10-K 1 form10-k.htm ERHC ENERGY 10-K 9-30-2006 ERHC Energy 10-K 9-30-2006


U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 


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

 
For the fiscal year ended September 30, 2006

OR

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

 
For the transition period ended: __________________

Commission file number: 000-17325
 
 
(Exact name of registrant as specified in its charter)

 
Colorado
 
88-0218499
 
 
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 

 
5444 Westheimer Road, Suite 1570, Houston, Texas
 
77056
 
 
(Address of Principal Executive Office)
 
(Zip Code)
 

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

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

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

Check if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Check if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x

Check if the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Check if the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.
Large Accelerated Filer o
Accelerated Filer x
Non-Accelerated Filer o

Check if the registrant is a shell company. Yes o No x

The aggregate market value of the voting stock held by non-affiliates of the registrant on March 31, 2006 was $372,698,526.

On November 30, 2006, the registrant had 718,988,982 shares of common stock issued and outstanding.
 





TABLE OF CONTENTS
 
 
PAGE
     
Item 1.
4
Item 1A.
5
Item 1B.
8
Item 2.
8
Item 3.
8
Item 4.
8
     
   
     
Item 5.
 9 
Item 6.
9
Item 7.
 10
Item 7A.
13
Item 8.
13
Item 9.
13
Item 9A.
13
Item 9B.
14
     
   
     
Item 10.
14
Item 11.
17
Item 12.
 19
Item 13.
19
Item 14.
19
     
   
     
Item 15.
20


This annual report contains forward-looking statements. These statements relate to future events or ERHC Energy Inc.’s (the “Company” or “ERHC”) future financial performance and involve known and unknown risks, uncertainties and other factors that may cause ERHC or its industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, there can be no guarantee of future results, levels of activity, performance, or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The Company is under no duty to and will not update any of the forward-looking statements after the date of this report to conform prior statements to actual results.
 


Item 1.
Description of Business

Overview
 
ERHC is an independent oil and gas company formed in 1986, as a Colorado corporation. The Company was engaged in a variety of businesses until 1996, when it began its current operations. The Company’s current focus is to exploit its assets, which are rights to working interests in exploration acreage in the Joint Development Zone (“JDZ”) between the Democratic Republic of Sao Tome & Principe (“DRSTP”) and the Federal Republic of Nigeria (“FRN”) and in the exclusive territorial 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. The Company currently has no other operations or assets.

Current Business Operations

In April 2003, the Company and the DRSTP entered into an Option Agreement (the “2003 Option Agreement”) in which the Company relinquished certain financial interests in the JDZ in exchange for exploration rights in the JDZ.  The Company additionally entered into an administration agreement with the Nigeria-Sao Tome and Principe Joint Development Authority (“JDA”).  The administration agreement is the formal agreement by the JDA that it will fully implement ERHC’s preferential rights to working interests in the JDZ acreage as set forth in the 2003 Option Agreement and describes certain procedures regarding the exercising of these rights.  However, ERHC retained under a previous agreement the following rights to participate in exploration and production activities in the EEZ subject to certain restrictions:  (a) the right to receive up to two blocks of ERHC’s choice and (b) the option to acquire up to a 15% paid working interest in up to two blocks of ERHC’s choice in the EEZ.  The Company would be responsible for its proportionate share of exploration and exploitation costs in the EEZ blocks.
 
The following represents the Company’s current rights in the JDZ blocks and the signature bonuses payable for each block:

JDZ
Block
#
 
Original
Working Interest Percentage
 
Retained
Percentage
 
Signature Bonus Payable
             
2
 
30%
 
22%
 
Signature Bonus Free
3
 
20%
 
10%
 
Signature Bonus Free
4
 
25%
 
17.7%
 
Signature Bonus Free
5
 
15%
 
(a)
 
Signature Bonus Payable
6
 
15%
 
(a)
 
Signature Bonus Free
9
 
15%
 
(a)
 
Signature Bonus Payable
_____________
 
(a)
No contracts have been entered into as of the date hereof.

This exercise of the Company’s rights was subject to the condition that if no license is awarded or a license is awarded and subsequently withdrawn by the JDA prior to the commencement of operations, ERHC will be entitled to receive its working interest in that block in a future license awarded for the block.

In November 2005, the Company entered into a participation agreement with Addax Petroleum (Nigeria Offshore 2) Limited ("Addax"), as subsequently amended, whereby the Company assigned to Addax a 33.3% participating interest in Block 4, leaving a 17.7% participating interest to the Company. In exchange, Addax paid the Company $18,000,000 in the second quarter of fiscal year 2006. Under the participation agreement ERHC will support Addax as operator, and Addax will pay all of the Company's future costs in respect of all petroleum operations in Block 4. Addax is entitled to the Company's share of cost oil until Addax recovers the Company's costs.

In February 2006, the Company entered into a participation agreement with Addax Petroleum Resources Nigeria Limited ("Addax Sub") whereby the Company assigned to Addax Sub a 15% participating interest in Block 3 of the JDZ, leaving a 10% participating interest to the Company. In exchange, Addax Sub paid the Company $7,500,000 in the second quarter of fiscal year 2006. Under this agreement, Addax Sub agreed to pay all of the Company's future costs in respect of petroleum operations in Block 3. Addax Sub is entitled to the Company's share of cost oil until Addax Sub recovers the Company's costs.

 
In March 2006, the Company entered into a participation agreement with Sinopec International Petroleum Exploration and Production Corporation Nigeria ("Sinopec"), and Addax Energy Nigeria Limited ("Addax Ltd."), whereby the Company assigned a 28.67% participating interest in Block 2 of the JDZ to Sinopec, and a 14.33% participating interest in Block 2 of the JDZ to Addax Ltd., leaving a 22% participating interest to the Company. In exchange, Sinopec paid the Company $13,600,000 and Addax Ltd. paid the Company $6,800,000 in the second quarter of fiscal 2006. Under this agreement, ERHC will support Sinopec as operator, and Sinopec and Addax Ltd. will pay all of the Company's future costs in respect of petroleum operations in Block 2. Sinopec and Addax Ltd. are entitled to the Company's share of cost oil until they recover the Company's costs and Sinopec is to receive 6% interest on its future costs, up to $35,000,000, but only to the extent that those interest costs are covered by production. The Company agreed to pay a $3,000,000 cash success fee to Feltang International Inc. (“Feltang”), a company that was responsible for obtaining Sinopec’s participation in Block 2. Additionally, the Company agreed to issue to Feltang 5,250,000 shares of common stock and warrants to purchase 6,500,000 shares at $0.355 per share. The finder’s fees due under the Feltang Agreement were exactly the same as those that had been due under the Finder's Fee Agreement with Eurasia which had sourced the Compay's former partner, Pioneer. Again, without a technical operator, following Pioneer’s withdrawal, ERHC would have lost the block entirely.
 
ERHC’s goal is to enter into agreements to exploit its interests in Blocks 5, 6 and 9 also. Additionally, the Company intends to exploit its rights in the EEZ.

Government Regulation

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

The oil and gas industry is subject to various types of regulation 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 issued 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. Inasmuch as new legislation affecting the oil and gas industry is commonplace and existing laws and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws and regulations. However, we do not expect that any of these laws and regulations will affect our operations in a manner materially different than they would affect other oil and gas companies of similar size.

Competition

Strong competition exists in all sectors of the oil and gas industry. We compete with other independent oil and gas companies for equipment and personnel required to explore, develop and operate properties. Competition is also prevalent in the marketing of oil, gas and natural gas liquids. Higher recent commodity prices have increased the costs of properties available for acquisition, and there are a greater number of companies with the financial resources to pursue acquisition opportunities. Certain of our competitors have financial and other resources substantially larger than ours, and they have also established strategic long-term positions and maintain strong governmental relationships in countries in which we may seek new entry. As a consequence, we may be at a competitive disadvantage in bidding for drilling rights. In addition, many of our larger competitors may have a competitive advantage when responding to factors that affect demand for oil and natural gas production, such as changing worldwide prices and levels of production, the cost and availability of alternative fuels and the application of government regulations.
 
Employees

The Company currently has one executive officer, a principal accounting officer, a consultant that serves as the Corporate Secretary, and two support staff employees that provide services to the Company. The Company believes that its relationship with its employees is satisfactory.
 
Item 1A.

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 harmed.

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 revenue since its entry into the oil and gas business and has incurred significant operating losses. The Company has incurred net operating losses of $5,988,756 in fiscal 2006, $4,652,459 in fiscal 2005, $2,085,426 in fiscal 2004 and $68,244,403 since inception. The Company had net income of $23,171,536 in fiscal 2006, primarily as a result of entering into production sharing agreements under which it sold various participatory interests. The Company had net losses of $11,270,478 in fiscal 2005, $3,593,388 in fiscal 2004, and $56,236,175 since inception. The Company expects to incur additional operating losses for the foreseeable future.


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

The Company’s operations to date have consisted solely of acquiring rights to working interests in the JDZ and EEZ and entering into production sharing contracts. The Company will not be the operator with respect to these contracts. The Company’s future financial results depend primarily on (1) the ability of its participating interest oil and gas companies 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 that the production sharing contracts will result in wells being drilled or if drilled, whether oil and/or gas will be discovered in commercial quantities.

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

While the Company is not required to fund any financial commitments pursuant to the production sharing contracts, project financing will be required to fund exploration activities. Failure of our venture partners to provide or obtain the necessary financing will preclude the commencement of exploration activities.

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

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

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

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

·
the availability of future capital resources to the Company and the other participants to be used for drilling wells;

·
the approval of other participants for the drilling of wells on the projects; and

·
the economic conditions at the time of drilling, including the prevailing and anticipated prices for oil and gas.

 
·
the availability of deep water drilling rigs
 
The Company’s reliance on other project participants and its limited ability to directly control future project costs could have a material adverse effect on its future expected rates of return.

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

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

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 and individuals are engaged in exploring for crude oil and natural gas and acquiring crude oil and natural gas properties, resulting in a high degree of competition for desirable exploratory and producing properties. The companies with which the Company competes are much larger and have greater financial resources, experience, technical and managerial experience 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 depends on numerous factors beyond its control, including the level of consumer demand, the extent of worldwide crude oil and natural gas production, the costs and availability of alternative fuels, the costs and proximity of transportation facilities, regulation by authorities and the costs of complying with applicable environmental regulations.


The Company’s operations are located outside of the United States which subjects it to risks associated with international activities

At September 30, 2006, all of the Company's operations were located outside the United States. The Company’s only assets are (i) agreements with DRSTP and the JDA, which provide ERHC with rights to participate in exploration and production activities in the Gulf of Guinea off the coast of central West Africa and (ii) production sharing contracts for property located in this region.  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 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 versus the local currencies in which future oil and gas producing activities may be denominated. As well, changes in exchange rates may adversely affect the Company's future results of operations and financial condition.

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.  If there were to be a general economic downturn or a recession in the oil and gas industry, the Company’s future revenues, the value of its oil and natural gas exploration concession, as well as its ability to exploit its assets could be materially adversely affected. 

One shareholder controls approximately 43% of the Company’s outstanding common stock

Chrome Oil Services (“Chrome”) beneficially owns approximately 43% of the outstanding common stock.  As a result, Chrome has the ability to substantially influence, and may effectively control the outcome of corporate actions that require stockholder approval, including the election of directors.  This concentration of ownership may have the effect of delaying or preventing a future change in control of the Company or a liquidity event.

The Company’s stock price is highly volatile

The Company’s common stock is currently traded on the Over-the-Counter 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 that its current price will be maintained.

The Company does not currently pay dividends on its common stock and do not anticipate doing so in the 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 future. The Company intends to retain any earnings to fund its operations. Therefore, the Company does not anticipate paying any cash dividends on the common stock in the foreseeable future.

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.

 
Item 1B.
Unresolved Staff Comments

On March 21, 2006, the Company received a comment letter from the SEC regarding its filing on Form 10-K for the year ended September 30, 2005. The Company responded to that comment letter on April 27, 2006 and amended its Form 10-K in an effort to comply with the disclosure requirements of the SEC as indicated in the March 21, 2006 comment letter. The SEC reviewed the Company’s response and amended 10-K filing and issued a follow-up comment letter on June 5, 2006 that included one unresolved comment. The Company filed a response to the follow-up comment letter on September 18, 2006, in which the Company agreed with the SEC’s conclusion, but requested further direction in order to comply. Based on discussions with staff members at the SEC regarding the response, the remaining unresolved comment, as discussed in the following paragraph will require that the Company file a second amendment to its Form 10-K for the year ended September 30, 2005 and its Form 10-Q for the Quarter ended June 30, 2006.
 
The remaining unresolved staff comment requires that the Company report as a development stage enterprise because it meets the criteria described in Statement of Financial Accounting Standards (“SFAS”) No. 7., “Accounting and Reporting by Development Stage Enterprises”. The primary impact of reporting as a development stage enterprise is (1) the presentation of inception-to-date information in the statements of operations, the statement of stockholders’ equity and the statements of cash flows, (2) clear indications on the face of the financial statements and in the footnotes that the Company is in the development stage and (3) a description of the reasons that the Company is reporting as a development stage enterprise. The Company is reporting as a development stage enterprise in this report on Form 10-K and is in the process of amending its Form 10-K for the year ended September 30, 2005 and its Form 10-Q for the Quarter ended June 30, 2006 to resolve Staff comments.


The Company’s office is located at 5444 Westheimer Road, Suite 1570, Houston, Texas 77056 pursuant to a lease for approximately 5,200 sq. ft. that expires in December 2011. The Company believes that this space is adequate for the foreseeable future.
 
Item 3.
Legal Proceedings

On May 4, 2006, a search warrant issued by the U.S. District Court of the Southern District of Texas, Houston Division, was executed on the Company seeking various records including, among other matters, documents, if any, related to correspondence with foreign governmental officials or entities in Sao Tome and Nigeria. With the guidance of the law firm of Akin Gump Strauss Hauer & Feld LLP, ERHC Energy continues to work with the U.S. Department of Justice in connection with the Department’s investigation. The Department of Justice agreed to ERHC’s request to return to ERHC a complete copy set of all paper documents seized in the Government’s May 4, 2006 search of ERHC’s Houston office. ERHC has received a copy set of these business documents. ERHC filed suit in federal district court in Texas in June. The lawsuit sought to protect the company’s attorney-client privileged documents and to allow ERHC counsel to determine the factual basis for the Justice Department’s search warrant affidavit, which is currently under seal. Although the judge has ordered that the affidavit remain under seal, his ruling requires the Justice Department to provide a neutral “taint team” to review all seized documents and to identify those that may be privileged. The neutral taint team is charged with the responsibility to withhold from the investigating attorneys any documents that it believes to be privileged. The ruling also provides the company with the right to challenge the Justice Department’s privilege determinations in court. Since the ruling, ERHC has been in communication with the Justice Department regarding the Government’s compliance with the ordered taint team procedures, and regarding the Government’s ongoing investigation.

The attorneys of Akin Gump Strauss Hauer & Feld LLP are also assisting in ERHC’s response to a related U.S. Securities and Exchange Commission (SEC) subpoena issued on May 9, 2006, and to a second related subpoena issued on August 26, 2006. The subpoenas request a range of documents, including among others, all documents related to correspondence with foreign governmental officials or entities in Sao Tome and Nigeria as well as for personnel records (specifically, those regarding former CFO, Franklin Ihekwoaba) and other corporate records from the Company. ERHC has responded to both subpoenas. 

During October 2006, Lakeshore Capital Limited (“Lakeshore”) filed an arbitration claim against ERHC before the American Arbitration Association, seeking $4,400,000 for the alleged value of 4,500,000 shares of ERHC common stock and for a warrant to purchase 1,500,000 shares at an exercise price of $.20 per share, including interest and costs.  Lakeshore claims it is owed this sum for services previously rendered under a contract with ERHC.  ERHC believes that Lakeshore’s claim is entirely without merit, has filed an arbitration response disputing Lakeshore’s claim, and intends to vigorously defend all Lakeshore claims.

From time to time, the Company may be subject to routine litigation, claims, or disputes in the ordinary course of business which, in the opinion of management, should not have a materially adverse effect on the Company’s financial position.

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

Not Applicable.



Item 5.
Market for Registrant’s common stock and Related Shareholder Matters

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 sporadic and highly volatile.  The following table sets forth the closing sales price per share of the common stock for the past two 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
   
(per share)
Fiscal Year 2005
       
First Quarter
 
$0.55
 
$0.28
Second Quarter
 
$0.75
 
$0.42
Third Quarter
 
$0.94
 
$0.43
Fourth Quarter
 
$0.50
 
$0.32
   
 
 
 
Fiscal Year 2006
     
 
First Quarter
 
$0.41
 
$0.30
Second Quarter
 
$0.95
 
$0.30
Third Quarter
 
$0.92
 
$0.40
Fourth Quarter
 
$0.54
 
$0.37

On November 30, 2006, the closing price of the common stock as reported on the “OTC Bulletin Board” was $0.385.  As of November 30, 2006, there were approximately 2,236 record owners of the common stock.  The Company has not paid any dividends during the last two fiscal years and does not anticipate paying any cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

The Company has sold the following unregistered securities:

 
·
During the second fiscal quarter of 2006, options issued in 2005, with an exercise price of $0.20, were exercised on a cashless basis, which exercise resulted in the issuance of an aggregate of 950,140 shares of common stock.
 
·
During the second fiscal quarter of 2006, the Company agreed to issue 5,250,000 shares of common stock and warrants to purchase 6,500,000 shares of common stock with an exercise price of $0.355 per share.
 
·
During the third fiscal quarter of 2006, options issued in 2004 and 2005, with an exercise price of $0.20, were exercised on a cashless basis, which exercise resulted in the issuance of an aggregate of 1,661,616 shares of common stock.
 
·
During the fourth fiscal quarter of 2006, the Company issued 800,000 shares of common stock upon exercise of warrant agreements for $160,000.
 
·
During the fourth fiscal quarter of 2006, we issued an aggregate of 4,665,000 shares of common stock to our directors for services rendered as more fully disclosed in Item 10, Directors and Executive Officers of the Registrant. The shares include compensation for two members of Board for their past services based on independent reports of an accounting firm and a compensation consultant.

With respect to the sale of the unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. No sales commissions were paid in connection with these transactions.

Item 6.
Selected Financial Data

The selected financial data of the Company presented below as of and for each of the five years in the period ended September 30, 2006, has been derived from the audited financial statements of the Company.  The financial statements as of and for the years ended September 30, 2006 and 2005 have been audited by Malone & Bailey, PC, and the financial statements as of and for each of the three years in the period ended September 30, 2004 have been audited by Pannell Kerr Forster of Texas, P.C., independent registered public accounting firms. The data set forth below should be read in conjunction with the Company’s financial statements, related notes thereto and Management’s Discussion and Analysis of Financial Condition and Plan of Operations, contained elsewhere herein.

 
   
For the Years Ended September 30,
 
Statements of Operations Data
 
2006
 
2005
 
2004
 
2003
 
2002
 
                            
Revenues
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
Operating expenses
   
5,988,756
   
4,652,459
   
2,085,426
   
1,944,655
   
2,883,099
 
Interest expense
   
(2,099
)
 
(1,147,248
)
 
(1,671,759
)
 
(1,209,227
)
 
(1,201,111
)
Other Income (expense)
   
31,225,391
   
278,804
   
163,797
   
-
   
-
 
Loss on extinguishment of debt
   
-
   
(5,749,575
)
 
-
   
-
   
-
 
Provision for taxes
   
2,063,000
   
-
   
-
   
-
   
-
 
Net income (loss)
   
23,171,536
   
(11,270,478
)
 
(3,593,388
)
 
(3,153,882
)
 
(4,084,210
)
Net income (loss) per share - basic and diluted
   
0.03
   
(0.02
)
 
(0.01
)
 
(0.01
)
 
(0.01
)
Weighted average shares of common stock outstanding
   
712,063,980
   
671,164,058
   
592,603,441
   
567,788,483
   
542,680,423
 
                                 
 
 
As of September 30, 
Balance Sheet Data
   
2006
 
 
2005
 
 
2004
 
 
2003
 
 
2002
 
                                 
DRSTP Concession fee
 
$
2,839,500
 
$
5,679,000
 
$
5,679,000
 
$
5,679,000
 
$
5,630,000
 
Total assets
   
45,878,249
   
6,720,210
   
5,728,556
   
5,735,744
   
5,672,064
 
Total liabilities
   
10,390,126
   
2,779,011
   
14,757,208
   
16,283,506
   
17,739,198
 
Shareholders' equity (deficit)
   
35,488,123 
   
3,941,199
   
(9,028,652
)
 
(10,547,762
)
 
(12,067,134
)
 
Item 7.
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 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.

Overview

ERHC reports as a development stage enterprise as there are currently no significant operations and no revenue has been generated from business activities. The Company was formed in 1986, as a Colorado corporation, and was engaged in a variety of businesses until 1996, when it began its current operations as an independent oil and gas company.  The Company’s goal is to maximize its value through exploration and exploitation of oil and gas reserves in the Gulf of Guinea offshore of central West Africa. 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 production sharing agreements with upstream oil and gas companies in these JDZ Blocks. The technical and operational expertise in conducting exploration operations will be provided by the Company’s participating interest oil and gas companies.

Critical accounting policies

In December 2001, the SEC requested that companies discuss their most “critical accounting policies” in the Management’s Discussion and Analysis section of their reports.  The SEC indicated that a “critical accounting policy” is one that is important to the portrayal of a company’s financial condition and operating results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

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 that effect 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 primarily transacts its business with two financial institutions. From time to time the amount on deposit in either one of these institutions may exceed the $100,000 federally insured limit.  The balances are maintained in demand accounts to minimize risk.

The Company’s current focus is to exploit its only assets, which are agreements with the DRSTP concerning oil and gas exploration in EEZ and with the JDA concerning oil and gas exploration in the JDZ.  The Company has formed relationships with other oil and gas companies with the technical and financial capabilities to assist the Company in leveraging its interests in the EEZ and the JDZ. The Company currently has no other operations.


Stock-based compensation

During the year ended September 30, 2004, the Company issued a former Chief Executive Officer an option to purchase 3,000,000 shares of common stock at an exercise price of $0.20 per share. Due to the resignation of this employee in January 2006, the right to purchase 1,000,000 shares did not vest, and in June 2006, this former employee exercised 2,000,000 options on a cashless basis for the issuance of 1,272,727 shares.

Effective October 1, 2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107. Prior to October 1, 2005, the Company had accounted for stock options according to the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. The Company adopted the modified prospective transition method provided for under SFAS No. 123R, and, consequently, has not retroactively adjusted results from prior periods. Stock awards outstanding under the Company’s current plans have generally been granted at prices which are equal to the market value of the Company’s stock on the date of grant, generally vest over one year and bear no expiration date. Effective October 1, 2005, the Company began recognizing compensation expense ratably over the vesting period, net of estimated forfeitures. Due to the mutual resignation of an employee in January 2006 and the cancellation of the non-vested 1,000,000 options, the previously recognized expense in the first fiscal quarter of 2006 of $101,618 has been reversed. The Company currently has no non-vested employee options.

Impairment of long-lived assets

The Company evaluates the recoverability of long-lived assets when events and circumstances indicate that such assets might be impaired.  The Company 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.  Management of the Company has evaluated its investment in its DRSTP concession fee and believes that there have been no events or circumstances that would indicate that such asset might be impaired.

New accounting pronouncements

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3”. This statement changes the requirements for the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Adoption of SFAS No. 154 is not expected to have an effect on the Company’s consolidated financial statements.  

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement classification, accounting for interest and penalties and accounting in interim periods and disclosure. The provisions of FIN No. 48 are effective for fiscal years beginning after December 15, 2006. The Company does not expect that the adoption of FIN No. 48 will have a material effect on its financial position or results of operations.

Former Operations

The Company acquired a lease in oil fields located in Wichita County, Texas, which was subsequently assigned to a former shareholder.  However, in connection with the lease in Wichita County, the Company may remain liable for certain plugging and abandonment costs, estimated to be approximately $485,000, which have been accrued as of September 30, 2006 and 2005.


Results of Operations

Year ended September 30, 2006 Compared to Year Ended September 30, 2005

During fiscal 2006, the Company had general and administrative expenses of $5,979,609 compared with $4,645,783 in fiscal 2005. This increase was primarily attributed to increased legal fees as a result of the Department of Justice investigation.

During 2006, the Company had net income of $23,171,536, compared to a net loss of $11,270,478 for fiscal 2005. The three primary reasons for the $34,442,014 improvement in net income for the year ended September 30, 2006 were: (i) a $30,102,250 net gain from the sale of participation interests in the three JDZ Blocks under production sharing contracts with various joint venture partners; (ii) a $5,749,575 non-cash loss on extinguishment of debt during fiscal 2005 as the result of the issuance of shares in conjunction with a conversion of debt to common stock; and (iii) fiscal 2006 income tax expense of $2,063,000.

During fiscal 2006, the Company entered into production sharing agreements in Blocks 2, 3 and 4 under which they sold various participating interests for total cash proceeds of $45,900,000 which resulted in net cash provided by investing activities of $45,896,876, compared with net cash used by investing activities of $24,277 for fiscal 2005.

During fiscal 2006 and 2005, the Company had no revenues from which cash flows could be generated to support operations. In fiscal 2006, the Company relied primarily upon cash generated from the sale of interests to fund operations and in fiscal 2005, the Company relied on borrowings funded from its line of credit as well as the sale of common stock.

Year ended September 30, 2005 Compared to Year Ended September 30, 2004

During fiscal 2005, the Company incurred a net loss of $11,270,478, compared to a net loss of $3,593,388 for the year ended September 30, 2004. A significant portion of the increase in net loss for the year ended September 30, 2005 was attributable to a $5,749,575 loss on extinguishment of debt related to the conversion of debt into common stock.

General and administrative expenses were $4,645,783 in fiscal 2005 compared with $2,085,426 in fiscal 2004, such increase was the result of the Company canceling in December 2004, its management services agreement with Chrome, covering all its operating expenses.
 
During 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 as well as the sale of common stock.
 
Liquidity and Capital Resources

As of September 30, 2006, the Company had working capital of $32,154,019. The Company received $45,900,000 in March 2006 from its partners when production-sharing agreements in Blocks 2, 3 and 4 were signed. The Company believes that it has sufficient liquidity to meet working capital requirements for fiscal 2007. The Company has no material commitments for capital resources.

Off-Balance Sheet Arrangements

As of September 30, 2006, the Company does not have any off-balance sheet arrangements.

Contractual Obligations and Commercial Commitments

The following table provides information at September 30, 2006, 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
 
4 - 5 Years
 
After
 5 Years
 
                       
Convertible debt
 
$
33,513
 
$
33,513
 
$
-
 
$
-
 
$
-
 
Settlement agreement
   
175,000
   
175,000
                   
Operating lease
   
545,901
   
90,981
   
321,120
   
133,800
   
-
 
                                 
Total
 
$
754,414
 
$
299,494
 
$
321,120
 
$
133,800
 
$
-
 


Item 7A.
Quantitative and Qualitative Disclosures about Market Risk

The Company’s current focus is to exploit its only assets, which are rights to working interest in the JDZ and EEZ under agreements with the JDA and DRSTP.  The Company intends to form relationships with other oil and gas companies with technical and financial capabilities to assist the Company in leveraging its interests in the EEZ and the JDZ.  The Company currently has no other operations.

At September 30, 2006, all of the Company's operations were located outside the United States. The Company’s main asset are agreements with DRSTP and the JDA, which provide ERHC with rights to participate in exploration and production activities in the Gulf of Guinea off the coast of central 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 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 versus the local currencies in which future oil and gas producing activities may be denominated. As well, 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, nor do we engage in any foreign currency denominated transactions.

Item 8.
Financial Statements and Supplementary Data

See Index to Financial Statement at page F-1.  The financial statements with the reports of the independent registered public accounting firms are included on pages F-2 through F-31 of this document.  Financial statement schedules other than those included herein have been omitted because the required information is contained in the financial statements or related notes, or such information is not applicable.

Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

On November 4, 2005, Pannell Kerr Forster of Texas, P.C. ("PKF") resigned as independent auditor. PKF's report on the financial statements for the fiscal years ended September 30, 2004 and 2003, contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. The Audit Committee of the Company's Board of Directors was informed of, but did not recommend or approve, PKF's resignation.

During the Company's fiscal years September 30, 2004 and 2003, and the subsequent interim periods preceding PKF's resignation, there were no disagreements between the Company and PKF on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to PKF's satisfaction, would have caused PKF to make reference to the subject matter of the disagreement in connection with their report.

On November 14, 2005, Audit Committee of the Board Directors engaged Malone & Bailey, PC as our new independent auditor for the fiscal year ended September 30, 2005. During the two most recent fiscal years ended September 30, 2004 and September 30, 2003 and the subsequent interim periods prior to our engagement of Malone & Bailey, we did not consult with Malone & Bailey regarding the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements.

Item 9A.
Controls and Procedures
 
Management’s Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.


Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of September 30, 2006.

Our independent registered public accounting firm has audited management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2006, as stated in their report which appears on page F-2 of this Form 10-K under the heading, Report of Independent Registered Public Accounting Firm.
 
Changes in Internal Control over Financial Reporting
 
Except as otherwise discussed herein, there have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
Item 9B.
Other Information
 
None.
 

Item 10.
Directors and Executive Officers of the Registrant

The following are Directors and Executive Officers of the Company as of November 30, 2006:

Name
 
Age
 
Position
         
Sir Emeka Offor
 
47
 
Chairman of the Board
Nicolae Luca
 
47
 
Interim Chief Executive Officer, and Director
Howard Jeter
 
59
 
Director
Andrew Uzoigwe
 
64
 
Director
Clement Nwizubo
 
54
 
Director
Peter C. Ntephe
 
40
 
Secretary

Sir Emeka Offor has served as the Chairman of the Board of ERHC since February 2001.  In addition to his duties as Chairman, Sir Emeka Offor is currently Chairman of Chrome Consortium. He is the Director and shareholder of Chrome Oil Services Limited (“COS”). COS is the company’s majority shareholder. Sir Emeka has held these positions at various times since 1995.  Apart from owning majority interests in these companies, Sir Emeka Offor has majority interests in aviation, banking and insurance companies.

Nicolae Luca has served as Interim Chief Executive Officer since July 2006 and has served as a Director since February 2001.  For over five years Mr. Luca has also served as the Technical Director for the Nigeria-incorporated entity Chrome Oil Services Limited, (a separate and distinct entity from the Bahamas-incorporated Chrome Oil Services Limited which is the Company’s majority shareholder). Mr. Luca has a Bachelor of Science in Mechanical Engineering. 

Ambassador (rtd.) Howard F. Jeter is the Executive Vice President of GoodWorks International, LLC, an international consulting firm focused on business facilitation and investment promotion for Africa and the Caribbean. A former career diplomat, Ambassador Jeter served for 27 years in the American Foreign Service and retired from the State Department with the rank of career Minister.
Ambassador Jeter was U.S. Ambassador to Nigeria and to the Republic of Botswana, and also served as Deputy Assistant Secretary of State for African Affairs, Director of West African Affairs, and Special Presidential Envoy to Liberia. Other diplomatic postings included Namibia, Lesotho, Tanzania, and Mozambique. Ambassador Jeter holds a BA Degree in Political Science from Morehouse College, a MA in International Relations and Comparative Politics from Columbia University, and a MA in African Studies from UCLA. He is a member of Phi Beta Kappa, the American Foreign Service Association, and the Council on Foreign Relations. Ambassador Jeter is currently Chairman of the U.S. Export-Import Bank’s Advisory Committee on Africa and a member of the Board of Directors of Africare and Africa Action respectively.
Ambassador Jeter has received numerous awards and recognitions for his work and service, including a Presidential Meritorious Award, State Department Superior Honor Awards, Senior Foreign Service Performance Awards, the Rainbow/Push Coalition International Peace and Justice Award, and the prestigious Bennie Trailblazer Award from Morehouse College.


Andrew Uzoigwe has served as a Director since April 2005. Dr. Uzoigwe started his career with Dow Chemical Company where he held various senior positions in its Walnut Creek Research Center and in its Specialty Chemicals Facility in Pittsburgh, California. He joined the Nigerian National Petroleum Corporation (NNPC) in 1981. During his tenure at NNPC, Dr. Uzoigwe held several senior technical and management positions including Chief Engineer and Project Coordinator (Petrochemicals), Group General Manager (R&D Division), Managing Director of NNPC’s Refining and Petrochemicals subsidiaries. In 1999 he was appointed the Group Executive Director (Exploration & Production) a position he held until he retired from NNPC in 2002. Dr. Uzoigwe has also served in the Governing Boards of Raw Material Research and Development Council, National Management Agency. He has traveled extensively on numerous professional and official assignments on behalf of NNPC and the Nigerian Government. Dr. Uzoigwe is a Registered Professional Mechanical Engineer and a Registered Professional Chemical Engineer in the State of California. He is a fellow of the Nigerian Society of Chemical Engineers and a Fellow of the Polymer Institute of Nigeria. He has BSc (Mechanical Engineering) and Master of Business Administration Degree from University of California at Berkley. He also holds Msc and PhD Degrees in Petroleum and Chemical Engineering from Stanford University California.

Clement Nwizubo CPA has served as Director and Audit Committee Chairman since March 2006. Mr. Nwizubo is currently President of Clement E. Nwizubo, CPA, PC, a New-York based firm, which he founded in 1987. From 1985 to 1987, he was the Manager of Financial Reporting at Primerica Corporation. From 1983 to 1985 he was the Audit Manager of Watson Rice and Company. Between 1980 and 1983 he worked as a Senior Accountant with Stewart Benjamin and Brown. Mr. Nwizubo is a Certified Public Accountant and received his BS in Accounting and Business Administration in 1977 from Oneonta State College and an MBA in 1980 from Fordham University.

Peter C. Ntephe has served as Secretary since February 2001.  From 1987 to 1992, Mr. Ntephe worked with Serena David Dokubo and Company, rising to the Head of the Corporate Legal Services Department. From 1992 to 1999, he was a partner in the law firm of NSW Law and oversaw the firm’s provision of company secretarial services to corporate clients. From 1999 to 2001, he was Chief Legislative Aide to the Chairman of the Senate Committee for Judiciary and Legal Matters, National Assembly of Nigeria. Mr. Ntephe has a Bachelors’ and two Masters degrees in law, the second Masters being a specialization in regulatory issues from the University of London.
 
All Officers serve at the discretion of the Board of Directors.  There are no family relationships between or among any Executive Officers and Directors. There are no arrangements or understandings between an Executive Officer or Director and any other person pursuant to which he was or is to be selected as an Executive Officer or Director.

Compensation of Directors

Compensation for fiscal 2006 and 2005, as recommended by the Compensation Committee and approved by the Board, was as follows:

Name
 
2006 Cash Compensation
 
2006
Common
Stock
Issuances
 
Value of
2006
Common
Stock
Issuances
 
2006 Total Compensation
 
Sir Emeka Offor
 
$
48,900
   
60,000
 
$
24,378
 
$
73,278
 
Nicolae Luca
   
26,250
   
60,000
   
24,378
   
50,628
 
Howard Jeter
   
40,750
   
60,000
   
24,378
   
65,128
 
Andrew Uzoigwe
   
39,250
   
60,000
   
24,378
   
63,628
 
Clement Nwizubo
   
22,833
   
85,000
   
34,536
   
57,369
 
   
$
177,983
   
325,000
 
$
132,048
 
$
310,031
 

Name
 
2005 Cash Compensation
 
2005
Common
Stock
Issuances
 
Value of
2005
Common
 Stock
Issuances
 
2005 Total Compensation
 
Sir Emeka Offor
 
$
33,300
 
 *     4,085,000
 
$
1,736,125
 
$
1,769,425
 
Nicolae Luca
   
19,125
   
85,000
   
36,125
   
55,250
 
Howard Jeter
   
13,292
   
85,000
   
36,125
   
49,417
 
Andrew Uzoigwe
   
13,644
   
85,000
   
36,125
   
49,769
 
   
$
79,361
   
4, 340,000
 
$
1,844,500
 
$
1,923,861
 
 
*  Includes compensation for past services to the Company since 2001.
 

It is expected that the directors will receive compensation in fiscal 2007.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s Directors and Executive Officers, and persons who own beneficially more than ten percent (10%) of the common stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission.  Copies of all filed reports are required to be furnished to us. Based solely on the reports received and the representations of the reporting person, the Company believes that these persons have complied with all applicable filing requirements during the fiscal year ended September 30, 2006, except for late Form 5 filings by each of Messrs. Offor, Luca, Jeter, Uzoigwe, Nwizubo, Ntephe and Chrome Oil Services. Each late Form 5 has been or will be subsequently filed.

Corporate Governance

The Board of Directors has adopted a Code of Ethics to govern the conduct of all of the Officers, Directors and employees of the Company. In addition, the Board has adopted a Charter for the Audit Committee, Governance and Nominating Committee Charter, Compensation Committee Charter, FCPA Policy, Policy on Insider Trading, Short-Swing Trading Policy and Whistleblower Protection Policy. All these can be accessed on the company’s website at www.erhc.com
 
Director Independence

The Board of Directors has determined that Messrs. Nwizubo, Jeter and Uzoigwe are “Independent” as defined by the Securities and Exchange Commission (“SEC”) and for purposes of Section 162(m) of the Internal Code of 1986, as amended (the “Code”). No Director is deemed independent unless the Board affirmatively determines that the Director has no material relationship with the Company, either directly or as an Officer, stockholder or partner of an organization that has a relationship with the Company. In making its determination, the Board observes all criteria for independence established by the rules of the SEC.

Audit Committee

The Company’s Audit Committee is constituted of Messrs. Nwizubo (Chairman), Jeter and Uzoigwe. The ultimate responsibility for good corporate governance rests with the Board, whose primary role is oversight, counseling and direction to the Company's management in the best long-term interests of the Company and its stockholders. The Audit Committee, in accordance with its charter, has been established for the purpose of overseeing the accounting and financial reporting processes of the Company and audits of the Company's annual financial statements. As described more fully in its charter, the purpose of the Audit Committee is to assist the Board in its general oversight of the Company's financial reporting, internal controls and audit functions. Management is responsible for the preparation, presentation and integrity of the Company's financial statements; establishing and applying accounting and financial reporting principles; designing and implementing systems of internal controls; and establishing procedures designed to reasonably assure compliance with accounting standards, applicable laws and regulations. The Company's independent auditing firm is responsible for performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards. In accordance with law, the Audit Committee has ultimate authority and responsibility to select, compensate, evaluate and, when appropriate, replace the Company's independent auditors. The Audit Committee has the authority to engage its own outside advisers, including experts in particular areas of accounting, as it determines appropriate, apart from counsel or advisers hired by management. All of the members of the Audit Committee meet the independence and experience requirements of the SEC. The Board of Directors has determined that Mr. Nwizubo qualifies as an “Audit Committee Financial Expert” as defined by the SEC.

The Audit Committee members [except the chairman] are not professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management and the independent auditors, nor can the Audit Committee certify that the independent auditors are “independent” under applicable rules. The Audit Committee serves a Board-level oversight role, in which it provides advice, counsel and direction to management and the auditors on the basis of the information it receives, discussions with management and the auditors, and the experience of the Audit Committee's members in business, financial and accounting matters. Stockholders should understand that the designation of “an Audit Committee Financial Expert” is an SEC disclosure requirement related to Mr. Nwizubo’s experience and understanding with respect to certain accounting and auditing matters. The designation does not impose on Mr. Nwizubo’s any duties, obligations or liability greater than generally imposed on them as members of the Audit Committee and the Board, and this designation as an Audit Committee Financial Expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board.    


Item 11.
Executive Compensation

Summary Compensation Table

The following table sets forth certain information regarding compensation paid by the Company to its Chief Executive Officer and other Executive Officers who received total annual salary and bonus that exceeded $100,000 during the periods involved.

               
Long-term Compensation Awards
 
Name and Principal Positions
 
Fiscal Year
 
Annual Compensation Salary ($)
 
Bonus ($)
 
Restricted Stock Awards(s) ($)
 
Securities Underlying Options/SARs
 
                       
Nicolae Luca
   
2006
   
-
   
-
   
(1
)
 
-
 
Interim Chief Executive Officer
                               
                                 
Walter Brandhuber
   
2006
   
125,000
   
-
   
-
   
-
 
Former chief executive officer
                               
                                 
Ali Memon
   
2006
   
58,333
   
-
   
-
   
(2
)
Former chief executive officer
   
2005
   
187,500
                   
     
2004
   
25,000
                   
 
__________
(1) Mr. Luca was issued 85,000 shares in fiscal 2005 and 60,000 shares in fiscal 2006 for services rendered in his capacity as a Director.
(2) Pursuant to Mr. Memon’s employment agreement, Mr. Memon exercised on a cashless basis an option to purchase up to 2,000,000 shares of Company common stock in June 2006 and acquired 1,272,727 shares.
 
Option Grants in Fiscal Year Ending September 30, 2006

The following table sets forth information concerning individual grants of options made during the fiscal year ended September 30, 2006, to our named Executive Officers.


   
Individual Grants
 
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Options
Term (1)
 
Name
(a)
 
Number of Securities Underlying Option/SARs
Granted (#)
(b)
 
Percent Of
Total
 Options/SARs Granted to Employees In
Fiscal Year (c)
 
Exercise
Of Base
Price
($/Sh) (d)
 
Market
Price at
Date of
Grant
 
Expiration
Date
(e)
 
5%
(f)
 
10%
(g)
 
0%
 
Nicolae Luca
   
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Walter Brandhuber
   
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Ali Memon
   
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 


Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values

The following table sets forth information concerning options exercised during the fiscal year ended September 30, 2006 and option holdings as of September 30, 2006, with respect to our named Executive Officers. No stock options or stock appreciation rights were issued during the fiscal year.


Aggregated Option Exercises in 2006
and Year-End Option Values
 
Name
(a)
 
Shares Acquired  on
Exercise (#)
(b)
 
Value Realized ($)
(c)
 
Number of Unexercised
Options at FY-end
(d)
 
Value of Unexercised
in-the-Money Options
(e)
 
           
Exercisable
 
Unexercisable
 
Exercisable
 
Unexercisable
 
Nicolae Luca
   
-
   
-
   
-
   
-
   
-
   
-
 
Walter Brandhuber
   
-
   
-
   
-
   
-
   
-
   
-
 
                                       
Ali Memon
   
1,272,727
 
$
700,000
   
-
   
-
   
-
   
-
 

Employment Contracts

We do not have an employment agreement with Mr. Luca, nor do we pay him a salary for his services as Interim Chief Executive Officer. Mr. Memon’s employment agreement with the Company terminated in January 2006 when, by mutual agreement with the Board on his disengagement from the Company, Mr. Memon resigned his employment with the Company. The Company is obligated to pay Mr. Memon $16,667 a month through August 2007. Mr. Brandhuber’s employment agreement with the Company commenced in January 2006 and terminated in July 2006 when, by mutual agreement with the Board on his disengagement from the Company, Mr. Brandhuber resigned his employment with the Company and there is no continuing obligation of the Company in connection with Mr. Brandhuber’s terminated employment agreement. Mr. Ntephe, a consultant, is paid annual compensation of $60,000 for his services as Secretary. Mr. Ntephe was issued an option, for services rendered, since 2001 to purchase 500,000 shares at an exercise price of $0.20 per share that he exercised on a cashless basis in April 2006, for the acquisition of 388,889 shares of common stock, for value received of $350,000.
 
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, 7,276,756 shares have been issued and no options, warrants or rights are outstanding under this Plan as the date hereof.

Plan Category
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding
options, warrants and
rights
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)
 
(a)
(b)
(c)
Equity compensation plans
approved by security
holders
-
-
-
Equity compensation plans
not approved by security
holders
-
-
-

Compensation Committee Interlocks Insider Participation

The Company’s Compensation Committee is comprised Messrs. Jeter, Uzoigwe and Nwizubo. None of the members of the Compensation Committee has been or is an officer or employee of the Company, or is involved with a related party transaction or a relationship as defined by Item 404 of Regulation S-K. None of the Company’s Executive Officers serves on the Board of Directors or compensation committee of a company that has an Executive Officer that serves on the Company’s Board or Compensation Committee. No member of the Company’s Board is an Executive Officer of a company in which one of the Company’s Executive Officers serves as a member of the Board of Directors or compensation committee of that company.  


Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table and notes thereto set forth certain information regarding beneficial ownership of the common stock as of November 30, 2006 by (i) each person known by the Company to beneficially own more than five percent of the common stock, (ii) each Director, (iii) each named Executive Officer and (iv) all Directors and Officers of the Company as a group.  As of November 30, 2006, there were 718,988,982 shares of common stock issued and outstanding.  Beneficial ownership is determined in accordance with rules of the SEC and generally includes voting or dispositive power with respect to such shares.
 
Name and Address
 
Shares of common stock
Beneficially Owned
 
Percentage
Of Voting Power
         
Principal Shareholders
       
Chrome Oil Services
 
306,091,433 (1)
 
42.6%
No 22 Lobito
       
Wuse II, Abuja
       
Nigeria
       
         
First Atlantic Bank
 
60,641,821
 
8.4%
c/o John B. Geddie
       
Siegnryl, Oshman and Geddie
       
Allen Parkway
       
Houston, Texas  77019
       
         
Directors and Named Executive Officers
       
Sir Emeka Offor
 
310,236,433 (1)(2)
 
43.0%
Nicolae Luca
 
145,000
 
*
Andrew Uzoigwe
 
145,000
 
*
Howard Jeter
 
145,000
 
*
Clement Nwizubo
 
85,000
 
*
Walter Brandhuber
 
-
 
-
Ali Memon
 
-
 
-
         
All executive officers and directors as a group (6 persons)
 
   311,145,322
 
43.1%
_______________
* Less than 1%.

(1)
Includes warrants to purchase 2,500,000 shares of the Company’s common stock, of which 1,500,000 expire in October 2008 and have a $0.25 per share exercise price, and 1,000,000 expire in April 2009 and have a $0.25 per share exercise price. 
 
(2)
Sir Emeka Offor is the beneficial owner of the shares held of record by Chrome Oil Services, Ltd., as the sole voting and investment power over these shares. 
 
Item 13.
Certain Relationships and Related Transactions

None.

Item 14.
Principal Accounting Fees and Services

Aggregate fees for professional services rendered by Malone & Bailey, PC for the fiscal years ended September 30, 2006 and 2005, were as follows:

   
2006
 
2005
 
           
Audit fee
 
$
102,627
(1)
$
151,425
(2)
Audit-related fees
 
$
-
 
$
-
 
Tax fees
 
$
18,434
 
$
32,648
 
All other fees
 
$
20,140
 
$
990
 
______________
 
(1)
Includes $12,409 paid to PKF.
 
(2)
Includes $107,070 paid to PKF.


Audit fees for the fiscal years ended September 30, 2006 and 2005 represent the aggregate fees billed for professional services rendered for the audit of our annual financial statements and review of financial statements included in our quarterly reports on Form 10-Q or services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years.

Tax fees for the fiscal year ended September 30, 2006 and 2005, represents the aggregate fees billed for professional services rendered for tax compliance, tax advice, and tax planning.

All other fees for the fiscal year ended September 30, 2006 and 2005, represents the aggregate fees billed for products and services provided by our audit professionals other than the services reported in the other categories.  All other fees generally relate to fees assessed for corporate tax restructuring and other general corporate tax related matters.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee on an annual basis reviews audit and non-audit services performed by the independent auditor.  All audit and non-audit services are pre-approved by the Audit Committee, which considers, among other things, the possible effect of the performance of such services on the auditors’ independence.  The Audit Committee has considered the role of Malone & Bailey in providing services to us for the fiscal year ended September 30, 2006 and has concluded that such services are compatible with Malone & Bailey’s independence as the Company’s auditors.

PART IV

Item 15.
Exhibits and Financial Statement Schedules and Reports on Form 8-K

 
(a)
Consolidated Financial Statements and Schedules:

 
1.
Consolidated Financial Statements:  See Index to Consolidated Financial Statements immediately following the signature pages of this report.
 
2.
Consolidated Financial Statement Schedule: See Index to Consolidated Financial Statements immediately following the signature pages of this report.
 
3.
The following documents are filed as exhibits to this report:
 
EXHIBIT NO.
 
IDENTIFICATION OF EXHIBIT
Exhibit 3.1*
 
Articles of Incorporation
Exhibit 3.2*
 
Bylaws
Exhibit 4.1*
 
Specimen Common Stock Certificate.
Exhibit 4.2*
 
Form of Amended and Restated 12% Convertible Promissory Note, dated effective January 2001.
Exhibit 4.3*
 
Form of Amended and Restated 5.5% Convertible Promissory Note, dated effective January 2001.
Exhibit 4.4*
 
20% Convertible Promissory Note, dated January 31, 2001, in favor of Chrome.
Exhibit 4.5*
 
Term Loan Agreement, dated February 15, 2001, by and between Chrome and ERHC.
Exhibit 4.6*
 
Senior Secured 10% Exchangeable 10% Convertible Promissory Note, dated January 31, 2001, in favor of Chrome.
Exhibit 4.7*
 
Form of Warrant entitling Chrome to purchase common stock of the Company, exercise price of $0.40 per share.
Exhibit 10.1*
 
Option Agreement, dated April 7, 2003, by and between the Company and the Democratic Republic of Sao Tome and Principe (incorporated herein by reference to Exhibit 10.1 of Form 8-K filed April 2, 2003)
Exhibit 10.2*
 
Management and Administrative Services Agreement by and between Chrome Oil Services, Ltd. and the Company. (Incorporated by reference to Form 10-KSB filed September 24, 2001).
Exhibit 10.4*
 
Letter Agreement, dated November 29, 2004, by and between the Company and Chrome (incorporated herein by reference to Exhibit 10.1 of Form 8-K filed December 29, 2004).
Exhibit 10.5*
 
Promissory Note, dated December 15, 2004, made by the Company in favor of Chrome (incorporated herein by reference to Exhibit 10.2 of Form 8-K filed December 29, 2004).
Exhibit 10.6*
 
Promissory Note, dated December 15, 2004, made by the Company in favor of Chrome (incorporated herein by reference to Exhibit 10.3 of Form 8-K filed December 29, 2004).
Exhibit 10.7*
 
Employment Agreement with Ali Memon.
Exhibit 10.8*
 
Audit committee charter
 
Consent of Independent Registered Public Accounting Firm
 
Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 
*
Previously filed


SIGNATURES

In accordance with the Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on December 14, 2006 on its behalf by the undersigned, thereunto duly authorized.

ERHC Energy Inc.
 
By:
//s//Nicolae Luca
 
 
Nicolae Luca,
 
 
Interim Chief Executive Officer
 
     
 
//s//Sylvan Odobulu
 
 
Sylvan Odobulu
 
 
Principal Accounting Officer
 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signature
 
Title
 
Date
//s// Howard Jeter
 
Director
 
December 14, 2006
Howard Jeter
 
Member Audit Committee
   
//s// Andrew Uzoigwe
 
Director
 
December 14, 2006
Andrew Uzoigwe
 
Member Audit Committee
   
//s// Clement Nwizubo CPA
 
Director
 
December 14, 2006
Clement Nwizubo
 
Chairman Audit Committee
   

 
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
                       
                   
Page(s)
 
                       
 
Reports of Independent Public Accounting Firms:
             
                       
   
Report of Independent Registered Public Accounting Firm on Management's Assessment of Internal Control Over Financial Reporting as of September 30, 2006
         
F-2
 
                       
   
Report of Independent Registered Public Accounting Firm on the Financial Statements for the Years ended September 30, 2006 and 2005
         
F-3
 
                       
   
Report of Independent Registered Public Accounting Firm on the Financial Statements for for the Year ended September 30, 2004
         
F-4
 
                     
 
Consolidated Financial Statements:
             
                       
   
Consolidated Balance Sheets as of September 30, 2006 and 2005
         
F-5
 
                       
   
Consolidated Statements of Operations for the Years Ended September 30, 2006, 2005 and 2004, and for the period from inception, September 5, 1995, to September 30, 2006
         
F-6
 
                       
   
Consolidated Statements of Shareholders' Equity (Deficit) for the period from inception, September 5, 1995, to September 30, 2006
         
F-7 -F-16
 
                       
   
Consolidated Statements of Cash Flows for the Years Ended September 30, to 2006, 2005 and 2004, and for the period from inception, September 5, 1995, to September 30, 2006
         
F-17 -F-18
 
                       
 
Notes to Consolidated Financial Statements
         
F-19-F-30
 
                       
 
Financial Statement Schedules:
             
                       
   
None
               
                       
 
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 management's assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that ERHC Energy Inc., a corporation in the development stage, maintained effective internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). ERHC’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and on the effectiveness of the ERHC's internal control over financial reporting based on our audit.

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

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

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

In our opinion, management’s assessment that ERHC maintained effective internal control over financial reporting as of September 30, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the COSO. Also in our opinion, ERHC maintained, in all material respects, effective internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the COSO.


Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas

November 22, 2006
 

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., a corporation in the development stage, as of September 30, 2006 and 2005 and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for the years then ended.  These financial statements are the responsibility of ERHC’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether 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 audit provides 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 as of September 30, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of ERHC’s internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 22, 2006 expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.


Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas

November 22, 2006


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders
ERHC Energy Inc.
Houston, Texas

We have audited the accompanying consolidated statement of operations and cash flows of ERHC Energy Inc. (the “Company”), a development stage company, for the year ended September 30, 2004 and the consolidated statement of shareholders’ equity (deficit) for the years ended September 30, 1999 through September 30, 2004. These financial statements are the responsibility of the Company’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 audits 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 statements of operations and cash flows of ERHC Energy Inc. for the year ended September 30, 2004 and the consolidated statements of stockholders’ equity (deficit) of ERHC Energy Inc. for the years ended September 30, 1999 through September 30, 2004 are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles.


/s/ Pannell Kerr Forster of Texas, P.C.
Pannell Kerr Forster of Texas, P.C.
Houston, Texas
 
December 28, 2004

 
ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
CONSOLIDATED BALANCE SHEETS
 
September 30, 2006 and 2005
 
             
   
2006
 
2005
 
             
ASSETS
           
Current assets:
           
Cash
 
$
40,991,114
 
$
988,490
 
Prepaid expenses and other current assets
   
1,073,031
   
32,093
 
Deferred tax asset - current
   
480,000
   
-
 
               
Total current assets
   
42,544,145
   
1,020,583
 
               
DRSTP concession fee
   
2,839,500
   
5,679,000
 
Furniture and equipment, net
   
14,604
   
20,627
 
Deferred tax asset
   
480,000
   
-
 
               
Total assets
 
$
45,878,249
 
$
6,720,210
 
               
LIABILITIES AND SHAREHOLDERS' EQUITY
             
Current Liabilities:
             
Accounts payable and accrued liabilities
 
$
6,784,004
 
$
192,634
 
Accounts payable and accrued liabilities, related party
   
69,439
   
2,064,675
 
Accrued interest
   
5,023
   
3,189
 
Federal income taxes payable
   
3,013,147
   
-
 
Asset retirement obligation
   
485,000
   
485,000
 
Current portion of convertible debt
   
33,513
   
33,513
 
               
Total current liabilities
   
10,390,126
   
2,779,011
 
               
Commitments and contingencies
   
-
   
-
 
               
Shareholders' equity:
             
Preferred stock, par value $0.0001; authorized 10,000,000; none issued and outstanding
   
-
   
-
 
Common stock, par value $0.0001; authorized 950,000,000 shares; issued and outstanding 718,988,982 and 710,912,226 at September 30, 2006 and 2005, respectively
   
71,899
   
71,091
 
Additional paid-in capital
   
91,652,399
   
83,584,956
 
Deficits accumulated in the development stage
   
(56,236,175
)
 
(79,407,711
)
Deferred compensation
   
-
   
(307,137
)
               
Total shareholders’ equity
   
35,488,123
   
3,941,199
 
               
Total liabilities and shareholders' equity
 
$
45,878,249
 
$
6,720,210
 

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

 
ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Years Ended September 30, 2004, 2005 and 2006 and for the Period from Inception,
 
September 5, 1995, to September 30, 2006
 
                      
   
2004
 
2005
 
2006
 
Inception to
September 30,
2006
 
                  
(Unaudited)
 
Operating costs and expenses:
                     
General and administrative expenses
 
$
2,085,426
 
$
4,645,783
 
$
5,979,609
 
$
59,138,262
 
Depreciation, depletion and amortization
   
-
   
6,676
   
9,147
   
1,364,013
 
Write-offs and abandonments
   
-
   
-
   
-
   
7,742,128
 
                           
Loss from operations
   
(2,085,426
)
 
(4,652,459
)
 
(5,988,756
)
 
(68,244,403
)
                           
Other income and (expenses):
                         
Interest income
   
-
   
26,494
   
1,123,141
   
1,149,635
 
Gain from settlement
   
-
   
252,310
   
-
   
252,310
 
Other income
   
163,797
   
-
   
-
   
439,827
 
Gain from sale of partial interest in DRSTP Concession
   
-
   
-
   
30,102,250
   
30,102,250
 
Interest expense
   
(1,671,759
)
 
(1,147,248
)
 
(2,099
)
 
(12,123,219
)
Loss on extinguishment of debt
   
-
   
(5,749,575
)
 
-
   
(5,749,575
)
                           
Total other income and expenses, net
   
(1,507,962
)
 
(6,618,019
)
 
31,223,292
   
14,071,228
 
                           
Income (loss) before benefit (provision) for income taxes
   
(3,593,388
)
 
(11,270,478
)
 
25,234,536
   
(54,173,175
)
                           
Benefit (provision) for income taxes
                         
Current
   
-
   
-
   
(3,023,000
)
 
(3,023,000
)
Deferred
   
-
   
-
   
960,000
   
960,000
 
                           
Total benefit (provision)for income taxes
   
-
   
-
   
(2,063,000
)
 
(2,063,000
)
                           
Net income (loss)
 
$
(3,593,388
)
$
(11,270,478
)
$
23,171,536
 
$
(56,236,175
)
                           
Net income (loss) per common shares
                         
Basic and diluted
 
$
(0.01
)
$
(0.02
)
$
0.03
       
                           
Weighted average number of
                         
common shares outstanding -
                         
Basic
   
592,603,441
   
671,164,058
   
712,063,980
       
Diluted
   
592,603,441
   
671,164,058
   
717,410,403
       

The accompanying notes are an integral part of these financial statements.
 
 
ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
For the Period from Inception, September 5, 1995, to September 30, 2006, (Unaudited for the Period from Inception to September 30, 1998)
 
                                     
   
Common Stock
Shares
 
Amount
 
Additional
Paid-In
Capital
 
Accumulated Deficit
 
Subscription Receivable
 
Deferred Compensation
 
Total
 
                                      
Balance at September 5, 1995
   
-
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
                                             
Common stock issued for cash
   
884,407
   
88
   
-
   
-
   
-
   
-
   
88
 
Common stock issued for services
   
755,043
   
76
   
499,924
   
-
   
-
   
(500,000
)
 
-
 
Net loss
   
-
   
-
   
-
   
(3,404
)
 
-
   
-
   
(3,404
)
                                             
Balance at September 30, 1995
   
1,639,450
   
164
   
499,924
   
(3,404
)
 
-
   
(500,000
)
 
(3,316
)
                                             
Common stock issued for cash, net of expenses
   
361,330
   
36
   
124,851
   
-
   
-
   
-
   
124,887
 
Common stock issued for services
   
138,277
   
14
   
528,263
   
-
   
-
   
-
   
528,277
 
Common stock issued for equipment
   
744,000
   
74
   
3,719,926
   
-
   
-
   
-
   
3,720,000
 
Effect of reverse merger
   
1,578,470
   
158 
   
(243,488
)
 
-
   
-
   
-
   
(243,330
)
Amortization of deferred compensation
   
-
   
-
   
-
   
-
   
-
   
72,500
   
72,500
 
Net loss
   
-
   
-
   
-
   
(728,748
)
 
-
   
-
   
(728,748
)
                                             
Balance at September 30, 1996
   
4,461,527
 
$
446
 
$
4,629,476
 
$
(732,152
)
$
-
 
$
(427,500
)
$
3,470,270
 

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

 
ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
For the Period from Inception, September 5, 1995, to September 30, 2006, (Unaudited for the Period from Inception to September 30, 1998)
 
                                      
             
Additional
                     
   
Common Stock
      
Paid-In
 
Accumulated
 
Subscription
 
Deferred
      
   
Shares
 
Amount
 
Capital
 
Deficit
 
Receivable
 
Compensation
 
Total
 
                                      
Balance at September 30, 1996
   
4,461,527
 
$
446
 
$
4,629,476
 
$
(732,152
)
$
-
 
$
(427,500
)
$
3,470,270
 
                                             
Common stock issued for cash
   
2,222,171
   
222
   
1,977,357
   
-
   
(913,300
)
 
-
   
1,064,279
 
Common stock issued for services
   
9,127,981
   
913
   
12,430,725
   
-
   
-
   
-
   
12,431,638
 
Common stock issued for oil and gas leases and properties
   
500,000
   
50
   
515,575
   
-
   
-
   
-
   
515,625
 
Common stock issued for Chevron contract
   
3,000,000
   
300
   
-
   
-
   
-
   
-
   
300
 
Common stock issued for BAPCO acquisition
   
4,000,000
   
400
   
499,600
   
-
   
-
   
-
   
500,000
 
Contributed
   
(100,000
)
 
(10
)
 
(99,990
)
 
-
   
-
   
-
   
(100,000
)
Amortization of deferred compensation
   
-
   
-
   
-
   
-
   
-
   
177,500
   
177,500
 
Net loss
   
-
   
-
   
-
   
(16,913,052
)
 
-
   
-
   
(16,913,052
)
                                             
Balance at September 30, 1997
   
23,211,679
 
$
2,321
 
$
19,952,743
 
$
(17,645,204
)
$
(913,300
)
$
(250,000
)
$
1,146,560
 

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

 
ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
For the Period from Inception, September 5, 1995, to September 30, 2006, (Unaudited for the Period from Inception to September 30, 1998)
 
                                      
             
Additional
                     
   
Common Stock
      
Paid-In
 
Accumulated
 
Subscription
 
Deferred
      
   
Shares
 
Amount
 
Capital
 
Deficit
 
Receivable
 
Compensation
 
Total
 
                                      
Balance at September 30, 1997
   
23,211,679
 
$
2,321
 
$
19,952,743
 
$
(17,645,204
)
$
(913,300
)
$
(250,000
)
$
1,146,560
 
                                             
Common stock and warrants issued for cash
   
1,124,872
   
113
   
972,682
   
-
   
-
   
-
   
972,795
 
Common stock issued for services
   
1,020,320
   
102
   
1,526,878
   
-
   
-
   
-
   
1,526,980
 
Common stock issued for Uinta acquisition
   
1,000,000
   
100
   
1,999,900
   
-
   
-
   
-
   
2,000,000
 
Common stock issued for Nueces acquisition
   
50,000
   
5
   
148,745
   
-
   
-
   
-
   
148,750
 
Common stock issued for accounts payable
   
491,646
   
49
   
337,958
   
-
   
-
   
-
   
338,007
 
Beneficial conversion feature associated with convertible debt
   
-
   
-
   
1,387,500
   
-
   
-
   
-
   
1,387,500
 
Receipt of subscription receivable
   
-
   
-
   
-
   
-
   
913,300
   
-
   
913,300
 
Option fee and penalty
   
299,536
   
30
   
219,193
   
-
   
-
   
-
   
219,223
 
Common stock issued for building equity
   
24,000
   
2
   
69,998
   
-
   
-
   
-
   
70,000
 
Amortization of deferred compensation
   
-
   
-
   
-
   
-
   
-
   
125,000
   
125,000
 
Net loss
   
-
   
-
   
-
   
(11,579,024
)
 
-
   
-
   
(11,579,024
)
                                             
Balance at September 30, 1998
   
27,222,053
 
$
2,722
 
$
26,615,597
 
$
(29,224,228
)
$
-
 
$
(125,000
)
$
(2,730,909
)
 
The accompanying notes are an integral part of these financial statements.

 
ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
For the Period from Inception, September 5, 1995, to September 30, 2006, (Unaudited for the Period from Inception to September 30, 1998)
 
                                      
             
Additional
                     
   
Common Stock
      
Paid-In
 
Accumulated
 
Subscription
 
Deferred
      
   
Shares
 
Amount
 
Capital
 
Deficit
 
Receivable
 
Compensation
 
Total
 
                                      
Balance at September 30, 1998
   
27,222,053
 
$
2,722
 
$
26,615,597
 
$
(29,224,228
)
$
-
 
$
(125,000
)
$
(2,730,909
)
                                             
Common stock issued for cash
   
397,040,000
   
39,704
   
2,062,296
   
-
   
-
   
-
   
2,102,000
 
Common stock issued for services
   
7,169,000
   
717
   
1,034,185
   
-
   
-
   
-
   
1,034,902
 
Common stock issued for Uinta settlement
   
7,780,653
   
778
   
2,541,161
   
-
   
-
   
-
   
2,541,939
 
Common stock surrendered in BAPCO settlement
   
(7,744,000
)
 
(774
)
 
(2,709,626
)
 
-
   
-
   
-
   
(2,710,400
)
Common stock issued for accounts payable, debt,accrued interest and penalties
   
42,334,767
   
4,233
   
6,768,054
   
-
   
-
   
-
   
6,772,287
 
Common stock issued for officer's salary and bonuses
   
10,580,000
   
1,058
   
4,723,942
   
-