ERHC Energy (ERHE) 10-Q 2017 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 0-17325

 

(Exact name of registrant as specified in its charter)

Colorado	880218499
(State of Incorporation)	(I.R.S. Employer Identification No.)

5444 Westheimer Road

Suite1440

Houston, Texas 77056

(Address of principal executive offices, including zip code)

(713) 626-4700

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 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  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☐	Accelerated filer  ☐
Non-accelerated Filer  ☒	Smaller reporting company  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

The number of shares of common stock, par value $0.0001 per share, outstanding as of August 10, 2017, was 2,879,442,094 .

TABLE OF CONTENTS

ERHC ENERGY INC.

Part I.   Financial Information		Page
Item 1.	Financial Statements	5
	Unaudited Consolidated Balance Sheets at June 30, 2017 and September 30, 2016	5
	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2017 and 2016	6
	Unaudited Consolidated Statements of Other Comprehensive Loss for the Three and Nine Months Ended June 30, 2017 and 2016	7
	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2017 and 2016	8
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	31
Part II.   Other Information
Item 1.	Legal Proceedings	32
Item 6.	Exhibits	33
	Signatures	33

2

Forward-Looking Statements

ERHC Energy Inc. (also referred to as "ERHC" or the "Company" and denoted by the use of the pronouns "we," "our" and "us" as the case may be in this Report) or its representatives may, from time to time, make or incorporate by reference certain written or oral statements of historical fact, statements that 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 including;

● 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 and other forward-looking statements 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 referred to as "OPEC", to set and maintain production levels and pricing, and the level of production in non-OPEC countries;

● policies of the various governments regarding exploration and development of oil and gas reserves;

● advances in exploration and development technology;

● the political environment of oil-producing regions;

● political instability in the Democratic Republic of Săo Tomé and Príncipe ("DRSTP"), the Federal Republic of Nigeria, Republic of Kenya, and the Republic of Chad;

● 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;

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● 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 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.   Our 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 statements or any change in events, conditions or circumstances on which any forward-looking statements are based.

4

PART I. FINANCIAL INFORMATION

Item1. Financial Statements

ERHC ENERGY INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

	June 30, 2017			September 30, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	146,530		$	439,544
Prepaid expenses and other		26,201			29,505
Total current assets		172,731			469,049
Oil and gas properties and concession fees:
Concession fees		5,173,819			5,173,819
Proved properties		173,250			510,000
Furniture and equipment, net of accumulated depreciation of $540,999 and $509,894 at June 30, 2017 and September 30, 2016, respectively		38,976			70,081
Total assets	$	5,558,776		$	6,222,949
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities	$	10,174,741		$	9,273,608
Accounts payable – related parties		285,459			100,438
Income tax payable		2,739,607			2,739,607
Convertible note payable in default, net of discount – short term		102,891			-
Convertible note payable, net of discount – short term		111,532			181,535
Derivative liability		510,403			770,854
Total current liabilities		13,924,633			13,066,042
Commitments and contingencies:
Shareholders’ deficit:
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 2,879,442,094 and 47,479,975 shares at June 30, 2017 and September 30, 2016, respectively		287,944			4,748
Additional paid-in capital		108,546,669			107,436,940
Accumulated deficits		(117,200,470	)		(114,284,781	)
Total shareholders’ deficit		(8,365,857	)		(6,843,093	)
Total liabilities and shareholders’ deficit	$	5,558,776		$	6,222,949

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

5

ERHC ENERGY INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended June 30,						Nine months ended June 30,
	2017			2016			2017			2016
Revenue	$	-		$	-		$	54,612		$	-
Costs and expenses:
General and administrative		132,779			583,465			933,074			1,779,521
Exploration expenses		-			2,275,304			746,563			3,055,960
Depreciation		10,642			15,642			31,105			52,672
Loss (gain) on sale of interest in oil and gas concessions, net		-			-			146,750			(2,727,805	)
Total costs and expenses		143,421			2,874,411			1,857,492			2,160,348
Other income and (expenses):
Interest income and other		3,230			153			3,282			560
Gain (loss) on mark-to-market of derivative liability		64,009			(67,643	)		(18,090	)		(172,640	)
Loss on embedded derivative		-			(297,903	)		(495,837	)		(332,387	)
Loss on available for sale securities		-			(844,518	)		-			(844,518	)
Loss on debt conversions		-			-			(133,408	)		-
Interest expense		(113,829	)		(128,766	)		(468,756	)		(310,407	)
Total other income and (expense)		(46,590	)		(1,338,677	)		(1,112,809	)		(1,659,392	)
Loss before benefit (provision) for income taxes		(190,011	)		(4,213,088	)		(2,915,689	)		(3,819,740	)
Benefit (provision)for income taxes		-			-			-			-
Net loss	$	(190,011	)	$	(4,213,088	)	$	(2,915,689	)	$	(3,819,740	)
Net loss per common share -basic and diluted	$	(0.00	)	$	(0.10	)	$	(0.00	)	$	(0.11	)
Weighted average number of common shares outstanding – basic and diluted		2,879,442,094			42,685,912			2,638,522,815			34,975,264

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

6

ERHC ENERGY INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

	Three Months Ended June 30,						Nine months ended June 30,
	2017			2016			2017			2016
Net loss	$	(190,011	)	$	(4,213,088	)	$	(2,915,689	)	$	(3,819,740	)
Other comprehensive income (loss):
Unrealized loss on available for sale securities		-			-			-			-
Less reclassification of loss to net income		-			944,049			-			1,135,728
Total other comprehensive income (loss)		-			944,049			-			1,135,728
Other comprehensive loss	$	(190,011	)	$	(3,269,039	)	$	(2,915,689	)	$	(2,684,012	)

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

7

ERHC ENERGY INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended June 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(2,915,689	)	$	(3,819,740	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and depletion expense		31,105			52,672
Loss on embedded derivative		495,837			332,387
Loss on debt conversion		133,408			-
Loss on change in fair value of derivatives		18,090			172,640
Loss (gain) on sale of interest in oil and gas concessions, net		146,750			(2,727,805	)
Amortization of convertible debt discount		430,379			198,122
Amortization of debt issuance cost		21,970			61,898
Loss on available for sale securities		-			844,518
Stock issued for board compensation		-			-
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		3,304			34,949
Accounts payable and other accrued liabilities		882,336			2,829,563
Accounts payable to related parties		185,021			-
Net cash used in operating activities		(567,489	)		(2,020,796	)
Cash flows from investing activities:
Purchase of furniture and equipment		-			(1,000	)
Purchase of oil and gas properties		-			(2,272,576	)
Return payment from purchase of oil and gas properties		125,000			-
Proceeds from sale of interest in oil and gas concessions and properties		65,000			4,000,000
Proceeds from available for sale securities		-			502,909
Net cash provided by investing activities		190,000			2,229,333
Cash flows from financing activities:
Debt origination costs		-			(27,004	)
Principal payment on convertible debt		-			(32,433	)
Proceeds from convertible debt		84,475			394,531
Net cash provided by financing activities		84,475			335,094
Net increase (decrease) in cash and cash equivalents		(293,014	)		543,631
Cash and cash equivalents, beginning of period		439,544			757,313
Cash and cash equivalents, end of period	$	146,530		$	1,300,944
Non-cash investing and financing activities:
Interest paid	$	-		$	26,190
Income tax paid	$	-		$	-
Discount from derivative	$	590,837		$	243,850
Conversion of note payable to common stock	$	523,547		$	436,822
Derivative liabilities extinguished on conversion	$	869,378		$	843,708

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

8

ERHC ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION AND BUSINESS ORGANIZATION

The consolidated financial statements included herein, which have not been audited pursuant to the rules and regulations of the Securities and Exchange Commission, reflect all adjustments which, in the opinion of management, are necessary to present a fair statement of the results for the interim periods on a basis consistent with the annual audited financial statements.  All such adjustments are of a normal recurring nature.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for an entire year.  Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to such rules and regulations, although ERHC Energy Inc. ("ERHC" or the "Company") believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company's audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2016.

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.

Going Concern

The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the ordinary and usual course of business. As of June 30, 2017, the Company has a working capital deficit and negative cash flows from operating activities. The Company also has significant tax arrears which resulted from a deduction disallowance made by an IRS audit of ERHC’s 2006 return, which audit lasted nearly seven years and has been previously disclosed.  There is an outstanding IRS lien imposed on ERHC in Harris County, Texas in consequence.

Furthermore, the Company is in significant arrears of cash calls relating to the company’s proportionate share of drilling costs (beyond operator-carried expenses) on the Tarach-1 well in Kenya Block 11A. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on raising additional capital to fund ongoing exploration projects and ultimately on attaining future profitable operations. The Company is continuing with its plan to further seek new opportunity for farm-out its assets in Kenya, the Nigeria- Săo Tomé and Príncipe Joint Development Zone and the Săo Tomé and Príncipe Exclusive Economic Zone. Management believes that the Company’s current operating strategy will provide the opportunity for the Company to continue as a going concern as long as the Company continues to obtain additional financing; however there is no assurance that this will occur. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Reclassifications

Certain amounts in the financial statements as of and for the year ended September 30, 2016 have been reclassified to conform with the June 30, 2017 presentation. Such reclassifications have no impact on net loss, shareholders’ equity or cash flows as previously reported.

NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted new guidance as of October 1, 2008, related to the measurement of the fair value of certain of its financial assets required to be measured on a recurring basis. Under the new guidance, based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

9

● Level 1 — Quoted prices in active markets for identical assets or liabilities.

● Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or, other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

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 6. 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 6 are that of volatility and market price of the underlying common stock of the Company.

As of June 30, 2017, the Company did not have any derivative instruments that were designated as hedges.

The derivative liability as of June 30, 2017, in the amount of $510,403 has a level 3 classification.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of June 30, 2017:

	Derivative Liability
Balance at September 30, 2016	$	770,854
Increase in derivative value due to issuances of convertible promissory notes		590,837
Decrease in derivative value due to convertible promissory notes converted to common stocks		(869,378	)
Change in fair market value of derivative liabilities on convertible notes due to the mark to market adjustment		18,090
Balance at June 30, 2017	$	510,403

NOTE 3 – OIL AND GAS PROPERTIES

The following is an analysis of the cost of oil and gas properties at June 30, 2017 and September 30, 2016:

	June 30, 2017		September 30, 2016
DRSTP concession	$	2,271,600	$	2,271,600
Chad concession		2,800,600		2,800,600
Pending concessions in other African countries		101,619		101,619
Total Concession fees	$	5,173,819	$	5,173,819

The following is an analysis of change in proved properties as of June 30, 2017:

Proved

Properties

10

Balance at September 30, 2016	$	510,000
Return of funds deposited		(125,000	)
Sale of partial interests		(211,750	)
Depletion and amortization		-
Balance at June 30, 2017	$	173,250

During the year ended September 30, 2016, NewStar Oil and Gas Company, a wholly- owned subsidiary of ERHC entered into an agreement to purchase three small producing oil and gas wells in Ganado, Jackson County, Texas. However, during the nine months ended June 30, 2017, the Company and the Seller concluded on the sale of only two of the wells and the Seller returned to ERHC the sum of $125,000 being funds deposited in respect of the third well, after the seller decided to sell only two of the wells due to changes in oil and gas prices. As of June 30, 2017, NewStar had applied for and been granted an Operatorship License by the Texas Railroad Commission.

During the nine months ended June 30, 2017, the Company sold 55% of its working interest in proved properties to a third party for consideration of $65,000, resulting in a net loss of $146,750.

During the nine months ended June 30, 2017, the Company did not record depletion and amortization expense for its wells due to limited operations data and reserve report not available as of June 30, 2017. The Company believes the depletion and amortization expense to be immaterial at June 30, 2017 and will provide the expense at the year end when reserve information becomes available.

NOTE 4 – CONVERTIBLE DEBT

The Company had the following convertible debt outstanding at June 30, 2017:

Lender	Date of Agreement	Term (Months)		Annual Interest rate		Outstanding balance		Accrued Interest at Reporting date		Deferred debt origination costs		Discount		Net Convertible Note payable		Note Derivative Liability
Union Capital #4 (1)	4/12/2016		12		8%	$	375	$	42	$	-	$	-	$	417	$	782
Auctus Private Equity Fund (1)	4/27/2016		12		10%		24,294		95		-		-		24,389		54,438
Black Mountain Equities (1)	5/20/2016		12		8%		22,500		2,117		-		-		24,617		51,716
Rock Capital #2 (1)	5/26/2016		12		10%		45,659		-		-		-		45,659		121,037
Crown Bridge Partners (1)	6/2/2016		12		8%		1,672		2,781		-		-		4,453		5,064
Toledo Advisors (1)	6/22/2016		12		10%		31,981		1,605		-		-		33,586		98,247

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LG Capital	8/23/2016	12	8%		32,000		1,526		-		14,023		19,503		52,245
Auctus Private Equity Fund 2	9/22/2016	9	10%		58,750		3,049		-		-		61,799		126,874
				$	217,231	$	11,215	$	-	$	14,023	$	214,423	$	510,403

(1)Note is in default as of June 30, 2017.  

12

The Company had the following convertible debt outstanding at September 30, 2016:

Lender	Date of Agreement	Term (Months)		Annual Interest rate		Outstanding balance		Accrued Interest at Reporting date		Deferred debt origination costs		Discount		Net Convertible Note payable		Note Derivative Liability
JMJ Financial #4	3/9/2016		12		8%	$	39,416	$	-	$	-	$	37,114	$	2,302	$	74,913
Adar Bay	3/10/2016		12		8%		32,000		2,000		1,544		22,863		9,593		71,087
Union Capital #4	4/12/2016		12		8%		50,000		1,732		2,126		-		49,606		-
Auctus Private Equity Fund	4/27/2016		12		10%		54,250		2,318		1,839		46,757		7,972		137,157
Black Mountain Equities.	5/20/2016		12		8%		51,500		926		4,131		-		48,295		-
Rock Capital #2	5/26/2016		12		10%		55,125		529		5,950		-		49,704		-
Crown Bridge Partners	6/2/2016		12		8%		53,500		1,407		1,678		45,232		7,997		143,932
Toledo Advisors	6/22/2016		12		10%		63,000		1,726		2,396		59,309		3,021		168,812
LG Capital	8/23/2016		12		8%		32,000		250		-		31,033		1,217		43,965
Auctus Private Equity Fund 2	9/22/2016		9		10%		58,750		119		-		57,041		1,828		130,988
						$	489,541	$	11,007	$	19,664	$	299,349	$	181,535	$	770,854

During the nine months ended June 30, 2017 and 2016, the Company issued an aggregate of 2,831,862,119 and 14,929,629, respectively, shares of common stock for conversion of convertible debts of $390,139 and $436,822, respectively, and decrease in derivative value due to conversion of $869,378 and $843,708, respectively. The loss on conversions for nine months ended June 30, 2017 and 2016 was $133,408 and $0, respectively.

The following table summarizes conversion terms of the notes outstanding at June 30, 2017:

Lender	Date of Agreement	Term Of Conversion	Eligible for Conversion
Union Capital	April 12, 2016	Conversion Price for each share of Common Stock equal to 40% 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
Auctus Private Equity Fund, LLC	April 27, 2016	Conversion Price shall equal the lesser of (i) 55% multiplied by the lowest Trading Price (as defined below) (representing a discount rate of 45%) during the previous twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the date of this Note and (ii) the Variable Conversion Price	On effective date

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Black Mountain Equities, Inc.	May 20, 2016	Conversion Price shall equal 60% of the lowest trade occurring during the twenty (20) 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.	150 after the effective date
Rock Capital	May 26, 2016	Conversion Price for each share of Common Stock equal to 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 ("Exchange"), for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer agent	180 after the effective date
Crown Bridge Partners LLC	June 2, 2016	Variable Conversion Price shall mean 50% multiplied by the Market Price (as defined herein)(representing a discount rate of 50%). “Market Price” means the lowest one (1) Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date.	On effective date
Toledo Advisors LLC	June 22, 2016	Conversion Price for each share of Common Stock equal to 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 ("Exchange"), for the  twenty prior trading days	On effective date
LG Capital	August 23, 2016	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.	On effective date
Auctus Private Equity Fund 2	September 22, 2016	Conversion Price shall equal the lesser of (i) 55% multiplied by the lowest Trading Price (as defined below) (representing a discount rate of 45%) during the previous twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the date of this Note and (ii) the Variable Conversion Price	On effective date

NOTE 5 – DERIVATIVE LIABILITIES

As described in Notes 2 and 5, the Company has identified embedded derivatives in notes payables and outstanding warrants.

The fair value of the embedded derivatives related to the convertible notes payable, comprising conversion feature with the reset provisions and the default provisions, at issuance and June 30, 2017 was determined using the multinomial lattice models that value the derivative liability based on a probability weighted discounted cash flow model.  These models are based on future projections of the various potential outcomes and utilize the following assumptions:

· The stock price would fluctuate with the Company projected volatility;

· The Derivative Convertible Notes convert at 40% to 60%  of the market prices;

· An event of default would occur initially 0% of the time, increasing 1.00% per month until it reaches 10%;

· The projected volatility curve for each valuation period was based on the historical volatility of the Company, ranging between 200% and 260%;

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· The Company would redeem the notes initially 0% of the time, and increase monthly by 1.00% to a maximum of 5.00%;

· The holders of the notes would automatically convert the notes at the maximum of two times the conversion price if the Company is not in default, with the target conversion price dropping as maturity approaches; and

· The Holder would convert the note early after 0-90-180 days and at maturity if the registration was effective and the Company was not in default.

As discussed in Note 2, the Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted and all additional convertible debentures and warrants are included in the value of the derivative. 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 on the issuance date.

The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to fair value as of each subsequent reporting date which at June 30, 2017 was an aggregate of $510,403.

During the nine months ended June 30, 2017 and 2016, the Company recorded an aggregate loss of $18,090 and $172,640, respectively, on change in fair value of derivative liabilities. See Note 2 for more information.

NOTE 6 – INCOME TAX PAYABLE

An IRS examination which lasted nearly seven years eventually resulted in the IRS disallowance of certain deductions taken by the Company in its 2006 tax year.  The disallowance was of certain stock based compensation expense that the Company had recognized as a deductible expense in its 2006 tax return. The disallowance was the outcome of an Internal Revenue Service audit of ERHC’s 2006 return and the Company recorded a tax payable of $2,739,607. The Company is currently pursuing a reduction of its tax liability through statutory means as outlined in the Internal Revenue Code.  At this point in the process, the IRS has not yet responded to the Company.  As is standard, the lien that exists whenever a taxpayer owes taxes assessed to the Department of the Treasury, has been formally recorded.

NOTE 7 - STOCKHOLDERS' EQUITY

On December 15, 2015, ERHCs' shareholders approved a hundred for one reverse stock split of ERHC's common stock. The reverse stock split became effective on January 15, 2016, and ERHCs' shares of common stock began trading on a post-split basis on the OTC Bulletin Board. The numbers of common stock for periods presented in the consolidated financial statements have been retroactively adjusted to reflect the one-for-hundred reverse stock split.

During the nine months ended June 30, 2017 and 2016, the Company issued an aggregate of 2,831,862,119 and 14,929,629, respectively, shares of common stock for conversion of convertible debts of $390,139 and $436,822, respectively, and decrease in derivative value due to conversion of $869,378 and $843,708, respectively. The loss on conversions for nine months ended June 30, 2017 and 2016 was $133,408 and $0, respectively.

NOTE 8 – RELATED PARTY TRANSACTIONS

At June 30, 2017 the Company had director compensations payable of $172,813, to non-employee directors. At June 30, 2017, the Company had accrued unpaid officer salaries of $105,546.

During the nine months ended June 30, 2017, the Company received loans from officers in the amount of $7,100. These notes are non-interest bearing and payable on demand. These loans remained outstanding as of June 30, 2017.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

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COMMITMENTS UNDER PRODUCTION SHARE CONTRACTS

Republic of Kenya Concession Fees and Other Financial Commitments

On June 28, 2012, ERHC entered into a production sharing contract ("PSC") with the Government of the Republic of Kenya for certain land based hydrocarbon exploration and production of Block 11A located in northwestern Kenya.

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 agreed to 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.

· As of June 30, 2017, the Company was $9,623,089 in arrears of part of its proportionate share of drilling expenses for Kenya Block 11A and therefore in default from May 2016 of its obligation to CEPSA. The drilling expenses are for the Tarach-1 exploratory well which was completed on Kenya Block 11A in summer 2016.

· The Tarach-1 well was always designed as an exploratory well. An exploratory well is drilled purely for information gathering (“exploration”) purposes in an area that is yet unproven with regard to petroleum resources. The site selection for an exploratory well is based on seismic data and other pre-drill geoscientific surveys.

· Operator analysis of the results if the Tarach-1 well shows that it did not encounter any reservoirs. The operator therefore classified Tarach-1 a dry well. The well has accordingly been plugged and abandoned

Republic of Chad Concession Fees and Other Financial Commitments

On June 30, 2011, ERHC entered into a production sharing contract ("PSC") with Chad for certain onshore hydrocarbon exploration and development.  In September 2013, the Ministry of Energy and Petroleum of Chad approved ERHC's application to voluntarily relinquish two of the three Blocks covered by the PSC.

As of June 30, 2017, ERHC has paid or incurred:

a.	$2,000,000 as the entire signature bonus
b.	$320,600 in advisers' and ancillary costs related to the PSC
c.	$480,000 as legal fees and costs for the drafting and negotiation of the PSC, as provided for in the PSC
d.	$190,872 as costs of Environmental Impact Study, as provided for in the PSC
e.	$448,000 on Aeromagnetic data acquisition survey, in fulfillment of work program obligations under the PSC
f.	$378,374 2015 Training and Surface rental fees, as provided in the PSC

LEGAL PROCEEDINGS

JDZ Blocks 5 and 6

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

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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.

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 arbitration or litigation specifically described above or any other pending litigation or claims.

NOTE 10 – SUBSEQUENT EVENT

In July 2017 the Company announced the signing of a new Production Sharing Contract (PSC) on Block 2 of the Nigeria-Sao Tome & Principe Joint Development Zone (JDZ).  ERHC has a 30 percent working interest under the PSC.  ERHC is currently working to conclude the Joint Operation Agreement (JOA) for the Block.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company's unaudited consolidated financial statements (including the notes thereto) and Item 1A of Part II; "Risk Factors," included elsewhere in this report and the Company's audited consolidated financial statements and the notes thereto, Item 7; and  "Management's Discussion and Analysis of Financial Condition and Plan of Operations" and Item 1A, "Risk Factors" included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2016.  The Company's historical results are not necessarily an indication of trends in operating results for any future period.   References to "ERHC" or the "Company" mean ERHC Energy Inc., a Colorado corporation, and, unless expressly stated or the context otherwise requires, its wholly owned subsidiary.

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

We are including the following cautionary statement to make applicable and take advantage of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by us, or on our behalf.  This Quarterly Report on Form 10-Q 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, 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. ("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.

ERHC is currently acquiring oil and gas properties in Texas. These US acquisitions are being carried on by and in the name of NewStar Oil& Gas Company, Inc., a wholly owned subsidiary of ERHC (“NewStar”). NewStar is incorporated under the laws of State of Texas. The focus of all acquisitions by Newstar will be producing or near-producing properties with significant upside potential.

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.

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

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REPUBLIC OF KENYA

ERHC Kenya Acreage

In June 2012, after months of negotiations between ERHC and the Government of Kenya, the Government awarded Block 11A for oil and gas exploration and development in Kenya to the Company. On June 28, 2012, the Company announced that it had signed a Production Sharing Contract (PSC) on Block 11A with the Government of Kenya.  A PSC is an agreement that governs the relationship between ERHC (and any future joint-venture partners) and the Government of Kenya in respect of exploration and production in the Block awarded to the Company.  The PSC details, among other things, the work commitments (including acquisition of data, drilling of wells, social projects, etc.), the time frame for completion of the work commitments, production sharing between the parties and the Government, and how the costs of exploration, development and production will be recovered.

 

By virtue of the PSC, the Company 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 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

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· As previously advised, the Tarach-1 well was always designed as an exploratory well. An exploratory well is drilled purely for information gathering (“exploration”) purposes in an area that is yet unproven with regard to petroleum resources. The site selection for an exploratory well is based on seismic data and other pre-drill geoscientific surveys.

· Operator analysis of the results if the Tarach-1 well shows that it did not encounter any reservoirs. The operator has therefore classified Tarach-1 a dry well. The well has accordingly been plugged and abandoned at the year ended September 30, 2016.

It is important to remind investors and other stakeholders that oil and gas exploration is a high-risk undertaking especially in Blocks in which no wells have been drilled before.  While the geological and geophysical work might indicate 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.

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	Completed

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

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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	%

1 Under the farm-out agreement with CEPSA, CEPSA is obliged to carry ERHC’s proportionate share of exploration costs except for the first exploration well where ERHC is expected to contribute 25% of its proportionate share of costs of the well.

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.

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Chad Operations Update

During the period ended June 30, 2017 the Company after careful consideration decided not to apply for renewal of the Exclusive Exploration Authorization and the Production Sharing Contract over Block BDS 2008 in Chad.

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Focus Areas

Block BDS 2008 measures 41,800 square kilometers or 10,329,000 acres. Within this block, ERHC identified two focus areas:

- 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%)

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WORK PROGRAM:

Phase 1 (5 years – June 2012 to June 2017)

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 but aborted in favor of withdrawal from the Block.

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	ERHC proposed an exploration well in this period if Phase 1 G&G studies justified it.  The proposals have been aborted with ERHC’s withdrawal from the Block.

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

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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.

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 as of the conclusion of the licensing round and ERHC’s assignments of participating interests in 2006.

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 Addax and Sinopec as its 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:

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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 would be 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 recovered 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.

JDZ Operations Update

Between September 2009 and January 2010, ERHC and its operating partners, Sinopec and Addax, carried out a five-well drilling program in JDZ Blocks 2, 3 and 4, drilling one well each in Blocks 2 and 3 and three wells in Block 4.  The operators were unable to announce a commercial discovery in any of the wells.  Following the operators’ unwillingness to continue exploration after the five-well campaign, having completed then current obligations under Phase 1 of PSC, the JDA embarked on extensive review of exploration results and discussions with the parties.  

In July 2017, ERHC signed a new PSC with the JDA on JDZ Block 2 wherein ERHC’s Original Participating Interest of 30% was retained and re-stated.  ERHC is currently working with the JDA toward new operating partnerships in respect of JDZ Blocks 3 and 4 (with the intention of negotiating new PSCs for those Blocks).  

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SAO TOME AND PRINCIPE EXCLUSIVE ECONOMIC ZONE ("EEZ")

Overview of ERHC's EEZ Blocks

The Săo Tomé and Príncipe EEZ is delineated over an expanse of waters offshore Sao Tome and Principe that covers approximately 160,000 square kilometers. In terms of hydrocarbon exploration and exploitation, the EEZ is a frontier region that sits south of the Niger Delta and west of the Gabon salt basin, retaining similarities with each of those prolific hydrocarbon regions.  The regional seismic database comprises approximately 12,000 kilometers of seismic data. Interpretation of that seismic data shows numerous structures in the EEZ that have similar characteristics to known hydrocarbon accumulations in the area.

ERHC's Rights in the EEZ

Under a 2001 agreement with the Government of Sao Tome and Principe ("STP"), ERHC was vested with the rights to participate in exploration and production activities in the EEZ.  These rights included (a) the right to receive up to 100% of two blocks of ERHC's choice and (b) the option to acquire up to a 15% paid working interest in each of two additional blocks of ERHC's choice in the EEZ.  In 2010, ERHC exercised its rights to receive up to 100% of two blocks of ERHC's choice in the EEZ and was duly awarded Blocks 4 and 11 of the EEZ by the Government of STP.

EEZ Block 4 is 5,808 square kilometers, situated directly east of the island of Príncipe.

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

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.

In October 2015, the Company reached an agreement with Kosmos Energy (NYSE: KOS), a leading independent oil and gas exploration and production company focused on frontier and emerging areas to transfer all ERHC's rights to Block 11 of the Săo Tomé and Principe Exclusive Economic Zone (EEZ) to Kosmos. The agreement has been approved by the National Petroleum Agency of Sao Tome & Principe ("ANP-STP") as required in the requisite Production Sharing Contract ("PSC") for EEZ Block 11.

EEZ Operations Update

ERHC has concluded negotiation of the terms of a Production Sharing Contract with the National Petroleum Agency of Săo Tomé and Principe (ANP-STP) for Block 4. The Company is currently in discussions with potential farm in partners. ERHC holds a 100 percent interest in EEZ Block 4, and 15% right to paid working interest in each of two additional blocks of the EEZ.

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United States Operations Update

During the year ended September 30, 2016, NewStar purchased three small producing oil and gas wells in Ganado, Jackson County, Texas. However, during the nine months ended June 30, 2017, the seller returned $125,000 to NewStar being a portion of the funds deposited by Newstar for the purchase, after Newstar and the seller were unable to conclude on the third well due to changes in oil and gas prices

CURRENT PLANS FOR OPERATIONS

ERHC's principal assets are its interests in rights for exploration for hydrocarbons in Kenya, Chad (now relinquished), the JDZ and the EEZ. ERHC purchased 2 producing oil and gas wells located in Ganado, Jackson County, Texas and starts to have 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.

a.	ERHC’s management and board continue working toward a strategic realignment of the Company in the light of the current oil-price environment and continued constraints on funding for oil exploration activities,.
b.	The Company is refocusing on opportunities for cost-efficient entry into production and producing assets. This is in contrast to the pure exploration model which the Company previously ran and is intended to open up the Company to new streams of investment and revenue.
c.	Accordingly, the Company has concluded a Term Sheet with Starcrest Nigeria Energy Limited (“Starcrest”) pursuant to the Memorandum of Understanding earlier signed between the parties. The Term Sheet sets out a 180-day period commencing May 1, 2017 for a definitive agreement between the parties that gives ERHC entry, for valuable consideration, into Starcrest’s current entitlements to production.
d.	Starcrest has a significant stake in Elcrest Exploration and Production Company Limited, the holder of 45 percent of Nigeria’s producing OML 40. Starcrest also holds directly OPL 291 and OPL 242 in Nigeria.
e.	ERHC continues to bid, as part of several consortia with backing from financing partners, for producing interests in West Africa.

PLANS FOR FUNDING OF POTENTIAL 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 its operations. 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 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  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.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The process of preparing financial statements requires that the Company make estimates and assumptions that affect the reported amounts of liabilities and stockholders' equity at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to realization of oil and gas concession assets and the valuation allowance related to deferred tax assets as of the date of the financial statements; accordingly, actual results may differ from estimated amounts. ERHC's estimates and assumptions are based on current facts, historical experience and various other factors we believe to be reasonable under the circumstances. The most significant estimates with regard to the financial statements included with this report relate to realization of oil and gas concession assets and the valuation allowance related to deferred tax assets.

These estimates and assumptions are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known.

RECENT ACCOUNTING PRONOUNCEMENTS

In preparing its financial statements and filings, the company considers recent guidance issued related to accounting principles generally accepted in the United States. The Company believes that there has been no new guidance since its most recent annual report on Form 10-K that have a significant impact on its financial statements.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2017 Compared with the Three Months Ended June 30, 2016

From October, 2016, we started to generate revenue from our new acquired oil and gas properties in Texas. During the three months ended June 30, 2017 and 2016, the revenue from sales of oil and gas was $0 and $0, respectively.

General and administrative expenses decreased from $583,465 in the three months ended June 30, 2016 to $132,779 in the three months ended June 30, 2017.  The decrease was primarily due to decrease in general and administrative expenses as part of our cost savings plan.

Exploration expense decreased from $2,275,304 in the three months ended June 30, 2016 to $0 in the three months ended June 30, 2017. The decrease was primarily due to operator analysis of the results of the Tarach-1 well shows that it did not encounter any reservoirs. The operator has therefore classified Tarach-1 a dry well. The well has accordingly been plugged and abandoned at the year ended September 30, 2016.

Other expenses decreased from $1,338,677 in the three months ended June 30, 2016 to $46,590 in the three months ended June 30, 2017. The decrease was primarily due to decrease in loss on available for sale securities, loss on embedded derivative and changes in mark to market of derivative related to convertible debts by comparison to the same period in fiscal year ended 2016.

During the three months ended June 30, 2017, the Company had a net loss of $190,011 compared with a net loss of $4,213,088 for the three months ended June 30, 2016. The decrease in loss resulted from the decrease in general and administrative expense, exploration expense and other expense as discussed above.

Nine Months Ended June 30, 2017 Compared with the Nine Months Ended June 30, 2016

During the nine months ended June 30, 2017 and 2016, the revenue from sales of oil and gas was $54,612 and $0, respectively.

General and administrative expenses decreased from $1,779,521 in the nine months ended June 30, 2016 to $933,074 in the nine months ended June 30, 2017.  The decrease was primarily due to decrease in general and administrative expenses as part of our cost savings plan.

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Exploration expense decreased from $3,055,960 in the nine months ended June 30, 2016 to $746,563 in the nine months ended June 30, 2017. The decrease was primarily due to operator analysis of the results of the Tarach-1 well shows that it did not encounter any reservoirs. The operator has therefore classified Tarach-1 a dry well. The well has accordingly been plugged and abandoned at the year ended September 30, 2016.

Other expenses decreased from $1,659,392 in the nine months ended June 30, 2016 to $1,112,809 in the nine months ended June 30, 2017. The decrease was primarily due to a decrease in the loss on available for sale securities partially offset by the increase in the loss on debt conversions.

During the nine months ended June 30, 2017, the Company had a net loss of $2,915,689 compared with a net loss of $3,819,740 for the nine months ended June 30, 2016. The decrease in loss resulted from the decrease in general and administrative, exploration and other expenses discussed above.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2017, the Company had $146,530 in cash and cash equivalents, and a working capital deficit of $13,751,902. We are implementing a series of steps to raise funds to support potential acquisition of producing assets in the Kenya drilling campaign, 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, Nigeria-Sao Tome  & Principe Joint Development Zone 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

GOING CONCERN

The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the ordinary and usual course of business. As of June 30, 2017, the Company has a working capital deficit and negative cash flows from operating activities. The Company also has significant tax arrears which resulted from a deduction disallowance made by an IRS audit of ERHC’s 2006 return, which audit lasted nearly seven years and has been previously disclosed.  There is an outstanding IRS lien imposed on ERHC in Harris County, Texas in consequence.  Furthermore, the Company is in significant arrears of cash calls relating to the company’s proportionate share of drilling costs (beyond operator-carried expenses) on the Tarach-1 well in Kenya Block 11A. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on raising additional capital to fund ongoing exploration projects and ultimately on attaining future profitable operations. The Company is continuing with its plan to further seek new opportunity for farm-out its assets in Kenya, and the Nigeria- Săo Tomé and Príncipe Joint Development Zone. Management believes that the Company’s current operating strategy will provide the opportunity for the Company to continue as a going concern as long as the Company continues to obtain additional financing; however there is no assurance that this will occur. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

OFF-BALANCE SHEET ARRANGEMENTS

At June 30, 2017, the Company had no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company's current focus is to exploit its primary assets, which are rights to working interests in oil and gas exploration blocks in Kenya, Chad, the JDZ and EEZ under agreements with the  governments of Kenya, Chad, the JDA and the government of STP respectively.  The Company intends to continue to form relationships with other oil and gas companies with operational, technical and financial capabilities, to partner with the Company in leveraging its interests.  The Company currently has no other operations.

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As of June 30, 2017, the Company's primary assets are agreements with Kenya, Chad, STP and the JDA which provide ERHC with rights to participate in exploration and production activities in Kenya, Chad, the EEZ and the JDZ in Africa and 2 producing oil and gas wells in the United States.  This geographic area of interest is controlled by foreign governments that have historically experienced volatility of which is out of management's control. The Company's operations and its 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 that include financial, economic and labor conditions, political instability, risk of war, expropriation, renegotiation or modification of existing contracts, tax laws (including host-country import-export, excise and income taxes and United States taxes on foreign subsidiaries) and changes in the value of the U.S. dollar relative to the local currencies in which future oil and gas producing activities may be denominated.  Furthermore, changes in exchange rates may adversely affect the Company's future results of operations and financial condition.

Market risks relating to the Company's operations result primarily from changes in interest rates as well as credit risk concentrations.  The Company's interest expense is generally not sensitive to changes in the general level of interest rates in the United States, particularly because a substantial majority of its indebtedness is at fixed rates.

The Company holds no derivative financial or commodity instruments.

Item 4. Controls and Procedures

The Company maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. The Company’s Chief Financial Officer and Principal Accounting Officer evaluated the effectiveness of disclosure controls and procedures as of June 30, 2017, pursuant to Rule 13a-15(b) under the Exchange Act.  Based on that evaluation, the Company’s Chief Financial Officer and Principal Accounting Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms due to material weakness related to the following:

(i) The Company’s system of internal controls failed to identify multiple journal entries that were identified by the Company’s external auditor.

Our conclusion related to the effectiveness of our controls is based solely on adjustments made by our external auditor as part of their yearend audit and not based upon any other control deficiencies within the entity.

There was no change in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended June 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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 filed 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 AND OTHER MATTERS

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 arbitration or litigation specifically described above or any other pending litigation or claims.

Item 1A. Risk Factors

Our operation and financial results are subject to various risks and uncertainties that could affect our business, financial condition, results of operations, and trading price of our common stock, including but not limited to, failing financial institutions.  Please refer to our annual report on Form 10-K for fiscal year 2016 for additional information concerning these and other uncertainties that could negatively impact the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None.

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

None.

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Item 5. Other Information

None

Item 6. Exhibits

	Signatures
31.1*	Rule 13a-14(a) Certification of the Chief Executive Officer
31.2*	Rule 13a-14(a) Certification of the Principal Accounting Officer
32.1*	Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer
32.2*	Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Accounting Officer
101.INS*	Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
	* Filed or furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ERHC Energy Inc.

Name	Title	Date
/s/ Peter Ntephe	President	August 14, 2017
Peter Ntephe	Chief Executive Officer
/s/ Sylvan Odobulu	Vice President (Admin) and Controller	August 14, 2017
Sylvan Odobulu	Principal Accounting Officer

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