10-K 1 form10k.htm ERHC ENERGY 10-K 9-30-2013

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, 2013

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


(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 o Non-Accelerated Filer x

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, 2013 was $45,890,956.

On November 30, 2013, the registrant had 764,849,260 shares of common stock issued and outstanding.


TABLE OF CONTENTS
 
PART I
PAGE
 
 
 
Item 1.
4
Item 1A.  
13
Item 1B.
17
Item 2.
17
Item 3.
18
Item 4.
19
 
 
 
 
PART II
 
 
 
 
Item 5.
19
Item 6.
20
Item 7.
21
Item 7A.  
25
Item 8.
26
Item 9.
49
Item 9A.
49
Item 9B.
49
 
 
 
 
PART III
 
 
 
 
Item 10.
50
Item 11.
54
Item 12.
61
Item 13.
62
Item 14.
62
 
 
 
 
PART IV
 
 
 
 
Item 15.
63
 
64
 
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 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 partner with other oil and gas operators to perform exploration work and further develop assets held through Production Sharing Contracts (PSCs) with the governments of both countries.  ERHC plans to raise funds by farming out some working interest in these blocks in exchange for cash payments or other valuable consideration.

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  in Africa. 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 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. On June 28, 2012, the Company announced that it had signed a Production Sharing Contract (PSC) on Block 11A 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
 
 
By virtue of the PSC, 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 Oil 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 in Block 11A.

Kenya Operations Update

In September 2013, ERHC concluded a farm-out agreement with an international oil and gas company. The farm-out agreement is subject to the consent of the Government of the Republic of Kenya. Under terms of the agreement, ERHC would transfer a portion of its interest in Kenya Block 11A as well as operatorship. The proposed farm-out agreement includes a carry and other considerations. The farm-out agreement requires that until government consent is granted, details regarding the partner and certain terms should remain confidential. Pending government consent to the farm-out agreement, ERHC continues to operate Block 11A.

In November 2013, ERHC Energy Kenya Ltd. (“ERHC Kenya”), a fully-owned subsidiary of the Company, commenced an airborne Full Tensor Gravity Gradiometry (FTG) survey of Block 11A in northwestern Kenya. The FTG survey, which aids significantly in the structural mapping of prospective hydrocarbon basins, will encompass up to 15,500 line kilometers.

Additionally, ERHC Kenya performed an Environmental Impact Study on the block. This study has been approved by the Government of Kenya.  During the course of the study, ERHC Kenya held stakeholder meetings with representatives of the local population of Turkana to explain the work program to the communities and discuss their expectations and areas of concern.

In preparation for the 2D seismic campaign that is planned to follow the FTG survey, ERHC Kenya sent out invitations to tender to various seismic contractors, who subsequently submitted their bids to the Company. The bid evaluation process is currently ongoing.

Key Provisions of the ERHC’s PSC on Block 11A
Exploration Term

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 the Company’s work program 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.

Relinquishment and Surrender

The PSC provides for a mandatory surrender of 25% of the original contract area by the end of the initial exploration period to the Government of Kenya 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.

Signature Bonus and Guarantees

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
· 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 (with minimum expenditure 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

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 initial period of exploration 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.

Recently, ERHC offered to novate the PSC by retaining only the BDS2008 Block and relinquishing the Manga and Chari Ouest III Blocks to the Chadian Government for efficiency and for greater ease in carrying out an accelerated work program.  The novation of the PSC has been approved by the Chadian Ministry of Energy and Petroleum.



Chad Operations Update

Focus Areas
ERHC’s exploration focus is on Block BDS 2008 which measures 16,360 square kilometers or 4,042,644 acres.  Within this block, two focus areas have been identified where ERHC intends to initially acquire airborne gravity and magnetics data followed by a 2D seismic survey.  ERHC has recently completed an Environmental Impact Assessment on Block BDS 2008 as a mandatory pre-condition to commencing data acquisition and the rest of the work program.
 

Key Provisions of ERHC’s Production Sharing Contract (PSC) in Chad

Exploration Term and 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 5 year period is $15 million. If ERHC elects to continue for a subsequent 3‑year period, an additional minimum expenditure of $1 million will be required.  ERHC would, however, also be obliged to drill an exploratory well.

Cost Recovery and Production Sharing
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 of 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.

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

Background of the JDZ

In the spring of 2001, Sao Tome & Principe and Nigeria signed a treaty establishing a JDZ for the joint development of petroleum and other resources in the overlapping area of their respective maritime boundaries.  The treaty also established an administrative body, the Joint Development Authority (“JDA”), to administer the treaty and all activities in the JDZ.  Revenues derived from the JDZ will be shared 60:40 between the governments of Nigeria and Săo Tomé & Príncipe, respectively. The JDZ lies approximately 180 kilometers south of Nigeria, in the Gulf of Guinea, one of the most prolific hydrocarbon regions of the world.     .

ERHC’s Rights in the JDZ

In April 2003, the Company and STP entered into an Option Agreement (the “2003 Option Agreement”) in which the Company relinquished significant prior legal rights and financial interests in the Joint Development Zone (“JDZ”) in exchange for preferential exploration rights in the JDZ.  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 (“Original Participating Interest”) in each of JDZ Blocks 2, 3, 4, 5, 6 and 9 of the JDZ during the 2004/5 licensing round conducted by the JDA.  ERHC also jointly bid with internationally recognized technical partners for additional participating interests in the JDZ during the 2004/5 licensing round.  As a result of the joint bid, ERHC won additional participating interests (“Joint Bid Participating Interest”) in Blocks 2, 3 and 4.  The following is a tabulation of ERHC’s participating interests in the JDZ.
 
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%

ERHC’s Participating Agreements in the JDZ

The following are the particulars of the Participating Agreements by which ERHC assigned 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

ERHC’s JDZ Acreage

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.

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.

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.

JDZ Operations Update

The JDZ partnership is currently assessing the data for possible new exploration play concepts in this area.

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

Overview of ERHC’s EEZ Blocks

The Săo Tomé and Príncipe EEZ is delineated over an expanse of waters offshore Sao Tome and Principe that covers approximately 160,000 square kilometers.  In terms of hydrocarbon exploration and exploitation, the 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 in the EEZ that have similar characteristics to known hydrocarbon accumulations in the area.


ERHC’s Rights in the EEZ

Under a 2001 agreement with the Government of Sao Tome and Principe (“STP”), 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.
 
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.

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.  Good progress has been made in several rounds of negotiations since then but the Company expects that it will take more rounds to conclude the PSCs. Both ERHC and the ANP-STP are currently conducting legal reviews of the draft PSCs for EEZ Blocks 4 and 11, the significant terms of which have been finalized by the parties.  ERHC’s management is looking to secure PSCs for the EEZ Blocks that will be attractive to potential joint venture partners.

EEZ Operations Update

ERHC’s and the ANP-STP’s efforts to generate interest in the EEZ as a whole have increased interest in ERHC’s EEZ Blocks among International Oil Operating Companies (IOCs).  ERHC is in discussions with several IOCs about possible partnerships in Blocks 4 and 11.

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 proven Akepo field in the Niger Delta.

In July 2011, Oando Petroleum and Exploration Company (“Oando Petroleum”) commenced a reverse takeover (“RTO”) of Exile Resources.  In July 2012, Exile announced the completion of the RTO by Oando Petroleum and the change of name of the resultant company to Oando Energy Resources Inc, (“Oando Energy”). It also announced the listing of the company’s shares under the symbol “OER” on the Toronto Stock Exchange (TSX) and commencement of trading in the shares on the TSX from July 30, 2012.

As a result of the RTO, ERHC now holds 418,889 shares in the common stock of Oando Energy.  ERHC also holds warrants for 418,889 common shares exercisable within 24 months of the closing of the RTO at Cdn$2.00 per share.

CURRENT PLANS FOR OPERATIONS

ERHC’s principal assets are its interests in rights for exploration for hydrocarbons in Kenya, Chad, the JDZ and the EEZ. ERHC has no current sources of income from its operations. The Company plans to develop its business by the acquisition of other assets which may include revenue-producing assets in diverse geographical areas and the forging of strategic, new business partnerships and alliances.  ERHC cannot currently predict the outcome of negotiations for acquisitions, or, if successful, their impact on the Company's operations.

PLANS FOR FUNDING EXISTING ASSETS AND POTENTIAL NEW ACQUISITIONS

ERHC's future plans will depend 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:
 
· Farm-outs of part of the Company’s assets in Kenya, Chad and the Săo Tomé and Príncipe Exclusive Economic Zone
· Issue shares of common stock through a registered direct offering
· Convertible Loans and other debt instruments
· Other available financing options

The Company is continuing discussions with several international investment advisory and financial brokerage firms to act as financial advisors and intermediaries to ERHC. While ERHC has always used expert professional assistance to formulate and execute its capital raising initiatives, it is re-focusing on the retention of such advisors and intermediaries as a strategic imperative of the increased funding requirements that arise from the rollout of the new work programs in Chad and Kenya.  The new firms retained will perform such financial advisory and investment banking services for the Company as are customary and appropriate in transactions of this type, including assisting the Company in analyzing, structuring, negotiating and effecting proposed capital raises.  These initiatives may include any transaction or series of transactions in which one or more capital providers (existing or otherwise) commits debt capital to the Company, purchases equity of the Company (or securities of the Company convertible into equity), or alternatively funds the Company either directly or through farm-ins, farm-outs or other arrangements in which the capital provider earns an interest in oil and gas properties of the Company.

Rights Offerings

During the second quarter of 2013, the Company offered 246,486,285 shares of its common stock in the rights offering, representing approximately 33 percent of its outstanding shares of common stock. The rights offering terminated on March 15, 2013 and resulted in net proceeds to the Company of $1.54 million from the exercise of approximately 22 million subscription rights (including certain oversubscription privileges).  The Company is currently applying raised capital to fund specific exploration and development activities pursuant to work programs governing its exploration acreage in the Republics of Chad and Kenya, as well as for general corporate purposes and working capital needs.

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 the Company’s 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 may 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 may be 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, 2013, 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

The Company’s 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.

The Company’s 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.

The Company’s rights in JDZ Blocks 5 and 6 are currently the subject of legal proceedings at the London Court of International Arbitration and the Federal High Court in Abuja, Nigeria.  The Company instituted both proceedings in November 2008 against the JDA and the Governments of Nigeria and Săo Tomé and Príncipe.  The Company seeks legal clarification that its rights in the two Blocks remain intact.

The issue in contention is contractual. 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 Company’s exercise of preferential rights in the Blocks as guaranteed by contract and treaty.  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. It also filed the suit to prevent any tampering with its said rights in JDZ Blocks 5 and 6 pending the outcome of 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.

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 consolidating  and exploiting its interests in Kenya, Chad, JDZ Blocks 2, 3, 4, 5, 6 and 9 and the EEZ but has had no 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 may exercise further rights in the EEZ in 2014, in which case it may incur significant capital cost in exercise of those rights.

As described in more detail in “Item 7 Future Capital Requirements” of this Form 10-K, the Company’s minimum working capital requirements for general, Kenyan, and Chadian operations in 2014 will be approximately $6,051,360.

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 40% of the Company’s outstanding common stock

One shareholder beneficially owns approximately 40% of the Company’s outstanding common stock.  As a result, the shareholder 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 yearsIf 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.

Effective September 30, 2013, the Company entered into a farm-out agreement with an international oil and gas company.  Under the terms of this agreement, which is contingent upon the consent of the Government of Kenya and other conditions, the Company will transfer 55% of its participating interest in Kenya Block 11A to its farm-out partner.

            

Republic of 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.  The initial period of exploration 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.

Recently, ERHC offered to novate the PSC by retaining only the BDS2008 Block and relinquishing the Manga and Chari Ouest III Blocks to the Chadian government for efficiency.  The novation of the PSC has been approved by the Chadian Ministry of Energy and Petroleum.  The BDS 2008 Block has an area of 16,360 square kilometers or 4,042,644 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:
 
 
· 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.

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 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
 
 
               
Fiscal Year 2013
               
First Quarter
 
$
0.15
   
$
0.07
 
Second Quarter
   
0.09
     
0.06
 
Third Quarter
   
0.09
     
0.05
 
Fourth Quarter
   
0.09
     
0.06
 

As of November 30, 2013, there were approximately 2,200 stockholders of record.  The closing price of the common stock as reported on the OTC Bulletin Board on November 30, 2013 was $0.06. 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, 14,681,756 shares have been authorized.

 
 
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
   
4,150,000
     
0.20
     
5,318,244
 
 
                       
Equity compensation plans not approved by security holders
   
-
     
-
     
-
 

Recent Sales of Securities Exempt from Registration

The Company has issued the following securities which were exempt from registration:

· 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.
· During the fourth quarter of 2013, the Company awarded 420,000 shares for 2013 to directors, for services rendered in 2013. These shares were unissued at September 30, 2013.
 
All the 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, 2013, has been derived from the audited financial statements of the Company.  The financial statements as of and for the years ended September 30, 2013, 2012, 2011, 2010 and 2009 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,
 
 
 
2013
   
2012
   
2011
   
2010
   
2009
 
 
 
   
   
   
   
 
Operating expenses
 
$
5,156,265
   
$
4,324,826
   
$
4,425,324
   
$
5,188,495
   
$
4,239,706
 
Interest expense
   
(36
)
   
(1,094
)
   
(13,651
)
   
(1,843
)
   
(1,843
)
Other income (expense)
   
3,484
     
5,621
     
28,488
     
(1,040,473
)
   
(3,447,588
)
Benefit (provision) for taxes
           
-
     
-
     
-
     
-
 
 
                                       
Netloss
 
$
(5,152,817
)
 
$
(4,320,299
)
 
$
(4,410,487
)
 
$
(6,230,811
)
 
$
(7,689,137
)
 
                                       
Net loss per share - basic and diluted
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.01
)
Weighted average shares of common stock outstanding
   
751,978,263
     
738,935,288
     
738,284,321
     
723,439,691
     
722,794,828
 

Balance Sheets Data
 
 
 
September 30,
 
 
2013
 
2012
 
2011
 
2010
 
2009
 
 
 
   
   
   
   
 
Concession costs and fees
 
$
6,037,803
   
$
10,046,303
   
$
4,620,531
   
$
2,839,500
   
$
2,839,500
 
Total assets
   
12,472,600
     
20,640,111
     
19,748,238
     
23,007,470
     
28,859,825
 
Total liabilities
   
983,293
     
5,610,790
     
539,519
     
517,425
     
5,209,900
 
Shareholders’ equity
   
11,489,307
     
15,029,321
     
19,208,719
     
22,490,045
     
23,649,925
 

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

There have been no recently issued accounting pronouncements that have had or are expected to have a material impact on the Company’s consolidated financial statements.

Results of Operations

Year Ended September 30, 2013 Compared with Year Ended September 30, 2012

General and administrative expenses increased from $4,309,856 in the year ended September 30, 2012 to $3,808,760 in the year ended September 30, 2013.  General and administrative expenses remained relatively consistent due to no major changes in operations of the Company. The Company also incurred exploration expenses during the year ended September 30, 2013 amounting to $1,222,399 mainly for its concessions in Chad and Kenya.

During the year ended September 30, 2013, the Company had a net loss of $5,152,817 compared with a net loss of $4,320,299 for the year ended September 30, 2012.  The increase was primarily due to exploration expenses as mentioned above and the increase in depreciation expenses during 2013.

Liquidity

Year Ended September 30, 2013 Compared with Year Ended September 30, 2012

Net cash used by operating activities during the year ended September 30, 2013 was $4,564,595, an increase of $416,292 from cash used by operating activities of $4,148,303 in the year ended September 30, 2012.  This increase was primarily due to the following:
· Increase in net loss,
· Increase in depreciation expenses for the year,
· Increase in cash inflows from change in prepaid assets due to the timing as well as continued efforts to cut costs,
· Increase in cash inflows on the change in accounts payable and accrued liabilities mainly due to recognizing obligations for various work performed on Kenya and Chad properties.
 
Net cash used by investing activities during the year ended September 30, 2013 was $(3,457,369), a change of $8,134,511 from cash provided by investing activities of $4,677,142 in the year ended September 30, 2012.  This decrease was primarily due to the following:
· increase in purchases of oil and gas concessions, due to the progress on Kenya and Chad work programs,
· decrease in proceeds from the sale of US Treasury Bills and certificates of deposit,
· increase in purchases of certificates of deposit to comply with the terms of the Kenya farm-out agreement (see Farm-out under Item 1), and
· increase in purchases of equipment, mainly due to establishing offices in Kenya and Chad.

Net cash provided by financing activities during the year ended September 30, 2013 was $1,540,178, an increase of $1,540,178 from cash provided by financing activities of $0 in the year ended September 30, 2012.  This increase was solely due to proceeds from common stock issuances under the rights offering.

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, 2013, the Company had $1,184,204 in cash and cash equivalents and positive working capital of $993,317.  Subsequent to September 30, 2013, the Company received $2,731,558 under the Kenya farm-out agreement pending the approval by the Government of Kenya.  Management believes that its current 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 at least an additional $235,000 for its exploration of the Kenya asset and $1,016,360 for its exploration of the Chad asset over the next twelve months, bringing the minimum capital requirements to $6,051,360.  In September 2013, the Company announced the reaching of a farm-out agreement with an international oil and gas company.  Subject to the consent of the Kenyan Government and certain other conditions, the finalization of the farm-out will result in a carry of ERHC’s proportionate obligations on the Kenya Block 11A PSC.

Apart from farm-outs, Management currently considers equity finance to be one of the most viable options for raising additional capital.  The Company plans to proceed to raise equity finance by registered direct offerings to strategic investor(s) and is presently working with an investment banker and other financial intermediaries.
 
The Company will also consider convertible loans and other debt instruments

ERHC currently has a number of applications for new exploration assets 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, 2013, the Company had no off-balance sheet arrangements.

Short –Term Obligations

As of September 30, 2013, the Company had a total of $983,293 in short-term obligations. These short-term obligations include $108,500 of accrued executive bonuses contingent upon securing a farm-out partner for the Chad PSC.

Contractual Obligations and Commercial Commitments

The following table provides information at September 30, 2013, 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)
 
$
10,485,000
   
$
235,000
   
$
10,250,000
   
$
-
   
$
-
 
Chad license interest (2)
   
15,081,800
     
1,016,360
     
2,032,720
     
12,032,720
     
-
 
Operating lease (3)
   
498,049
     
126,416
     
260,665
     
110,968
     
-
 
 
                                       
Total
 
$
26,064,849
   
$
1,377,776
   
$
12,543,385
   
$
12,143,688
   
$
-
 


(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 during the last year of a two year work program. Accordingly, the above analysis is prepared using the minimum commitment.  ERHC’s obligations under this PSC are being assumed by its farm-out partner subject to approval by the Government of Kenya

(2) This represents obligations under our PSC with Chad. The Company has a $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 is contractually obligated to pay annual Surface Area Fees, estimated to be $16,360 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, 2013, all the Company’s oil and gas exploration acreages were 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)
 
 
 
 
 
 
 
 
Report of Independent Registered Public Accounting Firm on the Financial Statements for the Years ended September 30, 2013 and 2012
27
 
 
Consolidated Financial Statements:
 
 
 
Consolidated Balance Sheets as of September 30, 2013 and 2012
28
 
 
Consolidated Statements of Operations for the Years Ended September 30, 2013 and 2012, and for the period from inception, September 5, 1995,to September 30, 2013
29
 
 
Consolidated Statements of Comprehensive Income for the Years Ended September 30, 2013 and 2012, and for the period from inception, September 5, 1995,to September 30, 2013
30
 
 
Consolidated Statements of Shareholders’ Equity for the period from inception, September 5, 1995, to September 30, 2013
31
 
 
Consolidated Statements of Cash Flows for the Years Ended September 30, 2013 and 2012, and for the period from inception, September 5, 1995,to September 30, 2013
37
 
 
Notes to Consolidated Financial Statements
39

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 accompanying consolidated balance sheets of ERHC Energy Inc. and its subsidiaries (collectively the “Company’), a development stage corporation, as of September 30, 2013 and 2012 and the related consolidated statements of operations, other comprehensive loss, changes in shareholders’ equity and cash flows for each of the years then ended.  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, 2013 and 2012, and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
 
/s/ MaloneBailey, LLP
www.malone-bailey.com
Houston, Texas

December 20, 2013

ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED BALANCE SHEETS
September 30, 2013 and 2012

 
 
2013
   
2012
 
 
 
   
 
ASSETS
 
   
 
 
 
   
 
Current assets:
 
   
 
Cash and cash equivalents
 
$
1,184,204
   
$
7,665,990
 
Investment in Oando Energy Resources
   
563,525
     
540,912
 
Prepaid expenses and other
   
228,881
     
320,725
 
 
               
Total current assets
   
1,976,610
     
8,527,627
 
 
               
Oil and gas concession fees
   
6,037,803
     
10,046,303
 
Furniture and equipment, net of accumulated depreciation of $303,303 and $175,195 at September 30, 2013 and 2012, respectively
   
202,364
     
47,783
 
Restricted certificate of deposit
   
2,186,182
     
-
 
Income tax receivable
   
2,018,533
     
2,018,398
 
Other assets
   
51,108
     
-
 
 
               
Total assets
 
$
12,472,600
   
$
20,640,111
 
 
               
LIABILITIES AND SHAREHOLDERS' EQUITY
               
 
               
Current liabilities:
               
Accounts payable and accrued liabilities
 
$
983,293
   
$
610,790
 
Signing bonus payable - Chad
   
-
     
5,000,000
 
 
               
Total current liabilities
   
983,293
     
5,610,790
 
 
               
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 764,849,260 and 739,458,854 shares at September 30, 2013 and 2012, respectively
   
76,485
     
73,947
 
Additional paid-in capital
   
101,067,084
     
99,479,431
 
Accumulated other comprehensive loss
   
(786,475
)
   
(809,087
)
Losses accumulated in the development stage
   
(88,867,787
)
   
(83,714,970
)
 
               
Total shareholders’ equity
   
11,489,307
     
15,029,321
 
 
               
Total liabilities and shareholders' equity
 
$
12,472,600
   
$
20,640,111
 

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, 2013 and 2012, and for the Period
From Inception, September 5, 1995, to September 30, 2013

 
 
   
(Unaudited)
Inception to
 
 
 
Year Ended September 30,
   
September 30,
 
 
 
2013
   
2012
   
2013
 
 
 
   
   
 
Costs and expenses:
 
   
   
 
General and administrative
 
$
3,808,760
   
$
4,309,856
   
$
90,222,786
 
Exploration expenses
   
1,222,399
     
-
     
1,222,399
 
Depreciation
   
125,106
     
14,970
     
1,648,614
 
Gain on sale of partial interest in DRSTP concession
   
-
     
-
     
(30,102,250
)
Write-offs and abandonments
   
-
     
-
     
7,742,128
 
Total costs and expenses
   
(5,156,265
)
   
(4,324,826
)
   
(70,733,677
)
 
                       
Other income and (expenses):
                       
Interest income
   
3,484
     
5,621
     
4,854,088
 
Gain from settlements
   
-
     
-
     
130,178
 
Other income
   
-
     
-
     
439,827
 
Interest expense
   
(36
)
   
(1,094
)
   
(12,145,372
)
Provision for loss on deposits
   
-
     
-
     
(5,292,896
)
Loss on extinguishment of debt
   
-
     
-
     
(5,749,575
)
 
                       
Total other income and (expense)
   
3,448
     
4,527
     
(17,763,750
)
 
                       
Loss before benefit (provision) for income taxes
   
(5,152,817
)
   
(4,320,299
)
   
(88,497,427
)
 
                       
Benefit (provision) for income taxes:
                       
Current
   
-
     
-
     
(1,330,360
)
Deferred
   
-
     
-
     
960,000
 
 
                       
Total benefit (provision)for income taxes
   
-
     
-
     
(370,360
)
 
                       
Net loss
 
$
(5,152,817
)
 
$
(4,320,299
)
 
$
(88,867,787
)
 
                       
Net loss per common share –basic and diluted
 
$
(0.01
)
 
$
(0.01
)
       
 
                       
Weighted average number of common shares outstanding - basic and diluted
   
751,978,263
     
738,933,854
         

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, 2013 and 2012, and for the Period
From Inception, September 5, 1995, to September 30, 2013

 
 
 
(Unaudited)
Inception to
 
 
Year Ended September 30,
 
September 30,
 
 
2013
 
2012
 
2013
 
 
 
 
 
Net loss
 
$
(5,152,817
)
 
$
(4,320,299
)
 
$
(88,867,787
)
 
                       
Other comprehensive income – unrealized gain (loss) on available for sale securities
   
22,612
     
16,566
     
(786,475
)
 
                       
Total other comprehensive loss
 
$
(5,130,205
)
 
$
(4,303,733
)
 
$
(89,654,262
)

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, 2013, (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
)
 
                                                       
Balance at September 30, 1997
   
23,211,679
   
$
2,321
   
$
19,952,743
   
$
(17,645,204
)
 
$
(913,300
)
 
$
(250,000
)
 
$
1,146,560
 

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, 2013, (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 30, 1997
   
23,211,679
   
$
2,321
   
$
19,952,743
   
$
(17,645,204
)
 
$
(913,300
)
 
$
(250,000
)
 
$
1,146,560
 
Common stock and warrants issued for cash
   
1,124,872
     
113
     
972,682
     
-
     
-
     
-
     
972,795
 
Common stock issued for services
   
1,020,320
     
102
     
1,526,878
     
-
     
-
     
-
     
1,526,980
 
Common stock issued for Uinta acquisition
   
1,000,000
     
100
     
1,999,900
     
-
     
-
     
-
     
2,000,000
 
Common stock issued for Nueces acquisition
   
50,000
     
5
     
148,745
     
-
     
-
     
-
     
148,750
 
Common stock issued for accounts payable
   
491,646
     
49
     
337,958
     
-
     
-
     
-
     
338,007
 
Beneficial conversion feature associated with convertible debt
   
-
     
-
     
1,387,500
     
-
     
-
     
-
     
1,387,500
 
Receipt of subscription receivable
   
-
     
-
     
-
     
-
     
913,300
     
-
     
913,300
 
Option fee and penalty
   
299,536
     
30
     
219,193
     
-
     
-
     
-
     
219,223
 
Common stock issued for building equity
   
24,000
     
2
     
69,998
     
-
     
-
     
-
     
70,000
 
Amortization of deferred compensation
   
-
     
-
     
-
     
-
     
-
     
125,000
     
125,000
 
Net loss
   
-
     
-
     
-
     
(11,579,024
)
   
-
     
-
     
(11,579,024
)
 
                                                       
Balance at September 30, 1998
   
27,222,053
     
2,722
     
26,615,597
     
(29,224,228
)
   
-
     
(125,000
)
   
(2,730,909
)
 
                                                       
Common stock issued for cash
   
397,040,000
     
39,704
     
2,062,296
     
-
     
-
     
-
     
2,102,000
 
Common stock issued for services
   
7,169,000
     
717
     
1,034,185
     
-
     
-
     
-
     
1,034,902
 
Common stock issued for Uinta settlement
   
7,780,653
     
778
     
2,541,161
     
-
     
-
     
-
     
2,541,939
 
Common stock surrendered in BAPCO settlement
   
(7,744,000
)
   
(774
)
   
(2,709,626
)
   
-
     
-
     
-
     
(2,710,400
)
Common stock issued for accounts payable
   
10,843,917
     
1,084
     
769,139
     
-
     
-
     
-
     
770,223
 
Common stock issued for conversion of debt and payment of accrued interest and penalties
   
31,490,850
     
3,149
     
5,998,915
     
-
     
-
     
-
     
6,002,064
 
Common stock issued for officers' salary and bonuses
   
10,580,000
     
1,058
     
4,723,942
     
-
     
-
     
-
     
4,725,000
 
Common stock issued for shareholder loans and accrued interest payable
   
3,939,505
     
394
     
771,318
     
-
     
-
     
-
     
771,712
 
Reclassification of common stock previously presented as a liability
   
750,000
     
75
     
1,499,925
     
-
     
-
     
-
     
1,500,000
 
Amortization of deferred compensation
   
-
     
-
     
-
     
-
     
-
     
125,000
     
125,000
 
Net loss
   
-
     
-
     
-
     
(19,727,835
)
   
-
     
-
     
(19,727,835
)
 
                                                       
Balance at September 30, 1999
   
489,071,978
   
$
48,907
   
$
43,306,852
   
$
(48,952,063
)
 
$
-
   
$
-
   
$
(5,596,304
)

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, 2013, (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 30, 1999
   
489,071,978
   
$
48,907
   
$
43,306,852
   
$
(48,952,063
)
 
$
-
   
$
-
   
$
(5,596,304
)
 
                                                       
Common stock issued for conversion of debt and payment of accrued interest and penalties
   
7,607,092
     
761
     
295,120
     
-
     
-
     
-
     
295,881
 
Net loss
   
-
     
-
     
-
     
(1,958,880
)
   
-
     
-
     
(1,958,880
)
 
                                                       
Balance at September 30, 2000
   
496,679,070
     
49,668
     
43,601,972
     
(50,910,943
)
   
-
     
-
     
(7,259,303
)
 
                                                       
Common stock issued for services
   
37,000,000
     
3,700
     
1,846,300
     
-
     
-
     
-
     
1,850,000
 
Net loss
   
-
     
-
     
-
     
(6,394,810
)
   
-
     
-
     
(6,394,810
)
 
                                                       
Balance at September 30, 2001
   
533,679,070
     
53,368
     
45,448,272
     
(57,305,753
)
   
-
     
-
     
(11,804,113
)
 
                                                       
Common stock issued for cash net of expenses
   
4,000,000
     
400
     
643,100
     
-
             
-
     
643,500
 
Common stock issued for services
   
3,475,000
     
348
     
527,652
     
-
     
-
     
-
     
528,000
 
Common stock issued for accounts payable
   
4,407,495
     
440
     
817,757
     
-
     
-
     
-
     
818,197
 
Common stock issued for conversion of debt and payment of accrued interest and penalties
   
7,707,456
     
771
     
1,540,721
     
-
     
-
     
-
     
1,541,492
 
Common stock issued for officer's salary and bonuses
   
2,700,000
     
270
     
289,730
     
-
     
-
     
-
     
290,000
 
Net loss
   
-
     
-
     
-
     
(4,084,210
)
   
-
     
-
     
(4,084,210
)
 
                                                       
Balance at September 30, 2002
   
555,969,021
     
55,597
     
49,267,232
     
(61,389,963
)
   
-
     
-
     
(12,067,134
)
 
                                                       
Common stock issued for cash, net of expenses
   
9,440,000
     
944
     
1,071,556
     
-
     
-
     
-
     
1,072,500
 
Common stock issued for accounts payable
   
1,527,986
     
153
     
177,663
     
-
     
-
     
-
     
177,816
 
Common stock issued for con -version of debt and payment of accrued interest
   
17,114,740
     
1,711
     
3,421,227
     
-
     
-
     
-
     
3,422,938
 
Net loss
   
-
     
-
     
-
     
(3,153,882
)
   
-
     
-
     
(3,153,882
)
 
                                                       
Balance at September 30, 2003
   
584,051,747
   
$
58,405
   
$
53,937,678
   
$
(64,543,845
)
 
$
-
   
$
-
   
$
(10,547,762
)

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, 2013, (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 30, 2003
   
584,051,747
   
$
58,405
   
$
53,937,678
   
$
(64,543,845
)
 
$
-
   
$
-
   
$
(10,547,762
)
 
                                                       
Common stock issued for cash, net of expenses
   
3,231,940
     
323
     
974,677
     
-
     
-
     
-
     
975,000
 
Common stock issued for accounts payable
   
1,458,514
     
146
     
533,102
     
-
     
-
     
-
     
533,248
 
Common stock issued for con -version of debt and payment of accrued interest
   
11,185,052
     
1,119
     
2,236,093
     
-
     
-
     
-
     
2,237,212
 
Common stock issued for proceeds received in 2003
   
1,000,000
     
100
     
(100
)
   
-
     
-
     
-
     
-
 
Beneficial conversion feature associated with the convertible line of credit
   
-
     
-
     
1,058,912
     
-
     
-
     
-
     
1,058,912
 
Options issued to employee
   
-
     
-
     
765,000
     
-
     
-
     
(765,000
)
   
-
 
Amortization of deferred compensation
   
-
     
-
     
-
     
-
     
-
     
308,126
     
308,126
 
Common stock issued for cash-less exercise of options and/or warrants
   
247,882
     
25
     
(25
)
   
-
     
-
     
-
     
-
 
Net loss
   
-
     
-
     
-
     
(3,593,388
)
   
-
     
-
     
(3,593,388
)
 
                                                       
Balance at September 30, 2004
   
601,175,135
     
60,118
     
59,505,337
     
(68,137,233
)
   
-
     
(456,874
)
   
(9,028,652
)
 
                                                       
Common stock issued for accounts payable
   
735,000
     
73
     
359,716
     
-
     
-
     
-
     
359,789
 
Common stock issued for con -version of debt and payment of accrued interest
   
107,819,727
     
10,782
     
22,678,054
     
-
     
-
     
-
     
22,688,836
 
Common stock issued in settlement of lawsuits
   
595,000
     
59
     
394,391
     
-
     
-
     
-
     
394,450
 
Variable accounting for re-priced employee stock options
   
-
     
-
     
300,000
     
-
     
-
     
(300,000
)
   
-
 
Beneficial conversion feature associated with the convertible line of credit
   
-
     
-
     
347,517
     
-
     
-
     
-
     
347,517
 
Amortization of deferred compensation
   
-
     
-
     
-
     
-
     
-
     
449,737
     
449,737
 
Common stock issued for cash-less exercise of options and/or warrants
   
587,364
     
59
     
(59
)
   
-
     
-
     
-
     
-
 
Net loss
   
-
     
-
     
-
     
(11,270,478
)
   
-
     
-
     
(11,270,478
)
 
                                                       
Balance at September 30, 2005
   
710,912,226
   
$
71,091
   
$
83,584,956
   
$
(79,407,711
)
 
$
-
   
$
(307,137
)
 
$
3,941,199
 

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, 2013, (Unaudited for the
Period from Inception to September 30, 1998)
 
 
   
   
   
   
Accumulated
   
   
 
 
 
   
   
Additional
   
   
Other
   
   
 
 
 
Common Stock
   
Paid-In
   
Accumulated
   
Comprehensive-
   
Deferred
   
 
 
 
Shares
   
Amount
   
Capital
   
Deficit
   
Income
   
Compensation
   
Total
 
 
 
   
   
   
   
   
   
 
Balance at September 30, 2005
   
710,912,226
   
$
71,091
   
$
83,584,956
   
$
(79,407,711
)
 
$
-
   
$
(307,137
)
 
$
3,941,199
 
 
                                                       
Common stock issued for services
   
4,665,000
     
467
     
1,976,081
     
-
     
-
     
-
     
1,976,548
 
Variable accounting for re-priced employee stock options
   
-
     
-
     
(60,660
)
   
-
     
-
     
-
     
(60,660
)
Issuance of warrants for success fee
   
-
     
-
     
5,154,500
     
-
     
-
     
-
     
5,154,500
 
Issuance of options as compensation to consultants
   
-
     
-
     
1,145,000
     
-
     
-
     
-
     
1,145,000
 
Common stock issued upon exercise of warrants
   
800,000
     
80
     
159,920
     
-
     
-
     
-
     
160,000
 
Amortization of deferred compensation
   
-
     
-
     
(307,137
)
   
-
     
-
     
307,137
     
-
 
 
                                                       
Common stock issued for cashless exercise of options and/or warrants
   
2,611,756
     
261
     
(261
)
   
-
     
-
     
-
     
-
 
Net income
   
-
     
-
     
-
     
23,171,536