"If the Company is successful in negotiating production sharing contracts in Blocks 2, 3 and 4, the Company expects to receive funding from its partners that will support its operations."
The latest news indicate the company will be ready to sign the PSCs on Feb. 28.
10-Q: ERHC ENERGY INC
12:24 p.m. 02/09/2006
(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations
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 included in its Form 10-K filing. The Company's historical results are not necessarily an indication of trends in operating results for any future period.
The Company's current focus is to exploit its only assets, which are rights to working interests in exploration acreage in the JDZ and the EEZ. The Company has entered into agreements with upstream oil and gas companies to jointly negotiate production sharing contracts in these JDZ Blocks. The technical and operational expertise in conducting exploration operations will be provided by the Company's co-ventures.
Results of Operations
Three Months Ended December 31, 2005 Compared with Three Months Ended December 31, 2004
During the three months ended December 31, 2005, the Company incurred a net loss of $1,228,984, compared to a net loss of $7,091,068 for the three months ended December 31, 2004. A significant portion of the decrease in net loss for the three months ended December 31, 2005 was attributable to a $5,749,575 non-cash loss on extinguishment of debt during the three months ended December 31, 2004 as the result of the issuance of shares in conjunction with the Chrome debt restructuring. Interest expense decreased by $697,797 due to conversion of the outstanding convertible debt during the three months ended December 31, 2004. General and administrative expenses increased by $589,557 for the three months ended December 31, 2005 as compared to the three months ended December 31, 2004 primarily due to $401,100 in consulting charges in the period for the fair value calculation of options issued to consultants.
Through December 31, 2004, the Company was a party to a management services agreement with COS. Pursuant to that agreement, COS provided the Company with management and business development services. COS provided these services to the Company for a management fee of $68,000 per month. The Chief Financial Officer and Secretary were consultants to COS that provided services to the Company and these persons received salaries and overhead expense reimbursement from COS, not from the Company. Expenses not covered under the management services agreement were paid by the Company, which includes primarily general office supplies. During each of the three months ended December 31, 2004 total expenses incurred under this management services agreement were $208,000. On December 23, 2004, the Company and COS cancelled, effective December 31, 2004, the management services agreement.
The Company's executive officers incurred significant travel expenses of approximately $75,000 and $96,000 for the quarters ended December 31, 2005 and 2004, respectively, as they continued negotiations with officials of the FRN and DRSTP as well as numerous trips to the United States from Nigeria by several Chrome executives while managing the ongoing affairs of the Company. The Company anticipates travel related expenses to continue to be significant as the Company further develops its business interests.
During the quarters ended December 31, 2005 and 2004, the Company had no revenues from which cash flows could be generated to support operations and thus relied on borrowings funded from its line of credit provided by Chrome as well as the sale of common stock.
Liquidity and Capital Resources
As of December 31, 2005, the Company had $352,700 in cash and cash equivalents and negative working capital of $2,482,419. Historically, the Company has financed its operations from the sale on a best-efforts basis of debt and equity securities (including the issuance of its securities in exchange for goods and services). There have been no cash flows generated from operations in the past two years.
Management will be required to raise additional capital through the sale on a best-efforts basis of common stock and debt securities, and will attempt to continue raising capital resources until such time as the Company generates revenues sufficient to maintain itself as a viable entity. It is expected that a minimum of $2,500,000 will need to be raised to fund working capital requirements in fiscal 2006. However, there is no assurance that such financing will be obtained.
The Company presently intends to utilize any available sources of funds to provide for general corporate overhead and to continue to pursue its interests in Sao Tome and the JDZ/EEZ. If the Company is successful in negotiating production sharing contracts in Blocks 2, 3 and 4, the Company expects to receive funding from its partners that will support its operations.
Debt Financing Arrangements
At December 31, 2005, the Company had $33,513 of convertible debt and $3,650 accrued but unpaid interest outstanding. At December 31, 2005, if the outstanding convertible debt plus accrued interest were converted using the conversion price of $0.20 per share, the Company would be required to issue 185,815 shares of common stock.
Feb 09, 2006