10-K 1 form10k.htm ERHC ENERGY 10-K 9-30-2007 form10k.htm
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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, 2007

OR

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

For the transition period ended: __________________

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

Colorado
88-0218499
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
   
5444 Westheimer Road, Suite 1440, Houston, Texas
77056
(Address of Principal Executive Office)
(Zip Code)

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

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

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

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

Check if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ¨  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 ¨

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant on March 31, 2007 was $144,547,630.

On November 30, 2007, the registrant had 721,938,550 shares of common stock issued and outstanding.
 




 
TABLE OF CONTENTS


   
PART I
PAGE
       
Item 1.
 
5
Item 1A.
 
8
Item 1B.
 
12
Item 2.
 
12
Item 3.
 
13
Item 4.
 
13
       
   
PART II
 
       
Item 5.
 
14
Item 6.
 
15
Item 7.
 
16
Item 7A.
 
19
Item 8.
 
20
Item 9.
 
51
Item 9A.
 
51
Item 9B.
 
51
       
   
PART III
 
       
Item 10.
 
52
Item 11.
 
54
Item 12.
 
57
Item 13.
 
57
Item 14.
 
58
       
   
PART IV
 
       
Item 15.
 
59
   
60


Forward-Looking Statements

ERHC Energy Inc. (the “Company”) or its representatives may, from time to time, make or incorporate by reference certain written or oral statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements.  Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain or be identified by the words “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “believe,” “should,” “could,” “may,” “might,” “will,” “will be,” “will continue,” “will likely result,” “project,” “forecast,” “budget” and similar expressions.  Statements made by the Company in this report that contain forward-looking statements include, but are not limited to, information concerning the Company’s possible or assumed future business activities and results of operations and statements about the following subjects:

 
·
business strategy;
 
·
growth opportunities;
 
·
future development of concessions, exploitation of assets and other business operations;
 
·
future market conditions and the effect of such conditions on the Company’s future activities or results of operations;
 
·
future uses of and requirements for financial resources;
 
·
interest rate and foreign exchange risk;
 
·
future contractual obligations;
 
·
outcomes of legal proceedings including, without limitation, the ongoing investigations of the Company;
 
·
future operations outside the United States;
 
·
competitive position;
 
·
expected financial position;
 
·
future cash flows;
 
·
future liquidity and sufficiency of capital resources;
 
·
future dividends;
 
·
financing plans;
 
·
tax planning;
 
·
budgets for capital and other expenditures;
 
·
plans and objectives of management;
 
·
compliance with applicable laws; and
 
·
adequacy of insurance or indemnification.

These types of statements and other forward-looking statements inherently are subject to a variety of assumptions, risks and uncertainties that could cause actual results, levels of activity, performance or achievements to differ materially from those expected, projected or expressed in forward-looking statements.  These risks and uncertainties include, among others, the following:

 
·
general economic and business conditions;
 
·
worldwide demand for oil and natural gas;
 
·
changes in foreign and domestic oil and gas exploration, development and production activity;
 
·
oil and natural gas price fluctuations and related market expectations;
 
·
termination, renegotiation or modification of existing contracts;
 
·
the ability of the Organization of Petroleum Exporting Countries, commonly called OPEC, to set and maintain production levels and pricing, and the level of production in non-OPEC countries;
 
·
policies of the various governments regarding exploration and development of oil and gas reserves;
 
·
advances in exploration and development technology;
 
·
the political environment of oil-producing regions;
 
·
political instability in the Democratic Republic of Sao Tome and Principe and the Federal Republic of Nigeria;
 
casualty losses;
 
·
competition;
 
·
changes in foreign, political, social and economic conditions;
 
·
risks of international operations, compliance with foreign laws and taxation policies and expropriation or nationalization of equipment and assets;
 
·
risks of potential contractual liabilities;
 
·
foreign exchange and currency fluctuations and regulations, and the inability to repatriate income or capital;
 
·
risks of war, military operations, other armed hostilities, terrorist acts and embargoes;
 
·
regulatory initiatives and compliance with governmental regulations;


 
·
compliance with environmental laws and regulations;
 
·
compliance with tax laws and regulations;
 
·
customer preferences;
 
·
effects of litigation and governmental proceedings;
 
·
cost, availability and adequacy of insurance;
 
·
adequacy of the Company’s sources of liquidity;
 
·
labor conditions and the availability of qualified personnel; and
 
·
various other matters, many of which are beyond the Company’s control.

The risks and uncertainties included here are not exhaustive.  Other sections of this report and the Company’s other filings with the U.S. Securities and Exchange Commission (“SEC”) include additional factors that could adversely affect the Company’s business, results of operations and financial performance.  Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements.  Forward-looking statements included in this report speak only as of the date of this report.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in its expectations with regard to the statement or any change in events, conditions or circumstances on which any forward-looking statement is based.


PART I

Item 1. Business

Overview

ERHC Energy Inc., a Colorado corporation, (“ERHC” or the “Company”) is an independent oil and gas company formed in 1986.  The Company was engaged in a variety of businesses until 1996, when it began its current operations.  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 assets, which are rights to working interests in exploration acreage in the Joint Development Zone (“JDZ”) between the Democratic Republic of Sao Tome and Principe (“DRSTP or “Tome”) and the Federal Republic of Nigeria (“FRN or “Nigeria”) 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 but is exploring opportunities in other areas of the energy industry with emphasis on supply and trading.


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.

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 that block.

On April 28, 2005, ERHC and its then consortium partner Noble Energy International, Ltd. (“Noble”) entered into a Memorandum of Understanding with Godsonic Oil Company Limited (“Godsonic”), an independent bidder for interest in Block 4. The Memorandum of Understanding stated that if ERHC and Noble (“ERHC/Noble”) received less than a 26% bid-interest award in Block 4 in the Nigeria and Sao Tome and Principe JDZ from the JDA established pursuant to the Treaty between FRN and the DRSTP, Godsonic would transfer whatever Godsonic received in Block 4 to ERHC/Noble; on the other hand, if ERHC/Noble received more than a 26% bid-interest award in Block 4 from the JDA, ERHC/Noble would transfer the excess over 26% to Godsonic. In June 2005, the JDA awarded ERHC and its then consortium partner Noble a 35% bid interest in Block 4 of the JDZ, in addition to the option interest of 25% which ERHC had exercised in the Block.  In October 2005, Noble withdrew from participation in Block 4 and Addax Petroleum (Nigeria Offshore 2) Limited (“Addax”) replaced Noble as ERHC’s consortium partner. By a Letter Agreement dated October 24, 2005 (the “Letter Agreement”), ERHC and Addax undertook to transfer a 9% interest of the 35% bid interest to Godsonic subject to Godsonic meeting financial and other conditions.

In November 2005, ERHC and Addax entered into a Participation Agreement dated November 17, 2005 (the “Participation Agreement”) whereby ERHC undertook to assign a 42.3% interest (the “Assigned Interest”) in Block 4 to Addax.  Under the Participation Agreement, ERHC’s “Retained Interest” would be 17.7% in Block 4.  The Participation Agreement stated Addax’s cash payment obligations to ERHC would be $18 million, which was paid in February and March 2006.  Pursuant to the Participation Agreement between ERHC and Addax, as amended, Addax will serve as operator and pay all of ERHC’s future costs in respect of all petroleum operations in Block 4. Addax is entitled to 100% of ERHC’s share of oil production until Addax recovers ERHC’s costs.


Pursuant to an Amendment to the Participation Agreement dated February 23, 2006, ERHC and Addax amended the Participation Agreement so that the Assigned Interest to Addax would be changed to 33.3% while ERHC’s Retained Interest would remain at 17.7%. By a second Amendment to the Participation Agreement, entered into on March 14, 2006, ERHC and Addax further amended the Participation Agreement so that the “Assigned Interest” would be 33.3% and ERHC’s “participating interest” would be 26.7%.

On March 15, 2006, an agreement to assign 9% in Block 4 from ERHC to Godsonic was entered into between ERHC/Addax and Godsonic subject to Godsonic meeting stipulated financial and other conditions. Pursuant to a third Amendment to the Participation Agreement entered into on April 11, 2006, ERHC and Addax provisionally agreed that if Godsonic did not meet the financial and other conditions as stipulated in the Letter Agreement on the 9% interest to be transferred to Godsonic and was foreclosed from all claims to the 9% interest, ERHC would transfer 7.2% out of the 9% interest to Addax so that Addax’s participating interest would be 40.5% in aggregate and ERHC’s participating interest would be 19.5% in aggregate.

In July 2007, ERHC acted on behalf of the ERHC/Addax consortium in JDZ Block 4 to reclaim Godsonic’s 9% share because Godsonic failed to meet certain obligations. Addax claims entitlement under the existing agreements to 7.2% out of the recovered 9%, leaving 1.8% remaining with ERHC.  If finalized, this would increase ERHC’s share of JDZ Block 4 from 17.7% to 19.5%. ERHC and Addax are currently in arbitration, under amicable conditions, to resolve whether or not additional consideration is due to ERHC from Addax for the 7.2% claim by Addax under the terms of the existing agreements. The parties are also exploring mediation as an alternative to seeing arbitration to conclusion.
 
In February 2006, ERHC sold a 15% participating interest in Block 3 of the JDZ to Addax Petroleum Resources Nigeria Limited ("Addax Sub") leaving a 10% participating interest in Block 3 to ERHC. In exchange, Addax Sub paid ERHC $7.5 million in the second quarter of fiscal 2006. Under the participation agreement between ERHC and Addax Sub, Addax Sub agreed to pay all of ERHC's future costs in respect of petroleum operations in Block 3. Addax Sub is entitled to 100% of ERHC’s allocation of cost plus up to 50% of ERHC’s allocation of profit until Addax Sub recovers 100% of ERHC's costs.

In March 2006, ERHC sold a 28.67% participating interest in Block 2 of the JDZ to Sinopec International Petroleum Exploration and Production Corporation Nigeria ("Sinopec"), and a 14.33% participating interest in Block 2 of the JDZ to Addax Energy Nigeria Limited ("Addax Ltd.") leaving a 22% participating interest in Block 2 to the Company. In exchange, Sinopec paid ERHC $13.6 million and Addax Ltd. paid ERHC $6.8 million in the second quarter of fiscal 2006. Under the participation agreement among ERHC, Sinopec and Addax Ltd., Sinopec will serve as operator, and Sinopec and Addax Ltd. will pay all of ERHC's future costs in respect of petroleum operations in Block 2. Sinopec and Addax Ltd. are entitled to 100% of ERHC's allocation of cost plus up to 50% of ERHC’s allocation of profit until they recover 100% of ERHC's costs and Sinopec is to receive 6% interest on its future costs, up to $35 million, but only to the extent that those interest costs are covered by production.

Related to the sale of the participating interest in Block 2 to Sinopec, ERHC agreed to pay a $3 million cash success fee ($1.5 million was paid in March 2006 and the remaining $1.5 million was paid in March 2007) to Feltang International Inc., a British Virgin Island company (“Feltang”) that was responsible to ERHC for obtaining Sinopec’s participation in Block 2. ERHC also will issue to Feltang 5,250,000 shares of common stock and warrants to purchase 6,500,000 shares at a fixed exercise price of $0.355 per share. The common stock was valued at $4,803,750 based on the quoted market value of the common stock on the date Sinopec signed the production sharing agreement.

Our business strategy is to enter into agreements to exploit the Company’s interests in Blocks 5, 6 and 9 also.  Additionally, the Company intends to exploit its rights in the EEZ.


The following chart  represents ERHC’s current rights in the JDZ blocks.
 
JDZ Block #
ERHC
Original
Participating
Interest (1)
ERHC
Joint Bid
Participating
Interest
Participating
Interest(s) Sold
Current ERHC
Retained
Participating
Interest
 
 
 
 
 
2
30%
35%
43% (2)
22%
3
20%
5%
15% (3)
10%
4
25%
35%
33.3% (4)
26.7%  (6)
5
15%
(5)
(5)
(5)
6
15%
(5)
(5)
(5)
9
20%
(5)
(5)
(5)

(1)
Original Participating Interest granted pursuant to the Option Agreement, dated April 2, 2003, between DRSTP and ERHC (the “2003 Option Agreement”).
(2)
In March 2006, ERHC sold an aggregate 28.67% participating interest to Sinopec and an aggregate 14.33% participating interest to Addax Ltd.
(3)
In February 2006, ERHC sold a 15% participating interest to Addax Sub.
(4)
By a Participation Agreement made in November 2005 and subsequently amended, ERHC sold 33.3% participating interest to Addax.
(5)
No contracts have been entered into as of the date hereof.
(6)
Includes the 9% reclaimed from Godsonic by ERHC on behalf of the ERHC/Addax consortium following Godsonic's inability to fulfill financial and other conditions upon which the 9% was to have been assigned to Godsonic. Pursuant to the Amendment to the Participation Agreement made on April 11, 2006, the 9% is subject to distribution between Addax (7.2%) and ERHC (1.8%), if agreement is reached between the parties on the amount payable by Addax to ERHC for said interest.

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, the Company is unable to predict the future cost or impact of complying with such laws and regulations. However, the Company does not expect that any of these laws and regulations will affect its operations in a manner materially different 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. ERHC competes 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 the Company’s 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 the Company may seek new entry. As a consequence, ERHC may be at a competitive disadvantage in bidding for drilling rights. In addition, many of the Company’s 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

As of September 30, 2007, the Company had five (5) full-time employees and a consultant who serves as the Corporate Secretary.

Availability of Information

We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1934. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.

We also make available, free of charge on or through our Internet website (http://www.erhc.com), our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Item 1A.  Risk Factors

You should carefully consider the risks described below before making any investment decision related to the Company’s securities.  The risks and uncertainties described below are not the only ones facing the Company.   Additional risks and uncertainties not presently known or that the Company currently deems immaterial also may impair its business operations.  If any of the following risks actually occur, the Company’s business could be 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 operating revenue since its entry into the oil and gas business and has incurred significant operating losses.  The Company has incurred net operating losses of $4,976,765 in fiscal 2007 and $43,118,918 since inception.  The Company had net losses of $1,756,904 in fiscal 2007. 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, and $57,993,079 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 the Company’s venture partners to provide or obtain sufficient financing to meet their financial commitments in the production sharing contracts, (2) the ability to discover commercial quantities of oil and gas, and (3) the market price for oil and gas. Management cannot predict 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;

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

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 primary 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 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 Business Interests Are Located Outside of the United States Which Subjects It to Risks Associated with International Activities.

At September 30, 2007, the Company’s major assets were located outside the United States.  Apart from cash maintained in United States’ financial institutions, the Company’s primary assets are agreements with DRSTP and the JDA, which provide the Company 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 this area pursuant to such agreements may be adversely impacted by this circumstance.


The future success of the Company’s international operations may also be adversely affected by risks associated with international activities, including economic and labor conditions, political instability, risk of war, expropriation, termination, renegotiation or modification of existing contracts, tax laws (including host-country import-export, excise and income taxes and United States taxes on  foreign  subsidiaries)  and  changes  in the value of the U.S. dollar versus the local currencies in which future oil and gas producing activities may be  denominated.  Changes in exchange rates may also adversely affect the Company’s future results of operations and financial condition.

In addition, to the extent the Company engages in operations and activities outside the United States, it is subject to the Foreign Corrupt Practices Act (the “FCPA”) which, among other restrictions, prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect their financial and other transactions with foreign officials.  The FCPA applies to companies, individual directors, officers, employees and agents.  The FCPA also applies to foreign companies and persons taking any act in furtherance of such corrupt payments while in the United States.  Under the FCPA, U.S. companies may also be held liable for actions taken by strategic or local partners or representatives.

The FCPA imposes civil and criminal penalties for violations of its provisions.  Civil penalties may include fines of up to $500,000 per violation, and equitable remedies such as disgorgement of profits causally connected to the violation (including prejudgment interest on such profits) and injunctive relief.  Criminal penalties for violations of the corrupt payments provisions could range up to the greater of $2 million per violation or twice the gross pecuniary gain sought by making the payment, and/or incarceration for up to 5 years per violation.  Moreover, if a director, officer or employee of a company is found to have willfully violated the FCPA books and records provisions, the maximum penalty would be imprisonment for 20 years per violation.  Maximum fines of up to $25 million also may be imposed for willful violations of the books and records provisions by a company.

The SEC and/or the Department of Justice (“DOJ”) could assert that there have been multiple violations of the FCPA, which could lead to multiple fines.  The amount of any fines or monetary penalties which could be assessed would depend on, among other factors, findings regarding the amount, timing, nature and scope of any improper payments, whether any such payments were authorized by or made with knowledge of ERHC or its affiliates, the amount of gross pecuniary gain or loss involved, and the level of cooperation provided to the government authorities during the investigations.  Negotiated dispositions of these types of violations also frequently result in an acknowledgement of wrongdoing by the entity and the appointment of a monitor on terms agreed upon with the SEC and DOJ to review and monitor current and future business practices, including the retention of agents, with the goal of assuring future FCPA compliance.  Other potential consequences could be significant and include suspension or debarment of ERHC’s ability to contract with governmental agencies of the United States and of foreign countries.  Any determination that ERHC has violated the FCPA could result in sanctions that could have a material adverse effect on the Company’s business, prospects, operations, financial condition and cash flow.

The Company is under investigation by the SEC, the DOJ and a U.S. Senate Subcommittee, and the results of these investigations could have a material adverse effect on its business, prospects, operations, financial condition and cash flow.
 
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 ERHC seeking various records including, among others, documents, if any, related to correspondence with foreign governmental officials or entities in São Tomé and Nigeria.  The search warrant cited, among other things, possible violations of the FCPA, Section 10(b) of the Exchange Act, Rule 10b-5 under the Exchange Act and criminal conspiracy and wire fraud statutes.  ERHC filed suit in federal district court in Texas in June 2006 seeking to protect the Company’s attorney-client privileged documents and to allow its counsel to determine the factual basis for the DOJ’s search warrant affidavit, which is currently under seal.

A related SEC subpoena was issued on May 9, 2006, and a second related subpoena issued on August 29, 2006.  The subpoenas request from ERHC a range of documents including all documents related to correspondence with foreign governmental officials or entities in Sao Tome and Nigeria, personnel records (specifically, those regarding the Company’s former Chief Financial Officer, Franklin Ihekwoaba) and other corporate records.  The Company has been actively responding to both subpoenas.  


On July 5, 2007, the U.S. Senate Committee on Homeland Security and Governmental Affairs’ Permanent Subcommittee on Investigations served ERHC with a subpoena, in connection with its review of matters relating to the potential abuse of payments made to foreign governments. The subpoena, as amended on July 18, 2007, seeks documents and information regarding ERHC’s activities, particularly those related to the acquisition of ERHC’s interests in the Gulf of Guinea.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, are assisting ERHC in responding to the subpoena.   Please see “Legal Proceedings” for more information.

The investigations by the DOJ, SEC and Senate Subcommittee are continuing.  The Company anticipates that these investigations will be lengthy and do not expect these investigations to be concluded in the immediate future.  If violations are found, the Company may be subject to criminal, civil and/or administrative sanctions, including substantial fines, and the resolution or disposition of these matters could have a material adverse effect on its business, prospects, operations, financial condition and cash flow.

These investigations could also result in:

 
·
third party claims against us, which may include claims for special, indirect, derivative or consequential damages;
 
·
damage to our business, operations and reputation;
 
·
loss of, or adverse effect on, cash flow, assets, goodwill, operations and financial condition, business, prospects, profits or business value;
 
·
adverse consequences on our ability to obtain or continue financing for current or future projects; and/or
 
·
claims by directors, officers, employees, affiliates, advisors, attorneys, agents, debt holders or other interest holders or constituents of ERHC.

Continuing negative publicity arising out of these investigations could also adversely affect our business and prospects in the commercial marketplace.  In addition, these investigations have resulted in increased expenses to ERHC, including substantial legal fees and the diversion of management’s attention from its operations and other activities.  If the Company  incurs costs or losses as a result of these matters, it may not have the liquidity or funds to address those costs or losses, in which case such costs or losses could have a material adverse effect on its business, prospects, operations, financial condition and cash flow.

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.

The Company is currently under examination by the Internal Revenue Service

The Internal Revenue Service is currently examining the tax returns for the Company’s 2005 and 2006 tax years.  The Company anticipates that this examination should conclude in the next few months.  If adjustments are found, the Company may be subject to taxes, penalties and interest and these could have a material adverse effect on its operations, financial condition and cash flow.

Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

Substantially all of the Company’s properties are in the form of working interest.  Today, ERHC has interests in Blocks 2, 3, 4, 5, 6, and 9 in the offshore Joint Development Zone (JDZ) of Nigeria and the island nation of Sao Tome and Principe.  ERHC has additional interests in the territorial waters of Sao Tome and Principe, known as the Exclusive Economic Zone (EEZ).
 
Joint Development Zone
 
 ERHC has interests in six of the nine Blocks in the Joint Development Zone (JDZ), a 34,548 sq km area approximately 200 km off the coastline of Nigeria and Sao Tome and  Principe that is adjacent to several large petroleum discovery areas. ERHC's rights in the JDZ include:  
 
 
·
JDZ Block 2:  22.0%
 
·
JDZ Block 3:  10.0%
 
·
JDZ Block 4:  26.7%
 
·
JDZ Block 5:  15.0%
 
·
JDZ Block 6:  15.0%
 
·
JDZ Block 9:  20.0%
 
Sao Tome and  Exclusive Economic Zone
 
The government of Sao Tome and Principe awarded ERHC rights to participate in exploration and production activities in Sao Tome and Principe’s Exclusive Economic Zone (EEZ). ERHC’s rights include the following:
 
 
 
·
The right to receive up to two blocks of ERHC’s choice; and
 
·
The option to acquire up to a 15% paid working interest in another two blocks of ERHC’s choice.
 
ERHC would be responsible for its proportionate share of exploration and exploitation costs in the EEZ blocks.

The EEZ describes territorial waters of Sao Tome that encompasses an area of approximately 160,000 square km. It is measured from claimed archipelagic baselines — territorial sea: 12 nautical miles, exclusive economic zone: 200 nautical miles. It is the largest in the Gulf of Guinea. 

The Company’s corporate office is located at 5444 Westheimer Road, Suite 1440, Houston, Texas 77056 pursuant to a lease that expires in December 2011.

Item 3.  Legal Proceedings

Subpoenas.  On May 4, 2006, a Federal court search warrant initiated by DOJ was executed on the Company.  The DOJ sought various records including, among other matters, documents, if any, related to correspondence with foreign governmental officials or entities in Sao Tome and Nigeria.  Related SEC subpoenas issued on May 9, 2006 and August 29, 2006 also requested a range of documents. ERHC continues to interface with both the DOJ and SEC investigators to respond to the SEC subpoenas and any additional requests for information from the DOJ or SEC.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, are assisting ERHC in responding to the subpoena

On July 5, 2007, the U.S. Senate Committee on Homeland Security and Governmental Affairs’ Permanent Subcommittee on Investigations served ERHC with a subpoena in connection with its review of matters relating to the potential abuse of payments made to foreign governments. The subpoena, as amended on July 18, 2007, seeks documents and information regarding ERHC’s activities, particularly those related to the acquisition of ERHC’s interests in the Gulf of Guinea.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, are assisting ERHC in responding to the subpoena.

Godsonic Negotiations.  In July 2007, ERHC and Godsonic commenced negotiations to have Godsonic relinquish all of its claims to a 9% interest in Block 4.  The parties reached a settlement in August 2007 which resulted in Godsonic’s relinquishment of all claims to the 9% interest in Block 4.

ERHC/Addax Arbitration.  Addax, our consortium partner in JDZ Block 4, claims entitlement under our existing agreements to 7.2% out of the recovered 9% interest in Block 4, leaving 1.8% remaining with ERHC.  ERHC disputes the consideration that Addax should pay to ERHC for the 7.2%.  If Addax’s claims are successful, ERHC’s share of JDZ Block 4 will increase from 17.7% to 19.5% and Addax’s share of the JDZ Block 4 will increase from 33.3% to 40.5% for no additional consideration paid to ERHC.  ERHC and Addax are currently in arbitration to resolve the issue.  The parties are also exploring mediation as a potential alternative.

Lakeshore Arbitration.  In October 2006, Lakeshore Capital Limited (“Lakeshore”) filed an arbitration claim against ERHC seeking $4,400,000 for the alleged value of 4,500,000 shares of ERHC common stock and for a warrant to purchase an additional 1,500,000 shares of common stock at an exercise price of $.20 per share, including interest and costs, as compensation for financial consultancy and related services rendered under a contract with ERHC dated May 20, 2002.  The claim was resolved in mediation conducted by the American Arbitration Association by the payment by ERHC of $250,000 to Lakeshore.  Pursuant to the Settlement Agreement dated May 16, 2007, the arbitration was discontinued with prejudice.

From time to time, ERHC may be subject to routine litigation, claims, or disputes in the ordinary course of business.  In the opinion of management, no pending or known threatened claims, actions or proceedings against the Company are expected to have a material adverse effect on ERHC’s consolidated financial position, results of operations or cash flows.  ERHC intends to defend these matters vigorously; the Company cannot predict with certainty, however, the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims.  There can be no assurance as to the ultimate outcome of these lawsuits and investigations.

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

None.


PART II

Item 5.  Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market and Related Information

ERHC’s common stock is currently traded on the OTC Bulletin Board under the symbol “ERHE.”  The market for the Company’s common stock is 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 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
 
                 
Fiscal Year 2007
               
First Quarter
  $
0.51
    $
0.31
 
Second Quarter
  $
0.48
    $
0.33
 
Third Quarter
  $
0.42
    $
0.24
 
Fourth Quarter
  $
0.34
    $
0.20
 

As of November 30, 2007, there were approximately 2,243 stockholders of record.  The closing price of the common stock as reported on the OTC Bulletin Board on November 30, 2007 was $0.23.  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.

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, 7,576,756 shares have been issued.
                   
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
   
1,000,000
    $
0.43
     
11,423,244
 
Equity compensation plans not approved by security holders
   
-
     
-
     
-
 

Recent Sales of Unregistered Securities

The Company has sold the following unregistered securities:


 
·
During the second fiscal quarter of 2007, warrants issued in 2003, with an exercise price of $0.20, were exercised on a cashless basis, which exercise resulted in the issuance of an aggregate of 2,949,587 shares of common stock.
 
·
During the fourth fiscal quarter of 2007, there were an aggregate of 300,000 shares of common stock due to the Company’s directors for services rendered as more fully disclosed in Item 10, Directors and Executive Officers of the Registrant.

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.

Issuer Purchases of Equity Securities

The Company has not repurchased any of its Common Stock.

Item 6. Selected Financial Data

The selected financial data of the Company presented below as of and for each of the five years in the period ended September 30, 2007, has been derived from the audited financial statements of the Company.  The financial statements as of and for the years ended September 30, 2007, 2006 and 2005 have been audited by Malone & Bailey, PC, an independent registered public accounting firm.  The financial statements as of and for the years ended September 30, 2003 and 2004 were audited by another 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
 
2007
   
2006
   
2005
   
2004
   
2003
 
                               
Operating expenses
  $
4,976,765
    $ (24,113,494 )   $
4,652,459
    $
2,085,426
    $
1,944,655
 
Interest expense
    (1,843 )     (2,099 )     (1,147,248 )     (1,671,759 )     (1,209227 )
Other Income (expense)
   
1,498,704
     
1,123,141
     
278,804
     
163,797
     
-
 
Loss on extinguishment of debt
   
-
     
-
      (5,749,575 )    
-
     
-
 
Provision for taxes
    (1,723,000 )    
2,063,000
     
-
     
-
     
-
 
Net income (loss)
    (1,756,904 )    
23,171,536
      (11,270,478 )     (3,593,388 )     (3153882 )
Net income (loss) per share – basic and diluted
   
0.00
     
0.03
      (0.02 )     (0.01 )     (0.01 )
Weighted average shares of common stock outstanding
   
720,966,165
     
712,063,980
     
671,164,058
     
592,603,441
     
567,788,483
 
                                         
   
As of September 30,
 
Balance Sheets Data
 
2007
   
2006
   
2005
   
2004
   
2003
 
                                         
DRSTP Concession fee
  $
2,839,500
    $
2,839,500
    $
5,679,000
    $
5,679,000
    $
5,679,000
 
Total assets
   
39,854,641
     
45,878,249
     
6,720,210
     
5,728,556
     
5,735,744
 
Total liabilities
   
5,947,982
     
10,390,126
     
2,799,011
     
14,757,208
     
16,283,506
 
Shareholders' equity (deficit)
   
33,906,659 
     
35,488,123
     
3,941,199
      (9,028,652 )     (10,547,762 )


Item 7.  Management’s Discussion and Analysis of Financial Condition and Plan of Operations

Introduction
 
The following discussion and analysis presents management’s perspective of our business, financial condition and overall performance. This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future. You must read the following discussion of the results of the operations and financial condition of the Company in conjunction with its financial statements, including the notes thereto included in this Form 10-K filing.  The Company’s historical results are not necessarily an indication of trends in operating results for any future period.

Reference is made to “Item 6. Selected Financial Data” and “Item 8. Financial Statements and Supplementary Data.” 

Overview of Business

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 incorporated 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 primary 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 to assist the Company in exploring its assets in the JDZ.  The technical and operation expertise in conducting exploration operations will be provided by participating in the Company’s interest oil and gas companies.  The Company is also exploring opportunities in other areas of the energy industry

State of Participation Interests

The following represents ERHC’s current rights in the JDZ blocks.
 
JDZ Block #
ERHC
Original
Participating
Interest (1)
ERHC
Joint Bid
Participating
Interest
Participating
Interest(s) Sold
Current ERHC
Retained
Participating
Interest
 
 
 
 
 
2
30%
35%
43% (2)
22%
3
20%
5%
15% (3)
10%
4
25%
35%
33.3% (4)
26.7%  (6)
5
15%
(5)
(5)
(5)
6
15%
(5)
(5)
(5)
9
20%
(5)
(5)
(5)

(1)
Original Participating Interest granted pursuant to the Option Agreement, dated April 2, 2003, between DRSTP and ERHC (the “2003 Option Agreement”).
(2)
In March 2006, ERHC sold an aggregate 28.67% participating interest to Sinopec and an aggregate 14.33% participating interest to Addax Ltd.
(3)
In February 2006, ERHC sold a 15% participating interest to Addax Sub.
(4)
By a Participation Agreement made in November 2005 and subsequently amended, ERHC sold 33.3% participating interest to Addax.
(5)
No contracts have been entered into as of the date hereof.
(6)
Includes the 9% reclaimed from Godsonic by ERHC on behalf of the ERHC/Addax consortium following Godsonic's inability to fulfill financial and other conditions upon which the 9% was to have been assigned to Godsonic. Pursuant to the Amendment to the Participation Agreement made on April 11, 2006, the 9% is subject to distribution between Addax (7.2%) and ERHC (1.8%), if agreement is reached between the parties on the amount payable by Addax to ERHC for said interest.


Critical Accounting Policies

The Company has identified the policies below as critical to its business operations and the understanding of its results of operations.  The impact and any associated risks related to these policies on the Company’s business operations are discussed throughout this section where such policies affect the Company’s reported and expected financial results.  Management’s preparation of this Annual Report on Form 10-K requires it to make estimates and assumptions that affect the reported amount of assets and liabilities, and 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’s current focus is to exploit assets consisting of 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.

Asset Retirement Obligation

ERHC’s asset retirement obligation relates to the plugging and abandonment of certain oil and gas properties in Wichita Falls, Texas. The provisions of SFAS No. 143 require the fair value of a liability for an asset retirement obligation to be recorded and a corresponding increase in the carrying amount of the associated asset.  The cost of the tangible asset, including the initially recognized asset retirement cost is depleted over the useful life of the asset.  If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded to the retirement obligation and the asset retirement cost. The offsetting ARO liability is recorded at fair value, and accretion expense recognized as the discounted liability is accreted to its expected settlement value.  The fair value of the ARO asset and liability is measured using expected future cash out flows discounted at the Company’s credit adjusted risk free interest rate. These oil and gas properties were abandoned and written off during the year ended September 30, 1999 and the current liability is fully accreted and represents management’s best estimate of the fair value of the outstanding obligation.

Impairment of Long-lived Assets

ERHC evaluates the recoverability of long-lived assets when events and circumstances indicate that such assets might be impaired.  ERHC determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts.  Impairments are charged to operations in the period to which events and circumstances indicate that such assets might be impaired.  ERHC has evaluated its investment in its DRSTP concession fee in light of its 2003 Option Agreement (see Note 4) and there have been no events or circumstances that would indicate that such asset might be impaired.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for us beginning the first quarter of fiscal 2008. The Company is currently assessing the potential impact that adoption of SFAS No. 157 would have on its 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 is currently assessing the potential impact that adoption of FIN No. 48 would have on its financial statements.


Former Operations - Asset Retirement Obligation

The Company has accrued $485,000 as a liability on the balance sheet relating to the estimated costs on plugging and abandonment of certain oil and gas properties in Wichita Falls, Texas.  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.  The Company uses SFAS No. 143 to account for this obligation.  These properties were abandoned and written off during the year ended September 30, 1999 and the Company believes the current liability is fully accreted and represents management’s best estimate of the fair value of the outstanding obligation.

Management reviews this accrual quarterly for any adjustments necessary.  There has been no activity related to this liability in several years, however, management believes that the accrual is appropriate and conservative at this time.

Results of Operations

Year ended September 30, 2007 Compared to Year Ended September 30, 2006

During fiscal 2007, the Company had general and administrative expenses of $4,954,848 compared with $5,979,609 in fiscal 2006.  The decrease results primarily from the grant of stock warrants for our outside consultants valued at $1,145,000 in fiscal 2006 versus employee compensatory stock option expense of $175,440 in fiscal 2007.

During 2007, the Company had a net loss of $1,756,904, compared to a net income of $23,171,536 for fiscal 2006.  The primary reason for the $24,928,440 decrease in net income for the year ended September 30, 2007 was due to a $30,102,250 net gain in fiscal 2006 from the sale of participation interests in the three JDZ Blocks under production sharing contracts with various joint venture partners.

During fiscal 2007 and 2006, the Company had no revenues from which cash flows could be generated to support operations.  In fiscal 2007 and 2006, the Company relied primarily upon cash generated from the 2006 sale of interests to fund 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.

Liquidity and Capital Resources

As of September 30, 2007, the Company had working capital of $31,002,664.  The Company believes that it has sufficient liquidity to meet working capital requirements for fiscal 2008.  The Company has no material commitments for capital resources.


Off-Balance Sheet Arrangements

As of September 30, 2007, the Company does not have any off-balance sheet arrangements.

Contractual Obligations and Commercial Commitments

The following table provides information at September 30, 2007, about the Company’s contractual obligations and commercial commitments.  The table presents contractual obligation by due dates and related contractual commitments by expiration dates.


Contractual Obligations
 
Total
   
Less than
1 year
   
1 - 3 Years
   
3 - 5 Years
   
More than
5 Years
 
                               
Convertible debt (1)
  $
33,513
    $
33,513
    $
-
    $
-
    $
-
 
Operating lease   (2)
   
454,920
     
107,040
     
321,120
     
26,760
     
-
 
                                         
Total
  $
488,433
    $
140,553
    $
321,120
    $
26,760
    $
-
 

(1) 
This represents a convertible note to Joseph Charles and Associates, for which the Company has been unable to locate the payee.
 
(2) 
Lease obligations consist of operating lease for office space. Office lease represent non-cancelable leases for office space used in our daily operations.

Contingencies and Legal Matters
 
For a detailed discussion of contingencies and legal matters, see “Item 3. Legal Proceedings”.
 
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

The Company’s current focus is to exploit its primary assets, which are rights to working interest in the JDZ and EEZ under agreements with the JDA and DRSTP.  The Company intends to continue 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, 2007, all of the Company's operations were located outside the United States.  The Company’s primary 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 does it engage in any foreign currency denominated transactions.


Item 8.  Financial Statements and Supplementary Data

ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
   
 
Page(s)
   
Reports of Independent Public Accounting Firm:
 
   
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting as of September 30, 2007
21
   
Report of Independent Registered Public Accounting Firm on the Financial Statements for the Years ended September 30, 2007 and 2006
22
   
Consolidated Financial Statements:
 
   
Consolidated Balance Sheets as of September 30, 2007 and 2006
23
   
Consolidated Statements of Operations for the Years Ended September 30, 2007, 2006 and 2005, and for the period from inception, September 5, 1995, to September 30, 2007
24
   
Consolidated Statements of Shareholders' Equity (Deficit) for the period from inception, September 5, 1995, to September 30, 2007
25
   
Consolidated Statements of Cash Flows for the Years Ended September 30, 2007, 2006 and 2005, and for the period from inception, September 5, 1995, to September 30, 2007
36
   
Notes to Consolidated Financial Statements
38
   
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 the internal control of ERHC Energy Inc. over its financial reporting as of September 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’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, included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered 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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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, ERHC Energy Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of ERHC Energy Inc. as of September 30, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity and cash flows for the three years then ended, and our reports dated December 7, 2007 expressed an unqualified opinion on those consolidated financial statements.
 

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

December 7, 2007


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, 2007 and 2006 and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for the three years then ended.  These financial statements are the responsibility of ERHC’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our 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, 2007 and 2006, and the results of its operations and its cash flows for the three 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, 2007, 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 December 7, 2007 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

December 7, 2007


ERHC ENERGY INC.
 
A CORPORATION IN THE DEVELOPMENT STAGE
 
CONSOLIDATED BALANCE SHEETS
 
September 30, 2007 and 2006
 
             
   
2007
   
2006
 
             
ASSETS
           
Current assets:
           
Cash
  $
34,721,933
    $
40,991,114
 
Prepaid expenses and other current assets
   
179,955
     
1,073,031
 
Income tax refundable
   
1,568,758
     
-
 
Deferred tax asset – current
   
480,000
     
480,000
 
                 
Total current assets
   
36,950,646
     
42,544,145
 
                 
DRSTP concession fee
   
2,839,500
     
2,839,500
 
Furniture and equipment, net
   
64,495
     
14,604
 
Deferred tax asset
   
-
     
480,000
 
                 
Total assets
  $
39,854,641
    $
45,878,249
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Current Liabilities:
               
Accounts payable and accrued liabilities
  $
5,183,979
    $
6,784,004
 
Accounts payable and accrued liabilities, related parties
   
238,614
     
69,439
 
Accrued interest
   
6,876
     
5,023
 
Federal income taxes payable
   
-
     
3,013,147
 
Asset retirement obligation
   
485,000
     
485,000
 
Convertible debt
   
33,513
     
33,513
 
                 
Total current liabilities
   
5,947,982
     
10,390,126
 
                 
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 721,938,550 and 718,988,982 at September 30, 2007 and 2006, respectively
   
72,193
     
71,899
 
Additional paid-in capital
   
91,827,545
     
91,652,399
 
Deficits accumulated in the development stage
    (57,993,079 )     (56,236,175 )
                 
Total shareholders’ equity
   
33,906,659
     
35,488,123
 
                 
Total liabilities and shareholders' equity
  $
39,854,641
    $
45,878,249
 


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, 2005, 2006 and 2007 and for the Period from Inception,
 
September 5, 1995, to September 30, 2007
 
                         
                     
Inception to
 
                     
September 30,
 
   
2005
   
2006
   
2007
   
2007
 
                     
(Unaudited)
 
Operating costs and expenses:
                       
General and administrative Expenses
  $
4,645,783
    $
5,979,609
    $
4,954,848
    $
64,093,110
 
Depreciation, depletion and amortization
   
6,676
     
9,147
     
21,917
     
1,385,930
 
Gain from sale of partial interest in DRSTP Concession
   
-
      (30,102,250 )    
-
      (30,102,250 )
Write-offs and abandonments
   
-
     
-
     
-
     
7,742,128
 
                                 
(Loss) gain from operations
    (4,652,459 )    
24,113,494
      (4,976,765 )     (43,118,918 )
                                 
Other income and (expenses):
                               
Interest income
   
26,494
     
1,123,141
     
1,998,704
     
3,148,339
 
Gain (loss) from settlements
   
252,310
     
-
      (500,000 )     (247,690 )
Other income
   
-
     
-
     
-
     
439,827
 
Interest expense
    (1,147,248 )     (2,099 )     (1,843 )     (12,125,062 )
Loss on extinguishment of debt
    (5,749,575 )    
-
     
-
      (5,749,575 )
                                 
Total other income and expenses, net
    (6,618,019 )    
1,121,042
     
1,496,861
      (14,534,161 )
                                 
Income (loss) before benefit (provision) for income taxes
    (11,270,478 )    
25,234,536
      (3,479,904 )     (57,653,079 )
                                 
Benefit (provision) for income taxes
                               
Current
   
-
      (3,023,000 )    
1,243,000
      (1,780,000 )
Deferred
   
-
     
960,000
     
480,000
     
1,440,000
 
                                 
Total benefit (provision) for income taxes
   
-
      (2,063,000 )    
1,723,000
      (340,000 )
                                 
Net income (loss)
  $ (11,270,478 )   $
23,171,536
    $ (1,756,904 )   $ (57,993,079 )
                                 
Net income (loss) per common shares Basic and diluted
  $ (0.02 )   $
0.03
    $
0.00
         
                                 
                                 
Weighted average number of common shares outstanding -
                               
Basic
   
671,164,058
     
712,063,980
     
720,966,165
         
Diluted
   
671,164,058
     
717,410,403
     
720,966,165
         

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, 2007, (Unaudited for the Period from Inception to September 30, 1998)
 
                                           
               
Additional
                         
 
Common Stock
         
Paid-In
   
Accumulated
   
Subscription
   
Deferred
       
 
Shares
   
Amount
   
Capital
   
Deficit
   
Receivable
   
Compensation
   
Total
 
                                           
Balance at September 5, 1995
   
-
    $
-
    $
-
    $
-
    $
-
    $
-
    $
-
 
                                                         
Common stock issued for cash
   
884,407
     
88
     
-
     
-
     
-
     
-
     
88
 
                                                         
Common stock issued for Services
   
755,043
     
76
     
499,924
     
-
     
-
      (500,000 )    
-
 
Net loss
   
-
     
-
     
-
      (3,404 )    
-
     
-
      (3,404 )
Balance at September 30, 1995
   
1,639,450
     
164
     
499,924
      (3,404 )    
-
      (500,000 )     (3,316 )
                                                         
Common stock issued for cash, net of expenses
   
361,330
     
36
     
124,851
     
-
     
-
     
-
     
124,887
 
Common stock issued for
                                                       
Services
   
138,277
     
14
     
528,263
     
-
     
-
     
-
     
528,277
 
Common stock issued for Equipment
   
744,000
     
74
     
3,719,926
     
-
     
-
     
-
     
3,720,000
 
Effect of reverse merger
   
1,578,470
     
158
      (243,488 )    
-
     
-
     
-
      (243,330 )
Amortization of deferred compensation
   
-
     
-
     
-
     
-
     
-
     
72,500
     
72,500
 
Net loss
   
-
     
-
     
-
      (728,748 )    
-
     
-
      (728,748 )
                                                         
Balance at September 30, 1996
   
4,461,527
    $
446
    $
4,629,476
    $ (732,152 )   $
-
    $ (427,500 )   $
3,470,270
 

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, 2007, (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, 2007, (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, 2007, (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
     
-
     
-
     
-
     
4,725,000
 
Common stock issued for  shareholder loans and accrued interest payable
   
3,939,505
     
394
     
771,318
     
-
     
-
     
-
     
771,712
 
Reclassification of common stock previously presented as a liability
   
750,000
     
75
     
1,499,925
     
-
     
-
     
-
     
1,500,000
 
Amortization of deferred compensation
   
-
     
-
     
-
     
-
     
-
     
125,000
     
125,000
 
Net loss
   
-
     
-
     
-
      (19,727,835 )    
-
     
-
      (19,727,835 )
                                                         
Balance at September 30, 1999
   
489,071,978
    $
48,907
    $
43,306,852
    $ (48,952,063 )   $
-
    $
-
    $ (5,596,304 )

The accompanying notes are an integral part of these 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, 2007, (Unaudited for the Period from Inception to September 30, 1998)
 
                                           
               
Additional
                         
 
Common Stock
         
Paid-In
   
Accumulated
   
Subscription
   
Deferred
       
 
Shares
   
Amount
   
Capital
   
Deficit
   
Receivable
   
Compensation
   
Total
 
                                           
Balance at September 30, 1999
   
489,071,978
    $
48,907
    $
43,306,852
    $ (48,952,063 )   $
-
    $
-
    $ (5,596,304 )
                                                         
Common stock issued for con -version of debt and payment of accrued interest and penalties
   
7,607,092
     
761
     
295,120
     
-
     
-
     
-
     
295,881
 
Net loss
   
-
     
-
     
-
      (1,958,880 )    
-
     
-
      (1,958,880 )
                                                         
Balance at September 30, 2000
   
496,679,070
     
49,668
     
43,601,972