10-K 1 form10k.htm ERHC ENERGY INC. 10-K 9-30-2015

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

FORM 10-K
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended September 30, 2015
 
OR
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  ☐    No  
 
Check if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   Yes  ☐   No    ☒
 
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 ☒     No     ☐

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.   ☐
 
Check if the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.
Large Accelerated Filer    ☐  Accelerated Filer    ☐   Non-Accelerated Filer    ☒
 
Check if the registrant is a shell company.  Yes  ☐    No  ☒
 
The aggregate market value of the voting stock held by non-affiliates of the registrant on November 30, 2015 was $3,286,679.

On November 30, 2015, the registrant had 2,987,889,806 shares of common stock issued and outstanding.
 

 

TABLE OF CONTENTS
 
PART I
PAGE
   
Item 1.
4
Item 1A.
15
Item 1B.
19
Item 2.
19
Item 3.
20
Item 4.
21
     
 
PART II
 
     
Item 5.
21
Item 6.
22
Item 7.
23
Item 7A.
27
Item 8.
28
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, 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 initially acquired 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 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.
 
In October, 2013, ERHC entered into a farm-out agreement with CEPSA Kenya Limited, an affiliate of Compañía Española de Petróleos, S.A.U., an international oil and gas company ("CEPSA"). The farm-out agreement was approved by the Government of the Republic of Kenya during the quarter ended March 31, 2014. Under terms of the agreement, ERHC transferred majority of its interest in Kenya Block 11A as well as operatorship to CEPSA. The farm-out agreement includes a carry and other considerations.
 
Kenya Operations Update

As of September 30, 2015, the exploration team is making steady progress toward drilling during the current phase of exploration. 2D seismic mapping has been completed. To date, two basins, Tarach and Anam, in the eastern and western parts of the block respectively, have been identified. 12 drillable prospects have been mapped in the Tarach Basin alone. Volumetric calculations and risk analyses have been completed leading to a total mean resource estimate of 662 MMBO. The well is scheduled to spud on or about March 1st, 2016 if all conditions precedent are met.

The Tarach-1 prospect is situated in the central part of the Tarach basin. The prospect is defined by four 2D seismic lines out of the 2014 survey. The structural trap is a 3-way dip closure against a north-south normal fault plane at 1,426 m MD (-954m TVDSS) and covering a surface area of 12 sq.km. The vertical closure is calculated at 220 meters at the P10 closing contour. The mean estimate of oil prospective un-risked resources for the prospect is 66 million barrels. Mean un-risked prospective resources of all prospects and leads in Block 11A totals 662 million barrels. Civil works toward the drilling of the well began in November 2015.

It is important to remind investors and other stakeholders that no wells have previously been drilled in our Blocks in Kenya and Chad. While the geological and geophysical work indicates prospectively, there are no guarantees before drilling that there will be a discovery of hydrocarbons. If there is a discovery, there is no guarantee that it will be commercial or in such quantities as to justify a development project.

The Company continues to work with Deloitte Corporate Finance LLC (DCF) on a further farm-down of our interest in the Block to help raise funds for the company.

Key Provisions of the ERHC’s PSC on Block 11A
KENYA BLOCK 11A
 
LICENSE:
 
PSC with the Government of Kenya (effective September 2012)
     
PARTIES:
 
ERHC (35%); CEPSA (55%); Government of Kenya (10%)1

WORK PROGRAM:

Phase 1 (2 years – September 2012 to September 2014)
Minimum Work
Minimum Expenditure
Status
Acquire and interpret 1,000 square kilometers of gravity and magnetic data
$250,000
Completed: 14,943.8 line kilometers of FTG data acquired by January 2014 at an estimated total cost of $2,700,000.
Acquire and interpret 1,000 kilometers of 2D seismic data
$10,000,000
Completed: 1,086.6 line kilometers of 2D seismic data acquired by August 2014 at an estimated total cost of $28,300,000

Phase 2 (2 years – September 2014 to September 2016)
Minimum Work
Minimum Expenditure
Status
Acquire 750 square kilometers of 3D seismic data
$30,000,000
Decision taken not to acquire 3D seismic but to proceed to drilling based on FTG and 2D seismic
     
OR
OR
 
     
Drill one (1) well to a minimum depth of 3,000m
$30,000,000
Preparation underway for drilling exploration well in Q1 2016

Phase 3 (2 years – September 2016 to September 2018)
Minimum Work
Minimum Expenditure
Status
Drill one (1) well to a minimum depth of 3,000m
$30,000,000
Not yet arisen
1 CEPSA is carrying ERHC’s proportionate share of exploration costs except for the first exploration well where ERHC is expected to contribute 25% of its proportionate (35%) share of costs of the well.
 
OTHER FINANCIAL OBLIGATIONS:
Ministry Training Fund
 
$175,000 per annum during the exploration period
     
   
$200,000 per annum (minimum) from adoption of first development plan
     
Social Projects:
 
$50,000 per annum (minimum)
     
Surface Rentals:
 
$5/km2 per annum (exploration phase 1); $10/km2 per annum (exploration phase 2); $15/km2 per annum (exploration phase 3)
     
   
$100/km2 per annum (development and production period)

Cost Recovery:
     
Cost Oil
 
Up to 60% of Cost Oil each fiscal year

Profit Oil
Incremental Production Tranches
Government Share
Contractor Share
0-30,000 barrels per day
50%
50%
Next 25,000 barrels per day
60%
40%
Next 25,000 barrels per day
65%
35%
Next 20,000 barrels per day
70%
30%
Above 100,000 barrels per day
78%
22%
 
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.

During the quarter ended March 31, 2014, the Company received the arrêté (decree) of the President of Chad giving presidential seal of approval to the Company’s request to obtain oil exploration Block BDS 2008 and its voluntary relinquishment of the Manga and Chari-Ouest III Blocks.
 

 
Chad Operations Update

As of September 30, 2015, ERHC's exploration team is developing a Request for Proposals for a 2-D seismic acquisition program. The exploration team continues to work on securing regulatory approvals for the seismic program in ERHC's two focus areas. One is north of Esso's Tega and Maku discoveries in the Doseo basin and the other is east of and on trend with OPIC's Benoy-1 margin discovery in the Doba basin.  Based on an earlier aero-magnetic and gravity survey and other available data, ERHC estimates total Petroleum Initially in Place (PIIP) for one of the two focus areas is 278 million barrels (with a high case of 876 million barrels).

Given the current environment and continued constraints on funding for oil exploration activities, one option we are exploring is the possibility of a right-to-earn partnership in exchange for seismic services. ERHC holds a 100 percent interest in BDS 2008.

Focus Areas
ERHC's exploration focus is on Block BDS 2008 which measures 41,800 square kilometers or 10,329,000 acres. Within this block, two focus areas have been identified:

- North of Esso’s Tega and Maku discoveries in the Doseo basin; and

- East of and on trend with OPIC’s Benoy-1 margin discovery in the Doba basin.


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

CHAD BLOCK BDS 2008
LICENSE:
 
PSC with the Government of Chad signed June 20112
     
PARTIES:
 
ERHC (100%)

WORK PROGRAM:

Phase 1 (5 years – June 2012 to June 2017)3
Minimum Work
Minimum
Expenditure
Status
Unspecified: annual work program to be proposed yearly by contractor
$15,000,000 in total for the exploration phase
EIA completed;
 
   
Aero gravity and magnetic survey completed;
     
   
·
4,720 line kilometers of high precision gravity and magnetic data acquired by November 2014;
   
·
Three leads identified;
     
   
Seismic in preparation;
     
   
·
2D seismic on focus areas planned for 2016
 

2 PSC originally covered thee Blocks; ERHC voluntarily relinquished two Blocks in 2013, retaining only BDS 2008.  Relinquishment and retention approved by Presidential Decree as provided for in PSC.
3 PSC provides for exploration period to run from date of grant of Exclusive Exploration Authorization (“EEA”).  EEA granted to ERHC in June 2012.
 
Phase 2 (3 years)
Minimum Work
Minimum Expenditure
Status
Unspecified: annual work program to be proposed yearly by contractor
$1,000,000
Not yet arisen; ERHC proposes an exploration well in this period if Phase 1 G&G studies justify

OTHER FINANCIAL OBLIGATIONS:
     
Ministry Training Fund
 
$250,000 per annum during the exploration period
     
   
$500,000 per annum during the exploitation period
     
Social Projects:
 
None specified in the PSC
     
Surface Rentals
 
$1/km2 per annum (Exploration Phase 1); $5/ km2 per annum (Exploration Phase 2); $10// km2 per annum (Extension)
     
   
$100/ km2 per annum (Exploitation Phase 1); $150/ km2 per annum (Exploitation Phase 1)

COST RECOVERY AND PRODUCTION SHARING:
     
Royalty
 
14.25% for crude oil
     
   
5% for natural gas
     
Cost Oil
 
Up to 70% of net production after deduction of royalty

Profit Oil
R-Factor, as defined by the PSC 4
Less than or equal to 2.25
Between 2.25 and 3
Greater than 3
Contractor’s share of profit oil
60%
50%
40%
State’s share of profit oil
40%
50%
60%

4 R-factor is based on a formula defined in the PSC.


As the Company did with the JDZ and Kenya Block 11A, ERHC continues to explore a farm-out to spread risk. The Chad acreage is also within the scope of Deloitte Corporation Finance LLC (DCF)'s engagement and ERHC continues to work with DCF to find suitable farm-out or joint venture partners.

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 Săo Tomé and Príncipe 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 Săo Tomé and Príncipe (“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 for the EEZ Block 11

In July 2014, ERHC and the National Petroleum Agency of Săo Tomé and Príncipe (ANP-STP) announced the conclusion of final terms for the Production Sharing Contract for EEZ Block 11.

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.

EEZ Operations Update

As of September 30, 2015, ERHC and the ANP-STP were working to complete the budget for the first phase of exploration.  In October 2015, ERHC announced that it had reached an agreement with Kosmos Energy (NYE: KOS) a leading independent oil and gas company to transfer all ERHC’s rights under the EEZ Block 11 PSC to Kosmos Energy for value.
 
INVESTMENT IN OANDO ENERGY RESOURCES (FORMERLY EXILE RESOURCES)

During the year ended September 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 419,089 shares in the common stock of Oando Energy.  The share price of Oando Energy at September 30, 2015 was $0.51 and the total value of the investments as of September 30, 2015 is $211,699. During the years ended the September 30, 2015 and 2014; the Company sold 800 and 0 share, and recognized a loss of $2,573 and $0, respectively.
 
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 implementing a series of steps to fund the geophysical work, including magnetic/gravity and seismic surveys, prior to securing potential farm-out on Chad acreage. Said funding steps include but are not limited to the issuance of a series of convertible notes, which the Company has commenced, issuance of shares of common stock through registered direct offerings, which the Company plans to commence shortly and farm-outs to potential partners on its assets in Africa. 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

· 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.
 
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 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 cyclical nature of the price of crude oil and natural gas, 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, 2015, 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 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 has limited working capital.

As described in more detail in “Item 7 Future Capital Requirements” of this Form 10-K, the Company’s minimum working capital requirements in 2016 will be approximately $4,500,000.

If ERHC is unable to successfully raise capital to cover its planned operations or negotiate participation agreements with operating and other partners in, 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 14% of the Company’s outstanding common stock

One shareholder beneficially owns approximately 14% of the Company’s outstanding common stock.  As a result, the shareholder has the ability to substantially influence the outcome of corporate actions that require stockholder approval, including the election of directors.

The Company’s stock price is highly volatile

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

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

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

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

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

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

The Internal Revenue Service is currently examining the tax returns for the Company’s 2005 and 2006 tax years. If adjustments are required, the Company may be subject to taxes, penalties and interest and these could have a material adverse effect on ERHC’s operations, financial condition and cash flow.
 
Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Republic of Kenya

The Company initially held 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.

In October, 2013, the Company entered into a farm-out agreement with CEPSA Kenya Limited, an affiliate of Compañía Española de Petróleos, S.A.U., an international oil and gas company ("CEPSA"). Under the terms of this agreement, the Company assigned and transferred 55% of its participating interest in Kenya Block 11A to CEPSA.

In exchange for the transferred rights, CEPSA will carry the Company's proportionate share of obligations and financial costs under the terms and conditions outlined in the farm-out agreement. The agreement was approved in January 2014 by the Kenyan Government and from February 2014, CEPSA took over from ERHC as operator under the production sharing contract ("PSC") for Kenya Block 11A.

 
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.

ERHC subsequently 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 Chadian Ministry of Energy and Petroleum approved the novation of the PSC and ERHC received the Presidential decree of approval in March 2014.  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

Arbitration and Lawsuit

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.

Suspension of Proceedings on the Arbitration and Lawsuit

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 2014
       
First Quarter
 
$
0.062
   
$
0.038
 
Second Quarter
   
0.085
     
0.048
 
Third Quarter
   
0.074
     
0.047
 
Fourth Quarter
   
0.105
     
0.050
 
                 
Fiscal Year 2015
               
First Quarter
 
$
0.053
   
$
0.070
 
Second Quarter
   
0.023
     
0.001
 
Third Quarter
   
0.003
     
0.001
 
Fourth Quarter
   
0.004
     
0.001
 
 
As of November 30, 2015, 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, 2015 was $0.0011. 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 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, 2015.

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

Not applicable.
 
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 works to its strengths 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 interests 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, 2015 Compared with Year Ended September 30, 2014
 
General and administrative expenses decreased from $3,290,150 in the year ended September 30, 2014 to $2,831,258 in the year ended September 30, 2015.  The decrease was primarily due to decrease in general and administrative expenses as part of our cost savings plan.

During the year ended September 30, 2015, we had a net loss of $8,649,936 compared with a net loss of $1,980,593 for the year ended September 30, 2014.  The increase in net loss was primarily due to interest expenses of $2,455,711 and loss on mark to market derivative liabilities of $105,951 related to our convertible debts during the year ended September 30, 2015 compared with interest expense of $131,979 and gain on mark to market derivative liabilities of $136,811 during the same period in 2014.

During the year ended September 30, 2015, our management re-assessed the income tax receivable and determined that it is more likely the tax assets will not be collected; as such, $2,018,533 is recorded in our consolidated statements of operations as a provision for income tax.
 
Liquidity

Year Ended September 30, 2015 Compared with Year Ended September 30, 2014
 
Net cash used by operating activities during the year ended September 30, 2015 was $2,393,315, a decrease of $4,239,506 from cash used by operating activities of $6,632,821 in the year ended September 30, 2014.  This decrease was primarily due to decrease in general and administrative expense of $458,892 and decreased in Kenya operations expenses after farm-out agreement reached in 2014.
 
Net cash used in investing activities during the year ended September 30, 2015 was $225,622, a change of $6,325,469 from cash provided by investing activities of $6,551,091 for the year ended September 30, 2014.  The change in cash used in investing activities was primarily due to proceeds from sales of participation interest related to Kenya farm-out agreement decreased by $4,492,093 from $4,731,608 for the year ended September 30, 2014 to $239,515 during the year ended September 30, 2015 and decrease in proceeds from the certificate of deposit of $2,186,182 for the years ended September 30, 2014 to $0 for the same period in 2015.
 
Net cash provided by financing activities during the year ended September 30, 2015 was $742,600, a decrease of $337,332 from cash provided by financing activities of $1,079,932 in the year ended September 30, 2014.  This decrease was primarily due to less proceeds from convertible debts were issued during the year ended September 30, 2015 compared to the same period in 2014.
 
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 and Kenya concessions) and financing cash flows (proceeds from sale of common stock under various arrangements).
 
As of September 30, 2015, the Company had $757,313 in cash and cash equivalents and working deficit of $744,206.  We are implementing a series of steps to fund the geophysical work and seismic surveys, prior to securing potential farm-out on Chad acreage. 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
 
Future Capital Requirements

In August 2015, the Company reached an agreement with Kosmos Energy (NYSE:KOS), an independent oil and gas exploration company to transfer all ERHC’s rights to Block 11 of the Sao Tome & Principe Exclusive Economic Zone (EEZ) to Kosmos Energy. Proceeds from the transfer will enable ERHC to meet its Capital requirements for 2016 while also providing the opportunity for future financial benefit if exploration progresses through to production. In October 2013, the Company reached a farm-out agreement with CEPSA.   In consideration, CEPSA will carry ERHC’s proportionate obligations on the Kenya Block 11A PSC as and to the extent specified in the farm-out agreement. In addition, the Company has retained the services of Deloitte Corporate Finance LLC (DCF) to advise on the Company's oil assets in the Republics of Chad and Kenya. DCF will advise the Company on matters related to possible joint ventures, alliances sales and/or divestitures on the Chad and Kenya licenses

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 is currently raising funds through convertible loans and other debt instruments.

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, 2015, the Company had no off-balance sheet arrangements.

Short –Term Obligations
 
As of September 30, 2015, the Company had a total of $1,968,231 in short-term obligations. These short-term obligations include $253,250 in convertible short term note payable and $725,898 of short term derivative liability.
 
Contractual Obligations and Commercial Commitments

The following table provides information at September 30, 2015, 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)
 
$
1,325,000
   
$
1,325,000
   
$
-
   
$
-
   
$
-
 
Chad license interest (2)
   
14,331,800
     
250,000
     
4,500,000
     
9,581,800
     
-
 
Operating lease (3)
   
371,632
     
129,027
     
242,605
     
-
     
-
 
                                         
Total
 
$
16,028,432
   
$
1,704,027
   
$
4,742,605
   
$
9,581,800
   
$
-
 

(1) ERHC’s obligations under this PSC are been carried by CEPSA as part of consideration for it’s 55% working interest in the Block. This obligation is the ERHC’s portion of 25% of 35% cost of drilling an exploration well in 2016 in accordance to the its farm-out agreement

(2) This represents obligations under our PSC with Chad. The Company has a $15,000,000 commitment under a five year work program. 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, 2015, 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.
 
Item 8. Financial Statements and Supplementary Data

ERHC ENERGY INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page(s)
   
29
   
Consolidated Financial Statements:
 
   
30
   
31
   
32
   
33
   
34
   
35
   
Financial Statement Schedules
 

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

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

We have audited the accompanying consolidated balance sheets of ERHC Energy Inc. and its subsidiaries (collectively the “Company’) as of September 30, 2015 and 2014 and the related consolidated statements of operations, other comprehensive loss, changes in shareholders’ equity and cash flows for each of the two 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, 2015 and 2014, 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 22, 2015
 
ERHC ENERGY INC.
CONSOLIDATED BALANCE SHEETS
As of September 30, 2015 and 2014

 
   
2015
   
2014
 
         
ASSETS
       
         
Current assets:
       
Cash and cash equivalents
 
$
757,313
   
$
2,182,406
 
Investment in Oando Energy Resources
   
211,699
     
671,402
 
Deferred debt origination cost – short term
   
47,377
     
147,079
 
Prepaid expenses and other
   
207,636
     
246,922
 
                 
Total current assets
   
1,224,025
     
3,247,809
 
                 
Oil and gas concession fees
   
6,016,014
     
6,006,235
 
Furniture and equipment, net of accumulated depreciation of $445,626 and $368,587 at September 30, 2015 and 2014, respectively
   
133,349
     
206,273
 
Deferred debt origination cost – long term
   
14,333
     
43,755
 
Income tax receivable
   
-
     
2,018,533
 
Prepaid expenses – long term
   
-
     
172,433
 
                 
Total assets
 
$
7,387,721
   
$
11,695,038
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
Current liabilities:
               
Accounts payable and accrued liabilities
 
$
989,083
   
$
379,639
 
Convertible note payable, net of discount – short term
   
253,250
     
625,533
 
Derivative liability – short term
   
725,898
     
751,404
 
                 
Total current liabilities
   
1,968,231
     
1,756,576
 
                 
Convertible note payable, net of discount – long term
   
2,874
     
38,076
 
Derivative liability – long term
   
-
     
270,538
 
                 
Total liabilities
   
1,971,105
     
2,065,190
 
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 3,000,000,000 shares; issued and outstanding 2,921,603,827 and 765,194,088 shares at September 30, 2015 and 2014, respectively
   
292,159
     
76,520
 
Additional paid-in capital
   
105,758,501
     
101,080,306
 
Accumulated other comprehensive loss
   
(1,135,728
)
   
(678,598
)
Accumulated deficits
   
(99,498,316
)
   
(90,848,380
)
                 
Total shareholders’ equity
   
5,416,616
     
9,629,848
 
                 
Total liabilities and shareholders’ equity
 
$
7,387,721
   
$
11,695,038
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
ERHC ENERGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 2015 and 2014
 
   
Year Ended September 30,
 
   
2015
   
2014
 
         
Costs and expenses:
       
General and administrative
 
$
2,831,258
   
$
3,290,150
 
Exploration expenses
   
1,425,592
     
964,393
 
Depreciation
   
77,038
     
68,284
 
Gain on sale of partial interest on sale of concession
   
(239,515
)
   
(2,724,793
)
                 
Total costs and expenses
   
4,094,373
     
1,598,034
 
                 
Other income and (expenses):
               
Interest income
   
2,062
     
4,829
 
Gain (loss) on change in fair value of derivatives
   
(105,951
)
   
136,811
 
Day 1 loss on embedded derivative
   
(1,024,292
)
   
(392,220
)
Gain on insurance recovery for loss on deposit
   
1,046,862
     
-
 
Interest expense
   
(2,455,711
)
   
(131,979
)
                 
Total other income and (expense)
   
(2,537,030
)
   
(382,559
)
                 
Loss before benefit (provision) for income taxes
   
(6,631,403
)
   
(1,980,593
)
                 
Benefit (provision) for income taxes:
               
Current
   
(2,018,533
)
   
-
 
Deferred
   
-
     
-
 
                 
Total benefit (provision)for income taxes
   
(2,018,533
)
   
-
 
                 
Net loss
 
$
(8,649,936
)
 
$
(1,980,593
)
                 
Net loss per common share –basic and diluted
 
$
(0.01
)
 
$
(0.00
)
                 
Weighted average number of common shares outstanding - basic and diluted
   
1,727,698,597
     
764,953,181
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
ERHC ENERGY INC.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS
For the Years Ended September 30, 2015 and 2014

 
   
Year Ended September 30,
 
   
2015
   
2014
 
         
Net loss
 
$
(8,649,936
)
 
$
(1,980,593
)
                 
Other comprehensive income – unrealized (loss) gain on available for sale securities
   
(457,130
)
   
107,877
 
                 
Total other comprehensive loss
 
$
(9,107,066
)
 
$
(1,872,716
)
 
The accompanying notes are an integral part of these consolidated financial statements.
 
ERHC ENERGY INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended September 30, 2015 and 2014
 
   
Common Stock
   
Additional Paid-In
   
Accumulated
   
Accumulated
Other Comprehensive
     
   
Shares
   
Amount
   
Capital
   
Deficit
   
Income
   
Total
 
                         
Balance at September 30, 2013
   
764,849,260
   
$
76,485
   
$
101,067,084
   
$
(88,867,787
)
 
$
(786,475
)
 
$
11,489,307
 
Common stock issued for services
   
344,828
     
35
     
19,966
     
-
     
-
     
20,001
 
Stock option expense
   
-
     
-
     
6,957
     
-
     
-
     
6,957
 
Accounting for tainted warrants
   
-
     
-
     
(13,701
)
   
-
     
-
     
(13,701
)
Unrealized gain on available for sale equity securities
   
-
     
-
     
-
     
-
     
107,877
     
107,877
 
Net loss
   
-
     
-
     
-
     
(1,980,593
)
   
-
     
(1,980,593
)
                                                 
Balance at September 30, 2014
   
765,194,088
     
76,520
     
101,080,306
     
(90,848,380
)
   
(678,598
)
   
9,629,848
 
Common stock issued for services
   
210,000
     
21
     
8,379
     
-
     
-
     
8,400
 
Common stock issued for convertible debts-related party
   
92,825,369
     
9,281
     
240,719
     
-
     
-
     
250,000
 
Derivative liabilities extinguished on conversion – related party
   
-
     
-
     
432,646
     
-
     
-
     
432,646
 
Common stock issued for convertible debts
   
2,063,374,370
     
206,337
     
1,522,033
     
-
     
-
     
1,728,370
 
Derivative liabilities extinguished on conversion
   
-
     
-
     
2,474,418
     
-
     
-
     
2,474,418
 
Unrealized loss on available for sale equity securities
   
-
     
-
     
-
     
-
     
(457,130
)
   
(457,130
)
Net loss
   
-
     
-
     
-
     
(8,649,936
)
   
-
     
(8,649,936
)
                                                 
Balance at September 30, 2015
   
2,921,603,827
   
$
292,159
   
$
105,758,501
   
$
(99,498,316
)
 
$
(1,135,728
)
 
$
5,416,616
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
ERHC ENERGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2015 and 2014
 
   
Year Ended September 30,
 
   
2015
   
2014
 
         
Cash flows from operating activities:
       
Net loss
 
$
(8,649,936
)
 
$
(1,980,593
)
Adjustments to reconcile net loss to net cash used by operating activities:
               
Depreciation and depletion expense
   
77,038
     
68,284
 
Day 1 loss on embedded derivative
   
1,024,292
     
392,220
 
Loss/(Gain) on change in fair value of derivatives
   
105,951
     
(136,811
)
Loss on debt penalties
    34,467       -  
Loss on write-off of tax receivable
     2,018,533        -  
Compensatory stock options
   
-
     
6,957
 
Gain on sale of partial interest in Kenya concession
   
(239,515
)
   
(2,724,793
)
Amortization of convertible debt discount
   
2,023,979
     
49,373
 
Amortization of debt issuance cost
   
247,669
     
41,216
 
Stock issued for services
   
8,400
     
20,001
 
Realized loss on investment in common stock
   
2,573
     
-
 
Changes in operating assets and liabilities:
               
Prepaid expenses and other
   
211,719
     
(139,366
)
Accounts payable and other accrued liabilities
   
741,515
     
(2,229,309
)
                 
Net cash used by operating activities
   
(2,393,315
)
   
(6,632,821
)
                 
Cash Flows From Investing Activities
               
Purchase of oil and gas concessions
   
(9,779
)
   
(294,506
)
Proceeds from sale of partial interest in Kenya concession
   
239,515
     
4,731,608
 
Proceeds from sale of certificates of deposit
   
-
     
2,186,182
 
Purchase of furniture and equipment
   
(4,114
)
   
(72,193
)
                 
Net cash provided by investing activities
   
225,622
     
6,551,091
 
                 
Cash flows from financing activities:
               
Debt origination fees
   
(69,200
)
   
(232,050
)
Payment on convertible debt principle
   
(46,200
)
   
-
 
Proceeds from convertible debt, related party
   
250,000
     
-
 
Proceeds from convertible debt, net of expense
   
608,000
     
1,311,982
 
                 
Net cash provided by financing activities
   
742,600
     
1,079,932
 
                 
Net (decrease) increase in cash  and cash equivalents
   
(1,425,093
)
   
998,202
 
                 
Cash and cash equivalents at beginning of period
   
2,182,406
     
1,184,204
 
                 
Cash and cash equivalents at end of period
 
$
757,313
   
$
2,182,406
 
               
Supplemental disclosure of cash flow information:
               
Interest paid
 
$
 -    
 -  
Income taxes paid
 
$
-    
$
-  
                 
Non-cash investing and financing activities:
               
Unrealized (loss) gain in Investment Oando Energy Resources
 
$
(457,130
)
 
$
107,877
 
Accounting for tainted warrants
 
$
-
   
$
13,701
 
Non-cash debt origination costs
 
$
-
   
$
668,946
 
Discount from derivative
 
$
1,480,777
   
$
-
 
Conversion of note payable to common stock – related party
 
$
250,000
   
$
-
 
Conversion of note payable to common stock
 
$
1,728,370
   
$
-
 
Derivative liabilities extinguished on conversion – related party
 
$
432,646
   
$
-
 
Derivative liabilities extinguished on conversion
 
$
2,474,418
   
$
-
 
 
 The accompanying notes are an integral part of these consolidated financial statements
 
ERHC ENERGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended September 30, 2015 and 2014

Note 1 – Summary of Significant Accounting Policies

General Business and Nature of Operations

ERHC Energy Inc. ("ERHC", the “Company”) is an independent oil and gas company formed in 1986, as a Colorado corporation.  The Company’s current focus is to exploit its primary assets, which are 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 Sao Tome and Principe (“DRSTP”), in the Federal Republic of Nigeria (“FRN”) and in the exclusive waters of Sao Tome (the “Exclusive Economic Zone” or “EEZ”).  The Company has formed relationships with upstream oil and gas companies to assist the Company in exploiting its assets in the JDZ as further described in Note 5.  ERHC currently has no other operations.

Principles of Consolidation

The consolidated financial statements include the accounts of ERHC and its wholly owned subsidiaries, after elimination of all significant inter-company accounts and transactions.

Use of Estimates

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period for the years then ended. Actual results could differ significantly from those estimates.

Concentration of Risks

ERHC primarily maintains its finances with seven financial institutions. From time to time the amount on deposit in one or all of these institutions may exceed federal insurance limits.  The balances are maintained in demand accounts to minimize risk.
 
ERHC’s focus is to exploit its assets which are agreements with the Government of Kenya concerning oil and gas exploration in Kenya, with the Government of Chad concerning oil and gas exploration in Chad, with the DRSTP concerning oil and gas exploration in EEZ and with the JDA concerning oil and gas exploration in the JDZ.  In the past, ERHC has formed relationships with Sinopec International Petroleum Exploration and Production Corporation Nigeria (“Sinopec”), and Addax Energy Nigeria Limited (“Addax Ltd.”) to assist ERHC in leveraging its interests in the JDZ. ERHC currently has no other operations.
 
Cash Equivalents

ERHC considers all highly liquid short-term investments with an original maturity of three months or less, when purchased, to be cash equivalents.
 
Investment in Oando Energy Resources (OER)

The Company's investments in common stock and warrants are carried at market value.  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).
 
Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are stated at cost and include expenditures for renewals and improvements and capitalized interest. Maintenance and repairs are charged to current operations. When property is retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is included in income. Depreciation is provided principally on the straight-line method over the estimated service lives of the assets. In general, office furniture is depreciated over 7 years, office equipment over 5 years and computer equipment over 3 years.

Successful Efforts

ERHC uses the successful efforts method of accounting for oil and gas producing activities.  Under this method, acquisition costs for proved and unproved properties are capitalized when incurred.  Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed.  Development costs, including the costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves are capitalized. Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves.  A determination of whether a well has found proved reserves is made after drilling is completed. The determination is based on a process that relies on interpretations of available geologic, geophysics, and engineering data.  If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well.  If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made.  If an exploratory well requires a major capital expenditure before production can begin, the cost of drilling the exploratory well will continue to be carried as an asset pending determination of whether proved reserves have been found only as long as: i) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made and ii) drilling of the additional exploratory wells is under way or firmly planned for the near future.  If drilling in the area is not under way or firmly planned, or if the well has not found a commercially producible quantity of reserves, the exploratory well is assumed to be impaired, and its costs are charged to expense.

In the absence of a determination as to whether the reserves that have been found can be classified as proved, the costs of drilling such an exploratory well is not carried as an asset for more than one year following completion of drilling.  If, after that year has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired, and its costs are charged to expense.  Its costs can, however, continue to be capitalized if sufficient quantities of reserves are discovered in the well to justify its completion as a producing well and sufficient progress is made in assessing the reserves and the well’s economic and operating feasibility.

The impairment of unamortized capital costs is measured at a lease level and is reduced to fair value if it is determined that the sum of expected future net cash flows is less than the net book value. ERHC determines if impairment has occurred through either adverse changes or as a result of the annual review of all fields.

Development costs of proved oil and gas properties, including estimated dismantlement, restoration and abandonment costs and acquisition costs, are depreciated and depleted on a field basis by the units-of-production method using proved developed and proved reserves, respectively. The costs of unproved oil and gas properties are generally combined and impaired over a period that is based on the average holding period for such properties and the Company’s experience of successful drilling.

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 investments located in Republic Kenya, Republic of Chad and in its DRSTP concession fee in light of its 2003 Option Agreement (see Note 5 and there have been no events or circumstances that would indicate that such assets might be impaired).

Income Taxes

Income taxes are accounted for under the assets and liability method.  Under this method, the deferred tax assets and liabilities are estimated based upon the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the Company expects the differences to affect taxable income. The tax consequences of most events recognized in the current year’s financial statements are included in determining income taxes currently payable. However, because tax laws and financial accounting standards differ in their recognition and measurement of assets, liabilities, equity, revenues, expenses, gains and losses, differences arise between the amount of taxable income and pretax financial income for a year and between the tax bases of assets or liabilities and their reported amounts in the financial statements. Because the Company assumes that the reported amounts of assets and liabilities will be recovered and settled, respectively, a difference between the tax basis of an asset or a liability and its reported amount in the balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are settled or the reported amounts of the assets are recovered, which gives rise to a deferred tax asset. The Company must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance.

The Company estimates the provision for income taxes based on income before income taxes for each tax jurisdiction in which the Company has established operations. The Company does not provide incremental U.S. income taxes on un-remitted foreign earnings taxed at rates less than the U.S. tax rates as such earnings are considered permanently invested.
 
The Company follows the FASB guidance on accounting for uncertainty in income taxes which provides a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The guidance also extends to de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period.  Diluted loss per share is computed by dividing net loss by the weighted average number of shares outstanding, after giving effect to potentially dilutive common share equivalents outstanding during the period.  Potentially dilutive common share equivalents are not included in the computation of diluted loss per share if they are anti-dilutive.  Diluted loss per common share is the same as basic for all periods presented because the effect of potentially dilutive common shares arising from outstanding stock warrants and options was anti-dilutive. For the years ended September 30, 2015 and 2014, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.

Stock-based Compensation

ERHC recognizes compensation costs resulting from the issuance of stock-based awards to employees and directors over the requisite period based on the fair value of each stock award on the grant date.

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 based on the financial statements.

Note 2 - Fair Value of Financial Instruments

Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs are as follows:

· Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

· Level 2 Inputs—Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

· Level 3 Inputs—Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Interest income on cash and cash equivalents is recognized as earned on the accrual basis.

Investments in equity instruments are accounted for as available for sale securities and reported at fair value, determined based on the quoted prices in an active market for identical assets and classified as Level 1 under the Accounting Standards Codification (“ASC”) Topic 825.

During the year ended September 30, 2015, the Company’s investment in the common stock and warrants of OER, a Canadian oil and gas company that trades on the Toronto Stock Exchange (TSX) decreased in value by $457,130 to $211,699. This decrease in value is included as a decrease in stockholders' equity in accumulated other comprehensive income (loss). During the year ended September 30, 2014, the Company’s investment in common stock and warrants of OER increased in value by $107,877 to $$671,402.  This increase in value is included as an increase in stockholders’ equity in accumulated other comprehensive income (loss). During the years ended the September 30, 2015 and 2014; the Company sold 800 and 0 share and recognized a loss of $2,573 and $0, respectively.
 
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  Furthermore, while ERHC believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.  In determining fair value, the ERHC generally applies the market approach, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities.  There have been no changes in the methodologies used at September 30, 2015 and 2014.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2015 and 2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

September 30, 2015
 
   
Quoted Prices In an Active Market for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
   
Total
 
                 
Marketable equity securities - Oando Energy Resources:
 
$
211,699
   
$
-
   
$
-
   
$
211,699
 
Derivative liability
  $
-
   
-
   
(725,898
 
(725,898

September 30, 2014
 
   
Quoted Prices In an Active Market for Identical Assets
(Level 1)
   
Significant  Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
   
Total
 
                 
Marketable equity securities - Oando Energy Resources:
 
$
669,476
   
$
-
   
$
-
   
$
669,476
 
Derivative liability
  $
-
    $
-
    $
(1,021,942
  $
(1,021,942
2-Year Warrants
 
1,926
    $
-
    $
-
    $
1,926
 

During the years ended September 30, 2015 and 2014, the Company issued a number of convertible notes payable, and identified derivatives related to these notes. ERHC classifies its derivative liabilities as Level 3 and values them using the methods discussed in Note 4. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Note 4 are that of volatility and market price of the underlying common stock of the Company.

As of September 30, 2015, the Company did not have any derivative instruments that were designated as hedges.

The derivative liability for the years ended September 30, 2015 and 2014 of $725,898 and 1,021,942, respectively, classified as level 3.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2015:
 
   
Derivative
Liability
 
     
Balance at September 30, 2014
 
$
1,021,942
 
Increase in derivative value due to issuances of convertible promissory notes
   
1,480,777
 
Decrease in derivative value due to convertible promissory notes converted to common stocks
   
(2,907,064
)
Day 1 loss on derivative liabilities
   
1,024,292
 
Change in fair market value of derivative liabilities on convertible notes due to the mark to market adjustment
   
111,849
 
Change in fair market value of derivative liabilities on tainted warrants due to the mark to market adjustment
   
(5,898
)
         
Balance at September 30, 2015
 
$
725,898
 
 
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2014:
 
   
Derivative Liability
 
     
Balance at September 30, 2013
 
$
-
 
Increase in derivative value due to issuances of convertible promissory notes
   
752,832
 
Day 1 loss on derivative liabilities
   
392,220
 
Increase in derivative value attributable to tainted warrants
   
13,701
 
Change in fair market value of derivative liabilities on convertible notes due to the mark to market adjustment
   
(129,008
)
Change in fair market value of derivative liabilities on tainted warrants due to the mark to market adjustment
   
(7,803
)
         
Balance at September 30, 2014
 
$
1,021,942
 

Note 3 – Convertible Debt

The Company had the following convertible debt outstanding at September 30, 2015:
 
Lender
 
Date of
Agreement
   
Term
(Months)
   
Annual
Interest Rate
     
Face Value
   
Accrued Interest
   
Discount
   
Net Convertible
Note Payable
   
Note Derivative Liability
 
Redwood Fund III
 
5/15/2014
     
6
     
12.00
%
   
$
40,000
   
$
5,918
   
$
15,867
   
$
30,051
   
$
114,005
 
Tonaquint, Inc
 
10/7/2014
     
12
     
22.00
%
(a)
   
98,177
     
46,416
     
16,700
     
127,893
     
128,566
 
JMJ Financial #3
 
10/22/2014
     
24
     
5.83
%
     
8,900
     
5,556
     
11,582
     
2,874
     
27,375
 
LG Capital #2
 
10/23/2014
     
12
     
8.00
%
     
23,533
     
2,500
     
9,398
     
16,635
     
52,628
 
Cardinal Capital Group
 
11/6/2014
     
24
     
22.00
%
(a)
   
43,998
     
30,133
     
41,984
     
32,147
     
94,158
 
Rock Capital
 
2/6/2015
     
12
     
10.00
%
     
23,005
     
-
     
20,351
     
2,654
     
67,377
 
Union Capital #3
 
2/17/2015
     
12
     
8.00
%
     
34,500
     
-
     
-
     
34,500
     
93,039
 
Adar Bay #2
 
2/19/2015
     
12
     
8.00
%
     
12,000
     
-
     
11,742
     
258
     
39,280
 
LG Capital #3
 
3/10/2015
     
12
     
8.00
%
     
52,500
     
-
     
43,388
     
9,112
     
109,470
 
                           
$
336,613
   
$
90,523
   
$
171,012
   
$
256,124
   
$
725,898
 
 
During the years ended September 30, 2015 and 2014, the Company issued an aggregate of 2,063,374,370 and 0 shares of common stock for conversion of convertible debts of $1,728,370 and $0 and decrease in derivative value due to conversion of $2,474,418 and $0, respectively.
 
 
(a)
During the year ended September 30, 2015, the note was defaulted due to insufficient authorized common share to fulfill conversion request, additional interest accrual recorded due to interest rate increased to 22% from 12% related to the default.
 
The Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities once the note becomes convertible on the 180 days after the effective date.

The Company had the following convertible debt outstanding at September 30, 2014:

Lender
 
Date of
Agreement
 
Term
(Months)
   
Annual
 Interest Rate
     
Face Value
   
Accrued
Interest
   
Discount
   
Deferred Debt
Origination Costs
Due at Maturity(c)
   
Net Convertible
Note Payable
   
Note Derivative
Liability
 
JMJ Financial
 
4/15/2014
 
24
     
5.83
%
(a)
 
$
100,000
   
$
1,342
   
$
95,379
   
$
11,111
   
$
17,074
   
$
117,809
 
KBM Worldwide
 
4/24/2014
 
9
     
8.00
%
     
103,500
     
4,809
     
-
     
-
     
108,309
     
-
 
KBM Worldwide
 
6/26/2014
 
9
     
8.00
%
     
53,000
     
1,487
     
-
     
-
     
54,487
     
-
 
JSJ Investments
 
4/29/2014
 
6
     
12.00
%
     
100,000
     
10,126
     
-
     
-
     
109,792
     
-
 
Adar Bays
 
5/20/2014
 
12
     
8.00
%
     
52,500
     
1,530
     
48,234
     
-
     
5,796
     
81,401
 
LG Capital
 
5/20/2014
 
12
     
8.00
%
     
52,500
     
1,530
     
48,234
     
-
     
5,796
     
68,626
 
Redwood Fund III
 
5/15/2014
 
6
     
7.85
%
(b)
   
100,000
     
5,934
     
-
     
-
     
105,934
     
-
 
Vista Capital Investments
 
6/16/2014
 
24
     
5.83
%
(b)
   
50,000
     
423
     
43,441
     
5,556
     
12,538
     
60,785
 
Tonaquint, Inc
 
7/10/2014
 
12
     
12.00
%
     
115,000
     
3,100
     
104,979
     
-
     
13,121
     
152,002
 
Union Capital
 
7/16/2014
 
12
     
8.00
%
     
30,000
     
533
     
-
     
-
     
30,533
     
-
 
Iconic Holding, LLC
 
7/16/2014
 
12
     
10.00
%
     
75,000
     
1,562
     
69,626
     
-
     
6,936
     
67,480
 
Auctus Private
 
7/29/2014
 
9
     
8.00
%
     
58,750
     
1,082
     
-
     
-
     
59,832
     
-
 
KBM Worldwide
 
8/11/2014
 
9
     
8.00
%
     
53,000
     
712
     
-
     
-
     
53,712
     
-
 
Vista Capital Investments
 
8/26/2014
 
24
     
5.83
%
(b)
   
25,000
     
70
     
24,766
     
2,777
     
3,081
     
28,000
 
KBM Worldwide
 
9/2/2014
 
9
     
8.00
%
     
47,500
     
389
     
-
     
-
     
47,889
     
-
 
JMJ Financial
 
9/3/20114
 
24
     
5.83
%
(a)
   
50,000
     
108
     
47,948
     
5,556
     
7,716
     
58,046
 
JSJ Investments
 
9/8/2014
 
6
     
12.00
%
     
100,000
     
1,447
     
87,602
     
-
     
13,845
     
217,078
 
Macallan Partners, LLC
 
9/9/2014
 
12
     
10.00
%
     
120,000
     
690
     
113,806
     
-
     
7,218
     
164,817
 
                           
$
1,285,750
   
$
36,874
   
$
684,015
   
$
25,000
   
$
663,609
   
$
1,016,044
 

(a) Implied interest rate. The note is subject to a one time 12% interest charge unless repaid within 90 days
(b) Implied interest rate. The note is subject to a one time 12% interest charge regardless of how long it has been outstanding
(c) Original Issue Discount due at maturity of the note
 
The following table summarizes conversion terms of the notes outstanding at September 30, 2015:

Lender
 
Date of Agreement
 
Term Of Conversion
 
Eligible for
Conversion
             
Redwood Fund III
 
May 15, 2014
 
Conversion Price shall be 55% of the lowest traded price, determined on the then current trading market for the Company’s common stock, for 20 trading days prior to conversion.
 
180 after the effective dates
JMJ Financial
 
October 22, 2014
 
Conversion Price shall be lesser of $0.06 or 60% of lowest trade price in the 25 trading days previous to conversion.
 
180 after the effective dates
Tonaquint, Inc
 
October 7, 2014
 
Conversion price shall be 65% (the “Conversion Factor”) of the lowest intra-day trade price of Borrower’s common stock (“Common Stock”) in the twenty-five (25) Trading Days immediately preceding the Conversion .
 
180 after the effective date
LG Capital #2
 
October 23, 2014
 
Conversion price shall be 50% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future, for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company.
 
180 after the effective date
Cardinal Capital Group
 
November 6, 2014
 
Conversion price shall equal the lesser of (a) $0.05 or (b) 60% of the lowest trade occurring during the twenty five (25) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.
 
180 after the effective date
Rock Capital
 
February 6, 2015
 
Conversion price shall equal be 55% of the lowest closing bid price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price).
 
180 after the effective date
Union Capital
 
February 17, 2015
 
Conversion price shall equal be 55% of the lowest closing bid price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price).
 
180 after the effective dates
Adar Bay
 
February 19, 2015
 
Conversion price shall equal be 50% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future, for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company.
 
180 after the effective date
LG Capital #3
 
March 10, 2015
 
Conversion price shall equal be 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future, for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company.
 
180 after the effective date
 
As of September 30, 2015, Company recorded the following deferred origination costs related to the convertible notes:
 
Lender
 
Date of
Agreement
 
Finder's Fees
   
Deferred Debt
Origination Costs
Due at Maturity
   
Legal and Other
Debt Origination
Costs
   
Deferred Debt
Origination Costs at
September 30, 2014
   
Additions
   
Amortization
   
Deferred
Debt
Origination
Costs at
September
30, 2015
                               
JMJ Financial #1
 
04/15/14
 
$
10,000
   
$
11,111
   
$
-
   
$
18,896
   
$
-
   
$
18,896
   
$
-
KBM Worldwide #1
 
04/24/14
   
10,000
     
-
     
3,500
     
7,692
     
-
     
7,692
     
-
KBM Worldwide #2
 
06/26/14
   
5,000
     
-
     
3,000
     
6,247
     
-
     
6,247
     
-
JSJ Investments #1
 
04/29/14
   
10,000
     
-
     
-
     
1,562
     
-
     
1,562
     
-
Adar Bay
 
05/20/14
   
5,000
     
-
     
2,500
     
4,900
     
-
     
4,900
     
-
LG Capital
 
05/20/14
   
5,000
     
-
     
2,500
     
4,900
     
-
     
4,900
     
-
Redwood Fund III
 
05/15/14
   
10,000
     
-
     
-
     
2,438
     
-
     
2,438
     
-
Vista Capital Investments #1
 
06/16/14
   
5,000
     
5,556
     
-
     
9,860
     
-
     
9,860
     
-
Various
 
Various
   
-
     
-
     
52,500
     
25,596
     
18,700
     
29,956
     
14,340
Tonaquint, Inc #1
 
07/10/14
   
10,000
     
10,000
     
5,000
     
23,898
     
-
     
23,898
     
-
Union Capital
 
07/16/14
   
-
     
-
     
4,500
     
4,500
     
-
     
4,500
     
-
Iconic Holding, LLC
 
07/16/14
   
6,750
     
7,500
     
-
     
14,250
     
-
     
14,250
     
-
Acutus Private
 
07/29/14
   
5,250
     
-
     
6,250
     
10,292
     
-
     
10,292
     
-
KBM Worldwide #3
 
08/11/14
   
5,000
     
-
     
3,000
     
7,160
     
-
     
7,160
     
-
Vista Capital Investments #2
 
08/26/14
   
2,500
     
2,777
     
-
     
5,277
     
-
     
5,277
     
-
KBM Worldwide #4
 
09/02/14
   
4,500
     
-
     
2,500
     
6,540
     
-
     
6,540
     
-
JMJ Financial #2
 
09/03/14
   
5,000
     
5,556
     
-
     
10,556
     
-
     
10,556
     
-
JSJ Investments #2
 
09/08/14
   
10,000
     
-
     
2,000
     
11,759
     
-
     
11,759
     
-
Macallan Partners, LLC
 
09/09/14
   
-
     
12,000
     
-
     
12,000
     
-
     
12,000
     
-
Tonaquint, Inc #2
 
10/07/14
   
10,000
     
5,000
     
15,000
     
-
     
30,000
     
14,902
     
15,098
JMJ Financial # 3
 
10/22/14
   
5,000
     
-
     
5,556
     
-
     
10,556
     
5,556
     
5,000
LG Capital #2
 
10/23/14
   
5,000
     
2,500
     
2,500
     
-
     
10,000
     
9,494
     
506
Cardinal Group
 
11/06/14
   
-
     
8,500
     
6,500
     
-
     
15,000
     
5,667
     
9,333
KBM Worldwide #7
 
01/12/15
   
-
     
4,500
     
-
     
-
     
4,500
     
-
     
4,500
Rock Capital
 
02/06/15
   
-
     
1,000
     
4,500
     
-
     
5,500
     
189
     
5,311
Union Capital #3
 
02/17/15
   
-
     
1,500
     
4,500
     
-
     
6,000
     
4,500
     
1,500
Adar Bay #2
 
02/19/15
   
-
     
3,500
     
-
     
-
     
3,500
     
-
     
3,500
LG Capital #3
 
03/10/15
   
-
     
4,000
     
7,500
     
-
     
11,500
     
8,878
     
2,622
Vista #3
 
03/02/15
   
-
     
-
     
5,800
     
-
     
5,800
     
5,800
     
-
                                                         
-
        
$
129,000
   
$
85,000
   
$
139,106
   
$
188,323
   
$
121,056
   
$
247,669
   
$
61,710
 
As of September 30, 2014, Company recorded the following deferred origination costs related to the convertible notes:

Lender
 
Date of Agreement
 
Transaction Costs
   
Deferred Debt Origination Costs Due at Maturity
   
Legal and Other Debt Origination Costs
   
Initial Deferred Origination Costs
   
Amortization
   
Net Deferred Debt Origination Costs
 
JMJ Financial
 
4/15/2014
 
$
10,000
   
$
11,111
   
$
-
   
$
21,111
   
$
2,215
   
$
18,896
 
KBM Worldwide
 
4/24/2014
   
10,000
     
-
     
3,500
     
13,500
     
5,808
     
7,692
 
KBM Worldwide
 
6/26/2014
   
5,000
     
-
     
3,000
     
8,000
     
1,753
     
6,247
 
JSJ Investments
 
4/29/2014
   
10,000
     
-
     
-
     
10,000
     
8,438
     
1,562
 
Adar Bays
 
5/20/2014
   
5,000
     
-
     
2,500
     
7,500
     
2,600
     
4,900
 
LG Capital
 
5/20/2014
   
5,000
     
-
     
2,500
     
7,500
     
2,600
     
4,900
 
Redwood Fund III
 
5/15/2014
   
10,000
     
-
     
-
     
10,000
     
7,562
     
2,438
 
Vista Capital Investments
 
6/16/2014
   
5,000
     
5,556
     
-
     
10,556
     
696
     
9,860
 
Various
 
Various
   
-
     
-
     
33,800
     
33,800
     
5,693
     
28,107
 
Tonaquint, Inc
 
7/10/2014
   
10,000
     
-
     
15,000
     
25,000
     
1,102
     
23,898
 
Union Capital
 
7/16/2014
   
-
     
-
     
4,500
     
4,500
     
-