3.7 billion.  The pipeline runs 1,000 km from Chad’s prolific Doba basin through Cameroon’s Logone Birni basin to the port of Kribi in the Gulf of Guinea with an estimated capacity of 225,000 bopd.  The capacity of the pipeline is significantly larger than Chad’s current production which in 2010 averaged 122,500 bopd.  A new 300 km pipeline has been constructed to transport crude oil from the Koudalwa field in the South Western Chari-Buguirmi region to the Djarmaya refinery.  The Djarmaya refinery, situated about 40 km North of N’Djamena, Chad’s capital, was built as a joint venture between CNPC and the Chadian state oil company, SHT.  The refinery became operational in July 2011 and has an initial capacity of 20,000 barrels of oil per day which is planned to rise to 60,000 barrels of oil per day.

ERHC has a 100% interest in the Manga Block which is north of Lake Chad, along the border with Niger.  The Company also has 100% and 50% interests respectively in BDS 2008 and Chari-Ouest Block 3 which lie next to the prolific Doba and Doseo Basin oilfields. In 2010, the Doba and Doseo Basin oilfields had an average production of 122,500 barrels of crude oil per day.  BDS 2008 is also bounded by the Bongor basin which hosts the producing Mimosa and Ronier fields.  Extensive exploration activity in the three basins has resulted in a large number of recent discoveries, including the Benoy-1 in Chari-Ouest Block 3 by the Taiwanese Company, OPIC.  The Benoy-1 discovery, adjacent to ERHC’s license area, is estimated to have the potential for up to 9,800 barrels of high-quality, light crude per day and 1.2 million cubic feet of natural gas per day.

 
Graphic
 
The Doba and Doseo basins are part of the Central African rift system.  They contain up to 10 km of non-marine sediments recording the complex tectonic and climatic evolution of the region from Early Cretaceous to the present. The Doba basin is within the oil-proved zone confirmed by the M’biku and Belanga Wells.  The Doseo Basin is one of the tertiary–cretaceous Chad rift basins.  The basin is bordered by the Central African Republic in the South and South East. Wells drilled in this basin include Kedini-1, Keita-1, Kibea-1, Kikwey-1, Maku-1, Nya-1, North Sako-1, Tega-1, Bambara-1 and Bona Kaba-1.  These wells were drilled by Exxon and Conoco and all discovered hydrocarbons except for Keita-1 and Bona Kaba-1

ERHC plans to focus its work program initially on the BDS 2008 and Chari Ouest III Blocks in Southern Chad. ERHC’s holdings in the two Blocks encompass 20,860 square kilometers or 5.155 million acres.  Both Blocks are located on the north flank of the Doba/Doseo basin, where Esso and other operators have made significant crude oil discoveries.  The regional geology of Chari-Ouest III and BDS 2008 Blocks is dominated by the Pan African Shear Zone and associated rift basins.  Esso and partners have been active in exploration and development projects in the area for decades.  ERHC recently invited eligible contractors to submit expressions of interest in providing Environmental Impact Assessment (EIA), gravity/magnetic and seismic acquisition services in the focus area.  Furthermore, the proximity of the Chad-Cameroon pipeline to these blocks provides necessary infrastructure for the exploitation of potential oil and gas reserves.

Production Sharing Contract (PSC) on ERHC’s Three Blocks in Chad

On July 6, 2011, the Company announced that it had signed a Production Sharing Contract (PSC) on the three oil blocks with the Government of Chad.  A PSC is an agreement that governs the relationship between ERHC (and any future joint-venture partners) and the Government of Chad in respect of exploration and production in the Blocks awarded to the Company.  The PSC details, among other things, the work commitments (including acquisition of data, drilling of wells, social projects, etc.), the time frame for completion of the work commitments, production sharing between the parties and the Government, and how the costs of exploration, development and production will be recovered.  The PSC requires a signature bonus of $6 million, $1 million of which was paid upon transmittal of an Approval Law by Chad to ERHC in July 2011, $4 million are due within 90 days of the later of (a) a publication of the Approval Law in Chad’s official gazette and (b) a notification of ERHC of the Award Order, and $1 million is due 120 days after the date of transmittal of the Approval Law to ERHC.  Remaining $4 million of the signature bonus are expected to be paid during the first quarter of fiscal year 2013.

Exploration Term

During the quarter ended, June 30, 2012 the Government of the Republic of Chad issued an Exclusive Exploration Authorization (EEA) to ERHC in respect to the three blocks covered by ERHC’s PSC in Chad. The EEA authorizes ERHC to undertake oil and gas exploration operations in the Chari-Ouest III, BDS 2008 and Manga Blocks in Chad, which are covered by the PSC.  The initial period of exploration of these blocks commenced on July 12, 2012 with the publication, in the Chadian Government’s Gazette Principal, of the Exclusive Exploration Authorization, granted to ERHC by the Government of Chad.  The initial term of the Exclusive Exploration Authorization is five years and can be renewed for three more years.

 
Propose Exploration Work Program

ERHC has proposed a minimum exploration work program on the basis of the full 8-year exploration period subject to such modification as might be required following the exploration work undertaken during the initial 5-year period of the Exclusive Exploration Authorization.  The minimum expenditure over the initial period is US $16 million in addition to a balance of US $4 million on the signature bonus.

In the event of a discovery and commercial production from the Company’s blocks, the Company and any partners that have participated in the exploration will be entitled to recover up to 70% of the net hydrocarbon production (less any production royalty) as cost oil, until all the costs for exploration and development have been recovered. Production royalty is 14.25% in the case of crude oil and 5% in the case of natural gas.  No guarantee can be given that there will be production in commercial quantities from the Company’s exploration acreage in Chad.

ERHC’s proposed exploration work program covers the three blocks as a whole and  broadly is as follows:

Initial Work Phase (4 years)

The first two-year sub-period is intended to cover geological work including regional geology and field studies utilizing existing well logs and 2D seismic data, construction of regional structure isopach and facies maps and cross-sections at key formation tops, acquisition and studying of satellite seep data on a regional scope, organization of G&G database and basin evaluation and modeling to describe petroleum system and migration paths.  The sub-period also includes such geophysical work as the acquisition and study of available gravity and magnetic surveys to define the major structural elements, reprocessing of the existing 2D seismic data, interpretation of the existing 2D seismic data to prepare regional structure maps at key formations and tectonic horizons, acquisition of 2D seismic over the prospects and leads based on the outcome of gravity/magnetic and 2D seismic interpretations and mappings, geophysical analysis to enhance the prospects, and acquisition of 3D seismic data over mature prospects.

The second two-year sub-period is expected to include geological and geophysical work such as merging and editing the reprocessed 2D seismic data with newly acquired 3D seismic data, detailed interpretation and mapping of 3D seismic, generation, upgrading and prioritizing of drilling prospects.  During this period, the contractor shall also determine the most practical method of drilling applicable to the area, taking into account health, safety, environmental issues and other factors.  One exploration well is expected to be drilled during this period.

Second Work Phase (2 years)

This period is intended to cover geological work including the conduct of play analysis to define charge, seal, trap, reservoir, timing, source and maturation.  It also covers geophysical work such as the acquisition and interpretation of seismic data over the prospective area to add to or enhance the prospect inventory.  One exploration well is expected to be drilled during this period.

Third Work Phase (2 years)

This period is intended to cover geological work including the re-evaluation of the maps and studies with respect to the information from the well, acquisition of 2D seismic data over the prospective area and upgrading and increasing of the prospect inventory utilizing the new seismic data.  One exploration well is expected to be drilled during this period.

 
NIGERIA – SAO TOME AND PRINCIPE JOINT DEVELOPMENT ZONE (“JDZ”)

Background of the JDZ

In the Spring of 2001, the governments of Săo Tomé & Príncipe and Nigeria reached an agreement over a long-standing maritime border dispute.  Under the terms of the agreement, the two countries established the JDZ to govern commercial activities within the disputed boundaries.  The JDZ is administered by the JDA which oversees all future exploration and development activities in the JDZ.  The revenues derived from the JDZ will be shared 60/40 between the governments of Nigeria and Săo Tomé & Príncipe, respectively.

ERHC’s Rights in the JDZ

In April 2003, the Company and the DRSTP entered into an Option Agreement (the “2003 Option Agreement”) in which the Company relinquished certain financial interests in the Joint Development Zone (“JDZ”) in exchange for exploration rights in the JDZ.  The Company additionally entered into an Administration Agreement with the Nigeria-Săo Tomé and Príncipe Joint Development Authority (“JDA”).  The Administration Agreement is the formal agreement by the JDA that it will fully implement ERHC’s preferential rights to working interests in the JDZ acreage as set forth in the 2003 Option Agreement and describes certain procedures regarding the exercising of these rights.  Following the exercise of ERHC’s rights as set forth in the 2003 Option Agreement, the JDA confirmed the award in 2004 of participating interests to ERHC in JDZ Blocks 2, 3, 4, 5, 6 and 9 of the JDZ.  Subsequently, ERHC jointly bid with internationally renowned technical partners for additional participating interests in the JDZ during the 2004/5 licensing round conducted by the JDA.
 
The following represents ERHC’s current rights in the JDZ blocks:

JDZ Block
 
ERHC Original
Participating Interest
 
ERHC Joint Bid
Participating Interest
 
Participating
Interest(s) Assigned
 
Current ERHC
Retained Participating
Interest
                 
2
 
30.00%
 
35.00%
 
43.00%
 
22.00%
3
 
20.00%
 
5.00%
 
15.00%
 
10.00%
4
 
25.00%
 
35.00%
 
40.50%
 
19.50%
5
 
15.00%
 
-
 
-
 
15.00% (in arbitration)
6
 
15.00%
 
-
 
-
 
15.00% (in arbitration )
9
 
20.00%
 
-
 
-
 
20.00%

The Original Participating Interest is the interest granted pursuant to the 2003 Option Agreement. ERHC has not assigned or transferred any of its participating interests in Blocks 5, 6 and 9.

 
ERHC’s Participating Agreements in the JDZ

The following are the particulars of the Participating Agreements by which ERHC transferred some of its participating interests in JDZ Blocks 2, 3 and 4 to technical partners so that the technical partners would operate the Blocks and carry ERHC’s proportionate share of costs in the Blocks until production, if any, commenced from the Blocks:

Date of Participation
Agreement
Party(ies)
to the Participation Agreement
 
Participating
Interest(s)
Assigned
   
Participating
Interest Assigned
Price
 
               
JDZ Block 2 - Participation Agreement - ERHC Retained Interest of 22.00%
       
               
March 2, 2006
Sinopec International Petroleum Exploration Production Co. Nigeria Ltd - a subsidiary of Sinopec International Petroleum and Production Corporation
   
28.67
%
 
$
13,600,000
 
       
 
     
 
 
 
Addax Energy Nigeria Limited - an Addax Petroleum Corporation subsidiary
   
14.33
%
 
$
6,800,000
 
       
 
 
JDZ Block 3 - Participation Agreement - ERHC Retained Interest of 10.00%
     
 
 
       
 
     
 
 
February 15, 2006
Addax Petroleum Resources Nigeria Limited - a subsidiary of Addax Petroleum Corporation
   
15.00
%
 
$
7,500,000
 
       
 
     
 
 
JDZ Block 4 - Participation Agreement - ERHC Retained Interest of 19.50%
     
 
 
       
 
     
 
 
November 15, 2005
Addax Petroleum Nigeria (Offshore 2) Limited - a subsidiary of Addax Petroleum Corporation
   
40.50
%
 
$
18,000,000
 

Under the terms of the Participation Agreements Sinopec and Addax agreed to pay all of ERHC’s future costs for petroleum operations (“the carried costs”) in respect of ERHC's retained interests in the blocks.  Additionally, Sinopec and Addax are entitled to 100% of ERHC’s allocation of cost oil plus up to 50% of ERHC’s allocation of profit oil from the retained interests on individual blocks until Sinopec and Addax Sub recover 100% of ERHC’s carried costs.

On or about October 2, 2009, Sinopec International Petroleum Exploration and Production Corporation acquired all of the outstanding shares of Addax Petroleum Corporation

OPERATIONS IN THE JDZ

ERHC has working interests in six of the nine Blocks in the JDZ, as follows:

 
JDZ Block 2:  22.0%

 
JDZ Block 3:  10.0%

 
JDZ Block 4:  19.5%

 
JDZ Block 5:  15.0% (in arbitration)

 
JDZ Block 6:  15.0% (in arbitration)

 
JDZ Block 9:  20.0%

 
The working interest percentages represent ERHC’s share of all the hydrocarbon production from the blocks and obligates ERHC to pay a corresponding percentage of the costs of drilling, production and operating the blocks.  Through Exploration Phase 1 in blocks 2, 3 and 4, these costs have been carried by the operators.  The operators can only recover their costs by carrying ERHC until production whereupon the operators will recover their costs from production revenues.

ERHC’s interests in the JDZ Blocks are in various stages of exploration. JDZ Blocks 2, 3 and 4 were the focus of an exploration campaign that concluded in January 2010.  To date, no Production Sharing Contracts have been signed by ERHC in either JDZ Block 5 or 6, and no operatorship has been awarded in JDZ Block 9.

In 2009, Sinopec and Addax, ERHC’s technical partners and operators in Blocks 2, 3 and 4 undertook an exploratory drilling campaign across the three blocks that was completed in January 2010.  That drilling campaign was a coordinated effort made possible by two important transactions undertaken by Addax and Sinopec during 2009: (1) Addax’s acquisition of Anadarko Petroleum’s interest in Block 3, allowing Addax to become the operator in the Block 3 and (2) Sinopec’s acquisition of Addax.

The drilling campaign was completed in January 2010 with a total of five wells drilled as follows:

 
The Kina-1 well in JDZ Block 4

 
The Bomu-1 well in JDZ Block 2

 
The Lemba-1 well in JDZ Block 3

 
The Malanza-1 well and Oki East-1 well in Block 4

Biogenic gas was discovered in each block and discussions continue between the Joint Development Authority and the parties, including ERHC, that hold interests in JDZ Blocks 2, 3 and 4, regarding drilling results. The meetings with the JDA are aimed at reaching a definitive agreement on how to proceed with the next stage of exploration in the Blocks following the expiration of Exploration Phase I in March 2012.

General Information on Current Operations in Blocks 2, 3 and 4

Exploration Phase 1 (as extended) in Joint Development Zone (JDZ) Blocks 2, 3 and 4 expired on March 14, 2012.

Under the contractual terms governing the Blocks, the three potential courses of action at the expiration of an Exploration Phase are:

 
1.
The operators (Addax and Sinopec), the rest of the parties and the JDA could agree to enter into Phase 2 of the exploration program which requires the drilling of at least one more well in each Block.
 
 
2.
The operators, the rest of the parties and the JDA could agree upon a further extension of Exploration Phase 1.
 
 
3.
The operators could decide not to pursue future exploration of the Blocks and terminate their involvement in the Blocks, leaving the rest of the parties and the JDA to decide whether to adopt any of the two other courses of action stated before
The operators’ decision whether to continue or not will be the key factor in determining what course of action will be adopted next in JDZ Blocks 2, 3 and 4.

ERHC and its technical partners have obtained very valuable information regarding the stratigraphy, sedimentology and structure of JDZ Blocks 2, 3 and 4 in the five-well drilling campaign undertaken between 2009 and 2010.  There are still more than a dozen additional prospects identified in the three Blocks as potential exploration targets.

Management also understands that analyzing drilling results and incorporating them into the relevant geologic and fluid models takes time. Further, moving from field appraisal and development to production takes even more time.  As has been the practice in the JDZ, accurate material information on the progress in the JDZ Blocks will emanate from the operators or the JDA.  ERHC will publish such information in a timely manner in accordance with ERHC’s contractual and regulatory obligations.

 
SAO TOME AND PRINCIPE EXCLUSIVE ECONOMIC ZONE (“EEZ”)

Background of the EEZ

An exclusive economic zone is an area beyond and adjacent to the territorial waters of a coastal nation which is subject to specific legal regimes established by international law.  In an exclusive economic zone, the coastal nation has sovereign rights established by international law to explore and exploit the natural resources in the zone.  The STP EEZ delineates an expanse of waters offshore Săo Tomé and Principe covering approximately 160,000 square km.  The EEZ is measured from claimed archipelagic baselines.  The territorial waters of STP extend to 12 nautical miles from the coast while the exclusive economic zone extends from the edge of the territorial waters to 200 nautical miles from the coast.  The STP EEZ is the largest such zone in the Gulf of Guinea. Oceanic water depths around the two islands exceed 1,524 meters, depths that have only become feasible for oil production in the past few years; however, oil and gas are produced in the neighboring countries of Nigeria, Equatorial Guinea, Gabon and Congo.

ERHC’s Rights and in the EEZ

Under an agreement with the government Sao Tome and Principe (“STP”) prior to the 2003 Option Agreement, ERHC was vested with the rights to participate in exploration and production activities in the EEZ.  These rights included (a) the right to receive up to 100% of two blocks of ERHC’s choice and (b) the option to acquire up to a 15% paid working interest in each of two additional blocks of ERHC’s choice in the EEZ.  In 2010, ERHC exercised its rights to receive up to 100% of two blocks of ERHC’s choice in the EEZ and was duly awarded Blocks 4 and 11 of the EEZ by the Government of STP.  ERHC will decide whether to take up the option to acquire up to a 15% paid working interest in each of two additional blocks of the EEZ when called upon to exercise the option by the Government of STP in accordance with the agreements which provide for the rights and option.

PSC Negotiations for the EEZ

A PSC is an agreement that governs the relationship between the Company (and its joint venture partners) and the Government of Săo Tomé and Príncipe in respect of exploration and production in any Block awarded to the Company.  The PSC spells out, among other things, the work commitments (including acquisition of data, drilling of wells, social projects, etc.), the time frames for accomplishing the work commitments, how production will be shared between the parties and the government, and how the costs of exploration, development and production will be recovered.

Negotiations for a PSC between ERHC and the National Petroleum Agency of Săo Tomé and Príncipe (ANP-STP) opened on November 14, 2011 in Sao Tome and are continuing.  Good progress has been made in the first three rounds of negotiations but the Company expects that it will take several more rounds to conclude the negotiations.  The PSCs pertain to ERHC’s 100 percent working interest in Blocks 4 and 11 of the Săo Tomé and Príncipe Exclusive Economic Zone (“EEZ”). ERHC’s management is looking to negotiate PSCs for the EEZ Blocks that will be attractive to potential joint venture partners.  Discussions are continuing simultaneously with prospective operating partners for ERHC’s EEZ Blocks.

Overview of ERHC’s EEZ Blocks

The Săo Tomé and Príncipe EEZ is a frontier region that sits south of the Niger Delta, and west of the Gabon salt basin, retaining similarities with each of those prolific hydrocarbon regions.  The regional seismic database comprises approximately 12,000 kilometers of seismic data. Interpretation of that seismic data shows numerous structures that have similar characteristics to known hydrocarbon accumulations in the area.

EEZ Block 4 is 5,808 square kilometers, situated directly east of the island of Príncipe.  The northeastern area near EEZ Block 4 contains a large graben structure, which is bound by the Kribi Fracture Zone.

EEZ Block 11 totals 8,941 square kilometers, situated directly east of the island of Săo Tomé and abuts the territorial waters of Gabon. The southern area of the EEZ, where EEZ Block 11 is situated, contains parts of the Ascension and Fang Fracture Zones.


INVESTMENT IN OANDO ENERGY RESOURCES (FORMERLY EXILE RESOURCES)

During the three months ended June 30, 2011, ERHC invested $1,350,000 in Exile Resources Inc, a company listed on the Toronto Stock Exchange (Ventures Exchange) stock in open market purchases.  ERHC’s intention was to gain an indirect interest in Exile’s underlying oil and gas exploration and production assets as well as the  ability to participate in  Exile’s decision making in respect of those assets.  ERHC was particularly interested in Exile’s carried interest in the Akepo field in the Niger Delta.

The Akepo field is located in the shallow waters of the southeastern area of Nigeria in OML 90.  Exile Resources had 10 percent equity and up to a 17.5% economic interest in the field, with Oando Petroleum and Exploration Company (“Oando Petroleum”) carrying its costs.  From July 2011, Exile Resources commenced a reorganization exercise under agreement with Oando Petroleum whereby a reverse takeover (“RTO”) of Exile Resources by Oando Petroleum occurred.  In July 2012, Exile announced the completion of the RTO by Oando Petroleum and the change of name of the company to Oando Energy Resources Inc, (“Oando Energy”). It also announced the approval by the Toronto Stock Exchange (TSX) of the listing of the company’s shares under the symbol “OER” on the TSX and commencement of trading in the shares from July 30, 2012.

The approved terms of reorganization on the RTO were that each Exile shareholder received one share OER for every 16.28 shares held in Exile upon the RTO. Each Exile shareholder also received two shares purchase warrants for 16.28 shares held in Exile.  The first share purchase warrant entitled the purchase of one OER share at Cdn$1.5 within 12 months and the other entitled the purchase of one OER share at Cdn$2.00 within 24 months,

As a result of the RTO, ERHC now holds 418,889 shares in the common stock of Oando Energy Resources.  ERHC also holds warrants for 418,889 common shares exercisable within 12 months of closing of the RTO at Cdn$1.50 per share and for another 418,889 common shares exercisable within 24 months of the closing of the RTO at Cdn$2.00 per share.
 
ACQUISITION OF OTHER OIL AND GAS EXPLORATION AND PRODUCTION ASSETS

Although ERHC is making considerable progress toward realizing the value of the Company’s oil and gas assets in Kenya, Chad, the JDZ, and the EEZ, it may be some time before any of these oil and gas assets begin to produce revenues, if at all.  ERHC, therefore, seeks to identify and acquire assets with a shorter time horizon for revenue generation.

ERHC has identified and examined a  number of potential acquisitions and is engaging in discussion, on a number of potential exploration and production opportunities in Africa.  Ultimately, ERHC seeks a portfolio of assets and companies from which it can derive significant strategic value. Securing such potential acquisitions will of course depend on the availability of adequate financing.

 
CURRENT PLANS FOR OPERATIONS

ERHC’s principal assets are its interests in Kenya, Chad, the JDZ and the EEZ. ERHC has no current sources of income from its operations.  In addition to the existing Participation Agreements in JDZ Blocks 2, 3 and 4, the Company hopes to enter into Participation Agreements in some or all of its other Blocks, but the timing or likelihood of such transactions cannot be predicted.  The Company believes that the Participation Agreements that it has entered into will be its primary source of future cash flow; however, the Company is exploring plans to generate operating income from new sources.  The Company plans to diversify its business activity by pursuing other growth opportunities which may include acquisition of revenue-producing assets in diverse geographical areas and forging strategic, new, business partnerships and alliances.  To expand operations, ERHC is currently in negotiations for potential investments that would increase the Company’s presence in the African oil and gas industry and elsewhere.  ERHC cannot currently predict the outcome of negotiations for acquisitions in Africa, or, if successful, their impact on the Company's operations.

PLANS FOR FUNDING OF POTENTIAL ACQUISITIONS

ERHC's future plans may be dependent on the Company's ability to attract new funding.  The company is planning to raise up to $48 million over the next 18 months to fund exploration programs in Kenya and Chad.  The fund raising might include:

 
Issue shares of common stock through
 
Rights Offerings
 
Registered Direct Offerings
 
Convertible Loans and other debt instruments
 
Other available financing options

Rights Offerings
 
Existing shareholders as of a date to be determined will have opportunity to contribute substantial portion of new capital
 
The number of shares an existing a shareholder can purchase in the offering will depend on the number of shares they own
 
Shareholders exercising all of their basic subscription privilege will have the right to purchase remaining unsubscribed shares of common stock at the expiration of the Rights Offering subject to availability and pro-rata allocation of shares
 
Shareholder taking up their pro-rata entitlement in full in the Rights Offering will experience no dilution, however
 
Shareholders not taking up their pro-rata entitlement will experience an immediate dilution in their interests in the Company

UPDATES AND INFORMATION

ERHC’s website at http://www.erhc.com contains information about the Company’s operations, assets, and initiatives and a FAQ page that is frequently updated to address the latest questions.

The Company provides free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable.

SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.  The public can obtain any documents that we file with the SEC at h http://www.sec.gov after we electronically file such material with, or furnish it to, the SEC.

Item 1A.  Risk Factors

You should carefully consider the risks described below before making any investment decision related to the Company’s securities.  The risks and uncertainties described below are not the only ones facing the Company.  Additional risks and uncertainties not presently known or that the Company currently deems immaterial also may impair its business operations.  If any of the following risks actually occur, the Company’s business could be affected.

The Company has no sources of revenue and a history of losses from operations

The Company’s business is in an early stage of development.  The Company has not generated any operating revenue since its entry into the oil and gas industry and has incurred significant operating losses.  The Company expects to incur additional operating losses for the foreseeable future.

 
The Company has a limited operating history in the oil and gas industry

The Company’s operations have consisted solely of acquiring rights to working interests in Kenya, Chad, the JDZ and the EEZ and entering into production sharing contracts.  The Company may not be the operator with respect to these contracts.  The Company’s future financial results depend primarily on (1) the ability of the Company or its venture partners to provide or obtain sufficient financing to meet their financial commitments in the production sharing contracts, (2) the ability to discover commercial quantities of oil and gas, and (3) the market price for oil and gas.  Management cannot predict if or when the production sharing contracts will result in future wells being drilled or if drilled, whether oil and/or gas will be discovered in commercial quantities.

Financing may be needed to fund the financial commitments of the production sharing contracts

The Company’s failure or the failure of our venture partners to provide or obtain the necessary financing may preclude the continuation of exploration activities which would adversely affect the value of its concessions in in Kenya, Chad, the JDZ and the EEZ.

The Company may not discover commercially productive reserves in Kenya, Chad, the JDZ or the EEZ

The Company’s future success depends on its ability to economically discover oil and gas reserves in commercial quantities in Kenya, Chad, the JDZ, and/or the EEZ.  There can be no assurance that the Company’s planned projects in Kenya, Chad, the JDZ or the EEZ will result in significant, if any, reserves or that the Company and its partners will have future success in drilling productive wells.

The Company’s non-operator status limits its control over oil and gas projects in Kenya, Chad, the JDZ and the EEZ

The Company will focus primarily on creating exploration opportunities and forming relationships with oil and gas companies to develop those opportunities in Kenya, Chad, the JDZ and the EEZ.  As a result, the Company will have only a limited ability to exercise control over a significant portion of a project’s operations and the associated costs of those operations in Kenya, Chad, the JDZ or the EEZ.  The success of a future project is dependent upon a number of factors that are outside the Company’s control.  These factors include:

 
the availability of future capital resources to the Company and the other participants for drilling additional wells;

 
the approval of the Company or other participants for determining well locations and drilling time-tables;

 
the economic conditions at the time of drilling, including the prevailing and anticipated price of oil and gas; and

 
the availability and cost of land based and/or deep water drilling rigs and the availability of operating personnel.

The Company’s reliance on its consortium partners and its limited ability to directly control future project costs could have a material adverse effect on its future rates of return.

The Company’s success depends on its ability to exploit its limited assets

The Company’s primary assets are rights to working interests in exploration acreage in Kenya, Chad, the JDZ and the EEZ under agreements with the Government of Kenya, Chad, the JDA and DRSTP.  The Company’s operations have been limited to managing and sustaining its rights under these agreements.  The Company’s viability depends on its ability to exploit these assets.  However, there is no assurance that it will be successful.

The Company is subject to Government Regulation over which it has no control

In the event the Company begins direct exploration and exploitation of hydrocarbons, it will be required to make necessary expenditures to comply with applicable health and safety, environmental and other regulations.

The oil and gas industry is subject to various types of regulations throughout the world.  Legislation affecting the oil and gas industry has been pervasive and is under constant review for amendment or expansion. Pursuant to such legislation, numerous government agencies have enacted extensive laws and regulations binding on the oil and gas industry and companies engaged in this industry, some of which carry substantial penalties for failure to comply.  Such laws and regulations have a significant impact on oil and gas exploration, production and marketing and midstream activities.  These laws and regulations increase the cost of doing business and, consequently, will affect results of operations.


In as much as new legislation affecting the oil and gas industry is commonplace and existing laws and regulations are frequently amended or reinterpreted, the Company is unable to predict the future cost or the impact of complying with such laws and regulations.  However, the Company does not expect that any of these laws and regulations will affect its operations in a manner materially different from that in which they would affect other oil and gas companies of similar size and scope of operations.

Having interests outside the United States requires the Company to comply with United States laws and other laws in foreign jurisdictions related to pursuing, owing, and exploiting foreign investments, agreements and other relationships.  The Company is subject to all such laws, including, but not limited to, the Foreign Corrupt Practices Act of 1977 (“FCPA”).

The Company’s competition includes oil and gas conglomerates that have significant advantages over it

The oil and gas industry is highly competitive. Many companies are engaged in exploring for crude oil and natural gas and acquiring crude oil and natural gas properties, resulting in significant competition for desirable exploratory and producing properties.  The companies with which the Company competes are much larger and have greater financial resources and technical expertise than the Company.

Various factors beyond the Company’s control will affect prices of oil and gas

The availability of a ready market for the Company’s future crude oil and natural gas production if any depends on numerous factors beyond its control, including the level of consumer demand, the extent of worldwide crude oil and natural gas production, the costs and availability of alternative fuels, the costs and proximity of transportation facilities, regulation by authorities and the costs of complying with applicable environmental and other regulations.

The Company’s business interests are located outside of the United States which subjects it to risks associated with international activities beyond its control.

At September 30, 2012, the Company’s major assets are located outside the United States.  The Company’s primary assets are cash in various financial institutions and agreements with Kenya, Chad, the DRSTP and the JDA, which provide ERHC with rights to participate in exploration and production activities in Kenya, Chad, the EEZ and the JDZ.  Production is subject to political risks which are inherent in all foreign operations.  The Company’s ability to exploit its interests in this area pursuant to such agreements may be adversely impacted by this circumstance.

The future success of the Company’s international operations may also be adversely affected by risks associated with international activities, including economic and labor conditions, political instability, risk of war, expropriation, termination, renegotiation or modification of existing contracts, tax laws (including host-country import-export, excise and income taxes and United States taxes on foreign subsidiaries) and changes in the value of the U.S. dollar relative to the local currencies in which future oil and gas producing activities may be denominated.  Changes in exchange rates may also adversely affect the Company’s future results of operations and financial position.

In addition, to the extent the Company engages in operations and activities outside the United States, it is subject to the Foreign Corrupt Practices Act (the “FCPA”) which, among other restrictions, prohibits U.S. companies and their intermediaries from making payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect their financial and other transactions with foreign officials.  The FCPA applies to companies, individual directors, officers, employees and agents.  The FCPA also applies to foreign companies and persons taking any action in furtherance of such payments while in the United States.  Under the FCPA, U.S. companies may also be held liable for actions taken by strategic or local partners or representatives.

The FCPA imposes civil and criminal penalties for violations of its provisions.  Civil penalties may include fines of up to $500,000 per violation, and equitable remedies such as disgorgement of profits causally connected to the violation (including prejudgment interest on such profits) and injunctive relief.  Criminal penalties for violations of the payments provisions could range up to the greater of $2 million per violation or twice the gross pecuniary gain sought by making the payment, and/or incarceration for up to 5 years per violation.  Moreover, if a director, officer or employee of a company is found to have willfully violated the FCPA books and records provisions, the maximum penalty would be imprisonment for 20 years per violation.  Maximum fines of up to $25 million may also be imposed for willful violations of the books and records provisions by a company.

The Company’s business interests are located in Kenya, Chad and in the Gulf of Guinea offshore Africa and are subject to the volatility of foreign governments

Our primary assets are located in Kenya, Chad and in the Gulf of Guinea, offshore Africa.  The Governments of Kenya, Chad, Nigeria and the island nation of Sao Tome and Principe granted ERHC participation interests in various concessions in their lands and offshore waters.  The Governments of Kenya, Chad, Nigeria and Sao Tome and Principe exist in a volatile political and economic environment and the Company is subject to all the risks associated with those governments.  These risks include, but are not limited to:

 
 
Loss of future revenue and concessions as a result of hazards such as war, acts of terrorism, insurrection and other political risks;

 
Increases in taxes and governmental interests;

 
Unilateral renegotiation of contracts by government entities;

 
Difficulties in enforcing our rights against a governmental agency because of the doctrine of sovereign immunity and foreign sovereignty over international operations;

 
Changes in laws and policies governing operations of foreign-based companies, and

 
Currency restrictions and exchange rate fluctuations.

Our foreign operations may also be adversely affected by laws and policies of the United States affecting foreign trade and taxation. Realization of any of these factors could materially and adversely affect our financial position, results of operations and cash flows.

The Company has filed suit to prevent tampering with its interest and any adverse ruling related to JDZ Blocks 5 and 6. This action could have a material adverse effect on ERHC’s business, prospects, operations, financial condition and cash flow.

On November 3, 2008, the Company filed a suit in Nigeria to prevent any tampering with its rights in JDZ Blocks 5 and 6 pending the outcome of arbitration over those rights. The Company was awarded a 15 percent working interest in each of the Blocks in a 2005 bid/licensing round conducted by the JDA, following the exercise by ERHC of preferential rights in the Blocks as guaranteed by contract and treaty.  The dispute is entirely contractual.  The JDA and the Government of DRSTP contend that certain correspondence issued by a previous CEO/President of the Company in 2006 amount to a relinquishment of the Company’s rights in Blocks 5 and 6 under the Company’s contracts with DRSTP which provide for the rights.  The Company contends that no such relinquishment has occurred and has sought recourse to arbitration accordingly.  In November 2008, the Company dispatched notices of arbitration for service on the JDA and the Governments of Nigeria and Sao Tome & Principe to commence arbitration in London.  ERHC wants the London Court of International Arbitration to clarify that ERHC's interests in JDZ Blocks 5 and 6 remain intact.  If the Company fails to prevail in its lawsuit or arbitration proceedings, there could be significant adverse effects on the Company’s future planned operations in JDZ Blocks 5 and 6.  These adverse effects could include but not be limited to a loss of ERHC’s rights in JDZ Block 5 and 6.  At this time, ERHC is unable to reasonably estimate the economic impact if the Company fails to prevail in its suit and arbitration.

The Company has previously been the recipient of requests for information and documents from the SEC, the DOJ and a U.S. Senate subcommittee.

On April 6, 2012 and April 20, 2012, the Company received letters from the United States Department of Justice and the Securities and Exchange Commission respectively that the agencies had closed all action related to the subpoenas served on the Company between 2006 and 2007.  Subpoenas are requests issued by government agencies for the production of information or documentation.

The Company has limited sources of working capital

The Company is currently focused on acquiring and exploiting its interests in Kenya, Chad, JDZ Blocks 2, 3, 4, 5, 6 and 9 and the EEZ but has no current source of income other than interest income from cash investments generated from the sale of participation interests in Blocks 2, 3 and 4 to Sinopec and Addax Ltd.  The Company intends to develop its assets in Kenya and Chad over the next two years with an option of entering into participation agreements, but the timing or likelihood of such transactions cannot be predicted.  In addition to its obligations under Kenya and Chad PSCs, the Company might be required to exercise further rights in EEZ in 2013, in which case it may be constrained to and incur significant capital cost in exercise of those rights.


As described in more detail in Item 7 of this Form 10-K, the Company’s budgeted working capital requirements for general, Kenya, and Chad operations in 2013 will be approximately $21,455,651. In addition to the budgeted working capital requirements, ERHC's interest in Chad will require the Company to make signature bonus payments of up to $5 million in the 2013 fiscal year.

If ERHC is unable to successfully raise capital to cover its planned operations or negotiate participation agreements with operating and other partners in Kenya, Chad, and the EEZ, the Company’s cash resources could be strained and the Company’s future plans curtailed.
 
The Company’s results of operations are susceptible to general economic conditions

The Company’s revenues and results of operations will be subject to fluctuations based upon the general economic conditions both in the United States and internationally.  A general economic downturn or a recession in the industry, will adversely impact the Company’s prospective future revenues, the value of its oil and natural gas exploration concession, as well as its ability to exploit its assets.

One shareholder controls approximately 42% of the Company’s outstanding common stock

Sir Emeka Offor, beneficially owns approximately 42% of the Company’s outstanding common stock.  As a result, Sir Emeka Offor has the ability to substantially influence, and may effectively control the outcome of corporate actions that require stockholder approval, including the election of directors.  This concentration of ownership may have the effect of delaying or preventing a future change in control of the Company or a liquidity event.

The Company’s stock price is highly volatile

The Company’s common stock is currently traded on the Over-the-Counter (OTC) Bulletin Board.  The market price of the Company’s common stock has experienced fluctuations that are unrelated to its operating performance.  The market price of the common stock has been highly volatile over the last several years.  The Company can provide no assurance regarding its stock price.

The Company does not currently pay dividends on its common stock and does not anticipate doing so in the near future

The Company has paid no cash dividends on its common stock, and there is no assurance that the Company will achieve sufficient earnings to pay cash dividends on its common stock in the foreseeable future.  The Company intends to retain any earnings to fund its future operations.

The Company’s stock is considered a “penny stock”

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.”  Penny stocks generally are equity securities with a share price of less than $5.00.  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market.  These disclosure requirements may have the effect of reducing the level of trading activity in any secondary market for a stock that becomes subject to the penny stock rules.  The Company’s common stock may be subject to the penny stock rules, and accordingly, investors in the common stock may find it difficult to sell their shares in the future, if at all.

The Internal Revenue Service is currently conducting an examination of the Company’s tax returns.

The Internal Revenue Service is currently examining the tax returns for the Company’s 2005 and 2006 tax years.  If adjustments are required, the Company may be subject to taxes, penalties and interest and these could have a material adverse effect on ERHC’s operations, financial condition and cash flow.

Item 1B.  Unresolved Staff Comments

None.


Item 2. Properties

All of the Company’s properties are in the form of working interests which represent ERHC’s share of all the potential hydrocarbon production from the blocks awarded and obligates ERHC to pay a corresponding percentage of the costs of drilling, production and operating these blocks.  These costs in Blocks 2, 3 and 4 of the JDZ are currently being carried by the operators until production, whereupon the operators will recover their costs from production revenues. ERHC has working interests in Blocks 2, 3, 4, 5, 6, and 9 in the offshore JDZ.

Republic of Kenya

The Company holds a 90% interest in Block 11A, which encompasses 11,950.06 square kilometers or 2.95 million square acres.  The Government of Kenya has a 10% carried participating interest up to the declaration of commerciality and may thereafter acquire an additional 10% interest in the PSC in which case the total Government participation would rise to 20%.  Circle Limited, which acted as ERHC’s finder in the acquisition of ERHC’s interest in the Block is entitled to 5% of ERHC’s interest as agreed finder’s fee.

Graphic
 
Republic of Chad

ERHC holds working interests in three blocks for oil and gas exploration and development in Chad.

The names of the blocks and the sizes of Company's respective interests are as follows:

Block
ERHC Interest
Net ERHC acreage
 
 
 
Manga
100%
6,477 square kilometers or 1,600,501 acres
 
 
 
BDS 2008
100%
16,360 square kilometers or 4,042,644 acres
 
 
 
Chari-Ouest III
50%
4,500 square kilometers or 1,111,974 acres


Joint Development Zone

ERHC has interests in six of the nine Blocks in the Joint Development Zone (JDZ), a 34,548 sq. km area approximately 200 km off the coast of Nigeria and Sao Tome and Principe that is adjacent to several large petroleum discovery areas. ERHC’s rights in the JDZ include:
 
graphic

 
JDZ Block 2:  22.0%

 
JDZ Block 3:  10.0%

 
JDZ Block 4:  19.5%

 
JDZ Block 5:  15.0% (in Arbitration)

 
JDZ Block 6:  15.0% (in Arbitration)

 
JDZ Block 9:  20.0%

Sao Tome and Principe Exclusive Economic Zone

ERHC holds the following working interests and rights in the EEZ:

 
EEZ Block 4: 100%  working interest and no signature bonus

 
EEZ Block 11: 100% working interest and no signature bonus

 
The option to acquire up to a 15% paid working interest in additional two blocks of ERHC’s choice.

ERHC will be responsible for its proportionate share of exploration and exploitation costs in the EEZ blocks.

Corporate Office

The Company’s corporate office is located at 5444 Westheimer Road, Suite 1440, Houston, Texas 77056 pursuant to a lease that expires in July 2017.

Item 3.  Legal Proceedings

JDZ Blocks 5 and 6

Lawsuit
On November 3, 2008, the Company filed a suit at the Federal High Court in Nigeria to prevent any tampering with its rights in JDZ Blocks 5 and 6 pending the outcome of arbitration over the said rights.

The Company was awarded a 15 percent working interest in each of the Blocks in a 2004/5 bid/licensing round conducted by the JDA following the exercise by ERHC of preferential rights in the Blocks as guaranteed by contract and treaty.  The dispute is entirely contractual.  The JDA and the Government of STP contend that certain correspondence issued by a previous CEO/President of the Company in 2006 amount to a relinquishment of the Company’s rights in Blocks 5 and 6 under the Company’s contracts with STP which provide for the rights.  The Company contends that no such relinquishment has occurred and has sought recourse to arbitration accordingly.

Arbitration
In November 2008, the Company dispatched notices of arbitration for service on the JDA and the Governments of Nigeria and Săo Tomé & Príncipe to commence arbitration in London.  ERHC wants the London Court of International Arbitration to clarify that ERHC's interests in JDZ Blocks 5 and 6 remain intact.

Suspension of Proceedings on the Lawsuit and Arbitration
Proceedings on the suit and the arbitration are currently suspended while the Company pursues amicable settlement with the Governments of Nigeria and Săo Tomé Príncipe.


Backup Withholding Tax Claim by the Internal Revenue Service

On November 17, 2011, the Company received a proposed settlement from the IRS relating to backup withholding tax in its 2006 tax year in the amount of $60,505.  The settlement includes additional taxes of $47,776 and interest of $13,823. The Company accepted the settlement and paid it in full during the month of April 2012.

Routine Claims

From time to time, ERHC may be subject to routine litigation, claims, or disputes in the ordinary course of business.  ERHC intends to defend these matters vigorously; the Company cannot predict with certainty, however, the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims.  There can be no assurance as to the ultimate outcome of these lawsuits and investigations.

Item 4.  Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5.  Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market and Related Information

ERHC’s common stock is currently traded on the OTC Bulletin Board under the symbol “ERHE.”  The market for the Company’s common stock is unpredictable and highly volatile.  The following table sets forth the closing sales price per share of the common stock for the past three fiscal years.  These prices reflect inter-dealer prices, without retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.

Stock Price Highs & Lows

 
 
High
 
 
Low
 
 
 
(Price per share)
 
Fiscal Year 2010
 
 
 
 
 
 
First Quarter
 
$
0.73
 
 
$
0.44
 
Second Quarter
 
 
0.75
 
 
 
0.35
 
Third Quarter
 
 
0.62
 
 
 
0.20
 
Fourth Quarter
 
 
0.42
 
 
 
0.20
 
 
 
 
 
 
 
 
 
 
Fiscal Year 2011
 
 
 
 
 
 
 
 
First Quarter
 
$
0.30
 
 
$
0.14
 
Second Quarter
 
 
0.24
 
 
 
0.14
 
Third Quarter
 
 
0.17
 
 
 
0.08
 
Fourth Quarter
 
 
0.18
 
 
 
0.09
 
 
 
 
 
 
 
 
 
 
Fiscal Year 2012
 
 
 
 
 
 
 
 
First Quarter
 
$
0.10
 
 
$
0.07
 
Second Quarter
 
 
0.10
 
 
 
0.07
 
Third Quarter
 
 
0.14
 
 
 
0.08
 
Fourth Quarter
 
 
0.16
 
 
 
0.09
 

As of November 30, 2012, there were approximately 2,201 stockholders of record.  The closing price of the common stock as reported on the OTC Bulletin Board on November 30, 2012 was $0.10. The Company has not paid any dividends during the last three fiscal years and does not anticipate paying any cash dividends in the foreseeable future.


Securities Authorized for Issuance under Equity Compensation Plans

In November 2004, the Board of Directors adopted a 2004 Compensatory Stock Option Plan pursuant to which it reserved 20,000,000 shares for issuance.  This plan was approved at a special meeting of the stockholders of the Company in February 2005.  Under this plan, 14,861,756 shares have been issued.
 
 
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights (a)
 
Weighted-average
exercise price of
outstanding
options, warrants
and rights (b)
 
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column
(a) (c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity compensation plans approved by security holders
 
 
4,750,000
 
0.20
 
 
5,138,244
 
 
 
 
 
 
 
 
 
 
 
Equity compensation plans not approved by security holders
 
 
                         -
 
                         -
 
 
                                   -
 

Recent Sales of Unregistered Securities

The Company has issued the following unregistered securities:
 
 
·
During the third and fourth quarter of 2010, the Company issued 1,017,500 shares for 2010 to employees and directors, for services rendered in 2010.
 
·
During the fourth quarter of 2011, the Company awarded 525,000 shares for 2011 to directors, for services rendered in 2011. These shares were unissued at September 30, 2012.
 
·
During the fourth quarter of 2012, the Company awarded 525,000 shares for 2012 to directors, for services rendered in 2012. These shares were unissued at September 30, 2012.
 
·
During the second quarter of 2012, Board of Directors granted 4,750,000 stock options to officers and board of directors members of the Company.  The options vest over two years, are exercisable for a period of 2 years and have a $0.20 strike price.  The options are only exercisable if the Company’s share price reaches $0.75 per share and remains consistently at or above that level for a period of one month.
 
With respect to the sale of the unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.  No sales commissions were paid in connection with these transactions.

Issuer Purchases of Equity Securities

The Company has not repurchased any of its Common Stock.

Item 6. Selected Financial Data

The selected financial data of the Company presented below as of and for each of the five years in the period ended September 30, 2012, has been derived from the audited financial statements of the Company.  The financial statements as of and for the years ended September 30, 2012, 2011, 2010, 2009 and 2008 have been audited by MaloneBailey, LLP, an independent registered public accounting firm.  The data set forth below should be read in conjunction with the Company’s financial statements, related notes thereto and Management’s Discussion and Analysis of Financial Condition and Plan of Operations, contained elsewhere herein.

 
Statements of Operations Data
 
 
 
For the Years Ended September 30,
 
 
 
2012
 
 
2011
 
 
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
4,324,826
 
 
$
4,425,324
 
 
$
5,188,495
 
 
$
4,239,706
 
 
$
4,280,143
 
Interest expense
 
 
(1,094
)
 
 
(13,651
)
 
 
(1,843
)
 
 
(1,843
)
 
 
(1,843
)
Other income (expense)
 
 
5,621
 
 
 
28,488
 
 
 
(1,040,473
)
 
 
(3,447,588
)
 
 
1,241,189
 
Benefit (provision) for taxes
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(30,360
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
 
(4,320,299
)
 
$
(4,410,487
)
 
$
(6,230,811
)
 
$
(7,689,137
)
 
$
(3,071,157
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) per share -basic and diluted
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.00
)
Weighted average shares of common stock outstanding
 
 
738,935,288
 
 
 
738,284,321
 
 
 
723,439,691
 
 
 
722,794,828
 
 
 
722,182,831
 

Balance Sheets Data
 
 
 
September 30,
 
 
 
2012
 
 
2011
 
 
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Concession costs and fees
 
$
10,046,303
 
 
$
4,620,531
 
 
$
2,839,500
 
 
$
2,839,500
 
 
$
2,839,500
 
Total assets
 
 
20,640,111
 
 
 
19,748,238
 
 
 
23,007,470
 
 
 
28,859,825
 
 
 
36,880,422
 
Total liabilities
 
 
5,610,790
 
 
 
539,519
 
 
 
517,425
 
 
 
5,209,900
 
 
 
5,907,960
 
Shareholders’ equity
 
 
15,029,321
 
 
 
19,208,719
 
 
 
22,490,045
 
 
 
23,649,925
 
 
 
30,972,462
 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Plan of Operations

Introduction

The following discussion and analysis presents management’s perspective of the Company’s business and, financial condition and its overall performance. This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future. You must read the following discussion of the results of the operations and financial condition of the Company in conjunction with its financial statements, including the notes thereto included in this Form 10-K filing.  The Company’s historical results are not necessarily an indication of trends in operating results for any future period.

Reference is made to “Item 6. Selected Financial Data” and “Item 8. Financial Statements and Supplementary Data.”

The business of exploring for, developing, or acquiring oil and gas assets is capital intensive and the Company expects to continue to make significant capital expenditures over the next several years as part of its long-term growth strategy.  The Company has no revenue from current operations and its existing cash and cash equivalents are finite.  It is anticipated that external financing will be required in the future to fund the Company’s intended acquisition and exploration programs.

Possible sources of funding include private or public financings (including possible rights offering, registered direct offerings or private placements of the Company’s capital stock), strategic relationships or other arrangements.  While ERHC has obtained funding for operations from private equity placements in the past, there is no assurance that the Company will be able to do so again in the near future at commercially reasonable terms or at all despite any progress in its business prospects.  At the Company’s current stage of development, public or private debt funding may not be available on acceptable terms or at all.  If ERHC enters into strategic relationships to raise additional funds, it might be required to relinquish certain rights to its assets and/or future revenue streams from any prospective resource plays.

Failure to raise capital or secure financing when needed could leave ERHC with insufficient resources in the future to sustain its exploration and development activities.  Without additional capital resources, the Company may be forced to limit, defer or cease acquisitions or capital expenditures, sell assets, cede acreage or acquired interest, reduce operating expenses, or delay or reduce planned exploration and development programs, which in turn may adversely affect the Company’s financial condition and business prospects.  Raising any additional funds through equity or debt financing, convertible debt financing, joint ventures with corporate partners or other sources may be dilutive to the Company’s existing shareholders and may affect the price of its common stock.  Ultimately, there can be no assurance that ERHC will be successful in obtaining additional financing to fund its growth.


CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains forward-looking statements.  Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, future events or performance and underlying assumptions and other statements which are other than statements of historical facts.  Certain statements contained herein are forward-looking statements and, accordingly, involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.  Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, including without limitations, management's examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that management's expectations, beliefs or projections will result or be achieved or accomplished.  In addition to other factors and matters discussed elsewhere herein and the risks discussed in   Item 1A.  Risk Factors  , the following are important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements: geopolitical instability where we operate; our ability to meet our capital needs; our ability to raise sufficient capital and/or enter into one or more strategic relationships with one or more industry partners to execute our business plan; our ability and success in finding, developing and acquiring oil and gas reserves; our ability to respond to changes in the oil exploration and production environment, competition, and the availability of personnel in the future to support our activities.
 
Overview

ERHC Energy Inc., a Colorado corporation, (“ERHC” or the “Company”) was incorporated in 1986.  The Company’s business is the exploration and exploitation of oil and gas resources in Africa including its rights to working interests in exploration acreage in the Republic of Kenya (“Kenya”), in the Republic of Chad (“Chad”), in the Joint Development Zone (“JDZ”) between the Democratic Republic of Săo Tomé and Príncipe (“STP”) and the Federal Republic of Nigeria (“FRN or “Nigeria”) and in the exclusive economic zone of Săo Tomé (the “Exclusive Economic Zone” or “EEZ”).

A description of the Company’s current operations is contained in  Item 1 of this Form 10-K and readers are encouraged to read that analysis in connection with  Management’s Discussion and Analysis of Financial Condition and Plan of Operations.

In recent years ERHC has been focused on identifying opportunities in Africa that work to the strengths of its management team and leverage the experience gained through the Company's long term involvement in the JDZ and EEZ.

Critical Accounting Policies

The Company has identified the policies below as critical to its business operations and the understanding of its results of operations.  The impact and any associated risks related to these policies on the Company’s business operations are discussed throughout this section where such policies affect the Company’s reported and expected financial results.  Management’s preparation of this Annual Report on Form 10-K requires it to make estimates and assumptions that affect the reported amount of assets and liabilities, and the disclosure of contingent assets and liabilities.  There is no assurance that actual results will not differ from those estimates and assumptions.

Concentration of Risks

The Company’s current focus is to exploit assets consisting of working interests in agreements with Kenya, Chad, the DRSTP and JDA concerning oil and gas exploration.  The Company has developed internal capabilities and is also forming relationships with other oil and gas companies with the technical and financial capabilities to assist the Company in leveraging its interests in Kenya, Chad, the EEZ and the JDZ.  The Company currently has no other operations.

Impairment of Long-lived Assets

ERHC evaluates the recoverability of long-lived assets when events and circumstances indicate that such assets might be impaired.  ERHC determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts.  Impairments are charged to operations in the period to which events and circumstances indicate that such assets might be impaired.  ERHC has evaluated its investment in interests in Kenya, Chad, its DRSTP concession, and its JDA fee in light of its 2003 Option Agreement and there have been no events or circumstances that would indicate that such assets might be impaired.


Recent Accounting Pronouncements

Following is an analysis of recent accounting guidance issued by the Financial Accounting Standards Board ("FASB") resulting in changes to the Accounting Standards Codification ("ASC):

FASB ASC 350 - In September 2011, the FASB issued guidance regarding assessing whether it is necessary to perform goodwill impairment tests on a recurring basis.  The guidance permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair market value of a reporting unit is less than its carrying amounts as a basis for determining whether it is necessary to perform the goodwill impairment test.  The amended guidance is effective for annual and interim periods beginning after December 15, 2011, with early adoption permitted, including annual and interim goodwill impairment tests performed as of dates before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued.  ERHC has adopted this guidance and it had no impact on the Company’s consolidated financial statements.

FASB ASC 220 - In June 2011, the FASB issued guidance to amend the presentation of comprehensive income to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity.  The amended guidance is effective for annual and interim periods within those years beginning after December 15, 2011, and is to be applied retrospectively. ERHC adopted this guidance in the fourth quarter of fiscal year 2011 and adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

FASB ASC 820 - In May 2011, the FASB issued guidance to amend the requirements related to fair value measurement which changes the wording used to describe many requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. The amended guidance is effective for interim and annual periods beginning after December 15, 2011, and is applied prospectively. ERHC has adopted this guidance and it had no impact on the Company’s consolidated financial statements.
 
FASB ASC 350 - In December 2010, the FASB issued amended guidance concerning testing for impairment of goodwill where an entity has one or more reporting units whose carrying value is zero or negative.  The amended guidance requires the entity to perform a test to measure the amount, if any, of impairment to goodwill by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.  The Company is required to adopt this amended guidance for fiscal years or interim periods beginning after December 15, 2011.   ERHC has adopted this guidance and it had no impact on the Company’s consolidated financial statements.

FASB ASC 805 - In December 2010, the FASB issued amended guidance concerning disclosures of pro forma information for business combinations.  The amended guidance requires that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The amended guidance also expands the supplemental pro forma disclosures to include a description of and the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.  ERHC has adopted this guidance and it had no impact on the Company’s consolidated financial statements.

Results of Operations

Year Ended September 30, 2012 Compared with Year Ended September 30, 2011

General and administrative expenses decreased from $4,401,901 in the year ended September 30, 2011 to $4,309,856 in the year ended September 30, 2012.  This decrease was the result of an ongoing effort to reduce operating expenses.
 
During the year ended September 30, 2012, the Company had a net loss of $4,320,299 compared with a net loss of $4,410,487 for the year ended September 30, 2011.  The reduction was primarily due to the decrease in general and administrative expenses described above.

Year Ended September 30, 2011 Compared with Year Ended September 30, 2010

General and administrative expenses decreased from $5,156,778 in the year ended September 30, 2010 to $4,401,901 in the year ended September 30, 2011.  This decrease was the result of an ongoing effort to reduce operating expenses and was due primarily to the following:

 
Reduced legal, accounting and consulting expenses related to the Company's business activities.

 
General reduction in operating costs due to cost control efforts.
 
 
During the year ended September 30, 2011, the Company had a net loss of $4,410,487 compared with a net loss of $6,230,811 for the year ended September 30, 2010.
 
In 2010, the Company recognized a provision for loss of $1,058,597 based on the Company's evaluation of certain restrictions that were placed on a financial institution where the Company had an investment in a Certificate of Deposit.  The additional provision increased the Company's 2010 net loss as compared to the year ended September 30, 2011. The Company also incurred certain costs in 2010, not repeated in 2011 related to a proposed listing on the Alternative Investment Market ("AIM") of the London Stock Exchange

Liquidity

Year Ended September 30, 2012 Compared with Year Ended September 30, 2011

Net cash used by operating activities during the year ended September 30, 2012 was $4,148,303, a decrease of $237,175 from cash used by operating activities of $4,385,478 in the year ended September 30, 2011.  This decrease was primarily due to the following:
 
·
$90,188 decrease in net loss, and
 
·
$43,748 decrease in change in prepaid assets due to the timing as well as continued efforts to cut costs.
 
·
$107,803 decrease in the change in accounts payable and accrued liabilities due to the Company’s efforts to decrease costs and manage accounts payable more effectively

Net cash provided by investing activities during the year ended September 30, 2012 was $4,677,142, an increase of $7,855,749 from cash used by investing activities of $3,178,607 in the year ended September 30, 2011.  This increase was primarily due to the following:
 
·
$5,011,000 increase in proceeds from a sale of T-Bill,
 
·
$1,250,259 decrease in oil and gas concession acquisitions,
 
·
$1,350,000 decrease in purchases of marketable securities,
 
·
$131,000 decrease in purchases of restricted certificates of deposit, and
 
·
$131,000 increase in proceeds from sale of restricted certificates of deposit.

Net cash provided by financing activities during the year ended September 30, 2012 was $0, a decrease of $1,787,987 from cash provided by financing activities of $1,787,987 in the year ended September 30, 2011.  This increase was primarily due to the following:
 
·
$1,821,500 decrease in proceeds from common stock issuances, and
 
·
$33,513 decrease in repayment of shareholders convertible loans.

Year Ended September 30, 2011 Compared with Year Ended September 30, 2010

Net cash used by operating activities during the year ended September 30, 2011 was $4,385,478, a decrease of $129,043 from cash used by operating activities of $4,514,521 in the year ended September 30, 2010.  This decrease was primarily due to the following:

 
·
$1,820,324 decrease in net loss due to the continued efforts to cut costs,
 
·
$1,058,579 decrease in non-cash provision for the loss on deposits.
 
·
$133,867 decrease in non-cash compensation-related stock issuances due to depreciation of ERHC’s stock,
 
·
$329,869 decrease in change in prepaid assets due to the timing as well as continued efforts to cut costs,
 
·
$147,804 decrease in change in accounts payable and accrued liabilities due to the timing as well as continued efforts to cut costs.

Net cash used by investing activities during the year ended September 30, 2011 was $3,178,607, a decrease of $1,822,351 from cash used by investing activities of $5,000,958 in the year ended September 30, 2010.  This decrease was primarily due to the following:

 
·
$4,994,470 decrease in acquisitions of U.S. Treasury Bills due to the timing of investment transactions,
 
·
$1,676,031 increase in purchases of oil and gas concessions due to the close of Chad deal,
 
·
$1,350,000 increase in purchases of equity securities due to the acquisition of an interest in Exile Resources,
 
·
$131,000 increase in purchases of restricted certificate of deposit due to the timing of transaction.

Net cash provided by financing activities during the year ended September 30, 2011 was $1,787,987, a decrease of $1,787,987 from cash provided by financing activities of $0 in the year ended September 30, 2010.  This increase was primarily due to the following:

 
·
$1,821,500 increase in proceeds from common stock in a direct registered offering,
 
·
$33,513 increase in repayment of shareholder convertible loan.

 
Capital Resources

Our working capital (defined as current assets minus current liabilities) has historically been generated primarily from the following sources: investing cash flow (proceeds from sale of partial interest in DRSTP concession) and financing cash flows (proceeds from sale of common stock under various arrangements).

As of September 30, 2012, the Company had $7,665,990 in cash and cash equivalents and positive working capital of $2,916,837.  Management believes that this cash position should be sufficient to support the Company’s general and administrative expenses for more than 12 months.

Future Capital Requirements

Management estimates ERHC’s minimum annual working capital requirements to be $4,800,000. However, as described in more detail in Item 1 of this Form 10-K and under Contractual Obligations below, the Company anticipates that it will need an additional $12,151,000 for its exploration of the Kenya asset, $4,504,651 for its exploration of the Chad asset over the next twelve months, and $5,000,000 to cover Company’s remaining obligation for Chad’s signing bonus at September 30, 2012, bringing the total budgeted capital requirements to $26,455,651.  The Company might therefore need to raise up to $48 million over the next 18 months for its exploration programs in Kenya and Chad as outlined in Item 1.  The Management currently considers equity finance to be the most viable option.  The Company plans to proceed by a rights offering to existing shareholders and registered direct offerings to new ones.  The terms of a rights offering are currently being finalized, and the Company expects to announce those terms by the end of the calendar year 2012.

The Company will also consider convertible loans and other debt instruments.

In addition to the above, ERHC currently has a number of applications in progress in several African countries.  Depending on the success of these efforts, there is a possibility that additional opportunities requiring capital expenditures may arise; however, at this time, amounts and times of such requirements cannot be estimated.

Assets Carried at Fair Value

The Company holds common stock and warrant investments (collectively “Marketable Equity Securities”) in Oando Energy Resources, Inc. (formerly Exile Resources, Inc.) which is a publicly traded company listed on the  Toronto Stock Exchange. These assets are carried at fair market value in ERHC’s financial statements.  Both stocks and warrants are accounted for as available for sale securities, and changes in their fair value are recognized in other comprehensive income (loss).  The Company relies on an independent broker to provide fair values for its investments.   Management believes that changes in fair value of the above mentioned assets do not have a material effect on liquidity or capital resources.

Off-Balance Sheet Arrangements

At September 30, 2012, the Company had no off-balance sheet arrangements.

Short –Term Obligations

As of September 30, 2012, the Company had a total of $5,610,790 in short-term obligations; it includes $55,844 in accrued Directors’ compensation and $5,000,000 in accrued Chad signature bonus.

Contractual Obligations and Commercial Commitments

The following table provides information at September 30, 2012, about the Company’s contractual obligations and commercial commitments.  The table presents contractual obligation by due dates and related contractual commitments by expiration dates.

 
 
Contractual Obligations
 
 
Total
   
Less Than
1 Year
   
 
1-3 Years
   
 
3-5 Years
   
More
Than 5
Years
 
                               
Kenya license interest (1)
  $ 10,720,000     $ 235,000     $ 10,485,000     $ -     $ -  
Chad license interest (2)
    20,135,000       6,027,000       2,054,000       12,054,000          
Operating lease (3)
    621,853       123,805       255,443       242,605          
                                         
Total
  $ 31,476,853     $ 6,385,805     $ 12,794,443     $ 12,296,605     $ -  

 
 
(1)
This represents obligations under our PSC with Kenya. The Company has a an obligation to pay annual training and surface fees in the amount of $235,000 and a minimum $10,250,000 under a two year work program. Accordingly, the above analysis is prepared using the minimum commitment.

 
(2)
This represents obligations under our PSC with Chad. The Company has a remaining commitment of $5,000,000 for its signing bonus and a minimum $15,000,000 commitment under a five year work program. This commitment must include annual expenditures of at least $1,000,000 and accordingly, the above analysis is prepared using the minimum commitment. Furthermore, the Company has committed to pay annual Surface Area Fees, estimated to be $27,000 per year during the Initial Exploration Period.

 
(3)
Lease obligations consist of operating lease for office space. Office lease represent non-cancelable leases for office space used in daily operations.

Contingencies and Legal Matters

For a detailed discussion of contingencies and legal matters, see “Item 3 “Legal Proceedings”.
 
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

At September 30, 2012, all the Company’s oil and gas licenses were for exploration acreage located outside the United States.  The Company’s primary assets are agreements with Government of the Republic of Kenya, the Republic of Chad, the DRSTP and the JDA, which provide ERHC with rights to participate in exploration and production activities in the Republic of Kenya, the Republic of Chad, and in Gulf of Guinea off the coast of West Africa.  This geographic area of interest is controlled by foreign governments that have historically experienced volatility, which is out of management’s control. The Company’s ability to exploit its interests in the agreements in this area may be impacted by this circumstance.

The future success of the Company’s international operations may also be adversely affected by risks associated with international activities, including financial, economic and labor conditions, political instability, risk of war, expropriation, renegotiation or modification of existing contracts, tax laws (including host-country import-export, excise and income taxes and United States taxes on foreign subsidiaries) and changes in the value of the U.S. dollar relative to the local currencies in which future oil and gas producing activities may be denominated.  Furthermore, changes in exchange rates may adversely affect the Company’s future results of operations and financial condition.
 
Market risks relating to the Company’s operations result primarily from changes in interest rates as well as credit risk concentrations.  The Company’s interest expense is generally not sensitive to changes in the general level of interest rates in the United States, particularly because a substantial majority of its indebtedness is at fixed rates.

The Company holds no derivative financial or commodity instruments except the warrants for purchase of common shares of Oando Energy Resources, Inc. described above.

 
Item 8.  Financial Statements and Supplementary Data

ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page(s)
Reports of Independent Public Accounting Firm:
 
 
 
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting as of September 30, 2012
33
 
 
Report of Independent Registered Public Accounting Firm on the Financial Statements for the Years ended September 30, 2012, 2011  and 2010
34
 
 
Consolidated Financial Statements:
 
 
 
Consolidated Balance Sheets as of September 30, 2012 and 2011
35
 
 
Consolidated Statements of Operations for the Years Ended September 30, 2012, 2011 and 2010, and for the period from inception, September 5, 1995,to September 30, 2012
36
 
 
Consolidated Statements of Comprehensive Income for the Years Ended September 30, 2012, 2011 and 2010, and for the period from inception, September 5, 1995,to September 30, 2012
37
   
Consolidated Statements of Shareholders’ Equity for the period from inception, September 5, 1995, to September 30, 2012
38
 
 
Consolidated Statements of Cash Flows for the Years Ended September 30, 2012, 2011 and 2010, and for the period from inception, September 5, 1995,to September 30, 2012
44
 
 
Notes to Consolidated Financial Statements
46
 
 
Financial Statement Schedules
 

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under instructions or are inapplicable and therefore have been omitted.

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
ERHC Energy Inc.
Houston, Texas

We have audited the internal control of ERHC Energy Inc. and its subsidiaries (collectively, the “Company”) over its financial reporting as of September 30, 2012 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, ERHC Energy Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2012, based on criteria established in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of ERHC Energy Inc. and its subsidiaries as of September 30, 2012 and 2011, and the related consolidated statements of operations, other comprehensive loss, changes in shareholders’ equity and cash flows for each of the three years ended September 30, 2012, 2011 and 2010 and our report dated December 11, 2012 expressed an unqualified opinion on those consolidated financial statements.

/s/Malone Bailey, LLP
www.malone-bailey.com
Houston, Texas

December 11, 2012
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
ERHC Energy Inc.
Houston, Texas

We have audited the accompanying consolidated balance sheets of ERHC Energy Inc. and its subsidiaries (collectively the “Company’), a development stage corporation, as of September 30, 2012 and 2011 and the related consolidated statements of operations, other comprehensive loss, changes in shareholders’ equity and cash flows for each of the three years ended September 30, 2012, 2011 and 2010.  These financial statements are the responsibility of ERHC’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  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 financial position of ERHC Energy Inc. and its subsidiaries as of September 30, 2012 and 2011, and the results of their operations and their cash flows for each of the three years ended September 30, 2012, 2011 and 2010 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of September 30, 2012, based on criteria established in Internal Control – Integrated Framework    issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December 11, 2012 expressed an unqualified opinion.

/s/ MaloneBailey, LLP
www.malone-bailey.com
Houston, Texas

December 11, 2012
 
 
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED BALANCE SHEETS
September 30, 2012 and 2011

 
 
 
2012
 
 
2011
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
7,665,990
 
 
$
7,137,151
 
United States Treasury bills
 
 
-
 
 
 
5,007,446
 
Investment in Exile Resources
 
 
540,912
 
 
 
524,346
 
Prepaid expenses and other
 
 
320,725
 
 
 
282,141
 
 
 
 
 
 
 
 
 
 
Total current assets
 
 
8,527,627
 
 
 
12,951,084
 
 
 
 
 
 
 
 
 
 
Oil and gas concession fees
 
 
10,046,303
 
 
 
4,620,531
 
Furniture and equipment, net of accumulated depreciation of $175,195 and $160,225 at September 30, 2012 and 2011, respectively
 
 
47,783
 
 
 
27,225
 
Restricted certificate of deposit
 
 
-
 
 
 
131,000
 
Income tax receivable
 
 
2,018,398
 
 
 
2,018,398
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
20,640,111
 
 
$
19,748,238
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
610,790
 
 
$
539,519
 
Signing bonus payable - Chad
 
 
5,000,000
 
 
 
-
 
 
 
 
 
 
 
 
 
 
Total current liabilities
 
 
5,610,790
 
 
 
539,519
 
 
 
 
 
 
 
 
 
 
Commitments and contingencies:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
 
 
 
 
Preferred stock, par value $0.0001; authorized 10,000,000 shares; none issued and outstanding
 
 
-
 
 
 
-
 
Common stock, par value $0.0001; authorized 950,000,000 shares; issued and outstanding 739,458,854and 738,933,854 shares at September 30, 2012 and 2011, respectively
 
 
73,947
 
 
 
73,894
 
Additional paid-in capital
 
 
99,479,431
 
 
 
99,355,149
 
Accumulated other comprehensive loss
 
 
(809,087
)
 
 
(825,653
)
Losses accumulated in the development stage
 
 
(83,714,970
)
 
 
(79,394,671
)
 
 
 
 
 
 
 
 
 
Total shareholders’ equity
 
 
15,029,321
 
 
 
19,208,719
 
 
 
 
 
 
 
 
 
 
Total liabilities and shareholders' equity
 
$
20,640,111
 
 
$
19,748,238
 

The accompanying notes are an integral part of these consolidated financial statements.


ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 2012, 2011, and 2010 and for the Period
From Inception, September 5, 1995, to September 30, 2012

 
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
Inception to
 
 
 
Years Ended September 30,
 
 
September 30,
 
 
 
2012
 
 
2011
 
 
2010
 
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative
 
$
4,309,856
 
 
$
4,401,901
 
 
$
5,156,778
 
 
$
86,414,026
 
Depreciation
 
 
14,970
 
 
 
23,423
 
 
 
31,717
 
 
 
1,523,508
 
Gain on sale of partial interest in DRSTP concession
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(30,102,250
)
Write-offs and abandonments
 
 
-
 
 
 
-
 
 
 
-
 
 
 
7,742,128
 
Total costs and expenses
 
 
(4,324,826
)
 
 
(4,425,324
)
 
 
(5,188,495
)
 
 
(65,577,412
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income and (expenses):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
 
5,621
 
 
 
15,620
 
 
 
18,106
 
 
 
4,850,604
 
Gain  from settlements
 
 
-
 
 
 
12,868
 
 
 
-
 
 
 
130,178
 
Other income
 
 
-
 
 
 
-
 
 
 
-
 
 
 
439,827
 
Interest expense
 
 
(1,094
)
 
 
(13,651
)
 
 
(1,843
)
 
 
(12,145,336
)
Provision for loss on deposits
 
 
-
 
 
 
-
 
 
 
(1,058,579
)
 
 
(5,292,896
)
Loss on extinguishment of debt
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(5,749,575
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total other income and (expense)
 
 
4,527
 
 
 
14,837
 
 
 
(1,042,316
)
 
 
(17,767,198
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before benefit (provision) for income taxes
 
 
(4,320,299
)
 
 
(4,410,487
)
 
 
(6,230,811
)
 
 
(83,344,610
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit (provision) for income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(1,330,360
)
Deferred
 
 
-
 
 
 
-
 
 
 
-
 
 
 
960,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total benefit (provision)for income taxes
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(370,360
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(4,320,299
)
 
$
(4,410,487
)
 
$
(6,230,811
)
 
$
(83,714,970
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per common share -basic and diluted
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.01
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding - basic and diluted
 
 
738,933,854
 
 
 
738,284,321
 
 
 
723,265,288
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS
For the Years Ended September 30, 2012, 2011, and 2010 and for the Period
From Inception, September 5, 1995, to September 30, 2012

 
 
 
 
 
 
 
 
 
 
 
 
(unaudited)
Inception to
 
 
 
Year Ended September 30,
 
 
September 30,
 
 
 
2012
 
 
2011
 
 
2010
 
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(4,320,299
)
 
$
(4,410,487
)
 
$
(6,230,811
)
 
$
(83,714,970
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income – unrealized gain (loss) on available for sale securities
 
 
16,566
 
 
 
(825,653
)
 
 
-
 
 
 
(809,087
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total other comprehensive loss
 
$
(4,303,733
)
 
$
(5,236,140
)
 
$
(6,230,811
)
 
$
(84,524,057
)
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Period from Inception, September 5, 1995, to September 30, 2012, (Unaudited for the
Period from Inception to September 30, 1998)

 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
Paid-In
 
 
Accumulated
 
 
Subscription
 
 
Deferred
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Receivable
 
 
Compensation
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 5, 1995
 
 
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
Common stock issued for cash
 
 
884,407
 
 
 
88
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
88
 
Common stock issued for services
 
 
755,043
 
 
 
76
 
 
 
499,924
 
 
 
-
 
 
 
-
 
 
 
(500,000
)
 
 
-
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(3,404
)
 
 
-
 
 
 
-
 
 
 
(3,404
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 1995
 
 
1,639,450
 
 
 
164
 
 
 
499,924
 
 
 
(3,404
)
 
 
-
 
 
 
(500,000
)
 
 
(3,316
)
Common stock issued for cash, net of expenses
 
 
361,330
 
 
 
36
 
 
 
124,851
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
124,887
 
Common stock issued for services
 
 
138,277
 
 
 
14
 
 
 
528,263
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
528,277
 
Common stock issued for equipment
 
 
744,000
 
 
 
74
 
 
 
3,719,926
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
3,720,000
 
Effect of reverse merger
 
 
1,578,470
 
 
 
158
 
 
 
(243,488
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(243,330
)
Amortization of deferred compensation
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
72,500
 
 
 
72,500
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(728,748
)
 
 
-
 
 
 
-
 
 
 
(728,748
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 1996
 
 
4,461,527
 
 
 
446
 
 
 
4,629,476
 
 
 
(732,152
)
 
 
-
 
 
 
(427,500
)
 
 
3,470,270
 
Common stock issued for cash
 
 
2,222,171
 
 
 
222
 
 
 
1,977,357
 
 
 
-
 
 
 
(913,300
)
 
 
-
 
 
 
1,064,279
 
Common stock issued for services
 
 
9,127,981
 
 
 
913
 
 
 
12,430,725
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
12,431,638
 
Common stock issued for oil and gas leases and properties
 
 
500,000
 
 
 
50
 
 
 
515,575
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
515,625
 
Common stock issued for Chevron contract
 
 
3,000,000
 
 
 
300
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
300
 
Common stock issued for BAPCO acquisition
 
 
4,000,000
 
 
 
400
 
 
 
499,600
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
500,000
 
Contributed
 
 
(100,000
)
 
 
(10
)
 
 
(99,990
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(100,000
)
Amortization of deferred compensation
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
177,500
 
 
 
177,500
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(16,913,052
)
 
 
-
 
 
 
-
 
 
 
(16,913,052
)